WASHINGTON, August 26, 2014 – There are days when the Market Maven wishes he was a much better satirist than he is. Today is one of those days. After yesterday’s news about Burger King’s (BKW’s) blockbuster deal to merge with Canada’s doughnut king Tim Hortons (THI), we learned the rest of the story this morning.
To wit: Mega-billionaire Warren Buffett is helping BKW swing the transaction by buying $3 billion worth of brand new, exclusive-to-Warren BKW preferred shares. Nice work if you can get it.
President Obama would have proudly proclaimed Warren Buffett a true patriot in his bailing out of the banking system with expensive loans and his ‘realization’ that those earning more than $1 million should be tax-tax-taxed. However, the “Buffett Rule” appears to have one caveat… if you are making over a $1 billion, you’re good to go with tax-avoidance strategies. In one of his career’s most hypocritical moves Warren “tax-me-more” Buffett has decided that putting his money where his mouth is no longer makes sense.. and is funding $3billion of Burger King’s “tax-inversion” takeover of Canada-based Tim Hortons.
Yup. Warren Buffett—who is still disputing taxes he has owed to the IRS since 2005 and who famously urged the Obama Administration to tax the dickens out of wealthy dudes like himself—is supporting a take-out restaurant deal where escape from the confiscatory U.S. corporate tax rate is a major feature, not a bug. You can’t make this stuff up.
Zero confirms the approximate value of the Buffett deal:
Buffett’s Berkshire Hathaway would invest about $3 billion for a preferred stake, said one of the people, who asked not to be identified because there wasn’t a public announcement.
When the likely deal is finally consummated, the super-sized BKW-THI corporate HQ will magically disappear from the U.S. and re-appear in Canada. Buffett’s preferred shares will likely be structured in such a way that they pay out dividends to one of his corporate entities, not to him. So his income from them wouldn’t be taxed if it’s retained by said corporate entity.
Meanwhile, BKW-THI’s corporate taxes will largely be determined by the significantly lower Canadian corporate tax rate and the combined entity will escape the bulk of the onerous tax the U.S. insists on imposing on its businesses—one of the highest, if not the highest rate in the world.
Again, ZeroHedge underlines this point:
Buffett has supported Obama’s push to increase personal income taxes for the wealthiest individuals while striking deals that reduce Berkshire’s obligations to the government. This year, his company limited taxes on more than $1 billion of gains in Graham Holdings Co. stock by swapping the shares for assets owned by the former Washington Post publisher.
As we’ve stated many times before, whenever you hear left-liberals like Warren Buffett—who is rich beyond avarice—sanctimoniously begging to have his and other mega-rich guys’ taxes increased out of “fairness,” it’s all one big blast of hypocritical hot air.
That’s because he’s talking about paying taxes on his “earned income,” i.e., 9-5 “paycheck” income that he, like you and moi, has to report on his annual 1040 long form. But, since most of Buffett’s wealth is buried in various Berkshire-Hathaway corporate entities and God knows where else, his technical take-home pay ends up to be surprisingly modest. It’s certainly much greater than yours or the Maven’s. But it’s only the tiniest fraction of Buffett’s net worth.
As long as most of his profits remain within a corporate structure and does not show up on that 1040, and as long as most of it remains in the form of unrealized capital gains—i.e., black ink on the P&L statement but not yet sold or redeemed—taxes on billions of Buffett dollars are, in effect, perpetually tax deferred.
That’s why Buffett has made a fetish over the years of his tactic of buy and hold practically forever. Even a poor but not fatal investment will eventually turn profitable over time with decent management, if only due to the effects of inflation. And that, essentially, has been the secret of Buffett’s success.
Please note. Although we fulminate against Buffett’s machinations from time to time, this doesn’t detract from his business and investment skills in the least. Buffett is an absolute master of:
- Purchasing undervalued businesses with skilled managers and then supporting those managers to dramatically grow those businesses to their full potential.
- Finding absurd values during market panics and pouncing on them.
- Using each and every corporate loophole in the book, plus the Democrat politicians he supports to send business to his entities and to help him LEGALLY evade as much taxation as he can, while he ensures any legislation passed by Congress and signed into law preserves all the advantages of his businesses under current tax codes.
That, plus his readily acknowledged business acumen, has largely led to his success over the decades. This is a guy who knows, perhaps better than anyone save the Evil Incarnate otherwise known as George Soros, how to play the system.
Even as we fulminate against Buffett’s hypocrisy, however, we need to make one thing clear again. To the best of our knowledge, Buffett plays pretty clean. He knows where all the rules and tax codes are buried, and exploits them better than most to his and his companies’ advantage. It’s all legal, and it’s all in the tax codes where taxes are concerned.
What drives us wild is when Buffett, and all the rest of those phony left oligarchs, including the bulk of mega-rich entertainers and movie stars, boast that they’d be happy to pay a lot more taxes to save the country.
All that drivel is 105% freeze-dried BS. The government could tax the super-wealthy by confiscating 100% of their take home pay; that is, their 1040 adjusted gross income. But the super-wealthy would scarcely feel it. Most of their wealth doesn’t appear on a 1040, so it would evade the 100% tax.
That’s why they can urge the Feds to tax both them and their buddies to the moon. Such apparently magnanimous pronouncements mean nothing at all. Except for the PR and spin value accorded to this false piety via the media.
Buffett’s “tax the rich” nonsense is sound and fury signifying nothing. It makes him look good to say such things, and probably also makes him feel good if not virtuous.
But this sort of thing has become a specialty of the mega-rich left over the last few decades. They want to appear virtuous without having to suffer the pains, economic or otherwise, that the truly virtuous must actually endure.
It’s a bit like the Pharisee and the publican. The rich Pharisee thanks the Lord that he’s not a lousy, unfashionable, and definitely impoverished rube like the clown in the back of the synagogue. For him, outward appearance reflects inner virtue, of which he actually has none.
When it comes to sanctimonious pronouncements made by mega-rich tycoons and movie stars, remember the Pharisee. It’s all for show. Don’t listen to a word these condescending hypocrites say. It’s by their actual deeds that you’ll really get to know them. (Although the MSM will rarely report them.)
Today’s trading tips:
Same as yesterday, virtually zero. Very light trading today. Therefore, every trade is suspicious.
At some point, perhaps just after Labor Day, perhaps a bit later, the market’s current free float upward will likely be jolted by something—Ukraine, ISIS, Argentina, the secession of suburban St. Louis from the rest of the U.S.—or even a more specific hint on when those interest rates are supposed to go up.
Whatever it is, you want to be prepared to move to cash, head for the exits, put on hedges, or all of the above.
We’re sneaking into a couple of floating rate ETFs which we’ll discuss at greater length shortly. Meanwhile, however, we’re looking to exit a few profitable positions or issue covered calls against them to lock them in.
Otherwise, we prefer to wait for next Tuesday after Labor Day (September 2). All the traders should be back by that time, and market action might be a little more subject to accurate interpretation.
Stay cool. We’ll be back this week if and when needed. Meantime, watch for more inversion deals. It’s what happens when the people we elect play golf and call their opponents nasty names or even sue them for doing their jobs.
Voting for or against something puts you on record and could lose you more votes this fall than you might gain. So, apparently, most of your Senators and Reps, and most certainly this disastrous excuse for a President, will take great care not to do a thing until after the first week of November.
And that’s when the clueless voters who routinely endorse left-leaning pols will find, once again, that they’ve been screwed.
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