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Click here to listen to my Goofy Award for Apr 21st, 2012

You know of course its now Presidential Season down in the United States and one of the themes that’s carried through is the “Tax the Rich” scheme that was put forward by the Occupy Wall Street movement. My question is always “was always is there any room for research”? In this case I think it was again “no” which resulted in an embarrassing moment for President Obama last week.

Obama wants to impose an effective minimum tax rate of 30% on incomes for anyone who makes more than a million. I might add its already 26% I’ll leave that aside. 

Obama said he was doing it to stabilize the debt and deficits over the next decade in the U.S.. Welllll…. unfortunately Obama’s own treasury department did the numbers and they determined that the rise in taxes would raise somewhere in the neighborhood of 5 billion dollars a year……or less than 1/2 of 1% of the projected 1.2 Trillion dollar deficit for this year. I mean its just not a big deal but here’s the killer. If they do that for 10 years Obama’s tax will raise 47 billion dollars but their deficit (not including unfunded liabilities!)  will be 45 Trillion dollars!  So for all the foo-far-aw and all of the political stuff and spin that you’re getting down there it literally hits their deficit by 1/10th of 1%. That’s all. And yet look at all of the talk that Obama’s move is going to be the thing, because the Key In Politics is to suggest that there are easy solutions and other people’s money will do it.

Well in this case Obama’s own Treasury Department really put the Kibosh on that one.

It was an embarrassing moment. 

 

What constitutes an affordable “green” light bulb? According to the U.S. Department of Energy, $50 per light bulb is our most promising future.

 

No Likely Market

The Department of Energy (DOE) has awarded a $10 million prize to Philips, a Dutch electronics company that is one of the leading manufacturers of light bulbs sold in the United States, for winning the “L Prize” for designing an affordable, energy-efficient light bulb “to replace the common light bulb.” 

Philips’s winning entry, which appears to be the only entry, was a light bulb that costs $50 apiece. By comparison, standard incandescent bulbs retail for approximately $1 per bulb. Retailers maintain the new bulb is too pricey to have broad market appeal, especially since similar LED bulbs are already available at less than half the cost.

Affordable Bulbs Banned

The origin of Philip’s $50 green light bulb goes back to 2007 when President George W. Bush signed energy legislation that effectively banned incandescent light bulbs by 2014. Starting this year, the law covers traditional 100-watt bulbs. Sales of traditional 75-watt incandescents will be prohibited next year, with 60-watt incandescents banned in the following year. 

Reward for Stifling Competition

Sam Kazman, general counsel for the Competitive Enterprise Institute, joins other analysts in characterizing the law as an unfair burden on consumers and a bold example of government interfering with consumer choice. He says the government’s $50 “affordable” green light bulb represents the height of nonsense. 

Consider these facts, says Kazman:

“(1) A $50 bulb gets a government award for affordable innovation. (2) Philips pockets the $10 million prize money as encouragement for serving a market created by the very light bulb ban for which Philips lobbied. (3) The administration touts non-incandescent technologies as being so good that they have to be forcibly imposed on consumers.

“When was the last time that we’ve been presented with such an array of political idiocies?” he asks.

New Health Risks

H. Sterling Burnett, a senior fellow at the National Center for Policy Analysis agrees, saying only the government could set up a program to develop an inexpensive green light bulb and then give a $10 million prize to a company that develops a light bulb costing $50 apiece. 

“It’s absolutely ridiculous and shameful,” said Burnett.

“Environmental activists decry putting mercury into the environment, whether it’s from smokestacks at coal-fired power plants or in thermometers and thermostats. Ironically, these are the same people that want us to put mercury-containing CFL’s in our homes,” said Burnett.

Another problem with CFL’s is they are very fragile and can easily break. 

“I’ve dropped traditional light bulbs before, and the glass is thin and fragile and it makes a mess when they hit the floor and it goes everywhere. Now imagine dropping a mercury-containing CFL. The EPA’s own Website says if you break one in your home, you need to shut off your air conditioner or heater and vent the room for 15 to 30 minutes before you even begin cleaning. This can be a problem if you live in Texas and it’s summer or Minnesota and its winter,” said Burnett. 

“The list of required cleanup precautions is quite extensive.… In short, if you break a CFL in your living room, you’ve turned it into a short-term Superfund site,” says Burnett.

Rising Energy Costs

Seton Motley, president of Less Government and editor-in-chief of StopNetRegulation.org, says the Obama administration’s $50 affordable green light bulb is symptomatic of a president that thinks nothing of interfering with every aspect of the economy, including something as utilitarian as light bulbs. 

“By the Obama administration’s standards, $50 is an affordable, award-winning light bulb. This is the administration that makes everything more expensive, including gasoline. Remember when he said, ‘Under my administration, energy prices will necessarily skyrocket.’ And gasoline prices have more than doubled during his tenure,” Motley said.

“So congratulations to the Obama administration for giving the ‘Affordability’ award to a product that truly represents their cost-affecting ways—the $50 light bulb,” says Motley.

Kenneth Artz (iamkenartz@hotmail.com“>iamkenartz@hotmail.com) writes from Dallas, Texas.

TOP REASONS TO LIVE IN CANADA

Posted by The Grouchy Old Cripple

on Thursday, 5 April 2012 23:40

Canada Eh!

 

TOP REASONS TO LIVE IN BRITISH COLUMBIA
1. Vancouver : 1.5 million people and two bridges. You do the math.
2. Your $400,000 Vancouver home is just 5 hours from downtown.
3. You can throw a rock and hit three Starbucks locations.
4. There’s always some sort of deforestation protest going on.
5. Weed.

TOP REASONS TO LIVE IN ALBERTA
1. Big rock between you and B.C.
2. Ottawa who?
3. Tax is 5% instead of the approximately 200% it is for the rest of the country.
4. You can exploit almost any natural resource you can think of.
5. You live in the only province that could actually afford to be its own country.
6. The Americans below you are all in anti-government militia groups.

TOP REASONS TO LIVE IN SASKATCHEWAN
1. You never run out of wheat.
2. Your province is really easy to draw.
3. You can watch the dog run away from home for hours.
4. People will assume you live on a farm.
5. Daylight savings time? Who the hell needs that!

TOP REASONS TO LIVE IN MANITOBA
1. You wake up one morning to find that you suddenly have a beachfront property.
2. Hundreds of huge, horribly frigid lakes.
3. Nothing compares to a wicked Winnipeg winter.
4. You can be an Easterner or a Westerner depending on your mood.
5. You can pass the time watching trucks and barns float by.

TOP REASONS TO LIVE IN ONTARIO
1. You live in the centre of the universe.
2. Your $400,000 Toronto home is actually a dump.
3. You and you alone decide who will win the federal election.
4. The only province with hard-core American-style crime.

TOP REASONS TO LIVE IN QUEBEC
1. Racism is socially acceptable.
2. You can take bets with your friends on which English neighbour will move out next.
3. Other provinces basically bribe you to stay in Canada .
4. You can blame all your problems on the “Anglo A*#!%!”

TOP REASONS TO LIVE IN NEW BRUNSWICK
1. One way or another, the government gets 98% of your income.
2. You’re poor, but not as poor as the Newfies.
3. No one ever blames anything on New Brunswick ..
4. Everybody has a grandfather who runs a lighthouse.

TOP REASONS TO LIVE IN NOVA SCOTIA
1. Everyone can play the fiddle. The ones who can’t, think they can.
2. You can pretend to have Scottish heritage as an excuse to get drunk and wear a kilt.
3. You are the only reason Anne Murray makes money.

TOP REASONS TO LIVE IN PRINCE EDWARD ISLAND
1. Even though more people live on Vancouver Island, you still got the big, new bridge.
2. You can walk across the province in half an hour.
3. You can drive across the province in two minutes.
4. Everyone has been an extra on “Road to Avonlea.”
5. This is where all those tiny, red potatoes come from.
6. You can confuse ships by turning your porch lights on and off at night.

TOP REASONS TO LIVE IN NEWFOUNDLAND
1. If Quebec separates, you will float off to sea.
2. If you do something stupid, you have a built-in excuse.
3. The workday is about two hours long.
4. It is socially acceptable to wear your hip waders to your wedding.

Let’s face it: Canadians are a rare breed.

The Official Canadian Temperature Conversion Chart

50° Fahrenheit (10° C)
· Californians shiver uncontrollably.
· Canadians plant gardens.

35° Fahrenheit (1.6° C)
· Italian Cars won’t start
· Canadians drive with the windows down

32° Fahrenheit (0° C)
· American water freezes
· Canadian water gets thicker.

0° Fahrenheit (-17.9° C)
· New York City landlords finally turn on the heat.
· Canadians have the last cookout of the season.

-60° Fahrenheit (-51° C)
· Santa Claus abandons the North Pole.
· Canadian Girl Guides sell cookies door-to-door.

-109.9° Fahrenheit (-78.5° C)
· Carbon dioxide freezes makes dry ice.
· Canadians pull down their earflaps.

-173° Fahrenheit (-114° C)
· Ethyl alcohol freezes.
· Canadians get frustrated when they can’t thaw the keg

-459.67° Fahrenheit (-273.15° C)
· Absolute zero; all atomic motion stops.
· Canadians start saying “cold, eh?”

-500° Fahrenheit (-295° C)
· Hell freezes over.
· The Toronto Maple Leafs win the Stanley Cup

The Maple Leafs win the Stanley Cup. That there’s funny eh? It’s almost as funny as the Chicago Cubs winning the World Series. 

Posted by The Grouchy Old Cripple

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How Much Do You Need to Retire Today

Posted by Danielle Park - Venable Park Investment

on Thursday, 5 April 2012 23:09

At current rates, in excess of 2.5 million dollars invested in a balanced portfolio is required to generate 60K income for life.

Last week, the Canadian government announced a reduction in eligibility for the Old Age Security Benefit from age 65 to 67 starting in 2023. This means all Canadians age 54 and younger today will receive less retirement income from the federal government. We should expect more of this to come as pensions worldwide struggle with mounting deficits, thanks to poor investment management and insufficient contribution levels over the past 15 years. Now deficits are compounding thanks to zero-bound interest rates courtesy of central bankers everywhere.

This week one of the largest Canadian pension plans, the Ontario Teachers’ Pension plan, announced a 9.6 billion shortfall in capital needed to fund pension obligations. In response Ontario’s Finance Minister advised that the cash-strapped government is not prepared to increase employer contributions to the teacher’s plan: “We are saying benefits have to be cut”, was his official statement.

This is the inevitable outcome of more than a decade of can-kicking in the pension management area. The demographic cost of the aging boomers was easy to predict and calculate. But the numbers were simply not attractive to those looking to spend their way to prosperity.

The solution of choice was for employees and employers not to increase contributions, but to hire investment managers who promised to make a mountain out of a mole hill. I am reminded of some pension presentations I was asked to give over the past 10 years, where my recommendation was to discard static allocation models, lower equity exposure to control risk and lower return targets to a more realistic level in the 5% range. No pension boards hired our firm after these presentations. All the managers who were happy to promise higher returns got these jobs.

Assumed annual returns of 8%+ were plugged in and everyone hoped for the best. Except 12 years into this secular bear in stocks, investment returns have been under-performing target for more than a decade. The deficits are finally getting too large to overlook. Benefits are likely to be reduced for future recipients, as well as pushing out eligibility triggers.

Yesterday I met with some long-term clients who are members of OMER’s another large Ontario pension plan.  After more than 30 years, they are now eligible to retire on full pensions of 60K a year, indexed. I pointed out that these were incredibly valuable assets: at current rates, one would need to have in excess of 2.5 million dollars invested in a balanced portfolio to generate that kind of income for life.

They were surprised as few people understand the math of how much capital it takes to generate livable income today. I assured them that they and their co-workers were very fortunate to have this rare asset in a world where few defined benefits plans still exist. “But I am the only one in my department to still have a pension” she replied. “Remember 5 or 6 years ago when our employer offered us the option of cashing out a lump sum commuted value? Everyone in my office took that option and gave the funds to financial advisors. They all told me I was crazy for not doing it.  But they have all lost money and now most have just thousands in their retirement accounts.”

“Even $500,000 today may sound like a lot, but at current yields, 500K will give you a maximum of about 15,000 a year of income”  I said. “Thank God you were smart enough not to cash out. “Well”, she smiled, “don’t you remember–you told us not to–we have always taken your advice.”

Sorry for the self-indulgence here, I need it to make this point.  This was a highlight of my day.  But I also felt sad and frustrated for my clients’ co-workers who had taken the advice of the financial sales force and cashed out their life savings into the peak of yet another stock market bubble in 2006-2008.  I had seen many teachers harmed by the same bait in the late 90′s.

Over more than 20 years of advising, I have been a party to many financial decisions that make a huge difference to personal fortunes in the end.  Many of these recommendations add value not captured in the annual performance reports of our investment accounts.

Sound financial advice over time is incredibly useful to those who are willing to hear the truth and execute accordingly.  But it takes wise, unbiased counsel (those not paid to sell products) and disciplined clients to win this race. It is not always easy to do the right risk management things, but over time I have seen that it is incredibly rewarding for real life families. Once again, I am heartened and grateful for the gift of valuable work.

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