All Taxes are Arbitrary

A system of incentives, if you can keep it.

Jan 22, 2023

With the Union Budget around the corner, media talking heads and influencers are busy throwing out content about what they want our Finance Minister to do. But our budgets have always been about a cash-grab here, a subsidy there, a splattering of schemes to placate vote-banks that seem dodgy, blue-sky vision statements that would make Lenin blush, all ending with CEOs praising it as the second coming of the Christ. Are we expecting anything different this time?

The evolution of Captial Gains Tax in India exemplifies the adhoc and capricious approach towards taxes in general.

A well thought out system would begin with ideology, leading to laws that help frame regulations that formulate taxation & incentives.

As long as our ministers and bureaucrats treat the country as a personal piggy bank that they can raid to payoff special-interest groups that help them win the next election cycle, we are not going to make sense of any of this.

Case in point: the lip service given to growing the “retail corporate bond market” over the last 20 years. The elephant in the room is the tax differential between buying a bond mutual fund (growth) vs. buying a bond straight up. Until this gap is fixed, the whole thing is an exercise in keeping retired bureaucrats busy in chai-samosa committees.

Color me a cynic, but this Cirque du Soleil act is getting old.

Markets this Week

More here: fixed income, currencies and commodities.

The best performing country ETF so far this year: ARGT (Argentina).

Links

Costs matter.

Lawrence Hamtil @lhamtil

One of the crazier stats from Chancellor's Devil Take the Hindmost is that during the Japanese equity bubble of the late 80s, during which the market returned ~20%/yr, many if not most of the popular investment trusts in Japan returned < 4%/yr due to churning, fees, etc

Cashflows matter.

Ensemble Capital @IntrinsicInv

Fascinating chart showing how post-Dot Com bust and recession, unprofitable tech stocks that proved to be long term profit generators did just fine over time, it was the structurally unprofitable stocks that never came back. It always comes back to future cash flow.

Brad Gerstner @altcap

Over last 5 yrs $BKNG has nearly doubled gross bookings while keeping the number of employees flat and spending less than 10% of annual FCF on stock grants! Leaving tons of profits to reinvest AND benefit shareholders. Every tech board should compare themselves. #goldstandard

Thomas Reiner @treiner5

It's easy to point out companies with wild SBC and dilution, but let's reframe to the positive: $BKNG has been the role model for dilution and compensation alignment for well over a decade. https://t.co/0lrOeMRJki https://t.co/iS2GLurCmo

Gergely Orosz @GergelyOrosz

Gorillas, Getir and every grocery delivery startup struggling to turn a profit is a reminder on why supermarkets never implemented instant delivery, but have time slots, minimum orders & need to order X days ahead etc. They only do delivery if they turn a profit from day one.

Where are the jobs?

The rising unemployment in India belies other indicators suggesting the economy is undergoing a healthy rebound from the COVID-19 pandemic. Instead, the surge in people looking for work, many of them rural migrants, raises concerns about consumption and longer term growth prospects.
Despite India's economic growth, few jobs and meagre pay for urban youth (reuters)

It used to be called organized crime: the omnipotent empire known as Ticketmaster/Live Nation (thread)

After BREIT, it’s now the turn of SREIT and KREST to halt investor withdrawals.

The nontraded REITs had strong performance in 2022 despite a sharp drop in comparable public REITs. The Starwood REIT returned 6.3%, the KKR REIT, 8.3%, and the Blackstone REIT, 8.4%. Apartment REITs had negative returns of about 30% in 2022, and the broad Vanguard Real Estate exchange-traded fund (VNQ) was down 26%, including dividends.
Starwood, KKR Retail Real Estate Funds Limit Investor Withdrawals (barrons)

Free trade and industrial policy can co-exist. The problem is always the incentive structure.

The Economist: America turning protectionist is bad for the world.

Michael Pettis: U.S. policies to reduce its deficit actually enhance free trade.

Atif Mian @AtifRMian

A 🧵on accounting vs economics when it comes to balance of payment crises There's a temptation to look at financing or current account deficits and say, "we are short X billion dollars, let's bridge that gap through administrative actions by curtailing imports"

Bert Hofman（郝福满） @berthofmanecon

Interesting new paper on industrial policy. The authors use machine learning to assemble a database on industrial policies 2009-2020. IP has been on the rise since 2010, is using multiple tools, and the top user of such policies is of course...Germany. osf.io/preprints/soca…

Investing!

Bruce Greenwald’s lectures and talks in one place: thread.

The premium rate of returns generated by equities over the long term is a function of the elevated level of anxiety that equity owners must manage relative to bond investors.
The Equity Anxiety Premium (intrinsicinvesting)