Stock Preacher

In China the Government owns the Banks; the bankers do not own the Government. China’s stimulus plan is working better than in the US and the UK because the government is using the banks for public ends, rather than allowing the banks to use the government for private ends. In the USA, the banks are the most powerful lobby on Capitol Hill; they own the Government.

The USA is spending trillions of greenbacks to bail out its banking system, leaving its economy to languish, as China, now called a “miracle economy,” decoupled from the rest of the world, is maintaining a phenomenal 8% annual growth rate. That, by the way, is being questioned by lots of Pols, commentators, economists and other talking heads, as they ask how that growth is possible, when other countries relying heavily on exports have suffered major downturns and remain in the doldrums. Read more

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You do not need to be caught with a load of cash in an offshore bank account to trigger an IRS audit. It is the little things that count and if not reported honestly can trigger an audit and have the IRS on your front steps ringing you door bell.

First you must always keep track of receipts, bank statements and stock trading account statements. US and CA taxpayers need to closely track their investment gains and losses for Y 2008 and report them accurately and honestly. This should be done each and every year, especially this year.

The recent published data is that in Y 2007 the US IRS audited about 1.4MM individual tax returns. This is a 7% increase from Y 2006 (the highest number on record since 1998), and this year, it is not likely that the audit number will be less than in Y 2007.
The Big Q’s: what will make IRS question your tax return? The Big A: A Red Flag.
The Red Flag for investors is this: Failing to Show All of Your Income

The worst mistake a taxpayer can make is not to report all of his/her income. In addition to your salary and any bonuses, make sure to include proceeds from sales of stocks and bonds, dividend earnings, brokerage and bank accounts and any other interest-earnings investments. Also, if you received unemployment income, that must to be included as well.

Investors who sold stock, bonds or mutual funds in 2008 must show how much they gained or lost between the date they bought and the date they sold their investments.
Many brokerage firms do not provide this information on the statements, instead their statements will just include the price Bought and the price Sold, so the calculations must be done by the taxpayer on the forms and schedules provided by the US IRS on their website (http://www.irs.gov/) instructions are also provided, they are there to be followed, so follow them carefully, if there is something that you do not understand seek professional advice.

In some cases even if your investment declined in value and you did not sell it, you may still have to taxable income.

I read this article today and share it with you. Fund Holders, Beware This Tax Surprise
Investors may be saying good riddance to Y 2008, one of the worst years on record for stocks, but the pain may not end there: Despite posting double-digit losses, many funds are saddling investors with a hefty tax bill, too.

Under IRS rules, mutual funds are required to distribute capital gains and dividends to shareholders, and investors may owe taxes on distributions even if they don’t sell their shares. With the markets down sharply last year, analysts say 2008 capital gains weren’t as high as the record US$399B paid out in 2007. But investors could still be in for a “double whammy” when they get their year-end statements, says Tom Roseen, senior analyst at fund tracker Lipper.

Among the worst offenders: foreign stock funds. Many of these funds soared in recent years, creating big gains that are just now being passed on to shareholders. Oppenheimer’s Developing Markets fund, for instance, paid $8.32 a share in 2008 capital gains, 36 percent of the fund’s net assets (as of early December). A spokesperson for Oppenheimer says the fund was restructured under a new manager and that the moves would have “significant benefit” for shareholders. Still, the tax bite stings for a fund that lost 48% last year.

Part of the problem is that managers generally don’t run their funds for tax efficiency, says Christine Benz, director of personal finance for Morningstar. Most focus on buying and selling the best stocks, regardless of the tax consequences. And their bonuses are usually tied to pretax performance, giving them scant incentive to cut the tax bill. “We don’t let the tax tail wag the dog,” says Lee Harper, vice president of Southeastern Asset Management, which runs the Longleaf funds.

Some funds are managed to keep the IRS away — and investors may want to switch if they’re getting walloped. Vanguard and Eaton Vance offer a variety of tax-managed funds, which use a buy-and-hold strategy to keep “realized” capital gains low. T. Rowe Price also offers such funds and has taken other steps to cut the tax hit, says Treasurer Greg Hinkle. The firm says it paid out around $3 billion in capital gains and dividends last year, down from US$12.7B in 2007.

The Silver Lining is this: Many funds are carrying big losses from the market meltdown and should be able to use them to offset future capital gains, says Roseen. That decreases the chances that Uncle Sam will come calling again after another rotten year.

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Last Tuesday Timothy Geithner unveiled a raft of new measures aimed at returning functionality to the besieged credit markets. Geithner outlined the picture of the latest US recovery attempt, i.e., promoting greater transparency and stricter oversight of both established and new financial stability programs, providing capital to institutions in desperate need of a cash infusion, committing up to US$1T to support consumer and business lending, addressing the housing crisis and reducing foreclosures, and stricter oversight of US taxpayer money. “The American people will be able to see where their tax dollars are going and the return on their government’s investment,” the Treasury Secretary said. “They will be able to see whether the conditions placed on banks are being met and enforced.

They will be able to see whether boards of directors are being responsible with the taxpayer dollars and how they are compensating their executives. And they will be able to see how these actions are affecting the overall flow of lending and the cost of borrowing.” This information will be made available on a new Web site: FinancialStability.gov.

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US banks now hold over US$1,000B of cash, which is an unprecedented level and more than five times the typical amount held over the past 40 years. The Big Q: Why? The Big A: Because the banks know that they are heavily exposed to bad loans/assets on their balance sheets and, therefore, they are very reluctant to commit capital to new lending. The European and US governments/central banks can expand borrowing/lending/asset guarantee programs and create asset management companies to buy the financial sector’s distressed loans/assets all they like, but these two courses of action augur serious problems, i.e. the calculation of the transfer price of the distressed loans/assets and the accompanying loss-sharing mechanism between bank owners, creditors and the government or taxpayers.

So, governments will have to inject still more huge amounts of new capital into banks, and perhaps the selective nationalization of weak or insolvent banks, and the sooner it happens, the quicker financial stability will return. An analyst at the Financial Times in London believes that the global banks require at least US$675B of new capital, of which half is probably needed yesterday. To date there is no hard evidence in either Europe or the USA that immediate, direct and decisive government action is taking place to resolve the global banking crisis and, therefore, the eventual economic outcome could still slide from a global recession, which is already largely anticipated by global stock markets, to a deflationary depression. Where are today’s Churchhills, Rosevelts and Thatchers?

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