FDIC: You are screwed... Well not quite.

[contrarymary]

Re: FDIC: You are screwed... Well not quite.

This is the first time I have posted a reply. You can call me Ms. J6P. I have only been educating myself for about a year. Was in process of building on 5 acres. Too late to stop by then. At least we can farm. Against my former finacial advisors advice I closed out my retirement acct. Bought some silver, took physical del.and took the hit in taxes. Still owe about 100k on the house. Have an Everbank CD 13k that matures in Sept. About 20K in cash in a local savings and loan that is highly reated by Veribanc. Husband still has 80k in his 401k. Still thinking about taking the cash and running. Any advice would be greatly appreciated

[GRG55]

Re: FDIC: You are screwed... Well not quite.

This is the first time I have posted a reply. You can call me Ms. J6P. I have only been educating myself for about a year. Was in process of building on 5 acres. Too late to stop by then. At least we can farm. Against my former finacial advisors advice I closed out my retirement acct. Bought some silver, took physical del.and took the hit in taxes. Still owe about 100k on the house. Have an Everbank CD 13k that matures in Sept. About 20K in cash in a local savings and loan that is highly reated by Veribanc. Husband still has 80k in his 401k. Still thinking about taking the cash and running. Any advice would be greatly appreciated

Welcome contrarymary

Everyone needs to live somewhere, and life does not go on forever, so if you and your husband dreamed about living on an acreage (I am presuming that you planned this project before embarking and didn't overstretch since your mortgage is relatively small by today's standards) no need to regret it.

Take a holistic view, avoid becoming a doomer (or doomster, or whatever that less than rare species is called around here ;) ), pay down your debts, keep your family close, keep a liquid reserve for emergencies (which you have), avoid conventional investment thinking in these unconventional times (you're doing that as well, but it is difficult for most of us not to keep second guessing oneself), and recognize that nothing is forever and "this too shall pass".

Others here will no doubt be more useful to you in dispensing specific actionable advice.

[contrarymary]

Re: FDIC: You are screwed... Well not quite.

Well, we're better prepared than anyone else we know. Tried to get our friends and family to listen but they may as well have told us to put on our tin foil hats. I've learned much from this other sites. Just keep thinking we could do more. By the way, I don't think of any one who is contrary as a pessimist. Realist will do just fine

[Nervous Drake]

Re: FDIC: You are screwed... Well not quite.

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[GRG55]

Re: FDIC: You are screwed... Well not quite.

Well, we're better prepared than anyone else we know. Tried to get our friends and family to listen but they may as well have told us to put on our tin foil hats. I've learned much from this other sites. Just keep thinking we could do more. By the way, I don't think of any one who is contrary as a pessimist. Realist will do just fine

It is indeed very, very difficult to maintain conviction in any set of investment actions*, especially so when those actions are contrary to the way one's family, co-workers, friends, neighbours and peers are behaving.

I try to keep in mind that, at times like this, the old maxim "I'll believe it when I see it" gets turned on its head. For them it becomes "I'll see it when I believe it". Unfortunately for most they'll only believe it when the evidence is so overwhelming it's too late to do much about it.

FWIW I have been firmly in the inflation camp for many years and continue to hold many investments that the proprietors of this site may not necessarily agree with (:eek, including Cdn oil and gas trusts, coal, iron ore, gold mining shares, agriculture equities, Japanese Yen & Canadian Dollars. Also FWIW, what appears cheap to me at the moment are select US based heavy oil refiners and the gold mining equities, including Barrick. At some point in the next year or so the base metal miners might be worth picking over. I am a believer in long(ish) cycles and therefore won't waste any of my time trying to "pick a bottom" in the immediately past fashionable and now busted sectors like tech, telecom, homebuilders, banks, etc. It'll be years, and much further decline, before I think anyone should be risking capital on any of them (try telling that to a broker or financial advisor and see what kind of strange looks they give you )

The one specific thing I might suggest is that if you are only holding silver you might want to consider holding a bit of gold bullion also. Having spent a lot of time in the Middle East and part of Asia, the people there who own precious metal as a hedge against catastrophe do not view gold and silver as equivalent in that role. I think there is something in that.

*I think that's why so many people sell their winners quickly for small gains and ride their losers all the way down.

[c1ue]

Re: FDIC: You are screwed... Well not quite.

Mary,

Owning property is by no means a necessarily bad thing.

So long as you did not overpay, don't have a large mortgage, and are fully prepared for significant increases in property tax, insurance, maintenance costs, and utilities, having a home with acreage can still be a fine place to live.

From a purely financial point of view, however, I'd look at where the property is vs. the local growth trends.

The primary benefit in a land investment is when the nearby city expands; all the rest is just inflation. But if you've paid $1M for the house + land, then it really doesn't matter when or where. Barring a hyperinflation, you've sunk in tremendous capital and won't be seeing much if any gain from it.

I have friends who bought 5 acres + 3300 square foot houses in Austin; the houses are very nice but they're 45 miles out of town.

Unless Austin grows into Dallas, that house will not recoup its investment for several decades. In the meantime the $10K+ property tax, $800/month utility bills, plus the $30/day for gas commute has an impact on their finances.

[contrarymary]

Re: FDIC: You are screwed... Well not quite.

We didn't buy as an investment. We are in the middle of KC,KS.
The land was cheap because the bubble was going on in the next county. We don't have far to drive to work. The house is only 1650 sf not including the unfinished basement. However, taxes are horrible in this county and the county govt is corrupt. We had our eyes open to this. Had our land rezoned ag. to allow for farming. We have about 50% equity. The house is so energy efficient we spend about 3 kw a day to run the heat pump for cooling and in winter we use a wood pellet stove. We figure we can get by in the short term. Maybe 2 years with the food we have stored. Living in the city has it's downside. If civil unrest should grow, could be difficult to protect.

[Jay]

Re: FDIC: You are screwed... Well not quite.

FWIW I have been firmly in the inflation camp for many years and continue to hold many investments that the proprietors of this site may not necessarily agree with (:eek, including Cdn oil and gas trusts, coal, iron ore, gold mining shares, agriculture equities, Japanese Yen & Canadian Dollars. Also FWIW, what appears cheap to me at the moment are select US based heavy oil refiners and the gold mining equities, including Barrick. At some point in the next year or so the base metal miners might be worth picking over. I am a believer in long(ish) cycles and therefore won't waste any of my time trying to "pick a bottom" in the immediately past fashionable and now busted sectors like tech, telecom, homebuilders, banks, etc. It'll be years, and much further decline, before I think anyone should be risking capital on any of them (try telling that to a broker or financial advisor and see what kind of strange looks they give you )

GRG55, I have been holding off on pulling the trigger on TSO because it keeps pulling a head fake down as the price of a barrel of oil skyrockets. I am waiting to pounce like a cat, but have this gnawing fear that as oil continues up with inflation and war fears, the refiners will continue to drop. I have been thinking of a buy point at around 150-175$/barrel. Also, I thought I heard Hudson say 16$/barrel in his recent audio piece just posted but didn't understand where that was coming from at all.
Your thoughts?

[skijoring]

Re: FDIC: You are screwed... Well not quite.

Jay, Hudson was talking about 16.00 per gallon of gasoline. It sounded like a slip of the tongue in the interview. :eek:

[c1ue]

Re: FDIC: You are screwed... Well not quite.

We didn't buy as an investment. We are in the middle of KC,KS.
The land was cheap because the bubble was going on in the next county. We don't have far to drive to work. The house is only 1650 sf not including the unfinished basement. However, taxes are horrible in this county and the county govt is corrupt. We had our eyes open to this. Had our land rezoned ag. to allow for farming.

Mary,

As it is the place you want to live, sounds like a fine home and investment to me.

I am of the Dr. Michael Hudson camp: high property taxes = lower home prices in the long term.

I'm not sure if 5 acres is enough to live on, but unless the rest of the land around you is McMansions, it should be fine.

As for defensibility in the city - think Stalingrad :eek: The rest of the Ukraine sure didn't slow down the panzers.

Seriously though, one major advantage of the city is this: between ship, rail, air, and highways, I have all possible exit points.

Out in the sticks, unless you own an airstrip and a private plane, you're pretty much stuck on 4 wheels. Then there's the whole embassy thing for when you really need that visa...

[GRG55]

Re: FDIC: You are screwed... Well not quite.

GRG55, I have been holding off on pulling the trigger on TSO because it keeps pulling a head fake down as the price of a barrel of oil skyrockets. I am waiting to pounce like a cat, but have this gnawing fear that as oil continues up with inflation and war fears, the refiners will continue to drop. I have been thinking of a buy point at around 150-175$/barrel. Also, I thought I heard Hudson say 16$/barrel in his recent audio piece just posted but didn't understand where that was coming from at all.
Your thoughts?

In the markets, patience is usually rewarded, and extreme patience is often rewarded handsomely. So your patience avoiding pulling the trigger should hopefully prove ultimately profitable.

The refiners look cheap given what it costs to install new capacity in the USA today. The refiners with the already installed ability to use heavy oil to create premium fuels (coking and hydro-cracking capability) should have a competitive advantage when the sector recovers. "When", of course, is impossible to determine with absolute accuracy.

I remain unconvinced that the American public & industry will become so poor they stop driving, trucking, railroading, flying completely. I especially think the resource industries in the USA will be among the few sectors that continue to thrive despite the recession. Heavy oil refiners with coking/cracking capacity in resource sector (mining, oil and gas, agriculture, etc) regions, are my preferred way to play this. But what do I know...

[Jay]

Re: FDIC: You are screwed... Well not quite.

Jay, Hudson was talking about 16.00 per gallon of gasoline. It sounded like a slip of the tongue in the interview. :eek:

Got it, makes sense, thanks.

I have since read Hudson's musings on the oil companies and how they hide their profits from the tax man at http://www.michael-hudson.com/
(Click on the link An Insider Spills the Beans on Offshore Banking Centers )
Hudson's point is that since the refiners are in taxable countries, the Exxons of the world learned to create a paper loss on their refiner balance sheets and create a huge paper gain in places like the off-shore tax havens of Panama where they have their shipping companies. Since they control production, processing and distribution they are able to find the most tax friendly country they can in which to place the gains. So, does this mean that refiners are a crap investment no matter how you slice it, or have things changed?
Cheers.

[GRG55]

Re: FDIC: You are screwed... Well not quite.

Got it, makes sense, thanks.

I have since read Hudson's musings on the oil companies and how they hide their profits from the tax man at http://www.michael-hudson.com/
(Click on the link An Insider Spills the Beans on Offshore Banking Centers )
Hudson's point is that since the refiners are in taxable countries, the Exxons of the world learned to create a paper loss on their refiner balance sheets and create a huge paper gain in places like the off-shore tax havens of Panama where they have their shipping companies. Since they control production, processing and distribution they are able to find the most tax friendly country they can in which to place the gains. So, does this mean that refiners are a crap investment no matter how you slice it, or have things changed?
Cheers.

I have learned a great deal from Hudson, and iTulip's commentary on his writings, but this is one point on which Hudson is full of it.

Many, many years ago the multinational oil companies were the vertically integrated enterprises that Hudson imagines. They dominated the worldwide exploration, production, transport, refining and marketing of oil and its products. Their gas stations were supplied exclusively by their own refineries (not the case now), their refineries were supplied almost exclusively by their owned production (not the case now). Today they have to buy, on the open market, much of the oil that they refine and market. In almost all cases their reserves and production are falling. And the most creative way they can find to spend the windfall cash they are accumulating from rising prices is to buy back their own stock [in a desperate attempt to keep reserves, production and cashflow, per share, at least flat]. What does that strategy say about their own managements opinion of growth potential? Almost all of these companies are going to disappear, and Hudson should stop wasting his energy, and our time, on them. They are now almost irrelevant...unless you are a US Congressperson or Senator and enjoy holidng hearings where you can grandstand on television.

No doubt the oil companies are using every tax loophole they can find to maximize earnings. But let's be serious; is there any company, anywhere, in any sector, that is not doing the same? If there is let's short it.

"Hiding" money from the taxman is an age old corporate game that is certainly not unique to Big Oil, no matter how much Hudson may wish to imply. It is especially rampant inside multinationals (like GE, GM, JNJ, MMM...) where creative "transfer pricing' between subsidiaries is regularly employed. I am not trying to be an apologist for Big Oil; just trying to point out that they are by no means unique in this regard.

As for the refining business, it is for the most part a crap business (especially in the OECD). The ONLY reason I have any interest as an investor is that I believe there is, at this time, a unique confluence of factors that may favour certain USA refiners in the foreseeable future [as I have outlined elsewhere on this site].

EDIT added: An item in Bloomberg today that I came across after posting above:

Exxon, BP, Investors Lose in Best Year for Oil Prices
By Fred Pals and Eduard Gismatullin

June 30 (Bloomberg) -- Exxon Mobil Corp., Royal Dutch Shell Plc and BP Plc investors are losing money in the best year for oil prices as they cede control of production to state-owned energy companies...

...Russia, Nigeria and Venezuela are putting domestic companies ahead of international rivals when granting access to reserves. State-controlled oil companies hold about 80 percent of the world's total 1.2 trillion barrels of proved oil reserves, according to BP estimates...

...While Exxon, The Hague-based Shell and BP face restrictions, state-controlled energy companies oppose efforts by Western nations to bar investment in pipelines and retail markets.

``We are facing problems, which don't have any relation to production or real business,'' Alexei Miller, the chief executive officer at Russia's Gazprom, said this month. ``I'm talking about the resistance to Gazprom participation in projects on the European Union territory.''
http://www.bloomberg.com/apps/news?p...QBQ&refer=home

[GRG55]

Re: FDIC: You are screwed... Well not quite.

...Many, many years ago the multinational oil companies were the vertically integrated enterprises that Hudson imagines...

...In almost all cases their reserves and production are falling. And the most creative way they can find to spend the windfall cash they are accumulating from rising prices is to buy back their own stock [in a desperate attempt to keep reserves, production and cashflow, per share, at least flat]. What does that strategy say about their own managements opinion of growth potential? Almost all of these companies are going to disappear, and Hudson should stop wasting his energy, and our time, on them. They are now almost irrelevant...unless you are a US Congressperson or Senator and enjoy holidng hearings where you can grandstand on television.

Did that sound extreme? Maybe not. This is the second time BP is getting worked over in their Russian venture. You would think they would have learned after the first expensive episode...

BP `Disappointed' Expat TNK-BP Staff to Leave Russia

By Sabine Pirone
July 1 (Bloomberg) -- BP Plc, Europe's second-largest oil company, said it is ``very disappointed'' that many expatriate TNK-BP Holding staff will have to leave Russia following refusal of work visas.

``Many of the expatriate staff working in TNK-BP will have to leave Russia and may not be able to return,'' David Nicholas, a London-based BP spokesman said when contacted by telephone today. ``The loss of the staff will definitely damage TNK-BP, its performance and by extension the performance of the Russian oil sector.''

TNK-BP's Chief Executive Officer Robert Dudley, its chief financial officer and a number of the company's foreign executives may be forced to leave Russia by the end of the month after authorities in Moscow refused work permits, the Financial Times reported on its Web site.

BP, Exxon Mobil Corp. and Royal Dutch Shell Plc face rising competition for oil and gas assets from governments as crude prices surged to records and discoveries lag behind a surge in demand. Venezuela forced the Irving, Texas-based Exxon out of the Orinoco Belt, South America's largest oil fields while Russia seized control of the $22 billion Sakhalin-2 venture from Shell.

Last year, production declined at Exxon and Shell, the world's two largest oil companies, and BP after a decade of expansion. State-controlled oil companies hold about 80 percent of the world's total 1.2 trillion barrels of proved oil reserves, according to BP estimates.

Crude Jumps
Crude oil has jumped 98 percent in the past year, reaching a record $143.67 a barrel in New York yesterday. Crude for August delivery on the New York Mercantile Exchange traded at $140.55 a barrel, up 55 cents, at 8:56 a.m. Singapore time.

Unless the executives can secure visas rapidly, their departure would mean that BP would leave operational control of the TNK-BP joint venture in the hands of their Russian partners, the Financial Times said.
Russian authorities approved a quota of fewer than half the 150 permits sought, the newspaper said. Telephone calls to TNK-BP outside office hours weren't answered.

BP owns 50 percent of TNK-BP Ltd. and has been locked in a battle for control of the company with a group of billionaire investors who own the other half. Their stake is split between companies controlled by billionaires Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik. TNK-BP Ltd. controls 95 percent of TNK-BP Holding.

And it all started with such promise just a few short years ago; and with apparent government-to-government support no less...

BP and TNK sign deal to create joint energy venture

26-06-03 British oil group BP and Russia's TNK signed a multibillion-dollar deal to create a joint energy venture, the biggest single foreign investment in post-Soviet Russian history.

The agreement, announced in a joint statement by the companies, will see BP invest a total of $ 6.15 bn (EUR 5.3 bn) in TNK to create a new firm, TNK-BP, in which each side holds 50 %. It was signed in London on the sidelines of a state visit to Britain by Russian President Vladimir Putin.

BP's investment is $ 600 mm lower than originally stated when the deal was first announced in February, involving an initial payment of $ 2.4 bn rather than $ 3.0 bn. The remained will be paid in three annual instalments of $ 1.25 bn.

The new price reflected "increased debt levels in TNK-BP" following the Russian firm's recent acquisition of a stake in another Russian oil firm, Slavneft. According to reports which predicted the reduced investment, the issues of Slavneft's debt kept the companies haggling over the deal until the very last moment.

The agreement finalises all the commercial arrangements for the creation of TNK-BP, subject to final regulatory approval from the countries concerned, the statement said. When it formally comes into being, the new company will instantly become Russia's third-biggest oil firm, and the 10th-biggest private sector energy group in the world, with plans to produce around 1.2 mm bpd of oil.

"This is one important element in the process of strategic renewal within BP," said BP chairman Lord John Browne. "On the basis of the progress made to date I believe we can complete the transaction over the summer and then begin to deliver the tremendous value potential which we see."

More than 70 members of the management team for the venture company had already been appointed, the statement added. It was signed just ahead of the completion of a "memorandum of cooperation" signed by the British and Russian governments on building a massive pipeline to send Russian gas into Britain.

The deal amounts to a major act of faith for BP in linking its fortunes so closely to a nation where corporate governance and other areas, such as environmental protection, fall well behind western business methods.

BP's success or failure "will lie in how quickly it is able to close the gaping hole between its standards and those of TNK," a London report estimated.


Source: AFP

[c1ue]

Re: FDIC: You are screwed... Well not quite.

GRG,

The first episode was the revitalized Russian government under Putin 'renegotiating' previous sweetheart royalty deals.

This latest episode is a power play between the Jewigarchs and their foreign partner. It is partly due to government influence, but not in the way you think: Alfa, the other part of TNK, is being heavily pressured by the government after years of siloviki maneuvering.

Alfa needs a new cash cow.