FATCA

Be careful, please, of investing in the United States

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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

FATCA’s impact on publicly traded trusts

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My friend’s blog, Beating the Index, has recently been promoting the virtues of two high payout energy trusts that the Calgary oil guys have set up to exploit US legacy oil and gas by using horizontal drilling and multi-fracking technologies.  The Canadian government ended the income trust structure for most Canadian companies on January 1, 2011, because it provided a tax loophole for foreigners investing in Canada, and corporate profits could escape the country with a mere 15% withholding–in the income trust, the profits flowed through to individual distribution recipient who then declared it on their taxes as unearned income.  Apparently, the income trust structure (or something similar) is still available for Eagle Energy Trust (EGL.UN) and Parallel Energy Trust (PLT.UN) because they are exploiting a foreign source of income.

In the past, I’ve merely responded to Beating the Index by saying that I’m out of the US market because of the persecution of US persons, though I thought that EGL.UN, an asset held in Canada, would be a safe because Mich could buy or sell it without IRS implications.  But now I am not so sure, because it dawned on me this morning that FATCA doesn’t impact Foreign Financial Institutions (FFIs) only but also foreign trusts.  So this morning I asked Mich:

Hey Mich: I was wondering if you have had a chance to determine what the implications of FATCA will be on these Canadian trusts, considered “foreign trusts”. I think that companies like Eagle Energy Trust or Parallel Energy Trust like banks, foreign trusts must determine and declare to the IRS all of their US persons. If they do not become FATCA compliant they will experience a 30% withholding of their US source income. In order to be FATCA compliant such trusts would have to either go off the public market (because ownership changes on daily basis), or brokers would have to keep track of who is the US person (i.e., the trust could only be traded by a FATCA compliant FFI).

I don’t know what the implications of this are. It may result either in the conversion of the trust to a regular corporation or to these trusts going private before 2014. Let me do some homework, but this sort of thing is complicated enought and too few people realize the financial damage that the Obama administration is doing to the world economy. FATCA threatens to dismantle the world economy, or at least, the United States’ participation in it.

I am still of the opinion that the Canadian FFIs will either comply with FATCA, thus violating the Human Rights of their clients who are deemed by the IRS to be US persons (that includes permanent residents who hold Green Cards and US citizens, and dual Canadian and US citizens, and potentially anyone born in the United States); or because of complaints, they will not be able to comply, and as a result, there will be a sudden exodus of Canadian investments from the United States. The worldwide impact of FATCA is estimated to be at least 14 trillion of foreign assets leaving the United States (see http://isaacbrocksociety.com/2011/12/11/fatca-a-ticking-time-bomb-for-the-economy/ ).

I am wondering if anyone knows the answer to this question:  How will FATCA impact trusts like Eagle and Parallel?

Singapore fund manager recommends pulling investments out of the United States

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FATCA is causing foreign investors to pull their money out of the United States.  Don’t take my word for it alone.  Today in Singapore reports:

The penalties for not following FATCA requirements correctly can be huge. FFIs that do not report or withhold taxes can be liable for all that withholding, plus interest and penalties. It may just be easier not to invest in the US at all and, indeed, asset management firm BlackRock says the FATCA “discourages foreign investment in US capital markets”. …
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If Obama is a global citizen doesn’t that make him the President of the world?

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The new FATCA legislation, signed by President Obama as part of the Hire Act, requires that every person in the world who owns a bank account declare whether he is a US person.  Imagine if the Chinese required that every bank account holder in American banks fill out a form declaring whether they are a Chinese person for tax purposes!  What would you say?  None of their damn business.

Obama must think he is the president of the world.

 

Isn’t this the way it starts?  With great speeches accompanied by ignoble acts of coercion?

Open Letter to the Executive Director of the Society of Biblical Literature

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A letter to the Executive Director of the Society of Biblical Literature, an association with over 8000 members, informing him why the author will not be renewing his membership:  The US Federal Government is persecuting American citizens abroad of whom the author is one.

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