Rules of the game needed to play

By DAVID MOON, Moon Capital Management, LLC
Ocotber 24, 2010


Presidents are a lot like quarterbacks. Some are better than others. Individual fans have their preferences about the type of quarterback they prefer. But quarterbacks generally get much more credit than they deserve when a team wins and an inordinate amount of blame when the team loses.

It doesn’t matter if you’re Barack Obama, Ronald Reagan or Peyton Manning.

Whether you like your quarterback or not, however, it is completely unacceptable for the officials not to tell us the rules of the game.

That’s what happened when Congress left Washington without the testicular fortitude to tell us – their tiny, little servants – what portions of our various forms of income and assets we shall send to them for reapportionment next year.

The fourth quarter of the year is when many investors consider realizing some of the capital gains or losses in their portfolios, depending on their tax situations. Do we want to sell something in 2010 or wait until 2011?

It is unconscionable that Congress won’t tell us the capital gains tax rates that will be implemented for transactions that occur in only 70 days.

For years I have written about the pitfalls of short-term thinking in all areas of life, not just investing. Congress is a case study in discouraging long-term thinking and encouraging foolishness.

Cash for clunkers? Short-term thinking.

Rebates for first-time homebuyers? Another temporary gimmick.

I have clients who are currently trying to prepare their wills. These people are in their late 60s and intend on living more than 70 days.

Yet we don’t know what the estate tax laws will be after that period.

Does Congress want us to write a new will every 70 days or every year? Well, Congress is comprised mostly of lawyers.

What about taxes on dividends? The feds have driven interest rates to near zero, which is great for Goldman Sachs, but terrible if you’re retired and living on interest from certificates of deposits. Some of those retired investors have moved some money into dividend paying stocks. The tax on dividends is the same as the tax on CD interest.

At least for another 70 days. No one knows after that.

You don’t make investment decisions – particularly about stocks – with a 70-day time horizon.

No business is going to add jobs simply because you offer a 100 percent tax credit for the purchase of equipment that turns bent paperclips into electricity, especially if they don’t know the rate at which their profits will be taxed.

Government experts often tell us that we need a tax policy that creates stable, predictable government revenues. For years I believed that malarkey. Then I realized that my revenues aren’t predictable; why should theirs be?

What should be predictable and stable are the rules.

People hate uncertainty. There will always be unknowable variables.

But the rules of the game are knowable variables. And when the players aren’t told the rules, sometimes they simply choose not to play. That is what is happening in America right now.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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