Uncertain Future

[ultimo]

1) Societe Generale clearly states that this is not a forecast, but a mere exercise aimed at exploring the possible dangers we are facing.

That's correct. They present three scenarios, so you can take your pick. If you're bearish, like I am, you'll be very interested in the bear scenario, as I was, after weighing the alternative views.

BTW, I just learned that Sir John Templeton passed away back in July. A big loss. He was very instrumental in my thinking about investments, and I admire him greatly. Mostly, I learned not to shy away from bad news--it's extremely valuable from an investment perspective, as there's money to be made under any circumstances. Here's a nice summary of the lessons we can learn from John Templeton.

 

[ultimo]

I can't find the post in which I originally posted the link to the Societe Generale report. Does anyone have it?

 

[ultimo]

Found it! http://www.zerohedge.com/sites/default/files/SocGen - worst case debt scenario.pdf

 

[ultimo]

And you turn in your passport don't forget to pay the "exit tax" to Uncle Sam...

If you have over $2M in assets, with the first $650K exempt....

 

[ultimo]

Traineeinvestor, thanks for the heads up on the "exit tax". Very informative.... and I really appreciate your insights....

What about the "changing states" part of your post? Are you referring to the petition circulating in California that would tax people at something like 55% of their assets if they leave?

 

[ultimo]

Given the media's bias towards sensationalism, it is not surprising that the media chose to focus exclusively on that particular scenario. However, it does not make that scenario any more likely than the two other, less bearish scenarios.?

Did you notice the title of the report?

"Worst-case debt scenario: Protecting yourself against economic collapse"

Not surprising that's what the media chose to focus on.

 

[traineeinvestor]

What about the "changing states" part of your post? Are you referring to the petition circulating in California that would tax people at something like 55% of their assets if they leave?

I was not aware of the petition you refer to. Given the media attention on people leaving high tax states to live in no or low tax states, I'm not surprised. Hopefully it will fail - the implications would be horrific on a number of fronts. Much like my comment on surrendering US citizenship (or a green card), it was intended to anticipate the possibility that revenue hungry governments at the state level will make it harder for people to escape the state level tax net.

Living in HK, I have several US colleagues and friends - all of whom try to bring their state residency to an end when the migrate to Hong Kong for anything more than a short period of time. Why pay a tax if you have no legal obligation to do so?

 

[LARS]

Thanks for the feedback

To clarify, I was not suggesting that the US government would attempt to restrict where people live or freedom to travel generally to any greater extent than it does at present.

I was refering to the fact that the US taxes its citizens on a worldwide basis - even if you don't live in the US you still have to file tax returns and pay taxes to the US government (subject to some allowances). The US is one of the very very few countries in the world which tax their expatriate citizens on this basis.

My understanding is that legitimately surrendering a US passport to exit the US tax net is currently a difficult and lengthy process. (Apologies, but as I am not a US citizen I have never inquired about the details and am more than willing to be corrected by anyone who has a better understanding.)

If you are expecting tax obligations to increase it would not be suprising if the laws were changed to make it a harder and more protracted process for US citizens to remove themselves from the US tax net in this manner. I have no actual knowledge as to whether such changes are contemplated.

I make no comment on whether anyone would actually wish to surrender their citizenship in order to reduce their tax bill.

The ability to renounce US citizenship and stop paying taxes exists today (with limitations and time frames) if you are prepared to jump through the hoops. It is only "really" onerous if you are leaving with substantial (millions) unrealized capital gains.

The real issue, if it occurs, is not the ability to move outside the country, or taxes for that matter. It is capital restrictions (capital exiting the US and the dollar).

 

[ultimo]

I guess the real question is "the real issue for whom"?

The real issue, if it occurs, is not the ability to move outside the country, or taxes for that matter. It is capital restrictions (capital exiting the US and the dollar).

For whom is this an issue? Is it an issue for you? For the average american? For the person exiting overseas? Capital leaving the U.S. is an issue for the U.S., but is it an issue for the person leaving? Not sure what you're referring to...

 

[ultimo]

Living in HK, I have several US colleagues and friends - all of whom try to bring their state residency to an end when the migrate to Hong Kong for anything more than a short period of time. Why pay a tax if you have no legal obligation to do so?

This is a good question... was it difficult on patriotic terms, at least? Did they have no plans to return? Wondering what the cost, even in emotional terms, are of surrendering U.S. citizenship....

 

[traineeinvestor]

Quote:
Originally Posted by traineeinvestor
Living in HK, I have several US colleagues and friends - all of whom try to bring their state residency to an end when the migrate to Hong Kong for anything more than a short period of time. Why pay a tax if you have no legal obligation to do so?









This is a good question... was it difficult on patriotic terms, at least? Did they have no plans to return? Wondering what the cost, even in emotional terms, are of surrendering U.S. citizenship....

I was refering to bringing state residency to an end not national (i.e. US) citizenship so they would not have to pay state income taxes. Apologies if that was not clear.

 

[ultimo]

I was refering to bringing state residency to an end not national (i.e. US) citizenship so they would not have to pay state income taxes. Apologies if that was not clear.

What is meant by "state residency"? Sorry for being obtuse.

 

[LARS]

I guess the real question is "the real issue for whom"?




For whom is this an issue? Is it an issue for you? For the average american? For the person exiting overseas? Capital leaving the U.S. is an issue for the U.S., but is it an issue for the person leaving? Not sure what you're referring to...

Generally speaking, the issue will affect anyone who wants to convert dollars into another currency (or could even be into commodities-like gold). Clearly, if you still reside in the US it is less of an issue as your expenses are in dollars. However, if you leave the country that is no longer the case.

The basic idea is to stop a run on the currency.

 

[LARS]

I was refering to bringing state residency to an end not national (i.e. US) citizenship so they would not have to pay state income taxes. Apologies if that was not clear.

I would have thought that as long as you do not maintain a residency in a particular state (i.e. you are in any one state more than six months) you can legally not pay state income taxes.

I suppose it may get more complicated when you have to deal with drivers licenses, etc (you still have a tie to a particular state administratively). But living in Hong Kong I would have thought you could deal this with an international license, for example.

Obviously this is much different than renouncing citizenship.

 

[MichaelB]

I would have thought that as long as you do not maintain a residency in a particular state (i.e. you are in any one state more than six months) you can legally not pay state income taxes.

I suppose it may get more complicated when you have to deal with drivers licenses, etc (you still have a tie to a particular state administratively). But living in Hong Kong I would have thought you could deal this with an international license, for example.

Obviously this is much different than renouncing citizenship.

State residency is complicated. Most do not clearly define how residency is established or ended. High tax states like California and NY often place the burden of proving non-residency on the individual, especially when income is higher immediately after leaving. Folks leaving those states to live abroad but without changing domicile of their financial accounts face serious tax challenges and do not always prevail.

 

[eridanus]

The beauty of gold is...it's shortable. It was tough to short housing markets without selling a home.

I always underestimate the, ahem, irrationality of the markets, however. To paraphrase, it can go on longer than one's solvency.

My crystal ball shows: gold will start declining the middle of next year.

 

[FIREd]

Ah, gold! In the past 24 hours I have heard that:

1) some people are organizing gold parties in our neck of the woods
2) two new gold/silver exchange stores have just opened in our area
3) the "treasure hunters roadshow" is coming to town to buy our gold/silver coins and jewelry

I put my 30 lbs of silver to good use over thanksgiving and I ain't selling. Gone are the days when people would sell me their silver for peanuts because it was too much hassle to clean...

 

[ERD50]

The beauty of gold is...it's shortable. It was tough to short housing markets without selling a home.

I am *soooooo* tempted to short gold. We will look back and say "now *that* bubble was so obvious!".

I always underestimate the, ahem, irrationality of the markets, however. To paraphrase, it can go on longer than one's solvency.

And that is the phrase that keeps me from doing it.

My crystal ball shows: gold will start declining the middle of next year.

We should set a reminder on a calendar like T-Al does. I suspect you will be right, and I will be no richer for it

-ERD50

 

[TargaDave]

The beauty of gold is...it's shortable. It was tough to short housing markets without selling a home.

I always underestimate the, ahem, irrationality of the markets, however. To paraphrase, it can go on longer than one's solvency.

My crystal ball shows: gold will start declining the middle of next year.

Always entertaining to observe the equal but opposite passion of the gold bears and bulls.

So, did you take a short position, are you planning to, or are you just expressing an opinion?

 

[brewer12345]

For those interested in shorting gold, there are 3 obvious way to do it:

-short GLD
- buy DZZ
- buy puts on GLD

Another possibility is to short/buy put on GDX, a gold miner ETF.

Whether this is a good idea...

 

[ultimo]

My crystal ball shows: gold will start declining the middle of next year.

What does your crystal ball show gold at 10 years from now?

 

[DblDoc]

What does your crystal ball show gold at 10 years from now?

Don't make W2R break out hers.

Your title to this thread says it all. Think about it.

Personally I'm in the "you don't need gold in your portfolio camp". I have enough complexity and diversity in my portfolio already. If I was going to add it I would NOT invest more than 5% and would rebalance religiously. Anything other then that is purely speculative and only increases your risk.

DD

 

[eridanus]

So, did you take a short position, are you planning to, or are you just expressing an opinion?

I plan to buy puts on GLD or ZG. As I wrote above, it takes more time than I expect so I won't enter the position for a while yet. I'll set an alarm on my calendar, as suggested.

If I'm wrong, eh.

 

[Gone4Good]

Hi Samclem,

I do think the broad trends going forward are, in fact, knowable, and some things are a question of when, not if.

Then you shouldn't need help from any of us who freely admit that we can't see the future.

 

[ultimo]

Then you shouldn't need help from any of us who freely admit that we can't see the future.

I wasn't asking for future predictions.

I was asking what people would do under a rather extreme bearish scenario, not whether they actually believed the scenario would happen.

It's good to know there's such a wide range of views here. Ultimately, though, we're each responsible for our own decisions. We have to establish the assumptions we're most comfortable with. My pessimistic view makes me reluctant to invest long-term in equities, and causes me to question whether the old bull-market allocation models are appropriate going forward. A few years ago it was unthinkable to commit more than 5% of one's funds to gold, but those roaring days are over.

I began this discussion after going through the FireCalc worksheets and questioning whether the typical split amongst asset classes was a prudent way to go with the economic dynamics currently in play, and which still have a long way left to go.