THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
Earlier this week, Cramer predicted that this year's market leaders will be banking and oil. Let him be right! I obviously believe he is.
Citigroup (C) closed at $5.13, 23% above my entry price on October 26, 2010. I have continued to add common stock positions since. However, the sale of my $5.00 March, 2011 C options which I bought in early October for $0.12 and sold later that month at break-even looks pretty stupid right now. Based on yesterday's option quotes, I am missing a triple--on its way to a four banger or more. Bank of American has actually done better than any other major bank over the past month. I have considerable positons in BAC preferreds which pay good , 15% tax rate qualified dividends and trade well below their redemption ($25) price. So if BAC redeems ("calls") them, I will get some principal appreciation.
BP closed at $49.25 Friday, 28% higher than my re-entry point on September 27, 2010. Barb and I sold her legacy position at $32 on the way down and started buying back at $38. We now hold considerably more than when we sold. As evidenced by yesterday's 5% sale to Putin, BP is a world player. If Obama screws with BP, BP will look East---to the former and current Red Menaces.
The continuing importance of North American oil production was hightlighted by the shut down of the Trans Alaska pipeline ( owned by nobody other than BP!). Canadian oil production makes sense if crude sells for more than $60 per bbl. The rise in crude prices led me to open a position in Enerplus Corp. (ERF) this week. Until January 1, 2011, ERF operated as a Canadian royalty trust (CANROY) which for tax reasons I found heretofore unappealing. Due to its change to an incorporated status effective January 1, 20011, however, ERF is now very appealing. As detailed below, for US tax purposes, its 6.7% dividend, starting in 2011, will be treated as qualified for 15% tax treatment. This makes it more appealing than U. S royalty trusts which are taxed at one's marginal rate (thus for me only appropriate for my 401k) and which are of limited life. These former CANROYs are perpetual and can add to their holdings.
The rains and floods in Brazil washed me out of AmBev (ABV) (8% exit rule--must be disciplined!), the Brazilian brewer and bottler. Once it bottoms and starts to rise, I will be back in. I also sold Alaska Communications (ALSK) on a Strong Sell recommendation from S&P. I am too heavy into telecoms, and this provided me a good excuse to reduce exposure. Despite the I-Phone news from Verizon (VZ), the stock languished and actually lost traction as did AT&T (T). I may have to take some profits in telecom in advance of my one year holding period (which is necessary for capital gains treatment). Taxes are no reason to forego a profit.
And finally, I am very pleased that my friend and law partner, Reince Priebus, was elected chair of the Republican National Committee, replacing Michael Steele. Reince is only 38. What he may lack in D.C polish, he more than compensates in sincerety and seriousness of purpose. He, more than anyone, is responsible for turning Wisconsin RED. I hope he has equal success countrywide.
U.S. UNITHOLDERS
For U.S. tax purposes, Enerplus is a corporation, not a partnership or master limited partnership (MLP). Enerplus units are eligible investments for IRAs and are not considered Unrelated Business Taxable Income (UBTI).
For U.S. unitholders, the payments are comprised of dividend and non-taxable return of capital (tax deferred). For most U.S. taxpayers, the dividend portion should be a “Qualified Dividend” eligible for the reduced tax rate. 2010 estimated taxable income (dividend income) for U.S. residents is 90%. Actual taxable amounts may vary depending on actual distributions, which are dependent upon production, commodity prices and funds flow experienced throughout the year. Actual taxable amounts will be communicated to unitholders via a Form 1099 DIV prepared by their brokers.
All payments are converted into U.S. dollars on the payment date by the Canadian Depository for Securities. The taxable portion of the distribution is subject to a minimum 15% Canadian withholding tax that is withheld prior to any monies being distributed to unitholders. The non-taxable return of capital portion of the distribution is also subject to a flat 15% withholding tax that is also withheld prior to any monies being distributed to unitholders. Based upon advice from our U.S. tax advisors, where units are held in a cash account, we believe the full amount of all withholding tax should be creditable for U.S. tax purposes in the year in which the withholding taxes are applied. Where units are held in an IRA, the same withholding taxes apply. In an IRA, the withholding tax is not creditable for U.S. tax purposes.
For purposes of computing any gain or loss arising from the disposition of units, investors are required to reduce the cost base of their units by the amount of the return of capital each year. However, if the full amount of the cost has been recovered, any further non-taxable distributions should be reported as gains
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