Capital Mind

Things aren't going well for freedom nowadays. First, a high court banned Vimeo and ThePirateBay, because ostensibly they carried pirated versions of a film no one wanted to see. This case will need to be challenged in the Supreme Court and the rules made more strict and defined, but some freedom was lost, which has to be won back.

Then there was the new set of IT rules announced by Kapil Sibal that, if they go through, will result in your being sent to jail for not asking your facebook friends to vote for the Congress. I'm kidding. Or maybe not. But the bill is out there to take our freedom away, and thankfully, the opposition is being an opposition and opposing this bunch of utter horseshit that Mr. Sibal has no problem smelling.

And then, the US joined the fray with Senator Chuck Schumer proposing a tax on people like Eduardo Saverin, who relinquished US citizenship (supposedly) because of tax purposes. Saverin, who now lives in Singapore, has taken on a Sing passport and let go his US one and the main reason, they say, is so he won't have to pay a ton of taxes when the Facebook IPO happens (tomorrow). But wait.

He does pay taxes. The day his citizenship is relinquished, the US tax law assumes that all his assets (even non-US) are sold at their market value, and full tax needs to be paid on such capital gains. (Only for those worth over $2 million) No other country that I know of has this kind of batshit insane rule. Imagine if India told people - okay, give up your Indian passport but you have to pay Indian taxes on all that you own, at market value, the day you return your passport. People would go blue in the face and tell us how retrograde we are and how we are unreasonable, and how people left India and [Country X] is their new home and what not. But you can't argue that with the US. You have to pay that tax. Saverin WILL pay that tax.

What he will pay, though, is the privately discovered price of the Facebook shares he owned on the day he gave up citizenship. That will be substantially lesser than what his tax would be, if he had said bye-bye AFTER the IPO. So the outrage is that boss, you didn't pay tax that you could have paid had you given back your passport in the future. I mean if that earlier rule was batshit insane, this outrage is beyond ludicrous.

To their credit, the US *can* tax Saverin on any of his gains made out of the facebook IPO. They don't charge foreigners capital gains tax (India does, except those from Mauritius and Singapore etc.). They can. If they did, many people investing in the US will walk away; but to be honest, where will they go? They should charge it when they can.

But Schumer's approach is not that. Schumer's approach is to say: We will find out if you left citizenship because of tax reasons, and if we think so, we'll ban you for life and label you a traitor and cover you with tar and feathers. This, while some of the biggest US corporations hide their money in tax havens abroad so they don't have to pay US taxes. This, while it's evident that Saverin no longer LIVES in the US, and probably gets hassled by US tax authorities to pay taxes on anything he does (because the US, in its brilliant uniqueness, charges even non-resident citizens tax on their non-US income).

The rationale is that the US saved him, so he owes it. I think that is a dumb excuse. India should try that on its IITian citizens and see what outrage that causes. But we don't because, honestly, Kapil Sibal is too busy smelling his brand new IT rules.

Anyhow, we all lose a little bit of freedom every day. It's no wonder the Greeks are telling the rest of the world to go suck eggs.

Legendary fund manager John Arnold told investors that he was closing the Centaurus Energy fund, to pursue other interests. Arnold was one of the "good" guys in Enron, making around $750 million in profits for Enron the year that it died from upper management fraud, and got a (tiny) $8 million as a bonus.

Arnold went on to start Centaurus, and made more than 100% for a significant part of its existence, and more than 50% in each of the first seven years. In 2006, when it made 300%, it took on the giant Amaranth on a bet on natural gas markets (Arnold was short) and made $1 billion.

The last three years have been tough, though. The fund saw its first loss in 2010. (According to one source, just 4%) 2011 saw a sub-10% return, and supposedly in 2012, the fund is up just 3-4% (hearsay) till May.

Zerohedge says it's probably the new commodity player limits (which restrict the size of each player in a market) and the fact that people are getting into energy futures as a way to protect wealth that promotes the natural player's exit. It's that time when demand and supply matter less than the fact that some central bank is doing a quantitative easing and so people rush to buy energy and gold to save their money from the debasement of currency. So you could wager that it's going to be a warm winter and people need less gas, but one Fed statement will take prices up. Much of the game in energy or commodity futures is based on small moves that give outsized return through the use of insane leverage (some positions can be levered 30-40x). So a sudden rush of money in or out of a commodity can make sudden, large jumps unconnected with fundamentals, and thus destroy the old-trader-with-lots-of-leverage. But there's no pitying anyone - Arnold played his game and left it when he could no longer be king.

Also to those saying trading is a bad thing and trying to use Arnold's exit as an example: his net return to investors over 10 years is probably over 40% CAGR. The last three years have been bad but nothing spectacularly low - they would have gained. And of course, a good thing about the trading business is that you can't be wedded to a trade, so you can quit whenever you like and keep the money.

But it goes to say: today, the micro-strategies don't matter. Fundamentals don't matter. The Macro picture trumps the micro. You have to keep one eye on Greece, another on the Fed, and find other eyes for all those big things that might just happen, and react accordingly. The risk is leveraged trading has gone through the roof.