| | | Kinda OT Re: Cap gains tax (causing overpricing/"price dislocations")
Reading Devil Takes the Hindmost (an absolutely brilliant book that is up there with Intelligent Investor for me*), one is tempted to draw the conclusion that one of the driving forces behind your awe-inspiring bubble is cap gains tax. Among the many similarities with Japan in the 80's –– the only bubble in DTTH that made the impression on me of being notably more extreme than the current one –– were cap gains taxes. For them, as I understood it, it was mainly an issue with real estate. (We have a similar thing in Sweden; cap gains on pretty much everything, housing included, but, for all practical purposes, not equity. Not sure about the rest of Scandinavia/rest of EU. However, nowadays you can "defer" those taxes pretty much indefinitely.)
Imposed to encourage "long term-ism", and discourage speculation, it was most likely one of the reasons for pushing prices so far above their 'intrinsic value' as to make the very concept seem ridiculous.
We have seen a similar thing in Swe where rentals are very heavily regulated, but real estate, contrarily, is very advantageous. The govt basically forces everyone (who can get a loan) to purchase instead of renting, pushing up prices way above what is reasonable for decades. Housing prices is now 7 times avg income I think. I do research on it sometimes, am scared out of my mind, then try to forget it.
Very similar to Japan during 80's, govt/CB's seem to be pushing up prices in almost all cap. markets, resembling a very drawn out pump and dump scheme.
Bubbles can only become this big when govt's cause them/look on approvingly and help inflate them.
It's problematic, because at the same time, cap gains taxes seem to be about the only way we can fix this broken world of ours IMO. Any thoughts on the matter? I guess it's kinda OT, so if anyone is interested, I'd love to take the discussion private, or to another board.
___ ___ ___
* I especially recommend everyone to read the first part of chapter eight, which pretty much brings the whole book together, before the rest of the chapter catches us up to the modern time, beginning with Bretton Woods, which in Chancellor's view – he makes a pretty convincing case for it – is the start of the 'speculative period' in the West, and ending with the last, most magnificent rocket of the fireworks display: the Japanese one. Then he finishes the book with some warnings about derivatives, which, made in 1999, echoes eerily foresightful. The most masterful work on financial history I have come across so far. Everyone should read this. |
|
