Gold in Uruguay, Swiss francs, Polish citizenship, Moody’s

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.

About the Author

Simon Black is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.