Nicodemus

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If federal govt has a balanced budget, what effect - if any - does it have on the economy as a whole?

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The problem is that when you spend more than you take in (i.e. deficit) then you incur debt to make up the difference. Unfortunately, we will eventually have to pay off that debt. That is where you the phrase politicians love so much, "mortgaging our children's future."

To pay the debt, we have to do one of three things (or a combination thereof).

1. We can reverse the trend by incurring a budget surplus and using the extra cash to pay down the debt. That can be done by raising tax revenue and/or reducing government spending.

Raising tax rates does not necessarily increase tax revenue and we are already highly taxed as a country. Additional taxes would utlimately lower our GDP and, as a result, potentially reduce tax revenue. I can explain that further if need be.

Since raising tax rates is not the answer, the other option, which is the best choice by far all of the ways to reduce our debt, is for the government to reduce its spending if it wants a budget surplus. This is the least likely because people in power are reluctant to release some of that power. The president and congress would have to work together to shrink the government. Both Republicans and Democrats have demonstrated that they are unlikely to do that.

Therefore, creating a budget surplus, especially to a degree that it could pay down debt substantially, is highly likely.

2. The government can incur more debt to pay off the current debt. Many companies rely on a constant stream of credit to finance day-to-day operations. The problem is when something happens to credit markets, the credibility of the government's ability to pay back the debt, or the interest rates in general. Any negative shock, which is not impossible, will increase our government's cost of borrowing, which of course leads to even higher levels of debt. Our debt payments will be more and more interest and less principal, thereby digging us into an even deeper hole. Relying on debt to finance our government's operations is not a viable long-term solution. Other countries who are not particularly friendly to us have developing economies that are catching up to ours (think China). China actually just became the largest lender to the American government.

3. The third option is to simply print more money to pay the debt. Of course, this is also disasterous because printing more money weakens the dollar and printing enough to pay off our debt will depreciate the dollar greatly and leads to high inflation. High inflation really hurt us in the 70's and the Federal Reserve has tried to control inflation more than anything else since then.

Ultimately, the government will end up doing a combination of 2 and 3 and possibly some of the first one (raising taxes, not reducing spending). However, the need to pay off debt will limit our country's potential to grow.

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Class B was also set up with the purpose of allowing stockholders to gift shares to family for tax planning purposes...I think Class B has like 1/32 of a voting right of Class A

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This is not entirely correct. An A share can be traded in for 30 B shares, thereby forcing the value of the B share to equal 1/30 the value of the A share at all times due to arbitrage.

The B share has no voting rights.

Warren Buffett introduced the B share in the 90's because he heard that fund managers planned on setting up a fund that held only A shares and allowing investors to invest in the fund, thereby allowing those investors to have fractional ownership in the A shares. Warren Buffett did not like that idea so he beat them to the punch by introducing the B shares.

Buffett has never split his stock because he only wants long-term investors. He feels that splitting the stock adds no value and only makes it more attractive to shorter-term investors.

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F' an MBA, I'd prefer to actually gain some knowledge. The M.S. in Tax isn't a certainty, I really haven't made my mind up yet, to be honest. I thought it would be a good balance to have all three. Financial accounting is definitely what I would like to focus on, but I'm not sure how to translate that into a job. Almost every one I know has ended up at CPA firms doing tax or auditing, and the people who majored in finance are either unemployed, in law school, or doing internal audit (if they did the cia classes at lsu).

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I work for a CPA firm and, while I am in audit, the tax people seem to really love their job. You can't go wrong do that for a while. It definitely opens doors later on that would probably not be opened if you went straight into industry. A degree in accounting is more sought after than a degree in finance right now. F' being unemployed, going to law school, and especially internal audit.

You may not want to limit yourself to getting a M.S. in tax, though. An M.S. in accounting is just as good for CPA firms (if you want to go into tax) but also allows for other opportunities if you decide tax is not right for you.

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The king of value investing warren buffet has lost a tremendous amount of money in the last year. Historically he has done well, but over the last five years, he has averaged about 4-6% returns. This is nothing to write home about.

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It is very hard to move the bottom line when you are a $118 billion company. It is the law of diminishing returns. You can not judge his ideals based on his current company. If he started from scratch he would have the same great returns as he did way back when.

"We are in a black swan event. You to need to look at all of your assumptions if you are going to do well."

I have that book sitting on my shelf at home, but I have not yet read it. However, I would say that you should constantly be reassessing your assumptions to maximize performance.

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and, to get back on topic, Google. FWIW, I still like Google and Apple both. Aside from whatever their current products are, they have structured themselves so as to essentially be black swan factories. They just tinker and play around until something hits. And every now and then something BIG hits.

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Very true. But the key to their consistent success is that they also stick to their core competencies. Google, while it has all of those side projects going which may or may not pay off, still focuses a lot on online advertising and makes that vast majority of their cash from that. I have not researched Apple as thoroughly as I have Google, but it seems that they stick to their core products of the iphone and the MAC computers and find new and innovative ways to build upon that by creating new, separable products that still benefit from those core products (think itunes).

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B.c there is a chance that you will lose a lot of money. Volatity is quite high right now, for good reason, any play is borderline speculative at the moment.

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You may have an unrealized loss in the short-term if the price drops further, but I know that if I buy now that the price will ultimately equal the value of $500, so I will have a large realized gain.

How can anyone guess with any accuracy whatsoever how low the price will go? One thing I learned while studying for the CFA exam is that study after study has shown that timing the market with consistency is impossible. So there is no point guessing when the trough is if you know it is way undervalued now. That is why Warren Buffett, Peter Lynch, and countless other value investors are so successful. Short-term volatility is meaningless to them. Only the long-term value counts. I have invested 0% of my portfolio based on speculation and it will always be that percentage.

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I am not wise one way or another on if Google is a good buy, but all of these analyst that you see on tv and read about in Fortune/Money/Forbes just seemed to be paid hacks. They almost never get things right when it comes to downturns in the market.

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There is probably a lot of truth to that. However, I am not a paid hack, and, for my own personal investment, I have researched and valued Google at about $500 using the discounted free cash flows method, which is by far the best method for valuing a company. Warren Buffett uses that method as well as most successful value investors.

I may not be an "expert analyst", but I am a CPA, have passed the first part of the CFA exam and have read a considerable amount of value investment books. It makes me feel better about my valuation that most analysts value it within the same range.

Since it is for my personal portfolio, I am extremely meticulous in my research. I only mentioned the analysts' opinions to lend credence to my argument that it is a great long-term buy.

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I'd assume that AdWords growth and dominance should already be reflected in the stock price.

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Fortunately for us, it is not. You are assuming that the market is efficient. Luckily for us value investors, there are times when it is woefully inefficient, such as now. Since the entire market is down, people have over sold Google's stock.

Remember what Warren Buffett says, "Price is just what you pay. Value is what you get." The price is $300, but the value is $500. Easy decision. Also, even the most conservative analyst's estimate that I have seen, which came out earlier this week, values the stock at $490.

So, no, the growth in revenue and earnings is not currently reflected in the price.

GOOGLE gets 99% of its revenue from online advertising where it has in excess of 60% of the market share. So forget about all of these side projects they have. They have posted rising free cash flows each of the last five years in spite of the non-profit generating side projects and, using even conservative discount factors and growth estimates, can be valued at $500 to $600 a share based on the trailing twelve months free cash flow. They have an outstanding corporate culture that has allowed them to sky rocket to the best in the business. They are way underpriced, and I have been buying as much of their stock as I can afford.

Don't get caught up in this technical BS of beta and efficient market theories. They are a solid business that you can buy cheaply now because the entire market is down.

Also, for those worried about the economy hurting them, they get paid when someone clicks on an advertisement on one of their 10,000+ network member websites. Where do you think companies will allocate most of their advertising budgets to? The one where they only get paid if it works and, therefore, has the best cost-benefit. The bad economy will actually give them more business.

My recommendation: BUY!

I am not a distressed homeowner, but it seems only fair that I should get to benefit from the bailout. I mean, I was responsible and did not take on a mortgage I could not afford. There is no reason why I, via tax dollars, should have to pay for the mortgage of someone who was not responsible in addition to my own. How do I get my mortgage paid for by my fellow taxpayers?

The subject of the thread says it all

Only one movie ever...Flags of Our Fathers. I hated the fact that it was not in chronological order.