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Unrealized Gain Taxes, Inflation and Betting on Yourself
Level 1 - Definitely NGMI
Welcome Avatar! Luckily a bunch of normie news has taken place. For readers of this website/obscure part of the internet, no one is surprised. Inflation is up big (something we’ve mentioned since the start of the year), gas is at $6-7 in some places and beef/food prices are starting to rise. Jack over on Twitter also suggested that hyper-inflation is coming (with Cathie Wood offering a rebuttal).
Anyway. It is all noise. So. We’ll jump into the big picture to stay ahead of the curve.
Unrealized Capital Gains Tax
In summary, Yellen is suggesting that *liquid* assets of billionaires will be taxed. An “unrealized gain” tax meaning that they will be taxed even if they didn’t sell. For example you buy a stock it goes from $100 to $200 and you’re taxed even though you *did not* sell the asset.
The enslavement plan: 1) print tons of monies $$$, 2) tax you on unrealized gains from assets going up due to money printing, 3) claim you are using it to create infrastructure jobs, 4) get you reliant on government assistance and 5) raise tax on unrealized gains
Now the good news is that this will unlikely occur. The body language that Yellen is projecting = conflict. We could be wrong but that’s our read. Effectively, they are looking for ways to implement a wealth tax and this public statement is a test to see how people react.
Big Problems! While the typical normie will agree with the tax, we should all take a step back and ask the bigger question “Do public companies need to be public?”. Ah ha!
All you’re doing is incentivizing large companies to remain private. This prevents the public from investing in new growing companies and concentrates power even more. (investment banks will not be happy to know that IPOs are being *dis-incentivized*, they need their 7% fees…)
If the government goes after liquid assets, rich people are just going to privatize/make their assets less liquid (stay private and the standard rare art purchases).
Better Solution: This wouldn’t be BTB if we didn’t offer a solution. The better solution is to help average Americans with their *fixed* costs. This means rent. The majority of people *can* survive 5% food price increases. They *cannot* survive 15-20% rent price increases.
This means that the government should be taxing people like Blackrock who purchase tons of single family homes at 30%+ above asking (pricing everyone out of the market). You want to find ways to lower the cost of renting. If you continue to lower the cost of debt (0%, 1% or go full crazy with negative interest rates) all you’re doing is making the rich richer. Wealthy people simply get cheap money and wait it out since inflation eats away at the debt burden. (If inflation rate > cost of debt = rich getting much richer)
Most Likely Scenario?: Now that you have two items: 1) we doubt unrealized gains get taxed and 2) our suggestion related to reducing rental burden… we can move onto reality.
What is most likely to happen? If you want a guess, we’d say that a higher capital gains tax will be implemented. Right now the tax rate is 20% for long-term capital gains (wealthy individuals) that will likely go up. You could also see an increase to short term capital gains taxes as well.
In the end, these are bandaids and won’t do much. The real problem for most Americans is the cost of living (rent/housing in particular). So. We can be certain that won’t be addressed any time soon.
Six months too late, we’re now seeing admission that inflation is occurring. Instead of victory lapping which helps no one we should address some of the strange comments we saw. Starting with Cathie Wood who had a long thread as follows below:
This thread misses the point of inflation (in our cartoon opinion). If you look at what happened since 2008-2009… inflation did occur. In assets.
Technology is naturally deflationary. As we’re seeing in real time the circular loop is real: 1) print tons of money, 2) prices go up, 3) companies need to survive, 4) they get more robots/software to replace people, 5) prices come down, 6) unemployment goes up as people are replaced by robots, 7) unemployed need money/assistance, 8) print tons of money… back to step 2.
As you can see, the reason that prices didn’t rise dramatically is because of technology. If you go back to 2008-2009 the iPhone was just gaining traction. Instead of being forced to buy a camera, a telephone, text messaging plan, books etc. You just put it all on your phone.
Here is a short list of things you don’t need to buy because of the iPhone/smartphone: 1) maps, 2) cameras, 3) HD video recorder, 4) voice recorder, 5) notebook, 6) wifi if you use unlimited data and 7) your physical wallet since you can just use Venmo/apple pay. If you purchased all of those items separately you’d be looking at thousands of dollars, instead you can do it with a $600 iPhone (don’t need the latest generation). Thousands —> $600 = massive deflation offsetting the money printer.
For mathematical proof of how assets inflated in-line with money supply please read this free post:
Conclusion: While prices may begin to stabilize at some point (not right now due to supply chain disruptions), the *value* is going to flow into the hands of the few (again). This means wealth disparity will get worse and as this occurs more and more automation will enter the picture (again).
Betting On Yourself
At this point you should recognize that no one is going to save you. If we couldn’t figure out how to make a paper vaccine card fit in a standard wallet card slot, we’re unlikely going to solve rampant inflation, poor incentives and wealth inequality any time soon.
Instead, the highest ROI is going to be the same *bet on yourself*. Right now there are too many opportunities to count in tech from crypto to e-commerce to becoming an expert in a niche field.
Even if we look at our younger readers (mid 20s) who have made a few hundred thousand on crypto assets, they are *still* better off starting a small business. They don’t need to spend more than $50,000 of their $500,000 to get it started and learn from the ground up. Creating good habits now will create massive wealth over the next 10 years. Without betting on yourself you’ll create bad habits (chasing the next shiny object 100x hail mary vs. creating something sustainable that you can control).
We know how that ends.
For Those on The Fence: Most young and smart people massively underestimate how much they can accomplish in 10 years and massively *overestimate* what they can do in 1-2 years. For that we’d suggest checking out our free YouTube content.
The Future is Bright! As usual, look at life through a realistic and optimistic lens. Short sellers have a maximum return of 100% while long-term investors have infinite return potential. If you follow the smartest people in the world, you’ll be on the right track even if you hit a few bumps in the road.
Best of luck anon!
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions written by an anonymous group of Ex-Wall Street Tech Bankers who moved into affiliate marketing and e-commerce.
Daily Reminder: You ARE EARLY. Too much negativity/cope. Everyone reading this is extremely early. If you stay on top of technology, there is always a new opportunity