2016 Fearless Gold Sector Forecast : Stay The Hell Away

Build Your Gold Watch List – but keep your portfolio in other sectors :

This past year was one of the worst ever for large mining companies, which suffered because of falling commodity prices and high leverage. They needed cash badly, and the streaming companies were more than happy to provide it. Mining giants such as Barrick Gold Corp., Glencore Plc, Teck Resources Ltd. and Vale SA all sold streams in 2015.

For junior or producing gold companies and their investors, the range of forecasts and continued volatility suggest it’s wiser to ignore the crystal balls for now and instead focus on what companies can control, like ensuring a sound business plan, keeping their balance sheets strong, monitoring costs, and building value for their shareholders.

Trends are against gold:

1) no inflation can be detected

2) rising interest rates offer a money making alternative while we watch and wait

3) global unrest in the middle East, Africa and Ukraine continue unabated but don’t move the panic button to ” buy”

4) Peter Schiff continues to see gold at $5,000  ( our best contrarian indicator )

This is the time of year when analysts roll out their economic forecasts for the New Year. For those who keep a close eye on gold prices, this can be a painful process.

It’s been another tough 12 months for the yellow metal, with prices falling for the third consecutive year — down about 10 per cent in 2015 alone. Prices touched a high in the neighbourhood of $1,300 and, as the year drew to close, they neared six-year lows around $1050.

That’s a big dive from the heady days of 2011, when gold hit over $1,900 an ounce.

What made things even more difficult for the sector in 2015 was the price volatility. Just when it appeared prices might be on a firm trajectory upward, they would then fall, creating more uncertainty among everyone from investors to gold companies.

That volatility is making it harder for prognosticators to estimate 2016 prices with any certainty. It’s the proverbial attempt to nail Jell-O to a wall.

That doesn’t prevent them from trying. But the resounding lack of consensus suggests it is a fraught exercise. Some are breathlessly proclaiming we’re on the brink of a new gold bull market. On the flip side, Goldman Sachs and JP Morgan predict it will fall to the psychologically important $1,000 US-per-ounce level — or lower — in 2016. Bank of America Merrill Lynch believes it will average $950 an ounce in early 2016 before recovering. Slightly more optimistic forecasters, like HSBC, predict gold will average $1,205 next year.

Gold is different from other metals in that its prices are not driven largely by typical supply and demand. While the prices of other metals, like copper or silver, tend to rise and fall as economies grow and shrink, a lot of different forces affect gold’s price. It’s used as a store of wealth, unlike most other metals (you don’t store copper to get rich), and it’s considered a “safe haven” — used as a hedge against political and economic uncertainty.

Inflation and the U.S. dollar are two major forces behind gold’s prices. In 2015, they didn’t work in gold’s favour. The collapse of the price of oil has kept inflation in check, which is bad for gold because of its role as a hedge against rising prices. The U.S. dollar has been strong — another blow for gold, which performs contrary to the greenback. Some say one of the reasons for the strong dollar was ongoing speculation that the U.S. Federal Reserve would raise rates for the first time in almost a decade. The Fed did that on Dec. 16, but there was minimal impact on gold due to the central bank’s dovish approach of a gradual tightening of future rates.

 

The dark side of metal streaming deals: Strapped mining companies trade future value for cash ( Financial Post )

 

In September, Robert Quartermain did something highly unusual for a mining executive — he signed a streaming deal with an early exit strategy.

Precious metal streaming companies looking to team up to tackle bigger deals

Valerian Mazataud/Bloomberg

Overwhelmed by the sheer volume of opportunities available in volatile commodity markets, precious-metal “streaming” companies are looking to team up to take on large acquisitions that they might not be able to readily afford on their own.

Continue reading.
Quartermain, the CEO of Vancouver-based Pretium Resources Inc., was alarmed at how much value miners are giving away in gold and silver stream sales, in which future output is sold at below-market prices in exchange for an instant cash infusion.

So when he sold a US$150-million stream on Pretium’s Brucejack project in British Columbia, he insisted that the deal include buyback options for Pretium in 2018 and 2019, and that it cap the number of gold and silver ounces that can be sold.

“When you start putting in higher levels of streaming, and the stream lasts forever, then the potential upside starts going to streaming holders and (away from) your existing shareholders,” Quartermain said in an interview.

This will go down as the biggest year ever for metal streaming deals, and it’s not even close. Miners have raised US$4.2 billion from 11 stream sales in 2015, according to Financial Post data. That is nearly double the US$2.2 billion raised in 2013, which is the second biggest year on record.

For the most part, mining analysts and investors have cheered these deals. But their sheer number has caused alarm for some observers, who worry that miners are giving away vast amounts of future upside once metal prices improve.

The metal streaming business was created back in 2004. In these transactions, a streaming company like Silver Wheaton Corp. gives a mining company an upfront cash payment. In return, it gets the right to buy a fixed amount of precious metals production from the miner at a fixed price that is far below the market price. The streamer can then sell the metal for a profit. The biggest players in this business are Silver Wheaton, Franco-Nevada Corp. and Royal Gold Inc.

This past year was one of the worst ever for large mining companies, which suffered because of falling commodity prices and high leverage. They needed cash badly, and the streaming companies were more than happy to provide it. Mining giants such as Barrick Gold Corp., Glencore Plc, Teck Resources Ltd. and Vale SA all sold streams in 2015.
On the surface, these deals made a lot of sense for mining companies. Their stock prices are so depressed that they do not want to even think about issuing equity. And the last thing this sector needs is to take on more debt. So they sold future metal production instead.

“When companies are between a rock and a hard place, they often sell what’s good because they can’t sell what’s bad,” said John Tumazos, an independent analyst.

The problem is that streams destroy much of the future “option value” for mining companies. Since the streaming metal is typically sold at fixed prices far below the market price, the streamers get all the benefit when market prices go up.

To take an extreme example, Silver Wheaton was buying silver from some mining companies at less than US$4 a pound in 2011, when silver prices rose to almost US$50. It was a massive transfer of wealth from mining companies to a streaming company.

Another concern is that streams can eliminate the exploration upside from a mine. If a miner has agreed to sell a fixed percentage of gold or silver production from a mine to a streamer, it will have to sell more metal if it makes a new discovery on the property and boosts production.

When companies are between a rock and a hard place, they often sell what’s good because they can’t sell what’s bad
John Ing, president and gold analyst at Maison Placements Canada, said streaming is reminiscent of hedging, in which metal is sold in fixed-price contracts. Hedging was all the rage in the gold industry in the 1990s, when prices were low. But it became a massive liability once prices rose far above the value in the contracts. Barrick had to spend more than $5 billion to unwind its hedge book in 2009.

Eventually, hedging became a toxic word in the industry. It is almost nonexistent today.

“It wasn’t until the price of gold went up that everybody realized what Barrick was leaving on the table,” Ing said.

“The same thing is going to happen (to streaming) when the price of gold goes up again. Not until then will people focus on the dark side of the streams.”

For investors that don’t like streaming, the good news is that miners are starting to preserve more upside for themselves in these transactions.

For example, Barrick struck a US$610-million stream sale with Royal Gold last August that guarantees higher sale prices down the road. For the first 550,000 gold ounces and 23.1 million silver ounces that Barrick delivers to Royal Gold, it receives 30 per cent of the prevailing spot prices. For every ounce after that, it receives 60 per cent of the spot prices. So if silver prices go up, Barrick stands to benefit.
Pretium Resources Inc.

Pretium’s Brucejack project in British Columbia.
Pretium went even further by negotiating optional buybacks of its stream and capping the total amount of gold and silver to be sold. If Pretium discovers more metal at the Brucejack project, it won’t go into the stream.

Traditional streaming companies like Silver Wheaton and Royal Gold are looking to buy streams that will last for decades, so Pretium’s deal is not for them. Instead, Pretium sold the stream to two private equity firms, Orion Resource Partners and Blackstone Group.

These companies are just looking for a good return and are not bothered by the idea of having their stream re-purchased in a few years. That is a relatively new concept in streaming, and it could be a game-changer if more private equity firms and other players decide to compete with traditional streamers.

Quartermain said his deal is proof that miners have alternatives to conventional streaming. He hopes other companies will follow Pretium’s lead and try to maintain some upside in these deals.

“We’ve shown you can, even in challenging markets, finance good projects and achieve that upside for shareholders,” he said.

 

 

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Look Out Below :Oil prices hit 11-year low as global supply balloons ( Reuters plus Bloomberg charts) )

LONDON (Reuters) – Brent crude oil prices hit their lowest in more than 11 years on Monday, driven down by a relentless rise in global supply that looks set to outpace demand again next year.

Oil production is running close to record highs and, with more barrels poised to enter the market from nations such as Iran, the United States and Libya, the price of crude is set for its largest monthly percentage decline in seven years.

Brent futures (LCOc1) fell by as much as 2 percent to a low of $36.05 a barrel on Monday, their weakest since July 2004, and were down 49 cents at $36.39 by 1332 GMT.

While consumers have enjoyed lower fuel prices, the world’s richest oil exporters have been forced to revalue their currencies, sell off assets and even issue debt for the first time in years as they struggle to repair their finances.

OPEC, led by Saudi Arabia, will stick with its year-old policy of compensating for lower prices with higher production, and shows no signs of wavering, even though lower prices are painful to its poorer members.

The price of oil has halved over the past year, dealing a blow to economies of oil producers such as Nigeria, which faces its worst crisis in years, and Venezuela, which has been plunged into deep recession.

Even wealthy Gulf Arab states have been hit. Last week Saudi Arabia, Kuwait and Bahrain raised interest rates as they scrambled to protect their currencies.

NO LIGHT AT THE END OF THE TUNNEL

“With OPEC not in any mood to cut production … it does mean you are not going to get any rebalancing any time soon,” Energy Aspects chief oil analyst Amrita Sen said.

“Having said that, long term of course, the lower prices are today, the rebalancing will become even stronger and steeper, because of the capex (oil groups’ capital expenditure) cutbacks … but you’re not going to see that until end-2016.”

Reflecting the determination among the biggest producers to woo buyers at any cost, Russia now pumps oil at a post-Soviet high of more than 10 million barrels per day (bpd), while OPEC output is close to record levels above 31.5 million bpd.

Oil market liquidity usually evaporates ahead of the holiday period, meaning that intra-day price moves can become exaggerated.

On average, in the last 15 years, December is the month with least trading volume, which tends to be just 85 percent of that in May, the month which sees most volume change hands.

Brent crude prices have dropped by nearly 19 percent this month, their steepest fall since the collapse of failed U.S. bank Lehman Brothers in October 2008.

U.S. crude futures (CLc1) were down 26 cents at $34.47 a barrel, their lowest since 2009.

“Really, I wouldn’t like to be in the shoes of an oil exporter getting into 2016. It’s not exactly looking as if there is light at the end of the tunnel any time soon,” Saxo Bank senior manager Ole Hansen said.

Investment bank Goldman Sachs (GS.N) believes it could take a drop to as little as $20 a barrel for supply to adjust to demand.

Thanks to the shale revolution, the U.S. has been pumping a lot of oil on the cheap, helping to drive down prices to six-year lows and to fill up storage tanks. Indeed, we’re running out of places to put it.

LOOK OUT BELOW

The U.S. has 490 million barrels of oil in storage, enough to keep the country running smoothly for nearly a month, without any added oil production or imports. That inventory doesn’t include the government’s own Strategic Petroleum Reserve, to be used in the now highly unlikely event of an oil shortage. Nor does it include oil waiting at sea for higher prices. The lower 48 states also boast about 4 trillion cubic feet of natural gas in storage — a far bigger cushion than Americans have needed so far during a very warm winter.

For their part, OECD countries (including the U.S.) have nearly 3 billion barrels of oil in storage — or enough to keep factories lit and houses heated in those countries for two months, cumulatively, without added production or imports.

The glut is going to continue worldwide unless some major producers stop pumping. OPEC announced recently that it was abandoning output limits.

So what happens when there’s too much oil to store? Producers will try to rid themselves of it by cutting prices. In that scenario, the price would plummet so far that some producers would shutter their wells altogether — which is, perhaps, the only way that the oil glut will ease.

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Braggin’ Rights : Oil Continues To Curse ( your) Portfolio Results

 

My rant – the  curse of Cassandra :

Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :

when she prophesied true things, she was not believed.

I have written :

GET YOUR PORTFOLIO THE HELL OUT OF ENERGY : PRAYER ISN’T AN INVESTMENT STRATEGY  Dec.17,2015

Managed Accounts Year End Review and Forecast

in part

Oil/ Energy

I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.

On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge..

OIL Sector Update Dec. 20,2015

  • Official data show Saudis shipped more crude amid global glut
  • Saudi output exceeded 10 million barrels a day for ninth month

 

Saudi Crude Exports Rose in October to Most in Four Months

Saudi Arabia boosted crude exports in October to the highest level in four months, as the world’s biggest oil exporter added barrels to a worldwide supply glut that has contributed to a slump in prices.

Saudi shipments rose to 7.364 million barrels a day in the month from 7.111 million in September, according to the latest figures from the Joint Organisations Data Initiative. The monthly exports were the most since June and 7 percent higher than in October 2014, the data released on Sunday showed. JODI is an industry group supervised by the Riyadh-based International Energy Forum.

Saudi Arabia produced 10.28 million barrels a day in October, up from 10.23 million in September, the JODI figures showed.

Saudi Arabia led OPEC to decide on Dec. 4 to abandon the group’s limits on output amid efforts to squeeze higher-cost producers such as Russia and U.S. shale drillers out of the market. The Organization of Petroleum Exporting Countries had set a production target almost without interruption since 1982, though member countries often ignored and pumped well above it. The oversupply has pushed the price of benchmark Brent crude to almost a seven-year low and triggered the worst slump in the energy industry since the 2008 global financial crisis.

Brent for February settlement dropped 18 cents, or 0.5 percent, on Friday to $36.88 a barrel on the London-based ICE Futures Europe exchange. The crude grade has tumbled 36 percent this year.

Saudi Arabia pumped 10.33 million barrels a day in November, exceeding 10 million barrels in daily output for the ninth consecutive month, according to data compiled by Bloomberg. The Saudis have stuck to their one-year-old view that any output cuts won’t succeed in supporting prices unless big producers outside OPEC, including Russia and Mexico, also participate.

Crude exports fell in October from Iraq and Kuwait, OPEC’s second- and fourth-biggest producers, respectively, according to JODI. Iraq shipped 2.708 million barrels a day, down from 3.052 million barrels a day in September for the country’s fourth consecutive monthly decline, the data showed. Kuwait’s exports dropped to 1.905 million barrels a day in October from 2.008 million in the previous month, JODI said.

Iran, the fifth-biggest supplier in OPEC, exported 1.395 million barrels a day of crude in October, a marginal increase from 1.39 million in September, JODI figures showed

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Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

 

GET YOUR PORTFOLIO THE HELL OUT OF ENERGY : PRAYER ISN’T AN INVESTMENT STRATEGY

Natural Gas Price Dips on Low Demand for Heating

 

The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks decreased by 34 billion cubic feet for the week ending December 11. Analysts were expecting a storage withdrawal of around 68 billion cubic feet. The five-year average for the week is a withdrawal of around 79 billion cubic feet, and last year’s withdrawal for the week totaled 76 billion cubic feet.

Natural gas futures for January delivery traded up about 2% in advance of the EIA’s report, at around $1.83 per million BTUs, and traded around $1.79 after the data release, the same as Wednesday’s closing price. Last Thursday, natural gas closed at $2.02 per million BTUs, and over the past five trading days that was the posted high for natural gas futures. A new 52-week low of $1.78 was set Wednesday. The 52-week range for natural gas is $1.78 to $3.95. One year ago the price for a million BTUs was around $3.91.

Warmer than normal temperatures are expected to prevail for the rest of this week, but a cold snap is expected in the eastern part of the United States through the weekend. Beginning next week, temperatures in the east are expected to warm up while the west and the northern tier are touted to be cooler than normal. Overall, natural gas demand should be higher through the middle of next week.

Stockpiles are about 16% above their levels of a year ago and about 9.1% above the five-year average.

The EIA reported that U.S. working stocks of natural gas totaled about 3.846 trillion cubic feet, around 322 billion cubic feet above the five-year average of 3.524 trillion cubic feet and 541 billion cubic feet above last year’s total for the same period. Working gas in storage totaled 3.305 trillion cubic feet for the same period a year ago.

 Here’s how share prices of the largest U.S. natural gas producers reacting to this latest report:

Exxon Mobil Corp. (NYSE: XOM), the country’s largest producer of natural gas, traded down less than 0.1%, at $79.11 in a 52-week range of $66.55 to $95.18.

Chesapeake Energy Corp. (NYSE: CHK) traded down about 2.7% to $3.80. The stock’s 52-week range is $3.57 to $21.49.

EOG Resources Inc. (NYSE: EOG) traded down about 2.3% to $74.07. The 52-week range is $68.15 to $101.36.

In addition, the United States Natural Gas ETF (NYSEMKT: UNG) traded down about 2.0%, at $7.02 in a 52-week range of $6.95 to $19.38.

Chicago, IL – December 16, 2015 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Chevron Corp. (CVX), Royal Dutch Shell plc(RDS.A), Kinder Morgan Inc. (KMI),ConocoPhillips (COP) and Encana Corp. ( ECA).

Today, Zacks is promoting its ”Buy” stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Tuesday’s Analyst Blog:

Oil & Gas Stock Roundup

It was a week where oil prices dropped to levels not seen since Feb 2009 and natural gas futures settled below the $2 level for the first time in over 3 years.

On the news front, Chevron Corp. (CVX) set its investment budget for 2016 at $26.6 billion, down 24% from this year.

Overall, it was a pretty bad week for the sector. West Texas Intermediate (WTI) crude futures dived 10.9% to close at $35.62 per barrel, while natural gas prices plunged 9% to $1.990 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Devon Bets on Crude Even as OPEC Inaction Sinks the Commodity .)

Oil prices encountered the year’s largest weekly drop in reaction to bearish comments from International Energy Agency (IEA) that sees global oil glut to worsen next year in the face of slowing demand growth. Oil was also undone by OPEC’s latest monthly report that showed the oil cartel’s November production rising to a 3-year high.

Related Quotes

Natural gas also fared badly despite a bullish inventory report that showed a larger-than-expected withdrawal. The heating fuel was weighed down by predictions of tepid early-December demand for the heating fuel due to mild weather spurred by the El Niño phenomenon.

Recap of the Week’s Most Important Stories

1. U.S. energy behemoth Chevron Corp. offered a glimpse of its 2016 capital spending plans. The integrated major has pegged its next year’s capital budget at $26.6 billion, down 24% from the $35 billion it expects to invest by the end of 2015. Of the total, roughly 90% will go toward oil and gas exploration projects worldwide, and 8% for downstream businesses.

In a separate press release, Chevron announced the commencement of production from the Moho Bilondo Phase 1b project, located off Republic of Congo’s coast at a water depth of 2,400 to 4,000 feet. Total production from the prospect – in which Chevron holds a 31.5% working interest – will likely be 40,000 barrels of oil every day.

2. Europe’s largest oil company Royal Dutch Shell plc (RDS.A) has received the unconditional clearance from China to proceed with its $70 billion acquisition of BG Group plc − a leading upstream energy player in the UK. The permission clears the final regulatory obstacle that was in the path of Shell’s BG buyout.

Following the green signal from China, the only thing that is left is the approval of shareholders after which the deal will likely be closed by early 2016. However, after getting the Chinese authorization, Shell added its intention to reduce global headcount by 2,800 from the merged entity.

3. The plunge in crude price – from over $100 per barrel in June last year to the recent $35 per barrel mark – has led several firms in the oil industry to take drastic measures to remain afloat. Treading on the same lines, energy infrastructure company Kinder Morgan Inc. ( KMI) announced a cut in its dividend payout beginning with the fourth quarter of 2015. The Houston, TX-based firm plans to lower its quarterly dividend to 12.5 cents, a 75% nosedive from the earlier payout of 51 cents.

Kinder Morgan plans to utilize the funds from the cutback in dividend to fund the equity portion of its expansion capital requirements. This would eliminate the need to tap into external sources for funds to a large extent. Management expects the cut to also translate into a sustained solid investment grade credit rating. The company expects to continue this practice of funding its capital expenditure plans through internal sources in 2017–18 also. (See More: Kinder Morgan Slashes Dividend by 75%, Hits 52-Week Low .)

4. Houston-based energy major ConocoPhillips (COP) released its capital spending budget and operating plan for 2016. The company’s 2016 capital budget of $7.7 billion is 25% below the expected 2015 capital spending and 55% lower than that of 2014. Of the total budget, about $1.2 billion or 16% is apportioned for base maintenance and corporate expenditures, $3.0 billion or 39% has been allocated for development drilling programs, $2.1 billion or 27% has been set aside for major projects. The remaining $1.4 billion or 18% is to be used for exploration and appraisal.

The majority of capital will be used for the development of U.S. oil fields, mainly shale formations in Texas and North Dakota, as well as for the Gulf of Mexico and Alaska. ConocoPhillips also intends to allot drilling capital to Malaysia, China, the North Sea and Canada. (See More: ConocoPhillips Updates 2016 Capex and Operational Plans .)

5. Encana Corp. (ECA) has decided to slash its 2016 capital spending budget by 25% from this year. The Calgary, Alberta-based oil and gas explorer also announced plans to lower its 2016 annual dividend by more than 78%. The announcements were not unforeseen as the company has been hit hard by the persistent weakness in oil price. Following the announcement, Encana fell more than 8% on the NYSE.

The company’s projected 2016 capital budget is in the range of $1.5 billion and $1.7 billion. Most importantly, the majority of the amount will be allocated toward four key oil and natural gas properties that comprise the Montney and Duvernay shale fields in Canada and the Eagle Ford and Permian shale resources in the U.S.

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The key is to give yourself options. They may not love any of the scenarios, but providing choices usually leads clients to eventually embrace one.

Despite solid advice, some clients just spend too much. Others, like the married couple we’ll call Matthew and Elizabeth, diligently save but still run into retirement-planning problems.

Matthew and Elizabeth became clients of Jack A. Bass Managed Accounts a few years back, looking to manage their portfolio and put a retirement game plan in place. At 66, Matthew was considering retiring. Elizabeth could finally travel now that she was no longer the primary caregiver of her mother, who had passed the year prior. Together, we looked at their joint financial picture and analyzed the situation.

Then came some bad news: They wouldn’t be able to confidently cover living expenses if Matthew stopped working. They were shocked, because they’d done so much correctly—worked hard, lived within their means and consistently saved for retirement, putting away $2.3 million between retirement and non-qualified investments. Matthew even ran some preliminary retirement numbers online over the years to make sure they were on track.

Part of the problem was that Matthew’s planning assumptions were too rosy. He didn’t assume he’d have any variability on his portfolio returns, he didn’t assume he’d have health-care costs once Medicare kicked in, and he didn’t assume that retirement could last more than 20 years.

We projected that if Matthew retired at 66, the couple would only have about a 70 percent chance of being able to cover lifestyle expenses without having to make adjustments to spending over time; if either of them experienced a modest long-term care event that ate into their resources, they would achieve only a 65 percent success rate.

Their miscalculations aside, the other part of Matthew’s and Elizabeth’s retirement problem was that they, like many other people, put others’ needs before their own, in traditional “sandwich generation” style.

When their kids asked for help with down payments on houses, they obliged. When Elizabeth’s mom needed in-home help for a few years prior to her moving in with them, they covered it. Consequently, these unforeseen events ultimately put their retirement in jeopardy.

Working toward a solution

Matthew and Elizabeth weren’t happy to hear they weren’t on track to retire, but they appreciated having a framework from which to choose their solution.

Ultimately, Matthew chose to work 30 hours per week so that his company could continue to pick up their health-care costs (saving them about $1,000 a month in Medicare-related costs). The part-time work allowed him to take off every Friday, and that gave him the added benefit of “test driving” retirement.

He and Elizabeth also decided to downsize their home and buy long-term care coverage. The LTC insurance assured that their children wouldn’t be faced with the possibility of someday having to assist them financially.

As with all best-laid plans and good intentions, sometimes things go awry with retirement planning. However, by exploring alternative saving tactics, you can still achieve your goal.

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Call Jack direct at 604-858-3202 – Pacific Time 10:00 – 4;00 Monday to Friday

( same time zone as Los Angeles)

The main intention of our website is to provide objective and independent information that will help the potential investor to make his own decisions in an informed manner. To this effect we try to explain in a simple language the different processes and the most important figures involved in offshore business and to show the different alternatives that exist, evaluating their pros and cons.

On the other hand we intend – in terms of  offshore finance, bringing these products to the average citizen.

Do something to help yourself – contact Jack A. Bass now !

A final word of advice – information without action will produce nothing in the way of improved investment returns.

c

Encana -OIl and Natural Gas – Prayer Is Not A Strategy : Get Out

Too little , too late

The company will outspend cash flow next year, with its cash flow of $1 billion to $1.2 billion reflecting a cash shortfall of $550 million, based on U.S. crude prices of US$50 per barrel and US$2.75 natural gas prices.

Our position: Analysts and the company executives are sleep walking past the graveyard.

Encana Corp slashes dividend and cuts capital spending

  • from Tuesday Financial Post

Encana Corp. is planning to “reset” its dividend next year as it adjusts to a protracted downturn that has seen oil prices decline to a six year-low.

The Calgary-based company said it is cutting its dividend by 79 per cent to six cents from 28 cents. The company’s stock tumbled more than eight per cent on the Toronto Stock Exchange on Monday.

“This reset better aligns our dividend with our cash flow or balance sheet and recognizes the very high quality investment options in our portfolio,” CEO Doug Suttles told analysts during a conference call outlining the company’s 2016 capital program.

Canada’s oil and gas sector is in the middle of an austerity drive, as one of the world’s highest-cost jurisdictions comes to terms with prices that have dipped below US$35 per barrel and have lost more than 50 per cent of their value in the space of a year.

The industry has lost 35,000 jobs since OPEC members started driving down prices by raising output in a bid to squeeze out high cost-producers in November 2014.

Canadian companies have responded by reducing headcounts, shelving projects, reining in capital expenditure and cutting dividends to protect their balance sheets — and there may be little respite in the new year.

Encana plans to cut its capital spending by 27 per cent next year to between US$1.5 billion to US$1.7 billion, with half the budget allocated to its Permian basin straddling Texas and New Mexico.

Indeed, the company plans to raise investment in its Permian operations to around $800 million from $700 million a year earlier, but will throttle back in Eagle Ford, and in the Canadian shale plays of the Duvernay and Montney, as it focuses on the most cost-effective play in its portfolio.

While the capital budget was in line with expectations, both total production and liquids production fell short of expectations, which will likely see our cash flow estimates come down with leverage increasing further,” wrote Kyle Preston, an analyst with National Bank Financial Inc. The analyst sees the company’s announcement as “negative,” and cut its price target to US$8 from US$10.

The company will outspend cash flow next year, with its cash flow of $1 billion to $1.2 billion reflecting a cash shortfall of $550 million, based on U.S. crude prices of US$50 per barrel and US$2.75 natural gas prices.

“While we do not see any near-term risk of breaching any debt covenants, we believe the budget may have to be revised down again if commodity prices remain at or near current levels for an extended period,” Preston said.

NONSENSE_ look where prices are – don’t base analysis on dreams:

Crude Oil & Natural Gas

INDEX UNITS PRICE CHANGE %CHANGE CONTRACT TIME ET 2 DAY
USD/bbl. 35.71 -1.64 -4.39% JAN 16 11:25:36
USD/bbl. 37.14 -1.31 -3.41% JAN 16 11:24:40
JPY/kl 28,540.00 -870.00 -2.96% MAY 16 11:26:00
USD/MMBtu 1.79 -0.03 -1.70% JAN 16 11:25:41

Read More on The Sector Sea Change at http://www.youroffshoremoney.com

 

Christine Till's photo.
UPDATE:

Data from the U.S. Energy Information Administration showed a growing glut, with crude inventories up 4.8 million barrels last week. Analysts in a Reuters poll had forecast a decrease of 1.4 million barrels.

“Only the staunchest contrarian could derive anything bullish out of that report,” said Peter Donovan, broker at Liquidity Energy in New York.

“The actual numbers were more bearish than all expectations, as well as more bearish than the API report released last night,” he said.

Financial Planning 2016 – because you waited too long for Tax Haven Planning In 2015

The  Steps to  Your Offshore Success  :What Is Your Tax Plan for 2016

 

First Step : Identify your Goals – Why Go Offshore?

WHY GO OFFSHORE?

The motivations for individuals and corporations to utilize offshore planning and offshore companies include the desire to:

Reduce tax

Protect assets

Manage risk

Maintain privacy

Avoid bureaucracy

Reduce costs

Enhance assets

THE BENEFITS OFFERED BY OFFSHORE COMPANIES

 

More specifically, the reasons for going offshore and utilizing offshore

companies for tax planning and offshore business include:

Free remittance of profits and capital

Access to top-rated debt history jurisdictions

Access to tax treaties

Security of property rights

Accessing low cost areas

Banking privacy

Reduced taxation

The search for political stability

Your Investment Portfolio

Investment holding / wealth management

Professional services or consultancy

Patent, royalty and copyright – isolating payments to a no or low cost

jurisdiction

Personal and corporate tax planning

Step 2

Offshore Banking

Jack A. Bass and Associates has specialist expertise and knowledge of the

ever varying account opening and maintenance requirements of a wide variety

of reputable international and offshore banks.

Potential clients must understand that opening an offshore bank account is

not a simple matter and can be time consuming. Some offshore and

international banks may take longer than one month to open an offshore bank

account from receipt of a completed bank account opening package.

Consequently potential clients are encouraged to ensure that they provide

us with a complete picture of themselves and their intended business

activity.

Step 3

Asset Protection

The unexpected protective consequence of the LP structure is actually

what gave birth to Asset Protection. What the banks found out was that the

Limited Partners were unable to force distributions to pay their other

obligations. The big news was that neither were the banks, even when they

had valid judgments! They were only allowed the wimpy remedy of a “charging

order.” The net effect was that the banks were happy to settle for much

less than owed, rather than wait it out for an indefinite period with

General Partners that were friendly to their investor debtors, not to the

banks.

This was the birth of asset protection planning. Many of those investors

happened to be doctors. If it worked for banks, why wouldn’t it work for

malpractice suits or employee lawsuits? The answer was that it did!

Thus was born a new field of law: Asset Protection. Since the Limited

Partnership (LP) worked so well during the real estate crash, it became the

base of the new planning. However, instead of many different investors as

Limited Partners, the new Asset Protection planning used only the immediate

family members. Thus the LP became known as the Family Limited Partnership

(FLP).

Today, there are over two-dozen foreign jurisdictions that have enacted

specific asset protection legislation, including: The Bahamas, Belize, Cook

Islands, Bermuda, Nevis, Cayman Islands, Cyprus, Gibralter and the Turks &

Caicos Islands, to name just a few.

The Gold Standard is The Cook Islands Trust – note an asset protection trust is NOT a tax reduction plan – you still are responsible to pay taxes on the trust assets.

If you are serious about preserving your wealth, the  Asset Protection Trust is the most serious, well-thought out plan ever devised.

I cannot encourage you enough to take the time to educate yourself about the options available to you and how you can truly protect what you have worked so hard to create.

NEED ADVICE? The MAGIC Bullet Steps of Offshore Success

Your Goals –Combined With Guide Our Expertise

If you’ve found your way to this page, chances are strong that you’re a

value creator and want to keep more of the money you get as a result of

creating value. You can only rely on yourself – you cannot rely on a

government agency for your financial future.

We’ve Done All the Research

We’ve done all the research and conveniently gathered all U.S. and

International regulations pertaining to Asset Protection,Tax Havens, Tax

Planning,Offshore Banking , Information Technology, Physical Security,

Records Management, Privacy, and Third Party Invoicing into one place

An overview of our assistance with your goals:

There are dozens of jurisdictions, such as Luxembourg, Hong Kong,

Singapore and the British Virgin Islands that offer a great business

environment with fully legal tax benefits.We have to match your goals to

the right jurisdictions.

The Magic Bullet Step Number 1

The most important thing that you MUST do is seek advice from qualified

advisor – Jack A. Bass, B.A. LL.B. (someone who understands international

tax jurisdictions and tax law) . Your advisor must understand the benefits

of particular offshore jurisdictions. It is your responsibility to take

action.

In most jurisdictions you can set up your offshore company in as little as

a few weeks. We most often start the process with registering a company

name and sending in the right documentation and supporting documents for

the incorporation and a bank account(s) or merchant account for you and

your business. All of this can be conducted by internet on in rare cases we

will attend in person – for you.

The Magic Bullet Step Number 2

Specific Action – Move Your Assets To A Low / No Tax Jurisdiction

The key is in the planning and design. Clearly the most tested and solid

plans begin with an offshore jurisdiction.

Second to jurisdiction is the structure of your accounts – incorporation,

design, layering and bank accounts.

The Magic Bullet Step 3

Thirdly (more important for some clients than others) is what we call the

Asset Protection via Limited Partnership or Trust. This tool creates the

initial legal barrier between you and your money and whoever may want to

get at it. It is designed to hold “Safe Assets,” such as Stocks, Bonds,

Mutual Funds, Notes Receivable and other Liquid Assets. The LP may also own

membership interests in Limited Liability Companies (LLCs) that may have

been created to hold “Risky Assets” such as real estate, income producing

properties, boats, airplanes, etc. Once these risky assets have been

sanitized by placing them in an LLC, you can now safely hold those

interests. Importantly, LLC owners like the shareholders of a corporation

generally cannot be held liable for the acts of an LLC.

 

Contact Information:

To learn more about offshore company formation and structure your business

interests overseas ( again- at no cost or obligation)

Email info@jackbassteam.com

all email answered within 24 hours

or

call Jack direct at 604-858-3202 for a  one  half hour no fee consultation.

10:00 – 4:00 Monday to Friday ( same time zone as Los Angeles).

A business based overseas, coupled with an offshore bank account, is the perfect medium to build your wealth in a low tax jurisdiction. YOU CAN DO THIS and Jack A. Bass can help !

IF YOU WANT SOME HELP ON LOWERING YOUR TAX BURDEN  there is no cost or obligation to enquire and there is no benefit to inaction.

VIDEO

VideoJB offshore.mp4  The First Rule Is Safety

 

Linkedin  John Bass

Kinder Morgan: Review by Valuentum

Understanding Valuentum’s President Nelson’s Call on KMI

image

Image published June 18, 2015. © Valuentum Securities

The image above was taken from Valuentum’s President Brian Nelson’s article published onwww.valuentum.com June 18. If you’re interested in learning more about how to identify mispricings in the stock market such as that with Kinder Morgan when it was trading at $40 per share (now ~$15), please consider becoming a member to www.valuentum.com. You’ll gain access to Brian Nelson and the Valuentum Team. Click here to subscribe today!

Updated December 11, 2015 for the “Leverage Across the MLP Space Is Not Contained!” section that follows.

————————-

By The Valuentum Team 

Revisiting the 10 Reasons Why Valuentum Thought Kinder Morgan’s Shares Would Collapse, released June 2015 when shares were trading at ~$40 each

1) The valuation paradigm has changed.

2) Kinder Morgan’s dividend growth endeavors will disappoint.

3) The company’s net debt load is $40+ billion.

4) The company is trading at 40+ forward earnings.

5) The natural reaction from shareholders will be skepticism and disbelief.

6) Kinder Morgan’s dividend is in part organic, in part financially-engineered.

7) The traditional “blind” use of the dividend discount model does not apply to Kinder Morgan.

8) The company’s implied leverage is 19 times after considering all cash, debt-like commitments, at least in the eyes of shareholders.

9) Bondholders will start to care. Equity holders will start to care. They will – and then it all unravels.

10) Highly-publicized insider purchases are not a sign of support, in the case of Kinder Morgan, but an admission of vulnerability.

————————-

On June 11, Valuentum’s President Brian Nelson wrote ‘5 Reasons Why We Think Kinder Morgan’s Shares Will Collapse,” removing the company from Valuentum’s Dividend Growth Newsletter portfolio that day at $40 per share.

The piece was highlighted by Barron’s in ‘The Bear Case Against Kinder Morgan’ later that evening. The controversial call did not go unnoticed. Shares of Kinder Morgan (KMI) and most of the master limited partnership arena fell ~2% on the opening the following day. Credit Suisse’s John Edwards released a rebuttal to Valuentum’s “5 Reasons” piece point by point June 15, reiterating Credit Suisse’s Outperform rating and $52 price target at the time, quipping that his team had agreed that the ‘natural reaction from shareholders would be skepticism and disbelief.’

Valuentum’s President Brian Nelson then countered June 18 with ‘5 More Reasons Why We Think Kinder Morgan’s Shares Will Collapse’ defining how Valuentum’s thesis was separate and distinct from Barron’s and Hedgeye’s February 2014 piece, which focused primarily on the MLP and a questioning of the MLP’s measure of sustaining capital expenditures, something that the company had already refuted. Shares of Kinder Morgan, the corporate, had peaked at nearly $45 per share in April 2015, up from the low-$30s range in February 2014 when the Barron’s piece had been released.

Barron’s said Nelson was back as the “Kinder Morgan Bear: 5 More Reasons to Worry,” released June 19.

Unlike the traditional “short case,” which searches for a “fire” within a company’s accounting or some other tragic situation, Nelson’s 10 reasons, published in June 2015, were based purely on a valuation and credit assessment of the corporate, which he felt was severely misaligned in the context of the entity’s fundamentals. The Kinder Morgan MLP units, formerly trading under the symbol KMP, the security which Barron’s and Hedgeye’s February 2014 piece had primarily focused on, had since been retired after the closing of the deal November 2014. KMP unitholders benefited from a 12% premiumthe day of the deal announcement.

Nelson then publicly released his $29 per share fair value estimate of Kinder Morgan on June 30, “Kinder Morgan’s Fair Value: $29 Per Share, with shares of the third-largest energy company in North America trading in the high $30s.” On Kinder Morgan’ssecond-quarter conference call July 15, investors continued to confuse Mr. Nelson’s 10 reasons with the previous thesis on the MLP outlined in 2014, with an investment management firm proclaiming that shares were being punished by “the timely or untimely resurrection of what I thought was a wholly discredited bear attack by a tabloid claiming that your investment grade debt is not serviceable.” Mr. Nelson’s thesis was genuine and unique.

Valuentum agrees that the “short thesis” published on February 2014 by Barron’s had been “discredited” once Kinder Morgan had rolled up its MLP structure. After all, the security KMP had ceased to exist. Nelson’s thesis had only focused on the Kinder Morgan corporate, the ticker symbol KMI, shares of which were trading at $37.50 in mid-July. Nelson then took the show on the road, presenting his concerns about Kinder Morgan and MLPs, in general, at the AAII chapters in Cleveland, Silicon Valley, Milwaukee, and Madison in the subsequent months, hoping to help investors avoid any further collapse in shares that was to come.

As his concerns grew, Nelson then published, “Warning: The Master Limited Partnership Model May Not Survive” in late September and shared it with Barron’s as a follow up to the Kinder Morgan call, published as “Why the MLP Business Model May Be a Goner.” By September 29, shares of Kinder Morgan, the corporate, had collapsed to ~$26 each. Shares of the Alerian MLP ETF (AMLP) had collapsed from $16.15 per share on June 11 to $11.51 over the same time frame.

Nelson thesis was then validated. On October 22, Kinder Morgan revised lower its dividend growth plans and detailed how it would engage in sophisticated financing needs to stay afloat. Shares of the corporate fell even further. Credit Suisse’s John Edwards downgraded the rating of Kinder Morgan from Outperform to Neutral and reduced the price target to $39 per share, noting “in the 13 years of following KMI, we don’t recall management having to reduce guidance…ever.” That day, Nelson reiteratedthe low end of his fair value estimate range for shares of $23 each.

Even more downgrades followed.

Argus subsequently cut Kinder Morgan’s price target to $35 per share from $50 per share November 10, still rating the company a “buy.” (The rating was subsequently lowered to hold shortly thereafter.) On December 2, Moody’s then downgraded Kinder Morgan’s credit rating outlook, an integral part of Mr. Nelson’s thesis and what he described as “the circular flow of unsubstantiated support” on Kinder Morgan’s shares, the corporate, trading under the symbol KMI. Even more downgrades followed. Shares of Kinder Morgan are now exchanging hands in the mid-teens, at the low end of Valuentum’s fair value range, updated following Kinder Morgan’s 75% cut in the dividend just this week – something that was unimaginable by most market participants.

Note: Moody’s revised Kinder Morgan’s credit outlook to stable after the dividend cut, but still-collapsing energy resource pricing, and net leverage approaching 7x on an annualized reported basis (see calculation below) does not warrant investment-grade marks, in our view.

Leverage Across the MLP Space is Not Contained!

The Securities and Exchange Commission performs a vital function when it comes to truth in reporting, helping investors sort through what’s true and what’s not. The Form 10-K (annual) and Form 10-Q (quarterly) can be used to compare what a company’s reported, actual net leverage is to what management says it is – in their presentation slide deck or on some of the more popular business channels. Investors in midstream equities have long been “pitched” the idea that leverage is contained, but from our perspective, it is not. Bondholders deserve to know the actual, reported net leverage of companies in the midstream space because they won’t hear it from management, at least it seems.

Let’s take Kinder Morgan (KMI), as an example. In its slide deck presentations and in most communications, the midstream giant notes that its leverage as measured by net debt to EBITDA is under 6 times. However, a close examination of the company’s Form 10-K and Form 10-Q suggests that such a measure is far from reality. Through the first nine months of the year, Kinder Morgan has generated ~$2.7 billion in operating income and ~$1.73 billion in depreciation and amortization, amounting to roughly ~$4.43 billion in EBITDA through the first nine months of the year. Generously, let’s annualize that measure to arrive at annualized reported EBITDA of ~$5.9 billion. At the end of 2014, Kinder Morgan had total short and long-term debt of $43 billion and at the end of the third quarter of 2015, it registered total short and long-term debt of $44.6 billion. Kinder Morgan’s cash is negligible.

Kinder Morgan is more than 7.6x leveraged on the basis of its total short and long-term debt load at the end of the third quarter, relative to its annualized EBITDA mark for this year. If we were to back out the company’s loss on impairments and dispositions of assets, we could assume ~$6.54 billion in annualized EBITDA, but that’s quite the optimistic case, in our view, in light of still-collapsing energy-resource pricing. Importantly, even if we give credit for these “one-time items,” which may end up recurring in nature, Kinder Morgan is still 6.8x leveraged ($44.6/$6.54). We understand that the executive team and the credit rating agencies are doing some non-GAAP “massaging” with the numbers, but bondholders should know the truth. We encourage all stakeholders to look at the data that we are looking at in Kinder Morgan’s Form 10-Q, which can be downloaded here (pdf).

The situation with Energy Transfer Equity (ETE) is even worse. We were letting this issue go to rest, until we noticed that Energy Transfer Equity had stated emphatically that its measure of net debt to EBITDA was 4.5x, a level it believes to be “sacrosanct.” We were in disbelief. The SEC requires that companies disclose their financials for a reason, and we pay very close attention to what’s submitted in the 10-K and 10-Q far and above what we see in slide deck presentations or hear on television. In the nine months ended September 30, Energy Transfer Equity’s operating income was $2.16 billion, while depreciation and amortization was $1.53 billion, good for $3.69 billion in EBITDA, or $4.92 billion in EBITDA on an annualized basis.

The company noted short and long-term debt of $36.3 billion and cash and cash equivalents of $1 billion, resulting in a net debt position of $35.3 billion. Please download its 10-Q here (pdf). By our calculations, Energy Transfer Equity is nearly 7.2x leveraged ($35.3/$4.92). Say what you will just how far the company should be rated in “junk status,” but we think there may be a large number of investors that believe Energy Transfer Equity is ~4.5x leveraged. This just simply isn’t true, in our view. The SEC filings tell a completely different story.

We encourage management teams in the midstream space to disclose actual, reported measures of leverage and non-GAAP free cash flow, as measured by cash flow from operations less all capital spending. The degree of “misinformation,” in our view, has become egregious. Investors should continue to use a wide variety of information in the investment-decision making process, but the SEC filings are a great place to find the most accurate and unbiased information.

Kinder Morgan is ~6.8x leveraged. Energy Transfer Equity is nearly 7.2x leveraged, and this is before its tie-up with Williams Co (WMB). Please be careful out there. The bondholders will eventually care when they get a hint of the recent SEC filings. There’s too much non-GAAP “massaging” going on. Pasted below is the link to the video that implies Energy Transfer Equity’s leverage is 4.5x: http://video.cnbc.com/gallery/?video=3000464044

Please stick to the SEC filings. They are there to protect investors.

Tax Planning  International Services  

Contact Information  (at no cost or obligation )

  • Email info@jackbassteam.com

    All email answered within 24 hours

    OR

    Call Jack Direct at 604-858-3202

                Pacific Time Monday- Friday 10:00- 4:00

    • OUR Services – direct and via affiliates –
      • Company formation
      • Trusts
      • Tax Planning
      • Asset Protection
      • Estate Planning
      • Wealth Management ( wealth management through Jack A. Bass Managed Accounts )
    • Start by communicating with Jack A. Bass B.A. , LL.B.

    Puts your assets out of reach legally:

    The key is in the planning and design. Clearly the most tested and solid plans begin with what we call the Asset Protection via Limited Partnership or Trust. This tool creates the initial legal barrier between you and your money and whoever may want to get at it. It is designed to hold “Safe Assets,” such as Stocks, Bonds, Mutual Funds, Notes Receivable and other Liquid Assets. The LP may also own membership interests in Limited Liability Companies (LLCs) that may have been created to hold “Risky Assets” such as real estate, income producing properties, boats, airplanes, etc. Once these risky assets have been sanitized by placing them in an LLC, you can now safely hold those interests. Importantly, LLC owners like the shareholders of a corporation generally cannot be held liable for the acts of an LLC.
    The most important thing that you MUST do is seek advice from a qualified advisor – Jack A. Bass, B.A. LL.B. (someone who understands international tax jurisdictions and tax law) . Your advisor must understand the benefits of particular offshore jurisdictions. It is your responsibility to take action.

    In most jurisdictions you can set up your offshore company in as little as a few weeks. We most often start the process with registering a company name and sending in the right documentation and supporting documents for the incorporation and a bank account(s) or merchant account for you and your business.All of this can be conducted by internet on in rare cases we will attend in person – for you.

    Contact Information:

    To learn more about asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

    Email info@jackbassteam.com or

    Call Jack direct at 604-858-3202

    10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

    Build your wealth in a low tax jurisdiction. YOU CAN DO THIS and Jack A. Bass can help you realize your goals.