Dear Santa – we take cash only, and here’s why

Money – not ruining today by worrying about tomorrow

by Doug Brodie

This is an example of Russian bots on Twitter.

Big – like REALLY big.

We like the simplicity and the research done by the team at Visual Capitalist, and recently they produced a summary of the world’s 100 Biggest Pension Funds. In total they amount to over $17 trillion – that’s the kind of firepower that moves markets. I don’t know the asset split of these but I think there’s a pretty good chance we are looking at 50%+ in equities, anchored in their own home countries.

The largest is the Japanese Government Pension Investment Fund at $1.7 trillion; in perspective, the UK’s largest fund is the universities USS scheme at $111 billion, that only ranks 41st, and happens to be smaller than the single California University pot at $125 billion, or even IBM’s fund at $115 billion.

Another interesting snippet: here is a note on India’s Employees’ Provident Fund which stands at $145 billion – putting us to shame. It is fed by 26.16% of employee earnings, 13% employer, 12% employee and 1.16% from the government. In the UK, our default autoenrollment scheme is based on 8% - 5% employee, 3% employer.

Democracy – losing the battle?

The Bertelsmann Transformation Index ‘analyses transformation processes toward democracy and a market economy’. Basically it monitors which countries are democracies and which are ‘other’. This is the summary of governance in different countries.

It’s depressing (from our side of the desk) to note that there are now more autocratically governed states (70) than democracies (67).

Norway’s wealth tax – when theory gets it wrong.

The richest Norwegians are upping sticks and moving to Switzerland – not all, but enough to have been noticed by the FT, Norway and Switzerland.

Norway has a wealth tax that applies to wealth of over £142,000 (NK 1.7m) which I guess would mean it applying to you, and every other recipient of our newsletter. The tax is capped at 1.1% of assets, and is based on 0.25% charged by the state and 0.7% charged by your local municipality.

The problem is that wealth does not often equal liquid cash and that can lead to entrepreneurs receiving tax demands to be paid in cash when all they have is illiquid assets – think private company stock or crypto anything. The end result is that wealth is being pushed out of the country for the wrong reasons, and I guess the Norwegian civil servants drafting the policy are not experienced in the bloating of varied and ethereal asset values.

This is slightly Back to the Future, but nothing to do with ‘Nornireland’ supercars.

Back in the days of dotcom, the smartest graduates would often forego ‘proper’ salaries in US startups for equity in the employer. There are always hero stocks in any bubble, showing exorbitant share price rises, so why take $100k in salary when you can take in stock, and wait for a short while for the market to turn that into $500k and then pay gains tax instead. Flawless argument yes?

No. And behind the scenes of the dotcom failures we saw employees now become unemployed, and worse, having taken the stock issue granted f.o.c. at $100k, the IRS now came and demanded US dollar cash tax on that now-worthless stock. Ouch. It happened, people went bust.

So when we heard folk talk of their crypto wealth, one better not forget that taxes are always paid in cash; indeed, the latest FTX crypto crash was inflamed by investors wanting to sell their crypto ….. for cash. Oh the irony.

Sage and onion stuffing:

Not sure if that have it across the pond, but (pun alert) here’s more sage words from the learned Mr Housel.

You might not know Jesse Livermore but by 30 he was worth an equivalent today of $100 million. He was born in 1877 and was 52 at the time of the ’29 crash. He was short the market on the day, and made the equivalent of $3 billion. However by 1934 he was bankrupt for the third time and he shot himself in 1940.

Warren Buffett you’ll have heard of, and perhaps his business partner Charlie Munger. I had never heard of Rick Guerin before, but he happened to be third member of the group. Warren Buffett explained that Rick was in a hurry to get rich, really rich, so he had leveraged up his positions. In the downturn of 73/74 (oil crisis) Rick had to pay down the borrowings he’d made and so sold his Berkshire stock to Warren at under $40 a share.

Warren, Charlie and Rick were equally competent and talented at getting wealthy, but Rick didn’t have the added skill of staying wealthy, and that matters. Today’s share price for Berkshire Hathaway (A shares) is $454,620.

And talking of big numbers, by the end of last week Tesla had lost $705 billion in capital value, falling from a peak of $1.2 trillion to ‘just’ $495 billion.  Since buying Twitter, Elon Musk has sold $22.9 billion of Tesla stock – we’re just wondering who thought it a good idea to buy those shares from him? (No, Santa, don’t even think about it).