patrick.net

With regards to Fed and inflation: isn't it the case that the Fed considers all these commodity price increases transitory and based to a large degree on speculation and dollar depreciation and so they don't really worry about it? They think the coming recession or even low growth will moderate whatever inflation there is (while the all important wage inflation never happened, nor will it), and commodities will come down as soon as they (theFed) reverse direction in the interest rate.

Why is this line of thought unreasonable? I mean we keep saying it was all a credit bubble, so all prices of hard assets (notice that doesn't include our wages) were inflated. Now that credit is contracting it stands to reason that those same prices will contract too, right? So inflation is not a concern. The only concern to the Fed seems to be not to allow all this contraction to result in a depression.

I don't believe the "20% Coupon CA Muni's" ever existed. The comment I'd over heard was that "IF" they were to be underwritten 'today' (under existing circumstances, no insurance, HF MASS liq.) they'd need to PAY 20% to find buyers.

Or did I just get that all wrong?

My gut is telling me that, at this point, the Fed is bailing heartily trying to make sure the financial/banking sector does not end up at the bottom of the ocean. This is not about monetary policy at this point, it is about survival. In a glimmer of good news, H3 figures show TAF holding steady for the week and nonborrowed reserves levelling off. Wake me up when they close down TAF; at that point, we can start talking about monetary policy and even think about selling off our commodities and PMs.
NIA - I have no clue...

I opened my bank accounts in Australia with merely a phone call, a couple of fax exchanges and signed forms mailed down so that I could buy Australian government bond.

What banks were those in Australia?

All DB commodities ETFs are subject to PFIC tax.

OO, are options on DB ETFs subject to PFIC tax?

Ugh. Another set of tax laws (PFIC) that I didn't know about.
www.altassets.com/casefor/countries/2002/nz3254.php

You don't have to _trust_ the Fed to have a healthy respect for what it means to bet against the world's largest central banker. It takes quite the balance sheet.

For why the rate spread, between nominal and real rates, I suggest reading through Mankiw _Macroeconomics_. The US enjoys (even still today) nominal rate power which means we can force our nominal rates to diverge from what the rest of the world would imply in real rates. It is expressed through our purchasing power, which is not 1:1 linked to the relative international exchange rate value of the US dollar.

If you're going to try to pull off a yen-carry style hedge (really arbitrage), then you'll need gignormous amounts of money to make it profitable beyond transaction frictions. Hedge funds can do this because they have gignormous amounts of money (and leverage).

The US still represents a safe harbor, even despite our seemingly maniacal intent to utilize a ZIRP policy to inflate our way out of international debt obligations. That's what having a giant military and 250 years of rule of law buys you. You could, if you choose, put your money into Russia which has a huge military and no rule of law. Or you could choose to put your money in Europe which has rule of law, but an extremely short history as a monetary union. So, if you're an Asian central bank or a Middle Eastern oil exporter, you want to have quite a bit tied into the USD, regardless of the devaluation. Maybe you want less over time, but you still need to have a lot of it.

You can open an account in Australia with any of the big 4 banks remotely, ANZ, Westpac, Commonwealth and NAB. They are called the Big 4 because they are the BOA, Citi of Australia and it is commonly believed that Aussie Reserve bank won't let them fail.

There's no such thing as FDIC insurance in Australia, but historically, the Reserve bank handled each failure with acquisition, having one of the big 4 go acquire the failing bank and its customer accounts.

I don't use the big 4 to park money, but in order to buy Aussie government bond directly, you need to have an Aussie account into which the principal and interest can be deposited.

DB funds are for tax-free accounts, if you want to hold commodities in your taxable accounts, you should buy ETN (e.g. RJA).

ETN (NOT ETFs) are taxed only when a sale occurs, which subjects you to capital gains tax bracket just like stocks.

Due to the weakness (weakmess?) of the dollar I was thinking when I deploy for a year of sun and fun of taking my paycheck and converting it to GBP or Euro's and depositing it at Baclay's Bank to take advantage of the GBP or Euro. Sound good? Stupid? Will assume not investment advice.

I assume that are no PFIC tax consequences holding (not exercising) options on DB ETFs?

OO :

Last year I purchased some CanRoys for the hefty dividend and oil play. I don't have much clue on how to handle the tax part of their distributions. Have been procrastinating so far.

Do you know when they send out their partnership or whatever forms ? IIRC they are not taxed as PFIC.

TIA

Stuck,

I believe that all Canroys listed on the US market is taxed the same way. This is the downloaded tax instructions of one of my canroy holdings for your reference. You can usually go to the website of the canroy, select investors>taxation>non resident taxation. Most of them include instructions for how US unit holders can file for taxes.

http://www.pennwest.com/investor/documents/PennWest2007USTaxLetter.pdf

DennisN,

I believe lots of these PFIC-equivalent type of tax laws are put in place to discourage US investors from holding foreign assets.

US is the MOST unfriendly place for converting currencies. I have lived and traveled to many places, and almost every single retail bank in a major city in Europe or Asia offer FX services. It is also very common for investors in these countries to hold foreign currencies as a part of their portfolio.

It took me a long long time to figure out how to exchange a large amount of USD into another currency in the US. If you want to do it at a retail bank (e.g. BOA), you need to apply at least 3 days in advance, and then exchange at the rate on that date without knowing the quote, the spread. It is completely a joke.

"ETN (NOT ETFs) are taxed only when a sale occurs, which subjects you to capital gains tax bracket just like stocks."

Not true - the IRS recently ruled against this treatment for ETNs. The best you can do in a taxable account is to hold physical goods (such as gold) and defer taxation until you sell - unfortunately you are then taxed at the "collectibles" rate of (I think) 28% (at least, for gold). Obviously this is impractical for many commodites, in which case you are looking at futures contracts - these are subject to mark-to-market cap-gains taxation at year's end, with 60% of the gain taxed at the long-term rate and 40% taxed at the short-term rate, regardless of holding period. (Yeah, it's weird.) Apparently it plugged some loophole people were using the 70s.

As to the original post re. CD rates versus mortgage rates, well, that's why they call it a yield curve. BB's trying to save the banks by scalping savers on the short end while allowing banks to get healthy on the long end. Re. munis at 20%, that was only on a few so-called "auction-rate" bonds, regular munis aren't trading anywhere near that good. Traditional munis have a fixed interest rate and the value of the bond floats as rates go up and down. Right now the rates on munis are very competitive with treasuries if you are paying anything in taxes because of the perceived higher credit risk.

Those stories of 20% were due to "failed auctions" on auction-rate securities (ARSes). Unlike a normal bond, an ARS has a fixed value and the interest rate floats as determined by a periodic dutch auction (often held weekly). These bonds are most attractive for people looking for a liquid cash-like investment that is tax free, and are commonly found in tax-free money-markets. The auction matches any sellers with buyers bidding a rate they'll accept, and everyone who is simply holding gets the same rate as the market-clearing rate from the auction. Big banks used to make a market in these instruments by ensuring that there was always some bid for the bonds, however they aren't obliged to do so and there's a risk that an auction could fail to clear the market, leaving would-be sellers stuck in the bonds (potentially for a very long time, as the bonds are typically very long maturities). The terms of the issue set the interest rate in the event that there are not enough bidders for bonds offered into an auction, and these rates are sometimes punitive - they have to be, because holders don't want to be stuck in a long-maturity bond at some low interest rate, they'll be killed if interest rates rise.

OO, any details on how to go about buying bonds in Oz?

I like the picture! You could at that time convert your currency into lawful money (gold and silver). Now the currency is just a promise to pay - pay what is anyones guess.

I have an old "silver certificate"....nowadays I presume that the implied contract to exchange for silver on demand is void.

It's stamped HAWAII in several places. My mother gave it to me as a keepsake in the 1960s, telling me it was a "Hawaii statehood commerative dollar".

Actually she was dead wrong. In early WWII, right after Pearl Harbor, the US printed these for local use in Hawaii. The concern was that the Japanese would actually conquer Hawaii and get there hands on huge currency bundles, which they could use to make mischief. So the plan was that the US Fed would dishonor any bills marked HAWAII if and when the Japanese took Hawaii.

commerative => commemerative
there => their

I thought the ETN ruling was about foreign currency notes.

What about long-term options on commodity ETFs and MLPs? Don't you get the 15% rate if you hold them long enough?

DJM,

Oz government bond purchase details
http://www.rba.gov.au/FinancialServices/CGBondFacility/index.html

daily pricing of Oz government bonds
http://www.rba.gov.au/FinancialServices/CGBondFacility/otc_prices.xls

Aussie government taxes a non-resident alien (e.g. Americans not residing there) 10% flat on interest payments of any sort. The 10% that you paid to the Kangaroos are deductible against your tax obligations on interest income to Uncle Sam. In short, you won't pay more tax than you would if you bought such bonds in the US. You don't need to file tax down under either, it is withheld if you declare a non-resident alien status.

There is quite a big spread between AUD fixed-income instruments floating down under and in the US. For example, online banks down under are already paying 7.5-8% interest in anticipation of the March rate hike, but any banks offering AUD bonds in the US would only offer you 6% max.

OO, which fixed income AUD investment is paying 8%?
CD type of instrument?bond?

I see 6.8% being paid on the NAB savings account check it out:

http://www.nab.com.au/Personal_Finance/0,,83377,00.html?ncID=ZBA

We havent seen rates being paid like that since pre-911. been screwed ever since.

Look, attack of the eco-terrorists!

http://www.reuters.com/article/environmentNews/idUSN0340672420080304

I hope they bought carbon credits before lighting those fires.

HelloKitty,

It's called TD in Australia.

Right now ANZ is showing 7.9% for 12-17 months
http://www.anz.com/aus/promo/Start-Saving-Now-With-An-ANZ-Term-Deposit-2/

ING direct showing 8.1% for 12 months
http://www.ingdirect.com.au/savings/our_products/term_deposits.htm

Westpac is showing 7.55-7.8% for 11 months
http://www.westpac.com.au/internet/publish.nsf/Content/PBTSSA+Term+Deposit+rates

Commonwealth is offering 8% for 12 months
http://www.commbank.com.au/personal/rates-fees/term-deposit-rates.aspx

TD=Term Deposit=CD.

Why are my comments on TD rates getting moderated?

Right now ANZ is showing 7.9% for 12-17 months
http://www.anz.com/aus/promo/Start-Saving-Now-With-An-ANZ-Term-Deposit-2/

ING direct showing 8.1% for 12 months
http://www.ingdirect.com.au/savings/our_products/term_deposits.htm

Westpac is showing 7.55-7.8% for 11 months
http://www.westpac.com.au/internet/publish.nsf/Content/PBTSSA+Term+Deposit+rates

Commonwealth is offering 8% for 12 months
http://www.commbank.com.au/personal/rates-fees/term-deposit-rates.aspx

I hope they bought carbon credits before lighting those fires.

LOL!

Jimbo Says:
As soon as Bush was sworn in, I moved most of my 401k into foreign stocks.

And if Obamillary gets sworn in, are you planning to bring it back to USD stocks?

BayAreaIdiot Says:
With regards to Zillow - I’ve also noticed the reverse of what SP describes. Houses Zestimated much higher than they would sell for.

That is not the opposite of what I said. I have said for a long time that houses are selling for less than the zestimate.

What I noticed lately is drastic drops in the zestimates - some as much as 20% in 30-days - in the Prime! Googlaire! fortress! areas.

What I noticed lately is drastic drops in the zestimates - some as much as 20% in 30-days - in the Prime! Googlaire! fortress! areas.

Perhaps their latest-and-greatest valuation model uses GOOG and AAPL as inputs. :)

@OO, Thanks for the commodities tips. What about just plain old CD's in non-USD? Any ideas - besides ANZ?

Also, transfers out of the country have to be declared - which I have complied with. But are you aware of any implications, beyond having to declare interest income? I mean, if I parked $20K in (say) Hungarian Zlotys, and earned no significant interest, what exactly happens? What if 2 years later, I convert that stash back to $90K USD (thanks to Bernanke's dollar-raping) - is that capital gains?

I am fine with just leaving the assets sitting in CH and emigrating to some place else if SHTF here, but am curious about what happens if I do decide to bring the money back here...

Peter P

When I was in England in the mid 90's, up to $72,000 earned by an American overseas was exempt from US Taxes. No tax was due to Britain either for bank interest earned by an American. So, if an American stationed in England moved his savings to Barclay's he would get a higher and untaxed interest rate. The risk would be the pound falling, but the pound went from $1.35 to $1.55 while I was there. This tax treatment may have been based on SOFA, and may not apply to someone not stationed overseas.

OO,
thanks for the tips. Is interest income gains taxed by AU government AND feds after converting/declaring my money? there has to be a catch....but I really really need to diversify out of USD.

Everbank offers aussie CD's with federal FDIC protection but rates are in fives ( which is 2 points better than usd cd)