Weekend April  13, 2014

Social Mood

We have been writing for some time  about a downturn in social mood. That downturn is now on display world wide. From massive demonstrations in Caracas, Venezuela to protests in Cuba to the unrest across North Africa to the refugee campus in Lebanon and Jordan to the take over in Crimea and now potentially the Ukraine, we can add, yes the US. 

The Federal Government in the US has a horrible track record of violence against citizens when push literally comes to shove. 

Kent State Shootings 1970 Ohio National Guard

Ruby Ridge 1992 USMS and FBI

Waco Siege 1993 ATF, FBI

And then there are the failures to connect the dots

http://en.wikipedia.org/wiki/World_Trade_Center_bombing 1993

 9/11 2001 A total failure from the National Security Advisor on down

In an election year it dawned on someone in Washington DC to stop what might have been the US Tunisia moment ( a Tunisia street merchant set himself of fire literally igniting hte revolts across North Africa).

Protestors Block I 15, Government Backs Down Please read this article to get a real hand on the social mood pulse. I just read a liberal columnist dismiss the Secede bumper stickers, he or she is clearly not paying attention. This confrontation in Nevada began with the FEDS armed with Tasers, it ended with 

both sides brandishing weapons. Consider this quote from the article. 

We the people in this area have nothing to fear,” said Bundy, wearing a cowboy hat and a T-shirt bearing his family name. “We can carry our weapons if we like because we have Second Amendment rights, and those are God-given rights. Those Second Amendment rights are our rights. But, and I say ‘but,’ because we don’t have to carry them right now because we’re afraid. I’m telling you that right now. Because there’s been a lot of people who’ve been afraid, and I know that feeling. Just yesterday evening I was really afraid. … Today, we have been confirmed by our creator that we do not have to be afraid.

 

Remember the campaign comment about guns and bibles?  Well here we are…

The 1966 – 1982 era finally, jmake that quickly by  1968,  witnessed the US Capitol ringed with Marines and Machine Guns .

I bring all this up not to be on one side of the political spectrum or the other, just to re count what did and could happen in a period of negative social mood.

And now on a different note, a sure sign of the coming top of a market occurs when dentists get involved. And so we have

 

If you don't have an oil well 

 

get one

 

You'll love doing business with The Western Company

 

Ad by Western Company in the last oil boom delivered by hot pants wearing female model

Oil Boom USA Own Your Own Oil Well, Tax Advantages 

The end of any mania is concurrent with the entry of amateurs entering the field. In the 1970s marginal tax rates beyond 50% resulted in all manner of 'tax shelters.'  They worked by offering a huge write off that would off set or reduce ordinary income. This is the source of my comment about dentists and other high ordinary income individuals. The tax shelter always offers some sort of write off like accelerated depreciation This is why the Tax Act of 1986 created a new no you can't and don't you dare set of depreciation tables. That act put the wooden stake thru the heart of tax shelters.

But like Freddy Kreuger, they are back. With Federal Rates at 39% and state and municipal rates, think CA and NY, pushing total taxes over 50%, the lure of write offs comes again.

The idea of a tax shelter ias that one receives an ordinary write off in the beginning for a fixed sum of money. Then the money should be recovered through lease payments or an eventual sale of the capital asset at, you guessed it, a higher price.

An oil deal works like this As they ad says, you get to deduct 85% of Intangible Drilling Costs IDC. Trust me they will find a way to spend the other 15% of your money. You now have your write off. Hopefully when the well comes in, you will experience years of fat pay checks, again somewhat offset by operating expenses. There may or may not be fat paychecks but I can promise you, there will be operating expenses.  Additional promises are usually made that one will eventually sell the asset bet it a 

railroad car

shrimp farm in Hawaii (really such things were created)

jet airliner

real estate

or in this case oil well

and experience a capital gain at lower tax rates. Get it, an oridnary write off up front in exchange for cash payments and an eventual capital gain. 

Except I never saw a tax shelter that resulted in anyone making a gain. 

But again, all the social mood extremes of the last era of 1966-1982 are coming back again.