The “We are in the worst economic climate since the Great Depression” wackadoos sure put up a good fight.  But now more folks are finally seeing through their flawed logic. 

From a recent Newsweek article: 

The specter of depression stalks America.  You hear the word repeatedly.  Are we in a depression?  If not, are we headed for one?  The answer to the first question is no; the answer to the second is “almost certainly not.”  The use of “depression” to describe the economy is a case of rhetorical overkill that speaks volumes about today’s widespread pessimism and anxiety.  A short history lesson shows why.

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Growth was solid in Q2.  Common sense analysis showing why second quarter economic growth may come in way beyond everyone’s expectations. 

Senator Obama’s Social Security Tax Plan.  Wonderful video presentation from The Center for Freedom & Prosperity Foundation explaining the economic risks of expanding Social Security payroll taxes.   

Smartest advice I ever got.  40 successful leaders share the top money lessons they’ve learned.

Global Warming as Mass Neurosis.  Good article from the WSJ paralleling the global warming hoopla to a wacky theology.   

According to the “Wall Street Journal,” Washington is teeing up “the rich” for a big tax hike next year, as a way to make them “pay their fair share.”  Well, the latest IRS data have arrived on who paid what share of income taxes in 2006, and it’s going to be hard for the rich to pay any more than they already do.  The data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax payments by the rich in American history.

The nearby chart shows that the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years.  The top 10% in income, those earning more than $108,904, paid 71%.  Barack Obama says he’s going to cut taxes for those at the bottom, but that’s also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%.  Perhaps he thinks half the country should pay all the taxes to support the other half.   

Aha, we are told: The rich paid more taxes because they made a greater share of the money.  That is true.  The top 1% earned 22% of all reported income.  But they also paid a share of taxes not far from double their share of income.  In other words, the tax code is already steeply progressive. 

My Thoughts:  The average American today works from January 1 to July 16 just to pay for government before they begin working for themselves.  Isn’t it ironic that just a few weeks ago we celebrated the Fourth of July, a national holiday that honors early Americans who rejected an oppressive tax system?

When talking about the stock market these days, it’s easy to be wooed into becoming a long-term pessimist.  Last Friday, the S&P 500 closed at 1239.  Contrast that to where the index was trading at 10 years ago - 1164 - and you end up with a gain of about 6.4%. 

So why am I still so enthusiastic about my “stocks for the long run” philosophy? 

Take a look at history. 

The last time we went through a similar market environment was from about 1969 to 1982.  Not only were the returns middling but inflation wiped out the gains that investors had earned leaving many with a real return in negative territory. 

But people who maintained their discipline and continued acquiring equity positions were rewarded for it. 

From 1983 thru 2001, vast sums of wealth were created because certain people understood the gift the financial gods had given them and knew how to take advantage of it.  Or there were others who prospered simply from dumb luck for being in the right place at the right time. 

You see, tangible assets - real wealth - does not vanish in a market decline.  Instead, uninformed investors panic and sell their wealth while savvy investors go bargain hunting.   

And that’s the way it has been throughout history. 

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Selling a stock short means borrowing shares from a broker to sell with the idea that you can buy the shares back at a lower price and deliver them back to the broker, while you keep the profit.  The above chart shows the level of short interest on the New York Stock Exchange, which has spiked up considerably. 

This is what we call a contrarian indicator; you can see it has signaled market lows in the past.  In the three previous short interest peaks, the S&P 500 Index returned an average of 27.1% the following 12 months. 

If you’re like many folks who look at this stuff and say, “huh?” . . . let me say that this is good news, and only happens near stock market bottoms.  So there is light at the end of the tunnel, and it’s not a train!

Stay tuned . . .

Note:  Chart courtesy of JPMorgan Asset Management.

Sir John Templeton has died at the age of 95.  He was one of the great minds in the financial community as well as one of my early mentors.  Below are some key excerpts from his 1993 article ”16 Rules For Investment Success.”  They are as true today as they have ever been.

I can sum up my message by reminding you of Will Rogers’ famous advice:

Don’t gamble.  Buy some good stock.  Hold it till it goes up . . .and then sell it.  If it doesn’t go up, don’t buy it!

There is as much wisdom as humor in this remark.  Success in the stock market is based on the principle of buying low and selling high.  Granted, one can make money by reversing the order - selling high and then buying low.  And there is money to be made in those strange animals, options and futures.  But, by and large, these are techniques for traders and speculators, not for investors.  And I am writing as a professional investor, one who has enjoyed a certain degree of success as an investment counselor over the past half-century — and who wishes to share with others the lessons during this time.

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The Founding Fathers:  Smugglers, Tax Evaders, and Traitors?

During patriotic holidays, the news media applaud the Founding Fathers.  But rarely does anyone mention some important facts about them:  that they were smugglers, tax evaders, and traitors.

Not only is this important, it is also praiseworthy; it produced the most advanced civilization ever known. 

The Revolution is often said to have begun in 1775 at the Battle of Lexington.  In truth, it began in the 16th century when the first colonists began traveling to the New World.  Consider the hardships these people faced.  Abandoning their relatives and friends, they boarded small leaky boats like the Mayflower - which was only as long as six automobiles - to spend months crossing 3,000 miles of storm-tossed ocean.

Many of these tiny, primitive vessels went down, yet as the years passed, more and more colonists risked their lives to make the journey.  In THE OXFORD HISTORY OF THE AMERICAN PEOPLE, historian Samuel Eliot Morison tells us;

Gottlieb Mittelberger, who came to Philadelphia in 1750, described the misery during his voyage: bad drinking water and putrid salt meat, excessive heat and crowding, lice so thick that they could be scraped off the body, sea so rough that hatches were battened down and everyone vomited in the foul air; passengers succumbing to dysentery, scurvy, typhus, canker, and mouth rot.  Children under seven, he said, rarely survived the voyage, and in his ship no fewer than thirty-two died.  One vessel carrying 400 Palatinate Germans from Rotterdam in August 1738 lost her master and three-quarters of the passengers before stranding on Block Island after a four-month journey.

Why?  What in Europe could have been so horrible that rational people would risk their lives and their children’s lives to escape it?

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 Giving a whole new meaning to the number 1776 . . .

 From Chris Edwards at the Cato-at-liberty blog.