Quote from TrendSailor:
Funny how some people go out of their way to personally attack others on a question that was not even directed to them. If you have a personal problem with me send me private email or lets exchange contact info and meet in person for a personal round of "education" and lesson givings. Who the hell do you think you are talking to me that way?Your a hypocritical, opinionated and judgemental bigot. I didn't attack you personally and don't even know you.
So let's get beyond the personal bs - and try to get to investing and learning a few things.
I know the basics of trust structures but they are complex mechanisms and not many in the investment community even have a clue about them. My advisors have made 20-45% (annualized) on top of 10-20% dividends over the last 2 years in these instruments so I'd say they know their stuff.
The US and AUS got away from trusts many years ago since they were considered an inferior product. However, the low and declining interest rate environment in the US have resurrected the interesting notion of income and trust instruments as "growth" instruments. This trends well with an emerging baby-boomer retirement demographic in the US who are looking for high incomes. In fact high yielding securities have been some of the most profound and unsung growth stories known anywhere these past few years. They have beat the S&P500 performance to death. Wake up and smell the coffee - many people made 30-60% on these instruments on the growth on TOP of the dividend as yield hungry investors bought up shares with heavy demand. I am personally playing right now for dead cat bounce but MAY transition longer term and play both growth and income. If I can net 10-20% in Div cash flow a year PLUS 3-5% growth for a few years that is fine for me. Even if I get a decline in growth of 1-2% the high yield makes up for it. But I am anticipating increased costs (tax) and I don't mind the implication of a reduced dividend if its a LOT better than I can do elsewhere for the same level of risk.
As for declining assets - the ENTIRE planet is a declining resource bubba. Guess what happens when resources decline? I'll give you a hint - prices of resources go up. That's econ 101. What "smart" miners and resource producers do do when prices decline is they take the easy minerals near the surface or the commodity from the easy to reach/low-hanging fruit that have the lowest production marginal expense. Miners get ore near the surface for example. When prices increase they go deeper to the harder or more expensive materials to produce since margins are higher but profit and risk both increase. But this technique is a natural hedge and has been done for decades all over the world; most notably in S. Africa. Acquisitions of juniors in 3rd world countries is also a good way to increase capacity but there can be political and labor risks. There are also future hedging and repurchasing production from strategic trading partners etc. So there are many profitable ways to deal with the problem of declining assets. The most direct is to pass off the costs to buyers of product at multiples of true cost. This is an old game that utilities have done for decades to get extra premium for "average" costs of increased production from naive people buying at retail. Trust me its very easy to adjust strategies or cook the books in legal ways that can make enormous profits in any kind of environment.
Also, believe me the Canadian Gov is setting itself up for a belligerent back lash with this tax on trust. The gov will be forced to subsidize trusts if the margins get too high and in the middle of a cold winter miners and workers etc. who get their salary increases scalped call a strike or walk off and stop all production and hold your gov hostage. With no tax revenue and no gas/oil or coal the pressure is high. This happens all the time and the easy way to give relief is for gov to remove the taxes and everyone gets more money (except the greedy government). So there are many opportunities for a significant change in favorable sentiment in trusts and that can pump prices up from a fireside sale level.
Frankly, I think what is going on with the change in tax status of trusts is really contrived and a clever way to screw the initial trust investors. These newer Trust managers never really intended to pay out high dividends "forever". This recent tax change was basically gov giving CEOs an excuse and a motivation to convert to traditional corps at the costs of the investors; many of them nonvoting foreigners. Pure Machiavellian tactics. Guess what? If the trust structure is not a viable mechanism because of the recent more favorable tax breaks to corps (reexamine the new tax breaks to corps) then trusts WILL have an economic incentive to convert. Its the old "Brier rabbit" game and this is exactly what the trust CEO's wanted to save face with investors since trust structures limit their management flexibility.
Now Trusts can blame government as the contrived bad guy. But wait - guess what happens when trusts convert to traditional corps? Initially there is a fire side sale as the speculative players get shook out of trust. But this is also contrived and when prices decline this is the time to buy. Reason? Trust owners get new shares in a normal for profit corporate structure (with the new improved tax rates). But the big thing is the new stock/corp gets an elevated PE multiple in the new stock that is more traditional for corps and DIVIDENDS ARE CUT WAY BACK since they are taxed higher. That means price of shares GOES UP (not down) since capital is held on the books rather than distributed. Then CEOs can give themselves options and the theft of prior trust assets reverts from gov to internal officers but it takes a long time for this theft to show up on the books. Smart investors get out after the corp is formed.
Those trusts that do not convert will obviously also find a way to reduce dividends by increasing costs (higher salaries, more office equip etc). There is NO pragmatic way for gov to force managers to be efficient with how they run these trusts. In fact I expect those wanting to remain as trusts to invoke a belligerent push back against gov to rebel against this change of tax status. Trust me - less tax will be paid than what the gov expected to gain. Think about it - there is no longer an economic advantage to distribute the same high level of dividends - so income will be "hidden" on the books or spent to the benefit of workers before it gets to gov. Increased expenses mean that profits are lower and dividends MUST be reduced. That's a simple p&l reality since trusts can't distribute what they don't have nor can gov tax what is not tangible. Bottom line gov is completely powerless and those trust holders that shake out at the bottom subsidize the change in control of trust and revenue sharing relationship change between trusts and gov. Its the old Robin Hood game and the best way for an investor to profit is to keep their wits and to become one of the merry men...
Now come back and look at the current situation. If trust price drops (like it just did) then yield increases for a given dividend rate. That's a pretty basic high school level math concept that you should be able to understand. If price is severely/overly discounted in such a way as to make up for the anticipated dividend reduction from unfavorable tax then its very possible for an investor coming on now to get an immediate net gain. I just did that and am already up a few thousand dollars. Got it? Now consider what happens if US treasury rates decrease in a few months (a high probability given economic slowdown). That means rate changes ripple throughout the global community and foreigners come looking for better yields. Guess what? People find this neurotic;y Anglo-french socialist country called Canada that has an old track record of high yield performance in trusts that looks pretty good on paper - and they are discounted from their highs. Guess what now? There are only so many trust shares available for purchase (again econ 101 supply and demand) and a lot of investors looking for high yield for a period of time before the foreign tax kicks in (less than a 4 year horizon). Guess what - yup - trust prices go up. Got it now?
If you can't make money in this then you have no business giving investment critiques or advise or lessons. My advise - go pick a fight with someone closer to your peer level - high school kids maybe?
TS
My sincere apologies. You obviously know what you're talking about.
Funny thing though, given your "elevated" level of knowledge and expert advice, you LOST money this week. Go figure.
