Capitalogix

Playing 'Smart' Doesn't Mean You Are Cheating

When did playing 'smart' start to mean that you were a cheater?

Recently, Apple got grilled for its low-tax strategy. While not every business can, or does, copy that approach ... many do.

Here is a look at what S.&P. 500 companies paid in corporate income taxes — federal, state, local and foreign — from 2007 to 2012, according to S&P Capital IQ.

 

Click here to read the NYTimes article this infographic came from.

At its core, our democratic process and legal system were designed to take care of issues like these over time.

Likewise, our free market system will adjust to level the playing field.   There is game theory in government.  If you make things too difficult, the smart players find a different game to play.

Meanwhile, other countries certainly are incented to find a way to make to entice big players to play on their turf ... and creating a tax haven is one way to do it.

Going back to Apple, on one hand I'm sure the government wishes they had paid more taxes, but on the other hand I'm sure they are glad that Apple didn't move away and take their tax dollars with them. 

As you have probably surmised, this happens on many levels and in many places.

In trading, for example, statistical arbitrage was once an easy way to make money (if you knew how to do it). The reason was that relatively few people knew how to do it, so there was limited competition (and fairly easy winnings). Then, as the success of the early winners signaled others into the game, it got harder to win.  People started programming computers to find mis-priced assets and the discrepancies filled themselves in moments.  As you might guess, many traders who have tried statistical arbitrage have moved on to other things.

Identifying inefficiencies (or loopholes) in a system is potentially good for everyone involved. It benefits the person who identifies the inefficiency, because they get paid. Yet, it is also good for the system because it identifies weaknesses or areas that need additional attention, oversight, or regulation.  And it provides a feedback loop allowing the parties to course-correct and play smarter.  Over time, this often results in real progress.

Related articles

Seven Fun Facts About Corporate Taxes

The Biggest Takeaways From Apple's Tax Grilling

We Need a Tariff, Not a Corporate Income Tax

What Tim Cook should say: Tax me more, Apple not at all

Here Are Some Links for Your Weekend Reading

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• As One: The Astonishing Power of Swarms. (Wired)
• Edible Insects. Bugs will soon be a more important part of what we eat. (Wall Street Journal)
• The Gut-Wrenching Science Behind the World’s Hottest Peppers. (Smithsonian)
• RNA-Laced Bandages Could Treat The Worst Wounds On The Genetic Level. (Io9)
• The Power of Process: What Young Mozart Teaches Us About the Secret of Cultivating Genius. (Brainpickings)

 

Trading Links:

• Choosing the Next Head of the Federal Reserve. (EconoMix)
• Why Central Bankers Rule The World. (Forbes)
• Eurozone Jobless Rate Reaches Record 12.1 percent. (E-Threats)
• Can Google Search Terms Predict Market Movements? (Quantopian)
• The Biggest Price-Fixing Scandal Ever. There's no price the big banks can't fix - Matt Taibi (RollingStone)

Are You More Worried that China or the U.S. Wants to Monitor You?

Are you more worried that China is cyber-snooping on us ... or that the American government admitted doing it too?

When I travel on business in a foreign country, I assume that my computer use is monitored. Likewise, many organizations are now prohibiting production laptops, iPads, or other personal electronic devices from traveling to certain countries. Instead, the users given a clean travel device and instructions on certain types of communications and activities to simply forgo until they're back in the country.

But here we are safe ... right?

 

 

Many years ago, my father told me he assumed that people could see what he did and hear what he said. With that in mind, he told me, it wasn't hard to act accordingly.

These days, it is hard for me to imagine someone being genuinely surprised to learn that nation-states monitor telephone conversations, email, or Internet usage.

Nonetheless, it is somewhat surprising that digital privacy hasn't been more a higher profile ("real") social issue in our society.

On some level, people are becoming desensitized to 'sharing' ... For example, look how much personal information people freely give out every day via social media sites like Facebook, Instagram, and other social media sites.

The rules of engagement will get more clear as we start to hash out the laws and protections here in America, and the conventions and accords that will at least superficially guide global behavior.

What do you think?

Some Thoughts on the 'Hindenburg Omen' Pattern Predicting Market Instability

Tracking the Hindenburg Omen: How Much Danger Is There?

Warnings were heard from many corners of the financial blogosphere that the Hindenburg Omen triggered.

What is it?  It is a fairly obscure technical analysis pattern, which supposedly gives an early warning of unstable market conditions (and even potentially stock market crashes).

While the calculation is based on five factors, the primary conditions indicate that there is a big disagreement about market conditions.

For example, two of the conditions are that a substantial number of stocks have to be at yearly highs, while a substantial number of stocks have to be at new annual lows.  Ultimately, it is hard for those two conditions to be met in a short period of time, unless there's uncertainty in the market.  Moreover, after a rally, uncertainty is often a precursor to a decline.

In addition, technically (in order for the pattern to be complete), a second sighting of the five elements must occur within 36 days. Logically, lingering uncertainty is a momentum killer.  Well, in this case we have it; the pattern flashed in mid-April and it happend again on the last day of May.

 

 

While this pattern has correctly predicted every big stock market swoon of the past two decades, including the October 2008 decline (that set the global economic recession into motion), not every Hindenburg Omen has been followed by a crash. Resorting to a geometry analogy: All rectangles are squares, but not all squares are rectangles.

Personally, I don't make trade decisions based solely on indicators like this. Nonetheless, it has a pretty good track record, seems to be based on reasonable theories, and might be useful as just another data point urging caution.

Here Are Some Links for Your Weekend Reading

You probably heard that Apple avoided $9.2 Billion in U.S. Taxes with its recent debt deal.  Here is one way to try and fix that ...

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The Wisdom of Psychopaths? What can you learn from someone without a conscience? (SciAm)
• How Many Friends Can You Realistically Have? The Dunbar Number answers. (Businessweek)
• Nate Silver: What Big Data Can't Predict. (Fortune Tech)
• United States Postal Service Is Losing $25 Million A Day. (HuffingtonPost)
• Where Mail With Illegible Addresses Goes to Be Read. Once at 55 centers, one of two remaining centers will close. (NYTimes)

 

Trading Links:

• Bill Gates is Back to Being the World's Richest Person. Remain calm and carry on ... (SeattlePI)
• World’s Richest Hedge Fund Managers & Traders. (Forbes)
• A New Era for Do-It-Yourself Investing. (Wall Street Journal)
• SEC Plans Tighter Oversight of Computer Trading. (CBS News)
• Startup Valuations Remain Strong, But 'Down Rounds' Increase to 28% of all VC Deals. (Geekwire)