Guest Post: Time To Focus On 'Return Of Capital'

Tyler Durden's picture

Submitted by Adam Taggart of Peak Prosperity,

I am more concerned with the return of my money than the return on my money.

- unknown (often attributed to Mark Twain or Will Rogers)

The U.S. Presidential race is now behind us. And this morning the world woke up and realized that all the issues the election postponed now lie before us.

In his victory speech, President Obama focused on moving 'forward':

Obama's re-election puts 'forward' to the test


"You elected us to focus on your jobs, not ours. And in the coming weeks and months, I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together. Reducing our deficit. Reforming our tax code. Fixing our immigration system. Freeing ourselves from foreign oil. We've got more work to do."

That's not a bad list of several of the bigger challenges we face: perniciously high and persistent unemployment, trillion dollar annual deficits, a complex and unequal tax code, overdependence on fossil fuels (domestic as well as foreign, I would add), and population management. These are truly prodigious issues that our nation is struggling with, in many cases for decades without resolving.

But that list of woes is not near complete. Add to it our national over indebtedness and insolvency, our eroded manufacturing base, escalating costs of food/fuel/health care, our outdated infrastructure, our failing educational system, accelerating global depletion of and competition for key resources, an aging population, the most dramatic wealth gap in our country's history, and an unsustainable monetary system. For certain, there are also many other competing problems that can be further added to this 'worry list'.

The hard truth is that these problems are not going to be resolved in the next four years, irrespective of whoever won the election last night.

In fact, as Chris so often states, many of these are not problems; they are predicaments. Problems have solutions. Predicaments have only outcomes. Outcomes that need to be managed. And if you're jawboning about 'solving' a predicament (which our politicians have made a full-contact sport out of), you're wasting precious time.

So, the big question is: what approach exactly are we going to use to move 'forward' from here? From what we're seeing so far, the best I can tell is we are going to continue to throw money at these problems/predicaments until it's clear to all that won't work anymore.

The Bush and Obama administrations have seen exploding debt and deficit levels accompanied by staggering issuance of new money by the Federal Reserve. There is little to indicate that this policy is going to change as long as our economic malaise continues. In this way, the government is taking future wealth from our children's pockets.

And it seems increasingly clear that the government will take more of the current wealth from ours, too. Rather than take the pain of reigning in spending, government demonstrates, time and again, its preference to raise revenues via taxation.

PIMCO's Bill Gross predicts the same:

Gross: Fixing 'Cliff' Will Mean 'High, Higher' Taxes


A newly re-elected President Barack Obama will push for higher taxes -- including a dividend-tax hike that will cause a substantial drop in stocks, Pimco's Bill Gross told CNBC Wednesday.


Obama will get little time to enjoy his election victory Tuesday, as he will have to get to work quickly with Congress to avoid the nation's "fiscal cliff" of looming mandated tax increases and spending cuts.


One likely remedy for revenue-raising will be to take the current dividend tax rate of 15 percent and hike it five to 10 percentage points, said Gross, co-CEO at the firm that runs the largest bond fund in the world and has $1.8 trillion assets under management.


"Obama ran on a higher-tax agenda," Gross said during a "Squawk Box" interview. "Marginal income taxes go from 35 to 40 (percent), capital gains from 15 to 20, dividends from 15 to who knows they could go high, high and higher."


Risk-averse investors prefer dividend stocks, which are common in pensions and mutual funds even though they've largely underperformed other market indexes over the past four years.


Consequently, Gross said, higher dividend taxes would make those companies less attractive and thus take the stock market down 5 to 10 percent.


That's "the ultimate danger here for the stock market," he said. "Dividends are sheltered in 401(k)s, they're sheltered in pension funds. At the margins investors pay dividend tax rates. To the extent that you raise them from 15 to, say, 25 (percent), that implies in terms of equaling after tax rates another 5 to 10 percent down in terms of stock prices. We've been very spoiled for the last 10 years."

Last night, California passed Proposition 30, which approved an increase in the income taxes for 'wealthy' Californians (those with income over <$250K). Education is by far the state's top expenditure, yet it ranks at or near the bottom of the nation on most school performance ratings. But rather than tackle the difficult work of determining how to spend their existing budget more effectively, it's far easier for Sacramento to address shortfalls by increasing taxes. Which is why Governor Jerry Brown crafted and championed Prop 30. Pity the Californian taxpayer, who already suffers the highest state income taxes in the U.S.

This is likely a preview of what's to come in future years. As we bump (or slam) into the hard limits of our predicaments, our political leaders will throw greater amounts of our current and future wealth at them. Like a drowning man frantically reaching out for anything that can possibly keep him from going under, our federal and state governments will grab for sources of revenue with equal desperation as they drown under their debts.

The markets are certainly concerned today. The Dow is down over 330 points as I write this.

We are entering the era of investing where the risks are increasingly disproportionate to the downside. The prudent investor should be much more concerned these days with return OF capital, versus return ON capital.

Though, more accurately, the priority should be return of purchasing power. It does no good to get your dollars back if they've been devalued in the interim.

The following steps have become 'no-brainers' at this point:

  • Find yourself a trustworthy financial adviser who will invest your paper capital with these risks in mind (we endorse several).
  • Own some gold and silver as insurance against a currency crisis.
  • Diversify into other hard assets if you're able to, particularly those with potential to produce primary wealth (timber, livestock, vegetables/grain, minerals, energy, etc.).
  • Assess your employment situation – how vulnerable is your income? Invest in ways to make yourself more valuable to your employer, add additional source(s) of income, and/or create your own business. 
  • Invest in increasing your personal resiliency (homestead investments, skill-building, physical & emotional health, and community)

Welcome to the future.

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TruthInSunshine's picture

 "Fiat debt everywhere, yet not an ounce of purchase power to spare."


--Ben S. Fiatski


Tweeting now:


krispkritter's picture

He's back. We're screwed. Bitchez.

(PS. Anyone here who's seen 2016 and thought it wasn't at least close to the mark on the picture it paints of what's in store?)

Ookspay's picture

+1 First you collapse the system and then you rebuild it in a new "more fair" manner. Saul Allinsky 101.

Abraxas's picture

Why invest at all if your primary concern is return of your money? And it's tiring to read all this blame on one guy or a group of guys. Like we were so much better off back in the days when Clinton or Bush were in power. When Greenspan and not Bernanke was the chair Satan. One set of guys dug the hole, the other one doubled it. Oh, if only Romney won, everything would had been normal again. Whatever!

Panafrican Funktron Robot's picture

"Why invest at all if your primary concern is return of your money?"

Because leaving your "money" in a bank account is a form of investment.  And a very fucking stupid form at that.  

Ookspay's picture

When bernanke said he would resign if Mitt won, I began to be a Mitt supporter.

Mercury's picture

Client comes into office today.  His son works somewhere at Treasury in DC.

He says the Obama administration is demanding one scenario report after another along the lines of:

-What if the estate tax were 80%? 100%?
-What if there were no income limit on SS tax?

It's obvious to them that they're going to try and grab as much private wealth as they can in term 2.  They can't pull that kind of shit and have private ownership of gold stay legal.

dark pools of soros's picture

hide thy wealth will be an industry...  quick hire the Greeks!

Ookspay's picture

You got it... I expect executive orders to start flying soon.


Panafrican Funktron Robot's picture

"What if there were no income limit on SS tax?"

I wouldn't necessarily be against this if they lowered the rates.

"What if the estate tax were 80%? 100%?"

Snowballs chance in hell of ever going anywhere.

Urban Redneck's picture

If your capital never leaves your possession you don't have to worry about it being returned.

Abraxas's picture

Agreed! Except if your capital is in a currency, which can then disappear without leaving you (through inflation)

dbTX's picture

Saddest day of my 69 years. I feel America slipping away, I pity the 30 somethings.

falak pema's picture

well you've been around since Reagan took office in 1981, and beyond when Johnson did in 1963... So you can choose n pick, not like this generation.

Abraxas's picture

You've had an excellent life, if this is the saddest day of it. Congratulations on having no major issues in it!

dbTX's picture

Abraxas, I've had issues beyond your imagination, but nothing comes before my love for the American I grew up in. I weep for this once great land.

Abraxas's picture

I hear you, man. But, where the blame for the current condition lies is where the difference between us is. You blame Obama, and I don't see him worse than the other guy, is all.

dark pools of soros's picture

just toss this country and your hairpiece away and go check out the islands...  why dick around here anymore with your social security?

falak pema's picture

If you guys here at ZH believe in what you say and declare that big finance is the cause of our current world problems then you should all support Elizabeth Warren the most outspoken Senator, avowed enemy of the banking cabal, now elected to power.

Anybody who does not support her position is in contradiction with what ZH has always stood for in its main thrust on banking shenanigans. At least thats my understanding and I abide by it and invite you to contradict it if you feel it is not true.

Apart from liberal/conservative considerations she is the greatest proponet of imposing via legislation, aka tighter Dodd Frank amendments, to change the way capitalist oligarchy works today via constitutional means. She will need all our encouragement. 

Not she will achieve all, but its a step in the right direction.

krispkritter's picture

If I vote for her do I get a free tomahawk?

falak pema's picture

if its to scalp a GS shill why not! 

And, you don't have to be a cherokee with high cheek bones!

Kitler's picture

Tougher Dodd Frank ammendments?

Which only begs the question of why she would let Bawney Fwank campaign on her behalf?

falak pema's picture

you trying to wriggle out of choosing between the devil and a liberal? 

Kitler's picture

I'll take her over Brown to be sure, but as soon as she sets foot in her shiny new senate office she will be faced with the need to raise money for the next election, just like Barney Frank.

Strong AIPAC supporter and Israel firster as well.

Needs always seem to trump principles in D.C.

In his last campaign, which raised roughly $4 million, Mr. Frank received more than $350,000 from securities and investment firms, making them his biggest donors collectively, according to the Center for Responsive Politics.

bagehot99's picture

I believe her tribal name is Shitting Bull, if you'd be good enough to respect her Native American heritage. Palefaces have long roamed her lands, building banks and lending loney, and have destroyed her people's buffalo-hunting. As the flying eagle soars through the skies, the ancient ways must be preserved.

At least that's what her grammie told her, and she told it to Harvard to get a job.

It must be really easy to survive in Massachussetts, because Massachussettsians can manage it.

Louie the Dog's picture

you should all support Elizabeth Warren the most outspoken Senator,

...and an unrepentant liar.  If you don't mind I think I'll pass on the support thing.  

falak pema's picture

you prefer the evil that u know to the good that could prevail...amen.

I don't like splitting cherokee hairs.

SqueekyFromm's picture

I'm with you about Warren! The one bright spot in the mess yesterday.

Squeeky Fromm, Girl Reporter

falak pema's picture

thanks squeeky, it seems an obvious choice if we are sincere, and, she is one courageous lady.

marathonman's picture

I believe in unicorns too falak.

Louie the Dog's picture

Like we were so much better off back in the days when Clinton or Bush were in power.

I was. 

Louie the Dog's picture

I wasn't, Louie.

You were probably just having a few off years.  

Yen Cross's picture

  "The Debt rose $4.899 trillion during the two terms of the Bush presidency. It has now gone up $4.939 trillion since President Obama took office."

  Complements of CBS News. National Debt has increased more under Obama than under Bush - Political Hotsheet - CBS News

LawsofPhysics's picture

exponential equations are a bitch and they always increase faster over time.

walküre's picture

Duh! Most of us were until the charade stopped in 2008 and the wheels started to come off.

Big surprise.

JosephConrad's picture

Drunk from a potent brew of PERPETUAL WEALTH, POWER & CONTROL, the Wealthy .1% (.001) of America STOLE more of Other People's wealth than they could carry. In the process, they've brought the world economy to the brink. It must be said, however, that MILLIONS of Poor, Ignorant, Conned & BOUGHT MINIONS across the U.S. and Europe aided and abetted this .1% on their destructive, self-serving mission. In short, 



Yen Cross's picture

 When the peoples gets hungry enough, they has nothing to lose! Tax and spend away you fucktards...

   California is the most screwed up state in the Union. That is why I started expatriating 10 years ago... Everytime I fly into LAX  for semi annual visits my blood pressure spikes.


Zero Govt's picture

California is a slo-mo trainwreck ...second time in its history for the exact same reason, Progressives in office debt-spending the State into oblivion

I wonder if it'll get as bad as Greece with the bloated State sector imploding and fighting itself

Yen Cross's picture

 Good post Z/G. If Cali. was a sovereign economy, it would have been forced to sell off the "Channel & Coronado Islands" a long time ago!

  California is a complete failure, and people are leaving in droves. Civic Report 71 | The Great California Exodus: A Closer Look



marathonman's picture

Oh shit!  The zombies are coming!

Diogenes's picture

He'll just blame everything on his predecessor. Oh wait.

Zero Govt's picture

if you want 'justice' in America, or to avoid it, you just need a big fat wallet (ditto Europe)

if you want 'democracy' in America you're just having a laugh using the democratic process

you have to usurp that silly voting system which marginalises the individual to a powerless speck and get out your big fat wallet (if you have one)

this system is not democracy, it's called Buy a Puppet ...or Muppet!

this ensures you top priority at policy meetings and here's the kicker, once you start awarding yourself taxpayers money it's a virtuous circle of buying puppets and collecting the winnings from societies pockets

Once you start Winning You Can't Lose

Ookspay's picture

I can't attribute this to anyone as I don't remember, but it is poingnant.

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government.  A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury.  From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.  The average of the world’s greatest civilizations from the beginning of history has been about 200 years.  During those 200 years, these nations always progressed through the following sequence: 


§  From bondage to spiritual faith;

§  From spiritual faith to great courage;

§  From courage to liberty;

§  From liberty to abundance;

§  From abundance to complacency;

§  From complacency to apathy;

§  From apathy to dependence;

§  From dependence back into bondage.

Cheers bitchez!

PS: 20 million new mexican Americans by summer!


Radical Marijuana's picture

This quote seems to be a repeating favourite amongst many ZHers:

A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury.

The problem is that is RIDICULOUSLY BACKWARDS!!! The only things that exist today are FAKE DEMOCRACIES, that are actually FASCIST PLUTOCRACIES. These are the central social facts: the government gave away the power to make money out of nothing, as debts, to private banks. Therefore, what actually happened is the OPPOSITE to what this misguided and mistaken quote parrots. What happened was the tiniest group of the best organized gang of criminals, the biggest gangsters, the BANKSTERS, used the methods of organized crime to take over the government, and the entire civilization, from the INSIDE OUT. The voters got brainwashed to vote for puppet politicians, controlled by the triumphant application of the principles of organized crime, through a shadow government system, and then, those puppet politicians voted for the most FANTASTIC GIFT to be given to that tiny elite, which was the power to make money out of nothing, as debts, which fraud everyone else was forced by the government to accept.

It is god damn stupid to blame "democracy" for the triumph of organized crime taking control of civilization. However, I find that, even among Zero Hedge commenters, who are way more educated about these matters than the majority of the people, the plainly obvious central facts about the REAL PLUTOCRACY do not get the attention and respect they deserve. Instead, there is way too much blaming the FAKE DEMOCRACY, and the FAKE LIBERALS, or FAKE CONSERVATIVES, and so forth, for what is going on. More deeply, I find that even many Zero Hedge comments, and for sure, the vast majority of the public, do NOT WANT to understand what is really going on, but rather, want to continue to believe in bullshit, and to hope that the same old bullshit ideals somehow will offer "solutions."

Most of these kind of "return on capital" notions deliberately ignore basic energy laws and general systems theory, with respect to what is going on, namely, civilization is an entropic pump, and return on capital manifests in that context. Moreover, what most people want to ignore most of the time is that energy directs its own transformations, and therefore, the entropic pumps are controlled by entropic pumps. "Entropy" is just the scientific name for "evil." Social systems are ACTUALLY controlled by the people who are the best at being dishonest, and backing that up with violence. "Return on capital" is fundamentally the return on robbery. However, our society specializes in using elaborately coded bullshit to hide from those central social facts. We have FAKE THIS, and FAKE THAT, everywhere one looks, because the reality is ALWAYS organized systems of lies, operating organized robberies, and the ONLY real solutions are to evolve dynamic equilibria between those systems. However, since the entire public discourse is dominated by the biggest bullies, there continues to be ridiculously misplaced attention given to the FAKED things, like one bullshit ideology or another, instead of facing the fundamentals of the real systems. Of course, that too is paradoxically consistent with the central social facts that society ends up being controlled by fraud backed by force, and that those who do that the best are those who hide that the most! Of course, Emperor Obama's speeches are one of the best examples of that. Those speeches are carefully crafted to appeal to their audience. The same nonsense is repeated over and over, and that works, while the reality heads in the opposite direction faster and faster.

The prudent investor should be much more concerned these days with return OF capital, versus return ON capital.

The prudent investor should be much more concerned with the fact that the real system has become runaway robbery, because the money system is backed by the murder system. Saving their lives is more at stake now than their life's savings! Emperor Obama symbolizes the breakdown of the rule of law, and all constitutional protections, so much so that there is no longer any possible practical ways to be a "prudent investor!" The accelerating destruction of the rule of law will turn into a monster that will devour itself! Since the majority of Americans do NOT WANT to understand that, there appears to be nothing realistic we can do to prevent that!  As this runaway fascist plutocracy juggernaut accelerates down its slippery slope, we will be lucky to get a return of our life, rather than a "return of capital."

Ookspay's picture

Pretty long cut and paste there, I'll simplify. Liberalism hijacked and tainted democracy when it fooled and bribed the population with freebies and goodies. As long as the goodies continued, no one checked up on the government and it became irreparibly corrupted by big business.

zebrasquid's picture

How will Obama keep a straight face in January when he pledges on the bible(same one that George Washington used) that he will preserve and protect the Constituition?

He should be impeached when he grossly and willfully breaks that pledge.

topspinslicer's picture

Time is at hand to define what money is -- it sure as heck isn't the fiat obama paper stink cheese called the paper dollar currency -- like cheese goes bad in a few days time so too does the obama paper fiat stink cheese which should be converted as soon as possible to your daily and long term needs in the realm of tangibles ranging from food and clothes to gold and silver and a few dozen items in between the two. Real money is not currency and obama is about to prove it to you beaches!!!!!