February 19, 2010
Bangkok, Thailand

I really need to start out today’s letter by expressing how truly humbled I am to be part of such a fantastic community.

Matt and I have spent much of the last few days combing through resumes (200+ so far) for the job openings that I posted on Monday, and the caliber of talent and energy is really impressive.

Applicants vary in age from 17 to 70. They come from all stations of life– corporate executive, successful entrepreneur, student, homemaker; and they  hail from at least 18 different countries, from Guyana to China to the Netherlands to South Africa.

I’ve read every email with great interest and have made difficult choices to narrow down the pool of candidates. If you submitted an email, you might just be hearing from me in the next week or two.

Now… on to this week’s questions.

Karl asks: “Simon, we own a condo in Pattaya, Thailand and a home in Boquete, Panama so your comments have real meaning for us.  I am having trouble trying to decide how the decline in the US dollar will affect Panama which uses the US dollar for everyday commerce.  Can you comment on this?”

This is a great question. There are a couple of important factors that you should understand about the US dollar–

First, it’s like what Churchill said about democracy: the dollar is the worst of all major fiat currencies… except for all the others. Only three currencies can handle the massive capital flows of the global financial system without a major impact, and the other two (euro, yen) are in even worse shape.

Second, in the event of a critical dollar collapse, the currency of a country will be less relevant than its net exposure to the United States.

Panama has independent means of supporting itself thanks to the Canal, a robust financial system, global tourism, etc. So in the event of a dollar collapse, asset prices in Panama will definitely rise relative to the decline of the US dollar.

Sure, you might be paying $20 for a loaf of bread in nominal prices, but the inflation-adjusted standard of living should remain fairly stable because the Panamanian economy will still have independent income to support itself.

This is a similar fate as a country like Saudi Arabia whose ‘riyal’ currency is pegged to the dollar. Like Panama, Saudi has an independent source of income. If the dollar collapses, oil prices will spike, and the long-term inflation-adjusted effect for Saudi will not be too severe.

Contrast this with El Salvador which has no independent means of income and relies heavily on the United States for both remittance income and roughly half of its exports… Thus, El Salvador is much more vulnerable to fluctuations in the dollar.

The last thing you need to understand about a dollar collapse is that no country will be totally immune. The greenback defines the global financial system right now, and its collapse will cause panic and shockwaves around the world, at least in the short-term.

While yes, it would be preferable for Panama to have its own independent currency backed by gold, I would not let Panama’s dollarized economy scare you away.

Roger asks: “Simon, you’ve provided useful information on which countries are the safest to store gold.  Unless I missed it, however, I did not see any suggestions on places to buy gold coins in Singapore or Austria.”

In both countries, you can buy gold at nearly every bank you walk into. Austrian banks sell coins called the ‘Philharmonic’, which is the Austrian equivalent of the Eagle and Maple Leaf. Singapore banks have a wide inventory.

In Singapore, though, precious metals purchases are subject to the GST tax at 7%… which is a bummer. So one of the best things you can do there is open a precious metals bank account (try United Overseas Bank) where the value is denominated in grams instead of dollars.

You can withdraw gold in this way and the transactions are not subject to the tax.

Maria asks: “Dear Simon, It’s easy to forget sometimes that you put valuable information out every day for free on your own dime… so, thank you for all that you do. I’m wondering if you could shed some light on your sustainable community idea in Panama?”

Thanks, that’s a really nice thing to say.

Matt and I are leaning towards doing the sustainable development in Panama. I will circulate an initial concept paper in the next few weeks and put together a special list of prospective residents.

Based on my back-of-the-envelope calculations, I’m thinking that we could offer reasonably sized lots in the range of $25,000 to $50,000 in a secluded community that has its own satellite internet, clean water system, a bit of renewable energy, and a lot of low-maintenance agriculture.

Each lot would have a share of the crop yields, which I envision selling on the open market to generate a dividend for residents in the first few years, at least unless/until things really start to go south.

Also, for the planning and development, I would like to put together a steering committee comprised of experts in areas like security, construction management, organic agriculture, energy independence, etc. to help make it the best community possible.

More to follow on this in the future. Have a fantastic weekend, and get ready for second citizenship and residency discussions next week.

Yesterday I was on a mission in Vienna to buy and store gold; today I was on another mission that is honestly quite sensitive, but I’m going to share it with you anyways.

Banking.

For years, Austria has been one of Europe’s best destinations for ‘private banking’– professional wealth and asset management by conservative, responsible stewards who ensure that return on savings will beat the rate of inflation.

While Switzerland has closed itself off to many North American customers, particularly those who do not bring tens of millions of dollars to the table, several Austrian banks have remained open to working with Americans, in particular those who reside outside of the United States.

Of course, demonstrating that you reside outside of the United States is easy to do if you own property overseas, have a lease, or a residency permit. These are the sorts of things you should be doing anyways if you intend on taking control of your own freedom.

With Austrian banks, minimum deposits are often just a few thousand dollars for some of the larger banks, and $100,000 for the smaller, more personalized banks.

Austria is currently on the OECD’s ‘grey list,’ the list of countries that this completely worthless and irrelevant organization named several months ago for failing to hand over customer financial information to the international community.

In Austria, banking secrecy has been a long-standing tradition and is protected with the same legal status as the country’s constitution. Unfortunately, this has been coming under fire lately.

The OECD’s grey list has absolutely no force or economic effect whatsoever… notwithstanding, a small handful of politicians are terrified of having their country’s name on a list, any list, and amendments to the country’s banking laws have hit the parliament floor for vote.

The most recent legislative proposals from earlier this month did not pass, though I expect the executive branch to continue pushing the issue despite resistance from constituents.

Bear in mind, however, that loosening restrictions will not completely eliminate privacy… and in a world of such draconian government intervention, I still expect Austria to be an adequate banking jurisdiction in the future.

But there’s something else to watch out for in Austria— Some of the country’s larger banks have tremendous exposure to volatile Eastern European economies like Romania, Ukraine and Hungary where default rates are rising.

If Eastern Europe falls off the cliff, it will drag down many of Austria’s banks in the same way that a Latvian default will erode Sweden’s banks.

As such, I would stay away from Erste Bank and Raiffeisen in particular, but there are several smaller banks that are worthwhile and relatively unexposed to Eastern Europe.

I opened an account with a bank after cultivating a very personal relationship for more than a year. I am more than satisfied with the service that I receive, which includes this worldwide Maestro card, multiple currency accounts, online wire transfers, and very personalized service.

The bank knows that I write this letter (among many other things) and begged me to not publish their name. I gave them my word as a condition for opening the account.

I am happy, however, to point you once again in the direction of Mark Nestmann, who lived in Austria for some time and has strong ties there has written a recently updated book about Austrian banks—he names names and provides contact details for many of the personal, smaller banks in Austria.

As much as I love the city, I’m here in Vienna today on a mission– gold storage.  After yesterday’s missive about Panamanian safety deposit boxes, I thought it appropriate to follow-up with a couple of strong solutions for offshore gold storage, and Austria certainly fits the bill.

First of all, if you love mountains, you definitely need to check out Austria. The Austrian Alps command some of the most breathtaking views in the world, and the summertime weather is absolutely spectacular.

English language proficiency is prevalent everywhere in the country; everyone from the gas station attendants to street performers speaks English, which is great because my Deutsche is terrible.

Cost-wise, Austria is reasonable, though certainly not cheap.  Expect a decent meal for two with wine to run about 50 euro ($70) in Vienna, perhaps even a bit more in Salzburg… and a four star hotel to cost 120 euro per night ($170).

But let’s get back to the gold.

Vienna is home to a fantastic facility called Das Safe (www.dassafe.com), located at Auerspergstrasse 1 near the city center.

Das Safe provides anonymous safety deposit boxes starting at 400 euro ($560) per year, and anonymous means anonymous… all you have is the box key and a PIN code to access the secure room.

To be honest, you will feel a little bit like Jason Bourne when you walk into the place; the facility is completely secure and monitored at all times, though video surveillance is not recorded so you need not worry about your privacy.

I have done business with Das Safe in the past and find their level of service and professionalism to be spectacular; if you want to move your bullion offshore and make sure that no one knows about it, Das Safe is for you.

If, on the other hand, you don’t care about anonymity, Austrian banks will be happy to rent you a safety deposit box regardless of your nationality.  They do require a photo ID, but the costs start at 65 euro ($90) per year for a small box.

Just about every bank in Austria also sells gold coins, making it very convenient to buy and store on-site.  I am a big fan of the ‘Philharmonic’ coin, the Austrian version of the Eagle or Maple Leaf, which is paid for in euro. As I mentioned Friday, I am a long-term believer in gold’s value, especially against the euro.

Unlike the banks that I mentioned in Panama yesterday, I do not believe that Austria’s banks would suddenly and unilaterally change their policies about providing safety deposit box services, so establishing service there will probably not pose any problems for the next several years.

Furthermore, Austrian law prohibits banks from inspecting the contents of boxes except in narrowly defined instances when they’re sure that you’re dead, and Austria is one of the only countries in the world with this protection.

Tomorrow I’m going to talk about banking in Austria, and why it may be a good option for you.  In the meantime, I hope you enjoy this video from last Saturday morning in Zagreb.