A book that is 27' wide!

I recently passed another ChFC exam, this particular test was on Income Taxation. Let me tell you, there are way too many damn laws revolving around the tax code. In my opinion it is a complete mess. Just to give you an idea of how complex the laws are take a look at the graph below. This graph illustrates how many pages of rules there are in the “handbook” and how it has changed over the years. I put parentheses around the word handbook, because it is no longer an actual book. If you were to bind a book using the average sheets of copier paper (.0038 inches thick) the book would be nearly 23 feet thick! The average bible is no more than a few inches at most. I hope that gives you an idea of how complex the rules have become.

Here are some quick outrageous facts about the income tax thanks to my friends at CATO Institute:

1.       There are more tax preparers in this country than there are troops that went to Iraq

2.       There are over 526 tax forms, most of which are catered specifically for special interest i.e. “form 8845-Indian Employment Credit” or “form 6197-Gas Guzzler Tax”

3.       The tax code is discriminatory: Singles are worse off than married couples, homeowners are treated more favorably than renters, the list goes on and on.

4.       For 7 other wild facts check out CATO’s article http://www.cato.org/pub_display.php?pub_id=3063

Should you listen to the “pros”?

Nobody has a crystal ball, and for all their "science" you would think anybody who read a finance book or listened to the analysts on the internet would be rich. There are only theories out there in the finance world, nothing fully proven. The worst part about it is there are always contradicting theories, one professional will say the market is going up, the other professional will say it is going down. What are some of these theories in which they base their predictions on?

Fundamental Analysts – Expert Stock Picking: They use real data to evaluate the intrinsic value of a security, they believe by looking at financial statements of a company and plugging numbers into a formula they can somehow derive what a company is worth and find the ones that our undervalued. The problem with this: These analysts use numbers that are available to everyone else i.e. sales, cash flow, dividends, etc. Now with this information available to everybody how is it that so few have succeeded in “out-performing” the market. Problem #2: the stock market is affected by so many external factors outside of the company’s control, i.e. Europe’s debt and how it affects a declining stock markets can’t be found in Walmart’s balance sheet.

Technical Analysts – Expert Market Timing: They use historical data and statistics generated by market movements to try and predict future patterns. They disregard what a company is intrinsically worth and attempt to predict the markets activity. The problem with this: companies can outperform in a market, or can be uncorrelated, meaning that while the market as a whole might decline a successful company can still be profitable.

Efficient Market Hypothesis: It is impossible to “beat the market” because stock markets always incorporate and reflect all relevant information made available. Weaker forms of the theory suggests that only those who have “non-public” information can outperform consistently. Fortunately or unfortunately the government has made the latter statement illegal.

Some good articles to read for 2012

I missed the last two weeks for posting an educational blog, and I apologize for that. Thanksgiving week I was in Mexico, and last week I was simply trying to catch up.

Anyways, below are some great articles for you to read. These articles are simply some things to keep an eye out for in 2012, next year is going to be a big year in both budget decisions and reactions.

1. How The US Budget Process works.

2. How The Economy Would Change under Newt Gingrich

3. What retirement changes are occuring in 2012?

4. Europe's Debt is out of control...but we're actually the 4th most leveraged developed nation!

Things I'll be keeping my eye on is how Europe's leaders are going to handle their mess, whether or not Congress will try and do something the "not so super" Super-Committee failed to do, and how the 2012 Presidential race will go down.