Let's call America a shopping mall. Should some people shop for free? Or, call it a school, is it good that some students graduate without going to class or taking exams. Paying, or learning, it's just so middle class!

We're all so nice now to lower income people. We must want more of them.

The ugliest effect (and it's not a "side" effect or an "unintended consequence") of exempting lower earning people from income taxes is not that it shifts the burden up the ladder, it's that it cuts the rungs off the ladder which is the escape route up and out. More people making more money is good for society. Making it easier to not strive is not good. Obesity, it seems, is driven by cheap food, and grows fastest if both brain and body are inactive.

The flat tax addresses this. Obama wants to make it worse, shopping for voters by his tax plan to cut 17 million more in on a free ride in America.

So, what will the successful, smart rich thin man bring? More dependent, stupid, fat people. Er, voters.

Dear Investor,

This letter is to inform you that the wheels have come off of the proverbial wagon at ACME Systematic Leveraged Macro Momentum Fund LP, and that the same awesome thematic portfolio that made you feel (in the first half-year) as if you'd become very rich in comparison to those sucking wind on their leveraged MBS portfolios or Japanese Small-Cap Value Funds, has, quite literally, spontaneously combusted in our faces.

Our long-oil (PBR, SU, SWN), long coal (MEE, BTU), long fertilizer (POT, MOS), and long iron ore (CLF, RIO) positions have been crushed (no pun intended), and though we remain hopeful going forward as the story remains "in tact", our models have forced us to sell some in response to prevailing price action. Our offsetting shorts in selected financials (MS, BLK, GS, and LM) have not fared as we expected, while our core retail and consumer discretionary shorts in AZO & URBN, DECK have quite literally been lodged deeply and inexplicably in an unmentionable orifice.

If that were all we'd not be too sullen, all things considered, but unfortunately our short US dollar positions (vs. everything), our JPYNZD & CHFAUD carry trades have also not performed to forecasted expectations, and both our our long-only, and zero-exposure long vs. short commodity baskets have imploded with a rapidity that would even frighten Taleb to vows of silence. Oh, and if that weren't enough, our gold and silver longs, too, have gone south as if trying to re-embed themselves in the ground, whilst the short Russell-2000 ETFs we've been using as a hedge have been behaving all-too priapically. These losses of course are not as bad - relatively speaking - as some of our peers (who regretfully are no longer in business) and should of course be viewed in the proper context of our delft avoidance of long exposure in the worst of the RMBS and CMBS sectors, our eschewing of becoming a CDO issuer/manager, and our resolve to avoid anything denominated in Icelandic Kronor. Unfortunately we still have a large (leveraged) position in high-yielding cov-lite loans, US sub-prime credit-card-backed receivables for which we remain unable to obtain sensible bids at levels near to where our auditors and administrators agreed that we should pay our prior year's incentive fees. Only our long Japanese REIT portfolio and our unlisted fund of Spanish Olive Groves have held their ground, though regretfully we refrained from hedging the currency risk, and so these too, are now in the red and eroding rapidly.

We have no explanation, since our trades are systematically based upon doing what others are doing (only, hopefully, faster... though, in this instance, not fast enough). Nor do we offer you apologies. You [presumably] knew the risks, and felt the glory (if only for a while). We do lament the the now-sky-high high-water mark, and the absence of performance fees (this year).

Finally, saving the best for last, we will be suspending redemptions as per the Force Majeureclause 6(c)-2 of the Private Placement Information Memorandum of the Fund. We trust you'll agree that only something supernatural could have torpedoed such a finely constructed portfolio put together by the best and the brightest Wall St. has to offer.

Yours sincerely,

Hugh G. Fallis - Managing Partner

The harmful effects of our national safety obsession ripple outward into society. One in six children in America is obese, and many of them will face a lifetime of chronic illness. According to the Center for Disease Control, this problem would basically cure itself if children engaged in the informal outdoor activities that used to be normal. But how do we lure children off the sofa? One key attraction is risk.

Risk is fun, at least the moderate risks that were common in prior generations. An informal survey of children by the University of Toronto's Institute of Child Studies found that "merry-go-rounds . . . anecdotally the most hated piece of playground equipment in hospital emergency rooms -- topped the list of most desired bits of playground equipment." Those of us of a certain age can remember sprinting to get the contraption really moving. That was fun. And a lot of exercise.

America unfortunately is going in the opposite direction. There is nothing left in playgrounds that would attract the interest of a child over the age of four. Exercise in schools is carefully programmed, when it exists at all. Some schools have banned tag. Broward County, Fla., banned running at recess. (How else can we guard against a child falling down?) Little Leagues forbid sliding into base. Some towns ban sledding. High diving boards are history, and it's only a matter of time before all diving boards disappear.

There’s an easier way to calculate the equivalent electricity demand for automobiles. You can get the monthly sales of gasoline from the EIA web page.

I’ll pick the lowest value over the past six years (annual thousands of gallons per day) and round down. 57,000,000 gallons a day. According to the EIA, 1 gallon of gasoline is 124,000 Btu. So the US uses 7,068,000,000,000 (7.068e+12) BTU a day of gasoline.

The internal combustion engine efficiency is typically less than 20%. But I’ll assume an overall efficiency of 5% to be conservative. So of that energy content of the gasoline, only 353,400,000,000 (3.534e+11) BTU does work.

The average nuclear plant produces 1,000 to 1,200 MWe. I’ll use the upper number. If it runs for 24 hours, that’s 28,800 MW-hr, which converts to 9.553997e+07 BTU Assume that the energy transmission, storage, and use in an electric car is 100% efficient, so that all of that electrical energy can do work.

Divide that into the BTU total and you find out how many nuclear plants you need to replace 100% of the gasoline: 3,698.

Since the process can’t be 100% efficient, the actual number would be more than that. Full disclosure, I work for a company that might benefit, so I wouldn’t be opposed to such a plan.

I don’t agree with Mr. Brill’s calculation of the marginal tax rates on the revised Hope credit. The actual marginal tax rates appear to be much higher than quoted by Mr. Brill.

In the case of a single person’s return, the $4,000 educational credit would phase out over $10,000 of AGI if the phase out rules are the same as with the Hope credit. (IRC 25(d)(2)) That represents a 40% marginal tax rate. And, the Hope credit is a per student credit, not a per taxpayer credit. So if a parent has two children that qualify for the revised credit, the maximum $8,000 tax credit would be phased out in a range of $10,000 for a single parent (80% added to marginal tax rate) or $20,000 (40% added to marginal tax rate). Thus, you have the situation where a person has a marginal tax rate of higher than 100% for a single parent with 2 children in college over that $10,000 phase out range. Obviously, that doesn’t make economic sense but that appears to be the result.

Dear Sir

Hope all well.

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I guess watching his colleague Lindsay Graham screw up the energy debate with his participation in the Gang of Ten finally got to South Carolina’s other Senator, Jim DeMint.

Politics has its puzzling moments. John McCain and most of the GOP experienced one late last week. That was when five of their own set about dismantling the best issue Republicans have in the upcoming election... Mr. McCain has pressured Barack Obama into an energy debate, where the Democrat has struggled to explain shifting and confused policy proposals.

Still, it was probably too much to assume every Republican would work out that their side was winning this issue. And so, last Friday, in stumbled Sens. Lindsey Graham, John Thune, Saxby Chambliss, Bob Corker and Johnny Isakson -- alongside five Senate Democrats. This "Gang of 10" announced a "sweeping" and "bipartisan" energy plan to break Washington's energy "stalemate." What they did was throw every vulnerable Democrat, and Mr. Obama, a life preserver.

That's because the plan is a Democratic giveaway. New production on offshore federal lands is left to state legislatures, and then in only four coastal states. The regulatory hurdles are huge. And the bill bars drilling within 50 miles of the coast -- putting off limits some of the most productive areas. Alaska's oil-rich Arctic National Wildlife Refuge is still a no-go....Sen. Obama was thrilled.

Graham at least understands that the Senate always prefers meaningless bipartisan proposals. DeMint’s idea -- an email petition -- will flop.

DeMint is trying to threaten to shut down the government unless the relevant Appropriations legislation which must be passed by passed by October 1, 2008 is devoid of an extension of the federal offshore drilling moratorium.

But DeMint doesn’t have the votes. He won’t be able to shift blame to Pelosi and Reid. He will fail and will look lame doing so.

Or, maybe I’m wrong, and millions of Americans will sign up for the email petition and will forward it to five friends as if it’s some high school chain letter which must be forwarded or our team will lose the big game!

Yet another distraction from House GOP leader John Boehner’s “All of the Above” message which makes sense and is gaining traction.

Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005... about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.

Collectively, the companies reported trillions of dollars in sales, according to GAO's estimate.

"It's shameful that so many corporations make big profits and pay nothing to support our country," said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.

"It's time for the big corporations to pay their fair share," Dorgan said.

The GAO study did not investigate why corporations weren't paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits.

An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called "S" corporations pay taxes under individual tax codes.

"Half of all business income in the United States now ends up going through the individual tax code," Edwards said.

Laura Meckler of the Wall Street Journal is moderating a debate [link] between my long-time friend David Cutler of the Obama campaign and Jay Khosla of the McCain campaign--and lets, without editorial comment, Khosla make false statements about the Obama campaign health care proposals.

...everyone is not entitled to their own facts.

The WSJ does its readers no good service when it doesn't provide basic fact checking about campaign characterizations of their opponents' proposals.

Khosla claims that the Obama campaign plan contains an employer mandate. It doesn't.

Employers that do not offer or make a meaningful contribution to the cost of quality health coverage for their employees will be required to contribute a percentage of payroll toward the costs of the national plan.

Mandatory Coverage of Children: Obama will require that all children have health care coverage. Obama will expand the number of options for young adults to get coverage, including allowing young people up to age 25 to continue coverage through their parents' plans.

Sunday's New York Times lead editorial said, "Here is the underlying reality: A nation that uses one-quarter of the world’s oil while possessing less than 3 percent of its reserves cannot drill its way to happiness at the pump, much less self-sufficiency," concluding that therefore we should not drill offshore.

We have heard variations of this as part of the standard lines from the anti-offshore drilling crowd -- Reid, Pelosi, Obama, etc. The logic of this line is similar to Yogi Berra's "Nobody goes there anymore; it's too crowded."

Reserves are determined by what has been discovered by exploration and estimating what can be recovered economically by current technology, at a given price for oil with different levels of confidence (e.g., probable reserves, vs proven reserves). So as additional oil is discovered offshore (or anywhere else), the amount discovered is added to reserves. So successful US offshore exploration adds to our reserves -- raising them from the 3%. Also note that oil from non-traditional sources such as oil shale, which the US has massive quantiles of, is not included in the 3% reserve estimate.

For example over the past two years major finds from offshore oil exploration has changed Brazil from having very low reserves to very high reserves. Until oil was discovered in Saudi Arabia in 1938, it has 0% of world reserves.

The pro-drilling crowd, should use this logic blunder of the anti-drilling crowd against them, to undermine their credibility. Pro-drillers should say, "We need to explore and develop offshore and elsewhere because our reserves are low, if our reserves were very high we would not need to drill in new areas. Because we only have 3% of known oil reserves we must explore to increase our reserves, as well as use more nuclear, clean coal, economical wind and solar and other energy and conservation.

Also of note, Tom Friedman's column "Flush With Energy" highlights Denmark's use of conservation and wind in writing about their energy independence from the middle east, noting "...it didn’t happen by Danish politicians making their people stupid by telling them the solution was simply more offshore drilling." Let's use the CIA Fact Book for Denmark to see how much wind, oil and gas energy is produced by Denmark, and do some calculations. Denmark's offshore oil and gas production produces 36 times as much energy as does its wind energy. Friedman's column may give readers the impression that Denmark's energy independence comes from wind when wind only provides 2.7% of their domestic energy production, but offshore oil and gas produces 97%. Denmark is an exporter of oil, gas and electricity.

Looking at some ratios, all of Denmark's oil and gas is from their offshore oil & gas -- with 342,000 bbl/day (2006 est.) of oil production for their population of 5.5 million or 22 bbe per year per person (while consuming 11.3 bbe/year/person The US consumes about 25 bbe/year/person. So the rate per person that Denmark produces from offshore oil is 88% of the rate of US consumption.

Aside from the fact that he flew a jumbo jet, no doubt burning thousands of pounds of precious oil, to Denmark, Mr. Friedman needs to look at some other facts about Denmark:

1. It's about twice the size of Massachusetts, including every island

2. It's as flat as a pancake. The highest point is about 600 feet above sea level.

3. Their number one resource is petroleum, for which they drill with great fervor.

...Obama’s give-and-take tax policy results in marginal tax rates of 34 percent to 39 percent in the $31,000 to $45,000 income range for this family. That’s an increase of 13 percentage points or more from the current rates.

What accounts for the higher rates? First, Obama expands the maximum child and dependent care credit for families with one young child from $1,050 to $1,500 and phases down the credit over a longer income range, from $30,000 to $58,000. Throughout this income range, the credit is phasing out at a rate of $30 per $1,000 of income, thus raising the effective tax rate by 3 percentage points. Obama also makes certain credits refundable, which introduces a tax penalty of 10 percent or 15 percent, depending on the income bracket.

While Obama has publicly embraced a tax rate of 40 percent for couples earning over $350,000, his tax policies would result in a staggering 45 percent effective marginal rate in the $110,000 to $120,000 income range for this family. That is 11 percentage points higher than under current law.

The culprit in this case is Obama’s proposed reform of the Hope Scholarship Tax Credit for college tuition, which he would rename the “American Opportunity Tax Credit.” He would increase the credit’s maximum value from $1,800 to $4,000 while still phasing out the credit over the same income range, $100,000 to $120,000. The larger phase-out would boost the penalty on work from 9 percentage points to 20 percentage points.