Highlights of the week of May 12, 2014.

Fatca copyTaxman

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of May 12, 2014.

  • Is FATCA, the reason, why American expat are giving up their passport?
  • Earnings report of Kohl and Wal-Mart, spooked USA Markets.

FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA):
The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.

Starting July 1, 2014 Foreign Financial Institutions (FFI) will be required by the US government, under FATCA, to report information regarding accounts of all US citizens (living in the US and abroad), US “persons,” green card holders and individuals holding certain US investments to the IRS.

This law requires foreign financial institutions such as local banks, stock brokers, hedge funds, insurance companies, trusts, etc. – to report directly to the IRS all their clients who are “US persons.” or lawful permanent resident (green card) FFIs that do not become compliant will be subject to a 30% withholding on their US investments when they are cashed in, which will directly impact FFI clients with US holdings.

FATCA – Key Dates:

5 May 2014: Deadline to obtain a GIIN in order to be on first financial institutions list, published on 2 June.

1 July 2014: Effective starting date of UK/US inter-governmental agreement on FATCA.

22 December 2014: Final deadline to obtain GIIN number.

31 May 2015: First UK/US inter-governmental agreement reports due to HMRC for 2014 calendar year.

 

FATCA_Timeline

FATCA is an attempt by the US authorities to recover an estimated US$ 100 billion a year in unpaid taxes on US citizens’ assets overseas. The U.S.A, is the only nation in the

Organization for Economic Cooperation and Development (OECD) that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit.

Please read also: FATCA Frequently Asked Questions (FAQs)

KOHL AND WAL-MART Q1-2014, EARNINGS REPORT:

WAL-MART:

About Wal-Mart:
Wal-Mart Stores Inc. (NYSE: WMT), incorporated in 1945, and headquartered in Bentonville, Arkansas operates retail stores in various formats worldwide. The company operates through three segments:

  • Walmart U.S.,
  • Walmart International
  • Sam’s Club.

Wallmart Superstore The company also operates discount stores, supermarkets, supercenters, hypermarkets, warehouse clubs, restaurants, apparel stores, drug stores, and convenience stores, as well as various retail Websites.

On thursday, May 15th 2014, Wal-Mart ( NYSE: WMT) , the world’s largest retailer, reported first-quarter earnings and sales, and second-quarter forecasts that fell short of estimates.

The company reported its smallest growth in quarterly sales in nearly five years and a drop in first-quarter profit. The company’s shares fell 2.4 percent to U$76.83, weighing on both the DOW as well as on the the S&P-500. 

KOHL’s:

About Kohl’s:
Kohl’s Corporation (NYSE: KSS) was founded in 1962 and is headquartered in Menomonee Falls, Wisconsin,  operates department stores in the United States. 

It offers exclusive and national brand apparel, footwear, accessories, beauty, and soft home products to children, men, and women customers.

Kohls1

The shares of the company were heavily sold on Thursday, May 15th, after the retailer reported earnings and revenue lower than analysts expected over its first quarter. At market close, shares were down 3.4% to US$52.21.

The department chain earned 60 cents a share in its first quarter, with a revenue of US$4.07 billion a decrease of 3.1% year over year and comparable-store sales dropped 3.4%.

PGM CAPITAL COMMENTS:

FATCA:
As a consequence of FATCA, banks all over the world –and particularly Swiss banks, the unspoken target of the law –have responded in the only way that makes fiscal sense: they’ve stopped doing business with American citizens.

Americans living abroad who have attempted to obtain home mortgages and other comparatively small loans are being denied on account of their citizenship, and the massive risk Americans now present for the banks.

Taxing Americans resident overseas is a “hangover from the Civil War” and the introduction of federal income tax in 1861.

Some long-term American expats have found their financial options so limited by FACTA that they are resorting to a step no American should ever have to take: renouncing U.S. citizenship.

Since FACTA became law in March 2010,  the number of American expatriates renouncing their US citizenship has surged as can be seen from below chart.

140213031926-chart-us-passports-620xa

The U.S.A. which used to be the ‘Rolls Royce’ of destinations, the land of freedom and opportunity, is now so indebted that it No longer seems to be it, with the consequence that “Both naturalized and native-born American citizens are choosing to say goodbye to Uncle Sam today.”

Wall-Mart / Kohl’s earnings:
With consumer spending to be over 71 percent of GDP of the United States, earning report of Wal-Mart, accounting for nearly 10 percent of nonautomotive retail spending in the country, can be seen as a good indicator for the “Real” state of the Economy of the Country.

If also retailers and consumer bellwethers like; Kohl’s and JC Penney (NYSE: JCP) are reporting disappointed earnings, it might be a sign on the wall, that the USA Economy isn’t as good as the media and government data are pretending.

Wall-Mart as well as Kohl’s are both down Year-To-Date, while JC Penny’s stock is down more than 67 percent in the last 2 years as can be seen from below charts.

Screen Shot 2014-05-16 at 12.10.23 PM

JC Penny 2-year chat

Screen Shot 2014-05-16 at 12.32.10 PM

Wal-Mart & Kohl’s Year-To-Date Chart

We have a HOLD rating on the stocks of Wall-Mart and Kohl’s and a SELL rating on the stock of JC Penney.

Before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don’t move in a straight line and that sharp corrections may happen in the short term.

Yours sincerely,

Suriname Times foto

Eric Panneflek

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