The inconveniences of wealth

Feb 25, 2015

- By Bill Bonner

Bill Bonner
A foreword to today's Diary entry. The following is a 2-part series. The views expressed here may or may not coincide with those of Bonner & Partners. In fact, they may not even coincide with those of their author. Sometimes right, sometimes wrong, always in doubt -- we try on ideas, like a grown man trying on a pair of shorts. We want to see how they look before we buy them. And we leave it to you to decide for yourself which of the following ideas look most ridiculous.

Dear Diary,

We are a man without a country...a voluntary exile from Main Street...a refugee...a wanderer.

Not because we want to be. But because we are a victim of our own good fortune.

First, checking in with the markets, we find little activity yesterday. Pretty much more of the same. Which leaves us with little to say...except what we've already said: which is, Get out while the gittin's good.

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But we're not alone. Here's Bloomberg:
    At Goldman Sachs, Kostin and company believe things are as stretched as they're going to get on the macro level. In their view, the S&P 500's price-to-earnings ratio should contract as the Fed begins to raise interest rates in September and the index will end the year at about 2,100, right around where it is now.

    "The proverbial 'smart money' is selling, not buying," they write, adding that completed private equity sales through mergers and acquisitions and follow-on offerings have reached record levels.

And here's Mac Slavo at SHTFplan.com:
    ...if there's any single person out there who understands U.S. monetary policy and its long-term effects on domestic and global affairs it's former Federal Reserve chairman Alan Greenspan. As the head of the world's most powerful central bank for nearly two decades he's privy to the insider conversations and government machinations that have brought us to where we are today.

    In private conversation I asked him about the outstanding debts... and that the debt load in the U.S. had gotten so great that there has to be some monetary depreciation. Specifically he said that the era of quantitative easing and zero-interest rate policies by the Fed... we really cannot exit this without some significant market event... By that I interpret it being either a stock market crash or a prolonged recession, which would then engender another round of monetary reflation by the Fed.

Second, checking the weather reports, we found it was recently only 1 degree in Maryland. How we would like to be back on the farm...in front of a roaring fire, with snow on the ground outside...a stack of 2-year old firewood ricked up in the barn...and a generous supply of 10-year old malbec in the cellar.

But it is not to be. Now, thanks to our success, we have places to go and people to see. And they are all far from our beloved Baltimore.

We've been rich and we've been poor. Being rich is over-rated. So is being poor. Neither is something to be proud of. But in today's Diary, we rag about the inconveniences of wealth. Like everything else it seems to obey the rule of declining marginal utility. A little is definitely helpful. A lot? Well, that's where the trouble begins.

The proximate cause of this rant is that three of our friends recently announced that they were moving to Puerto Rico:

"It's really not very nice," said one. "Rich people live in gated compounds, where they are protected from the locals. We don't like it very much. It's almost like a kind of luxury prison, with other rich people.

"Besides, these are people you don't want to be stuck with. The guys are always on the phone or email. The girls are getting their hair done. Seriously, we'd rather be the yahoos we know in California."

"Well, why are you moving there?"

"We have to. Puerto Rico has a tax system that cuts our taxes by about 90%. We can't afford to stay in California. "

A poor man can live where he wants to live. A rich man lives where he must. Frequently, he is forced to become a refugee... a nomad, driven from house and hearth by the tax collector.

"Why not just pay the taxes?" we ask. "What's the point of having money if it doesn't allow you to live where you want?"

"We'd like to. But we'd lose all respect for ourselves....and all credibility with our tax advisor. We paid him a lot of money to figure this out. Besides, there's a price for everything. We like California. But not that much."

Ah. There's the problem. You may readily and happily pay $10,000 for the pleasure of living in the Golden State. But what about $50,000...or $500,000?

As a percentage of income, it may be the same for a rich person as a poor one. But real things have values independent of how much you earn. A poor man may buy himself a $1,200 Brioni suit - spending 5% of his disposable income on the outfit. Suppose a millionaire had to pay the same percentage - or $50,000 for the same clothes?

"Nice threads," he would say, "but not worth $50,000."

Likewise, he may like hamburgers. But if the government forced him to pay $100 for a burger, he might become a vegetarian.

Puerto Rico is the alternative to a $100 hamburger. It's not the only one. Even the middle class expatriates from the high tax states to low tax states ones. Every year, thousands more tax refugees flee every year from New York and Connecticut, for example, to move to Florida or Nevada. There, they live in exile from friends, family, business, bars. Why? They have chipped away about 10% of their tax burden!

We want to live in Baltimore. But we how much longer we can afford it. A year's worth of property taxes on our house in the Mount Vernon area is more than the entire purchase price of our first house in Baltimore (albeit in a different neighborhood) - and the houses are about the same! Add the state and local taxes...and Maryland's unique 'millionaire's tax'....and we're eating $100 burgers every day. And it's not even the money. We just don't like being taken for a chump.

To be continued...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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