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The Daily Reckoning | Tuesday, May 22, 2012 A few comments we thought you might “like”... Freeing yourself from the burden of government...at least, more so... Plus Bill Bonner on why stock market hinges on Facebook, and plenty more... ------------------------------------------------------- Retire Off This One Penny Stock? All of your retirement woes could be lifted thanks to this one penny stock’s massive resource discovery... You could quickly make money no matter how the market moves! But you must hurry before Wall Street catches wind of it... Expert geologist Byron King reveals the full details in his new presentation — here.   In Defense of Saverin Informed Facebook Users Comment on the Actions of Senators Chuck Schumer and Bob Casey   Joel Bowman Reckoning today from Buenos Aires, Argentina... Your editor might indeed be reckoning from Buenos Aires today, dear reader...but his head is still back in Brazil...somewhere between the verdant headlands and calming blue seas of Rio de Janeiro and the relentless human throb of São Paulo’s bustling business districts. The wending cobblestone streets of Buenos Aires’ Palermo district seem positively tame by comparison. But we love them just the same... What were we doing in Brazil, then? Sniffing out opportunities in the publishing sector, of course. We met impressive cadres of go getters in both Brazil’s largest cities...each eager to sway our preference in favor of their own business hub. “Go to Rio for the sun and the surf,” remarked one Paulista. “São Paulo is where all the serious business is being done.” “They take themselves so seriously in São Paulo,” countered a Carioca a few days later. “Rio is where the future is at.” Both made impressive cases. Both agreed that the difference between the two cities is enormous. Both thought that made their own place of business more important. Probably, both are right...in their own ways. We’ll let you know how it goes if and as our project there begins to take shape...whatever shape that may be. Speaking of the Brazilian advantage, did you catch our bitty missive on Eduardo Saverin, the Brazilian-born, Singapore-residing co- founder of Facebook last week? A couple of shamelessly hyperactive Senators — Charles Schumer and Bob Casey — had their knickers all in a knot over the fact that Saverin had avoided their grubby little tax-grabbing mitts by unshackling himself of US citizenship a couple of years back, before Facebook’s IPO. Long story short, the Senators wanted their pound of flesh...but Saverin was already long gone. We came down on the little guy’s side...the “tax cheat,” the “tax evader,” the “unpatriotic enemy of the state.” The hero of the story, in other words. In doing so, we invited Fellow Reckoners to leave a piece of their mind on the Senators’ respective Facebook pages. We’ve selected a few of the “most liked” comments, for your enjoyment. Feel free to add your own warm and fuzzies on Chucky and Bob’s pages (here and here, respectively), as you see fit... First up, Renie J. writes on Bob’s page: Hmm... remember the Berlin Wall and shooting people who tried to leave. This man did nothing wrong or illegal. Figure it out, the tax system is broken. Fix it! Don’t make it worse. “Socialism is great until you run out of other peoples’ money” — Margaret Thatcher And here’s Matthew H., echoing a similar theme: You and Schumer are some control freak lunatics. It is reminiscent of the Berlin Wall for a government to resort to force to keep its citizens from leaving. The problem isn’t that people want to keep the fruits of their own labor. The problem is that thieves like you keep trying to plunder them. You are NOT American. If you want to live in a communist dictatorship, go to North Korea or Cuba. Don’t force it onto us. We’re sick of you thugs thinking you own us. To which Dianne G. adds: Yep! Three cheers for the Land Of the fee and the Home of the slave. You bastards are a huge part of the reason I don’t even celebrate Independence Day anymore... Why celebrate what died long before I was born. I will pray for your downfall every day. I hate what this nation has become and I will fight statism in both parties to my dying breath. Not to be outdone, Kevin C. writes on Chucky’s page: Schumer, you are the poster child for term limits. Instead of punishing those productive individuals you should 1. thank us for paying your salary, 2. leave us alone so we can begin to rebuild America. I believe we should begin deficit redux talks by getting rid of the fat cat insurance policies and franking privileges. Have to get a real policy, like the rest of “us” do. And here, one of our personal favorites (which we actually “liked”), from Eric T. reads: Interesting to actually read this entire thread of comments. Hundreds of intelligent, articulate people making well reasoned comments opposing Schumer’s anti-American values are getting “liked” in their comments left and right. Meanwhile, some box cutter toting punk and a woman named Wenker (I couldn’t have made that up had I tried) who can’t seem to capitalize, spell, or punctuate her comments are supporting Schumer, irrationally labeling a man who complied with all laws and paid hundreds of millions in taxes as a “Tax Dodger”. I can’t find a single pro-Schumer commenter here getting multiple “likes” on their comments. Telling, indeed. This comment thread has become a battle between informed, well spoken people who appreciate the values and principles upon which the nation was actually founded vs. a few “punks and wankers” supporting Schumer! Is this guy really a United States Senator, or did I get misdirected to the Comedy channel by mistake? Not that we are simple enough to think that any of this will actually make a difference, Fellow Reckoner. Politicians steal in the same way that mushrooms grow or vultures consume. It’s part of their nature. They are sociopaths and, therefore, act just the way you’d expect sociopaths to act. As Robert Heinlein, the great American science fiction writer, once quipped, “Never try to teach a pig to sing; it wastes your time and it annoys the pig.” Still, it’s nice to know we aren’t alone when it comes to opposing the violent theft of individuals’ private property. So there’s that. Another man with whom we share this view, the always provocative Doug Casey, expounds on this very subject in today’s column, Part II of a discussion on freedom and taxes. (If you missed it, you can read Part I here). Please enjoy...   From Jim Rogers... to Marc Faber... to Congressman Ron Paul, this book is sitting on the desks of some of the world’s smartest thinkers... And for good reason, too. Inside you’ll find 47 ways to protect your wealth from the declining value of the US Dollar Discover FIVE of those 47 ways for free, right here. The Daily Reckoning Presents Doug Casey on Taxes and Freedom, Part II   Doug Casey In yesterday’s edition of The Daily Reckoning, we featured Part I of a provocative interview with Doug Casey about taxes and freedom...and whatever else was on his mind. “Taxation is force alloyed with fraud,” Doug declared in Part I of the interview. “It’s theft, pure and simple. Most people basically admit this when they call taxation a ‘necessary evil,’ somehow mentally evading confrontation with the fact that they are giving sanction to evil. But I question whether there can be such a thing as a ‘necessary evil.’ Can anything evil really be necessary? Can anything necessary really be evil?...” In Part II, Doug expands upon this assertion. Enjoy! Louis James: Tax Freedom Day this year was April 17. Doug: That means that all the work the average guy does until April 17 goes to pay for the government that failed to protect him on September 11, 2001, failed to protect him from the crash of 2008, and continues failing him every day. We pay for an organization bent on doing not just the wrong things, but the exact opposite of the right things in economics, foreign policy, and everything else we’ve talked about in all our conversations. It’s rather perverse that Emancipation Day — the day the first slaves in the US were freed in the District of Columbia in 1862 — is April 16. But what is a slave? He’s someone who is deprived by force of the fruits of his labor. Sound familiar? I disapprove of slavery, in any form — including its current form. However, Tax Freedom Day is an incomplete way of looking at things. What’s the cost to business forced to install equipment to meet government regulations? That’s not paid as a tax, but it’s a serious burden. There’s something called Cost of Government Day that’s a somewhat more inclusive estimate of the burden the state imposes on the average guy... L: I just looked for that too and don’t see that a date for 2012 has been announced yet; but Cost of Government Day for 2011 was August 12. According to that estimate, the average US taxpayer slaved away for about two-thirds of the year to pay for the state and got to keep only a third of the fruit of his labor for his own benefit and improvement. Doug: That may be a more accurate way of looking at the burden of government the average guy has to bear, but it still doesn’t even begin to address what economists call “opportunity cost.” Basically, I don’t just look at what the state we have costs us in cash, but in terms of the innovation and growth we don’t have because of government policies, laws, and regulations. This covers everything from new medicines to all sorts of new technologies to different forms of social and business organizations to the cleaner intellectual atmosphere I think we’d have without government propaganda machines cluttering it up. I don’t believe in utopia, but I do believe our world could be far freer, healthier, and happier than it is today — without any divine intervention, magic, or changes in the laws of physics. Just a different path, every bit as possible as the one we’ve taken to where we are today... Without any major differences in technological development and without assuming that people would spontaneously become angels, the average standard of living worldwide would be much higher if...America had stayed out of WWI, or had not ratified the 16th Amendment to the Constitution, or had not elected FDR. L: Okay, but those things did happen, and we live in the world we have today — the one you call a prison planet. How should people try to do what’s right in such a world without ending up in jail? Doug: First, it’s important to think about what’s actually possible, because people will not even try to reach for what they are sure is impossible. The world needs idealists to challenge us all to aim higher... including idealists willing to go to jail for what they believe in, like Henry David Thoreau. But even he said that while he encouraged all people to disobey unjust laws, he wouldn’t ask those who support families to get themselves locked up and leave their families destitute. So my take is as we started out saying: It is both ethically and practically imperative to starve the beast. The less cooperation of any sort we give the state — but especially the less money we give it — the less mischief it can get into. We’re unlikely to get politicians to vote for getting the state off our backs, out of our pocketbooks, out of our bedrooms, and out of other people’s countries as a matter of principle, but we could see the state get out of places it doesn’t belong simply for lack of funds. And if everybody treated minions of the state with the contempt they deserve, most of them would quit and be forced to find productive work. As Gandhi showed us, civil disobedience cannot only be an ethical choice, but a very powerful force for change. L: Any specific advice? Doug: Get a good accountant, take every deduction you can, and look for ways to legally reduce your tax burden. For example, our readers should know that charitable contributions in the US get deducted after the alternative minimum tax wipes out your other deductions. That means that a substantial fraction of every dollar you give a registered 501(c)(3) nonprofit does not go to the federal government. Now, as you know, I don’t believe in charity, at least not in the institutional sense, but wasting money on charities is far, far better than giving it to the government to use bombing innocents and creating enemies for generations to come. And if that charity happens to be something like the Institute for Justice, the Fully Informed Jury Association, or any of the other libertarian think tanks dedicated to reducing the size and scope of government, you get to help fight the beast and starve it at the same time. L: I do my economics and entrepreneurship camps in Eastern Europe under the auspices of the International Society for Individual Liberty — of which I should disclose that I am a director. I have to admit that it pleases me greatly to see funds that would have gone into making bombs to drop on foreigners and hiring more goons in uniform to oppress people at home redirected to something I consider constructive. But what about the international diversification question: can that help reduce your tax burden back home? Doug: It’s different for different countries, and each individual should consult a tax specialist with the details of his or her own case, or proposed case. However, there is an exclusion for Americans who live abroad for a whole tax year — it was around $100,000 the last I looked. So there are very good tax reasons for Americans to live abroad. There are even better reasons for Canadians, Europeans, and almost everyone else to leave their native country — many can live 100% tax-free. I guess it’s just a sad testimony to the medieval-serf mentality that most people suffer from that few people take advantage of this. They’re born someplace, and they stay rooted there, like a plant. Oh well, everybody basically makes his own bed, reaps what he sows, and gets what he deserves... However, as appealing as the “permanent tourist” idea is, I recommend international living first and foremost as a way to protect your assets. As we’ve discussed before, real estate in foreign countries cannot be repatriated or confiscated by the government that thinks of you as its milk cow. There is nothing illegal or nefarious about buying real estate abroad, and it could come in very handy if things get really chaotic back home, wherever that happens to be. L: Okay... any investment implications to discuss? Doug: Sure, but nothing new to our readers. Starving the state-beast is the right thing to do, ethically and practically, but I believe the state’s days are numbered anyway. The thing to be aware of is that the beast won’t go quietly, and in its death throes it can do a lot of harm. Still, like Nietzsche said, “That which is about to fall deserves to be pushed.” In the meantime, much higher taxes are on the way. More and more currency controls are coming. You may have heard that the US is contemplating a law denying issue or canceling the passport of anyone accused of owing more than $50,000 in taxes. I expect the transformation of what was once America into a police state to continue, and I expect other “developed” nations — especially Europe, Canada, and Australia — to follow suit. And this will happen whether or not the global economy exits the eye of the storm as I expect it to. So you want to rig for stormy weather and invest for continuing crisis. Own gold for prudence, speculate on related stocks and others that may benefit from government profligacy, and as we’ve just been saying, diversify your assets and personal living arrangements internationally. The day is coming when your local government may stop seeing you as a milk cow and start seeing you as a beef cow, and you want to have options before that day. Regards, Doug Casey for The Daily Reckoning [Joel’s Note: For more thought-provoking ideas from Doug Casey — as well as actionable investment ideas — be sure to preorder the entire audio collection of Casey Research’s upcoming Recovery Reality Check Summit. You’ll hear every minute of every presentation... get specific investment information from over 30 experts... and be better prepared for what the future holds. Plus, if you order now, you’ll get the set at a generous discount. Also, Fellow Reckoners can catch Doug at this year’s Agora Financial Investment Symposium in Vancouver. The habitually provocative founder of Casey Research will join an all-star cast...possibly our best yet. Get all the details right here. P.S. Last year’s event sold out in record time...and if ticket sales so far are anything to go by, we expect 2012’s event to go even quicker. Again, snap up your discounted ticket right here. We hope to see you there.   The One Retirement Plan Obama Can’t Touch If you’ve already retired, or want to retire soon, I urge you to watch this video presentation before we have to pull it down. This “Secret $200 Retirement Blueprint” shows you step-by-step how to grow a monster-sized nest egg with a little time and a tiny grubstake. Click here to watch this video presentation now.   And now over to Bill Bonner who has the rest of today’s reckoning from Baltimore, Maryland... When the Hype Fades Is Facebook the Rusty Hinge of the Stock Market?   Bill Bonner Yesterday, stocks bounced...just as they should have. After two weeks of falling, they were ready to bounce. Heck, even a dead congressman will bounce, if you drop him from high enough. The Dow rose 135 points. Not very impressive, after so many down days. Everything has been sinking... Stocks, commodities, oil... In Europe and emerging markets the damage has been even worse than in the US. Even China is slowing down. It’s just like...well...a Great Correction! And look at Facebook. We knew the Facebook IPO would cost a lot of saps a lot of money. But we didn’t expect it to happen so fast. We figured Wall Street would get a chance to squeeze the lumpen a little longer before they fled the market. As it turned out, the mom and pop investors came into the market to buy Facebook and got whacked right away. Here’s one completely un-savvy buyer quoted in The New York Post: “I’m very psychic when it comes to stocks, I really am. I have no retirement, I have no pension, so I try to make money on the market.” The press reported that cab drivers and plumbers were buying Facebook shares on the first day...for the wrong reasons, of course. One buyer had recently had his house foreclosed. He was buying the stock, he said, to help put his children through school. Good luck on that! Colleague Justice Litle called it ‘Facebust!’ The hype sent shares up in early trading on Friday. The insiders who moved fast were able to cash out at over $40. But then, the selling overpowered the buying. Justice, writing over the weekend: Countless idiots, er, optimists expected Facebook shares to pop 50% or more on their first day of trading, not taking into account the fact that, when EVERYONE IN THE WORLD has the same universally telegraphed notion as you — with ability to execute by mashing a mouse button — it is probably not the sharpest play. At any rate, after a very anemic “pop” reminiscent of discount bin champagne purchased from a gas station, FB shares fell straight to the $38 level (where the IPO was officially priced). At $38 the underwriter investment banks came in, vigorously “defending the shares” as a matter of business honor. Without the heavy buying of Morgan Stanley and others, for the express purpose of propping up the shares, FB could have seen a death spiral on its first day of trading. This would have forever marred said underwriters’ reputations, which is why it didn’t happen. (Investment banks are paid a very pretty penny for bringing an IPO to market; one of the services they provide, in exchange for that fat payday, is propping up the shares, i.e. “creating a price floor,” with their own dough as need be, to keep the offering from looking like a dog. This is completely legal and sanctioned by the SEC.) The Facebook IPO was a sort of psychological fulcrum point. It was perhaps the biggest public participation event of all time, in terms of getting “the man on the street” to take a flyer on a stock. When such tomfoolery works out badly, Joe Sixpack’s taste for risk — the mother’s milk of Wall Street — is that much further soured. (It should be noted that a whole raft of other “social media” stocks — Zynga etc. etc. — fell hard when Facebook came up short.) In addition to the above, virtually every large mutual fund and long-only money manager on Wall Street felt compelled to purchase Facebook shares (for fear of missing out on “the next Apple” had they not). If the Facebook hype fails, then — if the Maginot line of $38 price support gives way — it could have an incredibly demoralizing impact on the market as a whole, alongside the ominous “doom loop” that is Greece. Such are the conditions in which “unease” turns to “maybe we should get out,” which then has a nasty habit of escalating to “GET ME OUT NOW,” acted upon by groupthink investors en masse. And yesterday, the Maginot Line gave way... “Market Up, But Investors Dump Facebook,” was the headline report from Reuters. The stock sold off...finishing the day down 11%. What happened to the underwriters, everyone wanted to know. The stock fell below the IPO price on its first full day of trading. Apparently, Wall Street was not willing to come to the rescue — not with its own money. We had a hunch that Facebook might become the hinge event for this stock market. Shares had been selling off for two weeks prior to the FB launch. But the selling was orderly. After so much selling for so many days, buyers are bound to come back. So the Dow went up yesterday. But the FB hinge has creaked...and squeaked...and warned retail investors. They came in the door. They didn’t like what they saw. Many will take to the exits quickly. Others will stick around, until a growing sense of revulsion, mixed with losses, eventually pushes them out. And more thoughts... Ray Dalio calls it a “beautiful de-leveraging.” We don’t see the beauty in it. But we admire it for what it is — a natural and necessary response to the grotesque debt build-up of the last half century. It may not be beautiful, but it is doing its work as best it can under the circumstances. Households are lowering their debt levels. Businesses are hoarding cash. The private sector, generally, is getting itself into better shape. All very natural...and all things in nature have a beauty, of sorts. It doesn’t hurt that interest rates are so low. Even the price of gasoline is going down. In this sense, the Great Correction itself is helping...beautifully. The whole world economy is slowing down, lowering prices for energy and housing — two of the biggest items in the household budget. The way to cut debt is to first cut expenses. Then, you have more money available to pay off your loans. And it’s fairly easy to cut expenses when interest rates are so low. In 2005 and 2006 we advised Dear Readers to sell their overpriced real estate and rent. Now it’s time to reverse the procedure. At today’s rates...and today’s prices...it’s time to buy. Here’s why: In some areas, house prices are down 50% In those very same areas rents have risen. At 3% (which you can get on a 15-year fixed rate mortgage) your monthly mortgage payment might be only HALF your rent payment. So you can save money there. Then, you deduct the interest from your taxes. And then, the Fed gives you a bonanza when its monetary inflation finally turns into consumer price inflation...or even hyperinflation. Your mortgage balance could be reduced 10%...30%...80% in just a few months. In other words, you get paid to wait for the feds to wipe out your mortgage! Cut your expenses. Get into cash. Remember, our ‘Crash Alert’ flag is up. And a lovely correction is underway. Tomorrow: how the vandals in Washington and at the Fed are defacing the “beautiful de-leveraging.” Regards, Bill Bonner for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com To the Class of 2012 Expatriation in the Wake of the Facebook IPO Immune to the Financial Crisis Fitch Downgrades Japan Hedge Funds Bail On Euro Now Data Show US Economy is Improving The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. 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