There is an email circulating about Australia and guns.  Like many emails, it may err from the truth to make a point.

I am not a statistician, criminologist or a gun owner.  I just want the facts about gun ownership in Australia to be portrayed somewhat accurately.

I’m not making conclusions or taking a stand – just providing some data.

Facts about Guns and Australia.

As a response to the Port Arthur massacre in 1996 where 35 people were killed and 23 people were injured the Australian Government enacted the following policy, by the way since this policy came into effect there has not been a mass shooting since:

“Under federal government co-ordination all states and territories of Australia banned and heavily restricted the legal ownership and use of self-loading rifles, self-loading and pump-action shotguns, and heavily tightened controls on their legal use. The government initiated a “buy-back” scheme with the owners paid according to a table of valuations. Some 643,000 firearms were handed in at a cost of $350 million which was funded by a temporary increase in the Medicare levy which raised $500 million*”

The below link shows that since 1997, gun related deaths and homicides have fallen.  In 2010 there were two handgun related deaths in Australia.

http://www.gunpolicy.org/firearms/region/australia

In 2010 gun related deaths in Australia were 1.06 per 1,000.

In 2010 gun related deaths in the US were 10.26 per 1,000.

The number of homicides has fallen:

Homicide victims from 1993 to 2007 (number per year)

 

Homicides from firearms are a smaller percentage of total homicides.

Homicides involving firearms as a percentage of total homicides, 1915-2003

Source: Adapted from ABS causes of death 1915-2003 data

Violent Crime has gone up:

Violent crimes from 1996 to 2007 (per 100,000 persons per year)

 

The number of robberies is similar today to 1996:

Robbery victims from 1995 to 2007 (number per month)

• Robberies rose again in 2007 to 17,988 from 17,284 in 2006 but remains lower than recorded in the early 2000s.
• The proportion of robberies in 2007 involving a weapon (43%) was similar to that in 2006 (44%).
• The numbers of both armed and unarmed robberies peaked in March 2001. Armed and unarmed robberies follow similar monthly patterns.

 

Again to stress, no conclusions – just the facts – you are free to draw from this data what you will.

 

 

The charts were taken from the Australian Institute of Criminology.

*·  ^ Firearms Regulations FAQ Attorney Generals Department.

 

 

One of the most common investor concerns I hear is that they don’t want to invest until the economy improves.

If the market and the economy moved together they should have a correlation of close to 1, say 0.8. Correlation is measured on a scale of -1 to 1, with -1 being perfectly negatively correlated and 1 being perfectly correlated.  A number close to zero displays no correlation.

I did a correlation analysis of the S&P 500 vs GDP, quarterly and also non seasonally adjusted CPI, monthly.  I picked these times periods as GDP is released quarterly and CPI monthly.  I chose Jan 2007 as a measurement date as that was the year before the last financial crisis began.

Since January 1998, the S&P 500 and GDP has a correlation of 0.19.

Since January 2007, the S&P 500 and GDP has a correlation of 0.23.

Since Dec 1987, the S&P 500 and CPI has a correlation of -0.09.

Since January 2007, the S&P 500 and CPI has a correlation of -0.14.

What can we infer from this? The S&P 500 has almost no correlation to the changes in GDP and CPI.

I am not saying we run out and buy equities today because the GDP print shouldn’t matter to an investor, we should however pay attention to different variables.

One such variable is the Shiller PE ratio, or the Cyclically Adjusted PE Ratio, it is currently at a reading of 23.17. The long term average is 15.87.  This does not portend a market correction per se, but it should be of concern to an investor.

http://www.multpl.com/shiller-pe/

The price you pay for an investment has a higher influence on your return than what the “State” of the economy is.

Less headlines, more math…

 

Perhaps the most dangerous words in investing are “It’s Different This Time”.  This is not to be confused with the excellent book by Reinhart and Rogoff.

Many wonder, what happened to the recovery that we should be experiencing at the moment. Are we not 4 years into an economic cycle that has had massive amounts of government stimulus supplied?  Why do things feel so “blah”.

The difference between this recession and all the recessions that we have suffered, post World War II, is this one was driven by too much debt on balance sheets.  It was not created by a build up of too much inventory or stuff, that companies could lower the prices on and clear out.

A balance sheet recessions is a very tricky beast to unravel from – if you have too much debt you have a limited number of choices, you pay it off, you restructure or hope the assets securing it can be inflated so that you can then sell it for me than you owe – which one is the developed world choosing.

An Excellent Paper on this was written by Irving Fisher in 1933.

The comparison today in the United States has some striking similarities to Japan from 1980, too much debt, government bailouts, zombie banks, low credit demand and supply, super low interest rates and an aging population.  The demographics in the US are not as bad as Japan, but the front edge of the Baby Boomer bulge is clearly hitting retirement and they will want all there social benefits.

I read a terrific blog post this morning about the situation in Japan – how it came to be and what they are doing to rectify the situation.

http://www.economonitor.com/blog/2013/01/the-setting-sun-japans-forgotten-debt-problems/

As an investor we should never let the economic headlines be the sole factor in determining our investment direction.  The US economy had horrible GDP growth of around 2%, yet the S&P500 returned around 16%.  Japan’s GDP may well have been negative for 2012, yet the NIkkei returned ~23%.

Value is a important consideration when making investments, at the moment the market’s appear fairly priced, trading at a 12-14 PE ratio.  It is fairly valued, not cheap, as investors we have to now determine are we willing to buy a fairly priced market with the news in the future of a choppy economy and a looming debt ceiling debate.  I remain optimistically hedged at the moment, just in case…

I have been getting a lot of questions the last few days about changes to the tax code as a result of the recent legislation that was passed.  I have put together a brief email that has some of the salient points and links for further information.

I have included some commentary from David Rosenberg, that summarizes it well.

Then below the commentary are some links – the market watch piece is a great bullet point feature to the changes from the federal level, the Franchise Tax Board link is a good resource on the California Tax situation.

We will need to be cognizant of the changes to taxes going forward and make sure we invest and plan accordingly, for people earning north of $450,000 in California, we may be looking at a tax rate of 39.6%(Federal), 12.3% (State with the chance of another 1% on income over $1m) and 3.8% on unearned income for “Obamacare” – for a total of 56.7% on unearned income over a $1m.  Capital gains will be a lot more valuable than ordinary income, now is an important time to plan the allocation of investments and understand the tax structure of what is being done. We however must pay attention to the fact that we must not let the “tax tail wag the investment dog”.

If you have any questions please give me a call.

 

“But for those individuals fortunate enough to earn above $400,000, tax rates rise to 39.6% from 35%. Tax rates on capital gains and dividends will remain at 15% for income below $400,000, but will rise to 20% for income over $400,000 plus a new 3.8% Medicare contribution tax (as specified under the Affordable Care Act) as of January 1st this year to total 23.8%. Within this income threshold, estate taxes also rise from 35% to 40% with an exemption of $5 million. Keep in mind that even though the top 1% are affected, increasing top marginal tax rates typically have the highest multiplier or ‘ripple’ impacts on economic activity — what makes for good politics doesn’t necessarily make for good economics.

Not only that, but the Bill did not extend the payroll tax holiday as was the case in late 2010. Payroll taxes will immediately rise from 4.2% to 6.2% and represents an average tax increase of $700 on all U.S. households.

So while income tax tables stay the same for just about everyone, 77% of filers will indeed be paying a higher tax bill this year compared with 2012. As per the Tax Policy Center, households that earn between $500k and $1 million, it will see an average $15k hit to disposable incomes this year. For those above $1 million, the average bite is $170k (a couple right at the million mark will pay $37k extra 90% of the tax take occurs at $1 million and up). By the way, even those workers who make between $50k and $75k a year will face a tax hike of $822 in 2013 — oh, that’s about equivalent to an iPad with 3G capabilities, just for some perspective… either that or a year’s worth of daily Spam consumption.”

http://www.marketwatch.com/story/cracking-the-2013-tax-code-2013-01-03

 https://www.ftb.ca.gov/forms/2012_California_Tax_Rates_and_Exemptions.shtml