Showing posts with label tax. Show all posts
Showing posts with label tax. Show all posts

Monday, January 15, 2018

How to Know if This Rally Will Continue for Two More Months

Our trading partner Chris Vermeulen has our readers off to an amazing start for 2018. If this is any sign of what we have to come this year we are in store for one of our best years of trading possibly ever. 

Chris just sent over his latest article and it explains how our old reliable Transportation Index is guiding the way once again. Read "How to Know if This Rally Will Continue for Two More Months".

Our research has been “spot on” with regards to the markets for the first few weeks of 2018. We issued our first trade on Jan 2nd, plus two very detailed research reports near the end of 2017 and early 2018. We urge you to review these research posts as they tell you exactly what to expect for the first Quarter in 2018.

Continuing this research, we have focused our current effort on the Transportation Index, the US Majors, and the Metals Markets. The Transportation Index has seen an extensive rally (+19.85%) originating near November 2017. This incredible upside move correlates with renewed US Tax policies and Economic increases that are sure to drive the US Equity market higher throughout 2018.

In theory, the Transportation Index is a measure of economic activity as related to the transportation of goods from port to distribution centers and from distribution centers to retail centers. The recent jump in the Transportation Index foretells of strong economic activity within the US for at least the next 3 months.

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One could, and likely should watch the Transportation Index for any signs of weakness or contraction which would indicate an economic slowdown about to unfold. In order to better understand how the Transportation Index precedes the US Equity markets by 2-5 months, let’s compare the current price activity to that of 2007-08.

This first chart is the current Transportation Index and shows how strong the US economic recovery is in relation to the previous year (2017). As the US economy has continued to strengthen and open up new opportunities, the Transportation Index has related this strength by increasing by near +20% in only a few short months. This shows us that we should continue to expect a moderate to strong bullish bias for at least the first quarter of 2018 – unless something dramatic changes in relation to economic opportunities.

Current Transportation Index Chart



In comparison, this chart (below) is the Transportation Index in 2007-08 which reacted quite differently. The economic environment was vastly different at this time. The US Fed had raised rates consecutively over a two year period leading up to a massive debt/credit crisis. At the same time, the US had a Presidential Election cycle that saw massive uncertainty with regards to regulation, policies and economic opportunities. Delinquencies as related to debt had already started to climb and the markets reacted to the economic alarms ringing from all corners of the globe. The Transportation Index formed a classic “rollover top” formation in late 2007 and early 2008 well before the global markets really began to tank.

2007-08 Transportation Index Chart



Our analysis points to a very strong first quarter of 2018 within the US and for US Equities. We believe the economic indicators will continue to perform well and, at least for the next 3 months, will continue to drive strong equity growth. We do expect some volatility near the end of the first Quarter as well as continued 2-5% price volatility/rotation at times. There will be levels of contraction in the markets that are natural and healthy for this rally. So, be prepared for some rotation that could be deeper than what we have seen over the last 6 months.

In conclusion, equities are this point are overpriced, and overbought based on the short term analysis. We should be entering slightly weaker time for large cap stocks over the next couple weeks before it goes much higher. Because we are still in a full out bull market, Dips Should Be Bought and we will notify members of a new trade once we get another one of these setups.

In our next post, we are going to talk about two opportunities in precious metals forming for next week!

Read the analysis we presented before the end of 2017 regarding our predictive modeling systems and how we target our research to helping our members. If you believe our analysis is accurate and timely, then we urge you to subscribe here at The Technical Traders to support our work and to benefit from our signals. We believe 2018 – 2020 will be the years that strategic trades will outperform all other markets. Join us in our efforts to find and execute the best trading opportunities and profit from these fantastic setups.

Chris Vermeulen
Technical Traders Ltd.





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Monday, June 8, 2015

Cleaning Out the Attic

By John Mauldin


Three weeks ago I co-authored an op-ed for the Investor’s Business Daily with Stephen Moore, founder of the Club for Growth and former Wall Street Journal editorial board member, currently working with the Heritage Foundation. Our goal was to present a simple outline of the policies we need to pursue as a country in order to get us back to 3–4% annual GDP growth. As we note in the op-ed, Stephen and I have been engaging with a number of presidential candidates and with other economists around the topic of growth.

We spent a great deal of time going back and forth on a variety of topics, trying to get down to a few ideas that we think make the most sense. I should note that few people will read the piece below without being upset by at least one of our suggestions. The goal was to not just list the standard Republican “fixes” but to actually come up with a plan that might garner support across the political spectrum on ways to address the critical problem of how to get the country back to acceptable growth.

Part of the challenge was reducing what could have been a book to just 800 words. Today’s letter will start with the actual op-ed, and then I will expand on some of the points. Readers and friends have been pressing me to offer some ideas as to what policies I think we should pursue, so here they are. I hope the op-ed will create some thoughtful response. It would be nice if we could get a few candidates to embrace some or all of what we are suggesting, even (or maybe especially) some of the more radical parts.
(I have made a few very minor edits to the op-ed.)

A Six Point Plan to Restore Economic Growth and Prosperity

By John Mauldin and Stephen Moore
The dismal news of 0.2% GDP growth for the first quarter only confirmed that the US is in the midst of its slowest recovery in half a century from an economic crisis. Could it be that at least some of the rage we've seen in the streets of Baltimore is a result of a paltry recovery that hasn't benefited low-income inner-city areas? We are at least $1.5 trillion a year behind where we would be with even an average post-World War II recovery.

While many blame a lack of sufficient demand and even insufficient government spending, our view is that the primary factors behind the growth slowdown are an increasingly intrusive regulatory environment, a confusing and punitive tax scheme, and lack of certainty over healthcare costs.

Each of these factors has contributed to a climate where growth is slow and incomes are stagnant. These are problems that cannot be solved by monetary and fiscal policy alone. To get real growth and increased productivity, we need to deal with the real source of economic progress: the incentive structure. The coming presidential race offers an opportunity for candidates to put forth concrete and comprehensive ideas about what can be done to create higher economic growth – as opposed to platitudes and piecemeal ideas that don't address the entire problem. The two of us have met with several candidates and discussed tax reform and other economic growth issues.

We offer here some solutions of our own for them to consider.

1. Streamline the federal bureaucracy. 
Government has become much like the neighbor who has hoarded every magazine and odd knick knack for 50 years. The attic and every room are stuffed with items no one would miss. The size of the US code has multiplied by over 18 times in 65 years. There are more than 1 million restrictive regulations. Enough already. It's time to clean out the attic. The president, with some flexibility, should require each agency to reduce the number of regulations under its purview by 20%, at the rate of 5% a year. And then Congress should pass a sunset law for the remaining regulations, requiring them to be reviewed at some point in order to be maintained. Further, if new rules are needed, then remove some old ones. Stop the growth of the federal regulatory code. We have enough rules today; let's just make sure they're the right ones.

2. Simplify and flatten the income tax. 
Make the individual income rate 20% (at most) for all income over $50,000, with no deductions for anything. Reduce the corporate tax to 15%, again eliminating all deductions other than what is allowed by standard accounting practice. No perks, no special benefits. Further, tax foreign corporate income at 5%–10%, and let companies bring it back home to invest here. This strategy will actually increase tax revenues.

3. Replace the payroll tax with a business transfer tax of 15% 
which will give lower income workers a big raise. Companies would pay tax on their gross receipts, minus allowable expenses in the conduct of producing goods and services. Nearly every economist agrees that consumption taxes are better than income taxes. Further, this tax can be rebated at the border, so it should encourage domestic production and be popular with union workers since it makes US products more competitive internationally.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best selling author, and Chairman of Mauldin Economics – please click here.



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Friday, December 5, 2014

Russia and China’s Natural Gas Deals are a Death Knell for Canada’s LNG Ambitions

By Marin Katusa, Chief Energy Investment Strategist

In recent years, a number of Asian companies have been betting that Canada will be able to export cheap liquefied natural gas (LNG) from its west coast. These big international players include PetroChina, Mitsubishi, CNOOC, and, until December 3, Malaysian state owned Petronas.

However, that initial interest is decidedly on the wane. In fact, while the British Columbia LNG Alliance is still hopeful that some of the 18 LNG projects that have been proposed will be realized, it’s now looking less and less likely that any of these Canadian LNG consortia will ever make a final investment decision to forge ahead.

That’s thanks to the Colder War—as I explain in detail in my new book of the same name—and the impetus it’s given Vladimir Putin to open up new markets in Asia.

The huge gas export deals that Russia struck with China in May and October—with an agreed-upon price ranging from $8-10 per million British thermal units (mmBtu)—has likely capped investors’ expectations of Chinese natural gas prices at around $10-11 per mmBtu, a level which would make shipping natural gas from Canada to Asia uneconomic.

At these prices, not even British Columbia’s new Liquefied Natural Gas Income Tax Act—which has halved the post payout tax rate to 3.5% and proposes reducing corporate income tax to 8% from 11%—can make Canadian natural gas globally competitive.

These tax credits are too little, too late, because Canada is years behind Australia, Russia, and Qatar’s gas projects. This means there’s just too much uncertainty about future profit margins to commit the vast amount of capital that will be needed to make Canadian LNG a reality.

Sure, there are huge proven reserves of natural gas in Canada. It’s just been determined that Canada’s Northwest Territories hold 16.4 trillion cubic feet of natural gas reserves, 40% more than previous estimates.

But the fact is that Canada will remain a high-cost producer of LNG, and its shipping costs to Asia will be much higher than Russia’s, Australia’s, and Qatar’s. So unless potential buyers in Asia are confident that Henry Hub gas prices will stay below $5, they’re unlikely to commit to long-term contracts for Canadian LNG—or US gas for that matter—because compression and shipping add at least another $6 to the price.

Shell has estimated that its proposed terminal, owned by LNG Canada, will cost $40 billion, not including a $4 billion pipeline. As LNG Canada—whose shareholders include PetroChina, Korea Gas Corp., and Mitsubishi Corp.—admits, it’s not yet sure that the project will be economically viable. Even if it turns out to be, LNG Canada says it won’t make a final investment decision until 2016, after which the facility would take five years to build.

But investors shouldn’t hold their breath. It seems like Korea Gas Corp. has already made up its mind. It’s planning to sell a third of its 15% stake in LNG Canada by the end of this year.

And who can blame it? The industry still doesn’t have clarity on environmental issues, federal taxes, municipal taxes, transfer pricing agreements, or what the First Nations’ cut will be. And these are all major hurdles.

Pipeline permits are also still incomplete. The federal government still hasn’t decided if LNG is a manufacturing or distribution business, which matters because if it rules that it’s a distribution business, permitting is going to be delayed.

And to muddy the picture even further, opposition to gas pipelines and fracking is on the rise in British Columbia and elsewhere in Canada. While fossil fuel projects are under fire from climate alarmists the world over, Canadian environmentalists are also angry that increased tanker traffic through its pristine coastal waters could lead to oil spills.

Canada is now under the sway of radical environmental groups and think tanks like the Pierre Elliot Trudeau Foundation, which take as a given that Canada should shut down its tar sands industry altogether. For these people, there’s no responsible way to build new fossil fuel infrastructure.

Elsewhere, investors might expect money and jobs to do the talking, but Justin Trudeau’s Liberal Party, which has called for greenhouse gas limits on oil sands, is now leading the conservatives in the polls. (Just out of curiosity, does Trudeau plan on putting a cap on the carbon monoxide concentration from his marijuana agenda? But I digress.) If a liberal government is elected next year, it might adopt a national climate policy that would cripple gas companies and oil companies alike.

Some energy majors are already shying away from Canadian LNG. BG Group announced in October that it’s delaying a decision on its Prince Rupert LNG project until after 2016. And Apache Corp., partnered with Chevron on a Canadian LNG project, is seeking a buyer for its stake.

Not everyone is throwing in the towel. Yet. ExxonMobil—which is in the early planning phase for the West Coast Canada LNG project at Tuck Inlet, located near Prince Rupert in northwestern British Columbia—has just become a member of the British Columbia LNG alliance.

But Petronas was a key player. It was thought that the company would be moving ahead after British Columbia’s Ministry of Environment approved its LNG terminal, along with two pipelines that would feed it.

Instead, Petronas pulled the plug. We can’t know how many things factored into that decision nor whether it’s absolutely final. All the company would say is that projected costs of C$36 billion would need to be reduced before a restart could be considered. (That $36B figure includes Petronas’s 2012 acquisition of Calgary based gas producer Progress Energy Resources Corp., as well as the C$10 billion proposed terminal, a pipeline, and the cost of drilling wells in BC’s northeast.)

This latest blow leaves Canadian LNG development very much in doubt. In fact, most observers believe that Petronas’s move to the sidelines probably sounds the death knell for the industry, at least for the foreseeable future.
For more on how the Colder War is forever changing the energy sector and global finance itself, click here to get your copy of Marin’s New York Times bestselling book. Inside, you’ll discover more on LNG and how this geopolitical chess game between Russia and the West for control of the world’s energy trade will shape this decade and the century to come.



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Wednesday, November 26, 2014

Debunking the Claim That Puerto Rico’s Tax Benefits Are “Hype” or “Too Good to Be True”

By Nick Giambruno

It was only a matter of time before it happened.

After releasing our groundbreaking free documentary America’s Tax-Free Zone, new and old misconceptions about Puerto Rico’s tax benefits have surfaced. Many of them had previously been debunked.

The purpose of today’s article is to drive a stake through the heart of these misconceptions and forever put them to rest. And there is really no better person on the planet to do that than David Nissman, a true authority on this topic.

David Nissman was appointed by former U.S. President George W. Bush to be the United States Attorney for the U.S. Virgin Islands. He regulated the tax incentive programs there—which have many similarities to the Puerto Rico incentives—for the US federal government during his tenure. He also has written a number of the economic development statutes in place today.

David has since left the dark side and now represents U.S. taxpayers in IRS audits concerning tax incentive programs in the U.S. Territories—like the Virgin Islands and Puerto Rico. His current and former experiences gives him unparalleled insight into the U.S. government’s thinking behind Puerto Rico’s tax incentives.

After reading this article, you should have no doubt that Puerto Rico’s tax incentives are not “hype” and not “too good to be true.” The fact is, they are 100% real and legal. And for those who obtain them, they are here to stay.

Puerto Rico’s tax incentives may allow you to totally eliminate all forms of taxation on capital gains, interest, and dividends and reduce your corporate income tax rate to just 4%. Americans can find similar benefits nowhere else in the world short of renouncing their citizenship. Much ink has been spilled on this already, so if you are new to Puerto Rico’s tax incentives see here to get all caught up.

David will also show that:
  • Puerto Rico’s tax incentives are not some fly by night thing. They fit into the economic development policy that has been supported by the U.S. federal government and both political parties for many decades.
  • It’s nearly impossible for either the U.S. or Puerto Rican governments to end the tax incentives for those who already have obtained them.
Now, we aren’t saying it is impossible that these tax incentives could go away for new participants. That is a possibility, but also not a very likely one. It is also an incentive to obtain your tax benefits from the Puerto Rican government (which come in the form of a legally binding contract) as soon as possible—because once you’ve received your contract giving you your tax benefits, it will be almost impossible for anyone to take them away from you prospectively or retroactively, no matter how hard some politicians will stomp their feet.

Even if the benefits were to somehow magically disappear after a couple of years, you could still reap enormous benefits from participating in them. My colleague Louis James remarked that even if the tax incentives last only for five years, he’d be able to pay for his condo with his tax savings.

And now without further ado, I’ll turn things over to David Nissman, who will put these misconceptions to bed for good.
Until next time,

By David Nissman

When the United States began its relationship with Puerto Rico and the other Territories in the Caribbean in 1898, they were poor and had been economically oppressed. The US government sought to help create financial independence with economic development policies. This was not wholly altruistic. If the Territories were not financially independent, they would be a burden on the federal government.

From the start in the early 20th century, the Territories’ use of incentives to develop their economies was challenged as unconstitutional in violation of Article 1, Section 8, which required that “all duties, imposts, and excises shall be uniform throughout the United States.” The Supreme Court in a line of cases known as the Insular Cases used a line of deprecating and racially insensitive reasoning to accord all inhabitants of the Territories less than full constitutional rights. The less than satisfying trade-off in the outflow from the Insular Cases was that the Territories’ ability to use special tax laws to develop their economies was not restrained by Article 1, Section 8 of the U.S. Constitution.

This policy began in 1900 with the advent of the Foraker Act, which set up the first municipal government in Puerto Rico and permitted Puerto Rico to utilize special taxing measures. During the 114 years since the Foraker Act, Congress and the local governments in the US Territories have enacted many different programs to help the Territories raise revenues. President Herbert Hoover, visiting the Virgin Islands in 1931, was stunned at the poverty and declared:

“[W]e acquired an effective poorhouse, comprising 90 percent of the population. The people cannot be self-supporting either in living or government without discovery of new methods and resources. The purpose of the transfer of administration from the naval to a civil department is to see if we can develop some form of industry or agriculture which will relieve us of the present costs and liabilities in support of the population or the local government from the Federal Treasury or from private charity.... [H]aving assumed the responsibility, we must do our best to assist the inhabitants.”
New York Times, March 27, 1931

Congress in 26 USC 933 (Puerto Rico) and in 934 (the Virgin Islands) has passed statutes that enable the local governments to grant benefits on territorial source income to territorial residents. These laws have been firmly in place since 1960.

Critics always opine that Congress and or the Territorial governments can take these laws away, but they neglect an important component of the legal relationship between the United States government and its Territories. The Territories have a very special status: according to US Supreme Court case law, the Territories have the status of federal agencies. If a federal agency grants a contract to a business or individual, the federal government is bound to honor it. It would be a violation of the Contracts Clause of the US Constitution to take it away. So if an individual or business holds a contract from the Puerto Rico government granting these tax benefits (Act 20, Act 22), the contract is enforceable against both the Puerto Rican and US governments. Not even Congress can affect existing contracts.

Puerto Rico’s tax incentives are carefully considered programs. The Puerto Rican government based them on the Virgin Islands Economic Development Commission (VI EDC) programs. The VI EDC program has been fully vetted and litigated in the federal courts. Everyone recognizes the legitimacy of these programs and how they are part of US developmental policy toward US Territories. The bottom line is, Puerto Rico’s tax incentives are very sustainable.

Because of the continuing discussions in Congress about reforming the tax code, there is quite a bit of fearmongering that Congress may somehow repeal these programs.

Two points must be considered when hearing this:

1) Do we actually believe that our gridlocked Congress is currently capable of reaching a bipartisan agreement to overhaul the US tax code? While the tax code is in serious need of overhaul, this is a project that is years away. When there finally is new tax legislation, the Territories will lobby hard—with the U.S. Department of the Interior (DoI) firmly on their side—to continue making these benefits available.

The United States DoI continues to recognize that the Territorial tax incentives are a necessary component of U.S. developmental policy toward its Territories. In July, 2005, the DoI filed a written statement concerning its own concerns with new tax regulations for the Territories. The paper noted that (emphasis mine):

[t]he Secretary of the Interior has stated that her top priority for the Insular Areas is to promote private sector economic development there. Under the Secretary’s leadership, the Department of the Interior has been implementing a comprehensive program to advance this priority …. Because of the special fiscal and economic challenges faced by the Insular Areas, it has been the policy of successive administrations from both parties to support tax and trade provisions to help the Insular Areas generate sufficient tax revenue and economic activity to meet the most basic needs of their people. Notwithstanding these incentives, each of the Insular Areas continues to experience severe economic and fiscal difficulties. 

Special tax provisions for the Insular Areas, in particular, manifest an important underlying principle of US territorial policy: The Federal government does not treat the Insular Areas as sources of revenue. The US has a strong interest in maintaining and enhancing the economic and fiscal well-being of the Insular Areas.
—Statement of the US Department of the Interior, Office of Insular Affairs on Temporary and Proposed Regulations to Implement the American Jobs Creation Act of 2004 (July, 2005)

2) Whether these programs change one day or whether Puerto Rican statehood requires different tax rules, the individuals and businesses that have decrees with the Puerto Rican government will have to be grandfathered in based on the Contracts Clause in the US Constitution. Those individuals and businesses interested in moving to Puerto Rico would be wise to get moving to the extent there is any fear of legislative change.

Finally, it is also not very likely that the Puerto Rican government itself will end these programs. Attracting wealthy people and profitable businesses to relocate to Puerto Rico through these programs is attractive to both of the major political parties in Puerto Rico. Given the financial crisis in Puerto Rico, it is unlikely that the local government—which has committed large resources to marketing these programs—will suddenly embark on a different direction.

In conclusion, those who lawfully fulfill the purpose and requirements of the Territorial tax incentive programs—like Puerto Rico’s Acts 20 and 22—should feel confident that their contracts will be honored by both governments.

Editor’s Note: If you’re considering taking advantage of Puerto Rico’s tax incentives—benefits Americans can find nowhere else—then you should check out our comprehensive video course on the topic. It’s the authoritative guide on Puerto Rico’s tax incentives with information you won’t find anywhere else; and it will save you a lot of time and money. More on that here.
The article was originally published at internationalman.com.


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Saturday, October 11, 2014

The Broken State and How to Fix It

By Casey Research

The United States of America is not what it used to be. Unsustainable mountains of debt, continuous meddling by the government and Fed to “stimulate the economy,” and the U.S. dollar’s dwindling status as the world’s reserve currency are very real threats to Americans’ standard of living. Here are some opinions from the recently concluded Casey Research Fall Summit on the state of the state and how to fix it.

Marc Victor, a criminal defense attorney from Arizona and a staunch liberty advocate, says there’s really no such thing as “the state”—“it’s just some people bossing other people around.”

Not everyone wants to fix things, he says; the bosses like the status quo. For example, aside from drug lords, DEA agents are the ones benefiting most from the “War on Drugs.”

Victor believes that democracy and freedom are incompatible, since “democracy is majority rule, and freedom is self-rule.” If you want to bring true freedom to America, he says, winning hearts and minds is the only way to reboot this country and create a free society.

Paul Rosenberg, adventure capitalist, Casey Research contributor, and editor of “A Free Man’s Take,” views America’s future similarly. He thinks the United States is in a state of entropy.

The bad news, says Rosenberg, is that there will be no revolution. The good news is that the peak of citizens’ obedience to the state is behind us, and people are getting fed up with the government’s shenanigans.

Real change is slow, he says, so we must work persistently to create a better world.

Stephen Moore, chief economist at the Heritage Foundation, says the problem is liberal economic policy: Red states in the US, he says, have blown away blue states in job creation since 1990. Texas alone accounts for the entire net growth of the US economy over the past five years.

As another proof point in favor of a free market economy, Moore emphasizes that both Obama and Reagan took office during terrible economic times. While Obama has raised taxes and instituted Obamacare, Reagan cut taxes and regulation. As a result, the Reagan economic recovery was almost twice as robust as the Obama “recovery.”

One of the US’s biggest problems, says Moore, is that companies can’t reinvest profits because dividend, capital gains, and income taxes all have increased under Obama. Corporate taxes in the rest of the world have dramatically declined in the last 25 years, but in the US, they haven’t budged. The average corporate tax rate around the world is 24%—in the US, it’s 38%.

Overall, though, Moore is bullish on the U.S. economy. American companies, he says, are the best run in the world, if only the US government would adopt less economically destructive policies.

Doug Casey, chairman of Casey Research, legendary speculator, and best-selling financial author, isn’t so optimistic. First of all, he says, we’re in the Greater Depression right now, which began in 2008. He fears it’s too late to repair America, but says if anyone would attempt to do so, the following seven step program would help:
  • Allow the collapse of “zombie companies” (companies that are only being held up by government handouts and other cash infusions).
  • Abolish all regulatory agencies.
  • Abolish the Federal Reserve.
  • Cut the size of the military by at least 90%.
  • Sell all US government assets.
  • Eliminate the income tax.
  • Default on the national debt.
Of course, says Casey, that’s not going to happen, so individual investors shouldn’t hope for a political solution or waste their time and money trying to stop the inevitable collapse of the U.S. economy. The only way to save yourself and your assets is to internationalize.

He recommends owning significant assets outside your home country: for example, by buying foreign real estate. You should also buy and store gold, “the only financial asset that’s not simultaneously someone else’s liability.”

Casey’s suggestions include going short bubbles that are about to burst (like Japanese bonds denominated in yen), selling expensive assets like collectible cars and expensive real estate in major cities, as well as looking toward places like Africa as contrarian investment opportunities.

Nick Giambruno, senior editor of International Man, agrees that internationalizing your wealth—and yourself—is the most prudent way to go for today’s high net worth investors. It ensures that “no single government can control your destiny,” and that you put your money, business, and yourself where they are treated best.

You should internationalize each of these six aspects of your life, says Giambruno: our assets; your citizenship; your income/business; your legal residency; your lifestyle residency; and your digital presence.
Regarding your assets, you can find better capitalized, more liquid banks abroad, and using international brokerage accounts can provide you access to new investment markets.

To hear all of Nick Giambruno’s detailed tips on how to go global, as well as every single presentation of the Summit, order your 26+-hour Summit Audio Collection now. It’s available in CD and/or MP3 format.

Learn More Here


The article The Broken State and How to Fix It was originally published at Casey Research.


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Sunday, September 28, 2014

The End of Monetary Policy

Thoughts from the Frontline: The End of Monetary Policy

By John Mauldin


We are the hollow men
We are the stuffed men
Leaning together
Headpiece filled with straw. Alas!
Our dried voices, when
We whisper together
Are quiet and meaningless
As wind in dry grass
Or rats’ feet over broken glass
In our dry cellar…
This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.
            –  T. S. Eliot, “The Hollow Men

What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government. This is not to say that there will no longer be events to fill the pages of Foreign Affairs' yearly summaries of international relations, for the victory of liberalism has occurred primarily in the realm of ideas or consciousness and is as yet incomplete in the real or material world. But there are powerful reasons for believing that it is the ideal that will govern the material world in the long run.

– Francis Fukuyama, The End of History and the Last Man

Francis Fukuyama created all sorts of controversy when he declared “the end of history” in 1989 (and again in 1992 in the book cited above). That book won general applause, and unlike many other academics he has gone on to produce similarly thoughtful work. A review of his latest book, Political Order and Political Decay: From the Industrial Revolution to the Globalisation of Democracy, appeared just yesterday in The Economist. It’s the second volume in a two-volume tour de force on “political order.”

I was struck by the closing paragraphs of the review:

Mr. Fukuyama argues that the political institutions that allowed the United States to become a successful modern democracy are beginning to decay. The division of powers has always created a potential for gridlock. But two big changes have turned potential into reality: political parties are polarised along ideological lines and powerful interest groups exercise a veto over policies they dislike. America has degenerated into a “vetocracy”. It is almost incapable of addressing many of its serious problems, from illegal immigration to stagnating living standards; it may even be degenerating into what Mr. Fukuyama calls a “neopatrimonial” society in which dynasties control blocks of votes and political insiders trade power for favours.

Mr. Fukuyama’s central message in this long book is as depressing as the central message in “The End of History” was inspiring. Slowly at first but then with gathering momentum political decay can take away the great advantages that political order has delivered: a stable, prosperous and harmonious society.

While I am somewhat more hopeful than Professor Fukuyama is about the future of our political process (I see the rise of a refreshing new kind of libertarianism, especially among our youth, in both conservative and liberal circles, as a potential game changer), I am concerned about what I think will be the increasing impotence of monetary policy in a world where the political class has not wisely used the time that monetary policy has bought them to correct the problems of debt and market restricting policies. They have avoided making the difficult political decisions that would set the stage for the next few decades of powerful growth.

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So while the title of this letter, “The End of Monetary Policy,” is purposely provocative, the longer and more appropriate title would be “The End of Effective and Productive Monetary Policy.” My concern is not that we will move into an era of no monetary policy, but that monetary policy will become increasingly ineffective, so that we will have to solve our social and physical problems in a much less friendly economic environment.
In today’s Thoughts from the Frontline, let’s explore the limits of monetary policy and think about the evolution and then the endgame of economic history. Not the end of monetary policy per se, but its emasculation.

The End of Monetary Policy

Asset classes all over the developed world have responded positively to lower interest rates and successive rounds of quantitative easing from the major central banks. To the current generation it all seems so easy. All we have to do is ensure permanently low rates and a continual supply of new money, and everything works like a charm. Stock and real estate prices go up; new private equity and credit deals abound; and corporations get loans at low rates with ridiculously easy terms. Subprime borrowers have access to credit for a cornucopia of products.

What was Paul Volcker really thinking by raising interest rates and punishing the economy with two successive recessions? Why didn’t he just print money and drop rates even further? Oh wait, he was dealing with the highest inflation our country had seen in the last century, and the problem is that his predecessor had been printing money, keeping rates too low, and allowing inflation to run out of control. Kind of like what we have now, except we’re missing the inflation.

Let’s Look at the Numbers

The Organization for Economic Cooperation and Development has a marvelous website full of all sorts of useful information. Let’s start by looking at inflation around the world. This table is rather dense and is offered only to give you a taste of what’s available.



What we find out is that inflation is strikingly, almost shockingly, low. It certainly seems so to those of us who came of age in the ’60s and ’70s and who now, in the fullness of time, are watching aghast as stupendous amounts of various currencies are fabricated out of thin air. Seriously, if I had suggested to you back in 2007 that central bank balance sheets would expand by $7-8 trillion in the next half decade but that inflation would be averaging less than 2%, you would have laughed in my face.

Let’s take a quick world tour. France has inflation of 0.5%; Italy’s is -0.2% (as in deflation); the euro area on the whole has 0.4% inflation; the United Kingdom (which still includes Scotland) is at an amazingly low 1.5% for the latest month, down from 4.5% in 2011; China with its huge debt bubble has 2.2% inflation; Mexico, which has been synonymous with high inflation for decades, is only running in the 4% range. And so on. Looking at the list of the major economies of the world, including the BRICS and other large emerging markets, there is not one country with double digit inflation (with the exception of Argentina, and Argentina is always an exception – their data lies, too, because inflation is 3-4 times what they publish.) Even India, at least since Rajan assumed control of the Reserve Bank of India, has watched its inflation rate steadily drop.

Japan is the anomaly. The imposition of Abenomics has seemingly engineered an inflation rate of 3.4%, finally overcoming deflation. Or has it? What you find is that inflation magically appeared in March of this year when a 3% hike in the consumption tax was introduced. When government decrees that prices will go up 3%, then voilà, like magic, you get 3% inflation. Take out the 3% tax, and inflation is running about 1% in the midst of one of the most massive monetary expansions ever seen. And there is reason to suspect that a considerable part of that 1% is actually due to the ongoing currency devaluation. The yen closed just shy of 110 yesterday, up from less than 80 two years ago.

I should also point out that, one year from now, this 3% inflation may disappear into yesteryear’s statistics. The new tax will already be factored into all current and future prices, and inflation will go back to its normal low levels in Japan.

Inflation in the US is running less than 2% (latest month is 1.7%) as the Fed pulls the plug on QE. As I’ve been writing for … my gods, has it really been two decades?! – the overall trend is deflationary for a host of reasons. That trend will change someday, but it will be with us for a while.

Where’s my GDP?

Gross domestic product around the developed world ranges anywhere from subdued to anemic to outright recessionary:



The G-20 itself is growing at an almost respectable 3%, but when you look at the developed world’s portion of that statistic, the picture gets much worse. The European Union grew at 0.1% last year and is barely on target to beat that this year. The euro area is flat to down. The United Kingdom and the United States are at 1.7% and 2.2% respectively. Japan is in recession. France is literally at 0% for the year and is likely to enter recession by the end of the year. Italy remains mired in recession. Powerhouse Germany was in recession during the second quarter.

Let’s put those stats in context. We have seen the most massive monetary stimulation of the last 200 years in the developed world, and growth can be best described as faltering. Without the totally serendipitous shale oil revolution in the United States, growth here would be about 1%, or not much ahead of where Europe is today.

Demographics, Debt, Bond Bubbles, and Currency Wars

Look at the rest of the economic ecology. Demographics are decidedly deflationary. Every country in the developed world is getting older, and with each year there are fewer people in the working cohort to support those in retirement. Government debt is massive and rising in almost every country. In Japan and many countries of Europe it is approaching true bubble status. Anybody who thinks the current corporate junk bond market is sustainable is smoking funny smelling cigarettes. (The song from my youth “Don’t Bogart That Joint” pops to mind. But I digrass.)

We are seeing the beginnings of an outright global currency war that I expect to ensue in earnest in 2015. My co-author Jonathan Tepper and I outlined in both Endgame and Code Red what we still believe to be the future. The Japanese are clearly in the process of weakening their currency. This is just the beginning. The yen is going to be weakening 10 to 15% a year for a very long time. I truly expect to see the yen at 200 to the dollar somewhere near the end of the decade.

ECB head Mario Draghi is committed to weakening the euro. The reigning economic philosophy has it that weakening your currency will boost exports and thus growth. And Europe desperately needs growth. Absent QE4 from the Fed, the euro is going to continue to weaken against the dollar. Emerging-market countries will be alarmed at the increasing strength of the dollar and other developed world currencies against their currencies and will try to fight back by weakening their own money. This is what Greg Weldon described back in 2001 as the Competitive Devaluation Raceway, which back then described the competition among emerging markets to maintain the devaluation of their currencies against the dollar.

Today, with Europe and Japan gunning their engines, which have considerable horsepower left, it is a very competitive race indeed – and one with far reaching political implications for each country. As I have written in past letters, it is now every central banker for him or herself.

That Pesky Budget Thing

Developed governments around the world are running deficits. France will be close to a 4% deficit this year, with no improvement in sight. Germany is running a small deficit. Japan has a mind boggling 8% deficit, which they keep talking about dealing with, but nothing ever actually happens. How is this possible with a debt of 250% of GDP? Any European country with such a debt structure would be in a state of collapse. The US is at 5.8% and the United Kingdom at 5.3%, while Spain is still at 5.5%.

Let’s focus on the US. Everyone knows that the US has an entitlement driven spending problem, but very few people I talk with understand the true nature of the situation, which is actually quite dire, looming up ahead of us. In less than 10 years, at current debt projection growth rates, the third largest expenditure of the United States government will be interest expense. The other three largest categories are all entitlement programs. Discretionary spending, whether for defense or anything else, is becoming an ever smaller part of the budget. Social Security, Medicare, and Medicaid now command nearly two thirds of the national budget and rising. Ironically, polls suggest that 80% of Americans are concerned about the rising deficit and debt, but 69% oppose Medicare cutbacks, and 78% oppose Medicaid cutbacks.



At some point in the middle of the next decade, entitlement spending plus interest payments will be more than the total revenue of the government. The deficit that we are currently experiencing will explode. The following chart is what will happen if nothing changes. But this chart also cannot happen, because the bond market and the economy will simply implode before it does.



A Multitude of Sins

Monetary policy has been able to mask a multitude of our government’s fiscal sins. My worry for the economy is what will happen when Band-Aid monetary policy can no longer forestall the hemorrhaging of the US economy. Long before we get to 2024 we will have a crisis. In past years, I have expected the problems to come to a head sooner rather than later, but I have come to realize that the US economy can absorb a great deal of punishment. But it cannot absorb the outcomes depicted in those last two charts. Something will have to give.

And these projections assume there will be no recession within the next 10 years. How likely is that? What happens when the US has to deal with its imbalances at the same time Europe and Japan must deal with theirs? These problems are not resolvable by monetary policy.

Right now the markets move on every utterance from Janet Yellen, Mario Draghi, and their central bank friends. Central banking dominates the economic narrative. But what happens to the power of central banks to move markets when the fiscal imperative overcomes the central bank narrative?

Sometime this decade (which at my age seems to be passing mind-numbingly quickly) we are going to face a situation where monetary policy no longer works. Optimistically speaking, interest rates may be in the 2% range by the end of 2016, assuming the Fed starts to raise rates the middle of next year and raises by 25 basis points per meeting. If we were to enter a recession with rates already low, what would dropping rates to the zero bound again really do? What kind of confidence would that tactic actually inspire? And gods forbid we find ourselves in a recession or a period of slow growth prior to that time. Will the Fed under Janet Yellen raise interest rates if growth sputters at less than 2%?

An even scarier scenario is what will happen if we don’t deal with our fiscal issues. You can’t solve a yawning deficit with monetary policy.

Further, at some point the velocity of money is going to reverse, and monetary policy will have to be far more restrained. The only reason, and I mean only, that we’ve been able to get away with such a massively easy monetary policy is that the velocity of money has been dropping consistently for the last 10 years. The velocity of money is at its lowest level since the end of World War II, but it is altogether possible that it will slow further to Great Depression levels.

When the velocity of money begins to once again rise – and in the fullness of time it always does – we are going to face the nemesis of inflation. Monetary policy during periods of inflation is far more constrained. Quantitative easing will not be the order of the day.

For Keynesians, we are in the Golden Age of Monetary Policy. It can’t get any better than this: free money and low rates and no consequences (at least no consequences that can be seen by the public). This will end, as it always does…..

Not with a Bang but a Whimper

Will we see the end of monetary policy? No, policy will just be constrained. The current era of easy monetary policy will not end (in the words of T.S. Eliot) with a bang but a whimper. Janet or Mario will walk to the podium and say the same words they do today, and the markets will not respond. Central banks will lose control of the narrative, and we will have to figure out what to do in a world where profits and productivity are once again more important than quantitative easing and monetary policy.

You need to be thinking about how you will react and how you want to protect your portfolios in such a circumstance. Even if that volatility is years off, “war-gaming” how you will respond is an important exercise. Because it will happen, unless Congress and the White House decide to resolve the fiscal crisis before it happens. Calculate the odds on that happening and then decide whether you need to have a plan.

Unless you think the bond market will continue to finance the US government through endless deficits (as so far has happened in Japan), then you need to start to contemplate the end of effective monetary policy. I would note that, even in Japan, monetary policy has not been effective in restarting an economy. It is a quirk of Japan’s social structure that the Japanese have devoted almost their entire net savings to government bonds. As the savings rate there is getting ready to turn negative, we are going to see a very different economic result. Japan with the yen at 200 and an even older society will look a great deal different than the country does today.

Current market levels of volatility and complacency should be seen as temporary. Plan accordingly.

Washington DC, Chicago, Athens (Texas), and Boston

I am in Washington DC as you read this. I have a few meetings set up, as well as a speaking engagement, and then I’ll return home to meet with my business partners at Mauldin Economics later in the week. In the middle of October I will go to Chicago for a speech, fly back to a meeting with Kyle Bass and his friends at the Barefoot Ranch in Athens, Texas, and then fly out to Boston to spend the weekend with Niall Ferguson and some of his friends. I am sure I will be happily surfing mental stimulus overload that week.

Next weekend (October 4) is my 65th birthday. I had originally thought I would do a rather low key event with family; but my staff, family, and friends have different plans. I’m not really supposed to know what’s going on and don’t really have much of an idea as I am not allowed around planning sessions, but it sounds like fun.

I am walking on legs that feel like Jell-O, as it was “legs day” yesterday, working out with The Beast. My regular workout partner couldn’t make it, so he was able to focus on exhausting me to the maximum extent possible. I’ve never been all that athletic. As a kid, for the most part I was not allowed to participate in PE due to some physical limitations (which fortunately went away as I grew older).

I became a true geek. Not that that is all bad: it has served me rather well later in life. Geeks rule. It wasn’t until I was in my mid 40s that I began to go to the gym on more than a haphazard basis. And I must confess that I was a typical male in that I focused on my upper body as opposed to my legs and abdominals. That oversight is catching up with me now. The Beast is forcing me to devote more time to my legs and core. Much better for me as I approach the latter half of my 60s, but it’s painful to realize the cost of my negligence.

In the last five or six years my travel has reduced my gym time, or at least that’s my excuse. For whatever reason, my travel has been reduced for the last two months, so I’m getting much more time in the gym, and my workouts are more well rounded. I typically try to do at least another 30 minutes of cardio after our training sessions, even if the session was based around cardio. Except on leg days. There’s nothing left for extra walking or cycling after leg days.

I share this because I want you to understand that working out is just as important as your investment strategy. I fully intend to be going strong for a very long time. But that doesn’t happen (at least as easily) if you lose your legs. As much as I hate leg days, I probably need those workouts more than any others.

It’s time to hit the send button. I hear kids and grand kids gathering in the next room. That’s something else that is just as important as investment strategy. You have a great week.

Your thinking about how to profit from the coming crisis analyst,
John Mauldin



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Sunday, July 20, 2014

Beware of Flashy Stock Repurchases When The Market Is on The Rise

By Andrey Dashkov

Retail giant Bed Bath & Beyond just announced plans to buy back another $2 billion in shares, which the company will start doing after it completes its current share repurchase program. You’ve seen it before: Press releases emphasize that buybacks return value to shareholders, analysts sometimes rely on repurchases to spot a stock to write up next, and management likes to tout their focus on shareholder returns. But what’s the real story? Why would a company buy its own shares?


There are but a few situations when returning cash to shareholders instead of paying dividends or investing in new projects is prudent:
  • The company has largely exhausted investment opportunities that would generate a positive net present value (NPV).
  • The stock is trading below its intrinsic value; or
  • The tax on dividends is so high compared to the capital gains tax that it makes sense to boost the share price and let shareholders enjoy the extra return instead of receiving heavily taxed dividends.
When these situations happen we support repurchases. In the reality, however, managers often have their own reasons to buy back shares; let’s look at the more popular ones.

First, management’s compensation is often based on share price performance or earnings based metrics like earnings per share (EPS), which buybacks are designed to boost.

Second, higher share price increases the value of a company’s options. Managers are often shareholders, too, but unlike you and me, they have direct access to the Treasury. When managers own a lot of their own company’s stock, they may have too much skin in the game. This may skew their preferences toward increasing the share price at the expense of long term business growth.

Third, share buybacks became a standard (and often abused) signal to the market that: a) the company’s stock is undervalued, and b) that management takes care of the shareholders. Both of these statements may be correct in isolation, based on the company’s fundamentals and management practices. Nonetheless, a buyback should not convince you that either is true.

One additional reason is often overlooked. Many a CEO has been fired for an acquisition that did not work out. When the decision is made to dump the acquisition, it is accompanied by a write off against earnings, sometimes worth billions of dollars. Wall Street armchair quarterbacks are quick to point out how much better off shareholders would have been if they had just paid out what they lost in dividends. Buying back company shares, with all the accompanied hoopla, is less likely to be a career threatening move.

Linking the two subjects together makes for nice copy; however, keep it in perspective. For example, a technology company that realizes their product line is becoming obsolete will often make acquisitions to increase their product line market share, or move them into a new business with long term potential. Buying back company stock, then having to go into the market and borrow at high interest rates, might be the exact wrong move. The key is making the right acquisitions for the company to continue to grow and pay dividends for the next generation.

In fact, managers have proven to be pretty bad stock pickers even when they have only one stock to pick. As my colleague Chris Wood showed in A Look at Stock Buybacks, managements have bought shares of their own companies at pretty bad times in the past. Moreover, the expectations of higher valuation based on higher EPS did not always materialize. Even though a lot of investors use P/E as their main gauge of value (which they shouldn’t), there is no convincing evidence that buybacks can support high valuation multiples in the long term.

Your Bottom Line

 

History has shown that the only value-creating buybacks were the ones carried out when stocks were deeply undervalued. In those instances, the repurchases helped companies outperform the market. But overall the optimism and confidence inducing press releases that accompany buybacks should be taken with a huge grain of salt.

As a rule of thumb, beware of increased buybacks when the market is on the rise (everybody is an investment guru when everything is going up) or when management compensation is closely tied to the share price performance or earnings based metrics. Companies with better corporate governance may fare better when it comes to managing conflicts of interest, but there is a significant vested interest there that investors should be aware of. Don’t mistake noise for a sign is all.

When it comes to returning value to shareholders, we appreciate companies that invest in long term projects—or pay dividends. Despite the potential tax implications, the yield strapped investors may be better served with a special dividend these days than with a promise of a better price in the future.

Learn more ways to cut through press rhetoric by signing up for our free weekly e-letter, Miller’s Money Weekly, where my colleagues and I share timely financial insight tailored for seniors and conservative investors alike.

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Sunday, June 15, 2014

The Age of Transformation

By John Mauldin


One of the many luxuries that my readers have afforded me over the years is their willingness to allow me to explore a wide variety of topics. Not all writers are so blessed, and their output and responses to it tend to stay focused on specific, often quite narrow topics. While this approach allows them to dig very deep into particular subject matter, it can reduce the total scope of their research, vision, and advice. But don’t get me wrong; these types of letters are very important. I benefit greatly from being a subscriber to a number of letters that give me detailed analysis for which I simply don’t have the time to do the research. There’s just too much going on in the world today for any of us to be an expert in more than a few areas.

I seem to find the most enjoyment and elicit the best response when I try to give my readers the benefit of my broad scope of reading and research as I try to figure out how all the various and sundry pieces of the puzzle fit together. For me, the world is just that: a vast and very complex puzzle. Trying to discern the grand themes and detailed patterns as the very pieces of the puzzle go on changing shape before my eyes is quite a challenge.

To try to figure out which puzzle pieces are going to have the most influence and impact in our immediate future, as opposed to languishing in the background, can be a frustrating experience. I often find myself writing about topics (such as a coming subprime crisis or recession) long before they manifest themselves. But I think it is important to see opportunities and problems brewing as far in advance as we can so that we can thoughtfully position ourselves and our portfolios to take advantage.

Today I offer some musings on what I’ve come to think of as the Age of Transformation (which I have been thinking about a lot while in Tuscany). I believe there are multiple and rapidly accelerating changes happening simultaneously (if you can think of 10 years as simultaneously) that are going to transform our social structures, our investment portfolios, and our personal futures. We have had such transformations in the past. The rise of the nation state, the steam engine, electricity, the advent of the social safety net, the personal computer, the internet, and the collapse of communism are just a few of the dozens of profound changes that have transformed the world in which we live.

Therefore, in one sense, these periods of transformation are nothing new. I think the difference today, however, is going to be the simultaneous nature of multiple transformational trends playing out within a very short period of time (relatively speaking) and at an accelerating rate.

It is self evident that failure to adapt to transformational trends will consign a business or a society to the ash can of history. Our history and business books are littered with thousands of such failures. I think we are entering one of those periods when failing to pay close attention to the changes going on around you could prove decidedly problematical for your portfolio and fatal to your business.

This week we’re going to develop a very high-level perspective on the Age of Transformation. In the coming years we will do a deep dive into various aspects of it, as this letter always has. But I think it will be very helpful for you to understand the larger picture of what is happening so that you can put specific developments into context – and, hopefully, let them work for you rather than against you.

We’re going to explore two broad themes, neither of which will be strange to readers of this letter. The first transformational theme that I see is the emerging failure of multiple major governments around the world to fulfill the promises they have made to their citizens. We have seen these failures at various times in recent years in “developed countries”; and while they may not have impacted the whole world, they were quite traumatic for the citizens involved. I’m thinking, for instance, of Canada and Sweden in the early ’90s. Both ran up enormous debts and had to restructure their social commitments. Talk to people who were involved in making those changes happen, and you can still see some 20 years later how painful that process was. When there are no good choices, someone has to make the hard ones.

I think similar challenges are already developing throughout Europe and in Japan and China, and will probably hit the United States by the end of this decade. While each country will deal with its own crisis differently, these crises are going to severely impact social structures and economies not just nationally but globally. Taken together, I think these emerging developments will be bigger in scope and impact than the credit crisis of 2008.

While each country’s crisis may seemingly have a different cause, the problems stem largely from the inability of governments to pay for promised retirement and health benefits while meeting all the other obligations of government. Whether that inability is due to demographic problems, fiscal irresponsibility, unduly high tax burdens, sclerotic labor laws, or a lack of growth due to bureaucratic restraints, the results will be the same. Debts are going to have to be “rationalized” (an economic euphemism for default), and promises are going to have to be painfully adjusted. The adjustments will not seem fair and will give rise to a great deal of societal Sturm und Drang, but at the end of the process I believe the world will be much better off. Going through the coming period is, however, going to be challenging.

“How did you go bankrupt?” asked Hemingway’s protagonist. “Gradually,” was the answer, “and then all at once.” European governments are going bankrupt gradually, and then we will have that infamous Bang! moment when it seems to happen all at once. Bond markets will rebel, interest rates will skyrocket, and governments will be unable to meet their obligations. Japan is trying to forestall their moment with the most breathtaking quantitative easing scheme in the history of the world, electing to devalue their currency as the primary way to cope. The U.S. has a window of time in which it will still be possible to deal with its problems (and I am hopeful that we can), but without structural reform of our entitlement programs we will go the way of Europe and numerous other countries before us.

The actual path that any of the countries will take (with the exception of Japan, whose path is now clear) is open for boisterous debate, but the longer there is inaction, the more disastrous the remaining available choices will be. If you think the Greek problem is solved (or the Spanish or the Italian or the Portuguese one), you are not paying attention. Greece will clearly default again. The “solutions” have so far produced outright depressions in these countries. What happens when France and Germany are forced to reconcile their own internal and joint imbalances? The adjustment will change consumption patterns and seriously impact the flow of capital and the global flow of goods.

This breaking wave of economic changes will not be the end of the world, of course – one way or another we’ll survive. But how you, your family, and your businesses are positioned to deal with the crisis will have a great deal to do with the manner in which you survive. We are not just cogs in a vast machine turning to powers we cannot control. If we properly prepare, we can do more than merely “survive.” But achieving that means you’re going to have to rely more on your own resources and ingenuity and less on governments. If you find yourself in a position where you are dependent upon the government for your personal situation, you might not be happy. This is not something that is going to happen all of a sudden next week, but it is going to unfold through various stages in various countries; and given the global nature of commerce and finance, as the song says, “There is no place to run and no place to hide.” You will be forced to adjust, either in a thoughtful and premeditated way or in a panicked and frustrated one. You choose.

I should add a note to those of my readers who think, “I don’t have to worry about all this because I am not dependent on Social Security.” Wrong. A significant majority of the retiring generation does depend on Social Security and also on government controlled healthcare, and their reactions and votes and consumption patterns will have an impact on society. Ditto for France, Germany, Italy, and the rest of Europe. The Japanese have evidently made their choice as to how to deal with their crisis. If you are a Japanese citizen and are not making preparations for a significant change in your national balance sheet and the value of your currency, you have your head in the sand.

There’s no question that the reactions of the various governments as they try to forestall the inevitable and manage the crisis will create turmoil and a great deal of volatility in the markets. We have not seen the last of QE in the U.S., but Japan is going gangbusters with it, and it is getting fired up in Europe and China.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best selling author, and Chairman of Mauldin Economics – Please Click Here.



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Wednesday, May 14, 2014

Puerto Rico’s Stunning New Tax Advantages

By Nick Giambruno, Senior Editor, International Man

Chances are that you have heard something about the stunning new laws in Puerto Rico that give unbelievable tax benefits for mainland Americans who move to the island. Benefits that are so incredible that many at first thought they were simply too good to be true…...but they most certainly are not.


With strategies that purport to legally allow US citizens to avoid having to pay taxes, the first thing that usually comes to mind is some sort of cockamamie scheme. This is because the US government is no slouch when it comes to shaking down its citizens. It’s mind boggling expenditures necessitate this. It would be dangerously foolish in the extreme to think you could slip one past them.

However, the tax benefits of becoming a resident of Puerto Rico are not an illusion, nor some type of scam. They are very real, 100% legal, and could change your life. That is not hyperbole. They have already changed the lives of many. These benefits are why scores of mainland Americans have already made the move—including two members of Casey Research. Many more have seriously considered it. To spur job growth and economic activity in general, the Commonwealth of Puerto Rico introduced extraordinary tax incentives for incoming residents and service businesses.

Specifically, for Puerto Rican residents and businesses that qualify—mostly expatriates from the U.S. mainland or their enterprises—the recently enacted Act 22 and Act 20 provide for a zero tax rate on capital gains and certain interest and dividends earned by individuals, and for low single digit tax rates on qualifying service income earned by corporations operating in Puerto Rico.

Puerto Rico is no novice at sculpting tax rules to attract foreign investors and expatriates. For decades the country has offered tax incentives to many types of businesses, especially manufacturers, which is why today you’ll find plants belonging to Praxair, Merck, Pfizer, and other big names dotting the island’s lush interior.
Due to the ever-increasing extra-territorial regulations they are forced to comply with, many countries and foreign financial institutions are showing American citizens the “unwelcome mat.” Puerto Rico, on the other hand, is a newly tax-friendly jurisdiction that is—and will continue to be—open to Americans.

One accountant who specializes in offshore structures remarked, “This is the biggest opportunity I’ve seen in 25 years.”

He’s right: this is truly an astounding and unique opportunity for individual Americans; there is no other way to legally escape the suffocating grip of these taxes besides death or renunciation of U.S. citizenship. This is because the US is the only country in the world that taxes its nonresident citizens on all of their income regardless of where they live and earn their money. For this reason, an American who moves to a zero tax jurisdiction like Dubai, for example, still pays a full U.S. tax bill. A Canadian expat working in Dubai would have no income tax bill at all.

Note: The US does exclude up to $99,200 of foreign earned income (salary, wages, etc.) from taxation if certain conditions are met, but there is no break for an overseas American’s investment income.

American are in the uniquely unfavorable position of having arguably the worst tax policies and a government that can effectively enforce them. For many, it is a tight and suffocating tax leash. It is no wonder, then, why record numbers of Americans are giving up their citizenship to escape these onerous requirements. Even if you do decide to take the plunge and renounce your US citizenship, there’s a good chance you’ll get stung with the costly exit tax and also may have trouble reentering the US.

There is, however, another way, thanks to the new options in Puerto Rico. American citizens can effectively gain many of the tax benefits of renunciation without actually having to do so. Due to Puerto Rico’s situation as a commonwealth of the U.S., its residents are not subject to US federal income taxes from income generated in Puerto Rico.

Previously this did not make any practical difference, because although Puerto Rican residents are not subject to U.S. federal taxes, they are subject to Puerto Rican taxes, which are often at similar levels to those on the U.S. mainland. However the situation has changed immensely, with the two powerful, new laws that exempt new Puerto Rican residents from certain key taxes from the Puerto Rican government.
 .
Anyone who relocates to Puerto Rico can apply for these tax incentives—including mainland U.S. citizens, who can find similar benefits nowhere else in the world, thanks to the island’s unique legal situation.

Casey Research has done a thorough boots on the ground investigation and found that the tax advantages are real and that for many Americans, including individuals operating on a modest scale, they are a huge opportunity that could truly be life changing. The findings were recently published in a comprehensive A-Z guide on the Puerto Rico option. Click Here to Learn More.


The article Puerto Rico’s Stunning New Tax Advantages was originally published at Casey Research



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Tuesday, April 29, 2014

Obama’s Secret Pipeline

By Marin Katusa, Chief Energy Investment Strategist

Isn’t it odd that an 800 mile pipeline that runs across environmentally sensitive land has been permitted without any mention in the media? Not a word about it from President Obama either.

Obama’s Secret Pipeline will be built over land that’s much more sensitive than that of the Keystone XL pipeline, which gets nothing but front page coverage. It will actually be 17% (six inches) larger in diameter than Keystone XL (36 inches) and it will transport natural gas, not oil.

Bill 138

The Senate of Alaska, the state in which the pipeline will be built, has just passed Bill 138, which makes the state a partner of three of the world’s largest oil companies, including one that has a horrible environmental track record on U.S. soil. In a nutshell, Alaska’s government is now partners with BP, ExxonMobil, and ConocoPhillips.

Only one more signature is required—Governor Sean Parnell’s—and it’s expected that he will sign the deal.

Not Even the US Government Wants US Dollars

For more than 100 years, the U.S. government has been receiving a royalty and tax revenue paid on the amount of oil or natural gas produced on American soil—a fee that is paid in U.S. dollars. Bill 138 has changed this forever.

Instead of Alaska receiving its dues in U.S. dollars, the state legislature has decreed through Bill 138 that the state will be paid “in kind.” In other words, the state will be getting its share of royalty and tax revenue in natural gas instead of U.S. dollars.

For the record, this is the first time ever that a US state has entered into a partnership like this. Essentially, Alaska is now a 25% equity partner with BP, ExxonMobil, and ConocoPhillips—which also requires the state to cough up cold, hard cash to build the entire project, including the 800 mile long, 42 inch wide pipeline.

Overall, the project is currently estimated to cost north of U.S. $50 billion, and we expect that when all the capital expense overruns and government inefficiencies are accounted for, the whole project will come in at more than U.S. $75 billion, using the total costs of similar projects for comparison.

But it will be 2015 before the final negotiations and the specific details of the partnership are agreed on, and remember, the devil is in the details. Who do you think will get the better end of the deal—a bunch of government bureaucrats with zero oil and gas experience, or the world’s top oil and gas producing companies? I know whom I’m betting on.

Which leads us to the point of this weekly missive.

And the Winner of Obama’s Secret Pipeline Is…

We already know which company will be building and operating Obama’s Secret Pipeline. The company I’m talking about has a lower price to earnings (P/E) ratio and a better yield than all of its peers. That’s good, because shareholders get paid a monthly yield for owning the stock while sitting back and watching the share price rise as well.

The Ultimate Oil Toll Booth

Think of it this way: this company charges the world’s most powerful oil and gas producers for every barrel of oil that passes through its “road network,” and now it can also charge the state of Alaska. Regardless of the price of oil or natural gas, this company gets its fee.

It’s a low-risk way to benefit from a high risk enterprise. This company is a current Buy in our Casey Energy Dividends portfolio. The Energy team is currently working hard on the upcoming issue, which will in detail cover the company that’s bound to gain big from Obama’s Secret Pipeline.

I know you haven’t heard about this pipeline yet, but you will soon enough.

That’s what we do here at the Energy Division of Casey Research: We’re the first to uncover breakthrough stories, and the first to uncover the best energy investment opportunities in the world. Doug Casey and I just got back from a whirlwind European tour, where we visited many of Europe’s most promising energy projects.

Here’s a picture of Doug Casey and me at Europe’s largest onshore drill site. This drill rig is 15 stories high and uses about 16,000 liters of diesel a day to turn the drills—which Doug and I are holding in this picture. As a side note, just the crank shaft that we’re holding costs U.S. $2 million—this rig is expensive and gigantic.


For you to get a better perspective on the true size of Europe’s largest onshore drill rig, here is a picture of Doug Casey and me with our friends Frank Holmes, Frank Giustra, and Matt Smith.

(From far left to right: Frank Holmes, Doug Casey, Marin Katusa, Frank Giustra, Matt Smith)

 

Do Your Portfolio a Favor and Try Out the Casey Energy Report

Doug Casey and I have done all the hard work for you. The current issue of the Casey Energy Report is a compilation of our Europe trip, including in-depth descriptions of our site visits and a new recommendation with a hugely promising project in an out-of-the-way European country that we personally checked out. The company is backed by mining giant Frank Giustra, and you bet he knows what he’s doing.

The Casey Energy Report comes with a free one year subscription to Casey Energy Dividends (a $79 value), including, of course, the upcoming May issue with our “Obama’s Secret Pipeline” pick.

There’s no risk in trying it: You have 90 days to find out if it’s right for you—love it or cancel for a full refund. You don’t have to travel 300+ days a year (as we do) to discover the best energy investments in the world—we do it for you.

If you don’t like the Casey Energy Report or don’t make any money within your first three months, just cancel within that time for a full, prompt refund. Even if you miss the cutoff, you can cancel anytime for a prorated refund on the unused part of your subscription. Click here to get started.

The article Obama’s Secret Pipeline was originally published at Casey Research



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