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What Do Tax Delinquents, "Blingdexes", Taco Bell and China Have in Common?


Wall Street now seems to be noticing that people making millions, if not billions, of dollars a year, seem to spend a lot of it.


Not long ago, Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Republican Chuck Grassley (R-Iowa) discovered that 450,000 Federal workers and retirees owe nearly $3 billion in back taxes to the Federal treasury.

Baucus and Grassley dashed off a letter to President Bush, excerpted below:

Dear Mr. President:

Last week, millions of Americans did their duty, obeyed the law, and completed and filed their individual income tax returns on time. Unfortunately, the Finance Committee has received the enclosed information from the Internal Revenue Service [showing] that 450,332 government workers and retirees who receive tax dollars in the form of Federal pay checks or retirement benefits owe almost $3 billion in back taxes.

$3 billion-not a whole lot more than the $1.7 billion hedge fund manager James Simons took home last year.

James Simons

For Hoofy & Boo's take on hedge funds, click here!

Wall Street now seems to be noticing that people making millions, if not billions, of dollars a year, seem to spend a lot of it.

Enter the repellently-nicknamed "blingdexes."

Merrill Lynch (MER) launched the ML LifeStyle Index (MLEILIFD) on April 13th, the first-ever tradable certificate built to track stocks associated with luxury brands.

A press release quotes Antoine Colonna, senior European luxury goods analyst at Merrill Lynch in Paris, as saying:

"This is a ground-breaking investment solution for the sector providing global exposure to the strong growth potential of luxury and lifestyle companies, and its growth is driven by the sustained increase in living standards around the world."

It goes on to describe the fund thusly:

"At least 15-and at most 50-stocks will be included in the index, which is currently composed of the maximum number of stocks, and includes companies such as Christian Dior, Bulgari, Harley-Davidson and Royal Caribbean Cruises."

Some other stocks in the ML LifeStyle Index are BMW (BMW.DE), Porsche (POR.L), Tiffany (TIF), Sotheby's (BID), and private-banking firm Julius Baer (BAER.VX).

Christian Dior (LVM.L), I get.

Bulgari, sure.

Royal Caribbean (RCL)? Maybe, although a floating hotel packed to the gills with retirees lining up at the dessert bar doesn't exactly scream "luxury" to me.

And, while Harley (HOG) makes pretty expensive bikes-the Ultra Classic Electra Glide retails for $20,195-I would imagine that the textbook Harley-Davidson customer doesn't see his hog existing alongside Bulgari's Eau Parfumée au thé vert.

An Ultra Classic Electra Glide and owner...

...and a fragrance he's most likely not wearing

Other "blingdexes" include the Deutsche Borse World Luxury Index, launched on behalf of BNP Paribas in February and made up of the 20 largest and most liquid luxury goods companies worldwide (Bulgari, Sotheby's, Hermès, and the like), and the Consumer Discretionary Index from Morgan Stanley (MS).

Merrill believes the main emerging market countries will represent the primary source of growth in the luxury sector. Specifically, it estimate the Chinese will be the world's #1 purchasers of luxury goods by 2014, representing a quarter of total global sector sales.

One thing the Chinese have been spending a lot of their money on lately seems to be KFC, Taco Bell, and Pizza Hut. Yesterday, Yum Brands (YUM) said that net income increased 14% in the first quarter, to $194 million, led by a 31% increase in operating profit in China.

Good news for Yum, after its image took a beating over the rat infestation at a Manhattan KFC/Taco Bell.

Maybe the Chinese aren't as turned off by rats as Americans are?

As a matter of fact, they're not.

On May 31, 1991, The Wall Street Journal ran a story by James McGregor about a new restaurant opening in Guangzhou, China called Jialu (Superior to Deer) Restaurant.


Just as Smith & Wollensky (SWRG) specializes in steak, Jialu (Superior to Deer) Restaurant has a slightly different focus:


Jialu (Superior to Deer) Restaurant's menu includes 30 different rat dishes, such as Rat with Chestnut and Duck, Lemon Deep Fried Rat, Satayed Rat Slices with Vermicelli, Liquored Rat Flambe, German Black Pepper Rat Knuckle, Rat Soup, Vietnamese Style Rat Hot Pot, a Pair of Rats Wrapped in Lotus Leaves, Salted Rat with Southern Baby Peppers, Salted Cunning Rats, Fresh Lotus Seed Rat Stew, Seven-Color Rat Threads, Dark Green Unicorn Rat, and Classic Steamed Rat.

According to the article, the menu refers to the rats on offer as "super deer" because owner Zhang Guoxun wants to separate his rats from common sewer rats. Mr. Zhang says his restaurant serves only free range rats, wild rodents that feed on fruits and vegetables in the mountains a couple of hundred kilometers to the north.

And they don't come cheap. Rats sell for the equivalent in yuan of a dollar forty-five per pound-more expensive than pork or chicken, and nearly twice as much as beef.

Mr. Zhang said he was too new to the business to think about a chain of rat restaurants, but was unconcerned about other restauranteurs horning in on his idea. "My quality is tops, so I'm not worried about competitors."

Well, Zhang seems to have grossly underestimated his comrades' taste for vermin.

In Luogang, a small village in southern Guangdong Province, two "ratteries" opened soon after Jialu (Superior to Deer) Restaurant hung out its shingle: Highest Ranking Wild Flavor Restaurant and New Eight Sceneries Wild Flavor Food City.

I'm calling right now for a reservation. Care to join? E-mail me.

No positions in stocks mentioned.
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