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d_teller
95 Comments
The Real Reasons Fertilizer Stocks Are In the Dirt
And, recently, there was an article here on SA about the decreases of arable and agricultural land, coupled with a relatively obscure note: it takes about 2 bushels of soil (lost to farmers, because of erosion and contamination) each year per bushel of wheat produced.
The UN World Food price index has risen from <100, in Jan. 2000 to above 210, in April, 2008.
Regardless of the equity pricing of fertilizer producers (why Terra Nitrogen's vault and fall wasn't included, is a mystery), the world is entering a period of increasing needs for basic neccessities: food, irrigation and drinking water, and the infrastructure to provide them.
The current world-wide credit seizure will make this much worse.
China Milk Crisis: Quality Is Everybody's Problem
Quality control is only as good as the tests on the intermediates...and the old AAOAC indirect tests for "protein nitrogen" are duped by addition of melamine. Since the time the pet food recall occurred, it now seems obvious that the test should have been updated.
There are a lot of clever chemists, who can almost duplicate mined diamonds, etc. But Deceitful manufactureres should be executed..as were some who used ditethylene glycol to sweeten what was labeled as Pepsodent toothpaste in the Latin American "bargain" markets , as were some who used the hypersulphonated chondroitin to mimic the essential acetyl-glucosamine test in qualifying intermediates for intravenous Heparin...and poisoned thousands of kidney dialysis patients.
There are many creative minds, and subterfuges. There are, fortunately, somewhat fewer executives at manufacturing plants who wilfully endanger others. Creative minds are not necessarily evil; criminal CEO's and QC certifiers are evil, and should face the death penalty, even if they are related to the highest members of govt.!
A First Look At How the SEC's Rules Are Working
A number of other securities, including some that are represented by pink sheet listings, which are their U.S. equivalents of Cdn (Toronto) listings, have been and are under naked short pressure, to attempt to drive the price down, and create a "fire-sale".
They aren't financials, or investment types, but ATP/UN.TO (ATPWF) is one example. At one point this Spring, it had short positions over 12-fold its total shares available...It's a CanRoy Ute of U.S. power plants. So the company decided to use some of its large cash holdings to buy back some shares at depressed prices.
Until the SEC and their Cdn counterparts get sufficient data, staff and gov't support, this "naked shorting", by which large capitalized groups, such as hedge funds and other private equity groups, as well as Turquoise and other systems set up to avoid scrutiny,...this illegal activity...will continue. The naked shorting actually causes significant problems for those smaller traders, that follow the rules to borrow shares to sell short.
Another issue that comes to my naive mind, is the shorting of ETFs and other large funds...that actually hold the commodities...Such as GLD, IAU, SLV, etc. Not the ones that are futures-based. How could the government regulators be blind to the massive shorting, when physical delivery of the assets has been very difficult...there's been a lot of blogging about central bank or SWF manipulation of these ETFs,
but at some point the inverse Ponzi scheme will detonate.
Closed End Fund Fire Sale
Stocks Potentially Impacted by SEC's Enforcement of Regulation SHO
High Yield Stocks for Those Who Need Income Now
Most of our family's stocks are in sheltered accounts, wherein the yrly MRD's are based upon age and prior yr-end balance..so declining principals (over a short = 2-5 yr period) is not too terrible, if the company's are reasonably sound. As long as the deferred "dividends" are greater/yr than the MRD required, there's no need to sell at a irrecoverable loss. And there have been some total wipeouts...but we don't commit more than 2-4% of any portfolio to a single security...and most pay out >8%. This also is true for closed-end funds.
However, for a youngster like yourself, I really congratulate you on your prudence. I remember some years ago, purchasing AYE (Allegheny Energy) when it was recommended by Kiplinger's retirement newsletter as a good dividend-paying ute. It was a disaster.
On the other hand, HCP, SNH and HRP have been great dividend payers...they are >15 years in our portfolio. Others, such as SO and ERF, have also been reasonable for us over the last 20 years.
Some of the CanRoys, such as ATP/UN.TO (ATPWF) have been naked short-selling targets, because of their cash flow, U.S. holdings (unaffected by the proposed Cdn tax hike) and small enough to be seriously affected in a thinly-traded market. Perhaps the new ban on naked shorting will stop this nonsense for these smaller securities, as it may stop the credit-seizure in the larger financials.
So, from the other side of the age divide, good luck and I wish you well.
(P.S. For the years leading up to normalization in the world's GDP...perhaps 2009... the infrastructure funds originated, but not indebted to Macquarie Bank, such as MGU, MIC, MFD and MCQPF, which lease roads and income generating infrastructural businesses, may recover a reasonable price...they're so cheap now because few govt.'s and investors can afford to deploy income to much-needed infrastructure.) An interesting example of the decline can be seen with Veolia (VE) whose price has declined from the mid 50's to mid-forties, pays a now hefty 4+% dividend, and is in water infrastructure...and isn't a weenie.
Financial Crisis Hits REITs ETFs Hard
Why Dividend Investors View Stocks Differently
Unrelated Business Taxable Income Item 20 Code V.
If this exceeds 1K , across all the taxpayer's shelters, the Fiduciary has to file a 920t Federal income tax form and the Fiduciary has to take that tax from the sheltered account...The beneficial owner, the taxpayer can't pay it for reasons:
It's after the fiscal year...and would be considered a late and excessive contribution;
It's not permitted to pay tax from a sheltered account directly...etc.
The costs of having the fiduciary file the 920t (the bank or brokerage who reports the ?4978? form to the IRS) can be high. This fiduciary doesn't issue the K-1, it comes from the settlement, index-maker or accountants from the MLP, or commodity futures trading ETF, etc.
If not paid, the IRS accumulates the amounts across all the taxpayer's accounts by taxpayer number and can disqualify the tax shelters and render them taxable.
NEVER HOLD ANY SECURITY THAT ISSUES A K-1 in any tax-sheltered account.
Unrelated Business Taxable Income is income received by the Partnership from e.g., a sale of assets (a pipeline MLP selling off a line to an oil company) that is Unrelated to the Business of the MLP's Tax Shelter Registration (e.g., for a MLP of a pipeline Co., that would be the income derived from royalty payments based upon the charges it makes to move the oil...not the income from the sale of an asset.)
Each MLP that trades here or in Canada, has a Tax-Shelter Registration number that relates to the filings of the kind of businesss it expects to do, the kinds of icome and expenses it expects, and the agreement to pass the bulk of these proportionally to the Publicly Traded Partnership-limited partners, to avoid paying income tax at the MLP level.
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To "notsosmart" and others reveling in FRO's dividends...I hope the shares aren't in a shelter, because back in FRO's prospectus, in boldface and italics;
"...may hypothecate the shares held ...by shareholders... " or words to that effect.
Hypothecate means use as collateral for loans, which means that in the shelter, your shares are being used to secure a company's loans.
I'd check with FRO's legal team, because that would invalidate your shelter...you can't hypothecate or lend your interests in the shelter to any one else under any circumstances.
Since Frontline is headquartered outside the U.S., they may not care, but I sold mine as soon as I saw that in the 2006-07 Ann Report and prospectus, and similarly for the SFL (Ship Finance International) spinoff. I'd hold them in a taxable account.
Yes, Virginia, There are High Dividend ETNs
Thank you for redirecting my attention to the 1099-filers.
The reason I get carried away on the subjects of commodities and UBTI, is because there are a lot of people who hold these grenades in sheltered accounts.
And as an example: {and also to the commenter "onetaste", and to your statement about accumulating >1k from large blocks of MLP's/ account) the UBTI limitation is per taxpayer I.D., not per account.
The IRS gets the account #'s on the K-1 forms, and it tabulates all the sections and codes PER TAXPAYER NUMBER.
If a CanRoy converts to a MLP, a lot of people will have all their shelters placed at tax-hazard, unless they periodically check the SEC applications for conversion: PGH is one CanRoy that had, early this year, filed to convert to an MLP.
Again, many thanks for the MLP's in chapter C format; If one holds a few MLP's in several sheltered accounts, the sum of $ assigned to Section 20, Code V on all the K-1's can easily exceed the UBTI limit.
And then, one has to arrange for one's fiduciary (ies) to file the Federal Income Taxes from the sheltered accounts, in order to keep the tax-shelters intact. That can be a real costly pain in the ...
Yes, Virginia, There are High Dividend ETNs
When you file the regular taxable 1040, the K-1 info in the taxable account is easily handled by the mid-tier tax prep software...the items go into the proper places on the worksheets for the Schedules A, B and D, and even the tax-shelter Registration Number -which must be filed for the taxable accounts - is properly filled in for you. So it's not so tedious or intimidating as some have written - even for taxable holdings. But you should delay filing until the 10th of April, to be sure that all the tardy K-1's have been received (they must be sent out before March 30, by the business' compliance office).
Yes, Virginia, There are High Dividend ETNs
I'm not familiar with USO (an Oil ETF), and I believe that you can get the info at the market maker's investor relations site. Each ETF has a site for "investor relations' with a toll-free number to call and get this info.
The question of the ETN's is quite diferent, because they are considered "debt instruments" by the IRS...they are literally promises to pay by an investment bank. I don't think that the securities are a commodity, any more than the currency ETN's are "foreign currency" which also can't be in a sheltered account.
As far as tax-shelter substitutes for DBA, try MOO; for GLD try a gold-miner or silver miner ETF; for shorting, I'd try the Rydex funds, which aren't holders of commodities...for a tax-sheltered account, they have inverse and double inverse funds.
It's not the prohibition about lending or borrowing that's at issue regarding short positions in an IRA that I'm referring to...but rather the limitation on the physical holding of commodities that will cause disqualification.
No matter how long you've held the ETF that files a K-1...a week or 6 mos, or longer...you will receive a K-1 from DBA or DBC. But they have bigger advantages in a taxable account than in a sheltered account. This is also true for "Holdrs" from ML, and Grantor Trusts.
One problem with domestic royalty trusts is that sometimes the states where they are headquartered do send a tax bill...and if your state has a "reciprocity"... arrangement...the bill can morph into a lien against your sheltered account...and clearing this up can be a big pain in the ... California and Arizona are notorious for this, because the states aren't permitted to tax the proceeds in an IRA, but they'll try anyway.
I'm not a tax-expert, but many of these problems can be avoided by visiting the market makers site and looking at the Tax-Info, and if you're not clear about the liability, call them, before you purchase securities for a sheltered account.
Yes, Virginia, There are High Dividend ETNs
1. The hazard is the possibility of accumulating > $1000 of Unrelated Business Taxable Income (Item 20, code V on the K-1) which requires the tax shelter's FIDUCIARY to file an income tax payment via form 920t to the IRS. You can't pay the tax directly as the IRA beneficial holder because:
1.- the K-1 comes after 1099's are filed, usually in Mid February, but as late as March 30th...after the end of the tax year for the sheltered account. It also comes from the partnerhip's bank or record-processor, and not from your IRA account's fiduciary. So it can cost a lot to have your IRA fiduciary file the tax forms.
2.- You can't pay the tax yourself, because that would be a delayed and forbidden excess contribution to the sheltered account. The tax must be paid from the IRA account.
3.- And the tax may be tiny, but the filing costs, charged by the fiduciary...the brokerage or fund company that holds your IRA accounts... may be expensive.
b- All of the partnership's return of capital and carry-forwards of capital investment losses are lost in a sheltered account...{the only tax that you pay is when you take a distribution from the sheltered account and pay at marginal rates, and so, you gain no benefits from the increase in basis (which decreases the net capital gain on sale)...etc., that would accrue in a taxable account where short-term dividends are slowly converted to long-term gains from the division of dividends to both current income and return of capital, etc, are LOST in sheltered acccounts.
c- The K-1s are filed electronically, they have the IRA or Account # on them, and any amount over $1K from one - or accumulated across several shelters ( S-Corp., SEP, IRA, Roth, etc.) for one taxpayer, may render all the accounts taxable.
In addition, other types of commodity-holding ETFs (but the Treasury hasn't yet ruled on ETN's which it taxes as though they were "bonds", because it considers them debt-instruments)(not futures -trading) : Commodities are not permittted in any IRA; the exception is made for U.S. minted coins. GLD, SLV and others that hold commodities aren't legal in an IRA.
Unrelated Business Taxable Income may come from sales of assets by a partnership, at a profit, when its tax-shelter registration states that is in the "leasing" business... just as an example. At the partnership level, the income is from business that is not related to the activities listed for its registration.
So there is the possibility that ETN's that hold commodities may be exempt, but since it took the Treasury until last fall to figure out how to classify ETN's for any tax (which was some years after they began)...I don't have a clue whether they will be "legal" in a tax-sheltered environment.
In short...if it files a K-1, you will benefit most in a Taxable account.
Commodities are not permitted in a tax-sheltered account.
What If...? Market Contingency Plans
A stimulus, that might have somewhat more lasting value, IMO, would have been "The feds won't tax the first 5K$ of divs & interest this year, regardless of AGI" or whatever would be the equivalent tax loss from the give away...it would have slowed the consumption, but increased savings, and provided capital flows. It also would have slowed the "gimme" from the great unwashed.
Another possibility, enact a "FairTax" on consumption (see FairTax.org) and give up the consumer-driven economy.
Perhaps we should tax the insurance companies who make people pay rent on their anxieties.
Perhaps we might provide accurate feedback to all the test-takers :
"You missed a lot of 'recall' questions, and need to learn how to outline and precis..or actually do the required reading";
"compared to your enates, you missed a lot of the 'discrimination' questions, so we need some practice with these, across the topics";
instead of giving schools and principals/teachers, a score for how well they've utilized their instructional resources.
We need to have a more transparent legislative process, so the public can actually understand what a bill may mean when it becomes law.
We need to have a bigger focus on aging infrastructure, rather than the color of a neighbor's house; and we need to remember that life is temporary, but good deeds and doing well for others has a longer existence...but no thanks or monetary rewards are necessary, particularly in a resource constrained environment.
We definitely need to have a focus on needs vs. wants, so that holidays become a celebration and not an expensive shopping trip.
Seven High-Yielding ETFs
Value Investors: Buy The Stocks Institutional Investors Don't