Archive for February, 2015
From Nick Giambruno, Senior Editor, International Man:
Financial privacy is essentially dead.
I think it’s only prudent to assume that sooner or later all the details of your financial life will come to rest in a government computer—if they haven’t done so already—and to plan accordingly.
We live in a world where pretty much every penny you earn, save, and spend is stored in a permanent record somewhere and can be retrieved for scrutiny one day if needed.
It’s not a comfortable or happy thing. But no matter how unpleasant it is, I believe it’s a reality we have to face.
Knowing that you are financially naked and exposed to an insolvent government hungry for revenue might make you feel like you just ate rat poison for lunch.
That said, don’t be tempted to try to illegally hide your income and skirt reporting requirements. It’s a fool’s errand. The draconian penalties make a cost/benefit analysis easy… don’t even think about it.
An Inescapable Global Dragnet
FATCA is at the vanguard of the global trend for the automatic reciprocal exchange of financial information between governments.
In case you don’t know, FATCA, the Foreign Account Tax Compliance Act, is the wildly unpopular law that forces every financial institution in the world to report information about their American clients to the US government, which imposes huge costs on those financial institutions. In effect, FATCA causes every foreign bank to become unpaid agents of the IRS.
The US is in a position to enforce an extra-territorial law only because it controls the world’s reserve currency and has threatened to effectively cut off access to the US financial system for those who do not comply.
This is why a country like Mexico could never impose its own version of FATCA on the world. Not many would care about losing access to the peso-based Mexican financial system.
This success has unfortunately inspired other bankrupt countries to band together and push for a sort of FATCA on steroids. This is where the OECD’s plans for a “global standard” of automatic information exchange—informally known as GATCA—comes in.
Rather than having each country mimic FATCA and tediously create a web of bilateral information-exchanging agreements with every other country, the leaders of this supra-national institution are pushing to make the exchange of such information automatic among all countries.
I’d say it’s safe to assume the OECD will be successful in blanketing most of the world with its new “global standard”—at least I wouldn’t want to bet against it.
It’s very likely in the near future that no citizen from any country will be able to “hide” financial assets anywhere. Every financial institution in the world will automatically send financial information on foreign account holders to the respective government.
FATCA and GATCA mean there’s no escape. Unless you plan to bank in Cuba, Iran, or North Korea, count on your home government finding out about your offshore accounts automatically.
That doesn’t mean obtaining an offshore bank account is a fruitless endeavor.
Offshore banks are often much safer and better capitalized than most banks in the US. Additionally, a foreign bank account cannot be seized or frozen at the drop of a hat by your home government.
Offshore banks usually allow you to diversify out of the US dollar as well and gain access to markets in countries you otherwise might not be able to. So despite not having any financial privacy, offshore banking still gives you many important benefits.
When All Else Fails…
Even if you manage to somehow escape the global FATCA/GATCA dragnet, your private financial information is still very vulnerable.
If it comes down to it, governments are willing and capable of using alternative means to get the information they desire.
They can engage in economic espionage, bribe bank employees, and pay freelance hackers to steal ostensibly secret financial information.
Take for example the case of Sina Lapour, an assistant to a private banker at Credit Suisse. In 2007, Lapour stole the private information of as many as 2,500 clients and sold it to a middleman, who then sold it to the German tax authorities who presumably shared it with other governments. Or in 2008, when a thief stole data from LGT Group in Liechtenstein and then sold it to tax authorities in various countries.
Then there’s Edward Snowden. Before he was an NSA contractor, Snowden worked for the CIA, for which he was posted in Switzerland. Snowden claims that his objective there was to get Swiss bankers in compromising positions so that secret financial information could be gleaned. Specifically, he encouraged a Swiss banker to get drunk and then drive, hoping that he would be arrested. Then, the CIA would offer to help get the banker out of jail and legal trouble… for a price: divulging secret financial information.
And then there’s the hacking and leaks of a number of offshore centers in a sort of WikiLeaks-style operation where confidential information on over 122,000 trusts, companies, and other structures were revealed. The 260 gigabytes of formerly private information was used to publicly identify more than 130,000 people in 170 countries.
A Bright Spot
When you consider the combined effects of FATCA, GATCA, and governments engaging in bribery, blackmail, and hacking, it would be foolish to assume that the privacy of your financial assets is assured.
This is why when I see people argue about which country or which convoluted offshore structure is best for keeping secrets from Uncle Sam, it reminds me of two bald men fighting over a comb.
It should now be clear that privacy for financial assets like bank and brokerage accounts is essentially dead. However, non-financial assets like foreign real estate are a completely different story.
Owning foreign real estate is one of the very few ways Americans can legally keep some of their wealth abroad while still retaining their privacy.
- Compared to fiat currencies, foreign real estate can be an excellent long-term store of value.
- It’s a hard asset outside of the immediate reach of your home government.
- It’s something that cannot be easily confiscated, nationalized, frozen, or devalued at the drop of a hat or with a couple of taps on the keyboard.
But foreign real estate also has a rare and notable feature that foreign financial assets—like offshore bank and brokerage accounts—do not have.
If the foreign real estate is held directly in your name (i.e., not in a trust, LLC, real estate fund, partnership, etc.) it is not reportable to the IRS. Of course, any rental or other income generated is reportable.
What this means is that it’s possible to use foreign real estate—as long as it doesn’t generate any income— to diversify some of your savings abroad and retain your privacy.
In that sense, foreign real estate has become the new Swiss bank account.
One internationalization expert whom we’d highly recommend is none other than Doug Casey, the original International Man. Doug’s been to over 175 countries and invested in real estate in a number them. He wrote a thick and detailed chapter on foreign real estate, including his favorite markets, for our Going Global publication, which is a must-read for those interested in this extremely important topic.
|Why Stansberry Research wants to send you REAL silver
“I am as bearish as I have ever been in my entire life,” Porter recently told a private audience. Shortly after that, his team at Stansberry Research began putting together the pieces for one of the most important projects in the history of the company. Find out why they want to send you real, physical silver… and 12 more “survival tools”…
|37 retirement “hacks” that can radically improve your life
How to legally hide money from the U.S. government… Get silver from your local bank… A little-known IRS “hack” worth an extra $15,000 tax-free a year… and much, much more. Former investment banker reveals all these secrets right here.
From Bill Bonner, Chairman, Bonner & Partners:
Please remember this warning when you go to the ATM to get cash… and there is none!
While we were thinking about what was really going on with today’s strange new money system, a startling thought occurred to us.
Our financial system could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates.
Do you remember when a lethal tsunami hit the beaches of Southeast Asia, killing thousands of people and causing billions of dollars of damage?
Well, just before the 80-foot wall of water slammed into the coast an odd thing happened: The water disappeared.
The tide went out farther than anyone had ever seen before. Local fishermen headed for high ground immediately. They knew what it meant. But the tourists went out onto the beach looking for shells!
The same thing could happen to the money supply: Cash could evaporate suddenly and disastrously – just before we drown in it.
Here’s how… and why:
If you look at M2 money supply – which measures coins and notes in circulation as well as bank deposits and money market accounts – America’s money stock amounted to $11.7 trillion as of last month.
But there was just $1.3 trillion of physical currency in circulation – about only half of which is in the U.S. (Nobody knows for sure.)
What we use as money today is mostly credit. It exists as zeros and ones in electronic bank accounts. We never see it. Touch it. Feel it. Count it out. Or lose it behind seat cushions.
Banks profit – handsomely – by creating this credit. And as long as banks have sufficient capital, they are happy to create as much credit as we are willing to pay for.
After all, it costs the banks almost nothing to create new credit. That’s why we have so much of it.
A monetary system like this has never before existed. And this one has existed only during a time when credit was undergoing an epic expansion.
So our monetary system has never been thoroughly tested. How will it hold up in a deep or prolonged credit contraction? Can it survive an extended bear market in bonds or stocks? What would happen if consumer prices were out of control?
Less Than Zero
Our current money system began in 1971.
It survived consumer price inflation of almost 14% a year in 1980. But Paul Volcker was already on the job, raising interest rates to bring inflation under control.
And it survived the “credit crunch” of 2008-09. Ben Bernanke dropped the price of credit to almost zero, by slashing short-term interest rates and buying trillions of dollars of government bonds.
But the next crisis could be very different…
Short-term interest rates are already close to zero in the U.S. (and less than zero in Switzerland, Denmark and Sweden). And according to a recent study by McKinsey, the world’s total debt (at least as officially recorded) now stands at $200 trillion – up $57 trillion since 2007. That’s 286% of global GDP… and far in excess of what the real economy can support.
At some point, a debt correction is inevitable. Debt expansions are always – always – followed by debt contractions. There is no other way. Debt cannot increase forever.
And when it happens, ZIRP and QE will not be enough to reverse the process, because they are already running at open throttle.
The value of debt drops sharply and fast. Creditors look to their borrowers… traders look at their counterparties… bankers look at each other…
…and suddenly, no one wants to part with a penny, for fear he may never see it again. Credit stops.
It’s not just that no one wants to lend, no one wants to borrow either – except for desperate people with no choice, usually those who have no hope of paying their debts.
Just like we saw after the 2008 crisis, we can expect a quick response from the feds.
The Fed will announce unlimited new borrowing facilities. But it won’t matter….
House prices will be crashing. (Who will lend against the value of a house?) Stock prices will be crashing. (Who will be able to borrow against his stocks?) Art, collectibles and resources – all will be in free fall.
The NEXT Crisis
In the last crisis, every major bank and investment firm on Wall Street would have gone broke had the feds not intervened. Next time it may not be so easy to save them.
The next crisis is likely to be across ALL asset classes. And with $57 trillion more in global debt than in 2007, it is likely to be much harder to stop.
Are you with us so far?
Because here is where it gets interesting…
In a gold-backed monetary system prices fall. But the money is still there. Money becomes more valuable. It doesn’t disappear. It is more valuable because you can use it to buy more stuff.
Naturally, people hold on to it. Of course, the velocity of money – the frequency at which each unit of currency is used to buy something – falls. And this makes it appear that the supply of money is falling too.
But imagine what happens to credit money. The money doesn’t just stop circulating. It vanishes.
A bank that had an “asset” (in the form of a loan to a customer) of $100,000 in June may have zilch by July. A corporation that splurged on share buybacks one week could find those shares cut in half two weeks later. A person with a $100,000 stock market portfolio one day, could find his portfolio has no value at all a few days later.
All of this is standard fare for a credit crisis. The new wrinkle – a devastating one – is that people now do what they always do, but they are forced to do it in a radically different way.
They stop spending. They hoard cash. But what cash do you hoard when most transactions are done on credit? Do you hoard a line of credit? Do you put your credit card in your vault?
No. People will hoard the kind of cash they understand… something they can put their hands on… something that is gaining value – rapidly. They’ll want dollar bills.
Also, following a well-known pattern, these paper dollars will quickly disappear. People drain cash machines. They drain credit facilities. They ask for “cash back” when they use their credit cards. They want real money – old-fashioned money that they can put in their pockets and their home safes…
Let us stop here and remind readers that we’re talking about a short timeframe – days… maybe weeks… a couple of months at most. That’s all. It’s the period after the credit crisis has sucked the cash out of the system… and before the government’s inflation tsunami has hit.
As Ben Bernanke put it, “a determined central bank can always create positive consumer price inflation.” But it takes time!
And during that interval, panic will set in. A dollar panic – with people desperate to put their hands on dollars… to pay for food… for fuel…and for everything else they need.
Credit may still be available. But it will be useless. No one will want it. ATMs and banks will run out of cash. Credit facilities will be drained of real cash. Banks will put up signs, first: “Cash withdrawals limited to $500.” And then: “No Cash Withdrawals.”
You will have a credit card with a $10,000 line of credit. You have $5,000 in your debit account. But all financial institutions are staggering. And in the news you will read that your bank has defaulted and been placed in receivership. What would you rather have? Your $10,000 line of credit or a stack of $50 bills?
You will go to buy gasoline. You will take out your credit card to pay.
“Cash Only,” the sign will say. Because the machinery of the credit economy will be breaking down. The gas station… its suppliers… and its financiers do not want to get stuck with a “credit” from your bankrupt lender!
Whose lines of credit are still valuable? Whose bank is ready to fail? Who can pay his mortgage? Who will honor his credit card debt? In a crisis, those questions will be as common as “Who will win an Oscar?” is today.
But no one will know the answers. Quickly, they will stop guessing… and turn to cash.
Our advice: Keep some on hand. You may need it.
Crux note: The January issue of The Bill Bonner Letter explained in depth what the next crisis will look like… and how you can protect your savings.
For a limited time, you can get a 30-day risk-free trial subscription – including full access to the January issue and the entire Bill Bonner Letter archives – when you pick up a copy of Bill’s latest book, Hormegeddon. Get yours here.
From Sean Goldsmith in The Stansberry Digest:
A superbug is wreaking havoc on the West Coast…
Superbugs attacked more than 170 patients at the UCLA Ronald Reagan Medical Center.
NBC News reported last week that an e-mail went out to 179 patients who had possibly been exposed after an investigation found seven patients infected. What’s worse, the superbug may have contributed to two deaths.
UCLA identified the superbug as carbapenem-resistant Enterobacteriaceae (CRE). We know that’s a mouthful to pronounce. But there are plenty more just like them. They are antibiotic-resistant bacteria.
The Centers for Disease Control and Prevention (CDC) calls them a “family of germs” that are highly resistant to antibiotics. Back in 2013, the CDC outlined 18 drug-resistant threats to the United States and categorized them as urgent, serious, or concerning.
CRE got “urgent” status.
You might be thinking that 179 possible infections is nothing to worry about. Think again…
Last week, biotech specialist and Stansberry Venture editor Dave Lashmet gave his readers an example of how a simple needle stick can bring down the biggest, fittest, and strongest of us. As he said in the issue…
Most people admitted to a hospital get a needle stick. And if there’s an infection, anyone in a hospital gets antibiotics. These two effects together foster antibiotic resistance.
Dave has researched and written about superbugs over the past six months. He has attended conferences, studied drug trials, and met with doctors and experts in the field to understand in detail what CDC Director Tom Frieden calls the “nightmare bacteria” – or the simpler term, superbugs. He first wrote about them last August in Stansberry’s Investment Advisory.
Most important for Stansberry Research readers, Dave has unveiled some outstanding investment opportunities – companies developing new drugs to fight against these superbugs. In September, he told Stansberry’s Investment Advisory subscribers about pharmaceutical company Cubist. Pharma giant Merck bought Cubist in December. Subscribers booked a 49% profit in just three months.
We wrote about Cubist and superbugs in the December 8 Digest…
Big Pharma wants antibiotics because of the growing threat of drug-resistant bacteria. We won’t go into too much detail today, but more and more bacteria are becoming resistant to antibiotics because of overuse. And according to the U.S. Centers for Disease Control and Prevention, antibiotic resistance is killing at least 23,000 Americans a year, making it “one of our most serious health threats.”
Cubist plans to introduce four new drugs by 2020 to fight drug-resistant bacteria.
In early December, Stansberry Venture subscribers learned about another small-cap drug developer fighting superbugs. As of yesterday’s close, Dave’s subscribers were up 106% in two and a half months…
And in the February issue of Stansberry Venture, Dave revisited the “superbug” theme, highlighting the serious threat that superbugs pose…
Some superbugs resist everything. Centers for Disease Control and Prevention (CDC) estimates 23,000 people died in the U.S. in 2012 from antibiotic-resistant bacteria. Europe sees a similar scale. Japan’s estimates are around 10,000.
If those numbers don’t scare you enough… CDC Director Dr. Tom Frieden recently called for more effective antibiotic research and development, saying: The next pandemic… is hiding in plain sight. Something that could undermine our ability to practice modern medicine. Something that could devastate our economy and sicken or kill millions.
Dave is currently working on a new research piece about superbugs, including some of the companies making the top drugs to fight this epidemic. If his track record is any indication, these companies should be big winners…
In the four months since Dave started writing Stansberry Venture, he has recommended a triple-digit winner and two big double-digit gains. The average gain in his portfolio is 78% with an average holding period of just 77 days (not including the position he recommended on Tuesday).
While he hasn’t focused on superbugs, Dr. David “Doc” Eifrig has been an outspoken bull on health care and medical stocks for more than five years.
In July 2010, Doc recommended shares of pharmaceutical giant Eli Lilly. He explained why a blue-chip company like Lilly could withstand deflationary market forces. (Remember, we were coming out of the subprime crisis.)
As you can see from the chart below of the SPDR Health Care Fund (XLV) – which holds a basket of some of the highest-quality names in health care – the sector had gotten crushed…
Doc believed the sector was set for a huge rally. As he told Retirement Millionaire subscribers…
A natural concern when the economy faces deflation is any company’s earnings could wither if the value of its products falls. But Eli Lilly (and the pharmaceutical sector, in general) are protected from this trend…
First, medical expenses – especially life-extending therapies like Alzheimer’s medications and cancer treatments – are among the last expenses the consumer cuts.
More important, despite the weak economy, I believe the health care boom is about to begin. Thanks to the government’s new health care regime, 30 million newly insured consumers are about to flood the sector. And with the Baby Boomer generation entering the years when health care spending accelerates, it’s hard to imagine how big health care will be. That’s why I’m recommending putting money into this sector immediately.
Boomers are getting heavier, worried about their memories, and afraid of cancer. That makes diabetes, Alzheimer’s, and cancer three of the fastest-growing segments in health care and drug development. Lilly is right there with products in the sweet spots of growth.
In addition, some of the safest names in health care were sporting huge yields. Eli Lilly’s dividend at the time was 5.7% – 82% higher than the 3.1% yield available on 10-year Treasurys. And Lilly was earning more than enough to maintain its dividend.
Doc also liked the fact that Lilly had a long history of paying and increasing its dividend…
It has paid shareholders a dividend for 125 years and increased it for 42 consecutive years. Consider that out of the 136 public pharmaceutical companies, it’s one of only eight that even pays a dividend.
In times when inflation is absent (when prices are either flat or deflating), dividends are a crucial tool for building wealth. In REM, we say, “cash is king.” Getting cash from bonds or dividends is the perfect solution during times like now, since your net worth grows against the asset values that are stable or even dropping in price. This provides steady growth of your wealth.
Even if inflation picks up, dividend investing works in your favor as long as you secure dividends that pay at rates above the rate of inflation. If you invest $1,000 and get paid 6% a year with inflation at 2%, then at yearend, you’ve made 4% over and above inflation – a so-called “real return” of $40 ($60 in dividends minus 2% inflation).
Over time, this real return is what provides life-improving wealth. That $40 allows you to buy that much more that you couldn’t afford the year before. But the opposite is also true. If inflation runs above your rates of return, you are getting poorer and your standard of living will drop.
As we’ve noted many times in the Digest, buying high-quality companies that pay healthy and increasing dividends is the best way to grow your wealth in the market over the long term.
In the case of Eli Lilly, Doc’s Retirement Millionaire subscribers booked gains of 133% after he recommended closing the position last week.
In addition to a big win with Lilly, Doc’s subscribers are sitting on other huge gains in health care. As of yesterday’s close, they’re up 181% in drugstore chain CVS Caremark, 109% in medical-equipment manufacturer Medtronic, 87% in pharma giant Johnson & Johnson, and 161% in the Fidelity Select Medical Equipment & Systems Fund.
Kudos to Doc for being all over the health care trend in its early stages. But he says big gains are still ahead…
In his latest issue, Doc listed two blue-chip health care stocks as “Strong Buys.” One of these companies, he says, is “one of the most attractive stocks in our portfolio.” It trades at a reasonable 17 times earnings today.
If you’re looking for a safe place for new money today, this is it.
In total, Doc listed four companies as “Strong Buys.” Doc’s recommendations should make up the backbone of your portfolio. His conservative approach to investing and the education he shares in each issue make Retirement Millionaire a must-read.
You can get immediate access to Doc’s recommended list of buys with a risk-free trial subscription to Retirement Millionaire. A one-year subscription costs just $39. Click here to get started.
Comedian John Oliver and the millions of people he unleashed on the FCC last summer have gotten what they wanted: a reclassification of Internet service as a public utility aimed at preventing providers from blocking, slowing, or speeding up certain content.
The 3-to-2 Federal Communications Commission vote largely enshrines current practices of the major providers, such as Comcast, AT&T, and Verizon Communications, and as such probably won’t hold any immediate effects for the average consumer. It does, however, prevent a tiered Internet where companies and content providers can pay for speedy access to customers.
“If this goes well, consumers will not notice a difference,” says Christopher Mitchell, an official with the Institute for Local Self-Reliance, an advocacy group for community development that supported the net neutrality proposal. Mitchell says the FCC rules are aimed at “preventing things from getting worse.”
The debate in Washington is largely about regulation and big business, as well as the interplay of government and technology investment, with direct implications on the future ease and cost of your Web-surfing at home. And of course, the debate is far from over, with behemoths like Comcast and Verizon likely to challenge the changes, both in Congress and in federal court.
ISPs have argued the new rules also mean heavier regulation—potentially even on government oversight of prices—and may have unintended consequences in the market. The FCC has said repeatedly it has no interest in regulating prices or forcing companies to share their access into homes with rivals. That’s little consolation to investors, according to BTIG analyst Rich Greenfield, who’s said the new regulatory uncertainty is likely to depress share prices across the industry
There’s also the prospect that the FCC’s role in the industry will lead to less capital spending and slow both infrastructure expansion and the growth of broadband speeds. The industry says its top download speeds have doubled in recent years—without the FCC’s involvement—and that government interference could hinder progress. The companies also argue that Americans enjoy faster Internet speeds and better prices than do consumers in most of the world. The rules begin “a costly and destructive era of government micromanagement that will discourage private investment in new networks and slow down the breakneck innovation that is the soul of the Internet today,” Broadband for America, an industry group, said in a statement.
Net neutrality is also not a magic bullet that will spur a flood of new players into the broadband market, such as the small effort Google has been making with its high-speed fiber service, or a dramatic reduction in prices. Nor will the rules prevent ISPs from selling various branded packages, with higher Internet speeds the more you pay.
Internet providers say the reclassification of broadband service could also lead to a flurry of new state and federal fees like those attached to mobile phone and natural gas service. Will you now pay a new user fee for home broadband purchased from Comcast or AT&T? A report in December from the Progressive Policy Institute, a Washington think tank, argued that this outcome is inevitable and calculated a jump in annual bills from $8 in Delaware to as much as $148 in parts of Alaska, based on the current prices and fees.
All that is hypothetical, given the long road to implementation and the many lawyers rushing to this dispute. For now, Netflix and Hulu will stream as usual, and the monthly bill won’t be any higher or lower because of the FCC’s action. Netflix will explore a new complaint process to have the FCC investigate the terms of access contracts in which the company pays Verizon and Comcast fees to carry its traffic. Those deals must be “just and reasonable” under the net neutrality rules. Netflix spokeswoman Anne Marie Squeo said on Thursday that the company will review the language of the new FCC regulations and decide whether to present its current arrangements with the ISPs for an agency review.
Amid all the rhetoric from both sides, it’s interesting to note that one sizable broadband seller, Long Island-based Cablevision Systems, isn’t fazed by the ruling. “The idea of more regulation is never great for us,” Chief Executive Officer James Dolan said on Wednesday during an earnings call. “But to be honest, we don’t really see … any real effect on our business. So therefore, we’re sort of neutral.”
Millions of Americans are the same—at least for now.
From Matt Badiali, editor, Stansberry Resource Report:
Investors betting on higher oil prices right now might be in for a nasty surprise…
As regular readers know, oil prices have collapsed over the past year. They’ve fallen from a high near $107 per barrel in June 2014 to a recent low of $44 per barrel in January. That’s a nearly 60% fall in less than a year and a half.
Oil stocks have fallen too. The Energy Select Sector SPDR Fund (XLE), which holds a basket of major oil stocks, fell 28% in the same timeframe.
But recently, XLE has been moving higher. It’s up around 9% since its January low. Investors are convinced oil prices have to increase soon… so they’re pouring into oil stocks.
These folks are making a mistake…
As we told you last month, with oil prices between $40 and $50 per barrel, it has been impossible for most oil producers to earn profits. So many energy companies have started to scale back on new drilling and are announcing job cuts.
Theoretically, scaling back on drilling should send oil production tumbling… and oil prices soaring in the months ahead as supply falls closer to demand. That’s why investors are jumping back into the sector.
There’s just one problem with this line of thinking…
Despite cutting back, oil production hasn’t started to slow down. You can see this in the chart below. U.S. oil production is at its highest level since 1973.
Meanwhile, the Energy Information Administration (EIA) says worldwide crude oil production is expected to exceed demand by 900,000 barrels of oil per day during the first half of this year.
The reason for the increase in production – despite oil producers cutting costs – is that new drilling techniques – like fracking and horizontal drilling – are allowing U.S. producers to tap into oil and gas reserves in shale more economically.
And now, oil-services companies are making it even more economical.
Oil-services companies provide drilling equipment and service crews to oil producers. In short, these companies can’t survive unless oil producers are drilling wells. So they’re cutting their costs across the board – making it cheaper for oil producers to drill. The costs to drill and complete wells have already come down 20%.
According to Brian Singer, head of Goldman Sachs’ Energy, Americas research group, these costs could fall another 20%.
This means we could see costs fall by 40% in total in the months ahead, as oil-services companies work to get oil producers back in the field drilling.
Cutting the cost of wells is changing the playing field. It’s keeping companies drilling in the better parts of the Eagle Ford and the Bakken. And it will keep U.S. oil production from rapidly falling.
We don’t know how much of an impact it will have. But as long as oil production continues to outpace demand, we won’t see a bottom in oil prices. In short, it’s unlikely we’ll see higher prices until the end of this year – at best.
And as soon as investors see oil prices aren’t increasing over the next few months, they’ll head for the exits… and oil stocks will fall again.
So I would think twice about investing in most oil stocks right now. There’s likely more downside ahead.
From International Living:
Each year, International Living magazine, which Bill Bonner founded more than 30 years ago, ranks the world’s best places to retire.
If you’re sick of the steady erosion of the American Dream, say the folks at IL, there’s never been a better time to retire abroad…
And their top overseas retirement destination for 2015 is…
Spiraling costs at home are compelling more North Americans to retire overseas. But finding the right location among the myriad options available can be daunting.
That’s what our Annual Global Retirement Index does. Using input from our team of correspondents all over the world, we combine real-world insights about climate, health care, cost of living and much more to draw up a comprehensive list of the best-bang-for-your-buck retirement destinations on the planet.
And based on this wide range of criteria, our top retirement recommendation for 2015 is… Ecuador.
Where the Cost of Living Is Low
From the quaint town of Cotacachi to the vibrant capital, Quito… to Salinas by the sea… to the peaks of the Andes – Ecuador’s diversity is a key part of the appeal that sees it regain the coveted top spot on this year’s retirement index.
Although prices have risen in recent years, Ecuador’s real estate is still the best value you’ll find anywhere.
This is bolstered by the generous array of benefits the government has afforded to retirees.
Over-65s get discounts on flights originating in Ecuador, as well as up to 50% off entry to movies and sporting events. Discounts are also available on public transport (50%) and utilities, with the option of a free landline if you purchase a property.
And the cost of living is low. “You can get a lot more here for your dollar than you could in the US or Canada,” says IL Ecuador Highlands Correspondent Wendy DeChambeau.
“A doctor’s visit will set you back around $10, while a main course in a restaurant can be had for as little as $2.50. The bus trip from Cotacachi to Otavalo will cost you 25 cents. For big-ticket items like real estate, you can get a lot more for your dollar here than in the US. A couple can live well here on $1,400 a month, including rent.”
You’ll find world-class medical facilities in big cities throughout the country, and you can catch direct flights to and from the States in Quito and Guayaquil. Good Internet is more readily available than ever. Public transportation is so efficient that many expats report not having to even buy a car.
And with Ecuador having one of the most robust economies on the continent – its GDP has grown an average of 4.5% a year since 2000 – it is likely that this infrastructure is only going to improve over the coming years.
The steadily growing expat population makes it easy to integrate, as do the friendly locals. “Many of the locals are somewhat bilingual, and they are very welcoming toward North Americans,” says IL Cuenca Correspondent Ed Staton. “We also have a steadily growing expat community here.”
When it comes to entertainment, Ecuador offers a diverse range of options. Biking, fishing, zip lining, hiking and rock climbing are all popular and readily available.
Ecuador’s geography means you can choose between many different natural environments – from the Pacific Ocean (including the Galápagos Islands, one of the world’s most important ecological sites) and the Amazon to the peaks of the Andes.
This means you’re guaranteed to find a climate that suits you down to the ground.
Breathtaking Natural Beauty
It’s hard to pinpoint the best reason for making the move to Ecuador. Its breathtaking natural beauty is certainly a huge draw. But the clincher is that it is an incredibly affordable place to live.
Whether you decide to live in the bustling capital of Quito… the pretty expat favorite of Cuenca… or in one of the country’s many beach towns, you’ll find that your money will go a lot further than it does at home.
And there are many other benefits to life in Ecuador – low cost of living but with no lifestyle sacrifices… affordable real estate (whether you’re renting or buying)… good quality, inexpensive health care… and a quality of life that’s hard to beat.
Ecuador is gentle… safe… healthy… private… and civil. As one expat put it: “It’s like we are living in the US in the 1950s.” You’re guaranteed a quality of life that just plain doesn’t exist anymore in the States.
Violence, materialism, and increasingly intrusive government policies have whittled away the last vestiges of the American Dream. But in Ecuador you’re guaranteed an extraordinary lifestyle. And that makes it the perfect place to retire… or reinvent yourself.
You’ll find like-minded company when you do.
From Casey Research:
David Stockman needs no introduction, but I’ll give him one anyway. He’s a former U.S. Congressman who, upon assuming responsibility as Ronald Reagan’s budget director in 1981, became the youngest presidential cabinet member of the 20th century.
Following a 20-year career on Wall Street, David is now an outspoken critic of government stupidity. He argues on behalf of outdated notions like a balanced budget, free markets, and for the government to just plain leave us alone.
Below, David shares a scathing financial analysis of Tesla… and that’s putting it nicely. He argues that Elon Musk’s company is a crony capitalist creation that owes its very existence to government handouts and bailouts.
Dan Steinhart, Managing Editor, The Casey Report
By David Stockman, Former Director of the Office of Management and Budget:
The trouble with the money-printing madness in the Eccles Building is that it generates huge deformations, misallocations, and speculative excesses in the financial markets. Eventually these bubbles splatter, as they have twice this century. The resulting carnage, needless to say, is not small. Combined financial and real estate asset markdowns totaled about $7 trillion after the dot-com bust and $15 trillion during the 2008-2009 financial crisis.
Yes, the Fed has managed to reflate this cheap money bubble for the third time now, but the certainty that it will splatter once again is not the issue at hand. What gets lost in the serial bubble-making process of modern central banking is that vast real resources—labor, capital, and materials—are misallocated owing to mispricing of stock, bonds, and real estate during the bubble inflation phase.
During the bust phase, of course, these excesses are written-down on financial statements and often liquidated entirely on an operational basis. But that’s just the problem. These bust-phase corrections amount to deadweight losses to the economy—a permanent setback to growth and societal prosperity.
The Wall Street casino is now festooned with giant deadweight losses waiting to happen. But perhaps none is more egregious than Tesla—a crony capitalist con job that has long been insolvent and has survived only by dint of prodigious taxpayer subsidies and billions of free money from the Fed’s Wall Street casino.
Not surprisingly, the speculative mania on Wall Street has reached such absurd lengths that Tesla is being heralded and valued as the second coming of Apple and its circus barker CEO, Elon Musk, as the next Henry Ford. Indeed, so raptured were the day traders and gamblers that in the short span of 33 months between early 2012 and September 2014, they ramped up Tesla’s market cap from $2.5 billion to a peak of $35 billion.
That’s a 14x gain in virtually no time—and it’s not due to the invention of a revolutionary new product like the iPad. Instead, we’re talking about 4,600 pounds of sheet metal, plastic, rubber, and glass equipped with an electric battery power pack that has been around for decades and which is not remotely economic without deep government subsidies.
Beyond that, the various Tesla models currently on the market carry price tags of $75k to more than $100k. So they are essentially vanity toys for the wealthy—a form of conspicuous consumption for the “all things green” crowd.
But notwithstanding all the hype on Wall Street, there was nothing remotely evident in its financials that justified Tesla’s $35 billion peak market cap. Net sales for the LTM period ended in September amounted to $2.9 billion, meaning that speculators were putting a Silicon Valley-style multiple of 12x sales on a 100-year-old industrial product, and one sold by a fly-by-night company distinguished from its auto company peers, which trade at 0.5x sales, only by marketing hype and a high-cost power plant that could be made by any of two dozen global car companies if there was actually a mass market demand for it.
Needless to say, Tesla’s meager LTM sales were not accompanied by any sign of profits or positive cash flow. September’s LTM net income clocked in at negative $200 million, and operating cash flow of $150 million was dwarfed by capex of $700 million.
Unless you are imbibing in the hallucination-inducing Kool-Aid dispensed by Goldman Sachs, which took this red-ink machine public in 2009 and has milked it via underwritings, advisories, and early-stage investments for billions, Tesla’s valuation was patently absurd. Yet the gamblers piled in based on the utterly improbable assumption that oil would remain at $115 per barrel forever; that a mass market for electric battery autos would soon develop; and that none of the powerhouse marketing and engineering companies like BMW, Toyota, or even Ford would contest Tesla for market share at standard industry profit margins.
The truth is, there is massive excess capacity in the global auto industry owing to government subsidies and bailouts and to union protectionism that keep uncompetitive capacity alive; and that chronic condition is now especially pronounced due to the wildly soaring growth of unused production capacity in China. This means that the global economy is literally saturated with expert resources for auto engineering, design, assembly, machining, and component supply.
Consequently, if a mass market were to develop for battery-powered vehicles, these incumbent industry resources would literally swarm into Tesla’s backyard. So doing, they would eventually drive margins to normal levels, sending Elon Musk’s razzmatazz up in the same cloud of smoke that has afflicted many of his vehicles.
There is no reason to think that any long-term mass-market player in the auto industry could beat Toyota’s sustained performance metrics. In the most recent period, its net profits amounted to 7.5% of sales and it traded at 11x LTM net income. So even if you take as granted the far-fetched notion that in a world of $2-3 per gallon gasoline—which is likely here for a sustained duration—that a mass market will develop for electric battery vehicles, Tesla would still need upwards of $50 billion of sales at Toyota profit rates and valuation multiples to justify last September’s peak market cap.
So let’s see. Tesla’s CY 2014 sales totaled $3.2 billion, meaning that you would need to bet on a 16x gain in sales over the next few years and that today’s ragtag startup manufacturing operation could achieve levels of efficiency, quality, and reliability that it has taken Toyota 60 years to perfect. Yet take one hard look at Tesla’s historical financials and it is blindingly evident that there is no reason for such an assumption whatsoever.
In fact, Tesla is not a Toyota in the making: it is a Wall Street scam in plain sight. It has been a public filer for seven years now, and here are the horrific figures from its financial statements.
Since 2007 it has booked cumulative sales of just $6.1 billion, and that ain’t much in autoland; it amounts to about one week of sales by Toyota and two weeks by Ford. Its cumulative bottom line has been a net loss of $1.4 billion, and the losses are not shrinking—having totaled nearly $300 million for 2014 alone.
More significantly, during its entire seven years as a public filer, Tesla has failed to generate any net operating cash flow (OCF) at all and has, in fact, posted red ink of $500 million on the OCF line. During the same seven-year span ending in Q4 of 2014, its capex amounted to a cumulative $1.8 billion.
So go figure. Combining OCF and capex, you get a balance sheet hemorrhage of nearly $2.4 billion. The real question, therefore, is not why Tesla was worth $35 billion, but why it wasn’t bankrupt long ago?
The answer is that it was and should be now. Tesla would not have even made it to its Goldman-led IPO without a $500 million bailout by Uncle Sam. That the hard-pressed taxpayers of America were called upon to underwrite a vanity toy for the wealthy—and one peddled by a serial milker of the public teat—is surely a measure of how deep crony capitalist corruption has penetrated into the business system of America.
But even these egregious windfalls do not begin to compare with the gifts showered on Elon Musk by the money printers in the Eccles Building. Tesla has stayed alive only because it has been able to raise billions of convertible debt in the Wall Street casino at yields which are the next best thing to free money. In short, it has been burning massive dollops of cash for years and replenishing itself periodically in capital markets which are rife with momo speculators flying high on cheap carry trades and the Fed’s buy-the-dip safety net.
During the spring of 2014, for instance, it raised $2.3 billion of five- and seven-year money at interest rates ranging between 25bps and 125bps. That’s right. This company is a red-ink-spewing rank speculation, but the money printers have enabled it to raise cash that costs virtually nothing on an after-tax basis. Call it free money for the Tesla bonfire of the vanities.
True enough, these miniscule interest rates were attached to convertible bonds—so supposedly the “upside” justified giving a proven red-ink machine free money. Yes, and the strike price on those converts implied a market cap of about $50 billion!
In truth, Tesla’s true losses are even greater than its accounting statements suggest. For instance, it has booked upwards of $500 million of revenue and profits owing to ZEV (zero emissions vehicle) credits. The latter were invented by Al Gore after he finished inventing the Internet and amount to nothing more than bottled air—clean or not.
Also, Tesla’s affluent customers pocket about $10,000 per vehicle of federal and state tax credits, meaning that taxpayers have fronted another $500 million or so to stimulate Tesla sales.
Finally, Tesla’s marketing machine has even converted itself into a repo man for the wealthy. That is, Tesla guarantees a large share of its customers that it will buy back their vehicles at no loss after three years.
So how does it possibly make a profit deploying this blatant, free rent-a-car gimmick? Ask its accountants. In their wisdom and clairvoyance, they have undoubtedly assumed that the residual value of these vehicles will be levitated by the same juice which fuels Tesla’s stock price.
Yes, Tesla is a bonfire of the vanities. In due course, the bubble will collapse and billions will have been wasted—much of it with taxpayer money—on things like its imaginary gigafactory in Nevada. But that’s what happens when central bankers destroy honest price discovery and turn capital markets into a gambling casino.
David Alan Stockman (born November 10, 1946) is a former U.S. politician and businessman, serving as a Republican U.S. Representative from the state of Michigan (1977-1981) and as the Director of the Office of Management and Budget (1981-1985). You can find more of his commentary at David Stockman’s Contra Corner.
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