Ad Hoc Commentary – casse-toi riche con! (get lost, rich jerk)
That was what the leftwing newspaper Liberation said on her front page
on learning that the owner of LVMH luxury group of Louis Vuitton fame
is seeking Belgian nationality just a day before President Francois
Hollande confirmed a 75% tax band for those earning more than EUR 1
mio a year:
And yesterday, we learnt from The Telegraph that two thirds of
millionaires disappeared from Britain after the introduction of the
50% top tax band:
The source of our problems is simple – compound interest and
demographics. But no politician with his eyes on the next elections
will want to solve the underlying problem. Instead, they are all using
the tax levers on the minority to keep the sovereign debts going. What
they are doing is effectively chasing out the rich. And when there are
no rich people to tax, they will have no choice but to levy rich-men
taxes on the middle class.
As long as governments can collect the taxes, the bond markets will
survive and even flourish. The breaking point of the bond markets will
likely be driven by the majority revolting against taxes. Interest
rate traders have the toughest job in the financial markets. Common
sense would say pay interest rates and sell sovereign bonds in a
sovereign debt crisis. However, as long as governments can increase
taxes, bonds are perhaps the best investment one can ever make in
these volatile times.
For the rest of us, it is much easier to make money by buying emerging
market equities and fx in 2013. Yours truly like India and Indonesia.
Fixed income traders would probably have to ignore common sense and
faithfully buy every dip of the bond market in 2013, like they did
successfully since 1981. Contrary to popular belief, the interest
rates in the developed world will not explode on higher inflation. It
will only explode much higher on a tax revolt by the majority. As of
now, the onerous taxes are levied on the minority, and a tax revolt by
the majority is thus unlikely. In the meantime, the mobile rich are
revolting with their feets, bringing wealth and jobs to countries that
receive their migratory flows.
Good luck in the markets.