June 11, 2010
Santiago, Chile

As I mentioned in yesterday’s subscribers-only letter, I’ve been to Chile numerous times, and I like it more each time I’m here. For this trip, which is unfortunately short, I wanted to survey the countryside to see the extent of the earthquake damage.

It’s easy to have already forgotten February’s 8.8 earthquake in Chile, roughly 500x stronger than Haiti’s.  That’s because there was scant media coverage, limited outpouring of international support, and no celebrity telethon.

While most of the world was fixated on Haiti, Chile got down to the business of picking itself up, dusting itself off, and putting itself back together… mostly by itself.

As I discussed yesterday, I think the manner in which Chileans got back to work and started functioning normally again is a real testament to how advanced and civilized this place is.  I’m absolutely convinced that the country has a very bright future.

I’ll be in Brazil later this weekend, taking in the World Cup games with some local friends and sorting out some immigration issues that I hope to be able to tell you about soon.

For now, let’s move on to this week’s questions.

First, Pat asks, “Simon, I am very interested in using a law firm outside US to start the process of internationalizing myself. I’ve run across several firms online that provide such services, but I’m curious to know whether they are legitimate.”

I’ve worked with a lot of these firms over the years, mostly because I wanted to test their integrity and competency. Some are certainly legitimate, while others are crooks. But here’s the honest truth about the whole thing-

Generally, when dealing with offshore service providers, whether they be lawyers, real estate agents, etc., the firms which come up in the top listings in Google are competent at search engine optimization, but little else.

They specialize in factory-style solutions, churning out cookie-cutter products and services that only scratch the surface of your situation.

The best offshore service providers out there keep a low profile and don’t really advertise, especially in mainstream venues. To get in the door, you have to know someone, and do a lot of homework on the ground. I’ve personally burned through dozens of offshore lawyers alone, just to be able to find the gems.

The last thing you should understand is that most of the law firms you’ll work with can’t provide the comprehensive services that you’re looking for. An attorney may be able to build a trust, but doesn’t know anything about foreign property.

Similarly, a foreign real estate agent may be able to find you a great property, but doesn’t know anything about second citizenship… and a passport facilitator doesn’t know anything about where to store your gold overseas.  And none of them understands the tax implications in your home country.

I’m currently working on a solution to this problem by pulling together several of my global contacts to provide comprehensive advisory services. This would be a single group that can give actionable advice across all areas of internationalization– property, banking, citizenship, etc. More to follow.

Next, Richard asks, “What do you think of Nevis versus Panama for incorporation?”

The most popular corporate entities of both jurisdictions offer similar benefits– neither jurisdiction taxes domestic corporations on foreign income, neither requires annual reporting, and both offer bearer share entities.

There are, however, substantial differences that you should be aware of– Nevis is a British common law jurisdiction. For most foreigners, this is much more comforting than Panama’s civil law system should you ever get dragged into court.

Also, US taxpayers should know that Panama is on the IRS ‘per se’ corporation list; Nevis is not. This means that a Panamanian SA will always be considered a corporation for US tax purposes.

Consequently, if you operate a Panamanian company that has US tax liability, the IRS will tax both the corporation and shareholders on profits. A Nevis company can elect to be taxed as a partnership, eliminating the double taxation.

If the company has no US tax liability, however, then this difference is of little significance.

Next, Barry writes, “Simon- regarding the social housing program you discussed in Panama, I’m concerned that the government will create artificial demand for housing and spur a bubble, similar to what happened in the US. Thoughts?”

You make an excellent point about governments’ ability to create bubbles. But the hard numbers in Panama make a very compelling case for supply and demand– quite simply, there are roughly 50,000 housing units needed for lower/middle class Panamanians.

Most banks and local developers are happy to ignore this market and focus on overpriced gringo projects. As such, the government is providing incentives to help close the gap.

Several years from now, there may be a bubble in this segment… but for now, I think Panama social housing is one of the strongest real estate opportunities in the western hemisphere.

To learn more, the best person to speak to about it is Ulrich Schwark, a German real estate professional in Panama who develops these properties. You can contact him here.

Lastly, I need to update you about the proposed tax changes in Uruguay. A few weeks ago, the Uruguayan government began discussing new legislation that would tax residents on their foreign assets and income– clearly a negative for anyone thinking about establishing Uruguayan residency.

The government has since clarified that it only intends to tax citizens, not residents. This still seems like a negative, in my opinion, since many expats want to move to Uruguay in order to obtain a second passport.

For now, the changes are just propositions and have not been ratified… so we can bring up the topic again once the new tax code is finalized.

June 9, 2010
Panama City, Panama

Panamanians are generally a carefree lot… but there are a few things that they curiously take very, very seriously. Mother’s Day is one example– it’s held in December, and the entire country shuts down for the day, including banks and government offices.

Voting is another example– it’s actually compulsory in Panama to go to the polls, and the government ensures that you don’t have any excuses by wrapping the event into yet another holiday.

The 10-year census is another… the government requires locals to stay home and wait for the census teams to show up. These teams go house to house interviewing residents in a single day, and afterward provide a small receipt indicating that the individual has already completed the census.

If a local is caught in the streets without this card on Census day, s/he can be taken to jail. While this requirement doesn’t apply to foreigners, the seriousness of this whole charade seems rather silly.

A few weeks ago, the government executed its latest census, and the results were quite interesting.

The preliminary data show that, since 2000, Panama’s population has grown by 17%, while the number of dwellings in the country has increased by 33%. In gross figures, there are now 3.3 million Panamanians living in 1.05 million homes.

Over the last 10-years, there has clearly been a dizzying housing boom in this country and an explosion of new housing units, particularly in Panama City. These numbers illustrate a few interesting points about the market.

First, as the population of full time residents has grown half as much the number of homes, it stands to reason that a substantial portion of the dwellings has been sold to nonresident foreigners.

You can see this on the ground quite easily by surveying the cityscape in the evening. Most of the freshly minted condo tower units, in fact, are sitting empty. The lights are off, and nobody’s home.

Given the straits that many people are finding themselves in these days, the oversupply of condos could be a great opportunity for the right entrepreneur. Each one of these units needs services, such as caretaking, bill pay, and short-term rental management. Most owners would jump at the chance to generate some revenue with rental income.

Problem is, there are few professional property management firms in Panama. I could name one, maybe two, and they are maxed out in their capacity. The other property managers in the city are one-man bands who work part time from their mobile phones.

I think someone who could provide well-marketed, comprehensive professional services would do quite well here.

The other key opportunity that I glean from the census data is the strong potential in ‘social housing’ projects. The government has an active commitment to increasing home ownership in Panama among the poor, yet the figures still show significant housing shortages in the key commuter towns outside of Panama City.

One of these commuter towns is called La Chorrera, roughly 20 minutes from the city. Its population has grown from 20,000 just a few years ago to over 100,000 today, and more people are moving there every day to take advantage of the strong job market in Panama City.

The people who move there often come from the interior of the country where they lived in dirt floor shanties with 7 other family members. The government provides incentives for banks and developers to build housing communities specifically for this market of first time buyers who have never had four solid walls and a ceiling.

As you could imagine, the homes are cheap to build and the demand is incredibly strong. Government data show the current housing shortage north of 50,000 units in this market, indicating that while the gringo segment has been vastly overbuilt, the local segment has a lot of opportunity.

Fortunately, most of the local Panamanian developers have largely ignored the opportunity. They couldn’t possibly sully their brands by building homes for commoners, which is why the housing shortage has been growing each year. This leaves huge opportunity for foreigners who can provide quality, cost effective units.

A few months ago I conducted an interview with a real estate professional here in Panama who I have known for several years. He’s German, and aside from running one of the top brokerages in the country with his partner, he also develops social housing projects.

In the interview, he explains the very compelling economics behind these projects, and you can listen to that interview here.

It’s not sexy or glamorous, but I think Panamanian social housing may be one of the strongest real estate opportunities in the western hemisphere at the moment. I would also put certain locations of raw land in Ecuador and Paraguay, as well as high yield Colombian properties in this category.

June 8, 2010
Panama City, Panama

I’ve been pleasantly surprised this week by some recent changes in Panama that continue to demonstrate this country’s positive momentum.

Yes, there is still corruption, squalor, pollution, and traffic amidst the soaring condominium towers and luxury car dealerships. But the larger point to capture is that Panama is clearly on an upward trend– month by month, it becomes better, nicer, more modern.

In contrast, the dying behemoths of western civilization are on an accelerating downward trend. Sure, Spain may be a nicer place than Panama at the moment, but given Panama’s steep rate of growth and Spain’s steep rate of collapse, it won’t be too many years before the two cross.

So how is Panama able to maintain its steady growth? By adhering to some core principles:

First, it continually improves and reinvests in its staple industries. For example, Panama’s major cash cow is its revenue from the Canal. Rather than suck out all the revenue and let the Canal go to waste, however, the country is currently undergoing an ambitious expansion project to modernize the waterway and keep up with industry demand.

Furthermore, the Canal authority is making constant investments in its efficiency in order to reduce transit times through the Canal. This provides substantial value to shippers worldwide.

Contrast this with a country like Mexico, which has substantial oil wealth but has failed year after year to make adequate investments in new exploration and extraction technology. Consequently, Mexico’s oil production is on a major slide, and it won’t be too long before the country becomes a net importer.

The second component of Panama’s success is its friendliness to foreigners– the government makes it easy for foreign businesses and individuals to relocate and invest in the country.

For individuals, there are a variety of simple programs whereby a foreigner can establish residency, ranging from the Italian bilateral treaty to the $1,000/month retirement program to the $80,000 reforestation investment to the $200,000 economic solvency visa.

Many of these residency programs lead to Panamanian citizenship after a five-year period. Furthermore, since the Panamanian government does not tax income earned outside of the country, it is an excellent place to plant a ‘tax residency’ flag for permanent travelers.

It’s also possible to live in the country without having to ever declare official residency. Panamanian immigration authorities grant extendable 90-day tourist visas to nationals of North America, Europe, and Oceania among others, which means you could stay indefinitely in the country on a tourist visa.

Once the 90-days is up, you could either extend the visa or leave the country for a short trip. The government recently made this practice even easier by dropping the requirement to purchase a $5 ‘tourist card’ at the border.

Lastly, one of the big keys to Panama’s success is its friendliness to business. In Panama, a business can be created almost instantly, and one can even purchase a shelf corporation with an existing bank account. In many other countries, this registration process can take weeks.

The government even has an English-language website to simplify the registration process of new corporate entities. (note: consult with a qualified tax advisor before undergoing a step like this)

For registered companies without income from Panamanian sources, there are no local taxes due and no reporting requirements. For Panamanian sourced income, the corporate tax rate was just reduced from 30% to 27.5%, and will be further reduced to 25% in 2011.

While there are some loopholes available, labor laws can be cumbersome for employers in Panama… regardless, though, there are still a few businesses that I would be interested in owning down here, and I will be discussing one of them tomorrow.

Lastly, I should mention that foreigners are given full consideration for government contracts in Panama, including for the Canal expansion project. The government recently introduced a new Spanish-language procurement website which includes bid solicitations for upcoming projects. Some of these may be of interest to you.

June 7, 2010
Panama City, Panama

My weekend in New York City with fellow Atlas 400 members was really spectacular and first class all the way. There were about 50 of us in total, all with varied and interesting backgrounds from all over the world– a renowned heart surgeon, a music business mogul, a couple of best-selling authors, successful entrepreneurs, etc.

I want to tell you a lot more about the event because I think it underscores how important it is to develop diverse personal relationships bound by common philosophical beliefs… but today I want to spend a few moments talking about something else– Panama.

I stupidly booked myself on a rather unfortunate 6am flight from New York to Panama on Sunday morning. I’m not a morning person, so I don’t quite know what I was thinking, but it ended up being rather serendipitous.

Prior to takeoff as I was resting in my seat trying to ward off the prior evening’s wine selection, a man sat down in the seat next to me and immediately began striking up some idle banter… I’m sure you’ve been there– chatted up by an early morning type A personality who apparently receives caffeine intravenously?

In most cases I’d be polite enough to explain that I need to snooze… but for this gentleman, one quick glance out of my half-opened eyes sent the alarm bells blazing… his entire appearance screamed ‘US government agent.’ It might as well have been tattooed on his forehead.

I perked up and look around a bit more, noticing 5 or 6 more of the usual suspects– all of whom were with me in the first class cabin, mind you… that’s US federal tax [debt] dollars at work.

Given my past experiences with these types, I’ve found that a lot of them take pride in what they do, and they want you to know it. For ‘security’ reasons, they can’t tell you exactly what they do, but they’ll dance around the issue until you’re convinced that they’re either Jack Bauer or James Bond, even though it’s not true.

As a rule of thumb, the guy who tells the loudest war stories is the one who was the furthest away from combat. Needless to say, my seatmate regaled me with ‘hypothetical’ stories about drug busts, asset seizures, and money laundering operations, with the standard caveat of “well I can’t give you any specifics, but…”

Here’s the big takeaway that I want you to understand: Panama has a small army of US government representatives crawling around, including military and drug enforcement in particular.

It’s also been reported that the IRS is even setting up an office in Panama, though my sources on the ground here have indicated that this has not happened… at least, not yet.

A few years ago, Germany shocked the world when it announced that one of its intelligence agencies had infiltrated Liechtenstein’s LGT bank by paying a 5 million euro bribe to a bank employee for information on 750 foreign account holders.

It seemed rather strange to me that Germany publicly acknowledged that it had covertly invaded another sovereign nation, and induced a local of that sovereign nation to violate the law.

Most people didn’t seem to take notice of the legality of Germany’s actions… instead, the global community cheered Germany’s efforts to crack down on financial privacy.

Frankly, I wouldn’t be surprised if the US government were engaged in similar activities. I don’t know of too many bank employees in Panama (or Belize, Cayman, etc.) who would turn down a few hundred thousand dollars to provide a list of foreign account holders.

Here’s the bottom line: governments are waging a dirty, no holds barred fight against financial privacy, and the penalties are severe. If you don’t disclose a foreign account as a US taxpayer, the IRS thinks that it’s entitled to 50% of the account value. In Australia it’s even more Draconian.

Consequently, you shouldn’t open a foreign financial account in the hopes of hiding money… that’ll just land you in court next to Wesley Snipes.

You should, however, open a foreign financial account in order to protect your savings from exchange controls, confiscation without due process, frivolous lawsuits, currency depreciation, and more. It is probably the single most important flag you could plant for your money.

Afterwards, don’t make a secret of it. Ensure you follow the proper disclosure protocols for your home country… in the United States, that could mean IRS 1040 schedule B and Treasury form TDF 90-22.1.

Despite the presence of so many government agents, I still think Panama is a reasonable place to bank, especially for smaller account sizes. The institutions are solid and well capitalized, and many of them still work with North American citizens.

Belize is another jurisdiction to consider for smaller account sizes, between $10,000 and $250,000. Beyond that, I would strongly suggest more developed jurisdictions like Switzerland, Hong Kong, and Singapore.

Meanwhile, if you’re really looking to go ‘off the grid’ with your money, your best bet will be nonreportable items like precious metals and real estate… but we’ll save that for another time.

May 14, 2010
Undisclosed location

I want to start off today by once again thanking you for all the well-wishing emails after my operation this week. I read through a large backlog of email last night, and I was truly humbled by all the positive energy and goodwill out there. Thank you.

With that, I’d like to jump in to this week’s questions:

Phil says, “Simon, I sincerely appreciate the info contained in your letter. I’d like to take your advice: get second citizenship, buy property overseas, store assets outside the US, etc. I’m wondering if you can recommend a ‘how to’ guide with specific instructions for these issues?”

At the moment, there really isn’t one out there that covers the specific ‘how to’ details of getting started with multiple flags. I try to cover these issues on a daily basis, but as our conversations cover so many different topics an abbreviated space, I know we could go much deeper.

Right now, I’m working with a very capable partner to draft a multiple flags instructional overview. I suspect it will be exactly what you’re looking for. We should be finished in a few weeks, so stay tuned for more information.

Maldek asks, “Simon, how do you think the Euro/dollar exchange rate will change if Germany leaves the eurozone and introduces its Deutschmark (DM) again?”

Rumors are already flying that both France and Germany have separately threatened to bail out of the eurozone. It will happen eventually– the single currency is absolutely doomed, just as I believe the integrity of the United States are doomed in the long run.

A German factory worker would no sooner pay for a Greek hairdresser’s early retirement than an overtaxed California entrepreneur would pay for a Rhode Island school teacher’s pension.

Yet these are the kinds of mandates that politicians are forcing on people. Voters may act like sheep when their civil liberties come under attack… but put your hand in their wallets and they get militant.

The real irony is that breaking apart the eurozone is a popular idea in Europe, so you can be sure that the dissolution is inevitable.

If the relatively healthier economies in Europe actually did break away– Germany, Luxembourg, Slovakia (yes I’m serious), Netherlands, Austria, Belgium– the resulting economic union would certainly be among the healthiest, most balanced in the western world.

In other words, today’s euro would become worthless, but the future euro would be quite valuable and respected by investors. The major issue is whether the new currency would be large enough to challenge the dollar’s dominance. We won’t know the answer until they piece the deal together.

William writes, “Simon, I bought Terry Coxon’s book “Unleash your IRA,” and it’s probably the best thing I’ve bought this year. I’m amazed at everything I can do with my retirement funds, including buying gold bullion and foreign property, tax free. Is this a good way to plant another flag offshore?”

Absolutely. Terry is one of the most knowledgeable people I have ever known about all matters related to money, and the Open Opportunity IRA structure he talks about in his book is one of the biggest no-brainers I see out there right now.

Why? A couple of reasons.

First, the US government has its targets set very squarely on retirement funds. There are trillions of dollars of savings that politicians could easily regulate.

For example, do-gooders in the Congress could whip up a new law tomorrow requiring that a percentage of managed retirement funds be invested in US Treasuries… you know, because they’re so secure.

Through Open Opportunity IRA structure that Terry describes in his book, you ensure that no one can confiscate your hard earned savings.

More importantly, though, you can take ordinary returns and make them extraordinary by planting a retirement savings flag overseas.

Imagine that you buy an undervalued property in Colombia. The property is selling for $100,000 and yields about $1,500 per month in net rental income.

Over the years, as Colombia’s economy continues to perform strongly, the property appreciates substantially in value. The Colombian peso outperforms the US dollar. And the rental income rings the register month after month with the reliability of a Swiss train. Not a bad deal, right?

Now let’s assume that you bought the property with your retirement funds through an Open Opportunity IRA. Not only do you receive the rental income, the property appreciation, and the currency appreciation, but you get to take it all tax-free because your IRA owns the property.

I could cite you a million more examples, but frankly Terry’s book does a better job. Bottom line, this is one of the best ways to plant and overseas return and make lot more money at the same time.

Finally, Libero asks, “Simon- you mentioned that Italy has a reciprocity agreement with Panama. I just spent about 2 hours searching and can’t find anything. Can you provide more information?”

Sure. I’m not surprised. Google is the Black Hole of accurate information, and most of the people who write about this sort of thing are just armchair expats who parrot others’ work without putting boots on the ground.

I can tell you with 100% certainty that Panama has a bilateral agreement signed with Italy that provides instant residency for nationals of either country to live in the other. In other words, Panamanians can acquire Italian residency, and Italians can acquire Panamanian residency.

How do you do this? If you’re an Italian citizen, head to Panama and talk to a local **reliable** immigration lawyer. If you need a referral, drop us a line and my assistant will get you in touch with someone. I don’t like to publish these things for Google to index.

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 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.

April 9, 2010
Panama City, Panama

My time is winding up here in Panama and I’m trying to sort out my travel for the next few weeks. I need to be in the US for two conferences by April 26th, so that gives me about 2-weeks to kill.

I’m thinking about heading to Medellin, Cuenca, Lima, Santiago, Asuncion, Buenos Aires, Florianopolis… but let’s face it, that may be a little ambitious for two weeks, even for me.

If you have any input on what you’d like to see from South America, leave me a comment.  In the meantime, on to this week’s questions:

JC asks: “Simon- Last year, the IRS hired more agents to specifically target those who have offshore bank accounts. Won’t having a foreign bank account now make me more of a target?”

Here’s my take– If you are talented and make any money, you will be a target… and that’s the bottom line.

Considering that the IRS is hiring another 16,500 more agents to enforce the new healthcare bill, you can bet that just about everyone in the US is a target.

You can either have a foreign bank account, keep your money safe, and be a target… or you can not have a foreign bank account, hold your money hostage to excessive inflation, regulation, and taxation, and still be a target.

The only people who will not be targets are the unproductive who receive the handouts… oh yeah, and members of Congress and the Treasury Department.

Alan asks, “Simon- Thank you for the great service you provide. I was looking to set up an alternative residence in Costa Rica, but after your very informative letters I have decided on Panama. Has Panama has signed TIEAs with other countries as requested by the OECD?”

Don’t discount Costa Rica entirely; the country does have something to offer the right person. For my money, though, Panama is more stable, more open, more economically free, and amazingly enough, less bureaucratic.

Regarding tax information exchange– One year ago, our friends at the OECD made a “gray list” of countries that are noncompliant with international standards for the sharing of tax information.

Panama was on this list, and the government committed to achieving compliance… this requires that Panama sign tax information exchange agreements (TIEA) with at least 12 other compliant countries.

As you could imagine, the OECD conducts annual progress reports.  Fortunately, though, the negotiation of TIEAs takes quite a long time.

Panama has started by building a database of double taxation agreements (DTA), some of which have tax information exchange provisions. To date, Panama has finalized DTAs with Barbados, Mexico, Italy, and Belgium, with France, Qatar, and the Netherlands on deck.

My sense is that Panama’s strategy is to follow the minimum standards, drag out the process as long as possible, and avoid the US and Canada at all costs.

Finally, the ‘Captain’ asks, “Simon, you’ve said that governments may appropriate the trillions of dollars held in retirement accounts. Such a law would bring howls of disapproval from retirees– could the government really pull a fast one on such a significant swath of voters?”

Yes, they could. Politicians all over the world have been doing it as long as the concept of government has existed.

To be clear, though, I’m not suggesting outright appropriation; I do believe that governments want to get their hands on retirement accounts as a way to fund their deficits, but it will most likely come in the form of new taxes and regulations.

For example, the government may require a certain amount of retirement funds be invested in their own debt securities; they may also change retirement fund tax incentives, or simply charge an outright fee on accounts that are over a certain value.

In the US, you can already see the federal government trying to get its hands on retirement money; they’ve recently made a regulatory change that allows taxpayers to convert from a traditional to a Roth IRA.

This conversion requires the taxpayer to immediately pay taxes on the gains from their retirement account, effectively giving the politicians an instant windfall that they wouldn’t be entitled to for another 10, 20, or 30 years.

To me, this is step 1 in a long succession of future tax and regulatory changes aimed directly at retirement accounts. Once again, politicians will punish the savers and productive in favor of the idle and irresponsible.

To me, the best way to do something about it is to set up an Open Opportunity IRA– it’s a self-directed structure that puts you in total control of your own retirement money.

With an Open Opportunity IRA, you can diversify your retirement funds in an overseas bank account, foreign property, and even physical gold locked away in an offshore vault. It allows you to plant an important overseas flag with the money that you have been saving for your entire working life.

I’ve mentioned before that my friend Terry Coxon, a renowned economist and best-selling financial author, has released a new e-book that walks you through this structure step-by-step.

If you have an IRA and are concerned about the government targeting your retirement money, I strongly encourage you to consider his book.

April 8, 2010
Panama City, Panama

Do you remember that really awkward phase we all went through as adolescents?

Growth spurts, voice changes, menstruation, and yes, pimples– in the end, while we all came out of it more mature and grown up, there was a difficult and sometimes painful transition period in which we had to learn how to deal with new realities.

Developing countries go through the same sort of transition, and it can be just as awkward and painful.

Typically, they try to transition from fledgling banana republics with corrupt governments and byzantine regulatory systems to stable democracies with a growing middle class and reformed tax code.

Most countries have a very difficult time with this.

For example, I expect China to undergo significant pain as their economy continues to inflate. One day the Chinese will find that their rising currency and wages are no longer cheap, and they’ll have to seek competitive advantage in something other than manufacturing knick-knacks.

In other words, a country of a billion people cannot go from making socks to being the world’s investment bankers overnight, or without any fuss.

These sorts of transitions are very difficult because they affect the entire social landscape– employees are laid off and have to retrain to new skills, businesses go bust and reinvent themselves, etc.  Of course, politicians always get in the way by passing laws which only prolong the pain.

Overall, the transition cycle is not easy, and few countries pull it off well.  In my assessment, Panama is one of the countries succeeding.

20-years ago, with its puppet dictator, open drug trade, and banana exports, Panama was nothing but a bad punch line.  Over the last decade, though, the country has been able to successfully develop a service-oriented economy with robust tourism, banking, and transportation sectors.

Today, while the country is definitely no Shangri-La, Panama is thriving and on a very clear upward trend.

Remember, this is ultimately the most critical point to consider when planting a flag overseas– is the country or jurisdiction on an upward trend? Will it be a better place 10-years from now?

When you survey the political landscape in developed countries, the headlines generally tend to get worse and worse.  Certainly, not all news is bad, but the subversion of civil liberties, erosion of financial privacy, and rapid growth of big government seem to be at least weekly occurrences.

Meanwhile, in developing Latin economies like Panama, Chile, and Peru, things are consistently improving– they are going through the awkward growth phase as smoothly as possible.

As an example, the Martinelli administration in Panama recently passed comprehensive tax code reform.  While increasing the sales (consumption) tax by 2%, it cuts corporate and some personal tax rates, reduces some property tax rates by half, and completely eliminates over 30 types of tax.

This new, simplified tax code is a major step in the right direction, and it will be excellent for business.

The government here clearly understands that successful businesses hire employees and generate wealth in the economy.  This model has done wonders for Singapore and Hong Kong, and Panama is following suit.

Yes, there are still elements of poverty, corruption, drug trafficking, etc. in Panama.  The trend, however, is undeniably one of consistent improvement and greater economic freedom.  Ultimately, this is exactly what helps countries successfully transition through those difficult growth phases.

As I’ve said before, until these economies become large or popular enough, local capital markets tend to be off-limits for armchair investors.  I don’t see TD Ameritrade offering access to the Peruvian stock market anytime soon.

It is possible, however, for intrepid active investors to open local brokerage accounts and capitalize on the rising tide… though the most passive investment opportunities generally tend to be foreign bank accounts (which provide liquidity and exposure to the currency) or property (which is non-reportable and an excellent inflation hedge).

More on these topics in future letters.

March 31, 2010
Panama City, Panama

It appears that not all is amiss with sovereign debt: Panama may be one of the only bright spots, at least in the western hemisphere… the country recently had its debt rating upgraded by Fitch to ‘investment grade’ with a positive outlook.

Now, I have been quite vocal about my disdain for the ratings agencies… these organizations completely missed the boat before the financial crisis, slapping AAA ratings on shaky subprime bonds. And yet, for whatever reason, the financial community as a whole listens to them.

An investment-grade debt rating is still a major badge of honor for developing countries– something they all strive for but few achieve. In Panama’s case, even though I take umbrage with the rating agencies, the upgrade accurately reflects the country’s very sound economic fundamentals.

Last year, Panama was past of a very small, exclusive club of countries that experienced positive GDP growth.  The combination of capital inflows to the banking sector, multiple public works projects, and of course, the expansion of the Canal, kept Panama afloat.

Over the last several years, Panama’s economic trend has been quite positive. In 2004, the country ran a deficit of 4.9% of GDP and had a debt level of 70% of GDP.

By 2008, the country had reduced its debt level to less than 50% of GDP and had run 3 straight years of budget surpluses. Even last year, Panama ran only a slight deficit of 1% of GDP– a completely negligible number in the world of sovereign finance.

Thanks to sustained growth, substantial tax reforms, and increased toll revenue from the Panama Canal, the government expects that it will cut its debt level to 35% of GDP by 2014.

By that time, Panama’s sovereign debt rating will likely surpass that of Greece or Spain.

Other strong economies in the region to watch in the short-term are Peru and Chile.

Peru has reduced its debt to 26% of GDP and also posted positive GDP growth in 2009.  Lima has transformed itself from a run-down punch line just a few years ago to a thriving capital city, full of commerce and culture.

With major exports of copper and gold, Peru is well positioned to capitalize on a resource boom, particularly having diversified away from the United States– it has established strong trade ties with Brazil and China, and also decreased its ‘dollarization’ from 82% to 46% over the last decade.

Chile, despite the recent seismic disaster, is also well positioned to capitalize on a resource boom. The country has strong incentives for foreign investment, and it continues to be the continent’s beacon of political stability.

I could go on at length about these two economies, and I likely will in future letters… but for now, suffice it to say that we will likely see the strongest regional growth in the near term from Panama, Chile, and Peru.

Due to their limited size, and the fact that markets are more transfixed by Brazil (and other shiny objects), there is no easy way invest in these countries, at least through a major North American or European exchange.

Many foreign brokers will be able to set you up with a local trading account, though my assessment is that the property markets pose more value for small investors.

Why?

As I wrote in yesterday’s letter, capital controls are coming… when Joe Biden suggests that redistribution of wealth is really just being ‘fair,’ capital controls are truly a foregone conclusion… and it’s the same conclusion in most developed western nations.

Unless you want your money trapped in an economy that is guaranteed to inflate and tax your savings away, you should think about moving at least some money overseas… and for now, buying foreign property is one of the best ways to do that.

Naturally, it’s better to consider countries with thriving economies and solid fundamentals that are indicative of continued growth and stability. In the Americas, that certainly includes Panama, Peru, and Chile.

March 19, 2010
Pattaya, Thailand

My time here in Thailand is finally coming to an end, at least for now. On Monday morning, after I stop by the US embassy to pick up my renewed passport, I’ll be headed to Hong Kong.

I should briefly mention something about passports. Starting in 2007, the US government began manufacturing all new passports with RFID chips– small devices which record and transmit data.

Malaysia was actually the first country to issue RFID passports back in 1998; since then, most of the developed word has adopted them. The data which is collected/transmitted varies by country but generally includes some personal information as well as some travel data.

The RFID chips have a range of up to 10 meters, and many countries do not have encryption devices.

I’ve spent the last year searching around the world for an embassy in some remote country that hasn’t moved to RFID yet. Unfortunately, I was unsuccessful, so from now on I’ll be walking around with a passport that transmits my personal information.

My understanding is that there are passport ‘shields’ available which absorb most of the transmissions, and I will definitely be looking into this more closely.

On to this week’s questions…

William says, “Simon, thank you for the IRA information this week. I know that Congress has changed the law– do you think that now is a good time to consider the new IRA structure? Can I use it to move my retirement funds overseas?”

Great question. First of all, I must apologize because this only applies to US citizens.

32 million Americans will need to make a decision this year; it’s a unique situation because, this year alone, there are several things coming together: first, the IRS has changed the rules, making it a smooth process to switch from a traditional to Roth IRA.

If you combine that with the devaluing rules, and the concept of an Open Opportunity IRA, you’re looking at a potentially enormous tax savings… but only for a limited time while the IRS keeps this window of opportunity open.

Also, once the structure is established, it’s really a fantastic vehicle for moving cash overseas, or even buying foreign property in many instances.

If you want to plant a flag overseas with your retirement savings, this is really the best way to do it, and the time to do it is now while you can still save on the taxes.

Sarah asks, “Simon- you stated that you would report on Malaysia. I’m more interested in establishing a non-US flag there than in Singapore.”

Malaysia is really a wonderful place… it’s Singapore without the costs, and Thailand without the chaos. I’ll dedicate a whole missive to it, but briefly here’s what you should know:

Malaysia is an easy place to plant a residency flag. You can stay in the country for 90-days without a visa, easily renewable for another 90-days. If you want to stay longer, the “My Second Home (MM2H)” program is one of the best economic residency programs in the world.

MM2H provides a 10-year visa for foreigners who meet basic qualifications– people under 50 have to deposit roughly $90,000 in a local bank, half of which can be withdrawn after 1-year for the purchase of a home. People over 50 need to deposit about $45,000 or prove a $3,000 monthly pension.

Like the Panama pensionado program, the MM2H visa entitles you to a variety of discounts and benefits with things like vehicle purchase and education.

The program is also very streamlined. Like Singapore, you can begin the application process online and check the status of your application on the government’s website, www.mm2h.gov.my

Ralph asks, “Dear Simon, Could you give us your opinion on the best country/countries to incorporate a business in? Thanks for your informative E-letters. Looking forward to the next.”

This is a tough one because it really depends on many factors– your home tax country, what do plan on doing with the new business, where you plan on living, etc.

In fact, the most important thing you should understand about offshore planning is that there is no “one size fits all” solution.

For example, a manufacturing company owned by a US citizen may want to look into Ireland because of the comprehensive tax treaty with the United States.

An IP holding company owned by an expat Australian, Brit or Canadian, on the other hand, may want to strongly consider Labuan, Malaysia. Malaysia has a tax treaty with Australia, Canada and the UK, but not the US.

In the Western hemisphere, a lot of people tend to look into Panamanian structures. For a passive holding company, this might make sense… but for an operating business, I would stay away from Panama because it’s not a common law country.

The bottom line is– always seek the right advice from a tax professional in your home country who understands proper overseas structures. I have contacts in the US and UK if you need.

Lastly, Libero asks, “Simon, you mentioned not so long ago about a special clause for Italian citizens somehow being able to obtain Panamanian citizenship. Can you provide more details?”

The governments of Italy and Panama signed a bilateral treaty several years ago that entitles citizens of one country to obtain RESIDENCE in the other… so an Italian citizen can obtain Panamanian residency, and vice versa.

This treaty only grants residency, not citizenship. To be clear, there is no fast track Panamanian citizenship program, at least not a legitimate one.

Panamanian naturalization is a long, difficult, and muddy process… I know some people who have been living in Panama and married to a local for 20-years, and they have been denied citizenship.

If you’re looking for second citizenship, I would suggest somewhere other than Panama. Try the southern cone countries that I wrote about a few weeks ago.

Have a great weekend.

March 3, 2010
Pattaya, Thailand

One of reasons that a lot of people are hesitant about making a move overseas is because they’re concerned about being isolated. The world can be a cruel place, especially to newbies.

Sure there are the nomads out there who want to be left alone with their little slice of paradise in the middle of nowhere… but most people crave some human interaction from time to time, especially from like-minded souls.

I’m one of those people. I enjoy the company of interesting, like-minded, and well-rounded individuals.  This is the chief reason that I’ve encouraged kindred readers to join us in the private Atlas 400 group, whose next gathering is coming up next month in Panama. I’ll be there.

On the subject of social interaction, I think Panama is one of the easier places in the world to meet people, both foreign and local. Despite Panama being a Spanish speaking country, the English language is absolutely pervasive, particularly in Panama City and Boquete.

It’s easy to meet anyone, and with the exception of a handful of elitist gringos who think too highly of themselves for having lived in the country for so long, most people are actually quite friendly and welcoming.

As a rule of thumb, the more ‘international’ a city is on a per-capita basis, the easier it will be to meet like-minded, English-speaking expats who are at your level.  Panama City has about 50,000 expats and roughly 1 million locals.  Boquete has a population of about 20,000 with at least 5,000 expats.

By contrast, as city like Shanghai has 300,000 expats and 17 million Chinese people, most of whom do not speak English.  You get the idea.

I’ve honestly found both Phuket and Pattaya, Thailand, which are fairly small cities of about 100,000 each, to be among the most international cities in the world on a per-capita basis.

Here in Pattaya, for example, I have gotten to know people from 6-continents– a Russian movie producer, a French investment banker, a Norwegian surgeon, Canadian entrepreneurs, a retired Australian footballer, an Indonesian factory owner, Yemeni medical tourists, Sudanese vagabonds, and a lovely topless sunbather from Peru.

In fact, Pattaya is the only place in the world that I have been to where on a single block you can see a dry cleaner’s sign in Arabic, a restaurant shingle in German, a real estate billboard in Russian, a newspaper kiosk in Thai, a travel agency in Mandarin Chinese, and a Go-Go bar promotion in English. It’s really amazing.

Just recently I was having lunch in an Arabic restaurant owned and operated by former Iraqi soldiers of the elite Republican Guard. When I looked around and saw Russians, Europeans, Africans, Arabs, and a handful of Jewish tourists eating large meze plates, I thought that I must have stumbled upon the center of the universe… or some strange version of MLK’s dream.

In these sorts of ultra-international locales, breaking the ice is as simple as asking the question, “where are you from?” Be prepared for long answers.

Other places that you may want to consider are Singapore, Hong Kong, Qatar, Capetown, Dubai (though it’s a bit pretentious), Georgetown (Malaysia), Punta del Este (Uruguay), Hanoi (Vietnam), Colima (Mexico), Medellin (Colombia), Cuenca (Ecuador), and just about any mid-sized city in Brazil (Natal, Florianópolis).

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 17, 2010
Bangkok, Thailand

I couldn’t believe what I was hearing… and I found myself wondering out loud- “Are these people insane??”

Apparently, yes.

I was watching Richard Edelman this morning on Bloomberg Television discussing the latest results of his research and PR firm’s annual “trust survey.”  Edelman takes a scientific poll each year, drawing on a global pool of educated, well-informed people from G20 nations.

The theme is always the same– trust.  Edelman’s research gives an indication of the public’s confidence in the private sector, the banking industry, NGOs, the mainstream media, and of course, the government.

For example, I wasn’t surprised to hear that public trust had fallen for corporations and the financial sector since last year. Edelman’s data suggest that people are more leery of business than in the aftermath of the Enron scandal, and only 29% of respondents trust what a CEO says about his/her company.

Given what has happened with the Goldman/AIG sweetheart deals, the Toyota recall, the socialization of Chrysler and GM, etc., this sentiment is to be expected.

What was shocking to me, though, was that the US public’s trust in their government and political leaders actually increased from last year– 46% of Americans trust in their government to do the right thing, which is more than the French (43%), German (46%), British (38%) and Russian (38%) believe.

What’s more, Americans’ trust in their government increased by over half of 2009′s level– a 53% increase, proportionally, from last year.  Who were they interviewing?? Barack Obama’s kindergarten teacher? The guy who owns a warehouse full of “Real Change We Can Believe In” bumper stickers?

Among major nations, only the Chinese at 74% had more confidence in their government.

Economically, 65% of respondents worldwide, including 61% in the United States, said that they want governments to *increase* control over all industries, and fewer than half of the Americans polled believe that the free market should be allowed to operate without significant government influence.

These indications are really unfortunate, because when the people ask for more government control, they will absolutely get what they deserve.  And once power has been vested to the government by the people, it almost takes a revolution to wrestle it back.

If you’re one of the minority who can properly identify runaway governments as the problem and not the solution, you should really think hard about your options.

Expatriation is often too radical a concept for most people, especially those who find themselves chained to geography by factors like job, money, and family.

Personally I would argue that family is one of the chief reasons to expatriate, and that most people would have more financial success and live a better, cleaner lifestyle overseas.

If fear and uncertainty are preventing you from making a move, I would advise that you at least get your feet wet by internationalizing yourself in baby steps.

For example, definitely consider purchasing foreign property as a first step– buying property is definitely the best way to move money between countries.  It also makes for a great investment, provides you with an emergency landing pad, and frankly gives you a reason to travel from time to time.

Do your research and buy in a free country that has a stable economy and fiscal discipline.

Panama is an excellent example– the country’s debt level is currently a manageable 45% of GDP, and the government is astutely borrowing a bit of very cheap money to make lucrative infrastructure investments that will yield a soundly positive ROI.

Furthermore, as the country continues to experience a solid growth rate and manage its debt levels, Panama’s proportion of external debt to GDP should continue to decline in the foreseeable future.

In fact, Panama is one of just a handful of countries that experienced positive GDP growth last year, and you can see evidence of this on the ground. There are currently some attractive investment opportunities in the property market, as well as fairly straightforward bank financing available.

I promised a few weeks ago to bring you some inside information about Panama’s property market, and I intend on doing that tomorrow. More to follow.

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 5, 2010
Mexico City, Mexico

Greetings once again from Mexico; I’m sure many who listen to the mainstream press would be amazed to find that I have spent 48 hours on the ground here with nary a swine flu infection nor simple mugging to report.

I did, however, miss my flight to Canada.

What can I say… Mexico City traffic has got to be the most dangerous thing in this country. I was able to change my plans and will be in Vancouver this evening.

Before I get started on answering your questions from the mailbag, I wanted to mention a brief administrative note– if you ever have difficulties opening or reading the daily email in your inbox, you can always read it online at www.SovereignMan.com; in the meantime, my staff is working on resolving all readability issues.

Moving on to questions.

To start off, John asks: “Hi Simon- you don’t talk about politics much, though I have a feeling where you stand by reading your letter each day. Can you give me a better idea of how you see the world, politically?”

First and foremost, I want to make an important distinction. I am an avowed anarchist. Just the word itself has an incredibly negative connotation– it conjures images of subversion, treachery, and treason… or at least crazy guys hoarding guns in Montana.

People too often confuse ‘anarchy’ with ‘chaos’, usually citing examples like “if there were no laws, what would keep people from driving on the wrong side of the road?” or “who would come and put out the fire when your house is burning?”

These arguments are weak and only serve to indicate the extent to which governments have brainwashed people. Most citizens now believe that the political establishment is vital for their own survival, as if we would all spontaneously combust were it not for the FDA.

Anarchy is not chaos. The political establishment is chaos. Politicians have a horrific track record managing wars, finances, education, health care, and just about everything else they put their hands on… all at the expense of public resources.  Very little changes for the better, at least thanks to the government.

And yet, every few years, we still put on a charade to cast our vote, as if this ridiculous exercise has any meaning whatsoever. It’s an unpopular thing to say, but participating in the political process is a complete waste of time… particularly since we have a much more powerful voice.

The most important votes we cast are as consumers, not constituents… we vote with our dollars every single day. The best candidates, i.e. the producers, win our votes, and the worst candidates go bust. No amount of baby-kissing can save a defunct company.

Hell, not even a government bailout could keep Chrysler and GM alive.

Personally, I would prefer to have all of my tax dollars back in my pocket and pay a usage fee for privatized roads, or an annual subscription for a privatized library, rather than have some bureaucrat funding pet projects with my hard-earned money.

I recognize that this is all just a pipe dream, at least for now. Political institutions are here to stay, and the trend is bigger government, not more limited governments.

That’s one of the reasons why I have chosen this lifestyle– with a multiple flags approach, I minimize the impact that any single government has on my life.

Betty sends along the following comment: “You wrote that hospitals in Boquete, Panama were substandard. You are badly misinformed. Hospital Chiriqui is a modern hospital with excellent doctors who speak English for the most part; I should know, I was in intensive care there for three weeks and had five specialists attend to me.”

Noted, Betty. Thanks.

Captain asks, “Simon, do any ex-US real estate markets employ US-style mortgages?”

Yes. Panama is one of them; foreigners can get a 50% to 70% mortgage, and a better rate if you become a resident. Many European countries also underwrite mortgages for foreigners.

The other thing to consider is developer financing instead of bank financing. This tactic is being used in a lot of places around the world to mop up extra inventory. I see this everywhere now– Spain, Thailand, Morocco, and here in Mexico.

Standard packages generally require 10% to 30% down, and will finance the balance on a 30-year amortization schedule for a 5-year term.

Nathan asks: “Simon- Regarding China, I know a lot of people have been high on the country for some time. But what is the real analysis here?”

To be clear, I am not a blind China bull… but I’m happy to call a spade a spade. The ‘good’ part of the analysis is fairly simple. In the long run, there are two things needed for sustained economic growth: technology and savings.

Technology makes production (i.e. wealth generation) more efficient, and a large pool of savings becomes investment capital to create businesses, build factories, etc… things that add value to an economy.

China has both, and so the foundation for its economic growth is sound. However, there are a LOT of potential problems with China– the economy succeeds despite its government, and I’m concerned about future political instability.

Furthermore, I expect one day that China will go through significant challenges as it finds that it can no longer compete with its neighbors for low-skill manufacturing. The country will have to develop entirely new industries, and that could be painful.

Lastly, the Chinese are become cultural consumers… shop-a-holics really. This consumption depletes the pool of savings, and if sustained, will create long term structural issues.

That’s all for today, I’m off to Vancouver.  Have a great weekend.

February 3, 2010
Panama City, Panama

Panama is a popular destination for expats, and for good reason. But there are some critical property traps that you should be aware of if you’re looking to buy.

The first trap to watch out for is the tax law; for years, the government stimulated the real estate industry by promising property tax exoneration for up to 20-years. In order to qualify, a project must have been permitted no later than July 1, 2009.

For this reason, you see a lot of empty pits in Panama City where developers were technically within the law and are now frantically trying to pre-sell units.

One of their key sales points is that if you buy their condo, you won’t have to pay property tax for 20-years… what they don’t tell you is the plain and simple truth– in order to qualify for the tax exemption, the building must be completed by December 31, 2011.

The chances of all these new condo developments being completed by December 31, 2011 are slim to none… and slim’s out of town. That will leave new buyers stuck paying extra taxes.

The other thing to keep in mind is that even if a building does qualify, the property tax exemption only applies to the actual construction, not the land value. Condo owners must still pay their share of taxes on the value of the land that the condo tower was built upon.

Ordinarily this would seem like a trivial sum… but many developers are now petitioning the government for a substantially inflated land value; this increases the developer’s cost basis and lowers their income tax while simultaneously increasing the government’s tax revenue at the buyers’ expense.

The second trap to watch out for is title– a lot of the land in Panama has cloudy title, meaning that multiple parties often have claim to a single parcel. These disputes grow from generations of sloppy record keeping, shoddy land surveys, squatters’ rights, and the neighbors’ ever-encroaching fences.

In Panama, possession truly is 9/10 of the law, and judges uphold this standard.

Title insurance companies now operate in Panama, which makes the transaction less risky… but a lot of property for sale is actually untitled, what is known as “Right of Possession” property, or ROP for short.

ROP landholders are not registered with the government, and the buyer is effectively paying for use of the land, not ownership.  A lot of buyers are OK with this distinction, but that will now surely change.

The government has recently stepped in with a new mandate that will effectively stick ROP landholders with an enormous fee for recording ROP as titled ownership. The fee applies to ROP land above 5-hectares and will cost anywhere from $10,000 to $625,000 per hectare.

My guess is that there will be a flood of sellers trying to unload their ROP land to unsuspecting buyers who don’t know about the new law. Don’t be one of them.

The third trap in Panama is unreliable information.  In developed countries, property transactions are a matter of public record. In Panama, however, most sales are kept private.

How? Many properties in Panama are owned not by an individual, but by a Panamanian corporation. When it comes time to sell, the parties exchange shares of the corporation, not title to the property. In other words, the owner of the property is still the corporation, but the corporation’s shareholders have changed.

As there is no public database of shareholders for Panamanian companies, the property transaction is effectively kept private, and no one will ever know how much the property actually closed for.

The lack of reliable information in Panama generally gives rise to unsubstantiated rumors, especially from real estate agents. Naturally, it is in their best interest to spread rumors about how properties are still selling for high prices because there is always a greater fool willing to believe it.

Most Panamanian real estate agents are notorious for this, and if you’re in the market for property I would advise you to exercise extreme caution, regardless of how slick s/he may sound.  As a foreigner, it’s very easy to get steered into overpaying for the wrong deal based on rumor and misinformation.

That’s why I’m going to be introducing you soon, through an audio interview, to one of my most trusted contacts in the business. He’s a savvy investor who understands long-term value and knows the market inside-out.

During our interview, he’ll be discussing these property traps in more detail, as well as the most undervalued properties and foreclosures he’s working on. If you’re interested in Panama property, you won’t want to miss it.

Out of fairness, I will make the interview available exclusively to Black Paper subscribers at first, and then to the rest of the community at a later date.

February 2, 2010

Panama City, Panama

I see a lot of opportunity in Panama right now for entrepreneurs and small businesses; in fact, I see more opportunity here than in just about every other country in the western hemisphere with few exceptions.

Why?

Panama has two strong emerging consumer markets.

The first is the obvious low hanging fruit: foreigners. Their ranks in Panama are growing by the day, swelling the country with their capital and their consumer demands. Simply put, they are accustomed to certain products and services, not all of which are available in Panama. That spells opportunity.

Sure, there are droves of foreigners here already posing as real estate agents trying to sell the next expat on an overpriced, generic condo in Panama City… but that business model is dead for now. There are better options.

One possibility is a professional property management company. There are thousands of new condo units in the city whose owners might only visit a few times a year. During the vacant periods, there are bills to be paid, maintenance to be performed, and in many cases, tenants to be found and managed.

Only a few companies in Panama focus on this business model, and they’re completely slammed. The market could use some competition, especially considering all the new construction coming online in the next 12-months.

Another consumer demand that needs to be addressed is high-end storage.  Panama’s heat and humidity can be disastrous for sensitive belongings like wine, paintings, and antiques; thus, a high-end self-storage facility would likely do quite well here, and it would be fairly inexpensive to start up.

One idea that I have been considering myself is providing services for companies involved in Panama’s two major construction engines right now– the Canal expansion 34project, and the Panama Pacifico redevelopment project.

(Panama Pacifico is a $1 billion mixed use commercial/residential development on the former Howard Air Force base just outside of the city near the Canal.)

These two projects are attracting a myriad of foreign companies, and right now there are limited options available for corporate services, especially lodging for business travelers.

Nearly every reasonable hotel in Panama province is tucked inside the city, making for an unreasonable commute, and the first business class hotels outside of the city aren’t due to be rolled out until 2016. A well-located existing structure could be renovated, marketed, and profitable as a business-class hotel within 12-months.

The second consumer market worthy of an entrepreneur’s attention in Panama is its emerging middle class, and this is another group that is growing by the day thanks to the income effect of Panama’s growing economy.

The wealth of most developing countries is concentrated in the hands of the few, leaving the remainder of the population living on scraps; these types of markets should generally be avoided by smaller enterprises.

The mark of any well-developed country is a solid middle class– roughly 60 to 80 percent of the population that earns enough to provide a comfortable standard of living, savings, and discretionary spending.

Panama is clearly moving in this direction; middle class households earn between $800 and $1,500 per month, which is enough for them to buy a house and car while having plenty of money left over for savings and mindless consumption.

One clear opportunity is the current shortage of housing units for middle class Panamanians, which fall in the range of $60,000 to $80,000. The government projects that roughly 70,000 units are needed just in the area around Panama City; existing approvals show only around 8,000 in various stages of planning or development.

Retail opportunities also exist; by nature, Panamanians are a consumptive group– as a culture, if they have money, they’ll spend it. It seems like everyone has a new car these days, and given how poorly everyone drives here, there’s opportunity for maintenance and body shops.

Assisted living facilities and elderly care is also a fantastic opportunity, particularly when targeting the Panamanian middle class; for the first time ever, this group now has the income to outsource the care for their elders, and they’re starting to do it.  The few facilities that offer this service in Panama are booked solid.

These are just a few small business ideas in Panama that I’ve noticed recently; if you spend much time on the ground here you will probably come up with several more on your own.

One thing I would caution you about is running any employee-intensive business; Panamanian labor laws, while relatively relaxed in comparison to the rest of Latin America, clearly favor the employee.

Between the mandatory “13th month” annual bonus, 40+ days off, increasing minimum wage, and Byzantine termination rules, it’s in your best interest to keep the workforce slim and/or temporary.

February 1, 2010
Boquete, Panama

It’s almost like you’re not in Panama.

Isolated in the Chiriqui highlands of Panama’s western-most province, the town of Boquete might as well be in a different country.  Practically all you hear is English– the local Panamanians have excellent language skills, and there are more gringos per capita here than just about any other place in Panama.

To give you an idea of what I’m talking about, the town’s population quadrupled in size between 2000 and 20008 to approximately 20,000 people. Nearly all of the new residents were foreigners.

This has had an interesting affect on the town. Many of the local businesses, such as tour companies, bed-and-breakfasts, restaurants, and spas, are owned/operated by foreigners.

In developing countries, foreigner businesses tend to be of higher quality and professionalism than their local counterparts.  In a major city like Panama City, though, the market is large enough that local businesses can maintain market share without having to adapt or compete.

In small towns like Boquete, however, the locally-owned businesses have had to raise their standards in order to compete with foreigners. The net effect is a town where quality and efficiency are the norm rather than the exception, and this is a major contrast to the slight bureaucracy of Panama City life.

Other contrasts between Panama City and Boquete are clear– the air is cleaner and the weather is much cooler up here in the mountains. You don’t see too many air conditioners and don’t really need one either. In the evenings, sometimes it can even get chilly, which is a major change from the blistering heat and humidity of the city.

The lifestyle in Boquete is also much quieter and laid back. Like any big city, Panama City can be very fast-paced and superficial; it’s loaded with all-night discos, casinos, parties, hookers, and people caught up in the rat race money game of who has the fanciest car or patronizes the more expensive restaurant.

Boquete is the antithesis.

If this sounds appealing to you, you should be aware that there are some tradeoffs. Namely, Boquete is much more remote– in total, between the airport transfer, flight, and drive, it takes about four hours to travel from Panama City to Boquete door-to-door. Don’t underestimate what a pain this can be.

Second, if you have medical concerns and want to be close to a quality western hospital, you should cross Boquete off your list. There is a private hospital about 40 minutes away in David, the nearest major town… but it’s old and not particularly well-equipped. Panama City’s marquee facilities are leaps and bounds better.

Overall, for the right person, Boquete works really well… it’s basically what a small version of Asheville, NC would look like if it were transplanted to Central America– there are spectacular vistas, clean air, organic food, lots of art, great weather, and an open, friendly, hippied attitude that pervades the local culture.

In fact, the expats in Boquete are a very accepting lot (though a bit cliqish), and this is one of the easiest places in the world to strike up a conversation that starts with a simple “where are you from?”

If you decide to come check out Boquete, I highly recommend that you stay at the Boquete Garden Inn–at around $99/night, it’s one of Panama’s finest boutique hotels.

January 29, 2010
Boquete, Panama

It’s a beautiful day in the Panamanian highlands, and I’m taking the opportunity to explore the countryside for undervalued land deals.  The Chiriqui province of Panama, where I am now, is sort of like the Panamanian version of Texas– fiercely independent and proud… locals consider themselves to be citizens of Chiriqui first, and Panamanians second.

As we’ve discussed in previous letters, I have been sincerely exploring the idea of developing a subscribers-only sustainable community, and Chiriqui is on the short list of locations.

On that note, I really want to thank you for providing me with your feedback about the community concept; over 650 people have filled out the survey so far, and I’m convinced that the idea has tremendous merit. More to follow on that in the future– for now, let me get to some subscriber questions:

From Denise Dale: “Simon- I enjoyed your comparison between Panama & Costa Rica, but I felt you missed an important comparison:  the medical aspects of each country.  I, being 73 years young, would appreciate some statement regarding the medical facilities and medical personnel.  I do intend to move to Central America this year and may even renounce my current citizenship.”

Denise- Thanks for reminding us of such an important lesson… regardless of your situation in life– young, old, rich, poor, employed, jobless, etc., you can always expand your opportunities by looking overseas. Many US citizens are finding that the cost of healthcare is absolutely crippling, and you are sharp to consider opportunities south of the border.

In my opinion, *western* medical facilities and staff in Panama are unquestionably of higher quality than in Costa Rica– the hospitals are better equipped, the doctors are often US trained, and the costs are comparable to Costa Rica.

In regards to holistic and eastern medical practice, however, I would say that Costa Rica still edges out Panama, but this is a sector that is gaining quite quickly in Panama and I would estimate that within a few years it will surpass Costa Rica in its quality and breadth of service.

From Louis: “Simon, I noticed that the Swiss have halted their deal with U.S. authorities to turn over Americans with secret UBS bank accounts.  What do you think? Is this just a battle or has the whole war ended?”

Unfortunately, neither. It’s just a speed bump in the worldwide campaign to end financial privacy. I want to be very clear about this– you cannot rely on privacy with any financial institution in any jurisdiction, period… and do not expect that piling a complex array of bearer share companies and trustees will make the situation any better. It won’t.

Governments can obtain access to your bank and brokerage accounts, they will find out who the beneficial owners are, and they will absolutely demand their ‘share’ of the income. Rest assured, penalties from noncompliance will be severe.

The reasons for going offshore have nothing to do with hiding money, but rather planting multiple flags– diversifying away from a single jurisdiction. If you are a US citizen with all of your money in the US, you will really wish that you had moved some money to a foreign bank account once they impose capital controls.

If you’re tired of giving your hard-earned money to corrupt bureaucrats, and your goal is to cut down on taxes, there are much, much better ways of doing that without taking the risk of ending up in prison.

Use foreign bank accounts for what they’re best purpose: protecting your capital from regulatory, litigation, and administrative risks. If you want to cut down on your taxes and achieve a lucrative deferral benefit, consider what I have discussed in the past about proper offshore and retirement structuring. I will continue to revisit these topics in the future.

Clayton asks: “Hello Simon, I am a new member. Are there any articles on buying foreclosed property in Panama?”

No, I have not yet specifically addressed foreclosures in Panama.  Like most things in life, to get access to foreclosure deals in Panama you have to know someone, usually a senior bank executive. There are a handful of real estate agents in Panama that tout foreclosed condos, but most of the time the deals have been stepped on and marked up so many times they do not even resemble a bargain.

On that note, one of the troubles about Panama’s real estate market is the lack of integrity and competence among the majority of agents. I’ve been operating down here for about 7 years and have burned through hundreds who have shown me their true colors. That’s why I put together the Panama Black Paper, which provides a short list of agents here that I actually trust.

Next week I plan on organizing a call with one of my trusted Panamanian real estate contacts who will discuss the state of the market, foreclosures, and some of the best deals he is working on.   Initially, I will make the call available exclusively to everyone who purchased a Black Paper, and then to the rest of the community.  Stay tuned for more details about that.

Lastly, Ken asks: “Simon, what are your thoughts on Belize?”

I wouldn’t go there. It’s pretty, but so are hundreds of other locations. Belize lacks the freedom that I’m looking for, and one needn’t look any further than their recent ‘amendment #6′ to the Belize Firearms Act.

This recent change to the law is about as draconian as it gets, threatening imprisonment without bail or trial for three months (and up to 5-years) just for being caught in the vicinity of an unregistered handgun. I won’t set foot in the country as long as this law is on the books.

That’s it for today, and I hope you have a great weekend.

Blair is in her early 40s from Southern California.  She’s intelligent, fairly aggressive, and an experienced financial executive at a mid-sized manufacturing company. In total, she has about $250,000 in savings, some of which she used to buy property in Panama.

She is single with no children and has been traveling to Panama to plant flags since 2006. She plans on (semi) retiring there in another 5-years and has unfortunately learned a lot of hard and costly lessons.

At the height of the global property boom, Blair bought a unit in an ocean-view condominium tower in the San Francisco barrio of Panama City. I like San Francisco– it is well located and presents a nice mix of local Panamanians and foreign expats.

At the time, however, San Francisco was put under a building moratorium because the neighborhood was severely overcapacity with its infrastructure.  Waste treatment facilities were overburdened to the point that raw sewage was washing away construction sites, water utilities couldn’t get pressure to higher floors.

Of course, Blair’s real estate agent didn’t mention any of this to her. He cheered her on to make the purchase, encouraging her wise decision-making and investment acumen at every step along the way.  He looked good, sounded good, and had even lived in Miami for a while… sounds like a trustworthy fellow worth his salt, right?

Wrong. Blair was terribly misinformed. Aside from the sewage and the lack of water pressure, even her beloved ocean view was gone before the building was even complete– another building was erected between her bedroom window and the sea, built by (you guessed it) the exact same developers.

Like many gringos, Blair found her real estate agent on Google and was initially impressed by his English skills and claims of knowing important people in the country. She admits to being taken as a fool and quite literally is paying the price for it.

(It is exactly for this reason that I put together my Panama Black Paper, released in September and December, which names names of people in Panama to do business with, and people to avoid like the plague.)

Because Blair has such a long-term view, though, she has taken everything in stride.  She feels that, by the time she semi-retires in five years, she will be able to recoup what she invested in the condo.  Meanwhile, as Panama City’s infrastructure improves, she has been able to generate positive rental cashflow on the unit.

She has since wised up to the city life, and these days she is actively searching for a new property outside of Panama City where it is cleaner, quieter, but still accessible.

By the time she is ready to move there, she expects several new multinationals to have relocated to the nearby Panama Pacifica commercial park located just outside of the city.  This commercial park, she believes, will present a lot of opportunity to entrepreneurial-minded people who can provide essential business services.

Because she expects to be generating business income in Panama, she plans on registering a Belize company to conduct the business, thus planting her business flag outside her country of (future) residence.

She told me that she already made this mistake once– two years ago she searched for “Panama companies” on the internet and purchased a corporation from one of the service providers who popped up.

As it turns out, a Panamanian corporation was the exact opposite of what she needed, and the Panamanian lawyer she spoke with had no earthly idea what her US tax implications would be as a result.

Blair has since straightened out her tax situation once she finally found a competent US tax attorney who had expert knowledge of international business structures and was willing to help her out without breaking the bank.

Aside from planting a residency and business flag, Blair has moved some money to a European bank; she feels comfortable in Austria because she does not live there or do business there, so the government has little cause to milk her.

Lastly, she is planning on eventually acquiring second citizenship, possibly through a South American program that I will be discussing next month.

Her ideal vision for the future will be living outside of Panama City as a citizen of a South American country, with her business based in Belize, generating revenue in Panama from multinational firms, and banking her capital in Austria.

Because her foreign business will neither be engaged in US trade nor generating US-source income, her company will not be subject to US corporate income tax. Additionally, as an expatriate, she will be able to pay herself a salary of roughly $90,000/year tax free.

I think one of the key lessons here is that planting multiple flags is not always a do-it-yourself process. As Blair’s story demonstrates, there are potential landmines along the way, though expert advice is available to ensure a smooth journey.

Knowing how critical this expert advice is, in the last few months we provided you with key contacts in the Panama Black Paper, and introduced you to a top international tax attorney.  Next month, we will be discussing South American residency and citizenship programs, so stay tuned for that.

January 27, 2010
El Valle, Panama

For a future expat, there are three places worth seriously considering in Central America– Panama, Nicaragua, and Costa Rica.  Much is written about Panama, and rightfully so; the country is the most stable, economically liberal, and business oriented.

Not to be completely ignored, though, Costa Rica has its own merits that are certainly worth an honorable mention.

First, to understand Costa Rica, you need to get a feel for the country’s life cycle.  The original North American expatriate movement started with Mexico right around the time of US prohibition.  Everything fun in the United States became illegal practically overnight, and Mexican border towns became a rally point for the disillusioned.

Mexico’s expat domination lasted for several decades until finally, around the 1980s, people became dissatisfied with the large number of foreigners living in Mexico, as well as the rising cost of living.  They sought greener pastures further south.

Costa Rica became the obvious choice– Panama was a complete disaster between Torrijos and Noriega, Nicaragua was embroiled in civil war, and Honduras was quietly exterminating its socialists.

Initially there were only a handful of expats living in Costa Rica, but eventually the word got out that living in Costa Rica was cheap, beautiful, and spiritual… it was like the India of the western hemisphere, cheap drugs and all.

For the next two decades, the steady inflow of North American tourists created steady demand, and new developments sprouted up all over the country. In time, the ‘cheap’ cost of living in Costa Rica had risen sharply, rivaling that of Mexico.

That’s when the expatriate market turned its sights on Panama in the early 2000s– the Canal had been turned over to the Panamanians without disaster, and the country had managed to build a stable government and society in the 15-years post-Noriega. At the time, Panama was much, much cheaper than Costa Rica as well.

Today, I find the costs of living in both countries to be comparable, as well as the real estate prices. But I find that, putting the two countries head-to-head, Costa Rica has the following advantages:

1) Costa Rica has no military. Technically Panama has no military either, but with so many national police (green uniforms), tourist police (tan uniforms), and Presidential guard (black uniforms) running around the country with automatic weapons, they might as well be an army, albeit a poorly trained, dysfunctional one.

I doubt that the Panamanian police forces have the capability or iron will to go house-to-house against the locals, but Costa Rica lacks the manpower resources altogether.

2) Environmental sustainability is much more prevalent in Costa Rica– and I’m not necessarily just talking about tree hugging… Costa Rica is simply cleaner, especially compared to Panama City.

Panama City’s boom has come so quickly that the city has experienced significant growing pains– notably with its infrastructure challenges. You see a lot of garbage, sewage, etc. piled up where the city hasn’t figured out how to deal with its problems.

To be fair, it’s not the same outside of Panama City, but head-to-head, I would still say that Costa Rica is cleaner and more pristine.

So what are Costa Rica’s chief flaws compared to Panama?

1) Currency– Panama is dollarized, but Costa Rica has its own currency (the colon); you might think this is a good thing, but the colon is so small and thinly traded that it essentially follows the dollar, without necessarily getting any of the benefits of being the world’s reserve currency.

The bottom line is that the Costa Rican colon (CRC) is essentially the worst of both worlds, and in a currency crisis, the country will likely be hit hard between the eyes.

2) Costa Rica’s main city, San Jose, is small, ugly, and devoid of anything interesting to do. Panama City, on the other hand, is vibrant, exciting, and open for business. This is central to Costa Rica’s personality– it is designed for one thing: eco-tourism. Panama, conversely, is multifaceted with both business and tourism opportunities abundant.

As a consequence of this, Costa Rica is overrun with tourists, week-in, week-out, doing the same zip-line, bird-watching snorkel tour over and over again. Plus, there is a noticeable lack of available products and services in Costa Rica when compared to Panama.

3) Costa Rica is far more bureaucratic. In Panama, obtaining a residency visa, importing household goods, and buying property is a much easier process than in Costa Rica, which usually has much stiffer fees and taxes associated with everything that you do. Just getting the cable turned on in San Jose can be a nightmare.

Based on my experience between the two countries, and given the relative cost comparison, I would definitely recommend Panama over Costa Rica unless your sole priority is environmental purity… in which case you should go to the Maldives.

January 26, 2010

Panama City, Panama

I’ve been on the ground in Panama for a week, and thus far, the majority of my time has been spent investigating the sustainable community concept that I wrote about several weeks ago.

To refresh your memory, the idea is to develop a small, cost-effective, subscribers-only expatriate community in Panama that focuses on sustainability over luxury. Frankly, other developers laugh when I discuss the concept and think I’m crazy for planning on crop fields instead of a golf course… as if breaking from the norm is somehow akin to predicting the apocalypse.

To be clear, I am not preparing for some “2012″, end-of-the-earth scenario. I do believe, however, that it makes good sense to invest in property with agricultural yield that can double as an escape hatch if the world experiences deep, short-term economic calamity.

Overall, I think Panama makes sense as a location for this community for several reasons:

1) Residency is very easy to obtain here, and an investment in this sort of development would likely qualify.
2) “Freedom” is not a lost concept in Panama; most people are left alone to live their life free of interference from the government. As discussed last week, firearm ownership is not a problem.

3) The weather is warm and predictable, and there are few natural disasters to speak of.

4) It is close to North America with multiple airline routes (including 2 to Europe) for easy accessibility.

The initial concept that I am considering is a community with a small residential section, roughly 50-70 home sites of about 1,000 square meters (1/4 acre) each. The preponderance of the property would be set aside for crop production, vegetable patches, fruit trees, and livestock cultivation.

I also believe that water self-sufficiency is of critical importance; a sustainable community needs to be able to feed itself and provide its own water without relying on the local utility. As such, the land should have plentiful, clean groundwater supplies.

Naturally, a self-sufficient community should also have at least a back-up source of electricity that does not rely on the local utility. It may be feasible for the power company to provide a primary source of power, but in the event that the grid becomes too expensive, overburdened, rationed, or controlled by the government, the community will have its own source of power to rely on.

Location, as always, is crucial. I envision the community being near enough to Panama City that its residents have access to commerce, entertainment, and transportation infrastructure… but far enough way that the community is peaceful and secluded.

Security is also an issue to consider for a self-sufficient community.  In my opinion, this goes far beyond a remote controlled entrance gate, though I’m honestly still thinking through what this might look like, so there will definitely be more to follow.

Remember, the central idea of the community is to bring together like-minded people who want to maximize their freedom and minimize reliance on the grid for staples like food, water, power, and security.  Consequently, I would really appreciate your feedback. If you find yourself legitimately interested in this concept, please fill out a short survey so I can better refine the design.

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.

January 21, 2010
Panama City, Panama

Nazi leadership realized long ago that one of the chief ways you instill fear and obedience in the people is to take away their ability to fight back.  This is a time-tested method of making the people afraid of the government, and thus preventing the converse.

As such, I am frequently asked about gun control laws in many parts of the world… and while I am far from a self-professed ‘gun nut,’ I have a healthy enough respect and experience with firearms that it is an issue to which I pay close attention.

Here in Panama, ownership of firearms is perfectly legal, and there is an established process for their acquisition.  Like anything in Panama, you may want to hire a lawyer to work through the process for you. I hate paperwork and usually find it easier to hire someone else to worry about the details.

Panama has a regulated process; to be legal, the weapon itself needs to be registered, and there are restrictions on the type of firearms… you will not, for example, see fully-automatic weapons, silencers, or armor-piercing rounds in Panama. This is not the wild west.

In order to be eligible to buy a firearm, an individual must first obtain some sort of residency– there are a myriad of ways to obtain Panamanian residency (such as the little-known “Italian reciprocity policy” that I will discuss in the future), but the bottom line is that tourists cannot be licensed.

This is an important distinction to make since many bona-fide residents in Panama never actually register for residency; they simply extend their tourist visas and exit/re-enter the country every few months.

With residency in hand, an individual can complete the process at the gun store– this involves a urine/blood sample and a police background check that can honestly take up to a few months to clear.  This step is by far the most bureaucratic part of the process.

Once your background check is complete, you can buy a weapon that is already registered with the Panamanian authorities. If the weapon is not registered (for example, if you import a firearm), the police are required to take ballistic samples, effectively registering the weapon’s ‘fingerprint’.

As long as a weapon is registered with the local authorities, it can change hands among individuals who have permission to own firearms. In other words, if you have a permit and want to buy a rifle that is already registered, it would be a relatively hassle-free process.

If your registered firearm is lost or stolen, you would definitely want to report this to the local authorities immediately, otherwise you may be initially implicated as a suspect should the weapon be used in a crime by someone else.

As you could imagine, though, there are a lot of weapons available for purchase in Panama that are not registered with the local authorities… these can be purchased in black market venues, which are generally in the shadier areas like Chorillo and Colon.

If you get caught with one of these weapons, it will at a minimum be confiscated, and you’ll be looking at a pretty stiff payment to the policeman who catches you.  Otherwise, the offense carries serious jail time.

One last point to mention– Panamanians make no distinction between concealed carry and open carry. If properly licensed, you can stash a pistol in your boot or carry it around on a pistol belt in public.

Most public buildings, though, have policies against firearms, and many even have metal detectors and security to ensure no concealed carries into the building.

Drop me a note if you’re looking for a gun shop in Panama, or feel free to list some that you are familiar with by leaving a comment.

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

So much for BMW’s run-flat tires. Believe it or not, I’m actually sitting on the side of the A3 motorway in central Germany, about halfway between Frankfurt and Munich, waiting for the tow-truck to arrive. 

Apparently you’re supposed to be able to drive on these tires even when they’re flat… and with such confidence in their country’s manufacturing capabilities, the German rental car company didn’t bother providing me with a spare.  Call me old-fashioned, but I’ll take a spare and a jack over run-flat tires any day.

Given what we put this car through, though, it has performed admirably– about 2,500 miles of hard driving in just 4 days at speeds usually exceeding 200 km/h.  You see a lot of interesting things when you spend that kind of time on the road, and one of my observations leads me to believe that we are in for a major shift world finance.

For starters, customs agents across Western Europe are visibly out in force, patrolling the highways and major travel hubs.  Their mission? Generate revenue, coercively if necessary.

In just a single 12-hour period, we were stopped twice in France by government thugs.  Similar to my treatment that I described last week at Helsinki airport, the encounter felt more like an inquisition– where were we driving from, what were we doing there, what do we do for a living, and most importantly, how much money were we carrying…?

They seemed disappointed and skeptical when we said “uh, about 250 euro…” as if two well-dressed gentlemen in a nice sports car were cosmically obliged to be carrying more than 10,000 euro.

They didn’t take our word for it and continued the snooping and inquisition.  If this had happened only one time, I would have written it off as an anomaly. But multiple times within a short period of time is suggestive of a broader agenda.

My business partner Matt had a similar experience before his flight from Chicago to Frankfurt just last week; as he was strolling down the jet bridge to board the plane from the business class entrance, he ran into a squad of customs agents waiting to randomly inspect passengers.

Once again, their chief concern was monetary instruments– How much cash was he carrying?

Customs officials are like feudal lords; they wield supreme power in their little border fiefdoms and have the authority to confiscate whatever they like, for any reason, and then stick you with the onus of proving your innocence.

This is exactly why the government has its people patrolling the airports and highways… low on ‘hope’ and short on ‘real change’, the government has tasked its border enforcement with grabbing as much cash as possible.  It’s sort of like setting up a speed trap in a small town with no economic prospects.

If customs officials believe the amount of money that you are carrying is for suspicious purposes, they have the authority to relieve you of your cash, Constitution be damned. The same standards apply in Europe. In a very literal sense, this amounts to highway robbery.

The standard generally applied is “presumed guilty until proven innocent,” and I think it’s safe to assume that these types of searches and seizures specific to monetary instruments will increase.  More importantly, though, these measures are likely an overture to the eventual implementation of capital controls.

Governments rely on capital controls to regulate the flow of capital through their borders.  In times of crisis begotten by political stupidity, they have an even greater need to keep money on shore to ensure that you’re paying your fair share of somebody else’s mortgage.

The first step in capital controls is to go after cash; it raises money through confiscation and makes people rely more on the banking system out of fear.  The next step is to re-regulate the banking system to make cash transactions more cumbersome and dealing with foreign financial institutions more controlled.

This is already in the works with the recently passed US House of Representatives bill H.R. 4213.

I discussed this trend towards capital controls three-months ago, but frankly I am surprised at how fast things are moving. The time to plant a financial flag overseas is now, and there are a couple of ways to do that.

First, foreign bank and brokerage accounts are a reasonable solution. I’ve mentioned this numerous times in the past, most recently with a discussion about Islamic Banking. I think that Panama, Singapore, Hong Kong, UAE, Malaysia, and Canada are all reasonable places to bank.  There are many more that I will be discussing in the future.

While there are some annual disclosures to file in some countries (like the US), it is completely legal to have a foreign bank account, and I doubt governments will ever change that… they’ll just make it next to impossible to move money.

That’s why the window of opportunity is now.

Second, buying foreign property makes a lot of sense. At present, there are no reporting requirements for foreign real estate, and as we have discussed in the past, you can even move individual retirement savings into foreign land.

More to follow on all of this. Stay tuned.

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’m sitting in a comfortable, overstuffed leather chair this morning typing away at this letter while a team of local women give me a traditional Thai foot massage.  30 minutes in the chair will set me back about $4, and I can’t think of a better way to part with my money.

It is with great hesitation that I’m even sitting in this chair– not because I don’t like massage, but because this particular chair happens to be at the airport.  You see, I’m waiting for my departure to Europe, and if it weren’t for an important meeting in Spain that I’m looking forward to, I would be staying right here in Asia.

It’s not that I don’t like Europe– I love it, actually… the scenery, the people, the history, the architecture. It’s hard to not feel alive on a summer day in Krakow, racing down a ski slope in the Italian Alps, or driving a Porsche down the Croatian coastline.

In terms of value for the money, however, Asia has Europe beat hands down.

Take this simple, $4 massage; it would be difficult, and entirely cost prohibitive, to find a team of European professionals who would be willing to provide this level of attention; Europeans feel that ‘serving’ another human being is elitist, which is part of their egalitarian socialist dogma. The session would be courteous, at best.

Many cultures in Southeast Asia, on the other hand, are happy to go the extra mile, especially when there is a gratuity attached.  The ladies who staff this airport location, for example, wouldn’t even let me remove my own shoes and socks– they did it for me.

Having another person do that honestly makes me feel a bit uncomfortable… but providing this level of service is what they are accustomed to, if nothing else than for the gratuity at the end.

The motivation to earn more by providing excellent service is clearly more prevalent in the Orient than in Europe.  Neither mentality is right or wrong, just different. Naturally, though, as a consumer, I prefer a greater level of service.

Price is also a major factor. In Asia, with few exceptions like Singapore, Japan, and South Korea, you have to put up with some level of squalor– trash in the streets, gratuitous displays of poverty, etc. While these indications are not completely lost on Europe, it’s safe to say that cityscapes in the west, in general, are cleaner.

That being said, however, the price difference is enormous. The cost of living very well in Europe is easily five times the cost of living very well in Asia.  Is Europe five times as nice? Depending on what you are looking for, most likely not.

As I look around the world and price compare, I wholeheartedly believe that Asia and Latin America still provide the most value for the money.  My top picks for those regions are:

- Latin America -

1) Chile: Strong economy, beautiful landscape, modern and developed infrastructure. Living costs are low, and the cleanliness makes it feel like you are in Europe. The biggest concern with Chile is that it is growing too quickly; the Chilean peso is one of the best performing currencies in the world, so costs for foreigners are going up.

2) Panama: Also a strong economy with developing infrastructure and increasing local standard of living; costs in Panama City are going up, but if you get out of the city, you’ll find that you can still live incredibly well for very little.

3) Colombia: Clean, modern, and home to some of the best weather on the planet (especially in Medellin). You have to be willing to look past the “Colombia stigma,” but I guarantee it’s well worth the exercise in intellectual independence.

- Asia -

1) Malaysia: Home to a growing influx of Islamic funding, the country is on solid economic footing while maintaining very low living costs. Medical care is strong, and the “My Second Home” program provides an easy route to permanent residency.

2) Philippines: Stable economy, cheap real estate, and excellent English proficiency. Manila and Quezon can be tough, but just outside of the cities you can find inexpensive, pristine coastal property. I know many expats who are happily living out their years being fed grapes on a hammock with just a meager retirement pension.

3) China: Lack of English proficiency can be very frustrating… but China is becoming nicer and more livable by the day. In terms of its modernity, it will be the first developing nation in Asia to match the west, and it will happen in the next 5 to 10 years.

Naturally, I will provide more about these locations in future letters, but I wanted to give you a quick overview today; if you have any specific questions or your own additions, please let me know.

If he keeps this up, they might start calling it Panama, Inc.

Panamanian President Ricardo Martinelli has been in office less than 6-months, yet to the extent that it is politically possible, he seems bent on running Panama with the same vision as when he ran the chain of supermarkets that made him one of the country’s wealthiest men.

Step 1– eliminate corruption in the government. All side deals and back room handshakes that were entered into under previous administrations are now off the table.  Martinelli has been leading from the front, personally strong-arming several businessmen who had been paying off bureaucrats for years.

His efforts seem to be working. In the past, anyone in the government beyond the level of basic peon used to be Old Faithful when it came time to accept ‘expedite fees.’ Not anymore. People are actually focused on doing their jobs and playing by the rules.

Martinelli is also keen on business and tax reforms.  He proposed a flat tax during the campaign and will likely push for relaxing Panama’s strict labor code to make it easier for entrepreneurs to hire and fire employees.

He is also taking advantage of historically low interest rates to make some much needed investments in the country’s infrastructure; as a business owner, he would do the same thing– capitalize on cheap money to invest in positive NPV projects that will generate a return for shareholders.

As such, the Panamanian government recently issued $1 billion in 10-year notes, yielding 5.224%.  This is about 1.8% higher than the US 10-year yield. The issuance coincided with S&P’s very enthusiastic upgrade of Panama’s credit rating, which is now one level below investment-grade.

$1 billion is a lot of money in Panama, roughly 6% of GDP. It would be like the United States issuing $1 trillion in debt, all at one time… it’s an enormous amount of money, but Panama’s dollarized economy can handle the inflows.

With so many capital-intensive public projects like highway construction, the Canal expansion, airport renovations, etc., the money will likely be spent quickly. But considering the direction that Panama is headed, Martinelli will likely come away looking very smart for making these investments with a cost of capital at only 5.224%.

At the moment, he has popular support as well.  His approval ratings are just about the highest in the western hemisphere at over 90%, compared with Barrack Obama’s 53%, Hugo Chavez at 46%, and Argentina’s Cristina Kirchner at a laughable 20%.

So what does all of this mean for banking and real estate?

Panama still has banking secrecy and will likely be, along with Hong Kong, the last holdouts that will buckle to the OECD’s offshore witch hunt. But that’s not necessarily the reason you want to consider Panama for international banking.

Panama’s banking system is very mature and offers a variety of unique products and services– online wire transfers to anywhere in the world, debit/credit cards, and personal attention from a private banker. Furthermore, it is actually possible to obtain a loan in Panama, which is next to impossible in many other jurisdictions.

Most importantly, though, Panamanian banks are well capitalized; they largely dodged the meltdown that wrecked havoc in North America and Europe, and their balance sheets remain strong.

Regarding real estate, I have been very vocal about my thoughts on Panama’s future; it is not without its problems, but given the maturing economic growth engines and massive infrastructure development that is underway, the country is clearly on an upward trajectory.

Martinelli’s actions are keeping Panama on the right track, and I believe the country will remain a safe long-term bet for investors and residents, as long as you don’t end up with the wrong people.

Like any boomtown, Panama has attracted its share of shady characters. You see the same types of folks in Dubai, New York, and even here in Bangkok.

The problem is that many gringos rely solely on Google for their ‘due diligence’; they do a search for “Panama Property” and the first presentable looking, English speaking bloke who pops up becomes ‘their guy’.

This sort of thing is truly dangerous, yet it happens all the time. I personally have burned through dozens of bankers, lawyers, and real estate agents in Panama who didn’t measure up, either lacking competence, character, or both.

The fact is, some Panamanians have made a science out of taking advantage of gringos coming down to Panama.   These guys look good, sound good, but absolutely cannot be trusted.

Over time, I assembled a list of the most intelligent, honest people that I have worked with in the country, as well as a list of people who should be avoided like the plague. The whole thing was packaged together in what I called the “Panama Black Paper.”

Initially, I released only 25 copies because I did not want to inundate my trusted contacts.  I know that many subscribers were not able to get in on the first release, so after clearing it with many of my contacts, I’ve decided to release another 25 copies of the Panama Black Paper.

I plan on doing this on Tuesday, December 1st at a cost of $297.  I fully expect all 25 to sell very quickly again, so if you’re interested in getting access to my personal Panama rolodex, I suggest you fill out the following Pre-Notification Form.

By signing up for the early notification, I’ll email you a special purchase link at least two hours before The Panama Black Paper officially launches. 12/1/2009 update: We received a lot of feedback from subscribers around the world in ‘inconvenient’ time zones that would be unavailable for the pre-notification launch… I understand this more than most people– 12pm on the east coast is the middle of the night in Sydney. Consequently, we are sending out a public notification on December 1st will keep it open for 24-hours.

Please begrudge me the quote from V for Vendetta,  but I’m really starting to worry about what’s going on in the United Kingdom.

On Wednesday I wrote about the UK’s “Interception Modernisation Programme.” New rules under the program require wireless companies and internet service providers to archive phone records, web history, and emails for a period of 12 months, and to make that data available to 600+ government agencies without a warrant.

Naturally, the erosion of privacy was absolutely shocking, and I was sickened… at least until the next day when I read an even more disturbing story, also out of the UK.

Now the British government has announced that it is going to maintain DNA profiles of innocent people for ‘only’ six years. 

You see, this is actually a shift in policy. Since being established in 1995, the government has built up it’s “National DNA Database” to over 4.7 million people, and it grows by 30,000 per month. This is about 7.6% of the population. Oh yeah, and it costs British taxpayers about $100 million/year.

How did the database get so large? The UK’s Criminal Justice Act of 2003 authorized DNA samples to be taken by police on everyone they arrest or detain… you don’t even have to be charged with a crime.

Without any consent whatsoever, police can take oral swabs, footwear impressions, fingerprints, and in some cases blood, urine, semen, and dental impressions.

Until now, the British government has maintained DNA profiles indefinitely, even for people who had been found innocent and released from police custody without ever having been charged. 

In a historic case, the European Court of Human Rights recently ruled that Britain’s policy of keeping the DNA data indefinitely was a clear violation of human rights… so on Wednesday, the British government announced that it would discard innocents’ DNA profiles after 6 years.

The great irony with both the DNA compromise and the Interception Modernisation Programme is that they were announced right around the same time that European leaders were collectively celebrating the end of communist tyranny and the secret police.

Naturally, the British government doesn’t consider keeping DNA records to be remotely totalitarian; rather, authorities maintain that the information helps the war on crime and terrorism.

According to the government’s statistics, 6,504 rape and murder crime scenes over the last 8-years have had DNA evidence matching a profile in the national database.  Apparently this is supposed to make people rest easy.

Personally, I’m left wondering about the other 4.7 million DNA profiles that weren’t involved in these crimes. I’m also left wondering how many of the 6,504 profile matches just coincidentally happened to be near the crime scene but were not involved with any criminal act…?

The scariest part is the following line I copied from the government’s website– 
“Maintaining and developing the [DNA] database is one of the government’s top priorities.”

I almost passed out when I read it.

Yes, I recognize that there are people out there who believe that, “hey, if you have nothing to hide, why are you so concerned about the government monitoring your emails or maintaining your DNA records?”

This ‘nothing to hide, nothing to fear’ argument is flawed for two key reasons.

First, it means that the individual agrees to a ‘guilty until proven innocent’ paradigm; in this case, you may have nothing to hide, but you are agreeing that the government will assume your guilt until it goes through your private affairs to prove innocence.

Second, it is the mother of slippery slopes. In a span of three days, the British government has announced its electronic surveillance program, and now an insipid response to the European Court of Human Rights for its DNA database standards.

What will it be tomorrow for the Brits– a national ID card? Oh wait, that’s in the works already.

Look, I’m an incredibly positive and optimistic person, but these clowns are really going down a dangerous path… rather than spend an entire letter decrying the British government’s complete disregard for civil liberties, however, I will leave you with a few suggestions.

If you’re looking for privacy, stick to smaller countries that would never cough up so much money for complicated DNA databases. Panama comes to mind. Croatia. The Philippines. Chile. Moldova. Tanzania. Ecuador. Mongolia. Uruguay. 

I will be discussing these in more detail, and next week try to write something up about PGP and email security as I promised on Wednesday.

Of course, I’d like to hear from you about your own experiences.

I’m actually reporting tonight from bed-side in my hotel room; I managed to crash my $3/day motorcycle rental this afternoon, and between the cracked rib and other pleasantries, I’ve decided to call it an early evening.

Fortunately for me, Thailand has some of the best healthcare in the world, at least if you’re an expat and go to the several renowned and accredited private hospitals… but more on that in future letters.  Tonight I thought I would sit down and specifically address some of your questions, which is something I have not done in some time:

Keith from Ontario recently asked, “Simon– where is your money when World War III starts?”

Good question. The emergency fund is in physical gold and silver, plus a lot of currency from about 40 different countries. I travel with quite a bit of it and keep the rest stashed away in some strategic locations around the world– you can read about these places in our free Gold Report.

I don’t believe that the world is going back to a barter or gold system anytime soon.  Governments like having an inflatable fiat currency, and people have become too institutionalized on worthless paper money.

If there is a future cataclysmic event that causes a worldwide currency and financial meltdown, governments and financial markets will likely engineer a substitute quite quickly. In this case, gold and silver will have been fantastic investments, but likely not needed as a hard currency for the long-term.

If, on the other hand, a major catastrophe turns the world into Mad Max, I think everyone will be wishing s/he had invested in bullets and crop land instead of precious metals.  You might want to check out a great book called Emergency by Neil Strauss for an interesting read about a potential breakdown of our social and financial system… I highly recommend it.

On the same subject, Judy asks “Do you know if Panama has right to carry in place? If you currently have RTC, is it legal to ship your gun to Panama and conceal carry it there as well?”

You can obtain a weapons permit in Panama and even import your own firearms if you have established residency.  The system is fairly convoluted, though– the permit documentation is tied directly to the firearm, not necessarily the individual, so when you buy a weapon, you have to ensure that you buy a permitted firearm.

It’s best to navigate this process with a lawyer, at least the first time you do it. Any of the attorneys I mentioned in my Panama Black Paper will be able to help you with this issue.

Amanda recently asked a question about Australia– “Simon, I’d like to know your opinion on the land down under…”

I think Australia has fantastic prospects.  I generally dislike all governments, but by comparison, the Aussies run a sound economy that normally maintains a trade surplus based on raw materials, as well as a balanced budget.

The Australian dollar has room to appreciate– unlike other countries like Japan and South Korea which depend on a weaker currency to make their exports appear cheap, Australian commodities exporters sell at world market prices, irrespective of the Australian dollar’s value.

Naturally, the country is not perfect and there are a few speed bumps with household debt and immigration policy… but overall, I think the economy is sound and the Australian dollar is a good place to be relative to other fiat currencies, especially considering the higher interest rates.

Howard writes about Thailand– “For investors and businessmen, Thailand is a culture based on deceit and power; a major business expense here is corruption payments… and nothing here is clear, honest, or straight-ahead.”

I agree entirely. Doing business in most places overseas, particularly in developing nations, is fraught with challenges (read: corruption), and Thailand is no different. More specific stories and solutions on this in future letters.

My old friend Nuckolls writes, “According to the mainstream press, California is either a failed state or a gold mine waiting to be rediscovered.  I’m banking on the gold mine future…getting in at busted prices and waiting perhaps five years for the eventual regrowth. Do you have any premonitions about how long I could be waiting for that?”

California has a couple of things going for it that are positive economic drivers– first, it is home to some key industries like entertainment and technology that are still in tremendous demand around the world. Warner Brothers and Apple set the gold standard for everyone else to follow, and this isn’t changing anytime soon.

Second, people still really want to live in California, especially people with money.  This, along with its poor credit rating, will likely force the tough political choices that are necessary for the state to get back on its feet.

Third, California property tax is low, and this is protected by the state constitution. Other things equal, this makes California one of the more attractive US property markets for long-term growth. 

Between the recession, the wild fires, the massive foreclosures, and the fault lines, there are probably some great deals on property. As for how long you will be waiting? Unfortunately we have to look at these things in terms of election cycles given how interfering governments have become in the economy.

I wouldn’t expect anything until after the 2014 election, though given how bad the federal government is mismanaging the economy, an inflation-adjusted turnaround could be well beyond that.

As a final note, if you recently wrote or commented about your interest in official diplomatic programs, you will be hearing from me personally on the subject in the near future. Stay tuned.

Do you think your government doesn’t have the means to listen to your phone calls?

Think again.

Governments from around the world, not just exclusive to North America, have technologically advanced eavesdropping programs which can capture mobile phone conversations without anyone ever knowing.  And just in case the government isn’t so technologically advanced, they coerce wireless carriers into coughing up encryption schemes (cough, cough, Russia)…

Unless you have your own two-way encryption or intricate scrambling mechanism, there is no way for you to prevent this eavesdropping. What you can do, though, is make sure the government doesn’t know who’s on the line.

Right now, there are two key data points which identify callers to snooping federal agents:

First, the wireless signal from your conversation transmits unique identification codes that link back directly to your specific wireless account… and your wireless account contains a host of personal information– name, address, social security number, and naturally, phone number.

Second, most legitimate mobile phone handsets and data devices have a special serial called an IMEI number.  IMEI stands for “International Mobile Equipment Identity,” and it serves to uniquely identify a piece of wireless equipment.

In theory, the IMEI number is only associated with the equipment; in practice, though, wireless companies monitor and track who is using a particular piece of equipment… their systems are constantly matching a handset’s IMEI number to the subscriber data found on the SIM chip.

You can see your own IMEI number by pressing “*#06#” (as in star-pound-zero-six-pound) on your mobile phone. The number indicated on your screen is absolutely positively linked to your wireless account.

In other words, when you use your handset, the wireless company knows it’s you, and so does the government.  Just like unencrypted email communication, mobile phone conversations are about as private as shouting something across a crowded subway station.

Personally, this bothers me on a philosophical level… not to mention that there are times when I just want to have a private conversation with somebody without having to worry about which federal agency is taking notes to put in my file.

As you could imagine, I have a solution.

Do you remember when you first signed up for your mobile phone service? In many places you have to give the company all sorts of information and identification– even for prepaid service. It’s actually quite revolting.

There are some countries, though, where buying prepaid mobile phone service doesn’t require three forms of ID, a stool sample, and a reference letter from your priest… you just walk up to the counter, give them the money, and they give you a SIM chip. Simple.

While there are several countries where you can do this (Uruguay, China, etc.), I believe that Panama poses the best solution. Here’s what you do:

The next time you find yourself in Panama, go to any shopping mall or electronics store and buy a prepaid mobile phone SIM chip– the one you want to buy is called “Mas Movil Roaming Prepago,” and it should cost you about $5.

Mas Movil Roaming Prepago is a prepaid mobile phone service that was specifically designed for use outside of Panama– it works very well in the United States, South America, Spain, France, Belgium, Ukraine, and Russia.  Sorry Canadians, no service there to the best of my knowledge, eh.

Your shiny new MasMovil SIM chip will have a unique Panamanian phone number that is NOT tied to your name. The next thing you need to do is purchase a new mobile phone– there are plenty of cheap phones in Panama to choose from, many ranging from $10 to $20.

Again, this new phone will NOT be tied to your name personally.  It is important that you ONLY use this phone for your Mas Movil Roaming Prepago chip, otherwise it could compromise the anonymity of your new phone’s IMEI number.

Lastly, since Mas Movil Roaming Prepago is a prepaid service, you will need to buy several top-up cards to charge the balance on your account; these top-up cards come in a variety of denominations– I would suggest an initial balance of at least $20 and recommend that you buy a few spare top-up cards to recharge your account once you’ve left Panama.

Naturally, it would behoove you to pay cash.

Now, for the price of less than $50, you have a new phone, phone number, and charged-up SIM chip, none of which are tied to your name.  When you return to your home country, you will be able to call anyone you wish knowing that you are completely anonymous.

Call rates are $0.99/minute in the United States, so use sparingly.

Apparently I’ve been traveling too much, because I was recently caught out of the loop.

On Wednesday I published an article about Panama’s Resolution 52; the law effectively makes it illegal for landlords to rent property in Panama for less than 1-year.

I predicted in the letter that, based on the past track record of Panama’s National Assembly, the law would be repealed shortly due to significant pressure from the real estate industry and expat community in Panama.

Well, it turns out that I was simultaneously entirely right, and entirely wrong.  By the time my letter was published, Resolution 52 had already been repealed.  Crisis averted.

I found out about it thanks to Augusto, my very dedicated Panamanian attorney.  Even though he was somewhere shy of the 14th green at the time, Augusto somehow managed to read my letter and instantly correct my mistake with the following email:

“Your article is completely wrong. Resolution 52 was already revoked by Resolution 79.”

Did I mention he’s blunt too?

Frankly I couldn’t ask for a better attorney; I have burned through dozens of lawyers in Panama over the years, and Augusto is truly among the best in the business. He has literally saved me tens of thousands of dollars by steering me away from the wrong deals and connecting me with the right people to profit with.

Augusto’s example underscores and incredibly important point: a key element to success in many ventures lies in who you know.  The ability to leverage contacts to make things happen often makes the difference between a home run and a strike out.

I believe in this principle so much that I try to make it a core theme of this letter.

Last month, for example, I published my Panama Black Paper.  It was essentially my personal rolodex of high-level contacts in Panama– lawyers, bankers, real estate agents, gold dealers, etc. whom I trust and have dealt with in the past.

The idea behind the Black Paper was to provide people who are serious about living, investing, or doing business in Panama with a well-connected network of influential individuals who are trustworthy and highly competent.

All of my most profitable deals, most important relationships, and the best experiences have all come to me because of who I knew– my network.  I know it’s cliché, but it’s the truth.  “It’s not what you know, it’s who you know”.

It’s also true that you can dramatically expand your opportunities and experiences if you know how to grow your network; there’s an art to doing it, and it’s something that I’ve been successful with in the past.

For example, when I was working in the intelligence business, infiltrating networks was part of the job description.  Now I use the same tactics to walk in to a foreign country and make a big splash with the upper ranks in a short period of time.

There’s no mystery to doing this, it’s a question of process and persistence… and sometimes even paying to be in the room.

Do you want better investment returns? Become friends with the people who have it mastered. Do you want to make a lot of money? Get networked with talented entrepreneurs and deal makers.  Do you want to meet beautiful models? Get close to photographers and fashion designers.

Once you understand the strategy and tactics involved in building a new network, you’ll be able to immediately change the scope of opportunities in your life, solve problems, and create deep, rich relationships with the kind of people you want to associate with.

I’m thinking of writing a free report about how to generate goodwill, build contacts, and penetrate any network.   This isn’t for everyone, but if you’re looking to take your available opportunities and experiences to the next level, “who you know” can make all the difference.

If you’re interested in this information let me know in the comments below.   The more requests I receive, the higher priority this free report will be.

UPDATE: The report is done. If you are interested in receiving it, sign up for our free daily e-letter, Notes from the Field, and you’ll receive a copy.  (Scroll back to the top of the page and enter your info in the box.)

I’ve received a few questions recently about a piece of legislation recently passed in Panama known as Resolution 52.

A bit of background– the construction boom and ensuing real estate bubble for Panama City condominiums lasted from 2003 until approximately 2007.  Tens of thousands of units were designed and sold off-plan to speculators, usually months before the developers broke ground.

Speculators were buying up pre-construction units so quickly that developers were encouraged to design and sell more condo towers– and to keep raising prices. In the 4-year boom, sales prices for Panama City condos more than tripled from $800 per square meter to over $2,500 per square meter.

The first of these condo towers were completed and delivered prior to the start of the global slowdown, so early speculators were able to ‘flip’ their units to end-user buyers and make a tidy profit.  Today is a different story.

The global economic slowdown has impacted Panama City’s condominium market in the same way as other real estate markets around the world– tighter demand coupled with reduced credit availability has created downward price pressure.  In addition to reduced demand, however, there has also been an increase in the supply of condominiums as more towers are completed.

Consequently, most condo speculators whose buildings were delivered in the last twelve months have recently found out that they didn’t have chair once the music stopped– the pool of potential buyers is simply too shallow.

Despite what is happening in the condo market, however, Panama’s economic fundamentals are strong. Unemployment remains relatively low, and a spate of capital-intensive projects like the Panama Canal expansion assure bustling economic activity for the next several years.

Additionally, several multinationals are relocating regional headquarters or major operations facilities to Panama.  Thus, in aggregate, the city remains a popular destination for foreign business travelers who are involved with these projects.

Due to swelling tourism statistics and this growing segment of business travelers, hotel occupancy rates in Panama have traditionally been quite high; it was not uncommon in the last few years for hotels to be operating at full capacity for several months at a time.

And so, given this stable market for transient visitors, smart property investors put 2 and 2 together– if there is no longer a market for them to sell their condos, perhaps they can still generate a return by competing with hotels in the short-stay rental market.

The idea is a popular one with travelers– why pay $150/night for a hotel when you can pay $100/night for a 2 bedroom apartment? It makes sense, and the idea took off in Panama.  The local Panama craigslist.org website became packed full of apartment listings, and a few real estate agents started specializing in property management.

Over the last few months, however, a couple of do-good politicians noticed that this market was not being taxed and regulated appropriately… landlords were reaping huge profits, and the government wasn’t getting its fair share.

And so, in a politically typical ‘shoot first, ask questions never’ approach, Panama’s National Assembly recently passed “Resolution 52.”  The intent of the resolution was to ensure that the government has a mechanism to collect taxes on transient rental income, in the same way that they tax hotels…

… except that’s not exactly what was written in the legislation.  What Resolution 52 actually does is make it illegal for anyone to rent his/her property for a period of less than one year.

HUGE DISCONNECT. But again, this is typical of Panama’s National Assembly– a few years ago they did something similar with their visa policy: at the time there were a lot of gringos who were residing in Panama full time on a 90-day tourist visa, without ever applying for residency.

In its efforts to fix what was not actually broken, the government (under then Tourism Minister and salsa extraordinaire Ruben Blades) decided that American tourists would only be granted a non-renewable 30-day tourist visa.

The decision did not have its desired effect– real estate sales and tourism numbers dropped, and within months, the government reversed its policy in favor of the original 90-day visa.

Undoubtedly, the same thing will happen with Resolution 52: the government will reverse its decision.

I’m very bullish on Panama’s future as the capital of Latin America, and there are definitely some undervalued opportunities in the city. My inside contacts there frequently pass me interesting deals, and frankly I wish I had the time to capitalize on more of them.

The bottom line is that if you were considering real estate in Panama, you should not let this ruling affect your decision.

“We are very concerned with what’s happening in Panama, or to put it another way, what’s not happening.”


– Jeffrey Owens, director of the OECD Centre for Tax Policy and Administration

Earlier this month, a group of tax commissioners, finance ministers, and NGO representatives descended upon Los Cabos, Mexico for the 5th annual “Global Forum on Transparency and Exchange of Information” sponsored by our friends at the OECD.

You will likely recall that the OECD published its ‘black list’ and ‘gray list’ of non-compliant financial centers, coinciding with the G20 summit in London this past April.  Offending nations ranging from Uruguay to Switzerland immediately scrambled to have their names stricken from the list.

The OECD called this month’s forum in Mexico to make sure that remaining tax havens have either already stepped into line, or are breaking their necks to get there.

The primary regulation in question is the OECD’s controversial standard for information exchange, known as “Article 26.”  This is the standard which requires countries to exchange information with other nations for the purposes of tax reporting, regardless of domestic bank secrecy laws.

Austria, Belgium, Luxembourg, and Switzerland were the last of the OECD members to hold out on Article 26, but each has recently caved to pressure and acquiesced to violating their own laws for the sake of international tax information exchange.

With a united OECD standing against them, smaller countries who were holding out against Article 26 compliance have no remaining support, and you can be sure that each of them will fall into line: this is evidenced by the spate of “Tax Information Exchange Agreements” signed by smaller countries in the last month.

29 exchange agreements have been minted this month alone by countries like Gibraltar, San Marino, Andorra, Liechtenstein, Monaco, Aruba, Anguilla, and Nevis.  Conspicuously missing from the list?

Panama.

In the introduction to this missive, I quote the venerable Mr. Owens as he responded to a reporter’s question in Mexico– why does Panama attract such little scrutiny since it has not signed any tax information exchange agreements?

Panama was placed on the OECD’s “gray list” in April as a “jurisdiction that has committed but not yet substantially implemented the internationally agreed tax standard.”  In order to be taken off the list, gray list jurisdictions must sign exchange agreements with at least 12 other jurisdictions.

Apparently Mr. Owens’ remarks lit a fire under the Martinelli administration in Panama; the country recently announced that it would begin sharing tax information and is close to inking deals with Spain and Mexico already.

You can expect deals with the United Kingdom, United States and Canada to be close behind.

So does this spell the end of Panama as a financial center?  No. Likely it means the survival of Panama as a financial center because noncompliance will threaten its financial infrastructure.

BNP Paribas, for example, which is one of France’s largest banks, recently announced that it would close all branches in non-compliant countries, including Panama.  Similar announcements by other banks will likely be forthcoming.

Consequently, if Panama does not want to lose the integrity of its financial center, compliance is a must.

The unfortunate reality of the global financial system is that traditional tax havens like Panama, Hong Kong, BVI were specifically designed to hide money; this veil of secrecy has now been ripped to shreds by the OECD, and privacy is no longer a reason to hold money offshore.

Governments are scrambling to become compliant, and sooner or later every bank in every jurisdiction will be coughing up depositor information to foreign tax authorities.

That’s the bad news.

The good news is that banking offshore still provides substantial benefits for consumers and their after-tax income, namely:

• Many overseas banks are stronger, more liquid, and better capitalized than western banks, and they don’t depend on an insolvent organization to guarantee deposits
• Overseas banking provides opportunities for currency diversification
• When western countries begin imposing capital controls (we know they’re coming), your money will be safe in a foreign bank, allowing you to freely withdraw, transfer, and invest your capital as you see fit without asking permission from the government.

Despite the OECD’s actions, I still believe that banking overseas is a smart move for everyone… just be sure that you personally comply with your reporting obligations. US Citizens, for instance, must report overseas bank accounts to Uncle Sam every year, and if you received a penny of interest, it must be reported on your tax return.

I received quite a few interesting comments this week (many of which I kept private at the request of the sender).  Remember, posting a comment to the site is the best way to reach me: I read all of them personally. Email goes to support staff.

- SOLDIERS IN THE STREETS-

Kelly asked a great question on Tuesday– is there any country in the world that has the total package?

Naturally, this depends entirely on what you are looking for, and I think I will do a piece on this next week.  Some people are looking for pristine environment and low population density, others are looking to be in a megalopolis on the cheap.

For my own personal taste I have a long list of countries that rank as tier 1 locations for me, and I will be discussing these next week.  Meanwhile, Kelly specifically asked if there were any places reminiscent of what the United States used to look like in the 1950s.

Definitely. In fact, several places come to mind… first and probably foremost– Uruguay. The entire country seems like it’s stuck in a time warp, from the second you land at Carrasco International Airport in Montevideo.  One city in particular that I like in Uruguay is Piriapolis, a little more than halfway between Montevideo and Punta del Este.

I’ll be discussing Uruguay more in future issues; in the meantime, if you’re interested I would suggest checking out the blog of one of our subscribers who lives in Uruguay– http://newsfromlatinamerica.blogspot.com.

Another place that is quite idyllic is Panama’s northwestern mountain province of Chiriqui. I was just trading emails with a subscriber about this today– one of the province’s key expat centers is the highland town of Boquete (pronounced Bo-ket-ay), which he compared to Palm Springs in the 1950s.

The climate in Boquete is absolutely perfect, and I expect the town to grow substantially over the next several years from an influx of expats and retirees. As always, more on Boquete in future letters.

One important thing to note about Panama in particular is that the country is much, much more than Panama City. Some people fly to the city, tour around the main gringo parts of town for a few days, and fly away thinking that the entire country is exactly the same.

It’s not.

Panama City is growing quickly, trying to achieve modern, first-world status.  As such, it has the same growing pains as any other rapidly developing locale.  But the country is incredibly diverse– white sandy beaches on the Caribbean, soaring waves on the Pacific, and mountain villages in Chiriqui all have a unique and distinct flavor.

Consequently, I think Panama is definitely worthy of anyone’s consideration.

–Panama Black Paper Update:  If you’re serious about Panama, pay attention–

I’m putting the finishing touches on The Panama Black Paper this week and it is scheduled to be released to the public on September 1, 2009.   But, there is a catch which I’ll get to in a minute.

First, let me recap for those of you who are new here…    Every single day subscribers, friends and people I don’t even know ask me for my personal contacts.  I love to help point people in the right direction, but I rarely give out my trusted contacts.

Can you blame me?   I’ve spent years building my Rolodex.  I’ve paid the price of working with scammers and know-nothings all over the world.   My Rolodex was forged in the fires of trial and costly error.   Just handing them over to people I don’t know VERY well… especially making them freely available online isn’t just stupid, it’s dangerous.

However, if nothing else, I am a problem solver.   So, what I decided to do was put together a bit of a test, which, to be perfectly frank, I may not repeat again.   I decided to take one of the countries I know best, Panama, and create a “who’s who” white paper of sorts.

Naturally, I can’t call it a white paper…. The Panama Black Paper is a list of the people I know and trust in Panama.  It’s my personal Rolodex of the people I turn to and the people to whom I’ve previously referred only my most trusted friends.   I’m making this information available to subscribers of this letter on a very limited basis.

On September 1, 2009 I’m going to release only 25 copies of The Panama Black Paper.    The cost of the Black Paper will be $197.

I’m confident all 25 copies will sell out on day one.   You might be wondering why am I limiting it to 25?   Simple, I don’t want to overwhelm my contacts.   It’s the same reason why I’m charging hundreds of dollars.   If I didn’t charge enough and/or sold too many of these, I could burn the very important bridges I’ve built over many years.

That’s a risk I’m not willing to take.  Again, can you blame me?

You might be thinking that  The Panama Black Paper at less than 10 pages is nothing more than a contact list and you’d be right.   But, if you’re serious about doing anything in Panama the Black Paper will save you a lot of time and trouble.  Plus, it could very likely keep you from making a catastrophic mistake because, in addition to listing the people I know and trust, I’ll share a list of shady characters who you’ll likely encounter if you’re doing anything in Panama.

The fact is, some Panamanians have made a science out of taking advantage of gringos coming down to Panama.   These guys look good, sound good, but absolutely cannot be trusted.   In the Black Paper, I’ll name names.

So, if you’re serious about doing anything in Panama, you really should try to get your hands on The Panama Black Paper.

“Cut in Line” Notification List:

The Panama Black Paper will go on sale to the general public at noon EST September 1, 2009.   Only 25 will be sold, once they’re gone, that’s it.   To make sure you have the best chance of snapping up a copy, I strongly encourage you to register for the pre-public release.    By signing up for the early notification, I’ll email you a special order link at least two hours before The Panama Black Paper officially launches.

A word of warning… based upon the feedback we’ve gotten so far, I wouldn’t be surprised if all 25 are gone before we even open the doors to the public.

Sign up to “cut in line” here:

–PROFITING IN MONGOLIA–

I am quickly getting the impression that actionable investment insight specific to Asia would be very beneficial to this group.  Christine appreciates all the positive feedback (and even the few negative comments from folks who thought she was off-base).

I am likely heading to Asia myself next week for a secret mission of sorts… I may have to go dark for a few days. But one of my tasks once I’m on the ground will be to link up with Christine Verone among my many other contacts in-country and see if she would be willing to edit a Pan-Asia subscription newsletter.

I’m thinking that the letter would cover macroeconomic analysis, actionable investment insight, residency and retirement information, medical care, etc. from the entire region– Mongolia to Indonesia.

Obviously, launching a Pan-Asia subscription newsletter would be quite an investment of resources for us.   So, as part of our due diligence, I’d like to get some feedback from you, the potential customers of this newsletter.    Do you want it?   What type of information would you want included in each issue?     Similar newsletters (although there are not any that cover this area in the way we intend to) are priced at $1,200 or more for an annual subscription.   How much would you be willing to pay for the “on the ground” intelligence this letter would provide?    Your feedback is critical to my decision to move forward so your thoughts are appreciated.

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.

It was a nice enough place… about 1500 square feet, 3 bedrooms, nicely furnished, and even had a sliver of an ocean view. Best of all, it wasn’t in gringo-ville.

“How much rent are they asking?” I posed to the real estate agent who was fawning closely on my heels. He reeked of tobacco and his alligator skin shoes still seemed to breathing.

Pausing for a moment to review his mental inventory, he said “Oh… I think about fifteen hundred… you know, it used to rent for $2,000 per month.”

“Yeah? Well I used to be 25 years old… but I’m not anymore. We’re done here.”

My reply was terse but I have little patience for pie-in-the-sky valuations. $1500 / month for a class 2 neighborhood in Panama is not good value compared to just about everywhere else on the planet.

I have been coming here for about 7 years and remember the days of $50,000 condos that rented for $350/month. It wasn’t that long ago.

As I wrote on Tuesday, I am intensely bullish on the future of Panama as Latin America’s de facto capital city. But in the most recent 2004-2006 boom, real estate prices appreciated far too quickly… and while the rest of the world has given back most of those gains, prices have not capitulated in Panama, at least publicly.

Here’s the situation–

A few years ago, waves of gringos were signing contracts for off-plan condominium projects, and just about everyone bought several units at a time.

Financed with a seemingly endless supply of Colombian and Venezuelan money sitting in the banks, Panamanian developers built tower after tower, and contract prices were bid up to dizzying heights.

As the first waves of condo towers were nearing completion, though, the market was already starting to fall. Simply, there were not enough end users wanting to purchase a finished condo in Panama to fill all the available supply.

A couple of things happened as a result:

1) Once the buildings’ occupancy permits were issued, condo developers started demanding final payment. Many of the original contract buyers couldn’t come up with the money to close and had to walk away from their down payments.

2) Those who could come up with the money to close took possession of the unit and immediately put it up for sale or rent, flooding the market with excess inventory.

As there is no centralized multiple listing service in Panama, there are no statistics to tell if inventory is actually selling, and at what price. If you ask a real estate agent, most of them will tell you that everything is great and business is booming.

This is utter nonsense.

The reality is that, in most cases, Panama is a buyer’s market. Sellers and agents, however, have not yet capitulated on advertised asking prices in the way that we have seen in other markets around the world– Punta del Este, London, Auckland.

They think there is always going to be some stupid gringo who is willing to pay full price, or thinks he is getting a good deal by negotiating a 10% discount.

This is why I am constantly probing the market, looking at properties like the one above and making lowball offers to see how far off the asking price a seller/owner is willing to come.

The buildings are now finished, but mostly empty...

Patience is the name of the game. I usually put my offer on the table and say “call me when you’re interested.” They always call. It’s simply a matter of when. Sometimes it takes them a few weeks to realize that no one else is knocking, but they eventually realize it.

My results indicate that a 33% haircut off the top is achievable if you’re willing to wait.

For Latin Americans, Miami has been a lot of things– the major financial center, the cultural Mecca, prime tourist destination, the business capital, and a symbol of international success.

The city made its riches and opportunities available to all nationalities, reaching the point during the most recent real estate boom where one could become financially successful and never speak a word of English.

Truly, Miami was a frontier island between North and South, sort of a Hong Kong of the Americas, infusing business savvy and capital with cheap labor and an extraordinarily large market.

The fact that Miami is so close to the United States and participated in the US banking system (the world’s #1 tax haven for non-US citizens) was a major benefit to individuals and businesses.

Naturally this is all changing now.

I have friends and family in Miami and come through the city from time to time in transit… and I believe that the city represents the absolute worst of the economic bust– entire blocks of condo buildings sitting empty, former high-powered real estate agents working as pool boys, and the car repo lots filled with exotic sports cars.

(not to mention Miami has absolutely, unequivocally the WORST airport in the developed world)

This is the effect of the residential real estate bubble bursting, as well as the drying up of domestic and foreign tourist dollars that used to be a steady source of tax revenue.

An imminent drop in commercial real estate, the next bubble desperately seeking a pin, is likely to further damage the city’s medium-term prospects. Excess inventory of warehouses and office space will likely lose significant value, creating negative equity scenarios for banks and investors.

Even the drug trade, once the city’s key economic growth engine, has slowed down.

While it is not my intention to prognosticate a death sentence for the city of Miami, I do feel obliged to point out that the wealth and wealthy have not simply vanished from the face of the earth or passed on to money heaven.

Nay. They are simply regrouping in other locations. But where?

Sao Paolo would be the most logical choice given the size and scope of Brazil’s economy… but there are too many problems– notably the language, crime, utter lack of transparency, and capital controls. Plus it is just a crappy city.

Mexico City? ha. next.

Buenos Aires makes more sense with an established financial infrastructure, but the government is too unstable to take seriously.

Santiago is a major success story, but its paper thin financial industry will not be able to support regional capital flows for quite some time.

Bogota also makes sense given the size and potential of Colombia’s economy and its significant economic success; but the country still suffers from security stigma and paranoia, and problems with Venezuela do not do it any favors as a financial center.

That leaves Panama… an open, bilingual, vibrant capital city with a well-established international banking center, free flow of capital, stable government and economy, and an ace-in-the-hole to guarantee sovereign independence.

Best of all, it’s dead square between North and South America, and just 2.5 hours flight to Miami.

Not a bad compromise… and this is one of the key reasons that I am bullish on Panama.

Yes it has its share of problems– no place is perfect. But Latin America has woken up to the economic reality of Miami.

Capital is going to look for its most conducive home, and Panama represents a safe, cultural fit. And for individuals and business, the transition to Panama is easy. Besides, Panamanian immigration officials welcome visitors with open arms, in stark contrast to the immigration thugs in Miami.

While I do not believe there is going to be a huge sucking sound coming out of Miami, it is clear that Latin America is certainly looking to crown a new capital city.

I am convinced it will be Panama.

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.

Earlier today, amid much pomp and fanfare, the Panama Canal Authority (ACP) opened the sealed bids for the canal expansion project. Audience members looked on eagerly like it was the Academy Award for best picture…  The lowest bidder? A consortium led by Italy’s Impregilo, ringing in for a cool $3.12 billion.

Wait, wait, not so fast.  The contract has yet to be awarded and the ACP has a point system that factors both price and technical analysis in determining the ultimate winner.  This is Panama-speak for ‘whoever leaves the most money on the table.’  Naturally, they are capitalists.

Frankly, it doesn’t really matter who ultimately wins the bid– Spain’s ACS, Italy’s Impreglio, or the Bechtel/Mitsubishi joint venture. The important fact is that the project will undoubtedly be
bloated and over budget, and the amount of work involved is far more than the initial survey results suggested.

Entire armies of labor and supervisors will be needed, as well as expat executives, managers, and engineers who will relocate to Panama for the duration of the project. Coupled with the other mega-projects in the area, as well as the number of multinationals setting up a
large presence in the country, I expect there to be a steady inflow of expatriates business people into the country over the next several years.

This is a major opportunity, and in my opinion, low hanging fruit.

Panama already has its fair share of retiree and wanderlust expats, and I certainly expect these segments to grow in the coming years… but the business expat is a different animal altogether.

Unlike retirees and young adventurers, businessmen relocate with their families.  They are in their prime earning years, and as consumers, they spend orders of magnitude more than other demographics.

Expat businessmen are on generous relocation packages, so they have more money than most.  They need schools. Daycare. Parks with silly waterslides. Home healthcare. A greater sense of security.  Right now, these services are generally lacking in Panama, and this spells opportunity for entrepreneurs.

I have personally seen some multinational companies overpaying by thousands of dollars each month for their managers’ accommodations, and I expect this trend to continue because there is presently tight supply of quality, well-located expat housing… and well-located is key.

Panama City is full of empty condominiums.  Developers simply overbuilt their market… and while some of the condos are very luxurious, most are simply unsuitable for expats who relocate with families, and too far from the job sites.

Developers made the mistake of overlooking the professional, family expat. The best way to capitalize on this for an investor, in my opinion, is to look at land and housing located near the Canal and major job sites; prices have fallen since last year and I see demand surging soon.

For entrepreneurs, there are small business opportunities for anything that caters to the family in the aforementioned locations, especially childcare.

On another note, I mentioned about a week ago that I was working on a way to share some of my contacts.  I’ve decided to put together a series of white papers, and the first one will be Panama… except I’m not going to call it a white paper because it won’t contain any of the usual inaccurate drivel and gibberish you find in google.

No, this will be a Black Paper… concise and intelligence-rich, designed for the investor and entrepreneur.  I’ve spent years and tens of thousands of dollars accumulating the right contacts, and I will not only tell you who to work with, but I will spell out specifically who NOT to work with.

There will be a charge for this… I’m not sure how much yet because I don’t know how many I want to sell; I’m planning on keeping it fairly scarce so that I do not overwhelm my contacts.  If you’re interested, I’d like to hear from you specifically what information you would like to see in a Black Paper– I know that bankers, brokers, lawyers are at the top of the list, but what else? Let me know by commenting below.  I’m working on it right now and your feedback will help shape the content.

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.

Today I confessed my sins to Uncle Sam.

No, I’m not talking about anything sinister. But in a mad dash through a US stopover today, I dropped US Treasury form TDF-90 in the mail:  “Report of Foreign Bank and Financial Accounts.”

It went something like this:

“Forgive me uncle for I have sinned. May last confession was April 15th. Here is all the information on my foreign bank accounts, including those for which I only have signature authority.  I am confessing this intensely private information despite the fact that I have no financial interest whatsoever in said account, and the account holder does not even fall under your jurisdiction. I understand that being party to financial accounts outside of the United States must be inherently evil, and I look forward to giving you more of my money next year.”

This form is required by the US government for all persons that have a financial interest or signature authority in any foreign financial account– banking, brokerage, etc.  In my case, I listed all the relevant information for a Panamanian bank account– I am very confident banking there as my research from this trip indicates strong liquidity levels and tight loan standards devoid of significant exposure to US agency debt. I am required to submit this form by June 30th.

Our Uncle certainly has a way of keeping tabs on us: disclose or go to jail.  It’s an unfortunate no-brainer, and if you have similar accounts you need to do the same… the alternative is simply not worth the risk, though I understand that sometimes they allow conjugal visits at minimum-security federal prison camps.

I’m using particularly strong language today to illustrate a clear point: there are right ways to go offshore and wrong ways… and dodging legal obligations is like playing Russian Roulette. It really hurts one out six times.

Simply put, Uncle Sam wants our money… and I say ‘our’ because, chances are, if you’re reading this missive, you fall in the unfortunate category of people who are actually productive and whose tax dollars pay for everyone else’s stimulus. I’m convinced this tax burden is going to increase, and they are going after every penny to which they feel entitled (in their sole discretion of course).

Offshore structuring makes a lot of sense: there are much safer places for your assets than a dollar-based US bank account where your wealth can be inflated away, frozen, stolen, or sued.  And as I am sitting here in the business lounge at JFK Airport going through subscriber emails as fast as I can, I see many of the same questions.

Many of you are asking for specific contacts for banks, brokerages, lawyers, etc. I am working on the right framework to help you… but I need to be clear about something.

I have spent several years and tens of thousands of dollars traveling around the world and building up contacts. I know who is good because I do/have done business with them, and I know who is bad because I have been swindled by some of them and lost money. My trusted contacts are trusted for a reason, and I would be betraying that trust if I just published their contact information all over the internet.

Bear with me while I work on a few ways to share the right information with some of you.

We have a really intelligent group here.

All the comments from yesterday, plus the dozens of private emails I received, underscore one of the big reasons why I do this in the first place– to build a community for like-minded, sharp, successful people who are lions instead of sheep… bold winners who think outside the box and take action instead of find excuses.

The comments were spot-on, even the one about the massage parlor (you know who you are).  Everyone appropriately captured the challenges that will befall Panama over the coming years.

To be clear, no place is perfect. The United States has enormous fiscal, monetary, and social challenges ahead of it, and a long tradition of serially incompetent politicians who make things worse.  Notwithstanding America’s woes, most of Western Europe is in an even leakier boat.  I will be reporting more on this in the coming weeks.

Panama undeniably has its own problems. It has been under US influence since its infancy and continues to be awash with US government sponsored spooks, thugs, and bureaucrats.  Years ago when I first started traveling there, the US Customs and DEA thugs in Miami used to stand on the jet bridge and randomly search passengers for drugs. Today they search people for ‘monetary instruments.’
Resource constraints are also problematic– blackouts are not uncommon and there are surprisingly some parts of the country that have run into water problems; these growing pains, however, are typical of a small country experiencing such a rapid influx of development and foreign residents.

Some people view the corruption as a major detriment; I think every government is corrupt– the Panamanians just haven’t mastered it like US politicians.

Also, as in most developing countries, there is a chasm between the rich and the poor; one of the key indicators that I look for in emerging markets is the growth of a strong middle class.  This is happening in China as we speak, and it is starting to happen in Panama, though certainly to a different standard than we are accustomed to.

I agree with many of you that, if there is an Achilles Heel in Panama’s economic future, it is its currency; Panama has been dollarized ever since JP Morgan engineered revolution and independence from Colombia in 1903. While this provided stability and credibility for the last century, the dollar is now a liability for Panama.

The US government’s runaway fiscal and monetary policies, coupled with centralized influence of the banking sector, are a recipe for future inflation.  This will adversely affect Panama and Panamanians as the country has never once in its history issued its own currency.

Martinelli is not remotely interested in rocking the boat by trying to issue a new currency; most Panamanians have no idea that the dollar is in trouble… hell, most Americans have no idea that the dollar is in trouble. Raising a stink about the dollar in Panama will likely land him political purgatory– it’s simply too much risk for him.

Fortunately, while the dollar will be a future problem for Panama, it does not have to be a problem for you.

It is critical to first move money out of the dollar and into precious metals and other currencies– this will combat the future effects of inflation.  Panama (and the US) will be cheap countries for those of us who are not holding dollars.

I also expect the free market to take over and create its own solution, even if the government does not issue a new currency. This practice is common in many countries across Eastern Europe, Africa, and Latin America with a history of unstable currencies– big ticket items like cars and houses are bought and sold in a foreign currency.

For example, real estate in Croatia and Latvia is frequently priced in euro; I expect the same would happen in Panama.

Consequently, Panamanian property is probably a smart buy right now for anyone who is thinking about expatriating there; prices are depressed and there is even foreclosure inventory to choose from.  In the event of significant dollar instability, the real estate market will likely start pricing in euro, yen, or renminbi to compensate, so property value will be maintained.

I’m off to Europe and will be transiting through New York City tomorrow.  Make sure you look for my Friday missive (from JFK airport…) as I will be discussing what I learned about the banks in Panama.

I’ve always loved the women here.

There I said it. I’m only human.

To be honest, this is one of the great things about living free overseas, and I don’t just mean romance; when I’m outside of the United States, I have access to a completely different caliber of people– both expats and locals.

The expats that I come across on my travels have all been exceptional individuals who share a common vision of freedom and prosperity; they have made a decision to live free and are in the process of exploring their options. They have realized that, in 2009, there are fewer and fewer reasons to be committed to geography– technology and modern air travel make it possible to earn a living anywhere in the world.

Similarly, the locals that I have met and become friends with are successful and well-connected– prominent lawyers, brokers, bank presidents, military officers, etc. Years ago when I made the decision to leave the US, I was surprised at how easily one can become acquainted with influential locals in foreign countries.

Influence is much more difficult to attain in the United States. I am neither a billionaire, nor union leader, nor CEO of a bankrupt company, which means I have no political influence whatsoever… and am powerless against judges, police, the IRS, and dozens of other government institutions that can restrict my freedoms on a whim.

You can be sure, though, that if something happens to me in the countries that I frequently travel to, everything is resolved in a phone call. When I travel to a new place, getting networked is a major priority. I’ll provide more of a ‘how-to’ guide in future mailings, but as a quick tip– I always start with lawyers and real estate brokers.

The right lawyers and brokers can be worth their weight in gold; they know the wealthy and well-connected, and they’ll usually open up their contacts if you establish a solid rapport. It helps to leave a small retainer on the table to show that you’re serious– but this small investment generates a huge return in terms of access and influence.

I’ve relied on this strategy in several countries to build a network and develop personal relationships, some of which have become quite close. I am best networked in Latin America since I choose to spend so much time there, mostly because of the freedoms that I enjoy in places like Panama.

As I mentioned yesterday, I am bullish on Panama’s future under its new President; there are few signs of economic slowdown by comparison to the rest of the world. While the country has experienced a decline in the construction sector, this is being offset by the Canal expansion and growth of other industries like call centers.

However, Panama does have an economic Achilles Heel; I’ll be discussing it tomorrow on my last day here, and then will shove off to Europe on Friday. If you can guess what it is, I’d love to hear from you.

I’m back in Panama today… I’ve never been so happy to see Panamanian soil before; the trip to Cuba, which I reported on yesterday, was fantastic– but the lack of reliable phone and internet connectivity was problematic now that I have a daily deadline to meet.

I spend a lot of time in Panama, and yet every time I fly in, I am continually amazed at how quickly it seems to be changing. I mentioned in the May edition of Without Borders that supermarket magnate Ricardo Martinelli has won the presidential election in Panama and will be innagurated to a five year term in just a few days.

Politics in Panama is taken quite seriously. The government declares a long holiday weekend and goes so far as to put a moratorium on liquor sales prior to the polls.  Panamanians, being natural rule-breakers, simply stock up on beer the day before and enjoy a drunken holiday prior to choosing their leader for the next five years.

Fortunately they chose wisely.

Martinelli’s opponent was a bona fide socialist, former housing minister Balbina Herrera– a lifelong bureaucrat  who lost the trust and confidence of voters when she disclosed a multimillion dollar net worth.  I have met her a few times and had a drink with her shortly before the election one of her chief advisors is a former business associate of mine. She is absolutely dim-witted in the clinical sense and has zero financial acumen, other than a talent for accepting bribes.

Panama will be much better off with Martinelli.  Namely, I am closely following a couple of issues:

First, proper management of the Canal expansion project is critical to Panama’s future growth.  Canal revenues dominate the fiscal landscape and provide extraordinary political leverage for such a small country.  Because of the Canal, developed nations tend to stay out of Panama’s internal business, as evidenced by Panama’s conspicuous absence from the OECD “black list” several months ago.

An efficiently executed Canal expansion project will generate increased toll revenues in the future and create new, sustainable industries in the country.  If the government or contractors manage to screw it up, the Panama Canal will become an economic sink hole, and the country will lose tremendous credibility. A lot is riding on this.

The main contract worth several billion dollars will be awarded within the next 60-days to either Bechtel or Italy’s Impreglio.  Work on the Canal will start shortly thereafter, creating a surge in demand for local labor.

Panama is already operating at high levels of employment, so much of the labor will have to be imported, spurring demand for new low and middle income housing units in key areas near the Canal.  I think that land in these areas will be a favorable long-term investment, particularly since prices pulled back from their highs nine months ago.

Second, all eyes are on Martinelli to see if he maintains a pro-business climate. Being a businessman himself, this is highly likely, so I expect little change to Panama’s banking laws. In a few days I will be receiving some information from the banking regulator here, and I plan on sharing my analysis of the local banks and the liquidity situation. More to follow.

Lastly, I wanted to mention a private deal that I’ve recently been offered here in Panama. I’m thinking of backing a couple of pharmaceutical entrepreneurs who are setting up a manufacturing facility here; it’s not much money, less than $100,000, and the potential payout is enormous. I’m talking to their future customers and believe the sustained monthly cashflow will be close to my initial investment.

I’ve always been drawn to the economics of the pharma industry. Pharma companies are a lot like junior miners; entrepreneurs rally seed capital around talent and (intellectual) property, and there’s a lot of government involvement along the path to profitability.  Like the juniors, good pharma stocks have explosive potential… or they could go to zero.

Unlike the juniors, however, small pharma stocks often keep to a predictable pattern due to their regulatory nature. A good analyst can eliminate the bad apples with pitiful balance sheets and achieve average returns of 40% or more. I like this. I recently met a very sharp analyst with a distinguished track record in medicine and finance who has a letter specifically dedicated to scouting the best deals.  Click here for more…