Why I Will Never Buy Google Stock (Again)

I think Google is a pretty good company.  At least for the time being, they seem to be able to capitalize on their current strengths (search) as well as have an eye on future growth opportunities (Android).  I think that they are currently fairly valued at about $600 per share.  Last summer, when they dropped below $500 per share over fears about an aging business model, I thought they were undervalued and I bought.  The stock went back up to $600 and I sold.  This spring, the stock dropped below $500 again (same old fears, no new evidence) and I thought: "I should buy."  But I didn't for one simple reason, and I subsequently missed out on the rise back to $600 that the stock experienced when it released its earnings.  And I am not the least bit upset about not grabbing that opportunity.

The reason is that while I think Google's business model is sound, I don't trust the Justice Department to leave it alone.  Google is the new Microsoft, meaning that one day or another, the government will see it as an unstoppable behemoth (tell that to Mark Zuckerberg) worth of an antitrust suit.  The more successful Google's business becomes, the more likely this outcome.  The writing is already on the wall.  This is what antitrust does to strategy and investing.  If the government decides that Google controls too much of search, their goes their revenue stream and shareholders take a haircut.  Frankly, I just don't think it's worth the risk.

It is important to note, I think, that since antitrust came on the scene, most prosecutions are not instigated by the government, they are instigated by competitors complaining that the companies out-competing them in the marketplace are being "anti-competitive" by competing too well.  This is what laws like antitrust do to competition.  Firms succeed based on their ability to lobby the Justice Department and the FTC, not on their ability to provide superior value.  Ironically, most of the antitrust threats against Google are coming from Microsoft.  Now tell me, faced with an environment like this, why would a person of integrity ever want to go into business?  They'd get eaten alive.

Thank Goodness for Congressional Democrats

You heard me. In the ongoing war between politicians' evil and their stupidity--that is, between their desire to control and their complete inability to get even that right--Congress slipped some language into the bill limiting executive pay at TARP-receiving banks that essentially made it easier for banks to pay back the money sooner. The Treasury wanted to hold onto those claims for, well, let's just say awhile. Congress did this in order to justify slapping onerous restrictions on how banks do business. I think they honestly convinced themselves that all the banks needed the money.

So, happily, our benevolent overlords at Treasury announced yesterday that ten banks would be allowed (did you catch that, "allowed") to repay the TARP money that most of them didn't want in the first place. Hallelujah. Naturally, BB&T, The Money Speech's favorite bank bar-none, was one of the ten. Kelly King, their new CEO had a good quote:

This is an important achievement for BB&T....Repaying the government's investment will give us greater flexibility to benefit significantly from future opportunities that will be available as we emerge from this recession. In addition, we will become even more focused on the business of serving our clients, rather than dealing with government distractions.

That's over-regulated businessman speak for "Get the fuck off my lawn, government." A BB&T spokesman had another good line: "I haven't seen anybody swinging from the chandeliers yet, but obviously this was the result we wanted." These quotes are getting more than proportional press time, and I think it's due to the fact that the other spineless bank executives won't call the government out. Regardless, I must say I feel much safer as a BB&T shareholder, safer in the knowledge that the bank will, more or less (it is a regulated institution, after all) be run with my financial interests at heart.

Accounting Bitch #3

Here's an aggravating link from my good friend Billy over at UT Austin. The article discusses Goldman Sachs' change of their calendar, a move that just happens to leave the disastrous month of December as a footnote in their financial statements, enabling them to show quasi-healthy profits this quarter.

What's aggravating is the sheer meaninglessness of corporate financial reporting. As I've said before, the best option for an investor is to look at cash. Look at the cash a firm generates. Poor cash management is what typically brings down corporations, and the current myriad accounting rules only serve to hide poor cash management. On the other hand, the rules can also mask a good cash position, such as in the case of mark-to-market, where banks were forced to write down assets to ridiculously low levels, even though those assets were still generating cash.

Look to cash. Always look to cash.

Tax Bitch #1

Apparently I'm a rich college student, because I owe Barack Obama $400 this year! Most of this is due to a couple scholarships I received which counted as "Other Income" and "Self-Employment Income" (Don't ask, I don't know how that works, either).

In the course of attempting to find ways to escape his Highness' tax collectors, my Dad and I came across a few delightful nuggets of information you might not have known about the tax system in this country.

For instance, if your child has been kidnapped, the residency requirement for child exemptions will be waived, and you can still consider that child a dependent. Phew! I guess it's good you aren't taxed for having your kid snatched.

Also, you can take the child exemption for any child born alive, even if that child dies soon after birth. You cannot, however, take the exemption for stillborn children. Thanks for plugging up that loophole, boys. I can just see a bunch of rich bastards knocking up their wives and then whacking them in the gut with 2x4s just for the tax savings.

Finally, and I am sure I will expand on this much in the future, double taxation of dividends is one of the most evil components of the tax system, not only for its distortion of reality, but also for the perverse incentives it establishes for corporate management. Terrible.

Who Knew I Was Rich?

Last night I did my taxes and discovered, to my shouting, cursing chagrin, that I owed Barack Obama and his government $400. This astounded me, considering I would have thought my meager $8,000 income last year to be below the bottom tax bracket. What I found, however, is that if you get income from interest, dividends, capital gains, and scholarships, as I did most of mine, your income is treated quite differently than if you received the same amount in wages. That, children, is because only evil rich capitalists get dividends, and only greedy Jewish bankers receive interest. In case you were not aware, the deck is massively stacked in this country against frugal individuals such as yours truly, who save their money and invest it, with the hope of one day being wealthy. The government has no desire for you to become wealthy, and would rather you spend yourself into one day requiring a bailout.

Now, this incident got me thinking. I contend that I have no moral obligation to pay taxes, only a legal obligation, under threat of fine and imprisonment. On the other hand, I do take advantage of public services, such as education, so I should pay for those, right? I only feel justified in consuming government product because I, or my parents, paid for it in taxes.

This leads me to my main point: the greater government's involvement in people's lives, the more difficult it is to act morally. Rand may have commented on this; I can't remember. Nonetheless, as Objectivists, we often talk about how capitalism is the only system that enables man to act morally (i.e., in his rational self-interest) This makes sense, since only the individual can decide what is in his interests, that individual must be free to make that decision. But it also applies to how we pursue our self-interest around others. Most of us would delight in never living for another's sake or asking another to live for ours, as the oath goes. The more government taxes us, however, the more we are obligated to. As the government taxes us, we are coerced into engaging in a trade we do not want. But should we then foresake the benefit from the trade?

If you have the means, you might be better off just paying taxes and avoiding any further government contact. For most of us, though, this option is too expensive. It is too expensive for many to pay property taxes for one child to go to school and then pay more tuition for their own children to attend school. So, we reluctantly take the upside of the involuntary government trade and get sucked further into the black hole of the welfare state. Even if we want to avoid living off the state, the growth of the state's influence makes doing so almost impossible. There are select few (two or three, probably) colleges that do not take any government funding, and these are liberal arts colleges. So what is the alternative? Don't attend college? There really is no option but to take the government bait and deal with it.

This is the situation we live in, one in which moral action is slowly being made illegal. Maybe we can do something about it. It will take a lot of work, though.

P.S.: Sorry about the morose post. I just did my taxes, what do you expect? I'll try to be more upbeat in the future.