25. June 2009 by Dan Walkow, CFA, CMT.

The Internal Revenue Service is demanding that hedge-fund and private-equity investors disclose hundreds of billions of dollars they have invested offshore, boosting scrutiny of accounts popular for tax advantages.

The move comes as regulators and lawmakers are seeking to crack down on questionable use of offshore tax havens and could uncover sources of income that aren’t being taxed but should be.

Probably time to find a good tax attorney if you stashed the cash. For more.

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25. June 2009 by Dan Walkow, CFA, CMT.

Charts courtesy of dshort.com (Click to Enlarge)

As a result of very high inflation numbers emanating from the 1970’s governments were faced with a very big problem. Union settlements forced adjustments to include a “COLA” adjustment to pensions and benefits and tax brackets. This beget a significant increase in employer and government liabilities as they had to “pay up” every year to account for inflation.

Not good. How do you fix the problem? Why you change the way the inflation index is calculated introducing something called “hedonistic delflators”. The Consumer Price Index has been fiddled twice over the last 20 years.

Headline inflation is about zero as reported in recent days according to current day calculations.

What would the rate be if they left the CPI calculation alone? Click the chart above to find out.

 You will not be surprised, but if you are a senior with indexed benefits, you are not going to be happy!

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25. June 2009 by Dan Walkow, CFA, CMT.

Nothing like a little bear market in natural gas stocks to get the Alberta Government to reverse course on it’s tax grab on gas production in Alberta.

Less than a year ago Alberta raised royalties on natural gas production placing it as one of the highest natural gas tax jurisdictions in North America. Alberta natural gas stocks got priced down accordingly.

Oh but now the world has changed according to Alberta Premier ED Stelmach, he is going to offer an “incentive package” to ravaged gas producers. Oh boy talk about wrong way Eddie.

There is a ton of  natural gas around but my thought is that Alberta will not let it’s gas industry wither away to nothing. Selected beaten down gas stocks may be due for a pop.

See the Globe and Mail article here.

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22. June 2009 by Dan Walkow, CFA, CMT.

For interesting insight into what is really going on in China this is a must read. Well written and insightful by Terence Doherty.

“ This is a singularly ominous combination that makes China’s economic future outlook over the next 25 years very grim. And that, in turn, will lead to acceleration of civil unrest. In fact, that has already happened: incidents of violent civil unrest have accelerated markedly all across China over the past year or two. But I think this could well get far more noticeable and disruptive. Some economists have said that in order to avoid disruptive amounts of civil unrest (as opposed to the more manageable baseline levels of unrest that are a constant), China’s economy must grow by 8.5% per year or more, just to keep enough people quiet. I suspect that is probably more or less approximately true in principle, although I don’t know where they came up with that number. But regardless of what that magic number might be, when that economy gets really bad—–watch out. That’s the seeds of civil war, if you ask me. If you have a very large group of desperate people coupled with an extreme polarization of wealth, you have a classic “haves” vs. “have  nots” Marxian confrontation that is the underpinning of most if not all major revolutions. Then, the only missing ingredient is a charismatic leader (like Mao, for example…..).”

This is a must read here.

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20. June 2009 by Dan Walkow, CFA, CMT.

Manulife revealed that a  probe by the Ontario Securities Commission on whether Manulife provided appropriate disclosure on it guaranteed funds also also known as segregated funds and variable annuity guaranteed products has been initiated.

The probe has to do with whether Manulife provided full and continuous disclosure regarding market risk during last years stock market meltdown but I will take this one step further.

Point one is that even if full and continuous disclosure was provided most investors and one could argue many investment advisers did not and do not understand how these products work. A long-dated “guarantee” 10 years out gives small comfort to a 40% draw-down in the value of the  underlying funds held in some of these investment products.

Point two is that these products are very expensive both in terms of ongoing expenses, which are embedded in the fund itself so you do not see them and the commission paid to investment advisers to sell them which is large and I mean LARGE.

Point three is how tying up investment capital in these products severely limits your flexibility if you want to change your investment mix.

In the United States variable annuity products which lure investors in with the “illusion” of safety have been subject to strong criticism for all the above reasons noted.

Caveat Emptor!

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20. June 2009 by Dan Walkow, CFA, CMT.

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20. June 2009 by Dan Walkow, CFA, CMT.

If you have an offshore account which you have not been declaring to the tax authorities you have a right to be worried. The movement afoot to force tax haven countries to release information is ongoing in the United States and you can be sure Canada will follow suit.

There are valid and legitimate reasons to have money offshore and that is for reasons of “Asset Protection”. This is done through as Asset Protection Trust where as an individual you face risks such as malpractice suits, potential risks via divorce issues, difficult family estate planning issues and so on. Bear in mind that the tax has to be paid.

A recent update in the WSJ–

The U.S. and Switzerland said they agreed to share information on potential tax evaders for the first time, the latest step toward eroding Switzerland’s renowned banking secrecy.

U.S. Treasury Secretary Timothy Geithner said the deal, which the governments began negotiating in April, “will help bring an end to an era of offshore accounts and investments being used for tax evasion.” The U.S. declined to release details until the deal, which could face a referendum in Switzerland, has been completed and signed.

Switzerland and other tax havens in Europe and the Caribbean came under intense international pressure to agree to share tax information with other governments ahead of a summit meeting of the Group of 20 governments in London in April.

Read the whole thing.

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20. June 2009 by Dan Walkow, CFA, CMT.

Current rally from early March nothwithstanding if we take a standback look at global markets and ask the question “are markets cheap” on a historical basis, you can see that using a price earnings measure, that they are.

In fact you have to go back to the early 1980’s to see similar valuations.

Of course all depends on the “E” which is earnings. In the context of the P/E right markets may be a bit ahead of themselves right now but in the bigger picture and over the longer term equities have a lot of room on the upside.

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20. June 2009 by Dan Walkow, CFA, CMT.

Paul Tudor Jones - Failure Speech June 2009

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19. June 2009 by Dan Walkow, CFA, CMT.

For starters, investing in an MLP may result in a requirement to file a U.S. non-resident tax return. “The reason for this is that if the partnership is carrying on trade or business effectively connected with the U.S., each non-U.S. partner is treated as if they too carry on a trade or business located in the U.S.,” the expert wrote. “This treatment results in the obligation to file a U.S. tax return.”

But that’s only the beginning. Payments made from MLPs to Canadians are subject to non-resident withholding tax equal to the top U.S. marginal tax rate, which is 35 per cent. “This withholding is required regardless of whether the non-U.S. person is documented or undocumented,” the tax expert said.

Any excess U.S. withholding tax may be recovered on the annual non-resident U.S. tax return but that’s a hassle that most Canadians would rather avoid.

Of course, any income from MLPs must also be reported on your Canadian tax return. But there is a problem with that as well, says our expert. “Unless the limited partnership is targeted towards Canadian investors, there may be difficulty obtaining adequate information to properly file a Canadian tax return. The information provided by the U.S. limited partnership, using U.S. Form 1065 (Schedule K-1) for limited partner tax reporting, typically lacks sufficient detail to allow the taxpayer to convert the income from a U.S. tax basis to a Canadian tax basis. With the cooperation of the partnership, these difficulties may be overcome, but will typically increase the complexity and cost of the client’s personal tax return.”

Read the whole thing.

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