Archive for the ‘Commentary’ Category

How will Deregulation Affect the Financial Sector?

By: ispeculatornew | Date posted: 06.20.2017 (6:46 am)

President Donald J. Trump has been mired in controversy since he was sworn into office. His agenda has been hamstrung by obstructionist Democrats and more than a handful of skeptical Republicans. His ambitious objectives such as building a border wall, imposing tariffs on foreign countries, repealing and replacing Obamacare, and deregulation have been stopped dead in their tracks, or have they?

While the media focuses its attention on drawing parallels between the Trump campaign and Russian election interference, the Trump White House has been quietly going about passing legislation to undo the Obama-era doctrine of extensive government involvement in most every aspect of corporate America.

Foremost among the changes sought out by Trump and the Treasury Department is the redrafting of Dodd-Frank. This comprehensive piece of legislation was passed in 2010 as a response to the global financial crisis that developed after Lehman Brothers collapsed. This set into motion a cataclysmic series of events that wiped out trillions of dollars from global markets and threatened to spiral into a global depression.

Obama and his team sought out legislation to prevent banks from over lending, by requiring them to meet with minimum stress test requirements. In early June 2017, landmark legislation was passed by the House of Representatives to radically transform the manner in which the financial system operates in the United States. The banking system remains the structural bedrock of the US economic engine. Too many changes and lackadaisical regulations may seriously undermine the performance and the credibility of the US financial system.

Banks and Financial Institutions Abuzz with Trifecta of Policies

Banks are strong when they promote lending, investment and saving – those are the 3 tenets of economic growth and prosperity. Back in the 1930s, the Glass-Steagall law was passed which recognized the separation between investment banks and commercial banks. That has since eroded, and the law was repealed in 1999. Banks have turned the corner when it comes to liquidity and credibility since the passage of Dodd-Frank in 2010. The stringent regulatory requirements inherent in the legislation ensure that banks will not over lend and are capable of withstanding significant stresses in the economy.

These measures also enhance client protection and ensure that a modicum of solvency, respectability and structural strength remains intact. Any failure in the performance of the economy or the bank should not adversely affect the economic system overall. There are now calls for the stress tests to be revisited, amended, and updated to meet current market conditions. We see evidence of renewed interest in bank stocks according to  Lionexo options trading experts. The financial sector is buzzing with the multi-pronged approach to revamping it in the form of Fed rate hikes, deregulation, and decreased taxation.

What Sort of Legislation Would Be Beneficial to the US Banking Sector?

Banks will be well served by determining issues like share buybacks and increasing dividends once the stress test results have been acquired. Banks are also currently limited in the amount that they can invest for the own profit/loss portfolio. Fortunately, the global community has toiled long and hard to create a standard to prevent a return to the conditions that precipitated the global financial crisis.

Unfortunately, US regulatory agencies have dismissed global standards as insufficient and have gone further to impose strict limitations and performance criteria on US banks. This has negative ramifications and could result in the US financial system being defunct. The CEO of Morgan Stanley (MS), James P. Gorman, believes that the US financial sector should take the time to digest the current rules and double down on what the economy requires to generate job growth, investment, and increased savings.

If Le Pen Wins, Here’s What Assets You Should Keep an Eye On…

By: ispeculatornew | Date posted: 05.05.2017 (5:21 am)

The U.S. equity market has been up over 1%, the week of the release of the first round of the French Presidential election results. Now, the SPDR S&P 500 ETF (NYSEARCA: SPY) was up 1.49%, the iShares Russell 2000 ETF (NYSEARCA: IWM) was up 1.35% and the SPDR Dow Jones Industrial Average ETF (DIA) was up 1.87%, the week of the French Presidential election first round results. Now, this was primarily due to Macron’s slight lead, and traders and investors began to put risk back on the table. That said, safe havens have been down significantly after risk-on sentiment was back. Although traders and investors have shifted away from safe haven assets, the results of the final round of the French Presidential election on May 7, 2017 could surprise the markets, if Le Pen wins. Now, there are some exchange-traded funds (ETFs) that investors might want to keep an eye on ahead in an event of a Le Pen win.

Gold-Related ETFs

The SPDR Gold Shares (NYSEARCA: GLD) was down just over 1% on the week, as of April 28, 2017. The SPDR Gold Shares aims to provide investors with investment results corresponding to the price of gold bullion. Since gold is seen as a safe haven asset, in the event of a Le Pen win, there should be an increase in political risk, and in turn, gold prices should rise. This should drive GLD higher, if Le Pen wins.

According to trader Jason Bond, “Another asset traders might to keep an eye on is the Market Vectors Gold Miners ETF (NYSEARCA: GDX), which I’m currently long. Now, this a long-term play and I think the price of gold should rise in an event of a Le Pen win, and this should trickle down into GDX.”

Source: TradingView

If you look at the performance of GLD and GDX on the hourly chart shown above, these two ETFs trade in tandem, and could both benefit in an event of a Le Pen win.

Euro-Related ETFs

The euro could experience a high degree of volatility before, and after, the final round of the French President election. Now, the Guggeinheim CurrencyShares Euro Trust (NYSEARCA: FXE) aims to track the price of the euro, and if Le Pen wins, this ETF should fall significantly. We’ve seen FXE rise 1.75% over the past week, after Macron led the first round of the French Presidential election.

“Traders who are highly risk tolerant may want to keep an eye on the ProShares UltraShort Euro, in the event of a Le Pen win. I’m currently long this inverse leveraged ETF, and believe the euro could fall ahead of the final round of the election,” one trader stated.

The ProShares Ultrashort Euro (NYSEARCA: EUO) aims to provide daily investment results correspond to two times the inverse of the daily performance of the USD price of the euro. Consequently, this is considered a highly risk ETF.

Here’s how EUO and FXE performed recently, on the hourly chart:

Source: TradingView

The Bottom Line

The final round of the French Presidential election is coming up, and in the event that Le Pen wins, gold-related ETFs could see a rise, while the euro could fall. Consequently, GLD, GDX, EUO and FXE should be in focus both before and after the election.

Financial Advice And Its Role In Investment Success

By: ispeculatornew | Date posted: 04.27.2017 (3:31 pm)

Investmenting can be a daunting prospect. The choices, jargon and complexities can at times become overwhelming. We often justify waiting, but the only way to enjoy the long-term benefits is to get started. You could try go it alone by reading the latest investment news and keeping a close eye on market fluctuations, but consulting an independent financial advisor will most likely improve your chances of success.

The role of independent financial planners is to assist with long-term financial planning, using their experience and objectivity to help you achieve your goals. More than mere product pickers, they help you meet the full range of challenges you may face.

Avoid common investing mistakes

Independent financial advisors can help you make the right decisions for your circumstances and, most importantly, avoid the risks of investing on your own. These include:

  • Investing without a financial plan

A detailed plan is critical to your financial freedom. An independent financial planner can help you develop a realistic strategy, tailor made to your financial needs and goals.

  • Picking the wrong product

There are truly a mind-boggling number of investment products available, each with their own objectives and tax structures. An advisor will help you make the right choices to suit your circumstances.

  • Ignoring the effects of inflation

Inflation erodes the value of your money with time. An advisor can help choose the right product to achieve returns that, at the very least, compensate for the effect of inflation.

  • Not preserving your retirement savings when changing jobs

Don’t make the mistake of spending your retirement savings if you are retrenched or change jobs. It is highly likely that you won’t be able to retire with enough savings to live on. An advisor is able to compile and help you evaluate the best options available at the critical juncture.

  • Focusing on one asset class or market

Diversification is one of the keys to successful investing. As the saying goes: “ Don’t put all your eggs in one basket”. An independent financial advisor will help you to diversify your investment portfolio, broadening your exposure to different investment options.

  • Making decisions based on emotions

Investors are known to be emotional in their decision-making and poor timers of the market. They destroy the value of their savings by switching between investments at the wrong time. Advisors can help you avoid these emotional pitfalls and develop a more rational plan of action.

Questions you should ask your financial advisor

Your relationship with your financial advisor should be based on trust, so it is imperative that you feel comfortable before becoming a client. Not all advisors are equal so here are a few questions to consider when evaluating a financial advisor:

  • Are they independent?

There are two type of advisors, independent and tied agents. Independent advisors do not earn any commission off the products and do not work for a particular product provider. Tied agents are employed by product providers and may have incentives to sell certain products.

Ensure that your advisor is independent, since their objectivity will help set you on the road to your financial goals. They can help you differentiate between the numerous products available and select one that meets your circumstances and needs.

  • What are their qualifications?

The Financial Services Board (or FSB) must, by law, license all financial advisors. This requires that the advisor pass a regulatory exam and fulfill the Fit and Proper requirements, as set out by the FSB. These requirements include integrity, honesty and competency. An advisor’s maintenance and development of their professional competence is evaluated by the FSB on an ongoing basis.

Find out about your prospective advisors academic history or any other credentials. It is important to read and understand the disclosure documents provided by the advisors. This will inform you of which products your advisor is licensed to recommend and offer advice on.

  • What are their fee structures

Full disclosure and total transparency is very important. Make sure your advisor explains, upfront, what fees you should pay and how they work. Typically, fees are charged as a percentage of the investment’s value and there might be an initial fee, as well as an ongoing fee.

Some advisors charge directly for the advice they provide (typically an hourly rate). Make sure you understand the fee structure before agreeing to anything and do not pay any fees that you have not agreed to.

  • How can they help to grow your wealth?

Good financial advisors take the time to understand your needs and help to develop a plan that reflects your risk appetite and your goals. Advisors help you to gain more discipline and be more rational during the investment process.

Emotions often lead investors astray, causing them to buy and sell at the wrong time or switch between products, which could decrease the value of your investment.

Where can you find a good independent financial advisor?

Trust is one of the key considerations when it comes to choosing a financial advisor. They help you make some important life decisions so you shouldn’t take this process lightly. A great starting point is a recommendation from someone you trust and who’s judgment you value. Another option is to contact the Financial Planning Institute of Southern Africa (or FPI).

The Warning Signs Advise Investment Caution

By: ispeculatornew | Date posted: 04.02.2017 (3:00 am)

The election of Donald Trump was always going to mean the months ahead would be interesting. He is viewed variously in society as a businessman who would shake up the political community to a man who was a bully with little substance. He has insufficient knowledge to do the job his critics say. In his first weeks, he has already been confronted with questions about the selection of his key personnel, has backed down over healthcare despite having a republican majority in both Houses and now his financial ideas are about to be scrutinized.

Credit Issues

Credit strategists have observed contraction in bank lending; money supply has slowed and this is certain to have an impact on the economy. Already Trump has announced an increase in military spending and that will inevitably impact on the domestic budget because the Republicans certainly do not want to increase Federal spending.

The US Federal Reserve figures show that commercial and industrial loans hit their peak in December and have been falling since then. The rate of decline is the fastest since the same time eight years ago. With loans and leases declining as well, the action of the Fed. to raise rates has been met with surprise. This has yet to have a major impact on equity markets but credit has regularly been something that identifies trouble before it arrives.

Worrying Trend

Trump believes he can provide momentum and expansion to the US economy; after all he is an experienced and successful businessman his supporters point out. It is not going to be straightforward it seems. Experts from Morgan Stanley see this trend as worrying, pointing out that credit squeezes historically lead to recession. The current figures are bringing back concerns about another financial crisis, similar to the one caused by the Collateralized Debt Obligations that brought such devastation to Wall Street and beyond.

The IMF has studies over 120 recessions in the world’s richest economies over the last half century and slumps have inevitably been preceded by the slowdown of credit in the months leading up to them. Without necessarily concluding that there is a sure sign of recession ahead, the figures are nevertheless concerning.

Caution

Certainly investors should be cautious. Those who are nearing retirement and do not want to take any major risks with their funds should be especially careful and find safe havens for their money. A recent Markit PMI survey has identified that US business is weaker than it has been since before the election and growth is remaining elusive. There had been signs of a boom on the way last year but there is a strong argument that it may have already reached its peak.

Lack of Growth Policies

US business it seems has debt that has been used to pay dividends or buy back stock bonds rather than to create growth. Every dollar of new debt is generating a mere 17 cents of extra GDP, a quarter of what it did in the 60s. Certainly some business strategists will be waiting to hear what Donald Trump has in mind on taxation yet already there are questions about whether is policies are either sensible or achievable. The Markets appear to be taking a more positive view than some of the analysts but individual investors should be very careful.

Time is important; delay will only increase uncertainty and perhaps help in precipitating problems? The Republicans are keen on tax cuts but whether Trump delivers in line with his pre–election rhetoric is far from certain. There are certain to be battles ahead because there are many within the Republican Party who seem to be as opposed to Trump as they were to the Democratic Candidate, Hillary Clinton.

Business will go its own way. Decision makers looking at their financial figures and devising future strategy are likely to have a cushion in place for mistakes. Individual investors often have no such cushion and a poor decision can cause untold harm, especially for the average couple that is approaching retirement and building up a fund to provide a comfortable life. The coming months are likely to see volatility in society anyway; the important thing for people is to give plenty of thought about where to invest their money and minimize the risk.

 

Harald Seiz CEO of Karatbars International: Make Gold Great Again

By: ispeculatornew | Date posted: 04.02.2017 (2:55 am)

Who cares the most about you? Who knows the most about you? Politicians like to smile, kiss babies and make you feel special. But, in the end, you are free to live your life and only you can build your wealth.

There is no government program that will make you great. Even, if the United States becomes great again, that might not translate to your financial portfolio. Learn why you should concentrate on making gold great again.

Gold is Great

Throughout history, the leaders of the world have tried to control gold. American President Franklin Delano Roosevelt confiscated gold when the country was in the Great Depression. China forbade ownership of gold under the communists. Why do politicians seek to control gold?

Gold is money. Gold is power. The elite are just like you, they were born of a mother. They put their pants on, one leg at a time, just like you. What is the difference between the elite and you?

The elite own gold.

While the powerful have been holding down the price of gold, they have been purchasing it behind-the-scenes. The Russians and Chinese are now buying gold in droves. The Indians have always purchased gold for their Hindu weddings.

At the beginning of 2017, there are signs of the gold price rising again. Are the wise “making gold great again?”

Gold Does Not Rust

“Gold is the perfect metal. It is soft, does not rust and can be used for industrial purposes. It is also hygienic, which is why it is used in teeth.”, adds Harald Seiz CEO of Karatbars International.

During Brexit, the masses bid up the price of gold. Some are whispering about the return of the “Gold Standard.” This would lead to the increase of gold as people purchased the precious metal to conduct trade.

Be Great: Buy Gold

Mr. Harald Seiz believes that “everyone should have the opportunity to obtain good, solid financial protection.” The wealthy own gold and lease it out from Switzerland. This gives them a steady stream of income. Gold is basically indestructible.

Gold protects against the “ever-recurring financial crises,” which some say are rigged by the powerful. You can purchase Harald Seiz gold Karatbars and be part of the solution. If you want to be #1 and win the gold medal, then you must join in with the wise people who are working to “make gold great again

Crude Oil Is Not Yet in the Clear Despite OPEC’s Cut

By: ispeculatornew | Date posted: 03.15.2017 (3:00 am)

OPEC succeeded in getting its member nations and some other non-OPEC producers to agree to a deal to cut their oil output last year. The output cuts were necessary in order to halt the supply glut that has depressed oil prices for much of the last three years. The supply of crude oil has outpaced the demand due to the return of producers such as Iran and Libya as well as an increase in U.S. shale oil production.  However, it seems that the deal might be unraveling at the seams because some countries are not committed to holding their ends of the deal.

U.S. Shale oil cast dark shadows on the prospects of oil

Crude oil has managed to find support around $55 per barrel up from its $30 lows at the beginning of 2016. However, one would have expected OPEC’s deal to cut oil production to propel oil prices faster and higher towards the 2014 $100 per barrel price. The main reason oil prices haven’t spiked in tandem with OPEC’s move to reduce output is that the supply glut in oil is still persistent.

Interestingly, the supply glut situation has remained unchanged because U.S. Shale oil operators are now increasing their output from shale basins because of the uptrend in oil prices. Alex Poldoski an analyst at Saxon Trade observes that “the weak $30 price of oil made oil production unprofitable for shale oil drillers but the recent uptrend is encouraging shale operators to return to the markets.”

The U.S. Energy Information Administration said U.S. oil output increased by 1.7 million barrels in the week ended March 3. Interestingly, OPEC’s secretary-general Mohammad Barkindo acknowledges the influence of shale oil produces when he said “we did confess that we do not have sufficient understanding of how they operate and their impact on us.”

Saudi Arabia wants other countries to pick up the slack

Saudi Arabia oil minister Khalid Al-Falih expressed cautious optimism about the OPEC deal during his remarks at the CERAWeek that held earlier this month in Houston.  Al-Falih started by noting that the compliance level in deal to reduce output has outpaced the low expectations on OPEC’s ability to pull off the deal. In his words, “the market had low expectations, which we have exceeded by a large degree… We are definitely on the right track and are picking up speed in terms of delivery.”

However, the deal to cut production hasn’t done much to end the supply glut in oil; in fact, one can argue that OPEC’s supply cut is providing U.S. shale oil producers to increase their output. There are indications that OPEC might need to extend the deal to cut output beyond the first six months of this year if it really wants to end the supply glut in oil.

However, Al-Falih says there’s no point discussing the possibility of extending the deal beyond the first six months of the year if the other participants in the deal are not ready to uphold their ends of  the bargain. Last month, OPEC reported about 85% compliance in the deal to but the high compliance level was recorded because Saudi Arabia went out of its way to cut its output beyond its initial promise.

In Al-Falih’s words, “it is not going to be fair or acceptable that some countries will carry the burden for all… We’ve been willing to do it for the front end but we expect our friends and partners to pick up the slack as we move forward.”   Al-Falih’s also noted that Saudi Arabia “will not bear the burden of free riders… Saudi Arabia will not allow itself to be used by others. My colleagues have heard that privately, and now I’m saying it publicly.”

A House of Cards: Can Wall Street Remain Bullish?

By: IS | Date posted: 01.18.2017 (5:00 am)

January 2017 is proving to be a mixed bag for investors. Now that the New Year is well underway, some interesting trends are developing. For starters, the USD is struggling to maintain momentum against the JPY. The greenback was trading 0.3% lower against the JPY, at 115.64. Even the beleaguered EUR made some gains against the greenback as it rallied to $1.0626, before it dropped towards $1.0559. The heavily bearish GBP has also been gaining on the greenback, trading at $1.2167, from $1.2190 earlier.

The US dollar index is currently at 102.72, up 0.67%, or 0.68 points. The index has a 52-week high of 103.82. Simply put, this means that the US dollar is fractionally off its 52-week high, and well above its 52-week low of 91.92. The DXY measures the performance of the greenback against major global currencies including the JPY, EUR, GBP, CHF, CAD and the SEK. The most heavily weighted components of the DXY include the EUR at 57.6% and the JPY at 13.6%. The trading market cycles in January tend to reflect a rebalancing or repositioning of financial portfolios to accommodate the likely changes in the year ahead.

 

What’s Happening on Wall Street and Beyond?

Investors and traders are equally concerned about how high Wall Street markets can rally before correcting. Right now, we are seeing US stocks struggling to maintain their current levels. That the USD has come under fresh assault by leading currencies like the JPY and EUR is not to be taken lightly. Of course, a lot depends on what will happen once President-elect Trump is officially inaugurated on January 20, 2017. Traders remain highly bullish about a Trump presidency, and the massive fiscal stimulus that he has promised. Nonetheless, the mood of the moment is pensive. All major US indices are up, albeit modestly over the past 1 month. The Dow Jones Industrial Average has gained 0.88% and is now at 19,929.85, the S&P 500 index is up 0.55% at 2,272.05 and the NASDAQ composite index is up 2.06% at 5,556.80.

All major US indices have defied gravity, especially the Dow Jones which is moving ever-closer towards the critical 20,000 level. Across the pond, the all-share index in the UK – the FTSE 100 – racked up yet another consecutive day of gains. The FTSE 100 tends to perform strongly when the GBP is faltering. At last count, the FTSE 100 was at 7,310.32, up 5.12% over 1 month. The 1-year performance of the FTSE 100 index is extraordinary at +24.50%. The closest performing index is the DAX, with a 1-year return of 18.68%. For speculators, the 1-year performance of European bourses has been unprecedented. The Euro Stocks 50 PR has gained 9.57%, while the CAC 40 is up 13.77%

Factors Driving the USD Lower

Naturally, the positive performance of indices across the board is concerning. Any time an index rallies uncontrollably, the question has to be asked: Is this level fundamentally sound or is it driven by speculation? It is important to watch the performance of crude oil when trading equities. Brent crude oil reversed course and is now trading at $53.64 per barrel, after reaching $55.36 per barrel earlier on in the day. The reason oil prices are plummeting is news out of the latest US Baker Hughes Report that the rig count is increasing. As more WTI crude oil producers enter the fold, they undermine gains made by production cuts with OPEC members.

On Monday, 9 January, oil prices plunged 3.8%, raising concern that inflation expectations should be lowered. This had a negative effect on the USD which rallied on the back of its latest December jobs report. The USD is also being affected by inflation differentials in China. The PPI in China increased to 5.5% year-on-year, up from 3.3%, 2 months ago. This is being fueled by higher commodity prices (crude oil, natural gas, iron ore, copper etcetera) on a worldwide basis. Dollar-denominated commodities like iron ore, crude oil, and the like are negatively affected by a strong USD, and positively impacted by increased demand.

5 Trends to Watch After Trump Takes the Oath of Office

By: IS | Date posted: 01.17.2017 (2:42 pm)

President-elect, Donald Trump will take the oath of office on January 20 and he’ll officially become the president of the United States. In the last few weeks of being the president –elect, his actions and inactions have been moving the markets. However, Trump’s ability to move the market will be amplified exponentially once he takes the oath of office.

The chief reason why president Trump will be a major market mover is that he is opinionated, blunt and he doesn’t have the career politician’s ability to sugarcoat words. If Trump doesn’t like your company, you can be sure to expect some damning tweets that could send your stock spiraling. Boeing already found out the hard way that Trump’s tweet could cause a stock to tank and Amazon’s Jeff Bezo is trying hard to get off Trump’s black book. This article provides insight into 5 trends investors must watch after Trump takes the oath of office.

Broad Equities could have a strong pullback

Equities have rallied strongly in the last nine weeks since Trump became the president-elect. The S&P 500 has gained 6.71% and the Dow Jones Industrials has gained 8.91% as seen in the chart above. The main reason behind the gains in equities is that Wall Street is speculating that Trump’s economic policies such as tax reductions could provide a boost for U.S firms. However, if Trump is unable to effect his proposed economic policies, stocks could give back most of those recent gains in an abrupt pullback.

Healthcare stocks could suffer bigger losses

Trump has been vocal about his plan to repeal the Affordable Care Act (also known as Obamacare). Opinion is divided on how dismantling Obamacare could affect the average American and it is hard to separate the fact from the sensational noise.  However, we do know that Trump thinks that pharmaceutical companies are enjoying oversized margins and he’ll push for regulation to reduce the price of drugs. More so, we can submit that repealing obamacare could have a negative effect on the stocks of healthcare and insurance companies at least in the short term.

Construction and Defense Stocks might fare better

Trump has also been vocal about his plan to adopt a tougher stance on immigration, chief of which is building a wall along the U.S.-Mexico border. If Donald Trump continues along the usual lines of riling Mexico, we can reasonably expect the stocks of construction firms to see as boost with the expectation of increased government infrastructural spending in building a wall.

The outlook in emerging Economies will remain gloomy

Investors with exposure to emerging market economies such as Turkey and Mexico can expect to see a weakening in emerging market currencies against the USD in the forex market. The Mexican Peso is already down to all-time lows against the Dollar. We won’t see the end of the decline in the Mexican Peso until Trump makes a final decision on whether or not to build the wall. The Turkish Lira is also down to historical lows against the dollar as macroeconomic concerns continue to make investors uneasy.

The Economy might suffer more risk-off trade

Donald Trump is also very vocal about his distaste for China. He has accused China of manipulating the Yuan in order to undermine the U.S. economy. He has also taken issue with the migration of many American manufacturing jobs to China. However, Trump’s outbursts against China could lead to more risk-off trade in Asia because China is not the only country “stealing” America’s manufacturing jobs.

Nobody knows the specifics of Trump’s foreign policy and it would be interesting to see how he handles China. Nonetheless, investors with exposure to American firms who making or selling their products to China might want to prepare for increased uncertainty going forward.

Final words…

It is hard to predict how the market will react under Trump because Wall Street has defied expectations at practically every turn by going against analysts’ consensus expectations. For instance, Trump’s victory in the election didn’t lead to a stock market crash as analysts had predicted. The performance of the financial markets in the next couple of weeks will provide clues on some trends to watch when Trump officially becomes POTUS.

 

 

Top Assets to Trade in Binary Options Format

By: IS | Date posted: 01.10.2017 (2:39 pm)

 

2017 has arrived, and already investors are reorganizing their financial portfolios to hedge against possible shocks. Several major geopolitical events occurred in 2016, including the Chinese stock market meltdown in January, the Brexit vote in June, and the surprise victory of Donald Trump in November. These critical events reshaped the financial markets. For example, day traders were able to capitalize on the collapse of the Shenzhen composite index and the Shanghai composite index, by shorting Chinese stocks on Wall Street, the LSE and other European bourses.

 

Currency traders cashed in on the melee by shorting the CNY against other top-performing G10 currencies. Within weeks, it became apparent that the Chinese economic growth engine was stuttering. Commodities imports to China were drying up an inventory levels were rising. This had an immediate effect on copper demand, iron ore, and other metals. Countries like Australia, South Africa, Brazil, Russia, and India all suffered the fallout from the slowdown in China.

Understanding geopolitical events and trading binary options

The Brexit referendum on June 23, 2016 sent shockwaves through the global community. Nobody expected Britons to vote 52%/48% in favour of a break from the European Union. Net short positions on the GBP were evident with binary trading UK brokerages. The GBP went into freefall, from 1.48 to the greenback down to 1.21. The GBP/USD pair plunged to a 31-year low within short order. Traders cashed in on GBP weakness by shorting the currency against the USD, JPY, EUR, and CAD. For the most part, these speculative assessments of the GBP proved correct. That the FTSE 100 index has been able to rally in the aftermath of the Brexit referendum is notable. However, the reasons for the rally are found in the weakness of the GBP. Analysts calculated that the double-digit percent gain for the FTSE 100 index is only a low single digit gain when valued in USD, not GBP.

 

In other words, the bubble effect that we are seeing taking place on the FTSE 100 index is not a true reflection of the performance of the UK economy. It is a result of the currency cross exchange rates. 75% of companies listed on the FTSE 100 index are based outside of the UK. This means that their repatriated earnings are worth more in GBP, with currency cross exchange rates. For traders, the choice is clear: go long on the FTSE 100 index as long as Brexit uncertainty places pressure on the GBP. The fundamentals of the UK economy appear to be sound, especially manufacturing, and this is going to help mitigate any negative effects on the GBP for the short-term. However, if financial companies start relocating from the City of London to Europe, the GBP will falter and manufacturing will fall below the key 50 level (50+ represents growth and 50 – represents contraction).

 

The Trump effect on trading

Donald Trump is a polarizing figure, but he is the President-elect of the United States of America. His shock victory on November 8, 2016 sent Wall Street markets into the stratosphere. His economic policies include massive fiscal stimulus for infrastructure development. Trump has promised to repeal and replace Obamacare, rebuild the American military, rebuild infrastructure, and restore American pride.

He plans to spend hundreds of billions of dollars to do this, and generate hundreds of thousands of jobs in the process. Trump is seen as pro-business, with his tax cut policies (15% or 20% for corporate taxes) and his anti-regulation approach to the corporate sector. The Dow Jones is trading close to 20,000, the S&P 500 index is rallying, as is the NASDAQ composite index. As long as Wall Street indices are in the black, safe haven commodities like gold are no go options for investors.

However, binary options traders are cashing in on gold price weakness with put options on the precious metal. Gold prospers when a risk-off approach is adopted to equities markets, or when geopolitical shocks rock economy. 2017 presents multiple opportunities to profit big the state to the financial markets. The USD, Dow Jones, and FTSE 100 are clearly bullish, while the GBP, EUR and ZAR are on the bearish side.

How tax optimisation can maximise the returns on your investment property

By: IS | Date posted: 12.20.2016 (5:00 am)

This article has been writen by George Kachmazov, managing partner of Tranio.com

 

If you’re not careful, taxes can eat away at the bulk of the income you should be earning on your foreign investment properties.

This fact alone sends chills down the spines of property investors everywhere. A recent survey conducted by Tranio.com revealed that 18% of property investors believe structuring purchases for maximum tax optimisation is the single most difficult part of acquiring real estate abroad.

To further complicate matters, more than 100 countries have committed to the Common Reporting Standard (CRS), an initiative developed by the Organization for Economic Co-operation and Development (OECD).

In accordance with the CRS, between 2017 and 2018 countries around the globe will launch the automatic exchange of financial account information, dispelling the opacity that previously enabled wealthy citizens to squirrel their money away into foreign bank accounts in order to dodge tax obligations in their home countries.

In light of the shifting realities of tax optimisation, I want to offer you some advice on how to acquire foreign properties with tax optimisation in mind. Please note that this is general advice. I strongly encourage you to consult a tax advisor who is familiar with the nuances of your situation before you purchase any property.

 

Pros and cons of purchasing a property as an individual vs. via a legal entity

 

If tax optimisation is a key priority, you would do well to begin by determining whether it would be wisest to purchase your property as an individual or via a legal entity.

Because tax rates and terms differ considerably between these two categories, your choice in this matter will have a key impact on your total tax obligations in connection with the property.

The table below outlines some of the basic differences:

 

  Individual Legal entity
Advantages — No need to pay the costs associated with maintaining a company;

— Capital gains taxes can be lower for individuals than for legal entities (some countries provide capital gains tax exemptions after a few years of property ownership)

— If the property generates significant profits, tax rates may be lower for legal entities than for individuals;

—  The possibility of exemption from capital gains and dividend taxation if the rules of strategic participation apply;

—  In some countries, i.e. Germany and France, no inheritance tax applies to property acquisitions by a company;

—  Increased flexibility with respect to selling shares or the property itself;

—  Greater protection against the disclosure of information.

Disadvantages — Income tax can be higher for individuals than for legal entities;

— No flexibility with respect to withdrawing from the sale

— It is impossible to conceal the identity of the beneficiary.

— There are costs associated with running a company;

—  In some countries, i.e. the United Kingdom and France, specific property taxes apply to legal entities.

 

 

* Please note that the information contained in the table above is subject to variation depending on which country you’re purchasing property in and a wide range of other factors. It’s always important to consider your unique circumstances and consult with relevant professionals before making any purchase.

When our clients are considering purchasing a property valued at about EUR 1.25 million or less, we generally recommend that they make the purchase in their individual capacities. It is typically cheaper and easier to do so due to the additional expenses associated with opening and maintaining a company.

However, this isn’t universally true; in some countries, individuals are subject to higher income tax rates than legal entities, which can offset any advantage of purchasing as an individual. This tends to hold truer the higher the individual’s income.

If the property is worth upwards of about EUR 1.25 million, it is typically advantageous to make the purchase via a legal entity. In this case, lower income tax rates and greater opportunities for tax optimisation tend to offset the company-related costs.

This is largely attributable to the fact that a relatively expensive property would usher in relatively high income, which in many countries would expose an individual owner to higher tax rates than it would a legal entity.

Consider, for example, a property in Germany that generates rental income of more than EUR 50,000 per year. An individual owner would pay some 40% in taxes, while a company would pay a comparatively meager 15%.

Generally, such savings would fully offset the cost of launching and maintaining a company. However, this holds primarily true in cases where the company and its owner are both tax residents of the same country. Otherwise, dividend taxes would negate any tax benefits derived from purchasing a company as a legal entity.

What taxes do legal entities usually need to pay for properties?

 

If a legal entity owns income-generating real estate overseas, it will typically be subject to the following types of taxes:

  • Taxes on any income generated by the property (rental income, capital gains from the sale of the property or the sale of a portion of the legal entity or its shares)
  • Property tax (usually compensated by tenants)
  • Land tax
  • Inheritance tax, if applicable (exemptions often apply)
  • Tax on dividends (exemptions typically apply if the investor refrains from distributing dividends and instead reinvests the funds in the same country, for example into another property).

 

Tax rates for individuals and legal entities in the United Kingdom, Germany and France

Data: Tranio

  Income tax/profit Capital gains tax Estate tax Property tax
United Kingdom Individuals 20-45%

 

20-28% (not applicable to the sale of a primary place of residence) 40% (this does not apply between spouses) Not applicable*
Legal entities 20 % 20 % Not applicable From GBP 3,500 for properties valued at more than GBP 500,000*
Germany Individuals 14-47.47 % 14–47,47 % (not applicable after 10 years of ownership ) Up to 50 % Not applicable *
Legal entities 15.825 % 15,825% (not applicable if the owner invests in another German property within four years of the sale)

 

Not applicable under certain circumstances** Not applicable *
France Individuals 20-45% 20-45 % (Not applicable after 22 years of ownership) 5-60 % (this does not apply between spouses) Not applicable *
Legal entities 33.33% 33.33 % (not applicable after 22 years of ownership) Not applicable upon registration with a Société Civile Immobilière

(SCI)

3 %*

* There are property taxes, but it’s the tenants responsibility to pay them.

** The business must operate for a minimum period of seven years after the acquisition of the property, and total salary expenditures must exceed the original salary expenditures by more than eight times, or the number of employees must exceed 20.

  

Taxes on rental income

 

 Rental income tax is included in the corporate tax rate and is payable in the tax jurisdiction where the property is located. As a general rule, if a company is liable for taxes in a foreign jurisdiction, and a double taxation treaty applies between the company’s home jurisdiction and their foreign jurisdiction, the amount of taxes paid overseas is to be subtracted from the amount of taxes that is supposed to be paid home. The difference should be paid in the home jurisdiction. If the tax overseas is bigger, then there will be no taxes home.

In order to reduce your income tax base, you will need to scour the tax regulations for deductible expenses that apply to your purchase, ownership and maintenance of the property. Such deductions may include:

 

  • The cost of acquiring a founder loan;
  • The cost of acquiring a bank loan;
  • Building depreciation;
  • Leasehold improvements;
  • Transaction execution expenses;
  • Property tax;
  • Property management and maintenance expenses;
  • Other expenses during the ownership period.

Taken together, the aforementioned deductions can significantly reduce a property owner’s income tax base during the first decade of ownership. The table below outlines a typical German example.

Sample calculations for legal entities in Germany, Euro

Data: Tranio

 

  Standard tax scheme         Effective tax scheme
Tax base calculation
Property price 500,000
Annual rental income 30,000
Building depreciation deduction (2 %) 10,000 10,000
Deduction of mortgage interest
(LTV 50%, 2% per annum)
5,000
Deduction of founder loan interest (LTV 50%, 4%
per annum)*
10,000
Tax base 20,000 5,000
Tax calculation
Corporate tax (15 %) 3,000 750
Solidarity surcharge (0.825 %) 165 082.50
Total tax sum 3,165 832.50
Annual income after taxes 26,835 32,417.50
Percentage of annual rental income that taxes account for under both schemes 10.55 2.5

* The interest rate on the founder’s loan can be increased, thus reducing the effective income tax rate to zero

 

A founder loan could enable you to save part of your income from dividend taxes.

Founder loan interest is subject to the investor’s personal tax obligations in the country of his or her tax residency. But the investor must also be ready to pay founder loan taxes in the country where that interest was generated.

 

Capital gains and asset transfer tax

 

Whether you will be obligated to pay capital gains tax or asset transfer tax depends on the ownership structure at the moment of the sale. This can occur either when you sell the property itself (asset deal), or when you sell the company that you purchased the company through (share deal).

In the case of an asset deal, capital gains tax is typically calculated as the difference between the sale price and the carrying amount of the property. The carrying amount is the cost of the property, less accumulated depreciation. While depreciation decreases the carrying amount, it increases the capital gains tax base.

Let’s say, for example, you purchased a property for EUR 1 million and sold it for EUR 1.1 million. You owned the property for three years, during which you had a 2% depreciation allowance, amounting to EUR 60,000 over the course of your ownership. Your carrying amount is thus EUR 940,000. Your capital gains tax base will amount to EUR 160,000 – the difference between the sale price and the carrying amount.

In the case of a share deal, the property’s carrying value is of no importance for tax purposes. In this case, profits from the sale of shares are taken into account to calculate asset transfer taxes.

Say, for example, you purchased a company in order to purchase a EUR 1 million property. You then sold the company for EUR 1.1 million. Thus the tax base for asset transfer tax is calculated by deleting the purchase price from the sale price, so in this case your tax base would be EUR 100,000.

In the context of the above examples, it would make more sense financially to purchase the property through a company; doing so would save you EUR 60,000. Investors who already have an exit strategy in mind when purchasing a property – such as those who plan to purchase a property, flip it, and sell it at a profit five years down the road – typically favor this model.

While it’s possible to structure real estate purchases in such a way as to ensure you’ll be exempt from capital gains tax, it’s not easy. Doing so requires extensive research of and familiarity with local legislation in the country that you’re planning to purchase in. It will also likely require corporate ownership and elaborate deal structuring, which is best left to seasoned professionals.

 

Double taxation laws

 

Another key issue that can have a considerable impact on capital gains tax is the existence of double taxation laws or relevant treaties between the county where the real estate is located and the country where you registered your company. Double taxation regulations can protect taxpayers from paying the same tax twice.

For some practical examples of this, we spoke to Dmitry Zapol, an international tax advisor at London-based tax practice IFS Consultants. Mr. Zapol explained that UK residents are required to pay income tax on foreign source rental income at their marginal rate. In other words, foreign rental income is added to the UK resident’s other types of income, and the total amount received during the tax year determines the applicable income tax rate.

However, UK law protects taxpayers from double taxation even in the absence of a double tax treaty.

“If foreign rental income suffers withholding tax [in the source country], it is credited towards UK tax liability in order to avoid double taxation. In order to calculate the tax credit, the taxpayer calculates the actual amount of tax paid abroad and sets it off against UK tax liability,” said Mr. Zapol. “In the end, this results either in having to pay the difference between the two amounts (if UK tax is higher) or brings no further tax liability (if UK tax is smaller), although in the latter case the difference will not be refunded. In calculating the tax liability, it is necessary to take into account the difference between UK and foreign tax years, which usually do not run concurrently.”

He added: “Normally, the relief is offered under a double taxation agreement concluded by the UK. However, unlike in some countries like Russia, the relief is also available in the absence of the agreement… Normally, the UK resident must submit proof that tax was withheld outside the UK to be able to credit it against his UK tax liability.”

Generally, the ways in which you can benefit from double taxation laws or agreements hinge on whether you purchased the property via a company or as an individual. In order to determine which taxes you’ll be on the hook for in your home country, you will need to familiarise yourself with the ins and outs of the relevant policies.

Mr. Zapol noted that the relevant UK laws are complex. “Broadly, if a UK tax payer buys a foreign company that receives foreign rental income, he must declare its income as if it were his own and pay tax on it or alternatively declare dividends and also suffer tax liability. Interestingly though, if he receives the same company as a true gift from someone else, there is no tax liability until a distribution is made. Also, if the person is domiciled outside the UK, he can claim the remittance basis and stay outside the scope of the transfer of assets abroad rules,” said Mr. Zapol.

Prior to any purchase, I recommend that you consult a tax specialist.  Should you have any questions, Tranio will always be happy to help. We can provide you with a comprehensive overview of the tax and legal issues that will apply to your purchase of any overseas property, and help you achieve the optimal transaction structure.

 

George Kachmazov, Tranio.com managing partner