Be careful, please, of investing in the United States

I wrote to fellow blogger Kevin Graham the following warning after his repeated insistence that Wells Fargo is very safe and cheap:

Kevin: Are you aware of the consequence of the FATCA legislation and how it will affect investments in the United States? As a Canadian you can easily protect yourself from these consequences by pulling your investments out of the United States. I am involved in a group blog, the Isaac Brock Society, which is dealing with the questions of US persons abroad and the attempt of the United States to crack down on alleged tax evaders living abroad, including Canada.

I say this because you promote Wells Fargo, and not a few other US equities as “safe”. I am not sure that anything in the United States can be deemed “safe” and I recommend all investors to get out before the meltdown of the economy there. The other issue of course, is that the United States debt has no surpassed 100% of GDP. This seems to me to be a reason to be extremely cautious.

Kevin and I had a good time going back and forth over Petrobakken last year, when PBN hit its nadir.  I was the bull; he was bear, even when PBN was at $6.50; Petrobakken achieved its year end exit production guidance and thus is on its way to a full recovery (which I think will be above $24).  It didn’t hurt that Sinopec bought Daylight Energy, a company which had a similar debt issues to Petrobakken, but Daylight was arguably less attractive because it was more weighted towards natural gas than Petrobakken, but it did give us an opportunity to see what an outside buyer would pay for a mature intermediate oil and gas company, and it was double the then-current market price of Daylight. I took tender for my shares of Daylight and I am happy to say that I have, as of today,  received into my brokerage accounts.

Unfortunately, Kevin’s recommends US bank after US bank.  But he is apparently unaware of FATCA and the likely damage that it will do as a result of the exodus of foreign investment in the United States.  Furthermore, I consider American banks black boxes.  Who can possibly know what they are worth when they have so many derivative contracts that nobody understands?  I consider the banks bad risk since the time that I learned that many of them (e.g., Scotiabank) have large short positions in gold through their sale of unallocated gold certificates.

One might ask why I bother checking Kevin’s blog.  Well, I like reading some blogs that look at the world in a totally different way than I do.  I also like to challenge them.  Then, if they can muster cogent responses, it makes me think about my position.  I can’t say that Kevin has ever succeed in convincing me of anything though.  Each time that he talks about a company being safe (like Sears), I get the urge to add to my Spam collection.

My Spam collection

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4 thoughts on “Be careful, please, of investing in the United States

  1. Kevin Graham responded to me at his blog:

    Peter,

    Seriously, why do you waste your time commenting here every ten minutes? I don’t even read my blog that much.

    I could care less about FATCA, I am a Canadian.

    If you don’t feel that US equities are safe then don’t buy them, stop reading my blog, and go buy some guns and ammo.

    Just so you are aware, I will not tolerate any further political and personal comments of this nature to be posted. This is not your blog and I would advise everyone reading this not to waste his or her time reading anything you write.

    Why don’t you write me, in an email, and tell me how and why the US economy is going to meltdown. I may respond on my blog why I think your crazy.

    Best Regards,
    Kevin

    PS. SHLD owns just shy 94% of SCC. Please read the third quarter financials from SCC and quit getting your information from the newspaper.

    I answered:

    You don’t care about FATCA cause you don’t have a clue about it. I am a Canadian too. So are most of the folks that are being nabbed by it. What does that have to do with anything?

    It just occurred to me that as a Canadian living in Canada, you might want to know why your US investments could go sour. I don’t apologize for commenting your blog. If you find it annoying, why do you leave the comment stream open?

    You seemed genuinely annoyed. I don’t really understand that. I thought that as a blogger, you might actually like it when someone interacts with your posts. I don’t see a lot of other folks coming here commenting. You know, I thought you were some kind of serious investor, with serious intentions. But you have the hardest time dialoguing with folks. That means that you could have major blind spots, because you are shutting the door to other people’s criticism.

    I became interested, you know, in your blog because of your earlier interaction with Devon Shire, and therefore I like to look at people who substantially disagree with me. Also, the interview at the Globe and Mail made me think, hey this guy must take his investing and blogging seriously. Did you see I wrote about you today at my blog too?

    As for guns and ammo, sure. But I just became a Canadian and I don’t have a gun permit. But I am bullish for Canada.

    You can go on pretending that everything is safe in the United States. But it isn’t. I am happy to leave you in your make believe world.

    On the 92/94%, it doesn’t change in any substantial manner my main point. SHLD is majority owner of SCC. I predicted that Sears would go bankrupt a couple of years ago when they refused to refund my money for a pair of shorts, despite the option contract on the back of the receipt; I said aloud then that a company that doesn’t honor it’s option contract on the back of receipt could not last much longer. Perhaps they can come back but it doesn’t look good now.

    Much to my surprise, Kevin permitted my comment and responded again:

    Peter,

    This is the problem. You are not interested in interacting with my posts. You are interested in self serving comments for which I don’t have the time.

    My problem is that you haven’t presented one reason why it’s a bad decision to invest in Wells Fargo other than the unsubstantiated claim that the US is going to “meltdown”. I asked for further clarification and I am still waiting. As for some piece of legislation that doesn’t affect me, go promote your fear mongering somewhere else.

    The reason why you read my blog is because I was right and Devon Shire was completely wrong on PBG/PBN.

    Again please substantiate your claim the US is not safe and that they are closing the door to foreign investment. Do this in an email, for the last time as it has nothing to do with this post.

    Listen pal, we have a difference of opinion on the US and Canada. You feel Canada is safe and the US is not, and I feel the opposite. Why am I the one in the make believe world? And you call me narrow minded.

    I was on your blog a long time ago and because of the above comments I have no interest in reading further.

    Best Regards,
    Kevin

  2. Petros, we don’t still don’t how the FACTA is going to be implemented and if capital is really going to fly out of America. I think it’s too early to call. We could see:
    1- A rush to the doors;
    2- Companies gradually scale out
    3- Only the smallest companies pull out
    4- No reaction at all

    So while I understand your intentions, that blogger is doing the right thing by (for now) including the US on his radar. I don’t know if he is some American flag waiver, but there ARE actually some decent investments in America, much better than you can find anywhere else. Personally, I have always done my best when I seperate my opinions from the facts that I see on the screen.

    This, however, in no way shape or form affects my view of America and my desire to renounce. My decision for renunciation will be fulfilled.

    • Thanks for the comment.

      My view of Sears is related to my view of the US. If the US wasn’t going down the tubes, they wouldn’t be hounding us for money. This can’t end well–only with a mass repudiation of the US and investment there.

      I disagree with your point about the US. The investments may look like deals, but they are what are called “value traps” because inflation is going to destroy the ROI until they fix the budget problems.

      Canada is indeed a much better place to invest. There are great deals in the oil and gas and gold mining sectors, at least for now. I still avoid Canadian banks because housing is in a bubble here and because they’ve shorted gold.

      And finally, if you don’t make moves before the crowd, you will never win in investing. You have to move before people start jumping on the band wagon. I’ve made my call about FATCA. This is going to happen–if not because of Canadian investors in the US, because the international community is already moving out of the US. Canada is small compared to Japan and China, for example. I made move out of US three years ago. So far that decision to short the United States has worked out very well for me, and I expect, even better in the future.

  3. My bet is that it will take some time. The FACTA is terrible, but I don’t think it’s a very simple process to delist from a stock exchange, or sell off trillions in assets. Everybody wants to get a good price, so they sell, then wait for prices to rise, then sell some more. Everybody knows that if everybody heads for the door at the same time, everybody ends up with a terrible price. That is, if they REALLY want to sell their US assets.

    Moreover, most everything with associated with the US (t-bills and the US dollar) are ** risk-off ** asset classes. If the US fabricates another war, then the value of these US investments will rise.

    About inflation, one could argue that the run up on commodity prices COMBINED with low interest rates in Canada has increased inflation in Canada, which actually happens to most commodities-based economies.

    About the “good” investments in America:
    Let’s assume that an American has a brokerage account in America. There is a family of funds that pays from 10% – 15% a year, with low expenses too.

    Compare that to Brazil, where foreign investment has been coming in like mad since 2002: I can get roughly the same rate with something like a CD or a better rate by buying government bonds. But I will deal with government-induced inflation to the tune of around 10-15% per year. They say it’s lower that that, but prices track the minimum wage, which goes up almost every year. The increase this year was just shy of 15%.

    In the US, I still don’t believe the official figures, so let’s add a few points just to be safe, so around 7% inflation per year. That’s still much better than most places.

    You of all people know I’m not a US cheerleader. In this case, I’m just going off the numbers. If you have an better alternatives in Canada, I’m all ears.

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