Washington’s Warning, Gold ETF Taxes, Own Your Own Stadium and More!

by Addison Wiggin & Ian Mathias

• Obama warns of debt, “double-dip recession”… how China has turned the tables on Washington
• Byron King issues sell recommendation on this legendary U.S. blue chip
• Are gold ETFs taxed like stocks or collectibles? Frank Holmes on the surprising answer
• Sign of the times: Famous Detroit mega-stadium sells for less than a luxury condo

  Wow, don’t hear this every day…

“If we keep on adding to the debt, even in the midst of this recovery, at some point, people could lose confidence in the U.S. economy,” President Obama told reporters in China yesterday. His administration is offering no solutions to this coming crisis (quite the contrary, as you’ll read below), but we’re a bit taken aback nevertheless… can’t remember the last time any president offered this stern a warning over our debts. He even went as far as to say that this lack of confidence could lead to a “double-dip recession.” Gasp!

  “Now the tables are turned,” our currency man Bill Jenkins wrote to his readers yesterday. “And the president’s trip to Beijing has proven it.

“The American president will make his scout’s pledge to take our debt seriously and not to spend too much more. He will also reiterate that we believe in a strong dollar policy. The Chinese president will smile and nod and promise to continue buying our debt. He allows us to save a little face and does not reprimand us publicly for our self-indulgence.

“They will pretend to believe us, and in gratitude, we (ignoring the beads of sweat accumulating on our brow) will not force any of the other issues.

“First, America wants China’s help with a laundry list of adversarial relations from North Korea to Iran. Second, we (and the rest of the world) would like a renminbi that floats, instead of being pegged to the dollar. Third, we want to pontificate on the issues of human rights, of which Tibet is the universal poster child. Fourth and last (but NOT least), we would like the Chinese to continue purchasing American Treasuries (our debt).

“I am certain President Obama will get us the last of the requests. He will pay for that by caving on the first three.”

  “The credit crunch is not over,” Treasury Secretary Geithner told a small business financing forum last night. Do we detect a change in rhetoric from the Obama administration? "It may feel dramatically better for large companies, but it is not over for small businesses across the country."

  Heh, and just as Mr. Obama and his Cabinet begin sounding the alarms over rising debts, the Senate has introduced an $849 billion health care bill. Initial projections from the Congressional Budget Office claim the legislation is budget neutral… they estimate it would actually cut the deficit by $127 billion. But given the bill’s 2,047-page count, we’re hard-pressed to believe anyone knows much about it yet. (Think about that the next time you go to change your office printer. One of those big packaged reams of copy paper is just 500 pages. This bill is four of those.)

So much for green initiatives in Washington… c’mon, get a Kindle already.

  “Sell General Electric,” Bryon King told his Outstanding Investments readers yesterday. We usually reserve buy and sell recommendations for paid subscribers, but we thought it newsworthy that Byron is selling the most popular stock in the world.

“We've had GE in the OI portfolio for almost four years, predating my tenure as editor… Frankly, I don't think GE is going to give us much more from here. It's time to sell General Electric.

“Deep down, it pains me to part from GE. This is an iconic old American firm, now grown into a world technology powerhouse (no pun intended). I honestly LOVE the GE business divisions that deal with ‘real’ things, like jet engines and locomotives and power generators and windmills and subsea equipment. I get misty-eyed thinking of all the wonderful GE people who work in those metal-bending divisions, toiling at their workbenches and making the world a better place.

“Then there's GE management, which apparently has not learned its lessons from the world monetary crash of the past couple years. The money side of GE still has too much bad commercial paper. A lot of borrowers owe GE more than they'll ever repay. And GE owes a lot of lenders more than the company can afford. There's a looming crash in commercial real estate, and it's set to kick in during the winter of 2010. It'll shred GE's capital position and rip a big hole in the bottom line.

“I've often asked whether the GE industrial side can earn profits for the company faster than GE Capital can lose money. I'm not going to wait around to find out.”

So what is Byron having his Outstanding Investments readers buy? Find out here.

  After some dull trading over the last few days, the stock market staged a notable sell-off this morning. The S&P suffered a nearly 2% loss within the first half hour of trading. Between the economic hedging from White House and another not-so-hot jobless claims report, we can hardly blame ’em. Also, The FCC had some sort of computer snafu this morning that grounded a whole bunch of planes around the U.S.… another issue contributing to a sour mood on the Street.

  This trepidation is good news for the dollar. The dollar index is back up about half a point from yesterday’s low, to 75.5.

  Thus, commodities are taking a breather today. Oil’s down a buck and change as we write, to $78 a barrel. At $1,135 an ounce, gold is around $17 off yesterday’s record high.

  “Many investors in precious metals ETFs have to deal with an unwelcome surprise come April 15,” warns Frank Holmes, a staple speaker of our annual Investment Symposium.

“The issue is that gold and silver fall under the heading of ‘collectibles’ in the eyes of the Internal Revenue Service, making these metals similar to artworks, antiques, vintage wine and rare baseball cards.

“This status means that profits from gold and silver investments do not qualify for the 15% maximum on long-term capital gains that pertain to stock and mutual fund investments. These profits are instead taxed at a 28% maximum if held for more than a year, and at ordinary income rates if held for less than a year.

“With the rapid appreciation of gold in recent years -- the current price is nearly double where it was in early 2007 -- many investors who cashed out their gains in gold ETFs may be hit with unexpectedly big tax bills.

“The same liability may hold true for investors who didn’t sell a single share of their gold ETF. That’s because when the ETF itself sells physical gold or silver, any gains or losses are passed along to investors, who then face the maximum 28% tax liability even if they didn't actually realize the gain.

“Not all gold–related ETFs are considered collectibles, but for those that are, investors should be aware of the rules so they can weigh the advantages and disadvantages of their investment options.”

We've gotten a slew of questions from you lately about taxes on your gold gains -- particularly the tricky matter of taxes on gold coins. We're moving full speed ahead on our webinar with Nick Bruyer of First Federal Coin Corp., and we'll be sure to address this issue with him. If you have questions of your own or want to be among the first to sign up for the webinar, look here.

  Fund manager John Paulson, perhaps the greatest profiteer of the credit crunch, is launching a gold fund, on Jan. 1, 2010. Paulson said in an investor meeting on Tuesday that he’ll be starting the fund with $250 million of his own cash, which will be used to buy up his favorite miners and gold derivatives.

  Last today, a sign of the times: The Silverdome -- a gigantic stadium that used to house the Detroit Lions and Pistons -- just sold for less than the average luxury home. A yet-to-be identified Canadian real estate organization bought the stadium for $583,000.

No kidding… just over half a million bucks.

From just a numerical standpoint, this might be as sweet a deal as it gets. The 80,000-seat stadium cost $55.7 million to build in 1975. WrestleMania III -- the most-attended live indoor sporting event in U.S. history -- was held there in 1987. Pope John Paul II delivered mass there. Now its been picked up at a 1% of its original construction cost by a Toronto-based family firm that intends to turn it into a soccer arena. It’s a mad world.

  “Is there any depth that gold can be buried at which it is not detectable by metal detectors?” a reader asks.

The 5: Heh, that’s a first. We’ll have to do some homework.

  “When gold is sold BACK to the dealer,” a reader asks, “is there some type of tax form they have you fill out to submit to the IRS? Also, is there a special tax rate on gold profits?”

  “Does the IRS treat gold differently than normal investment capital gains? My gold portfolio is mostly in miners and ETFs, but I'm sure your readers would appreciate information regarding the IRS and gold if capital gains are different for gold.”

The 5: Great questions. We hope the bit we included today from Frank Holmes helps. Collectable coins -- even some ETFs -- are subject to different taxes.

As we mentioned above, we’re bringing in the most-experienced guy we know in this field to give you some articulate answers. The best thing you can do is continue sending us your questions and sign up for this exclusive webinar in advance.

Cheers,

Ian Mathias
The 5 Min. Forecast

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