AskDong

Just wanted to wish everyone a merry Christmas, and hoping everyone is having a great one with family and friends.

Also, wanted to let everyone know that I’m still kicking around.  Just haven’t had much time or focus on the blog.   Currently I’m rethinking exactly what I want to do with the blog.   Stay tuned for slight change in focus and format in the coming year.   What that will be, I have no idea.

A recent CNN article highlighted the fact that nearly 47% of Americans do not pay taxes.  Who are these unamerican Americans?  That question is both harder to answer, and one that probably tells a different story than the headline 47%.

I’ve always had a problem with single statistics not put in a context, and often these days any statistic related to income or taxes seem contructed to raise the ire of the combating forces of the great class war.  Of course the problem is that over 50% of American think of themselves of as middle clasa without consideration to what they actually earn.   Someone making over 150k is about equally likely as someone making less than 20k to call themselves middle class.  No wonder the “middle class” seems to be able to agree that all the ”greedy pigs on Wall Street are taking all the riches while the lazy wreches at the bottom are living the good life on the backs of the tax dollars of us hard working Americans.”  Too bad life is not a simple of matter of hating someone else.

When I first read that 47% of Americans did not pay federal income taxes, I was take aback.  It seemed awfully high, and higher than what I thought it should be.   However, I took a step to think about it, and thought about the people I knew filing taxes but not paying any federal taxes.  One set quickly popped into my head.  My parents.  My parents who are both retired paid nothing in federal income taxes last year.  They don’t make very much at this point in the their lives - Social Security and minimum withdrawals from their IRA account.   I imagine of that 47% not paying taxes, many of them are like my parents, retired individuals with limited income with a long history of income taxes paid.   Given that 12% and growing of the U.S. population is over 65+, this it not a great stretch of the imagination.

On the other age spectrum, I imagine there are students and recent graduates barely scraping by who undoubtably pay very little or more likely nothing towards the federal coffers.   Nearly 13% of the U.S. population is between the age of 20 and 29.  Old enough to be filing taxes, but unlikely to be making large amounts of money.    Taken that the very old and the very young might be nearly 50% of the 47% not paying taxes, the remaining 22% does not seem that much at odds with my sense of equity.   Too bad the CNN article doesn’t answer the more interesting question, “What percentage of Americans never pay taxes?”

As the rally continues, I trail the market for this year more and more. I’m a non-believer. I think the stock market has gotten ahead of the real economy. Personally, I’m at about where I was before the crash, and I count myself lucky for that. Going forward while I continue to be predominantly invested, I’ve begun to acquire some put options on both the NASDAQ and the S&P 500 to hedge my position.

With these options in place I expect that my overall portfolio is likely to move sideways regardless of what the actual market does. I’m willing to take this certainty in what I think remain uncertain times.

We have averted a real crisis, and the economy is I think in reasonable shape. However, there is still a financial reckoning. I believe the days of unfettered consumer debt are over as it should be. The end of easy credit however means that consumption will be down, and consumption is 70% of economy.

A few years ago I switched most of my credit card usage to American Express Starwood Card.  Part of the promotion I had signed up for entailed me spending at least $15,000 in six months to be eligible for a 15,000 bonus points.   Last week, I received a very short letter saying that American Express had neglected crediting my account with the bonus points because I had met the spending the requirement.   I knew I had met the requirement, but had completely forgotten about the points.   I never noticed in the last 2 years that I had never actually gotten my Starwood points.

This week, my Starwood Preferred Guest account was credited with 15,000 Starwood points.   I now have a very hefty balance (a little less than 100k,  25k from the bonus sign up) as the credit card has been the primary way in which I’ve spent money over the last few years.   The balance is large enough that I’m ready to cash in my chips.

On Friday, Obama enacted a new tariff on Chinese made tires of up to 55%.  Obama had until this week to make a decision, but decided to act early.  This decision was a true test of Obama’s commitment to free trade.   Right now, I feel the same way as Greg Mankiw, disappointed.   I am a strong believer of Free Trade.  Protectionalism serves some people’s interests, but not everybody.

This is not to say there are not real problems with the U.S. economy and especially in the manufacturing sector, but restricting free trade is treating the symptoms rather than the causes.   The U.S. is like an unemployed teenager going crazy buying video games with his birthday money from his grandparents when he should be looking for a summer job.  Restricting free trade might stop him from buying video games, but it doesn’t help him get a job.

The more troubling aspect right now with regards with the tariffs is that China is looking to retaltiate with restrictions on Chicken and Auto Part imports.  If China were to retaliate, we would have few winners and plenty of losers.   A trade war is the last thing we need to see during what are still unertain economic times.