Baltimore,
Maryland – The Maryland House of Delegates just voted to
raise taxes. Should we move to FloridaÂ…or Delaware?

If we move
to Palm Beach, will we ever be able to visit our beloved Maryland
homeland again?

The Financial
Times reports that thousands of wealthy French people are now
moving to London. Their motive? They want to escape the taxes proposed
by FranceÂ’s new president, Francois Hollande.

Should the
French impose an exit tax on these “ex-patriots”? Should
it then bar them from visiting France?

Of course not.

In England
in 1215, the right to travel was enshrined in Article 42 of the
Magna Carta:

It shall
be lawful to any person, for the future, to go out of our kingdom,
and to return, safely and securely, by land or by water, saving
his allegiance to us, unless it be in time of war, for some short
space, for the common good of the kingdom: excepting prisoners
and outlaws, according to the laws of the land, and of the people
of the nation at war against us, and Merchants who shall be treated
as it is said above.

HereÂ’s
the United Nations Universal Declaration of Human Rights. Article
13:

(1) Everyone
has the right to freedom of movement and residence within the
borders of each State.
(2) Everyone has the right to leave any country, including his
own, and to return to his country.

Article 12
of the International Covenant on Civil and Political Rights incorporates
this right into treaty law:

(1) Everyone
lawfully within the territory of a State shall, within that territory,
have the right to liberty of movement and freedom to choose his
residence.
(2) Everyone shall be free to leave any country, including his
own.
(3) The above-mentioned rights shall not be subject to any restrictions
except those provided by law, are necessary to protect national
security, public order (ordre public), public health or morals
or the rights and freedoms of others, and are consistent with
the other rights recognized in the present Covenant.

People should
be able to move where they want, no? They should be able to look
for lower tax places to live, shouldnÂ’t they? After all, weÂ’re
Americans, arenÂ’t we? ArenÂ’t we all descendants of people
who tried to improve their lives by moving to a new place?

Apparently,
a lot of Americans donÂ’t think so. Facebook is going public.
And one of FacebookÂ’s founders has moved to Singapore. He will
save, by one estimate, $67 million in taxes by giving up his US
citizenship. He says thatÂ’s not the reason he gave it up. But
you can believe what you want.

And now the
politicos are up in arms. Mr. Saverin has helped to give them an
asset worth about $100 billion. Are they grateful? Do they bend
down and kiss his derriere?

No! They want
to tax him even more heavilyÂ…and prevent him from ever setting
foot in the US again.

Yes, dear reader,
there is no thought so dumbÂ…so short-sightedÂ…so lowÂ…that
it wonÂ’t become the law of the land. Bloomberg reports:

Chuck Schumer,
D-N.Y., has a status update for Facebook co-founder Eduardo Saverin:
Stop attempting to dodge your taxes by renouncing your US citizenship
or never come to back to the US again.

In September
2011, Saverin relinquished his US citizenship before the company
announced its planned initial public offering of stock, which
will debut this week. The move was likely a financial one, as
he owns an estimated 4 percent of Facebook and stands to make
$4 billion when the company goes public. Saverin would reap the
benefit of tax savings by becoming a permanent resident of Singapore,
which levies no capital gains taxes.

At a news
conference this morning, Sens. Schumer and Bob Casey, D-Pa., will
unveil the “Ex-PATRIOT” – “Expatriation Prevention
by Abolishing Tax-Related Incentives for Offshore Tenancy”
– Act to respond directly to Saverin’s move, which they
dub a “scheme” that would “help him duck up to
$67 million in taxes.”

The senators
will call Saverin’s move an “outrage” and will
outline their plan to re-impose taxes on expatriates like Saverin
even after they flee the United States and take up residence in
a foreign country. Their proposal would also impose a mandatory
30 percent tax on the capital gains of anybody who renounces their
US citizenship.

The plan
would bar individuals like Saverin from ever reentering the United
States again.

If Chuck Schumer
has his way, entrepreneurs like Eduardo Saverin will think twice
before setting up shop in America!

[EditorÂ’s
Note: After yesterdayÂ’s column, Run,
Saverin! Run!, we were delighted to discover that a brave Fellow
Reckoner had actually linked to The
Daily Reckoning…on Chuck SchumerÂ’s Facebook page. Ha!
Feel free to “like” our bitty missive here
and to “share” it on Facebook. Call it non-violent protest.
And of course, you can always “be our friend” here.]

Down, down,
downÂ…day after dayÂ… Stocks down. Yields down.

But whatÂ’s
this? Gold rose nearly $40 yesterday.

Our “Alert
Flag” went up yesterday morning. The Dow fell 156 points during
the day. Not that thereÂ’s any connection. Most likely, after
so many down days, stocks will bounce today. But watch outÂ…

We have a hunch.

Facebook is
the biggest deal in the stock marketÂ…perhaps ever. ItÂ’s
a company that didnÂ’t even exist 10 years ago. We know all
about the companyÂ’s founding; we saw the movie. Twice. Because
our daughter has a role in the movie. SheÂ’s the waitress in
the scene where Zuckerberg means Sean Parker.

Not a bad flick.
But from an investment standpoint, Facebook is probably one of the
worst moves you can make. Most likely, it will be gone 10 years
from now. $100 billion of market capitalization will disappear.
Poof! ItÂ’s just a website, after all. We looked at a Facebook
page, onceÂ… We couldnÂ’t figure out why anyone would waste
his time.

The trouble
with new technology is that in a few years itÂ’s old technology.

HereÂ’s
our hunch: The Facebook IPO may mark a major peakÂ…and the beginning
of a major bear market on Wall Street.

It happens
every time. ThereÂ’s a big, big deal. And then, itÂ’s over.
WeÂ’d give you some examples, if we could think of them. But
we canÂ’t. YouÂ’ll just have to trust us on this.

We donÂ’t
really have any evidence or logic to back this up. ItÂ’s just
a hunch.

But our intuition
tells us that when investors finally get the full Facebook treatment,
they are going to be turned off by the stock market and Wall Street.
Not only will the company turn out to be not worth a fraction of
the IPO priceÂ…investors will also get a clearer picture of
how Wall Street really works.

About that
IPOÂ… The idea is to generate a lot of excitementÂ…a frenzyÂ…so
that people are eager to get the shares. And with all these Facebook
users, who likeÂ…likeÂ…FacebookÂ…and think they can
tell a good investment when they see oneÂ…it ought to be easy
to create a buying frenzy. Besides, everyone knows shares are intentionally
priced below what their backers believe they can get for them. This
causes the share-price to “pop” right after the IPO.

Of course,
the distribution is tightly controlled. You have to be an insider
to get IPO shares. SayÂ…youÂ’ll get them at about $40Â…and
then, you expect them to go to $50 on the “pop.” If it
works out as planned, you make $10 per share. This is a lot of money.
Easy money. So, the insiders all want a piece of the action.

How do you
get to be an “insider”? You have to be a friend of Morgan
Stanley. Which is to say, you help Morgan Stanley make money. How?
For example, if you are a pension fund or hedge fund you put through
a lot of trades. Morgan Stanley makes money on the churn. You make
money on the churn, too. Customers donÂ’t make any money on
the churn. They pay for every transaction. But who cares about them?

Everyone is
convinced that buyingÂ…sellingÂ…and trading investments
makes money. As long as the illusion lasts, Wall Street is happy.
The customers are happy tooÂ…more or less. TheyÂ’re participating
in the Great Illusion – all trying to make money without actually
doing anything.

So everyone
churns. And the more you churn with Morgan Stanley the more likely
you are to get an allocation of IPO stock. There could be about
50 million shares handed to insiders in this manner. LetÂ’s
say they go up $10 in the “pop.” That’s half a billion
in gains Â…in only a few hours.

Dan Ariely
explains:

Morgan Stanley
and the rest of the investment banks involved will Â… make
sure that their favorite fund manager client “friends”
are given lots of free money. Assuming that these “friends”
are given 75% of the total number of IPO shares, or a total of
291 million shares, and assuming that the stock does rise from
$40 to $50, then these fund managers will collectively, in one
day, make $2.9 billion dollars in realized or unrealized profits.
ThatÂ’s right, 2.9 BILLION DOLLARS.

Â…where
and out of whose pocket does this money come from?

Well, just
think of it this wayÂ… LetÂ’s assume you own a very expensive
piece of waterfront real estate, and you hire a broker to sell
it for you. After exploring the market and after getting indications
of interest, your broker advises you that $10 million would be
a great price for your home. You meet with the potential buyers
and decide to sell it for $10 million. After the $1 million commission
you have to pay your broker, your net proceeds are $9 million.
An hour later, you drive by the house and see your broker in the
driveway shaking hands with some different people. You pull over
to see whatÂ’s going on, and you find that the people you
just sold the house to for $10 million are very close friends
of your broker. To your dismay, you also find out that those friends
just sold your (former) house to somebody else for $15 million.

The same
exact game is going on hereÂ… By the time you drive around
the block, these folks will have sold their shares at $50 per
share.

I am not
sure about you, but I find all of this very depressing.

May
21,
2012

Bill
Bonner is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21^st
Century and
The New Empire of Debt: The Rise Of An Epic Financial Crisis
and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets (Wiley, 2007). His
latest book is Dice
Have No Memory.
Since 1999, Bill has been a daily contributor and the driving force
behind The Daily Reckoning.

Copyright
© 2012 Daily Reckoning

The
Best of Bill Bonner