What the Heck are “Scandinavian Income Certificates?”

By Travis Johnson, Stock Gumshoe, June 15, 2010

This ad from Jim Nelson for his Lifetime Income Report caught my eye, in part because most of my ancestors came here from Sweden a few generations back to farm the upper Midwest and, apparently, strike stern poses for photographers.

Today, though, the “Scandinavian Income” we’re being teased about is from the really wealthy part of Scandinavia: Norway, with it’s North Sea oil wealth and huge national investment fund. And Nelson implies that there’s some way for us investors to get a taste of that oil wealth through these so-called “Scandinavian Income Certificates” … a mysterious investment that he’ll uncover for you … just as soon as you subscribe to his newsletter.

Or, of course, you can come along for the ride here, gratis, and see if we can’t figure out what on earth he’s talking about.

The tease has a good taste of the scare-mongering (not that it’s not true, at least partly) about Social Security and the lack of actual security in those future promises …

“Legally Collect Thousands of Dollars Each Year… From the Other Government-Backed Retirement Program

“Starting September 30 this year, America’s Social Security ‘safety net’ will officially shrink…

“So why not let this other government-backed ‘pension program’ pay you thousands of dollars each year instead?

“It’s official…

“Even though you’ve paid into Social Security all of your working life… and even though they promised to pay you back… you can no longer count on getting what you’re owed.”

And the predictions get more dire, including this quote:

“Take a look at this from the New York Times: ‘This year, the [Social Security] system will pay out more benefits than it receives… accumulated revenue will slowly start to shrink, as outlays start to exceed revenue… [and] by law, Social Security cannot pay out more than its balance in any given year.'”

That NY Times article, by the way, is here — just in case you don’t want the full-on fearmongering. The subtle implication from that paragraph excerpted above is that Social Security will stop cutting checks later this year when outflows exceed inflows, but of course that’s not true … they are legally required to cut benefits or stop payments when the so-called “Trust Fund” is exhausted, but that won’t be for another 25-30 years (coincidentally, the latest projection has that date hitting in the same year that I’m eligible for full retirement benefits).

Of course, the “Trust Fund” is just a pile of IOUs from the government, since we’ve been borrowing that money to pay the bills and run our wars and make more promises. Still, as long as they’ve got those IOUs the bean-counters predict that the system still “works”, though with depleting “assets,” until 2037.

But that’s neither here nor there — we know that Social Security is in trouble, though it’s far less troubling than Medicare. And I don’t want to spill the beans before I’ve dug into this one all the way, but I’ll bet you that these “Scandinavian Income Certificates” have nothing whatsoever to do with government pensions or social security. Let’s find out, shall we?

Here are some of the clues about these “certificates:”

“The ‘Other’ Pool of Government-Backed Retirement Cash Nobody Told You About

“How about letting a different government-backed ‘pension’ float you thousands of dollars in extra income instead — one that has no connection with the Social Security Administration whatsoever?

“In fact, unlike Social Security or even Medicare, this is a ‘program’ no D.C. bureaucrat can touch, cancel, or pillage. Yet, it remains a second source of government-backed cash.

“And by the way, a source most Americans know nothing about. Even though many retirees have legally collected from this source since 1972!

“If you’re just hearing about this for the first time, I’m not surprised.

“It’s not something anybody in Washington would have told you about. I doubt you’ve ever gotten a letter announcing it. And you can’t collect unless you know about it.

“But even if you’re late to the party, you could still collect thousands of dollars. And it only takes about five to ten minutes to get this set up to collect.

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“By the way, you don’t need to be retired.”

And yes, like all good copywriters who make up terms the tease is peppered with quotation marks — which you can usually read as “not really” … as in, it’s not really a “pension”; it’s not really a “program.”

And as we can gather from the “Scandinavian” part, this has nothing to do with the US government:

“You see, the reason those weasels in Congress can’t take away this second stream of benefits… and the reason they can’t steal from this retirement cash pool either…

“Is because even though this alternate ‘pension’ is decisively government-backed… it’s NOT the misdirected, muddling, money-wasting American government that’s backing it!”

And these aren’t, apparently complicated investments or “certificates” … here’s more:

“You don’t have to do anything special to make this work.

“Just holding these ‘Scandinavian Income Certificates’ entitles you to collect what could add up to several thousand dollars in extra income every year, for as many years as you’d like.”

And then we get into a bit more explanation of what’s backing these “certificates” — Norwegian oil wealth. Nelson talks about the discovery of oil in the North Sea in 1969, and the fact that Norway is now the world’s third largest oil exporter. I don’t know if that’s true — the latest numbers I’ve seen were from 2008 and Norway was number 6, which is still impressive … Kuwait, the UAE, Norway and Iran each export roughly the same amount of oil, so those rankings can fluctuate, though no one else comes close to touching Saudi Arabia and Russia for exporting or production levels. (Except for the US, which produces almost as much as Russia … but of course, we consume it all and more and effectively export nothing.)

And this is a timely ad, as you might imagine — urging this “investment” of whatever kind even though offshore oil is a four-letter word right now:

“Yes, I know what you’re thinking… all these fields are under the cold, black North Sea.

“And right now, for obvious reasons, all eyes are on BP’s big blunder in the Gulf. Does that mean our world can really give up on the huge deepwater oil deposits? Not on your life. Like it or lump it, we desperately need the oil that’s out there. We only need to get to it more safely, am I right?

“Which is why, with over four decades of tapping the rich Norwegian offshore fields, nobody’s gotten better at doing this right than the engineers who have already transformed the Norwegian economy with all that North Sea oil. That’s a fact you’ll hear repeated the world over.

“What BP can’t seem to do, the Norwegians have done with distinction.

“And with extremely impressive results.

“Just one of those big Norwegian fields — the Statfjord deposit — has already been cranking out two million Norwegian kroner’s worth of oil every minute — that’s US$360,388 every 60 seconds — for the last 25 years.”

And apparently, the income from these “certificates” somehow comes from this fund, eh? That’s a little odd, but this is how he puts it in the ad:

“Instead of blowing their oil bonanza (like the British) or divvying it up among government elite (like the Saudis) the Norwegians set up what they called their national ‘Petroleum Fund.’

“Nearly half-a-trillion dollars have poured into this fund so far.

“It’s earmarked for Norway first, doling out huge retirement benefits, free medical care, and free education — all paid for with oil profits. Plus, it’s the money they used to carry them through the last financial crisis… almost without a scratch.

“And it’s this same huge fund I can show you how to tap, without breaking a single law, and with the full approval of the Norwegian government… using the ‘Scandinavian Income Certificates’ we talked about.”

“…what I’m saying is that not only is Norway cash rich… but that there’s now a way you can tap into this same growing pool of government-backed money.

And, you’ll see, they actually want you to do it. As long as you do it using the ‘Scandinavian Income Certificates’ ….

OK … so, we’re going to need some more specifics to crack this one open. How about this bit:

“… already Norway has started to trade their decades of deepwater oil expertise for shares in other gigantic offshore projects all around the world, from the Gulf of Mexico to the Far East and elsewhere.

“But now they’re trading their huge cash position for another advantage too.

“See, by promising to pay a steady stream of future income to ‘Scandinavian Income Certificate’ holders, Norway gets to leverage their already big money stockpile… into an even bigger pile of cash they can use right now to invest in more energy exploration and discovery.

“It’s their way of guaranteeing even more surplus money in the years ahead.

“Norway knows the easy oil and gas assets in the North Sea won’t last forever. So they’re perfecting new ways to draw more out of what they’ve got… and to find new resources to tap….

“What’s already a very big income opportunity is about to get even bigger…”

So what on earth is Jim Nelson talking about with these “Scandinavian Income Certificates?” Well, I hope you won’t be disappointed to learn this, but I’m pretty sure these “certificates” are …

Shares of Statoil (STO)

Statoil is the state oil company of Norway, it was founded in 1972, though for 20 years or so it was completely government owned and controlled entity and you couldn’t invest in it or profit from it — it became a publicly traded company in 2001, and merged with giant Norsk Hydro in 2006 (it briefly changed names to StatoilHydro, but is now back to plain old Statoil).

It is the biggest company, by some measures, in Scandinavia, and among the 50 biggest companies in the world — it’s also been known as the world’s biggest offshore oil company, though I don’t know if that’s still true, there are a dozen or so oil companies that are bigger, but I don’t think any of them have quite the offshore focus that Statoil does.

And oh, yes — they do pay a nice dividend, which is a major way that they create income for their largest shareholder … which is still the Norwegian state, the government petro fund currently owns 67% of the company. As you may know or can probably tell from the ticker, Statoil does have US-listed shares, you don’t have to trade on the pink sheets to get in bed with the Norwegian government, and they trade with plenty of volume for most folks. STO trades at a pretty average forward PE for a major oil company, roughly 8 times earnings (you can slot it in right between ExxonMobil and Chevron), and the current dividend is about 3.7% … so it will provide some nice income, especially if you reinvest those dividends and expect their income and dividend to grow in the years to come — the dividend is annual and variable and it has already been paid for this year, so don’t rush to get in just for the dividend.

Their dividend history is here if you’re curious — and yes, Norway has a dividend withholding tax that’s similar to Canada’s, so the cash dividend will reflect that, though you may be able to get credit for paying this foreign tax when you do your returns.

The shares have been pretty volatile for an oil major — they tend to follow the same curve as big stocks like XOM or CVX, but often with more amplitude as oil prices and economic expectations send the oil group up or down. It’s also worth noting that Statoil reports in Kroner, and many folks have rushed to the Norwegian Krone as a safe haven during the various currency and debt panics … though to be honest, for US investors the impact should be somewhat minimal, this is an oil company so they likely still sell almost all of their oil in dollars, then convert it to Krone to report, then we convert it back to dollars when we look at the numbers or cash the dividend checks, so to some extent it works itself out in the wash. Put simply, Statoil is an oil play, not a Norway play.

I’m somewhat fond of Statoil, personally — I’ve owned it in the past, though that was many years ago and I currently have nothing invested in the shares. I used to hold a little bundle of state-controlled oil companies because I thought they were undervalued when oil was starting its run in the early part of this decade, including Statoil and Petrobras, though both are much more well-known and valued competitively with other global titans now. Statoil has been extending its reach around the world, using the expertise they developed in the North Sea to work offshore in many other fields, though few environments are as harsh as Statoil’s home turf. And my overall sense is that oil companies in general are too cheap now — I wouldn’t buy BP, but I can see a case to be made for most of the oil majors as the developing world wakes up to the joys of the automobile and the rest of us probably will spend several more decades relying primarily on oil for transportation.

So that’s what I think: Scandinavian Income Certificates are shares of Statoil — does that get you all excited? Or have you bigger fish to fry? (Or smoke, since we’re talking Norway… mmm, salmon). Let us know what you’re thinking with a comment below.

And if you’ve ever subscribed to Jim Nelson’s Lifetime Income Report, please click here to let your fellow investors know what you thought with a brief review. We’ve had only a few reviews submitted so far, but you can see them here if you’re interested.


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