June 4, 2010
New York City

Today, my friends and colleagues from the Atlas 400 group are gathering in New York City for another weekend adventure. It’s something I’ve been looking forward to since our last event in Panama.

As you’ve heard me describe before, the Atlas 400 is a private group of successful, like-minded individuals who meet at world-class locations to discuss their ideas, socialize, and forge lasting personal and business relationships.

I go out of my way to attend the events, and I’m pleased that a handful of Sovereign Man subscribers have joined the club. If you’re interested in learning more about the club, you can read more here.

Afterwards, I’m hopping on a plane for Panama where I have a short, 3-day trip planned before heading on to Chile, Brazil, and then Europe.

More on that next week; for now, let’s move on to this week’s questions.

James asks, “Simon– Can you tell me if precious metals held in an offshore depository such as Brinks or Viamat are required to be reported on TDF 90-22.1? No one else seems to be able to tell me for certain, and I have even offered to pay for the advice.”

No payment necessary. TDF 90-22.1 is the Department of Treasury form that US taxpayers must file by June 30th of every year if they have a financial interest or signature authority in a foreign financial account.

Under current law, the term ‘financial account’ refers to banks and brokerages, not physical bullion stored overseas. Thus, if you hold precious metals in an overseas vault, you do not need include that information on this form.

If you have a financial interest or signature authority over at least one bank or brokerage account, and the total value of those accounts exceeded $10,000 at any time during the calendar year, you would need to file the form by June 30th of the following year.

Additionally, if you have a foreign bank account, you will also need to check box 7a on Schedule B form 1040 when you file your taxes.

Next, Robert asks, “Simon– does Singapore tax companies on income they earn outside of Singapore, and then bring into Singapore? I am a Canadian who owns and operates a business that can be done entirely online, and I’ve been considering Singapore as a jurisdiction.”

Good choice. Singapore is a great place to structure an online business. In general, profits that are generated outside of Singapore are not taxable there as long as the funds are not repatriated to the country.

In practice, many Singapore companies earn money outside of the country, and they bank in a place like Hong Kong to ensure that none of the profits ever enter Singapore. Through this approach, the company has effectively eliminated its Singapore income tax liability.

This is a very clear example of how a business can benefit by planting multiple flags– structuring the company in one location and banking in another.

Durabo asks, “Simon, have you heard of Anglo Far East Bullion Company? They are a precious metal storage facilitator, and I’m wondering if you have any experience with them.”

Yes, I do have experience with them; I have met with the principals at their headquarters in Panama, and I generally find their service to be very expensive. There are cost effective alternatives for bullion purchase and storage, such as Best Safety Boxes in Panama, or Das Safe in Vienna.

Last, Kevin asks, “Simon, is there any chance of becoming a Colombian citizen and obtaining a second passport?”

Yes, but it’s not a country where you would really want to pursue citizenship.

First of all, it takes several years, and the process is very bureaucratic. During some of that time period, you cannot leave the country for more than 6-months at a time.

Eventually, if you are finally able to obtain citizenship, you may be signing yourself or your children up for military service in the country.

The biggest reason, though, is that Colombians have some of the worst visa restrictions on the planet; it is a poor travel document, and there are much better/easier options out there.

Instead, I’d suggest considering Ecuador, Brazil, Paraguay, and Singapore. These countries are much stronger travel documents, and you’ll have a much easier time acquiring them.

Subsequently, you could still spend a great deal of time in Colombia, either as a tourist, or applying for residency. This is another multiple flags example– citizenship in one country, residency in another.

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

May 28, 2010
Chicago, IL, USA

Chicago is a really beautiful city– one of my favorites in the United States, actually, along with Austin, TX and Sheridan, WY. But while I enjoy being back in the US as a tourist from time to time, I’m itching to get out of here.

The travel I’ve just scheduled is a bit insane. Next week, I’m traveling to New York for an Atlas 400 event. Immediately after, I head to Panama… then Chile, Brazil, Madrid, London, Norway, Lithuania, Lebanon, South Africa, Zimbabwe, Kenya, India, Pakistan… and more.

I’m looking forward to the travel and meeting up with old friends on the road. Most of all, I’m looking forward to bringing you even more boots on the ground insights, especially as we gear up for our new premium service.

More to follow on this upcoming trip soon. For now, let’s jump into this week’s questions.

First, Gene asks, “Simon, I do alright, but the majority of my money is tied up in retirement savings. I’m afraid of what’s happening in the stock market right now, and I’m thinking about buying gold instead. Do you think that gold is a good buy at this price, and can I do this with my IRA?”

Great question. I mentioned a few weeks ago that it’s really difficult to ‘value’ gold as an investment speculation. Unlike a company whose balance sheet and management can be probed, or real estate that generates income and agricultural yield, it’s impossible to determine the fair price for gold.

As a speculation, I have a tough time chasing anything that has enjoyed a huge run-up, though I do believe that gold is seeing some breakaway fundamental changes right now in the way that investors are perceiving risk.

That being said, as a means to hold and protect your savings, gold probably makes a lot more sense, regardless of the price level. I hold physical gold, and I don’t really care what the spot price is. Why? Because it holds its value in relation to ’stuff’ irrespective of the changes in paper currency.

This, after all, is the true nature of savings.

With your retirement savings, you can buy gold (and silver) through what my friend Terry Coxon calls an “Open Opportunity IRA”. This is a self-directed structure that puts you back in control of your own money and allows you to invest in just about anything, including most classes of bullion.

For US taxpayers, this Open Opportunity IRA is really a no-brainer for anyone with more than a few bucks in his retirement account… and if you haven’t already, I’d encourage you to give Terry Coxon’s book a try. It’s called Unleash your IRA, and he tells you exactly how to do it yourself.

For Canadians, the tax code now allows RRSP-ownership of certain gold coins. They must be of at least 995 purity and produced by the Royal Canadian Mint.

For Brits, the ISA retirement structure leaves few options for holding bullion.

Next, in response to my article about Uruguay no longer being a tax-free residency jurisdiction, ‘lf’ commented, “Unless Simon will come up with an idea how to get Martian passports, I doubt that a viable option really exists.”

I find this perspective troubling.

Countries change from time to time. It’s happened in the US, it’s happening now in China, it’s happened in Europe. Uruguay is no exception– they went from being a tax haven to jumping in bed with the OECD.

But to say that there are no viable options out there is simply an erroneous, defeatist attitude. Singapore is a great example– there are plenty of jobs and entrepreneurial opportunities available, the residency process is cheap and transparent, and you can become a citizen after 2 years.

I could cite several of other examples… but the larger point is that nothing is going to stay the same forever. You, your country, the environment, the society around you– all evolve and change over time.

The nice thing is that we can generally see major political changes coming years in advance. That gives us time to make preparations. Right now, you probably have a strong sense of the negative changes coming to the Western world, and that’s why we keep having these conversations.

Bob asks, “Simon, I was a bit confused about your article concerning Canadian citizenship. It seems more attractive to be a non-resident Canadian citizen. Is it possible to apply for this status directly without ever being a resident?”

No. You have to actually be physically present in Canada for 3 years out of a 4 year period. Then, and only then, can you apply for naturalization. If you take advantage of the offshore trust investor program, though, you can at least squeak by with a minimal tax burden.

Lastly, Jennifer asks, “Hi Simon. You haven’t mentioned anything about your sustainable community project in a while. Any update?”

Here’s the bottom line: I absolutely will develop a cost-effective, sustainable, offshore community where the amenities focus more on organic agriculture and livestock instead of golf courses and water parks.

Considering that I’m heavily involved in 3 operating businesses, multiple other investments, and I still write this letter each day, I simply don’t have the bandwidth to give a real estate development my 100% effort at this time… and I refuse to attempt something that I can’t give 100% to.

Given the upcoming offshore conference that we’re planning, as well as the pending launch of a premium service, I suspect it will be at least another 9-12 months before I’m ready to make that sort of commitment.

I appreciate all the emails expressing interest in the project, and I want to be clear that once I can allocate the time, it will be a top priority.

May 19, 2010
Quad Cities, IA, USA

I wanted to send you a short note today from America’s heartland to tell you what I’m doing with my investment capital, and why.

I’m closing out almost all of my speculative positions and going to sit on the sidelines for a bit because I’m concerned that the markets are entering another major deleveraging period.

Here are the facts which concern me-

1) Interbank lending in Europe is on the decline. Banks are now hesitant to lend to each other for fear and skepticism of what may be on others’ balance sheets; sovereign debt default has everyone worried, and lenders are mistrustful of anyone who may have exposure to the PIIGS.

The consequence is that European banks are now sitting on their cash and not extending credit to businesses, consumers, and investors. As the modern financial system depends entirely on the availability of credit, a major reduction in credit curtails output and demand, reducing asset prices.

We saw how a credit crunch affected asset prices in 2008, and what’s happening with European banks right now is similar.

2) Markets have been incredibly volatile lately, and this trend is likely to persist in the near term. Extreme volatility can often cause capital flight from risky markets, either due to margin calls or risk aversion.

When capital flees markets, prices fall. We also saw this in the autumn of 2008.

3) Government intervention is on the rise. Yesterday, Germany dropped an 800 pound gorilla on the markets by announcing a series of bans on certain short trades. Among the consequences is that credit markets now have reduced capability to hedge their exposure to risky sovereign debt.

In Switzerland, the central bank (SNB) has dramatically intervened in the currency market, boosting the euro by over 225 pips against the franc for a roughly 1.4% gain overnight. This is a huge move for a major currency.

History shows us that government interventions do not stabilize the markets. At best, intervention discourages private capital from participating in the markets; at worst, intervention encourages gross misallocations of private capital by trying to second-guess future interventionist moves.

Either way, the effect is negative for markets and asset prices.

4) Substantial risks still exist which could cause another leg down in the markets and create more capital losses for banks. These risks include sovereign debt erosion (which is happening), continued rise in foreclosures (which is happening), and a major currency crisis (which is unfolding).

In each of these cases, the net result will be reduced lending and credit availability as banks have to focus on rebuilding their balance sheets and increasing loss reserves.

Again, we saw the effects of these risk factors in 2008. Banks have been on the sidelines ever since, and the consequent lack of credit availability created major cash shortages in the broader economy.

The result is a fire sale of all assets, which causes steep price declines.

To be clear, I think this will affect the gold market as well, mostly because of the reciprocal effect of ETF instruments. The SPDR Gold ETF, better known as GLD, is allegedly the largest private holder of gold in the world.

In the event of a market meltdown, significant sales of ETF shares trigger a sale of gold holdings, which would in turn cause a further decline in the ETF shares, triggering more sales of gold holdings.

It’s a cycle of momentum. Just as we saw oil prices quickly rise to $147 in 2008, the inverse of this cycle is a rapid unwinding. Gold could get caught up in this because there is so much ETF exposure. Consider this if you are holding gold for speculative purposes.

Silver, however, would likely fall even more… and that’s why a bet on a rising gold/silver ratio is one of the few speculations that does make sense to me right now. I could see it rising from 63 to 75 or 80 in the near future.

In full disclosure, none of these assessments is a foregone conclusion in my book, but I see enough risk in the marketplace to take my speculative cash off the table… and that’s really what I wanted to tell you today.

I don’t have a high risk tolerance with my money, and when I see one ‘investment professional’ after another on CNBC telling me why I should jump into the markets because everything is rosy, I get really nervous.

The truth is that until there is some finality with the challenges in the eurozone (which will take quite some time), I don’t see how the markets can do any better than trading sideways.

May 12, 2010
Undisclosed Location

First of all, I really want to thank all the well-wishers who were kind enough to write me and wish me luck on my operation yesterday. Everything went off without a hitch, and I’m already feeling much better.

I will unfortunately need to stay in place for a few weeks while I recover and have a few follow-up visits, but I expect to get airborne again quite soon.

To be honest with you, the place I’d love to be the most right now is Greece. I think history is unfolding right in front of us, and I really want to see it with my boots on the ground.

I thought it was absolutely amazing when European leaders came to the table this week with almost $1 trillion to defend the euro against the market’s siege. Yet, by the end of the day after the initial euphoria had worn off, Europe’s support didn’t register so much as blip in the euro’s strength.

Specifically, after the announcement of the trillion dollar support package, the euro finally closed Monday afternoon at $1.27. Prior to the announcement before the weekend, the euro closed Friday at… $1.27. Not exactly much of a difference.

In other words, the market essentially laughed off the government’s trillion dollar pledge of support. Why? A few reasons-

First, no one really believes the European support truly exists, especially not in that magnitude;

Second, even if it did, investors now finally realize that these politicians are simply playing with their own worthless monopoly money;

Third, and most importantly, anyone with two brain cells to rub together recognizes that Europe’s economic woes cannot be contained with more paper money… and now the problem just became $1 trillion worse.

Battling back from an economic crisis requires hard work, savings, and minimal disruption from the government. There’s no magic pill, entitlement program, or paper money bomb that will suddenly make things better.

Instead, governments should be curtailing social benefits that encourage people to be lazy, while simultaneously stripping taxes to the bare bones in order to give entrepreneurs and investors the proper motivation to work hard, take risks, and hire employees.

These things are not happening, nor will they ever happen in the foreseeable future. And so, backed by Europe’s trillion dollar pledge, Greece will likely go back to business as usual… spending money that it doesn’t have, and making its problems exponentially worse.

Last summer, when I was in Europe, I wrote a short piece about the euro. At the time, I explained why it was overvalued (at around $1.43 back then) and that its fair market value should be in the range of $1.18 to $1.25 to achieve similar parity as the US dollar.

In the past, investors were desperate to dump their dollars, and the euro seemed like the most viable alternative. Investors paid a premium for the euro, bidding the price well beyond its fair market value to as much as $1.60.

Today, the euro is once again trading near its fair market value range that I estimated at $1.18 to $1.25. This is because the market no longer views the euro as a viable alternative to the dollar, hence it is not worth paying a substantial premium to fair market value.

Remember, due to the size of their respective bond markets and relative lack of capital controls, there are only three currencies in the world that have the capacity to absorb large institutional capital flows– the dollar, the yen, and the euro.

If you’re a small investor with a few million dollars, you can park that cash just about anywhere without affecting the exchange rate.

But if you’re a large institution with billions of dollars, only the dollar, yen, and euro can consistently absorb huge inflows/outflows of capital without drastically affecting the exchange rate.

For now, those capital flows are moving out of the euro and into the dollar. The reasons behind the ‘europremium’ are gone, so the purchasing power of the two currencies should be roughly the same.

As such, I would be uncomfortable having a short euro/long dollar position in this range unless there were a very clear signal that the euro’s collapse is imminent.

Since the PIGS have a trillion pieces of paper to burn through for the time being, I expect this won’t happen for some time.

Additionally, for the time being, I’m happy to maintain my short euro/long gold position (XAUEUR) as I continue to believe that institutional funds are starting to shun government bonds in favor of gold. This position has returned us 30% since I first mentioned it a few months ago.

May 6, 2010
Undisclosed Location

If you’ll kindly indulge me, I will jump right into this week’s questions.

First, Jeff writes, “Simon- you really called the gold/euro short (XAUEUR), I’m up 25% since you mentioned it. Where do you see it going now?”

The European-induced panic is causing a rush to ‘quality’ once again. The dollar has surged, Treasuries rallied, and just about everything else fallen, including oil, silver, and that third-world peso we call the euro.

One of the lone standouts, though, has been gold. Once again, I find the market’s rush into Treasuries coupled with the simultaneous rise in gold prices to be an incredibly bullish sign for gold.

I’m far from a gold bug, but I cannot ignore facts and simple analysis. In good times, investors frequently use the bond market to park large swaths of cash. These days, though, institutions are increasingly skeptical about lending money to corrupt, fiscally irresponsible politicians, especially at low interest rates.

One of the most obvious alternatives for institutional investors is gold… so instead of gold falling during the panicked sell-off, many investors are rushing into gold faster than US Treasuries.

Not only has this been excellent for our gold/euro trade, it suggests that investors are now starting to view gold as a ‘less risky’ asset than government securities. In the longer-term, this will be tremendously bullish for gold as more investors shun sovereign debt for the metal.

In the medium-term, I think the next move will be a rise in the gold/silver ratio; it tends to rise during times of tension and high risk perception. I also think that the Swiss National Bank is finally going to intervene in the euro/franc cross, but I’ll save that for another time.

Next, Dieter writes, “Simon- you mentioned that in the event of a dollar crash, Panama would be OK in the long run. I disagree; Panama does not produce anything, and the income from the Canal is not enough to sustain itself. Comments?”

Correct. Panama does not produce anything to speak of. Neither does Hong Kong.

Yet, the two are able to attract significant foreign investment because of relatively business-friendly environments, as well as large pools of capital from neighboring countries that fund robust financial sectors.

(Chinese money goes to Hong Kong, Colombian/Venezuelan money to Panama)

The pools of capital and foreign investment have built diversified economies in both locations, including strong domestic consumption markets. Coupled with Panama’s Canal revenue, I believe that the country will be much better positioned than most of its neighbors in the event of a dollar crisis. I’ll discuss this more next week.

Next, Don from Thailand cautions us all: “Simon, I brought my gold to Thailand with me and it was forcibly confiscated upon entry. They said that I should have declared it at Customs and paid a VAT fee of several thousand dollars.”

Ouch. I’m not sure how much gold Don had on him, but these days, it’s just not a good idea to be carrying more money in your briefcase than the annual salary of the guy inspecting it.

In most countries, gold is not considered money, at least officially. All across Asia, though, gold has significant cultural importance. In many poor countries, if officials spot your gold and can take advantage of you, then they absolutely will. After all, they’re the ones wearing the guns.

The thing is, no one should be thinking about storing gold in poor, underdeveloped countries anyhow– stick to Austria, Switzerland, Hong Kong, etc. These are countries of negligible corruption risk and a well-defined rule of law. And make sure you check customs rules before you go.

For large amounts, use a secure transportation service like Viamat; they’ll ensure the integrity of your shipment from door-to-door, and even store it for you if necessary.

Next, Paul writes, “Simon, great article about Greece. Although the US is not dealing with a 900% debt to GDP ratio, we are heading down a road that sure feels the same. Increased taxes, VAT, and massive entitlements will surely bring us to a critical tipping point soon. Ecuador keeps looking better all the time.”

Agreed. Look, these problems aren’t going away. There is no chance that Greece can possibly be bailed out, and there is no chance that Spain, Portugal, and Italy won’t follow. Then Japan. Then the UK. Then finally the United States.

These countries absolutely have to implode. As Bill Bonner astutely remarked last weekend in Las Vegas, “when things get out of whack, they tend to get back into whack.”

Well… 900% of GDP worth of government debt and obligations is out of whack. Trillions upon trillions of dollars in unfunded and growing entitlement programs is out of whack. Borrowing and spending your way out of debt is out of whack.

Getting back into whack requires a system reset.

Here’s the good news: this is nothing to be afraid of. We can all see this coming from miles away despite the governments’ lies and the blinders on the mainstream media.

We can prepare, today, by planting multiple flags to safeguard ourselves, our families, and our assets… and then focus on thriving from all the opportunity being created.

Remember– the sky is not falling. Now is the time to be calm, confident, and measured. Panic is for the unprepared, and fear is for the uninformed.

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 28, 2010
St. Michaels, MD, USA

Since I arrived from Santo Domingo on Monday evening, I’ve been enjoying some peace and quiet in this quaint, quiet, wealthy little town on the Maryland shoreline.

St. Michaels is where Porter Stansberry is holding his annual ‘idea conference,’ which he sponsors each year around this time. The goal? He brings together successful people from a variety of backgrounds to discuss their best ideas– investments, business concepts, or anything else of intellectual value.

These events always generate a lot of promising ideas from which everyone can profit; Porter himself tells stories about how a single idea from a past conference generated millions of dollars for his business. I know that I personally will benefit substantially from many of the investment ideas I’ve heard.

While I’m not at liberty to write about everyone else’s ideas in this forum, I can at least tell you what I’m talking about– gold.

As an investment or inflation hedge, gold is nothing new… and to be clear, I am far from a die hard gold bug. But a few months ago, I wrote the following about gold vs. the dollar:

—

“Naturally, the chief reason that Treasuries are considered safe is because they are backed by the full power of the US government’s printing press. Investors are wise to this trick, and smart money will not be fooled into longer term bonds unless there is another financial cataclysm.

As I survey the situation, I’m convinced that gold is nowhere near peaking exactly for this reason. In a flight to safety, institutional money still flows into the dollar. Gold will not truly break out until there is a bifurcation in investors’ mentality regarding safety.

To put it more clearly, when worried investors start piling into gold instead of the US dollar to protect their assets, this is the sign that we are charging towards the top.”

—

Yesterday, we started seeing the first signs of this bifurcation. World markets tanked. The Dow shed over 200 points, silver and copper dropped, oil fell, etc. It was a pretty bad day for bulls.

The dollar, on the other hand, strengthened considerably, especially against it’s ugly European sisters. Accordingly, US Treasuries rallied as worried investors piled into the perceived safety and security of bonds.

Ordinarily when these types of events occur, gold falls right alongside everything else… especially since many gold investors are sitting on large gains, and they’d rather take profits than assume the risk of holding gold during so much uncertainty.

And uncertainty there this… Credit expansion is showing symptoms of a bubble in China. Thailand is having major political challenges. The Eurozone is under intense pressure. Dubai still can’t pay its debts. The British pound is looking like a third-world peso. etc.

Curiously, though, gold rose handily yesterday against the dollar, which itself had risen against nearly every other currency, index, and commodity. This is highly unusual, and I’m considering it a possible sign that the market’s perception of risk may be starting to change.

Specifically, we may have hit the bifurcation point where investors consider gold to be less risky than loaning money to sovereign governments. We’re already seeing this with many corporate bonds that have much higher ratings and lower yields than some first-world sovereign debt.

One of the best ways to play this bifurcation trend for now is to buy gold and short non-dollar currencies. In December, I recommended buying gold at 760 euro. We nailed that one– since then, gold has risen and the euro has tanked… and gold hit a high of 890 euro yesterday. I expect this trend to continue over the medium term.

Will gold go up in a straight line? Absolutely not.

Remember, the value of all the gold ever mined currently amounts to about $5 trillion, only a fraction of world financial market values. Thus, in a cataclysmic financial event when institutional money leaves risky assets for quality, it simply won’t be possible for everyone to pile into gold.

In the longer term, this means that gold will likely have some breakaway runs to higher and higher levels in US dollar terms, similar to how the oil market was behaving in 2007-2008. I think that yesterday’s market reaction foretells this trend.

I would suggest keeping a close eye on the gold/dollar relationship over the next weeks and months as the Greek debacle plays out, and investors start looking at other sick economies like Japan. If the trend holds, it is an extraordinarily bullish sign for gold.

April 16, 2010
Medellin, Colombia

Yesterday I celebrated tax day by charging up my AMEX card on one of the IRS’s official payment websites. There’s nothing like earning travel points for keeping the flames of bureaucracy burning.

And speaking of travel, I should be headed to Ecuador this weekend where I plan on spending several days hopefully hopping around the country; more to follow next week.

On to this week’s questions…

Fred asks, “Simon, I cannot find a clear answer as to whether or not the purchase of Perth Mint Certificates in excess of $10,000.00 would require filing of Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts).

This is a really important question that applies to both Perth Mint Certificates and GoldMoney.com accounts. The IRS, as usual, provides no clear guidance specific to these institutions… so I posed the question to my team of legal/tax advisors.

One of them, “JN”, participated with on the recent S&A teleconference that I discussed yesterday, and he is probably one of the world’s foremost experts in offshore banking. I find that his information is priceless, and he’s the kind of guy that you definitely want in your corner.

JN had this to say:

“As far as the TDFs are concerned, I would generally argue that neither gold currency accounts nor Perth mint certificates meet the definition of a foreign financial account.

The new “jobs” bill however changes the dynamics, effective December 31, 2012 by requiring the disclosure of ANY asset outside the US that has a value of $50k or more. This will pretty much make the TDF issue academic except in cases where someone has say between 10k and $49k in gold.”

Next, William asks, “Simon, Medellin sounds like it’s full of opportunity; I’m curious how you would compare/contrast the investment opportunities with Panama.”

Frankly, an analysis of Colombia vs. Panama deserves its own missive. But briefly, I think the best Colombian small investment opportunities are in the property market; you’ll likely score the trifecta– substantial capital appreciation, high income yields, and currency appreciation.

As such, property in Medellin is an excellent investment candidate for tax free / tax deferred structures.

There are also a handful of Colombian mining companies traded on public exchanges, but I’m staying away from them. Here’s why:

The property market in Medellin is undervalued. Cheap, actually… mostly because the market is still pricing in the “Colombia stigma,” i.e. prices are lower than what they should be because the market still has overstated concerns about stability and security.

On the other hand, mining companies with heavy Colombia operations seem to have absolutely no risk priced into their stocks… which is quite strange. The stock market has assumed away Colombia’s risk, and the property market is irrationally overstating it.

The truth lies somewhere in the middle… though I would argue that the best properties in cities like Medellin have very little risk compared to remote mining sites where there is still paramilitary activity.

Next, Bonnie in Massachusetts asks, “Hi Simon, I do a lot of serious road cycling. Are the roads in Panama good for cycling? Are there bike groups or clubs down there?”

The best places to bike in Panama (or walk) are the Amador Causeway (about 4 miles) and the Cinta Costera… but typically, no, the roads in Panama are terrible for cycling. If you bike on a regular city street, you’ll probably get run over. Panama is not biker/walker friendly.

Next, Richard comments, “What’s up with all the violence in Thailand? I thought it was an idyllic Buddhist country. Now it seems like they’re more prone to violence than the good old U.S.A. Even with our budget issues and governator, I’ll take southern California anytime.”

I like southern California too… but don’t be too quick to judge Thailand based on an anomalous incident in which 21 people died. Statistically, violent crime is much, much worse in southern California.

In Thailand, violent crime, particularly against foreigners is almost unheard of; the worst thing you have to worry about there is corruption, not getting your head blown off.

Lastly, Pamela comments, “Simon- I would like your take on Medellin from the single female perspective. What about the men– looks, demeanor, attitude relative to females, local and foreign. What about safety/security, getting around, etc.?”

Look, I definitely do not claim to have the perspective of a single female… but from the best that I can tell, men here interact with their women in typical Latin style, though slightly more respectfully than I have seen in places like Argentina where men regard women as their toys.

As for safety and security, the single women that I know here have never complained about being accosted or threatened… though it is uncommon to see a single, nonprofessional woman in Medellin, mostly because Colombians tend to socialize in mixed groups.

Overall, while I’m soundly unqualified to rate the attractiveness of the men folk here, I can tell you that Colombians are generally a very friendly people. If you speak some Spanish you should be able to make friends in no time, and that goes for anyone.

March 23, 2010
Hong Kong, SAR

The banking system in Hong Kong is one of the most advanced in the world, and if you’re shopping around for a place to plant a banking flag, you should definitely consider it.

As a jurisdiction, Hong Kong was effectively founded and built into a global financial center for the sole purpose of bridging east and west. Today, as Asia has grown into an economic powerhouse, Hong Kong is still the region’s center of banking and commerce– like London in Europe or New York in the Americas.

In particular, though, there are a few things that I think set apart Hong Kong as a banking jurisdiction:

First, the banks in Hong Kong are actually well-capitalized.  Unlike banks in the west which have used fuzzy accounting tricks and nearly interest-free government loans to prop up their balance sheets, Hong Kong’s banks actually have their own substantial cash reserves on the balance sheets.

Furthermore, the banks are reasonably and appropriately regulated without any undue government interference or hypocritical political backlash.

Second, I find banking in Hong Kong to be cheaper and more efficient than many other jurisdictions.  Wires often take place instantaneously, and costs for international transactions are a fraction of the price that I pay in the United States and Europe.

Third, because Hong Kong as a jurisdiction is ultimately backed by its big brother mainland China, bankers in Hong Kong have a certain confidence in being able to deliver more personalized service.

Once your account is approved, you’re in the club… and bankers will go out of their way to service your needs without constantly quoting you the latest OECD requirements.

The tough part about Hong Kong is getting approved, especially for a business account. Most banks will want to see the whites of your eyes before opening an account for you, which is a dreadful inconvenience for most people.

I discussed one ’short-cut’ for doing this a few weeks ago, though if you find yourself traveling to the region, I always recommend that people go visit the bank that they’ll be doing business with so that you can feel more comfortable about the relationship.

Besides, Hong Kong is a fantastic city and worth a visit… though I must admit the air is quite dirty today– I see nothing but haze from my room on the 38th floor of the W Hotel, apparently due to some sandstorms in central China… but I digress–

Another reason for visiting Hong Kong is to buy and store gold, which you can also do at just about any bank in town. My friend Tim, a brilliant financial mind and fellow Atlas-400 member, is also in town, and he was just telling me about some interesting anomalies he noticed in the gold market:

Prices are not uniform. The buy price on a one ounce Canadian Maple Leaf coin (what the bank will pay you) at Hang Seng bank is HK$8,520 (roughly $1,097). At Bank of China, the buy price is 4% higher.

Furthermore, Tim seems to have found an arbitrage opportunity in Chinese panda gold coins, which for some reason sell for a much higher premium to spot price in the United States than they do here in Hong Kong.

Once you’ve acquired gold, storing it in Hong Kong is quite easy at any number of banks; I have worked with NCB Bank, Public Bank (out of Malaysia) and HSBC in the past, and they generally have safety deposit boxes available.

There is also a private storage facility called, appropriately, “The Storage”.  It’s located in a rather peculiar part of town, but the facility is quite secure with 24-hour armed guards and backup redundant systems.

Unfortunately, The Storage does not do anonymous box rentals, which is a fairly recent policy change.

Their box rental charges are about $75 (USD) per year, and you can prepay up to 2-years in advance.  As always, it’s best to call first to find out what documentation requirements are necessary.

March 15, 2010
Pattaya, Thailand

I was laying in bed sick recently watching Conan the Barbarian… yes I admit it. Some people eat chicken soup, I drown myself in cheesy Hollywood violence.

If you haven’t see it, you’re not missing much of a plot– Arnold Schwarzenegger at his physical prime wields a big sword and searches for treasure to plunder.

As I watched the Governator decapitate his foes two at a time, I couldn’t help wondering if this was the image that Nouriel Roubini had in mind when he called gold a “barbarous relic” in the highly publicized tit-for-tat argument he was having with Jim Rogers…

In blasting gold and gold bugs alike, Roubini indicated that gold is a new bubble waiting to burst, and that the idea of $2,000 gold is merely speculative fantasy.

To be clear, I am not a gold bug… but I’ve found Roubini’s comments to be off-the-mark. How can there be a gold bubble without widespread gold mania? Wait until the shoeshine boy is having conversations with his customers about Eagles and Maple Leafs… that’ll be a clear sign of mania.

With all the ‘Cash for Gold’ locations I’ve seen sprouting up all around the world, we may be in the very early stages of developing this mania, but for now, the vast majority of people still don’t own a single ounce.

The chief problem with gold is that there is no reasonable way to value the metal, so it will be impossible to quantify when the metal finally has reached bubble phase.

Sure, there are a plethora of technical indicators and moving averages to consider, as well as a comparison between the market value and its production costs… but there is no clear means to define a clear price for gold.

As an example, you can value the balance sheet of a company against very clear, quantifiable assets– cash on the books or dividend yield for example– and determine if the company is undervalued or overvalued.

There is no similar approach for gold… and this makes direct pricing predictions the stuff of wizardry and good headlines.

My suggestion is that, if you want to speculate in gold, it’s probably better to buy shares of gold mining companies instead, which have audited assets and earnings to evaluate.

I view physical gold, on the other hand, much more like a form of cash instead of a speculation… a form of cash that is totally private, uncontrolled by any central bank, and to be used in emergencies only.

To give you an example, I have a euro bank account.  I don’t watch the euro spot price all day, buying/selling the currency based on its fluctuations against the dollar and constantly recalculating the accounts value in dollar terms.

Rather, I only care that the bank holds on to my euros and that I can access the funds to buy things priced in euro. If I have 100,000 euro in the account, I look at it as 100,000 euro, not whatever value it has in dollars at the moment.

I look at gold in the same way. I accumulate gold as money, and I even travel with a bit of it just in case I wake up one morning and find that the global financial system has completely collapsed.

(when you travel as much as I do, this is the best insurance policy, along with a second passport…)

The other benefit to me is that there are no reporting requirements, and no unpaid government spies that snoop over what I’m doing with my ounces. This form of financial privacy is definitely worth considering.

In terms of market value, though, I do not pay much attention to the fluctuations of the gold price in dollar terms, up or down.

I will not cheer if it hits $1,500, nor will I cringe if it drops below $1,000. Just like my other foreign currency holdings, the value of my gold in dollar terms has little significance… besides, obsessing too much about its dollar value defeats the purpose of accumulating gold to begin with: having a private alternative to the dollar.

Tomorrow I’m going to talk about a unique way to buy gold, write-off the storage costs, and hold it overseas in a tax-deferred or tax-free vehicle.

Stay tuned.

March 12, 2010
Pattaya, Thailand

Greetings once again from the land of smiles.

First of all, I really appreciate all the responses after yesterday’s letter in which I announced that I will be speaking at the upcoming Casey Research Crisis and Opportunity Summit. I’m really looking forward to meeting with so many of you in Las Vegas.

For some reason, a few subscribers had difficulty with the link that gives more information about the event, so I want to re-post it here in case you’d like to join us:

http://www.caseyresearch.com/crpmkt/crpSolo.php?id=181

And with that, let’s move on to this week’s questions:

Stephen asks, “Simon – I don’t recall you mentioning the Seychelles as a potential offshore banking location? Any reasons not to incorporate there and/or open a bank account?”

Seychelles has a reasonably developed financial infrastructure and is a decent choice for offshore merchant processing… but I find it to be expensive to set up a company, and the due diligence requirements are fairly strict.

More importantly, though, I am generally mistrustful of very small countries that rely almost completely on their offshore industries. If the government has a string of bad years, they won’t think twice about imposing new taxes and fees on all the entities incorporated there.

Russ asks, “Simon, I know you’re busy, but I have a quick question regarding GoldMoney.com.  Is this account something that must be reported to the IRS as a foreign financial account?”

That’s a great question… a lot of people have asked it, and the bottom line is that there is no clear guidance one way or the other.

On one hand, GoldMoney should not be regarded as a financial account because it exists outside of the banking system and deals strictly with precious metals, which are not regarded by the government as a monetary instrument.

On the other hand, the service is clearly designed to be a banking substitute, and as all administrative and storage facilities are overseas, it certainly could qualify.

Jim Turk, the founder of GoldMoney.com, is one of the people who thinks that it does not qualify as a foreign financial account. Your best bet is to talk to your accountant and decide how you want to proceed.

Robert asks, “My father is Italian and based on my lineage, I am entitled to Italian citizenship.  I have already done most of the leg work, aside from getting the required apostilles, but I have been hesitant to complete the process as I live and work here in the good ‘ole USA.  In your expertise, would you find this to be a good option for a second passport?”

Western European passports are extremely valuable for most people– they entitle the citizen to live and work anywhere in the EU, and they’re fantastic travel documents, even better than a US or Canadian passport.

With any second passport, though, there are a few things that you really need to watch out for:

First, military conscription is a very real issue in many countries, including Italy. I believe the maximum draft age in Italy is 25, which means that anyone who obtains Italian citizenship between the ages of 18 and 25 must serve briefly in the military.

Second, you should also watch out for tax consequences. At the moment, Italy does not tax worldwide income, but as the economic situation there continues to deteriorate, it is entirely possible that the Italian government may start taxing its expats.

Christina asks, “Simon you’ve written before about the marquee international hospitals in Thailand like Bumrungrad International. Do you have any experience with ‘tier 2′ hospitals? Is there a major step down in quality?

I recently had the pleasure of carting myself off to the emergency room here in Pattaya. I’ve been to the ER in many countries, including in the United States, and as I think anyone could attest, you spend more time waiting around the ER than being treated.

Here at Pattaya International Hospital, though, I was literally being treated within -seconds- of my arrival. As soon as I showed up, I was met in the parking lot by two nurses who took me straight to a bed in the back where they triaged me.

The doctor came within 5 minutes, and he spoke flawless English, having studied in Canada.  To me, this speed is a major differentiator in quality and one of the reasons I routinely tell people that, in case I get sick, I really hope that I’m in a country like Thailand.

That’s it for this week! Thanks for bearing with me while I recover.

February 26, 2010
Bangkok, Thailand

It’s “Judgment Day” in Thailand. I wrote about this on Monday– a Thai high court will rule today on the disposition of ousted former PM Thaksin Shinawatra’s frozen assets valued at several billion dollars.

According to the mainstream media, the entire country is supposed to erupt in chaotic and violent protests today. Even BloombergTV, which I normally respect, has been running sensationalized stock footage of fires, vandalism, and Thai soldiers shooting semi-automatic weapons in the street.

Without doubt, there will certainly be renewed political turmoil in time… this happens in Thailand about every other Thursday, and they present great buying opportunities. But the reality of the situation on the ground here is anything but chaos. Thais are going on about their everyday business, and today is like any other day.

It just goes to show how unreliable a lot of information out there can be.

On to the questions for this week–

Axel and Daniela ask: “Simon, what do you know of the Uruguayan economy and financial system– how much is the peso pegged to the dollar/dependent on it? Are there any problems owning/buying/selling gold?”

Uruguay has a small economy that is highly dependent on foreign trade for most consumer and industrial goods. The country has some level of agricultural independence, but generally has to import just about everything else, from hair spray to televisions to refined fossil fuels.

Its largest trading partner by far is Brazil, and in the long run, the Uruguayan peso’s performance will more closely match that of the Brazilian real, not the US dollar.

There are a couple of unfortunate things about Uruguay, though– first, they tax the hell out of anything deemed a ‘luxury good,’ which is usually most imports that are not everyday items. Cars, consumer electronics, shoes, etc. cost two to three times as much as you would pay in North America.

Second, they stupidly imposed an income tax recently that essentially eliminated the country as a reasonable financial center.

Third, the Uruguayan government does force you to declare gold upon entering the country, and any sizeable amount will be taxed.

Jein asks: “Simon, I’ve been considering the Swiss National Bank’s move to sell Swiss francs recently against the dollar and yen. Is this a hedging technique to get ahead of the markets, or do the Swiss see the slowing of US M2 money supply endangering equity markets and causing a carry unwind?”

Switzerland has repeatedly demonstrated that it will intervene in the currency markets to prevent a rapid appreciation of the franc vs. the euro; given the euro’s recent fall against the dollar and yen, I think the SNB is selling francs as a hedge to offset the rapidly declining euro.

I’ve recently gone long the euro against the franc because I expect the SNB will continue to intervene and offset the franc’s rise against the euro. This should cause a further decline in the value of the franc against the dollar.

Ellen asks: “Simon, if one is eligible for a Polish passport, which is an EU country, doesn’t that mean the person is automatically eligible for another EU passport, i.e. s/he would automatically be eligible for French or Italian citizenship?”

No. Citizenship does not transfer across the EU, only residency. In other words, as long as the EU/Schengen area continues to exist, a Polish citizen has the right to live and work anywhere in the European Union… but as a Polish citizen.

A Polish citizen could realistically establish permanent residence in another European country like France or Italy, and eventually become eligible for citizenship there after 7-10 years.

Frankly, I think that if you’re eligible for Polish citizenship, you should not even think about ‘old Europe.’ Poland is one of the strongest economies in Europe by far, and I think it will stay that way for quite some time. Poland is the future. Italy is the past.

Dee asks: “Greetings, Simon. What are your thoughts on purchasing natural colored diamonds as a means of wealth protection, asset accumulation and privacy?”

I don’t like diamonds for wealth preservation. Technology already exists that can create a chemical replication, which completely eliminates the stone’s scarcity in my book. All that remains is the sex appeal from clever marketing.

I also find diamonds to be too politically contentious with all the chanting about African slave mines. It’s just not worth it. Gold and silver are much more reliable stores of value. No one is going to spray paint your fur coat for owning some Krugerrands.

Mike asks: “Simon, I understand that Moody’s is set to raise Panama’s country rating to investment grade within the next 3 months. What effect do you believe this will have on the local economy and will it give real estate prices a ramp up?”

Honestly, not much. Moody’s is a relic of the old financial system, and the only people who still pay them any attention are institutional investors that still believe in the Tooth Fairy. A Moody’s upgrade will make it easier for Panama to raise cheap capital through a sovereign debt issue, that’s about it.

At this time, the country doesn’t have plans to raise any additional debt, though it may capitalize on cheaper money to refinance existing, higher interest debt, which would save a few bucks for its budget.

Panama’s economy has many opportunities for small to medium sized investors, but with only a $19 billion GDP, it’s simply too small to absorb capital flows from large institutions. Consequently, there really won’t be much of an economic effect from a Moody’s upgrade.

That’s all for this week. We’ll talk again on Monday.

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.

February 16, 2010
Bangkok, Thailand

The popular press has been bandying a lot of cute acronyms for the ’sick’ European countries. I have seen PIIGS, STUPIDs, and DUHs… and while the individual circumstances of each country are different, they all have one thing in common–

Their obligations far exceed their assets, and they have to borrow money just to pay interest on the money that they’ve already borrowed.

We don’t need a new acronym because there’s already a word for it: junkie. Before too long, the entire euro zone may be heading in this direction… in fact, while the final nail may be a long way off, markets are clearly starting to build a coffin for the euro.

To give credit where credit is due, I believe that Doug Casey and Jim Rogers were among the first well-known figures to declare the euro ‘doomed’ from its inception.

Their idea, long dismissed as a delusional paranoia for the better part of a decade, is now cascading through financial markets as a distinct possibility.

I came to my own conclusions a few years ago when I was traveling through Europe looking for cheap property; I didn’t find any. European costs are much higher than most of the world, and one of the chief reasons is that the governments tax everyone and everything to death.

Yet, despite the high taxes, most European governments were still run budget deficits to pay for legions of useless, omnipresent government workers and social welfare program.

I remember the day very clearly when I came to this realization– I was sitting on a train bound for Giulianova on the Adriatic coast with a gorgeous Italian girl, and the newspaper headline she was reading said “Italy’s budget deficit to exceed the EU limit of 3% of GDP”

That was in 2004 when times were good. I remember thinking to myself, ‘How are these people going to make it during a down cycle when they can’t get their act together during the up cycle?’

More importantly, since European tax rates are among the highest in the world, and the individual governments of the eurozone cannot simply print more money at will, the only way out of a fiscal pinch is to borrow.

It seems so strange that Italy, which collects 43.4% of GDP in tax revenue, can’t figure out a way to make ends meet… and because it cannot realistically squeeze out too much more tax revenue, the government must borrow compulsively.

Italy’s debt level is now well-over 100% of GDP, and investors are rightfully worried.  Given the even more dire situation in Greece, markets are now finally starting to question the legitimacy of the common currency euro zone.

Like all fiat currencies, the euro is fundamentally toxic. It is in a unique situation, though. Unlike the US, European governments don’t have room to raise taxes because their taxes are already so high. What’s more, they have many more social welfare programs and lack the political will to cut them.

That makes Europe first in line for judgment day.

The junkie countries like Greece and Italy will be the catalyst– they refuse to cut their budgets with any serious meaning, and are thus unable to raise any more debt capital from the markets.

That only leaves the prospect of a bailout from Europe’s stronger nations… except that even Germany and France cannot withstand the brunt of multiple bailouts. Obviously, if Greece is bailed out, Spain, Italy, etc. will line up with hat in hand as well.

And while the Greeks may be holding mass demonstrations to protest budget cuts, what will happen when the French start rioting in the streets to protest Greek bailouts?

European financial solidarity cannot stand, and there is no long-term solution except for a breakup of the eurozone. For now, the politically expedient answer is the current dog and pony show– bureaucrats gripping hands in a charade that is long on theatrics, short on substance.

Eventually, though, and it will have to be soon, something has to give. Greece is going to run out of money in a few weeks… so it’s either bailout or default. Neither will be pretty for the euro in the medium term.

The euro may rise briefly if Germany and the ECB signal a bailout, but the long-term implications of the moral hazard will be detrimental for the single currency.

One way to invest is to short the euro against gold and silver (XAUEUR and XAGEUR); I recommended this trade two months ago, and each has returned about 8% so far. I expect precious metals to keep rising against the euro, and to hold their value even if the world resuffers another deflationary cycle.

Another implication to consider is the effect on the Swiss franc; the Swiss do not want their currency to appreciate too much against the euro, and the government there has a history of intervening when necessary, so it may be worth opening a short position on the franc in the next few weeks.

Lastly, the implications for the US dollar and yen are significant. Until the global financial system agrees on another safe haven that can absorb massive capital inflows, the dollar and yen should see continued appreciation against the euro until the market’s anti-euro fever has bottomed out.

More on this in future letters. Happy investing.

February 12, 2010
Pattaya, Thailand

I’m happy to report that I seem to be in the final throes of my Asian jet lag– I finally managed to go to bed and wake up at a reasonable hour.

I appreciate the emails that I received giving me advice about how to deal with it more effectively… honestly though, I think time is the best remedy for everything.  With jetlag, I take a “sleep when you’re tired, eat when you’re hungry” approach, and it will work itself out eventually.

Anyhow, as I am out the door and headed to the beach in a few minutes, I’d like to spend some time addressing your questions this week:

Kevin asks: “Simon, I want to purchase a round-the-world plane ticket in order to get a sense of which country I would feel most comfortable living in / retiring outside the US.  Do you have any recommendation on how to find an open-ended round-the-world ticket on the cheap?”

“Round the world” fares are a flexible, cost-effective way to explore the world. Each of the major airline alliances (Oneworld, Star, and SkyTeam) has an around the world program, and the rules are generally the same.

You have to establish your route in advance, i.e. start in Vancouver, travel to Tokyo, then Singapore, then Mumbai, then Abu Dhabi, then Istanbul, then Kiev, then Krakow, then Madrid, then Miami, then Los Angeles, and finally back to Vancouver.

The nice part is that the dates for each flight are completely flexible. If you start in Vancouver and fly to Tokyo first, you can spend as much time as you want in Tokyo. When you get tired of it and are ready to move on, you just call the airline and they will book your next leg of the journey (to Singapore).

There are a few rules– the entire journey can only take up to 1-year, and there’s usually a maximum of 16 stops in total.

Now… here’s how you save money: If you live in North America, try to start your journey in South America. Buy a 1-way ticket to Colombia or Brazil, for example, and begin the routing from there. You will save about $1,000.

Peter asks: “Simon, I’m really interested in Panamanian property; given where I see my country headed, Panama seems like a great place to set up, and I want to get out while I can. I bought the Black Paper, and I am considering going to this International Living conference in April. Do you think it’s worth it?”

Yes. I was friends with most of the IL staff in Panama over the last few years, and I knew the conference organizers quite well. They routinely put on informative events, and if you’ve been strongly thinking about buying property in Panama, the conference is a great way to pack a lot of objective exposure into a short period of time.

Incidentally I may be back in Panama by April, in which case I might attend the conference myself to meet with some subscribers and old friends.

Helen asks: “Simon, when can we hear back from you about the sustainable community, and on the second citizenship programs?”

We have about 750 survey responses from subscribers telling me what they would like to see from a sustainable community in Panama. Clearly this is something that needs to be done. My partner Matt and I are digesting the data and strategizing how we would execute this. I will provide details next week.

In regards to second citizenship opportunities– I plan on rolling out quite a bit of information later this month, probably the week of the February 22nd. Stay tuned.

“LookingToLeave” asks: “Simon, do you have any suggestions for someone who plans on possibly using physical gold as a way to move their wealth out of the U.S.?”

Transporting gold is a great way to move wealth– a mere six pounds is over $100,000. There are three things you need to keep in mind:

First, the US government (and Canada too) does not consider gold to be a monetary instrument, so technically it would not be reportable… but be prepared to tap dance in case some Neanderthal government agent becomes suspicious about it.

I say this because in my travels recently, nearly every border guard I’ve come across has wanted to know one thing: “How much money are you carrying?”

Second, don’t forget to check the regulations on your destination country. Some places, like Uruguay, require you to declare gold upon arrival.

Third, do not underestimate security. If you’re confident, you can carry it yourself, but consider engaging a company like ViaMat to securely transport it for you.

Have a great weekend, and we’ll talk again on Monday.

February 11, 2010
Bangkok, Thailand

Years ago, when I was a bright-eyed lieutenant anxious to defend the world against evil and tyranny, the government decided to ship me off to become an intelligence officer.

I remember a lot of the classroom training, learning about the enemy’s order of battle and maneuver capabilities. Ironically, we were still studying Soviet tactics at the time, even though the Berlin Wall had become a tourist attraction over a decade prior.

During my field training, we focused on collection efforts and intelligence gathering. My instructors would continually hammer into us the importance of ‘indicators,’ signs or symptoms that strongly imply a future action or trend.

According to our threat doctrine, for example, a small isolated scout platoon would be an indicator for a heavily armed vanguard only a few kilometers behind. Ground commanders would rely on these indicators to make tactical decisions, e.g. reinforcing defensive positions in expectation of the vanguard’s attack within the hour.

In his book Art of War, Sun Tzu wrote, “Intelligence is the most important work, because the entire force relies on it for every move… It is the essence of strategy.” Outside of war, the same holds true in finance. Savvy investors rely on market and economic indicators to provide intelligence on future trends.

Part of the trick is differentiating the valuable indicators from the worthless ones… and too many people pay attention to worthless indicators.  Government-manufactured statistics like inflation and unemployment rates, for example, are merely comical charades masquerading as economic indicators.

To get an indication of where the economy is headed, you have to listen to the economy. To get an indication of where the market is headed, you have to listen to the market.

I’ll give you a few examples:

In a weak economy, voluntary employee turnover is very low–  workers tend to stay put because they won’t be able to find a job elsewhere.  In a strong economy, however, businesses generally experience higher employee turnover because workers are confident they can find better pay somewhere else.

This is exactly what is happening in Panama; I saw it with my own eyes a few weeks ago– workers who would voluntarily quit because they had total confidence in being able to find a better paying job elsewhere.

This is a far more insightful indicator than any official statistic in determining an economy’s prospects.

Moreover, when the intelligence becomes too extreme or out of line from the norm, it’s usually a great indication of a top or bottom. Case in point– I pay close attention to the gold/silver ratio, which is the number of ounces of silver required to buy one ounce of gold.

When gold was actually money during the time of Alexander the Great and the Roman Empire, the ratio was fixed around 12.  Over time, the fixed ratio increased to 15, which stood firm until the beginning of the 20th century.

Once worthless paper money took over, metals started floating more freely against each other, hitting a high of 100 and a low of 17, with an average range of 50-60 over the past few decades.

In general, the higher the gold/silver ratio, the higher the ‘fear factor’ in the marketplace. This is because the market for gold is much more capitalized than the silver market.  Thus, institutional investment capital can flow into gold much more easily than into silver, which pushes up the ratio.

Naturally, this only happens when institutions are looking for safe havens for large amounts of capital.  Consequently, when expectations are poor and risk tolerance is very low, the gold/silver ratio increases. When risk tolerance is high and expectations are strong, the gold/silver ratio decreases.

Right now the ratio is about 71… higher than the norm of 50-60. I think this is an indication that markets are becoming risk averse.  It certainly mirrors what has happened with world equity and currency markets lately.

Given the level of uncertainty in the world right now, I think it is too early to make a trade on the gold/silver ratio… but I am continuing to watch it; if it rises beyond 75, I will likely respond by shorting long-dated gold futures and buying long-dated silver futures.

When this trade is properly structured, it doesn’t matter if the metals prices rise or fall– the trade will make money when the gold/silver ratio declines back into the normal range.

This will happen once market and economic tensions ease… and I’m watching what is happening in Europe very closely to help make that determination. It is, after all, an indicator.

January 25, 2010

Panama City, Panama

A few weeks ago, I told you about a new private vault facility that was opening soon in Panama called “Best Safety Boxes.” At the time, I had not personally checked out the facility but at least wanted to make you aware of its opening.

Late last week, I had the opportunity to meet with the owners and take a personal tour of the facility. In full disclosure, I have decided against renting a box at the facility simply because I refuse to submit my biometric data for storage.

Furthermore, to make things even more clear, I want you to understand that I am receiving absolutely no compensation to say this, and I have no interest in the company, financial or otherwise.

The Good:

Security. Best Safety Boxes may be one of the most secure buildings in Panama. There are dozens of security features, high-tech and low-tech, including reinforced, bullet-proof glass, biometric scanners, one of the industry’s highest-rated vaults, backup redundancy monitoring systems, and of course, big guys with big guns. Simply put, Best Safety Boxes has better security than Ricardo Martinelli.

Anonymous ownership.  With the use of Panama’s bearer share structures, the identity of a box lessee can be kept completely secret.

Location. If you are from North America and distance is a factor, you may find Panama to be the most convenient offshore jurisdiction to store gold and silver. Within Panama City, the Best Safety Box facility is conveniently and strategically located next to a bank and nearby a police station and private security company.

The Bad:

Lack of fire suppression. There is no fire suppression system in the main vault room at the Best Safety facility; this is a potential risk in my opinion given that there may be flammables under storage in some of the boxes.

Lack of privacy. While the identity of a box owner can be anonymous, the identity of the individual who accesses the box is recorded– anyone who enters/exits the facility is required to provide identification, and the entire facility is under recorded video surveillance. Additionally, biometric data for individuals with box access is collected and stored at off-site locations.

The Uncertain:

Price. Starting at $400 per year for a small box, Best Safety Boxes is substantially higher than boxes in Singapore or Hong Kong. Of course, the plane ticket to Panama is much cheaper than the ticket to Asia if you are from North America, so this may be negligible.

Gold Market. The gold market in Panama is growing, but still quite small. If you come down to Panama with a lot of gold, you may find it difficult to find a buyer of any significant volume.

Ownership. Hilt Tatum, one of the facility’s owners, had his reputation besmudged by a handful of bloggers over an online gambling scandal. I have not conducted my own formal investigation into the matter, but after reading several websites that allege Mr. Tatum’s wrongdoing, all I found were rumor and innuendo rather than hard, credible evidence.

For this reason, I wanted to hear Mr. Tatum’s side of the story.  Here’s the deal– I found him to be a credible and candid person, and his own explanation that he was not connected to the scandal certainly seemed plausible.

In my opinion, it seems highly unlikely to me that someone would spend a great deal of time and money to create a very profitable business in Panama, only to eventually rob the boxholders of their belongings. Even if Mr. Tatum were morally bent, it would be easier, less risky, an more profitable to continue operating the business, which I’m sure will make him a great deal of money.

If you have any doubts whatsoever, you should come down to Panama yourself and meet with the owners to form your own opinion.

I’m heading out the door to Africa, so I’m keeping it short today… hopefully I won’t get lost in the mountains this time, wish me luck.

Last week I wrote about four jurisdictions that I am comfortable with to store gold overseas– Panama, Austria, Hong Kong, and Singapore.  Remember, one of the key benefits to trading paper currency for gold is that it anonimizes your money. Storing it overseas in a private facility keeps it outside of the financial system.

As last week’s letter was just a short overview, I promised that I would shortly send you my updated report on moving and storing gold overseas.

As promised, I finished the update and am making it available for you to download here:

http://www.SovereignMan.com/gold%20report%202010.pdf

I hope you find the information valuable– it discusses the four jurisdictions in more detail, plus a few more, and also provides some specific tips for actually moving precious metals overseas.

Let me know what you think and if you have any additional questions.

Additionally, I received a few emails from subscribers who had trouble listening to the interview with the international tax attorney from yesterday– if you want to download the audio file, you can do so here:

http://media.libsyn.com/media/withoutborders/OffshoreStructures.mp3

all you have to do is “Right Click” (or “control” + click if you have a Mac) then “Save As” to save the file to your computer.

If you own a business or are planning to start one, you absolutely will not want to miss that interview (unless you enjoy overpaying your taxes or don’t care if you get sued). We discuss how you can set up a business overseas, reduce your tax burden, and safeguard your assets.

Tomorrow I plan on sitting down and answering some overdue questions, so stay tuned for that.

If I have been too subtle in the past, let me be absolutely clear this afternoon: the time to do something, the time to take action to safeguard your future and your families livelihood, is NOW.

I’m more impassioned than usual this morning… and with reason.  Reluctantly, I tuned in to Team Obama’s press briefing last night about the ongoing saga of the Nigerian underwear bomber.  Obama’s is clearly trying to cultivate a fear of al-qaeda while simultaneously building blind trust in his government.

After the President’s remarks, his Homeland Security Secretary and Deputy National Security Advisor took the stage to unveil a series of proposals to ‘improve security.’

I’ll spare you the details as you have probably already heard them, but the bottom line is simply more government– a bureaucrat’s ultimate and only solution. This means more TSA, more air marshals, more undercover agents, more gun-toting soldiers, more pat-downs, more scanners, more searches, more scrutiny, more suspicion, etc.

How do you spell police state?

I’m ordinarily laid back about this sort of thing. I can afford to be since I’m a safe distance from all of that stupidity… but in this case I looked down to find that my knuckles were turning white, clenched around my glass of 2005 priorato.

I set my wine down and remarked to my friends who were watching with me, “What is it going to take for people to wake up and get the hell out of town? Do they need legions of storm troopers marching down the street before they realize it’s time to go??”

I was positively exacerbated.  The US is turning into a police state, and I’m not even saying this specifically to Americans living there. Many countries around the world are following close order behind Uncle Sam.

Once again, the time to act is now.  So what should you do?

First, make sure you have access to funds outside of your home country. This is one of the most important flags that you can plant.  You should open a foreign bank account (like I discussed in the Panama Black Paper), and/or consider storing precious metals in a private storage facility overseas.

Later this quarter, I plan on releasing a new Black Paper that contains actionable information to open an account at safe foreign banks that still take US customers.  You haven’t heard of most of them, and would probably never hear about them because it’s actually illegal for foreign bank to advertise in the United States in most cases.

Stay tuned for that.

Second, you should really be thinking hard about foreign property. Why? Because it can be a great investment; it’s an easy, non-reportable way to move money overseas; and it can be your escape hatch when you’re finally ready to hit the eject button.

Remember, I’m not talking about a 50 million euro villa in Monaco; you can pick up cheap land in Latin America for less than $50 per acre, and I’m pretty sure that everyone reading this letter has at least 50 bucks to spare.

Also, as I’ve discussed in the past, you can buy foreign property using your tax-deferred retirement savings, and I plan on revisiting this topic in short order because it is an absolute no-brainer.

Additionally, if there’s interest, I may also explore the idea of building a small, cost-effective, subscribers-only development.  It would likely be on the outskirts of Panama City and include self-sustaining fresh water and agricultural resources.

Third, if you have the means, you should really consider obtaining second (or third, fourth, etc.) citizenship. Second citizenship can be the ultimate emergency exit if things get really bad, and it effectively serves as the most comprehensive insurance policy you could even have.

I have a lot of contacts in this field, and my colleagues and I are currently experimenting with a few options that I plan on bringing to you soon.  I won’t bring you a passport program unless one of us has gone through the process ourselves, so give me some time while we play guinea pig.

Fourth, give serious consideration to your finances; unless you are already independently wealthy or have sustainable income streams, think about what you would do to earn money if you lost your job today.

Think about what skills you have– what problems can you solve that other people are willing to pay you for? What opportunities to you see around you that can be quickly and profitably exploited?

I guarantee you that there is opportunity everywhere around you. For example, a friend of mine is an intelligent, 22-year old girl who lives in Minsk, Belarus– the last bastion of the Iron Curtain.  While Belarus is not the totalitarian state it once was under the Soviet Empire, it’s pretty close.

And yet, despite living under a tyrannical yolk, my friend has become quite a successful entrepreneur, launching a successful brick-and-mortar company and several profitable web sites just within the last few months.

I raise this simply to point out that if an inexperienced but intelligent and energetic young girl can find opportunity in a place like Belarus, then I would wager that there is a plethora of opportunity out there in places like Panama, Abu Dhabi, Chile, China, Angola, Thailand, Bulgaria, and even the US/Europe.

In fact, I know this to be true because I see so much of this opportunity when I travel.

So those are the top four things I would recommend you do in making your own personal preparations. I clearly have a lot of work to do between the real estate, the citizenship programs, and the banking Black Paper… but after seeing the writing on the wall so plainly last night, I will be refocusing my efforts to get these moving quickly for you.

In the meantime, let me know your thoughts– I’m frankly curious to know what you would like to see in a real estate development, and at what, if anything, it would take for you to hit the eject button.

January 7, 2010

Reporting from: Estepona, Spain

I’ve long believed that exchange controls will eventually return to the developed world, specifically in the United States and Western Europe. Struggling to find buyers of their debt, these governments will likely impose strict penalties for net outflows and retail currency transactions.

Unfortunately, most people will be too broke, too stupid, or too distracted to care that their savings are trapped in a rapidly depreciating currency within a federalized, bankrupt financial system. You are clearly not one of these people or we wouldn’t be having this ongoing conversation.

Moving some money out of your home country now makes a lot of sense; if you keep all of your wealth within one country, particularly where you live or your business is based, you are completely exposed to exchange controls, tax confiscation, litigation, extortion, etc.

Opening a foreign bank account is certainly one approach; we have talked about that before and will continue to do so.  But gold presents an interesting alternative because it effectively exists outside of the financial system.

When you hold cash, either in a bank or in token amounts of a few thousand dollars, transactions are reported to the government.  Banks, brokers, real estate agents, car salesmen, etc. are essentially unpaid government agents, forced to report on their customers’ financial activities.

Turning paper currency into gold privatizes wealth; to most governments, gold is just personal property, like stamps, a wardrobe of tailored suits, or action figure collectibles.

Consequently, because most countries do not recognize gold as a monetary instrument (at least based on its market value), gold can be moved freely and privately across most borders.

Once overseas, it makes sense to store gold in a private vault facility that is not part of any financial system, nor required to conduct any reporting.

Best Safety Boxes in Panama is one such facility; there is also Singapore’s Cisco Certis; in Hong Kong, The Storage; and in Vienna, Das Safe. I’m in the process of updating a 2010 version of my “Moving and Storing Gold Overseas” free report to discuss these in more detail.

I will send it this newly updated report to all subscribers of my daily e-letter.

When you’re conducting your due diligence on a private storage facility, you obviously want to be comfortable with the security and reputation of the owners and management. More importantly, however, you should be comfortable with the jurisdiction.

Does the local government have a track record of seizing and confiscating private wealth? Is crime and corruption rampant? Are the police there to serve and protect, or to coerce and fleece? Do I have to pay customs duties when bringing in valuables?

These are important issues to think about, though having already investigated the aforementioned jurisdictions I am comfortable recommending all of them.

Another such issue you may want to consider is estate planning and continuity. Assume, for example, that you have a long-term lease in an overseas private storage facility that contains a considerable amount of physical metal… in the event of your untimely death, what happens to the box?

It’s an important question and varies by jurisdiction. In Panama, when an individual box holder dies, it will take a Panamanian court order to allow access to the beneficiaries or successors.

While corruption in Panama is clearly on the mend, I still wouldn’t want to petition a Panamanian judge for access to millions of dollars of gold locked in a vault. The bureaucracy alone would be mind-numbing.

One easy solution to this problem is to have a corporate account– establishing a Panamanian trust or corporation as the box-holder, the shares of which would automatically be granted to beneficiaries in the event of the principal shareholder’s death.

There are some potential tax reporting requirements if you own a Panamanian Corporation. Next week I plan on bringing in a widely respected tax attorney to give you all the details and discuss better strategies for using overseas corporations to your advantage.

Stay tuned.

January 4, 2010

Reporting from: Malaga, Spain
Welcome back; I hope you had a relaxing holiday.

I spent 10-days with my family combing through the Italian countryside and drinking some unbelievable wine from a local grape called “Primitivo.” It’s a distant cousin of the California Zinfandel, and is only found in this region. A bottle from the best vineyard will set you back about 9 euro.

For New Year’s Eve, I saw a fireworks show that was simultaneously the most disorganized and explosive I have ever witnessed… so literally for me, the new year began with a bang.

I’m optimistic about 2010. I know a lot of people in the financial community who think that ‘this is it,’ that 2010 shall bear the worst economic cataclysm in history, causing widespread doom and agony.

Sure the conditions are ripe for stock/bond market crashes, a currency crisis, and multiple sovereign debt defaults.  But these are a far cry from a gloomy end of human civilization.

It’s not that I have tremendous faith in world ‘leaders’ (as ridiculous a moniker as that is to use); last month’s debacle in Copenhagen only further underscored how perverse and ineffective the existing political process is, and everyone is really starting to see it.

The Social Contract is deteriorating rapidly, and in the end, the one thing that you can count on is that people will ultimately do what they perceive to be in their self-interest.  This is what drives markets and trends.

As the protracted effects of government stupidity become more apparent, one such trend that I see emerging this year is the rise of the sovereign individual– the rebirth of the multiple flags approach.

I’ve talked about this before and I wanted to start off the year with a quick primer since it is a recurring theme of this letter. To be more specific, I absolutely implore you to plant multiple flags as part of your New Year resolutions.

The idea, originally conceived by international finance guru Harry Schultz, suggests diversifying different aspects of your identity across multiple ‘flags,’ or geographic jurisdictions.

As an example, Schultz coined the term ‘three-flags’ in the 1960s, suggesting that an individual should have citizenship in one country, residence in another, and businesses in another.

Later authors expanded on this idea by adding other ‘flags,’ including places to bank, places to ‘play,’ places to house electronic assets, etc.

Many writers today talk about ‘five flags’ or ’six flags,’ but frankly I don’t see a limit on the number of things we can diversify geographically: email, citizenship, residence, banking, brokerages, gold/silver deposits, business registration, e-commerce, customer base, phone/fax, financial instruments, postal mail, etc.

So what’s the point? Why should you do this?

Diversifying geographically increases your freedom, your privacy, your sovereignty, and potentially reduces your tax burden. It protects you against bank failures, market changes, litigation, divorce, overzealous governments, and “NGC’s” (non-government criminals).

Perhaps even more importantly, planting multiple flags expands your existing contact base and opens a lot of doors to new opportunities.

Think of it like a life insurance policy– even if the worst never happens, it gives you great peace of mind and in many cases can rank as a significant asset.

While everyone recognizes these benefits of life insurance, no one actually expects to die anytime soon… so they put shopping for a policy on the back burner, sometimes until it’s too late.

In this case, the time to start diversifying internationally and planting multiple flags is now… before it’s too late– before currency controls are imposed, before tax codes change, before the last remaining foreign banks close their doors to foreigners.

I could cite you examples all day long, but I will list just a few hypothetical cases–

Imagine getting sued, losing the case, and having your financial assets commandeered by the court. Now imagine if your assets were safely offshore in another country.

Imagine being investigated by the government and having your email archives turned over to the authorities. Now imagine if your email server were in another country.

Imagine being robbed (taxed) by the government because your business is structured within its jurisdiction. Now imagine if your business were registered in another country.

Imagine having everything in your home country taken from theft, coercion, and litigation. Now imagine having cash and gold locked away in a secure, private vault overseas.

Imagine the social decay in your city getting so bad that riots and violent crime are a common occurrence. Now imagine having property overseas.

I’m sure you get the idea. Putting your assets, your business, your citizenship, your residency, your family’s livelihood under one flag, one government, is putting all of your eggs in one very frail, weak basket.

Technology makes it incredibly easy to diversify, and I see more and more people waking up to that reality each day. It takes only moments to set up an offshore email account, a few minutes to lease a private vault, and just a couple of hours to set up a company in Singapore.

The possibilities are truly endless, you just need to find the right tools and the right flags that work for you. Yes, even if you are a US citizen who is taxed on worldwide income, there are still several options available to live a multiple flags lifestyle.

I will be discussing the options in future letters, as well as individual case studies.

I receive a lot of subscriber questions, and while I cannot answer them all, I wanted to specifically address three of them that key in on recurring themes in this community– second citizenship, investing, international opportunities, corporate structures, banking, and gold/silver storage.

1) Paul asks– “I was wondering what your 1st choice would be in setting up an online business offshore.  Which country would be best for business structure, hosting, and merchant accounts?”

There are a lot of great reasons to have an online business– portability, scalability, maneuverability. You can go from zero to profit very quickly, and the Internet allows people to live and work anywhere on the globe.

Most importantly, though, online enterprises provide a great opportunity to easily plant multiple flags in a cost efficient way; you can live in one country, have citizenship in another, have your business structured in another, process credit cards in another, and have your servers based in another.

This prevents significant influence from any single government over your business. As to the right jurisdiction? This is a tough call because it really depends on your country of citizenship and your country of residence.

The United States, for example, is one of a handful of countries that tax its residents on their worldwide income. Some people with online businesses think they are smart because they structure their business in some Panamanian IBC and/or process credit card transactions offshore.

Then they don’t report the income and hold everything offshore.

Not only is this a completely bonehead move, it’s largely illegal. The IRS has clear rules for what it calls ‘check the box’ entities, as well as how to determine the source of income.

I’m going to be talking about this much more in the future, but for now, the bottom line is simple: with a well-structured plan, it is possible to set up an online business to maximize your personal tax advantage while minimizing sovereign risk.

There is great danger, however, in establishing an overseas structure without performing substantial research into the tax implications of your home country.

I’m going to help you solve this problem in a few weeks– early next year, I will bring you some really valuable information from some top North American tax advisers who specialize in offshore structures; they’ll teach you what you need to watch out for.

For instance, you may want to consider structuring your business in a country that has a comprehensive tax treaty with your home country. Switzerland is a great example that has treaties with both the US and Canada. Zero-tax jurisdictions like Panama or BVI do not have tax treaties.

More to follow on this in a few weeks, it’s an incredibly important topic that merits more than a short-answer.

2) Peter asks: “What do you think about Israel? In spite of all the political unrest in the news, Israel has a growing GDP and has a decreasing trade deficit.”

This is a great question.  My take on Israel is that it’s a great place for second (fairly valuable) citizenship.  If you’re willing to convert to Judaism and live in Israel for a bit, you can obtain an Israeli passport fairly easily.

Other than that, I’m not keen on investing in the country; it’s too closely tied with the United States, and there is no ‘blood in the streets’ discount that you would expect of a nation perpetually at war.

If you compare Israel to a place like Sri Lanka, there is no contest when it comes to value.

3) Stefan asks: “I have an account at DBS (Singapore) but they do not give any information about bankruptcy protection. Do you know anything about this? Do you prefer other Singapore banks? Any idea for a safe deposit box in Singapore?”

I can’t comment specifically on DBS, but you should always, ALWAYS, feel comfortable with the balance sheet of your financial institution. Banks in the US are backed by the FDIC, and this gives some people confidence in their account value.

I am not one of them. I bank overseas because I trust in the financial solvency of overseas institutions, but it means I have to do my homework.

Even the most cursory analysis can say a lot about a bank– what is their ratio of liquid assets to deposits? Does the loan portfolio consist of ticking time bombs? How well are they provisioned against loss?

This is why I wrote about Islamic banking a few weeks ago; based on requirements of their religious law, Islamic banks tend to have higher capital adequacy ratios, providing a greater cushion against insolvency in the event of a financial cataclysm.

There are several Islamic banking institutions in Singapore, though overall I’m quite confident in the country’s financial infrastructure. I rely on it myself.

As for gold storage in Singapore, look at Cisco-Certis. Their facilities have fantastic security, and the boxes are reasonably priced.

I have something very valuable for you today, and it’s something that is not available to the general public yet– gold storage in Panama.

Gold storage in Panama is a hot item. Banks have long waiting lists for safety deposit boxes, and as I’ve discussed before, many Panamanian banks are even starting to eliminate this service, reducing the available supply of boxes on the market.

In a few weeks, a new private secure storage facility will open in downtown Panama City.  It’s called “Best Safety Boxes,” and though they haven’t started working with the public yet, they have agreed to open up in advance just for Sovereign Man subscribers thanks to our local connections in Panama.

In full disclosure, I have not yet seen the facility so I cannot vouch for its security. I plan on inspecting it myself when I travel to Panama next month, but I wanted to tell you about this facility now because I expect they will sell-out very quickly once they open their doors.

In order to help make my own decision and get a better idea about the facility and its security, I spoke to one of the facility’s co-owners, Mr. Hilt Tatum. I recorded the interview, and you can listen to it here. If you want to download the file, just right click on the link and select “Save As.”

Prices at Best Safety Boxes start at $400 per year for a 3″x5″x24″ box, which is big enough for nearly 1,800 one ounce coins.

If you’re interested, you should contact Robert O’Neill at info@overseasassistance.com; he can provide a variety of services, including the box reservation forms, airport VIP transfer, and even private security detail.

To be clear, I have absolutely no financial interest in the facility, and I am not compensated for this in any way; I simply wanted to make you aware of this opportunity because we were able to negotiate a special allocation for Sovereign Man subscribers before the boxes become available to the general public.

Once again, you can listen to the interview here, and contact Robert O’Neill with your questions and interest at info@overseasassistance.com

Somewhere after paying over $100 for a tank of gas, $35 for a haircut, and $15 for a fast food sandwich, it dawned on me last week.  The euro is terribly overpriced against the dollar.

I wrote about this extensively last week, arguing that, because of a litany of taxes and fees, and due to overselling of the dollar, the euro zone is excessively expensive in dollar terms. Clearly there needs to be an adjustment.

Taxes are simply another form of inflation, and one that has been felt acutely in Europe; politicians impose new taxes, and ’stuff’ becomes more expensive. Employees demand higher wages to maintain some semblance of their living standards, and in the end, all prices have gone up without any real value having been created.

If the current administration gets its way, the same thing will be happening soon in the US.  A national sales tax will likely be introduced, along with a host of other income and luxury taxes, pushing up the prices of everything, from gasoline to haircuts to fast food.

Gold is generally regarded as a proxy on both safety and inflation; when price levels of ’stuff’ go up, the price of gold rises accordingly… often outpacing the rise of inflation due to increased concerns about safety.

Gold’s rise this year has been more about safety than inflation; price levels generally show stable or declining prices around the world, but institutional money has voiced significant concern regarding investments that were once considered safe.

Dubai, Greece, Latvia, Ireland, Spain, UK, etc. all give investors a lot of reason to worry. Ironically, when things get really bad in the rest of the world, investors rush into the US dollar as the ultimate flight to safety.

I know I don’t have to tell you that this line of reasoning is utter nonsense. Institutional money managers realize it too– the prospect of loaning money to the largest debtor in the history of the world for 30-years at less than 5% is certifiable lunacy.

That’s why so much sovereign and institutional money flows into shorter-term treasuries– they want to sit on the sidelines for a short period of time, and they’re willing to lose on the yield in order to guarantee the safety of their funds.

Naturally, the chief reason that Treasuries are considered safe is because they are backed by the full power of the US government’s printing press. Investors are wise to this trick, and smart money will not be fooled into longer term bonds unless there is another financial cataclysm.

As I survey the situation, I’m convinced that gold is nowhere near peaking exactly for this reason. In a flight to safety, institutional money still flows into the dollar. Gold will not truly break out until there is a bifurcation in investors’ mentality regarding safety.

To put it more clearly, when worried investors start piling into gold instead of the US dollar to protect their assets, this is the sign that we are charging towards the top.

For now, it’s not happening yet, and that’s why I recommended going long gold against the euro– the euro has been overpriced against the dollar, and while gold has dropped roughly 5% against the dollar since I recommended this trade last week, it has risen 3% against the euro.

Despite its historic nominal highs, gold still has a long way to go before achieving this bifurcation. The idea that US treasury securities are safe must be eradicated from the investment community before it’s safe to say we have reached a top.

I know you have heard this before, but gold is way off its inflation adjusted highs. Most of the time people talk gold’s inflation-adjusted high in 1980. But if you want to get a better sense of gold’s potential, you need to go back even further. 

The best apples-to-apples comparison of gold prices is in British pounds sterling (GBP); Britain is a much older country and historic gold prices exist in pounds for nearly 1,000 years. 

Gold’s highest price was recorded in the late 1400s at an inflation-adjusted price of roughly GBP 1200 during what was called the ‘great bullion famine.’ The 1980 peak in sterling terms was about 30% lower than this.  Today gold sells for less than GBP 700 per troy ounce.

The length of the present dollar rally, which technically started several weeks ago, is unknown. From the beginning of the meltdown in 2008 to the dollar’s peak earlier this year was about six-months. This one may be shorter, or if there is a great cataclysm, much longer.

One thing is inevitable, though, and that is the investment community’s eventual abandonment of the dollar as a safe haven. As such, from a fundamental perspective I have great difficulty playing this rally by buying dollars and dollar assets.

I’m sticking with the long gold/short euro position; gold may fall in dollar terms, but I expect it to stay stable and gain against the euro. I also intend on bargain shopping for long-term silver options; as a speculation, I prefer silver to gold as the ‘cheaper’ metal is still over 50% off its nominal high. Gold is less than 10% off its nominal high.

You can do this with long-term options on any of the silver ETFs, or if you have a futures account, you can buy call options for long-dated silver futures contracts like December 2011.

I spent a couple of days this week in a fast BMW with Matt, my friend and business partner. We had a meeting in southern Spain yesterday with a key figure in the world of second passports, and we raced at speeds up to 250 km/h so that we could make the meeting and bring you some tremendously valuable information.

It came at a price– six speeding tickets in total, mostly across the south of France and Monte Carlo. What can I say, I have a heavy foot…

The meeting was great, and it gave me quite a bit to digest.  Our host was one of the most knowledgeable people I have ever known regarding second passport opportunities.  Shortly, once I am able to work through some of the information and go through the process myself, I plan on discussing these very interesting solutions with you.

But first, though, I thought I would answer some of your questions from the last few weeks before I enjoy a nice weekend in Frankfurt with a new inductee to the Atlas 400 club.

First off– yesterday I discussed my observations on the ground here in Europe; the European tax situation makes most goods and services extraordinarily overpriced, and these prices are passed on to the consumer. Eventually, the cycle of higher wages and higher prices becomes simply another form of inflation… as higher taxes are coming to the US, similar price inflation will follow.

Based on a tax-free pricing model, however, the euro still appears overvalued against the dollar, and the dollar is undervalued against ’stuff’, that is goods and services that consumers buy. I argued that one way to play this is to short the euro against gold and silver, thus profiting from the euro’s correction as well as a rise in inflation.

How to do it? Well, Denmark-based Saxo Bank, which has no nationality restrictions for new customers, trades spot metal prices against a variety of currencies, including US dollar, euro, Hong Kong dollar, yen, etc. In other words, you can take a long position on gold or silver, and a short position against a major currency.

To take a long gold/short euro trade on Saxo, the ticker is XAUEUR, and XAGEUR for silver. I tend to look further out, though, so I’m planning an investment that is a combination of long-term currency put options combined with gold/silver call options in 2011.  I can discuss this in further detail if you are interested.

* Questions from subscribers *

1) Stan asks “Simon, regarding international brokerages- what would you suggest for European citizens who don’t want to hide their wealth, but move money out of the US and Europe? Are HK or Singapore better?”

In a word, yes. US and European officials are getting increasingly desperate for cash, and they will look in every dark corner they can find for a few pennies.  In a single day on this Europe trip, I was stopped twice in France by customs thugs wondering how much currency I was transporting in the car.

Bottom line, they need money, and they’ll find it. After all, only ‘rich’ people invest in the markets.

Asian jurisdictions are safer for western investors simply because it makes more sense to have your money in a place where you do not live– this is central to the multiple flags approach. Furthermore, while financial privacy has gone away, they are less likely to submit to western governments– especially Hong Kong which is backed by mainland China.

Try Boom Securities, based out of Hong Kong, at home.book.com.hk

2) Andrew asks: “I hear a lot of recommendations for exotic locations, but the majority of very wealthy Americans I know have half a foot in New Zealand. What do you think about New Zealand?”

New Zealand is beautiful, peaceful, slow-paced, reasonably-priced, and devoid of anything particularly interesting. The taxes are cumbersome for residents, but as a location to obtain a second passport for non-residents, New Zealand is spectacular.

3) Chris asks: “What Islamic banks, if any, allow Americans to open bank accounts online?”

Worldwide “Know Your Customer” rules require new branch banking customers to show up at least once, unless an intermediary has a very personal relationship with the banker… either way, the account is not generally opened over the internet.

4) Taylor asks “Simon, regarding foreign bank accounts, can’t US citizens side step institutions who won’t accept US clients by opening a Panamanian corporation?”

Sure, in some instances… many banks won’t work with US citizens directly as a customer, but they will work with a corporation or trust whose beneficiary is a US citizen. There is nothing illegal about this as long as the bank is made aware of the arrangement.

Lastly, as an administrative note, I want to tell you that I am planning on making the site much more interactive in the early part of 2010. I think you’ll really like what we’re doing, so stay tuned.

I was having breakfast this morning at my favorite Bangkok cafe– they do a delicious American breakfast with eggs, bacon, toast, orange juice, and fresh fruit for under $3… and it’s delicious.  For another $3 I could get a backrub while I eat.

As I was reading the local paper, something caught my eye in the business section– a full page ad for a real estate development about 2 hours outside of Bangkok. The development looked generic enough– another condo tower with a pretty view of the ocean, nothing special.

The catch? They are giving away a gold bar with each sale.

Particularly in tough times, sales managers come up with all sorts of gimmicks to improve their numbers. If the sales gimmick speaks to a specific need or concern in the marketplace, chances are it will probably succeed.

In Missouri, for example, many people report concerns that President Obama will modify their 2nd Amendment right to bear arms. In fact, there has been a massive wave of gun sales across the US since Obama won the election last year.  To capitalize on this fear, a Missouri car dealer decided to start giving away a free handgun with each new car sold. 

His sales volume quadrupled. 

In China, uneven demographics have young males substantially outnumbering by young females, and it’s becoming harder and harder for men to find available women.  Capitalizing on young men’s concerns, Chinese development company Jin Tai Cheng that promised a $9,000 to anyone who would buy a home and marry one of their pretty sales agents, most of whom were single and good looking.

Naturally, the promotion was of great interest to male buyers seeking a wife. 

These cases indicate that the market responds quickly when promoters address a specific need or fear.  In Thailand, at least one developer seems to have hit a chief concern squarely on the head.

According to local agents, sales activity has jumped since the developer started running the ‘gold bar giveaway’ promotion, though I was not given precise figures as they are a private company.

Asians in general have a deeper gold tradition than western cultures; Thailand, for example, has been issuing gold coins for centuries. I saw seeds of gold mania in China when I was there most of the last two months, and I have seen it here in Thailand this month. 

Gold is quoted in the daily papers in both US dollars and Thai baht, and there seem to be gold shops on just about every block.

The majority of gold shop inventory is jewelry, but the local Thais (similar to the Chinese) have been buying it up as an investment, not because it looks pretty. Gold bars also tend to be bought up very quickly, the most popular of which is the ‘10 baht’ variety, roughly 4.9 ounces of 965 purity.

To me, the most interesting part of the story is that the advertisement is specifically catered to Westerners… although the condo price points are within reach of well-to-do Thais, the ad was printed in English and being marketed in a foreigner newspaper.

The pickup in sales activity suggests that foreigners are attracted to the sales promotion because it speaks to one of their major concerns– perhaps inflationary expectations, perhaps economic misgivings, or perhaps the fear of being left behind the gold boom. 

Either way, the increased interest at the consumer level translates into increased retail bullion sales activity, and this should have a positive price affect for both gold and silver. I wouldn’t be surprised to see more of these types of promotions, and I’ll be on the lookout for similar signs when I arrive to Europe next week.

I have the temporary misfortune today of feeling a bit under the weather. I’ve always wondered how such an expression came to pass, but if it is meant to be any sort of metaphor, my ‘weather’ is something like a category five hurricane.

As a consequence, I was unable to attend this week’s Asia gold conference which took place in Hong Kong; fortunately, though, my friend and colleague Christine Verone was in attendance, and her account of the event was quite interesting.

To listen to Christine describe it, the conference was a veritable who’s who of Asian investment managers, many of whom have their eye solidly fixed on the yellow metal’s growth potential.

Here on the mainland, there has been much debate over the central bank of China’s easy monetary policy and fiscal stimulus measures; unlike in the United States where broad measures of money supply (“M2″) have changed relatively little, Chinese money supply has grown nearly 30% year over year, according to the Financial Times.

Considering that the government’s stimulus programs will total roughly 15% of GDP, and lending is up 149%, there is certainly reason for caution. With credit flowing so easily, everyone has access to large sums of capital– and that capital has to find a home somewhere.

Typically, loose cash tends to find its way into real estate and equity markets– and this is exactly what is happening now; easy money leads to an abundance of capital that goes rushing in to property and stock… both markets surge.

One could point to the Shanghai Stock Exchange as evidence, which has more than doubled since its March low. What I find more interesting, however, is the new “Chinext” stock exchange that literally just launched today.

Chinext is designed to be China’s version of NASDAQ or the American Exchange– a low cost stock market where small and medium sized companies can access eager public funds.

The average Price/Earnings ratio of the first round of companies to be listed on Chinext? 55… a valuation so high that it’s almost comical.

Clearly, Chinese investors have been seeking new instruments for their capital, even when the abundance of capital pushes up valuations to surreal levels.

The grumblings about a bubble in the equity and property markets, though, have already begun… which means that, before too long, a great deal of that capital will be looking for a new home. Based on our observations on the ground, it looks like that new home will be gold.

This to me will be one of the biggest catalysts for an increase in gold prices, even as much as the rapid expansion of the US Federal Reserve’s balance sheet. China, having recently launched its own homegrown gold exchange, now has the appetite, capital, and platform to make serious gold investments.

I do not expect gold to rise in a straight line on Chinese demand– there will likely be a concerted effort from world governments to occasionally tame the price. In the long run, though, I expect that we will look back in a few years and regard 1,050 gold as a bargain.

Have a great weekend.

I need to start off today’s missive with an important update. Last month I wrote a few articles about something that I believe is an absolute no-brainer if you have retirement savings– setting up a self-directed IRA.

Most retirement savings plans are locked in to a handful of investment options– employees are forced to make a selection among four or five choices, most of which are poorly managed funds run by the same institutions that clearly demonstrated their incompetence last autumn.

A self-directed IRA provides a mechanism for an individual to allocate his retirement savings in whatever way he chooses– whether his own portfolio of equities, physical gold, foreign real estate, overseas bank accounts, private placements, etc.

With a self-directed IRA you can take control of your retirement savings to ensure that some bumbling moron at a bankrupt financial institution doesn’t lose it all investing in Fannie Mae. More importantly, you can ship your savings offshore in a perfectly transparent, legitimate way.

I believe in this approach so much that I went through the trouble of negotiating a subscriber discount with Checkbook IRA, the same service providers that set me up with my self-directed IRA structure a few years ago. These guys are an honest, efficient, highly competent family operation, and I was grateful that they extended a $500 discount to subscribers.

I am writing about this again today for two reasons. First, I’ve exchanged a few emails with Jordan Sheppard at Checkbook IRA, and due to the amount of volume they are receiving and limited capacity within the shop, the discount will be discontinued effective next Friday, October 16th.

Second, and perhaps more importantly, I’m concerned about the direction that the market is going to take. There are a lot of people whose retirement savings are literally trapped in some blue chip index fund.

These are the same people who probably had a bad feeling last August that things were about to get really bad. They watched with horror as their positions took a 70% nosedive.

Fortunately, the last six months has been a period of irrational exuberance, and markets have recovered 50% from their lows. As markets tend to be forward-looking, though, can we realistically say that near-term prospects for the US economy are rosy?

Not by a long-shot. The Dow hovering near 10,000 makes about as much sense as lipstick on a pig.

Top line corporate revenue growth is weak at best, and there are numerous long-term factors which hamper earnings growth, namely: baby boomer retirees pulling their capital out of the market; costly health care regulation; increased corporate taxes; capital flows to emerging markets; etc.

Each of these factors has a negative bearing on long-term equity valuations. It is difficult to predict what will happen over the next few months, but given the carnage that we all experienced last year, it is probably more sensible to make low risk investments that mirror our economic outlooks.

To me, this means companies that are trading a steep discount to net asset value, precious metals and certain commodities, Asian currencies, foreign real estate, and carefully selected private placements.

This is why it is so important to unlock your retirement savings– with a self-directed IRA, your money will be protected from idiotic fund managers if the market takes another leg down.

If you currently have a retirement account that boxes you in to limited investment options, or keeps all of your savings within the United States, I’d highly encourage you to find someone that can set you up with a self-directed structure.

I’m comfortable recommending Checkbook IRA since I have worked with them in the past, and they understand unique needs like using a retirement account to buy physical gold and store it overseas.

If you give them a call, make sure you mention the Sovereign Man discount, which is good until October 16th.

While I was en route to China, somewhere over the Sea of Japan, gold hit a record high on ‘concerns’ about the long-term value of the dollar.

Frankly, 1974 was probably the time to be ‘concerned’ about the long-term value of the dollar.  The remaining institutional investors who are only now finding reasons to be concerned about the dollar are probably the same ones that thought Ford and Fannie Mae were bargains last year.

The dollar is likely having such a volatile day thanks to this article from the UK’s Independent. The article asserts that Russia, China, and the Gulf Arab states have been holding secret meetings to plan a transition away from dollar-priced oil.

According to the article, which cites ‘Arab and Chinese banking sources in Hong Kong,’ the plan’s deadline for complete transition is 2018.  This date makes sense considering that the longest-dated oil futures contracts expire in December of that year… but are the claims legitimate or simply rumor?

Who knows. Saudi and Russian authorities have already denied the newspaper’s allegations, but this is to be expected.

While gold may be getting a friendly bump thanks to the Independent’s article regardless of whether the claims are true, it is unquestionable that the dollar’s long-term value is heading south.

On the plane ride to China, I was reading a rather interesting “Trade and Development Report” published recently by the United Nations.  The report provides concrete data for how governments around the world have reacted to the financial crisis.

One of the things that caught my interest in the report was a table on page 66 tallying fiscal stimulus programs and government bank guarantees as a percentage of GDP.

The United States, for example, has backed its banking sector with a whopping 81.1% of GDP.  The United Kingdom, Sweden, Netherlands, and even Japan ring in at 81.7%, 70.2%, 46.5% and 22.3% respectively.

“Developing” nations like Brazil, Chile, Taiwan, Philippines, and Thailand? 0.0%. China came to the table with 0.5%.

The data certainly begs the question– which of these groups should actually be considered ‘developed’?

Ironically, most western ‘developed’ governments, led by the United States, have only been able to make these multi-trillion dollar bank guarantees because of the generosity and savings provided by ‘developing’ countries through US Treasury purchases.

‘Developing’ countries are weary of this model– Chinese and Taiwanese no longer live for the pleasure of exporting their products to the West in the hopes of being paid in US dollar IOUs.  Consequently, the concept of a new reserve currency is one that has legs and will in all likelihood become a reality.

If, under influence from western governments, the IMF decides to not go along with a new reserve currency scheme, the strongest developing nations will likely conspire to create their own internal mechanism.  The US and Europe will be forced to go along with it as a matter of necessity.

This is why gold and silver have such tremendous long-term potential– they will anchor the new reserve currency. Sure, there is the inflation/hyper-inflation argument that will send gold sky-high (though I would suggest that there is ample evidence of deflation as well).

Predominantly, though, precious metals will rise as a function of capital inflows– foreign governments are sitting on trillions of US dollar reserves that they are trying to get rid of.  Gold is where they are going to park most of it.

Three months ago I wrote about some silver investments that I was making– I sold $10 December 2011 put options and bought $15 December 2011 call options. In each of these investments I was betting that the future value of silver would rise.

In 3-months these investments have more than doubled, and I am now analyzing the futures markets to find the best ways to invest directly in gold and silver.

In part, this is what I am doing back in Shanghai.  My longtime friend and colleague Christine Verone is the first foreigner ever to be certified by a Chinese exchange, and I plan on taking new gold and silver positions based on her insight of the Asian markets.

More on this in future letters. In the meantime, look after your savings if you’re dollar-based.  If your savings is sitting in the bank collecting dust, either get it out of the dollar, or put it to work generating a real return.

It’s not time to be on the sidelines anymore.

Roughly $100 billion.

Even in today’s world where politicians throw out the word ‘trillion’ as if it were a casual dinner garnish, $100 billion is still a lot of money… especially when you’re desperate to sustain glimmers of economic growth and trying to plug a budget shortfall that amounts to 13% of GDP.

And yet, roughly $100 billion is exactly what got sucked out of the United States in July by foreigners: “Net capital outflows” increased to $97.5 billion for the month of July, according to recent data released by the Treasury department. Meanwhile, net long-term capital inflows fell to a paltry $15.3 billion in July, an 80% decline from June’s $90.2 billion capital inflow.

What do these numbers mean?

Foreigners are continuing to lose confidence in the US economy at a record pace and are finding better places for their money. This would certainly support the US Dollar Index’s dramatic 3.5% decline in July– though the dollar index only tells a partial story. “DXY” as it is known, though, only tells part of the story.

The dollar index measures the value of the dollar only relative to a small basket of currencies– euro, pound, Canadian dollar, Swedish koruna, yen, and Swiss franc. Powerful Asian nations like the Gulf, China, Singapore, etc. are conspicuously missing. And yet, DXY still dropped 3.5% in July.

Conclusion? If these ‘relatively harmless’ countries that comprise the US Dollar Index are losing confidence in the greenback, you can be sure that China and the Middle East are knocking over women and children on their way to the emergency exit.

Telling you that the dollar will be continually worth less until it is ultimately worthless is nothing new. So if you would indulge me a moment, I’d like to prognosticate on the greater implications.

As the pace of these outflows picks up steam, you can be sure that a group of out-of-touch politicians are monitoring the data and thinking to themselves, “we need to regulate this before it gets out of hand!” And this sentiment is exactly what spawns capital controls.

Capital controls by design are intended to regulate the flow of capital in and out of a currency; in times of uncertainty, shaken politicians always pull this oldie-but-goody out of the playbook… it happened in Iceland, and it’s been discussed around the world recently– Russia, India, Brazil, the Baltics, Poland, Czech Republic, Kazakhstan, etc.

Not to mention, a world largely free of capital controls is a relatively new phenomenon. We can look to history for a recent example of a world superpower turning to capital controls for ’stability’:

In the mid 1970s after the collapse of the Bretton-Woods system, the British economy was in serious trouble. GDP was contracting, unemployment rising, investment falling, and the government was drowning in red ink, all while social obligations were climbing.

Financial markets responded by turning their backs on Britain’s Pound Sterling, and the currency was crushed. The Wall Street Journal advised investors to ditch the British pound, running headlines “Good-bye Great Britain.” And the government came under intense pressure to ‘do something.’

The first thing the UK did was go to the international community with hat in hand to prop up the currency with loans and bonds. This is already happening in the United States as Tim Geithner attempts to woo China and Middle East into buying US Treasuries.

Subsequently, the British government imposed a slate of capital controls that essentially penalized investors for moving capital out of the country and requiring that all investment transactions go through ‘authorized dealers’ who were charged with enforcing this policy.

The penalty ranged from a 10% to 30% premium on the dollar/Pound spot rate at the time– essentially the same tactic that the Cuban government is employing today.

Frankly I can see the same thing happening in the United States, perhaps starting off with a penalty in the Treasury markets where there is the biggest sucking sound… imposing a sort of ‘restocking fee’ for foreign investors who don’t roll over to new issuances upon maturity.

Eventually, though, you can be sure that the government will impose controls at the consumer level as well– requiring a certain allocation of bank deposits to be held in US Treasuries, restricting foreign remittances, and mandating scrutinous approval for overseas wire transfers above a certain amount.

Naturally, US politicians would never call such measures ‘capital controls,’ because the world’s reserve currency must be freely convertible. They will likely wrap up these policies in the ‘anti-terrorism,’ ‘money-laundering,’ or ‘tax evasion’ blankets, and simultaneously wage a PR war against evil gold and currency speculators.

So what can you do? As I’ve mentioned before, buying foreign real estate is the single best way to move money overseas where it cannot be forcibly repatriated. Physical gold stored overseas is an excellent option as well– there are no reporting requirements for either.

I’ve also strongly suggested buying up such assets with tax-deferred retirement savings. In my opinion, there’s no better way to stay within the letter of the law than to buy foreign investment property and physical gold through a self-directed IRA… I am such a strong believer in this tactic that I negotiated a special discount with a trusted service provider who can set this up for you.

As I conclude this missive today, I see that the “world’s leaders” are gathered in Pittsburgh to listen to the sound of their own voices. Nothing will be accomplished, and they will emerge from their summit with nothing but sound-bytes, empty promises, and a continued fervor to exact tighter control over the markets.

Each of us has the ability to either plan for it, or dismiss reality and do nothing.

Gold is quickly reaching the mania phase in China, and there are clear signs of it on the ground.

About a month ago, we reported that for the first time ever, the Chinese government is promoting gold and silver as investments.  And by “promoting,” we meant cramming it down people’s throats.

We knew this was ground-breaking news at the time– a clear indication of long-term demand growth, as well as a sign that the government will be accepting higher inflation in the future.

Ironically, this story was little noticed in the gold industry at the time, mostly because the information was only being circulated in China (in Chinese, for that matter).  Fortunately, my friend and China insider Christine Verone was able to get me the scoop, and we ran it here first.

Since that report, three things have happened;

First- the mainstream media has latched on to the story about Chinese gold… Forbes, Moneyweek, Reuters, the blogosphere; it’s out there now, and adding a bit of extra buzz to the gold market.

Second- the government has stepped up its promotional campaign, and Chinese consumers have responded on cue. Gold demand has grown dramatically just this year, particularly as savvy local investors are starting to view Chinese stocks suspiciously.

Third- and perhaps most importantly, Christine literally made history by becoming the first foreigner EVER in China to be certified in any professional capacity by a Chinese commodity exchange.

I’m looking forward to all the great information that Christine will be able to share with me about Asia’s gold markets when she’s not tied up making deals in Mongolia or working with bankers and offshore trusts in Singapore and Labuan.  In the meantime, the two of us had quite an interesting tour of Chinese gold shops.

You can buy gold in China at any bank– even tiny banks in tier-3 cities sell gold. The government has also set up official Chinese Mint stores all over the country.  On the inside, they look like jewelry shops– armed guards, glass viewing cases, etc. But instead of diamond crusted earrings and white star sapphires, you see bars. Lots of bars.

The government mints bars in sizes ranging from 5 grams (which are so tiny they’re actually cute) to 1 kilogram. The prices are updated instantly– they have a Bloomberg screen which tracks the spot price, generally indexed to the Renminbi price in Shanghai rather than New York or London (another sign of Chinese financial independence).

The bars are all serialized and 9999 purity, the same as you would get from Switzerland.  They are also certified by the gold exchange, which validates the quality. The premium runs 10 renminbi per gram, or roughly $30 (US) per ounce.

We went into several stores and saw Chinese people buying like crazy… all with cash. The most popular denominations were 10 grams and 50 grams, as well as every piece of jewelry in sight. I’m surprised the mint shops didn’t sell out at the inventory was flying off the shelf.

Christine has some great contacts at the shop across the street from the Westin Hotel– if you take a taxi there, ask for the WEE-stin (that’s how they say it) and you will see the shop on the opposite corner. Ask for Gao Ping, he speaks great English.

Given the ultra low cost, storage options (that I will get into later), and ease of transport, China is a great place to buy and store gold… especially if you find yourself there for business already.

And remember, if you are a United States taxpayer, one of the best ways to buy gold is through a self-directed IRA. You will be able to hold physical gold (and even store it overseas), all through your tax-deferred retirement account.

In my opinion it’s an absolute no-brainer. The above link is to an interview we conducted with an agency that sets up these self-directed IRA accounts, and I think you’ll find it incredibly informative.

I’ve explored Singapore in the past, but on this particular trip I really wanted to broaden my understanding of the country’s legal framework and financial infrastructure. With only 72-hours on the ground, I would have to work fast… so the trip was a whirlwind tour of bankers, lawyers, gold dealers, corporate secretaries, and international tax planners.

Here’s the good news: Mission Accomplished. I learned far more than I expected, caught up with old connections, made new ones… and yes, found groups who are happy to work with US citizens.

There is far too much information to jam into a single missive… and much of what I have to say is highly sensitive– most of these people don’t want their names broadcast all over the internet. I may do a Singapore Black Paper if there’s interest, but first let me make a few summary points:

1) Gold and silver are part of the culture here– you can buy a variety of bars and bullion at just about any bank.  At $991/ounce, a 1-ounce bar was selling for $1107.97 at UOB, one of Singapore’s largest banks. This price includes a 7% gross sales tax (which I’m convinced will eventually be levied in the United States as well).

As for storage options, not only did most banks have zero safety deposit boxes available, but they had a waiting list that runs for several years.  For such an entrepreneurial place, private industry has come up with a solution.

Certis Cisco logistics manages a private secure storage facility with three branches in Singapore. I personally inspected the Jalan Afifi location, which is open 16-hours a day, every day. The security is top-notch, and box rentals start at $99/year.  Click here for more information.

2) Singapore has total banking privacy, and in some situations the banks will not even require beneficial owner information for corporate accounts.

Procedures to open a bank account vary greatly from bank to bank. For example, when I told the account manager my situation, Bank of China basically laughed at me. Other banks I met with were much more welcoming.

It is possible for a foreigner with no presence in Singapore to open a bank account, but only at select institutions. The most effective method by far, though, is to apply for residency through either the EntrePass or EmployeePass program; in this case, opening a bank account is quite painless.

3) Singapore is a common law jurisdiction with trusts and private limited companies set up in the style of Hong Kong, which is obviously based on English rule. To structure a company, only one director is required, though s/he must be a Singapore resident.

Setting up a company is very easy– it can be done online and takes as little as 24-hours to complete. In my opinion, there is tremendous benefit to structuring business activities through a Singapore company, but that will have to wait for another day.

4) Last time I checked, 17% corporate tax did not qualify as a tax haven… the tax is low, but not zero. Singapore tax code is, however, quite friendly to entrepreneurs and especially startups. The first $100,000 of profit is tax-free… and for a start-up, this can be tremendously beneficial.

Singapore also does not tax its companies on income earned outside of Singapore, so long as the funds are not repatriated to Singapore. As such, many Singapore companies have subsidiaries or bank accounts in Hong Kong for their overseas income.

I will be discussing Singapore much more in the future but wanted to provide you with this initial overview today; in short, for a globally-minded entrepreneur or professional looking for work, Singapore should be on a short-list as a place to do business.

I’m writing today from an extraordinarily beautiful place…

The infinity pool where I sit is perched atop an emerald-azul lagoon encased by rocky cliffs and pristine wildlife. It’s dusk. and it’s quiet.

The word “paradise” would come to mind if I could stop absorbing the beauty long enough to form a complete thought.

I’ll give you a few hints… my undisclosed location is in the south Pacific. It’s a small island nation that is still quite native in many ways.  Most importantly, it is undergoing a serious economic crisis– tourism, foreign aid, and even the fishing and agricultural sectors are under attack.

They need help, and that’s why I’m here.

We feel a bit like the A-Team. The Asian Development Bank, IMF, etc. have all been through here in the past spewing the same bureaucratic garbage that has always failed in the past. This country needs fresh, unique, actionable ideas, and they have a philosophically sound leader in place who is willing to listen.

Hours ago, my colleagues and I had the opportunity to present our strategies for economic growth to a large audience that included the president of the country, his governors, and the council of chiefs. Naturally, our proposal is based on principles of free market economics– ideas which all leverage and essentially privatize the country’s greatest asset: it’s sovereignty.

The presentation was exceptionally well-received, and I have reason to be hopeful that the leadership here will allow us to execute the plan. If that’s the case, this country will be the freest in the world within 2-years.

It’s a project that I am excited to be a part of, and certainly one of the more interesting things that I have participated in so far.  You will certainly recognize the names of the other players involved, but alas I am sworn to secrecy for the time being.

Stay tuned, because when I break the story there may be significant benefit in the deal for you.

In the meantime, I must confess that I have been away from the markets for a few days– internet is still very spotty here and generally unreliable (yesterday’s missive was in fact prepared well in advance), so I have just found that gold prices are once again inching towards $1,000 / ounce.

How high it could go in the short-term is anyone’s guess… I would certainly not make any immediate predictions and anyone who does is kidding himself.  I tend to invest in major trends with a longer horizon and ignore the day-to-day ups and downs of an irrational market.

After all, I firmly believe that I’m never going to be 100% up if I’m not willing to be 20% down.

That being said, I am a long-term believer in gold.  There are certainly better investment opportunities to generate an enormous return, but given gold’s safety as a legitimate store of value, I can think of fewer assets to park cash, particularly during times of significant uncertainty.

(As an aside, I am also a huge buyer of strong growth equities that are trading for less than cash value.)

I’m guessing that you probably agree and are already stockpiling your own physical wealth.  As we have discussed before, this presents unique challenges, particularly secure storage.

So today, as a special thank-you for being a subscriber, I’d like to give you a free gift– it’s something that I put together a few days ago when I was running around Manila looking for gold dealers.

It’s called “How to move and securely store gold overseas,” and it’s hot off the presses. It’s fairly short, but the information in this book is actionable. I’ve even given away a couple of freebies that you won’t find anywhere else.

I think you’ll like it, though I ask for your feedback for any missing or requested information to discuss further.

I’m headed back to Manila in a few hours and will be headed to Singapore this weekend and  hopefully Kuala Lumpur as well… so I should have very interesting things to report next week.

Greetings! I’m going to dive right into the questions from this week:

== TRANSPORTING GOLD OUT OF THE COUNTRY ==

I appreciate all the comments and anecdotes in response to Tuesday’s letter about my run-in with TSA. . Based on the questions I received, there are a couple of things that should be clarified:

1) In most cases (see below), you don’t have to tell the US government that you’re leaving the country with gold.  However, that doesn’t mean that you don’t have to tell your destination country.

Some places in the world that require you to file paperwork if you enter the country with gold, such as Uruguay and Taiwan.  Check before you go.

2) American Eagles are considered legal tender at face value ($50 for a 1-ounce coin); keep this in mind if you are a high roller and happen to be traveling with 200 of them– you will be over the reporting threshold and need to file the paperwork.

3) Similarly, some foreign minted coins may be considered foreign currency at face value.

4) If you need to fill out the paperwork, ask the airline check-in agent at the airport; s/he should be able to point you in the right direction.

== PANAMA ==

Depending on your perspective, Panama can either be the land of opportunity or a total headache. This week, in two separate letters, I tried to portray both views.  If I left you confused, here’s the bottom line:

Panama is on an upward trend. Miami (and most of the US for that matter) is on a downward trend. At the moment, the difference between the two is vast– Panama has only been modernizing for about 10-years, so it’s going to take some time to catch up.

Meanwhile, the US is beginning to deteriorate very quickly… so while life improves in Panama, things are getting worse in the states.

Panama is not perfect, and will never be. There are problems– social, institutional, environmental, etc. But taken as a whole, I am convinced that both the business environment and quality of life will surpass those of the US, and Miami in particular. Eventually.

For now, one of the chief problems (that I wrote about yesterday) is that pricing inflated far too quickly… it was as if Panama was pricing itself on par with Miami without having actually reached parity yet.

This fundamental value imbalance is what needs to be sorted out in the local property market with sellers capitulating to the lack of demand, at least at existing prices.

It will happen. In the meantime, value investors can find extraordinary bargains in closely held foreclosure listings, as well as buying distressed contracts.

I will provide more information on both of these topics in my forthcoming Panama Black Paper, which is nearing completion.  To be clear, there will be a charge and limited distribution– the Black Paper is only intended for people who are truly serious about living or investing in Panama, not tire kickers.

== CHINA ==

The issue of China’s growth is a surprisingly divisive issue in the financial community. Many people are ’suspect’ of the country’s growth, while others zealously invest in every Chinese issue they can find.

Do I believe the official GDP statistics released by the Chinese government? Of course not. I think they use the same mathematicians to calculate GDP growth that they used to compute the age of their female Olympic gymnasts last August.

HOWEVER, and this is the important point– real, fundamental, long-term economic growth is fueled by two things: the accumulation of savings, and advances in technology.

China has both… in immeasurable abundance.  We’re talking about a culture that values producing, saving, and studying; thus, in my opinion, China’s long-term growth fundamentals are very solid.

=== KEY INVESTMENTS ===

People ask me a lot whether or not I think the US is going to experience significant inflation or deflation.  This assessment is core to an investment strategy: in deflation, accumulating cash makes sense. In inflation, accumulating cash is foolhardy.

I will address this issue in future letters, but suffice it to say that there are indications of both at the moment.

This is why one of the best, no-brainer investments in my opinion is buying cash at a discount– growth companies whose market values are worth less than their net cash. You split the difference and stand to benefit in either case– inflation or deflation.

Believe me, it is hard to find great companies trading for less than cash; usually such valuations are linked to one time market anomalies when investors become completely irrational.

Dr. George Huang, who I have mentioned before, does a phenomenal job of finding these companies, and his returns have been spectacular.  He recently recommended QLT on June 24th, for example, and the stock is already up 85%.

I like his recommendations because I feel like the downside risk– buying cash at a discount– is covered, and there is still tremendous upside potential (like the QLT pick).

If you’re interested in finding out more about these types of investments, I strongly suggest you get your hands on Dr. Huang’s FDA Report.

I’ve been spending a lot of time this week talking to my sources in China, one of whom is inside one of the country’s sovereign wealth funds (SWF).

He could not discuss the details of the Rio Tinto bribery scandal, but indicated that it was far more about saving face and establishing position than anything else.

He also indicated that the SWF analysts were working around the clock trying to put deals together… for China it’s a race against the clock for how fast they can convert their $2 trillion in US dollar holdings into strategic assets– namely oil and gold.

At today’s deflated prices, putting together a really good billion dollar deal is a difficult thing to do. Putting together 2,000 of them is impossible.  Doing it before the dollar collapses? No chance. And they know it.

So as a hedge, the government appears to be pumping up demand for gold and silver among the public, possibly preparing them for an imminent dollar decline.

I asked Christine Verone, my China insider you heard from last week, to shed some light on the Chinese gold market to provide some clarity:

It’s funny you ask, I just got off the phone with one of the key executives at the Shanghai Gold Exchange.

You know, for the past 50 years, the Chinese government has controlled the distribution of all types of gold. They dictated prices and forbade citizens from owning or trading any type of precious metal.

It didn’t matter if you were an individual investor, a gold miner or a processor…it was state asset.

In 1959, if you were caught with gold in your possession you were thrown in jail. The result of this policy has been widespread indifference and very little understanding for precious metals as asset class or sound money.

The government is now taking radical measures to change that.

Fast forward to 2009– the FIRST year that the Chinese public is allowed to own physical gold or silver.  The government is now trying to drum “gold/silver as an investment” into their heads at every corner.

Banking products, investment products, checking accounts linked to gold.  In fact, Chinese have more precious metal investment options than Americans, and the statistics are alarming:

In 1950, China had next to nothing in gold reserves. Today they rank 10th globally, and they are frantically mining for more on their own soil.

For the past half a century, the Chinese had the lowest per capita consumption of gold in the world. Next year, Chinese gold demand will likely surpass that of India.

This year, the government banned silver from being exported… and by July, it was being promoted as an “investment” to the Chinese public on the 6 o’clock news.

You do the math– how does that affect global demand if just 10% of Chinese begin to perceive silver as an investment?

Will the Chinese turn into goldbugs overnight? No. Over the next 5 years? Probably, yes.

I like your long-term silver option strategy for this reason.  Even the smallest shift in Chinese investor/consumer preferences can dramatically alter global demand and commodity prices.

From what I’m seeing from the ground, the Chinese government is engaging in one of the most explosive financial marketing campaigns in history.  Instead of Maoist propaganda, though, they are attempting to change the entire perception of  gold/silver in the Chinese public.

Simply put, the Chinese government is trying to trigger a national gold craze…and it’s working.

The Chinese public now has gold trading platforms on steroids.

You can buy silver bullion or gold bars at any Chinese bank in four different sizes.  Wealth management products tied to gold are skyrocketing in popularity, and the public can now instantly buy, sell, and trade gold 24 hours a day in five different forms with different eight types of services.

Also, for the first time in history, Chinese investors can even trade gold abroad (in London) with the swipe of a “Lucky Gold” card.

I can’t even get Bank of America to open a foreign currency account.

Simon again. There is a reason that the Chinese government is promoting gold and silver ownership, this is not coincidental. More to follow.

LATVIA / SWEDISH BANKS

The link between the fate of Latvia and the stock price of Sweden’s major banks became even more apparent this week.  On Monday, Latvia’s government announced that it had rejected a bailout deal with the IMF, spurring new concerns of devaluation.

In response, investors sold off shares of Sweden’s Swedbank to the tune of a 5% decline.  The market sees these two parties as inextricably linked: as Latvia goes, so goes Swedbank.

We also learned that over 50% of Swedbank’s Latvian mortgages are under water, i.e. the value of the home is worth significantly less than the principal balance that the bank has loaned against it.

When this happened in the United States, default rates skyrocketed. I don’t see how this won’t happen in Latvia, especially given risk (certainty) that the country will devalue its currency.

Let me know if you disagree, I would love to debate the analysis.

LITHUANIA

In a related story that shows interesting promise, the government of neighboring Lithuania announced that its economy contracted by a whopping 24% rate from last year.  Twenty-four. Not a type-o.

This has several implications.

First, Latvia is in much worse shape than Lithuania, and it’s apparent in the streets. If Lithuania has posted a 24% drop in GDP, Latvia’s numbers will be even more crimson. This only bolsters the case for a currency devaluation.

Second, the Lithuanian government response is indicative of mainstream political convention: rather than make the economy more competitive and ease the burden of its businesses and citizens, the government plans on raising taxes even further to support its own largess.

I find this line of thinking to be suicidally incompetent, akin to a starving animal thinking that it can eat its own innards to survive.

The interesting thing about Lithuania, though, is that the country is small enough for protests and grassroots political action to actually make a difference… so I am very interested to see if/how the people respond in Vilnius.

Naturally, my hope is that they will rise up and say “I’M MAD AS HELL, AND I’M NOT GOING TO TAKE IT ANYMORE…”  If this happens, it will set an admonishing anti-government precedent for the rest of region.

This, to me, is the greatest potential benefit of the economic downturn: I am hopeful that societies and main stream media will finally begin to question the legitimacy of government action and realize that all the billions and trillions being spent have either been conjured out of thin air, borrowed from other countries, or stolen from productive citizens/businesses.

Politicians are not spending their own money, and they are not spending “the country’s” money, they are coercively collecting and spending people’s money, despite being the most woefully incompetent financial managers in history.

Small countries like Lithuania and Latvia are the key to starting a movement back to limited government; such a movement is sorely needed right now given the direction that the entire world is headed.

BANKING AND GOLD STORAGE IN AUSTRIA

For the record, NO place on earth is 100% safe and secure from corruption, thievery, confiscation, or the prying eyes of government… unless, of course, you figure out a way to shove your bullion up your fourth point of contact.

Well… I have a bad relationship with my proctologist, which is why I store some gold in Austria (among other places).  Austria is a good compromise, but as some of you have indicated, it is not without risk.

Could armed government thugs go rushing into Das Safe tomorrow under the authority of some obscure anti-terrorism or anti-drug law? Possible… but unlikely.

If this is your chief concern, there are other jurisdictions that may be more favorable, predominantly in Asia. I will be discussing these in future letters.

Remember, though, gold storage should be in a place that you not only regard as safe, but in a country where you frequent and can get to easily.

I find myself in Europe all the time, and as Vienna is so conveniently located, it’s easy for me to pop in, drop off some gold, and pop out.  There are some places in Asia that I frequent as well, and I use storage facilities in those countries.

PHARMA INVESTING

I received a few emails yesterday you couldn’t get yesterday’s interview with Dr. George Huang to work properly; I’ve reposted the interview here, and you can read more about his advisory service here.

I subscribe to his service and find his track record to be stellar, which is why I am sharing it with you.

TRAVEL

I am cutting my Europe adventures short… I was originally intending on staying in Europe until the weather turns cold (September for my blood), but Matt and I have entered into a very exciting new deal for a company in Panama that I hope to be sharing with you very soon.

As such, I am on the way to New York this weekend for a meeting, will visit my family in the US briefly, and then head to Panama to close the deal.  More to follow.

Unfortunately that means I will not be headed to Atlanta next week for the racecar driving school… but I think my aerobatics ride last week certainly makes up for it.

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.

Something is afoot in Panama that I want to tell you about.

Several banks, including Banvivienda and HSBC, have recently announced that they will discontinue renting safety deposit boxes.  Customers who currently rent boxes will have until the end of the year to vacate their belongings.

Furthermore, some banks that formerly used to work with US customers, including Banco General, Credicorp, and Global Bank, will no longer open accounts for Americans unless they meet a very narrow set of stipulations.

This is certainly the new landscape of Panama’s banking frontier.  So what’s going on?

Several months ago when the G8 heads of state joined in unison to strongly condemn banking and tax havens, the OECD put together a complementary ‘black list’ to mark the most egregious offenders.

The black list amounted to nothing more than fodder for headlines– nothing actually changed, and politicians were able to appear to be taking a tough stand on tax criminals.

Developed countries with strong banking secrecy laws– Hong Kong, Singapore, Switzerland, Austria, etc. did no make the list. Poorer countries (Costa Rica, Uruguay) did.

And Panama? Noticeably and conspicuously absent from the OECD black list.

Perhaps this is because Panama’s top banking officials are already on CIA and DEA payrolls… though in all fairness I believe Panama to be more strategically important because of the Canal, so the OECD left them alone.

Meanwhile, though, Panama’s banks are starting to police themselves and tighten their own regulations… hence the banking changes we are now seeing.  Panama is effectively side-stepping international regulation by making internal policy changes, and the biggest change– fewer options for customers from Estados Gringos.

There are still plenty of banks in the area who are happy to deal with US customers, and I will be scrubbing the list personally when I arrive in-country in a couple of weeks.  The strongest names and contact info will be published in my upcoming black paper.

Furthermore, second citizenship is one of the very clear, obvious solutions to what I call ‘banking discrimination’. It is ironic indeed that Swiss and Panamanian bankers will happily open their books for a hapless felon from Zimbabwe, but a US citizen is kindly shown the door.

If you’re tired of being discriminated against because of the color of your passport, the second citizenship guide is coming.

Furthermore- regarding secure storage… I think that storing bullion offshore is a very smart idea, especially if it’s in a country that you visit from time to time.  You should be storing enough metal to justify the security costs; to me, 1% to 2% is reasonable on an annual basis.

Traditionally, Panama has been a great jurisdiction for bullion storage, though our facility options just narrowed drastically now that many of the banks are closing their doors.

About 18-months ago, I explored the possibility of establishing a private secure storage facility in Panama.  After almost a year of scouting for locations and designing the building, I abandoned the idea because I simply could not find much value in commercial real estate– prices were too high to justify the investment.

Now, given the increasingly limited options available to foreigners, I intend to dust off my plans and buy some space.  Naturally, I am interested in hearing from you to see if a private, offshore secure storage facility located in Panama would fit the market’s needs.

Greetings– lots of questions this week so I’m going to jump right into it:

MARK NESTMANN INTERVIEW

Thanks for the emails and comments from yesterday’s Nestmann interview, I’ll try to do more things like this… and thanks to Matt for doing such a great job on the interview. The most common question was whether there is a great book like Nestmann’s Lifeboat Strategy specifically for Canadians.

We asked Mark, and he said to check out How to Tax a Billionaire by Doug Smith. Mark also works with several prominent Canadian asset protection lawyers, and you can contact him on his website for referrals.

LITHUANIA

Several people asked about citizenship in Lithuania– My understanding, as it has been explained to me by a government minister, is that if you can prove that you have ancestors who were Lithuanian citizens prior to 1940, the government will award you citizenship with little red tape. A trusted contact here gave me the name of a lawyer who can help– Marius Tamosiunas, office number +370 5 249 7100. PLEASE do not flood him with calls unless you meet the above criteria and have the proof in hand.

ARGENTINA

More questions about Cafayate. Let me disclose fully– I have not purchased a lot there. I will likely buy one as an investment, but I still probably won’t be spending much time in Salta because quite honestly it’s just not my thing– too remote. To be even more clear, I receive no compensation of any sort from Doug or Cafayate regardless of what I say about the project. I’m just giving you my straight opinion– for some people it’s probably paradise. For my taste, the town is too small.

HONDURAS

Great comments and questions. There are certainly as many, if not more Zelaya detractors as there are supporters. He is no angel, notwithstanding the coup. His government has been filled with corruption, rising crime rates, and reduced civil liberties. All in all, the country is probably better off without him.

That being said, there are definitely scenarios whereby US troops could be engaged by Venezuelan forces should Chavez decide to invade Honduras. If a Venezuelan solider would happen to so much as break wind in the general direction of a US troop stationed in Honduras, Obama’s policy wonks will bring overwhelming force to bear as an excuse to tease out a larger conflict and neutralize the Chavez threat.

The likelihood of that scenario playing out at this point? very low. Zelaya will probably just end up making a deal with the coup leaders, and someone will walk away with a thick white envelope in his jacket pocket.

SILVER TRADE

We had a lot of really fantastic comments about this. To briefly explain my own strategy, I should first say that while I am certain inflation will be a menacing force in the long run, deflation will likely persist in the short run. As such, I can see quite a few scenarios for a stronger (or at least stable) dollar, at least through the end of the year. Mark Nestmann discussed this in his interview yesterday.

I mentioned in this week’s missive how I don’t buy the 70:1 gold/silver ratio. And while I can’t possibly determine what the price of silver will be tomorrow, I am absolutely certain that the future price in the next several years will be much higher.

I’m specifically looking to sell long-dated PUT options where I can find liquidity– $10 strike price December 2011 for $1.20-$1.50, for example. This means that, as long as silver is trading above $9 over two years from now, I make money. If I am wrong, I will still happily be a buyer at $9 (my effective price) and take delivery.

Simultaneously I’m also buying CALL options, for example the $15 strike price, December 2011, for around $2.00; if silver is trading above $17 by that time, I make money.

Some of this may sound confusing if you’ve never traded options before… let me know and we can have a more in-depth dialogue if need be. There are a lot of options alert services available– and thanks to those of you who provided some recommendations. I’ve decided that I will sign up for many of the services that you recommended, conduct a full audit of the track records, and publish the results for everyone to see.

In the meantime, aside from the silver trade, I’m investing heavily in some of the pharma picks from the Dr. George Huang’s FDA letter that I mentioned a few weeks ago. I’ve already audited his record and it is really impressive– his options strategy has been spot on and generated a lot of short-term gains.

MISCELLANEOUS

I’ll be reporting from Latvia and Poland next week, then heading to Hungary for awhile. Over the next several weeks I will try to make my way to Geneva, Vienna, and Luxembourg to sit down with some bankers on your behalf. If anyone is in the area, feel free to drop me a line.

On that note, actually, the BEST way to reach me (and to get a response) is to leave a comment on the site… I read every comment, and it is a much better way to grab my attention. If we need to have a private conversation, let me know and I’ll try to find you on email. Bear in mind that I simply cannot respond to everyone (especially as this community grows), but I’m doing my best.

Have a great weekend.

Making money is large part of achieving independence and living free.

In my own life, I focus on select entrepreneurial ventures to generate capital, and specific investments which subsequently grow that capital. My investment habits might be best described as ‘peculiar,’ because, believe it or not, I do not have a strong risk tolerance when it comes to my money:

- I only invest in instruments that I fully understand (or someone I trust fully understands).
- I invest in big picture trends that I am totally sure about.
- I do not get over-leveraged because I don’t enjoy handing my position over to the bank.
- I accept losses and don’t automatically assume that my position is going to come bouncing back.
- I tend to take profits quickly (a bird in the hand).
- I buy assets that I think are extraordinarily undervalued, and sell assets that are extraordinarily overvalued.
- Most of all, I look for the obvious opportunity that I call the ‘low hanging fruit…’

Low hanging fruit is the ‘no-brainer’ opportunity that the market presents from time to time– the GDX gold miner’s index at $16 several months ago, 4.75% mortgage rates, and a slew of debt-free companies trading at a substantial discount to their net tangible asset value.

It happens. Some people believe that these types of opportunities don’t exist because markets are ‘efficient.’ I don’t buy it. I think that markets are totally inefficient (at least in the short term), comprised of highly-charged, emotionally-frenzied participants who often act in completely irrational and irresponsible ways.

Major market participants have a herd mentality, following each other around in and out of mortgage-backed securities, treasury inflation protected securities, GM bonds, and financial sector stocks. When you consider that 50% of the people out there are, by definition, below average, it certainly begs the question if any of these guys know what they’re doing when they let computer programmers and math whiz kids figure out what the price of oil will be next Tuesday.

I certainly don’t know. I always get a kick out of people’s ‘year-end’ predictions where they say ‘gold will be at $1,310 and the Dow will be at 8028.33.’ I suppose it’s fun, but the odds are better to bet on 18-red.

So where am I looking right now?

Today I think the low hanging fruit is the longer-term future value of certain commodities. I have no idea what gold and silver will be trading at tomorrow, next month, or even next year… but I am certain that the longer the timeline, the higher the likelihood that these commodities will achieve explosive growth… and for that, we can thank runaway deficit spending and currency inflation.

Given the US Commodity Futures Trading Commission’s looming regulatory headlock on evil speculators, I’m staying away from energy until the smoke clears. I do, however, have gold and silver in my sights. I’m looking at futures contracts with delivery in 2011, meaning that I am effectively locking in the price for gold and silver two years in advance.

Between the two, I believe there is more speculative upside in silver; given historic ratios and potential growth in industrial demand, the current gold/silver ratio of 70:1 is too high. Silver should appreciate at a faster rate than gold, and the opportunity to pay $13/ounce for it in 2011 is low hanging fruit in my book.

There are several ways to capitalize on this, including options strategies, futures, and even ETFs. I will share the trade with you if requested in this forum. I’m also curious what everyone thinks about silver, and what low hanging fruit do you see in the marketplace right now, if any?

Incidentally, there are several trading services out there that specialize in shorter-term trading opportunities… I’ve made some money in the past with Casey Research’s Trend Trader service, and if anyone has other recommended trading services please share in the comments on the website. I generally look at these as great opportunities since they normally come with a risk free trial period, enough time to paper trade the recommendations.

I’ll tell you why Honduras is really starting to trouble me… I have a few friends left at Joint Task Force- Bravo stationed at Soto Cano Air Base about 50 miles from the capital city of Tegucigalpa, and the situation appears quite tense.

Officially the 500+ US military forces on the ground have been ordered back onto the base and to stay out of sight for the time being… SOUTHCOM, the military command that oversees troops in Honduras, is concerned that the slightest hint of US aggression or influence could result in yet another prolonged conflict.

But while the generals understand that US military forces are sapped and strained, politicians can see a silver lining in the political chaos: finding a reason to invade is a great excuse to raise taxes, dump money into the private sector to support the war, and create another US-friendly state beacon in the region to buffer against Chavez, Ortega, and Correa.

It sounds too perverted for reality, but this is the mindset of policy wonks who are itching to take their PhD dissertations for a test spin in the real world. I’m watching very carefully for signs of a troop buildup at Soto Cano in the hopes that Honduras doesn’t turn into the next Cuba.

(as an aside, I do not expect the situation in Honduras to have any adverse affect on Panama; in fact, it probably makes Panama’s stock rise as the country continues to be a beacon of stability in an otherwise nuttier region.)

My guess is that there’s probably a lot of Hondurans right now who wish they had a lifeboat strategy… remorse is a terrible emotion. There were probably a lot of Rwandans in 1994 and Japanese-Americans in 1942 who thought the same thing.  Being prepared is never about pessimism of fear-mongering, but rather the rejection of the blissfully ignorant notion that ‘it could never happen here.’

It can. And it just might.

I’m not of the camp that geopolitical and economic calamity will get so bad that the entire world will look like a sequel to Mad Max: Beyond Thunderdome… perhaps I have more faith in my species and the free market.  But I am open to a variety of possibilities, and more conspicuously the ‘unknown unknowns,’ to quote the potentially-soon-to-be-late Donald Rumsfeld.  Consequently, I structure my life in a way that allows for maximum freedom and flexibility.

Based on my own experiences, I would suggest the following:

* Find at least one (and preferably several) places outside of your home country to escape to. Strongly consider buying property there.

* Consider a second citizenship program; at a minimum, set up residency in another country.

* Store physical and paper assets outside of your home country, and outside of the electronic banking system.

* Demand privacy.

* Keep some investment capital at the ready so that you can jump on phenomenal deals as they arise

* Look for opportunities for additional income that are not constrained by your geography

More on all of these topics in future issues; after all, that’s what this letter is all about– achieving freedom, and I sincerely hope that this content can help.  On that note, I was really overwhelmed at the responses and positive feedback from Friday’s suggestion to buy Mark Nestmann’s book ‘The Lifeboat Strategy’.  Again, I highly recommend that everyone read it, it’s one of the best ’starter guides’ to internationalization that I have read.

You can find it at MarkNestmann.com; based on popular demand, I’ve contacted Mark to request a short interview and to answer some of your questions in a public forum. More to follow.

Today I wanted to get down to the business of answering some of your questions from earlier this week:

First of all, I apologize if I failed to make things clear when I started this letter: I am no longer part of Without Borders; Notes from the Field is not affiliated with Casey Research or Without Borders.  Furthermore, Notes is free and not tied to any other subscription that you might have.

LITHUANIA:

I received one question about the passport program– Lithuania has a very straightforward citizenship program as long as your ancestors were born before 1940. You can also marry a Lithuanian, and citizenship is granted after 3-years. My understanding from speaking to the Minister of Justice is that there is little red tape in the program.

ARGENTINA:

A few days ago you asked about the Cafayate (pronounced Cafa-zha-tay) project in Salta province, Argentina.  Doug Casey is involved in the project and he gave me a personal tour of the site last December… it’s absolutely beautiful, and I can definitely see the appeal for many people.

To be clear, most of Argentina’s problems will be localized in Buenos Aires province. Salta is far away, near the Bolivian border, and has an almost separate and distinct culture than the porteno culture of BA that I decried in my original article. Salta is much safer than the capital and I do not expect it to feel the same level of social chaos.

My honest hope (though it may be a pipe dream) is that, if Buenos Aires burns in an economic meltdown, Salta will break away to an independent republic.

FINLAND:

Have I ever been detained or stopped while traveling w/ gold and silver? Yep. It depends on the country, but in most places this is not illegal. The customs officials searched my bag, looked at the gold, and put it right back. They were much more interested in the enormous stack of foreign currency that I was carrying, including the $10 trillion Zimbabwe note.

I would not prescribe a particular amount of gold and silver to travel with because, as I stated, this is not illegal… it would be like suggesting a particular number of bottles of water or DVD movies to travel with.  For the time being, officials do not regard gold/silver as monetary instruments.

If you have any doubt, you can always declare it on Fincen Form 105

PANAMA:

Panama does not have the equivalent of an FDIC; most of the world does not. Does this mean the banks are unsafe? No. It means that they must practice sound banking because they do not have taxpayer money to bail them out.

OTHER:

The biggest question I get is for specific WHO and HOW to get started offshore; I explained last week that I was working on a way to share my contacts with you… this information will be for limited distribution so as not to overburden my network, but it will hopefully solve the ‘WHO’ problem.

In the meantime, to get started on the ‘HOW’, I wholeheartedly recommend that you read Mark Netsmann’s book The Lifeboat Strategy; Mark is a leading asset protection specialist and a trained lawyer… I know Mark and have read his book– it is definitely worth the price if you are serious about saving your ass and your assets.