April 30, 2010
Las Vegas, NV

It’s chilly in Las Vegas, but I’m having a great time meeting so many subscribers here at the Casey conference; I’m pleased at how many have turned up for the event, and I’m always humbled by the exceptional people we have in our community.

My only regret is that the conference organizers could not allocate more space for Sovereign Man readers, and I will personally ensure this doesn’t happen next time.

As I need to get going shortly to mingle with all the incoming attendees, let’s jump right in to this week’s questions:

First, a question that I have been asked hundreds of times over the last two months– “Simon, several weeks ago you posted two job openings on your website for people who were interested in working with you. What is the status of those positions?”

We recently filled both of the positions. It was one of the more difficult business decisions that I’ve had to make given the quality and number of applications that we received. We may be hiring again soon, and I will post that to the website as well if/when the time comes.

Second, Dana asks, “Dear Simon, if I trade US/Canadian financial markets from my home in Ecuador, would the government of Ecuador expect me to pay taxes on that income?”

No, especially as a non-resident foreigner. It’s the same in several countries, like Panama. This is one of the reasons for taking a multiple flags approach– having citizenship of one country, tax residence in another, and spending time/owning property in another.

Next, Neil writes, “Simon- I’m an investor and US citizen with residency in Uruguay. I want to hold gold coins in Hong Kong or Singapore, but I have a question– will I be able to open a bank account in Asia so that I will be able to wire money to my account in Uruguay once I sell my gold?”

Even as a US citizen, you should not have any problems opening a personal bank account at any number of multinational banks in Asia… try HSBC or Standard Chartered Bank, both of which have US branches and are accustomed to dealing with the Treasury Department’s arcane regulations.

Once you have the account open, you shouldn’t have any problems wiring the proceeds to your Uruguayan account once you sell your gold. Just remember a couple of things-

1) Singapore charges GST (VAT) on gold sales;

2) Don’t forget to fill out TDF 90-22.1, report of foreign financial account, each year after you open the new bank account;

3) You will have to report the proceeds of your gold sales on your tax return if you turn a profit.

Next, Dave asks, “Simon- I am currently living in Treviso, Italy, and I’m considering moving to Switzerland. However, I haven’t seen any posts about living in or considering Switzerland. What’s your take on the country?”

I like Switzerland. For me, it’s as close to a perfect civilization as it gets in this world. The government is [relatively] hands off, the people are [relatively] intelligent and freedom loving, and the country is quite clean and modern.

On the downside, the weather is too cold for my taste, it’s unconscionably expensive, and the people are boring.

Despite what has happened with Switzerland’s banking privacy, I still think the country is worthy of a number of flags, including banking, residency, citizenship, and tax home. I’ll be spending time there this summer and will report more at that time.

Lastly, Ken asks, “Simon, you wrote about Joel Nagel’s upcoming asset protection conference in Belize yesterday. It sounds worthwhile… but aren’t you negative about Belize?”

To be clear, I have no issues with Belize as a banking jurisdiction. True, I personally do not like Belize as a place to spend much time, but I don’t expect everyone to share my tastes.

I know that there are many subscribers who are very interested in Belize, and Joel Nagel’s asset protection conference is probably the perfect opportunity to go check it out.

Why? Because Joel is one of the best international tax attorneys in the business, so you’ll learn everything you need to know about protecting your assets. Plus, you’ll be able to open a Belize bank account through his personal connections, and you’ll have plenty of time to spend exploring the country to see if you like it.

April 23, 2010
Quito, Ecuador

It has been a whirlwind week this time around in Ecuador; I’ve been to just about every corner of the country, inspecting property, making new legal, banking, and real estate contacts, and cementing old ones.

In short, it’s been an incredibly productive trip. Most importantly, I picked up on some really valuable immigration leads that I plan on sharing with you soon once I test it out myself… more to follow on that.

Tomorrow I’m leaving for the Dominican Republic where I will spend the weekend prior to heading to the United States for a couple of conferences. Before I head out, though, I wanted to address some specific Ecuador questions to lead off this week’s Q&A:

Peter asks, “Simon, what is the technical situation regarding high speed internet in Ecuador?”

It’s good. Ecuador is very wired. Most places have at least 4MB/s broadband, and it seems like there’s an Internet cafe on every corner. I’ve been making Skype calls all week without any problems. You may run into power outages in some areas, but this is a different issue.

Jai asks, “What about income earning prospects, either an Internet sales business or something for clients outside of Ecuador… or any on the ground opportunities?”

I don’t find Ecuador to be ripe with substantial business opportunities like Panama or Malaysia. There is not much of an emerging middle class, so the domestic market is out.

Moreover, the expat market is still embryonic, and I don’t think that the local labor force has the skill set to be competitive for outsourcing.

Bottom line, Ecuador is a place to plant a residency flag, and possibly a citizenship flag, but not much else.

Mike asks, “Simon, we are a gay couple, 48 & 37. I was wondering if Ecuador is a gay friendly area?”

This isn’t one of the things that I really watch out for, but my impressions are that Ecuador is neither friend nor foe of the gay community. You would probably have better luck in Panama and Brazil, or even Uruguay where the government passed a law recognizing gay marriage a few years ago.

Bob asks, “Simon, what is the tax situation like for expats? And do you plan on publishing a Black Paper with your Ecuadoran contacts?”

Taxes are reasonable in Ecuador. According to my legal contacts here, non-residents are taxed only on their Ecuadoran-sourced income, and the tax rates are progressive in some cases, and a flat 8% in other cases.

Regarding a Black Paper– one of the things that bothers me is that there seems to be so much misinformation online about the Ecuador, usually promoted by groups that have a financial interest in misrepresenting and overselling the country.

It’s disappointing to set people’s expectations in a certain way, only to find out that the country, while wonderful in many respects, is not as advertised.

Black Papers are designed to be a sort of ‘Consumer Reports’ about a country with actionable contacts; so, if there’s substantial interest, I may put together an inexpensive, limited-release Black Paper about Ecuador.

Either that, or just bring you some free interviews with a few of my contacts there if I can get them to agree… this is my preferred solution because it’s a lot less work on my part.

Richard asks, “Simon- great information about Ecuador. Can you tell us what websites you look at for overseas property?”

I know it’s tempting to let Google do the heavy lifting these days, but rest assured, if you find a property website in English, particularly in the top 5 search rankings, you are already paying a premium.

There is no substitute for being on the ground– the farmer who will sell you his land cheap has never seen the Internet in his entire life.

Doug asks, “Simon, can you recommend some Ecuadoran banks that will work with American citizens?”

Most of them work with US citizens; the problem is that the account opening procedures are highly bureaucratic, and most banks require you to be a resident in order to open an account… unless, of course, you know someone.

There are reasons to open a bank account here, though not for planting a financial flag. It’s nice that Ecuador is a dollarized economy paying 7% to 9% on a 1-year CD, but the primary reason for doing so has to do with immigration. More on that later.

Lastly, Rexx asks, “Simon- thank you for Monday’s interview with Mark Nestmann about capital controls. Many of us would love to buy his book ‘The Lifeboat Strategy‘, but the price is a bit of a stretch.”

I think Mark’s book is one of the best actionable expatriation guides out there– he teaches you how to move your assets, and yourself, safely and legitimately overseas, and discusses topics like second passports and overseas structures in significant detail.

Given the value of the information, I’m amazed that he gives it away for $95… but frankly, if $95 is a stretch for you, then you probably won’t get too much out of Mark’s book and I wouldn’t advise you to pick it up.

Instead, I would concentrate your efforts on making money and building assets. Focus on finding opportunities that are in significant demand and short supply, then become an expert in that field.

Examples could be expat headhunting in Asia, small business fundraising, or just being the ‘go to guy’ in a quickly growing market like Peru or Mongolia.

There is no great mystery to making money… you might miss a few times, but once you tap into a niche that you can fill, you’ll start building assets. At that point, once you have money, I guarantee that you’ll get a lot out of Mark’s book.

That’s all for this week, have a great weekend.

April 22, 2010
Vilcabamba, Ecuador

There must be something in the water down here.  They call this place the “Valley of Longevity” because it’s not uncommon for people to live well past the century mark… and it’s true.

Driving around the town last night and this morning, I couldn’t help but notice so many elders going on about their business. Mind you, I didn’t exactly card anyone (record keeping here is quite poor), but their appearance and the stories they tell clearly suggests an age that is unimaginable to most.

What’s even more striking, though, is their good health. You’d ordinarily expect a centenarian to be weak and decrepit.  On the contrary, these folks were extraordinarily alert, engaged, and physically fit (relatively speaking)… essentially, how you would consider a healthy 65 to 70 year old in the western world.

The 5-hour drive from Cuenca was breathtaking; I found the roads to be of excellent quality, and the scenery was similar to Wyoming and the Austrian Alps.

Make no mistake, though, the southern Andes in Ecuador are a far cry from Europe or North America.

I’ve talked this week about how Ecuador is an exceedingly cheap country… but in the major cities like Quito, Guayaquil, and even Cuenca, you don’t have to sacrifice too many amenities for the cheap prices.

Down here in Loja province, though, it’s like going through a time warp.  Houses without electricity and running water are common, and you see people riding mules and horses everywhere you look.

Consequently, as beautiful as it is, this isn’t an area that I would consider buying property. As I mentioned on Tuesday, being a ‘wealthy’ landowner next to a poor village is probably bad politics in Ecuador.

Ironically, I noticed a great deal of expensive new construction in the area, clearly catering to gringos who don’t mind overpaying for the privilege of living in the Valley of Longevity.

Compared to other property deals that I mentioned yesterday, the Vilcabamba properties are at least 3-5 times more expensive… $300,000 for a small house on 2 acres near Vilcabamba vs. $150,000 for a large house on 10 acres near Cuenca.

I’ve seen this happen in a lot of different countries… a particular area is ‘discovered’ by gringos, and they start building a community that’s eye-gouging multiples more expensive than adjacent properties.

Needless to say, the developers and sales agents always insist that their property is of much higher quality and luxury, hence ‘worth’ the enormous premium. My property tour in Vilcabamba was no exception, almost to the point that I wondered if I would receive a free bottle of snake oil for purchasing a lot.

Personally, I don’t see the point in relocating to such a free-spirited, healthy place, only to close myself away in an overpriced, walled-off, gated community.  Naturally, the marketing folks at these communities strongly disagree, and this is exactly what I was talking about yesterday when I discussed ‘trusted contacts.’

There are too many people out there whose business model is to take advantage of the uninitiated.  They look sharp and sound sharp, but their opinions absolutely cannot be trusted, particularly when it comes to the benefits of overpaying.

Here’s the bottom line– I’ve spent a week on the ground on this trip to Ecuador, and given certain changes in the laws since I last looked at the market, I’ve decided to definitely pick up some property here.

Most likely, though, I’ll be buying near either Quito or Cuenca, and with the help of my trusted advisors in those cities.  Land is cheap, beautiful, and of significant value… plus I’ll get some additional residency benefits that I’ll share with you later.

April 21, 2010
Cuenca, Ecuador

Last night I ate at one of the fanciest restaurants in Cuenca.  Everything except for the Chilean wine was locally grown and absolutely delicious, right down to the banana flan for dessert.

The total bill for my beautiful companion and I rang in at $40.02, including 3 courses with wine.

For lunch, I ate at a local cafe– another 3-course meal with a chicken soup to start with, beef loin on a bed of rice, small dessert, and fresh squeezed juice right out of the fruit. That meal set me back a whopping $1.75.

I gave the waiter $2 and he literally followed me out of the cafe trying to give me my $0.25 in change back because apparently the $1.75 already included a 10% gratuity.

I’m telling you this because I’m trying to impress upon you how cheap Ecuador truly is, and how much value is in the price.

I think of countries like publicly traded shares on a stock exchange. Sometimes the market gets out of hand, and companies trade for an unjustifiably high multiple of their earnings and assets (think Amazon.com during the tech bubble).

In some instances, though, companies trade at a discount to their net asset value– we saw this in the first quarter of 2009 when many of the junior mining companies were trading at less than the value of the cash they had in the bank.

It doesn’t really matter how high or how low the price of a stock is, or what the market capitalization is… what makes a company attractive to buy is when it is significantly undervalued relative to its earnings, assets, and potential.

I value countries in the same way.

Brazil, for example, is like a company with a very large market capitalization that is trading at roughly net asset value, neither significantly overvalued nor undervalued.

Morocco, on the other hand, is a small cap company that is trading at a premium to its net asset value and earnings– sure, it’s cheap, but it’s a total disaster.

Ecuador, in my assessment, is like a deeply undervalued mid cap company.  It is not without its own problems and challenges, but price level here is substantially lower than the level of its well-developed infrastructure and amenities.

I’ll give you a few real estate examples to help paint the picture:

Here in Cuenca, I’m looking at a particular property near town that’s on about 10 acres with a 3,400 square foot main house (roughly 300 square meters) of quality construction. The asking price is about $150,000.

If you calculate the construction costs at $500 per square meter (which is extraordinarily cheap, roughly the same cost to build a no-frills garage in North America), then the construction cost of just the home is $150,000. You get 10 acres of land for free.

Another place I’m looking at is in the mountains on 20-acres of prime property.  The main house has over 350 square meters of quality construction that’s almost brand new, and the owners are asking $375,000. You can do the same math and see that they’re basically giving away the house at cost, and giving away the land for nothing.

You see my point.

As for taxes, local property taxes are a joke… most of the owners around here complain if their taxes go up from $52/year to $55/year.

The biggest issue with taxation is on rental income– if you buy a property and rent it out, a tenant must withhold a flat 25% on rental income, which means that yields are not as high as in neighboring Colombia or Panama.

Overall, I really think Ecuador has substantial value. Using my “10-year rule” and looking out into the future, I’m not convinced that the country is on a very steep upward trajectory like Peru or Cambodia… but even if it stays exactly the same, it will still be a great place to spend some time and even retire.

Like any real estate market, from Vancouver to Vanuatu, there are traps to watch out for in Ecuadoran property; there will always be sharks waiting to take advantage of the uninitiated, which is why I recommend for people who are seriously considering expatriation to rent first, or deal with an absolutely trusted advisor.

A trusted advisor can be difficult to find– foreigners tend to rely too heavily on Google and Wikipedia (which I regard as the black hole of accurate information). It takes a lot of time on the ground– I’ve spent years running all over the world building quality contacts while burning through crooks and incompetents.

Ecuador has been no exception. More to follow.

April 20, 2010
Cuenca, Ecuador

Ecuador is not one of those places on everyone’s radar. In fact, when I recently announced that I would be returning to Ecuador, I received a handful of subscriber emails like this one:

“Why are you wasting your time in that communist money pit? [SB: strange choice of words...]”

Clearly, Ecuador suffers from a similar reputational stigma as Colombia, and this keeps that majority of gringos away. The country’s president Rafael Correa is aligned with Venezuela’s widely disparaged Hugo Chavez, both of whom focus their policies on a pro-social agenda.

Just recently, in fact, Correa announced that he would be taking steps to nationalize foreign oil companies who don’t agree to limit their profits based on a government mandated ceiling.

These sorts of things tend to make foreigners run away like a scalded dog.

Politically, Ecuador is a disaster. The country saw seven presidents from 1996-2007, which makes it about as stable as Thailand. But while I wouldn’t take the political risk in Ecuador as an institutional or resource investor, I have no problems being an expat there.

Why? Just because the government is going after oil profits doesn’t mean that they want the title to your house in Cuenca. Dispossessing foreigners of their property would do absolutely nothing for the government, or for ‘the people’ that Correa so desperately wants to please.

Would I buy a nice house with a small farm in Ecuador? Sure. Would I buy 10,000 acres of land adjacent to an impoverished village? Doubtful. You see the difference.

Today, my goal is to provide you with a short, balanced overview of Ecuador, with the intention of providing more details later this week.

The bottom line is that Ecuador is definitely worthy of consideration. Specifically, based on how I define the “7 expat categories“, Ecuador is great for retirees, hermits, nomads, and internationalists. It’s terrible for hedonists.

Here are six reasons why:

First, as you’ve probably heard, cost of living is dirt cheap in Ecuador… and by cheap, I mean that you actually feel guilty that it’s so cheap.

Quality housing, for example, can easily be had for less than $1,000 per square meter (which is my line in the sand for ‘CHEAP’), and $350 to $500 per month for a nice rental is quite common.

Labor costs nothing, so you can have a whole staff at your hacienda for the equivalent of a Mercedes payment; and food prices are generally 20% to 60% less than in North America or Europe.

It’s also worth mentioning that the US dollar is the official currency, which has several advantages and disadvantages that I’ll get into in a future letter.

Second, life is slower and much more traditional in Ecuador. The common analogy is that it’s like the United States in the 1950s (which is a similar analogy used in Uruguay and Paraguay).

Well, I wasn’t around in the 50s, but I certainly agree that life is very simple in Ecuador.

For example, the government typically does not pass invasive laws designed to save people from themselves; the concept of ‘family’ is still of tremendous importance; and people spend more time hiking and picnicking than sitting in front of a computer.

Third, medical care is of reasonable quality; I have never had any issues with minor medical care here (both western and aboriginal), and there are a variety of high quality anti-aging clinics in the country. For major medical issues, though, I would probably seek aid elsewhere.

Fourth, English language penetration is satisfactory in the larger cities like Quito and Guayaquil (pronounced ‘why-uh-KEEL’), but once you get into the smaller towns, you’d best be able to speak some basic Spanish.

Fifth, food quality is typically excellent; many of the southern valleys have impeccably grown organic food, and the soil quality often yields enormous proportions… I’m talking about fruits and vegetables the size of your head.

As a warning, however, there is some credible evidence of substantial pesticide usage in many parts of the country, as well water pollution from oil spills over the last several decades in the Amazon basin.

In fact, there is a $27 billion lawsuit pending in an Ecuadoran court at the moment against Chevron for substantial environmental damage without proper attention to clean-up.

Sixth, despite the negative attention that the oil sector receives, the country is quite open and friendly to foreigners, and the government makes it easy for them to come to Ecuador with a variety of retirement and investment schemes.

Overall, if you’re looking for deep discount living, a slower lifestyle, and only minor sacrifices to modern convenience, I would strongly recommend that you check out Ecuador.

I will be here for the rest of the week, so if you have any specific questions that you want me to find out about, drop me a comment here.

April 2, 2010
Panama City, Panama

It’s been a great week so far in Panama. Each time I come back to this country I become even more sure in my conviction that Panama has a bright future.

For the next few days, though, I am going to set aside market forecasts and expatriation strategies… you see, my friends from the Atlas 400 club are starting to arrive, and I’m looking forward to a few days off at the very exclusive Tropic Star fishing lodge in Panama’s Darien province.

The cast of characters attending this event is really impressive– and I’m excited that several members of our own community will be there.

I’ll tell you more about it when I return on Wednesday. For now, though, let’s move on to this week’s questions.

First off, Jeff in Ohio asks: “Simon, thank you for the clarification about the new H.I.R.E. Act, I was really confused and concerned.  Why do so many people continue saying that this new law is the same as capital controls?”

It’s easy to overreact and say that the sky is falling.  To be fair, a layman’s reading of the bill makes it seem like the government is imposing a 30% tax on foreign bank transfers… but that’s exactly why I had my team of tax attorneys and CPAs analyze it– I wanted to know the truth.

The truth is, the H.I.R.E Act is an administrative enforcement of tax reporting; it’s bad news, but it’s no more capital controls than the qualified intermediary rules or withholding requirement for some payments to foreign companies.

The big problem is that this new law provides a disincentive for foreign banks to work with US customers… more and more, Americans are simply not worth the hassle for foreign banks.

There are still solutions, though. Americans who want to open a foreign bank account (as everyone should) ought to consider larger multinationals that already have a US presence. They’re accustomed to the paperwork already and are less likely to turn you away.

There are, of course, other jurisdictions that frankly don’t care much about the H.I.R.E. Act, and we can discuss those more in the future.

Steve writes, “Mr. Black, is Panama still self-reliant and independently wealthy if income from the Panama Canal drops off?”

This is a good question. Panama is heavily dependent on the Panama Canal, just as Saudi Arabia is heavily dependent on its oil supplies.

Fortunately, Panama has been able to diversify its economy away from transportation and trade– banking services, real estate, tourism, customer service, and others… but the Canal still generates the preponderance of external economic activity.

If global trade were to take a major hit (as it did in 2008/2009), Canal revenues would certainly decline and Panama would suffer economically… but bear in mind that Panama still posted positive economic growth last year.

I suspect that major economic pain would come only with a cataclysmic reduction in Canal usage, either due to another economically viable transportation route in the western hemisphere (unlikely) or a total collapse in global trade.

Mark writes, “Simon: I am a 65 year old disabled retiree.  Later this year I will have about $30,000 per year to reside on. Can you give me several ultra low-cost living places to consider that have SOME civilization?”

Everyone has different personal tastes and circumstances, but here are some ultra cheap countries that are safe and reasonably civilized: Malaysia, Ecuador, Thailand, Sri Lanka, the Philippines, Egypt, India, Paraguay.

There are more, but this should be a good start.

Anonymous asks, “Simon, if I have a civil judgement ruled against me, would that disqualify me from a second passport?”

No, not in most cases. Most countries require a medical exam and a criminal background check. If you have a felony conviction, that’s a red flag. Civil judgments are usually not problematic… you’d undergo more scrutiny testing positive for syphilis.

That’s it for this week. Remember, I will be at the closed-door Atlas 400 event for the next few days in the middle of the jungle, so you will more than likely not be hearing from me until next Wednesday.