Peter Macfarlane & Associates

If you are looking for one of the very few genuine ‘high yield investment opportunities,’ you couldn’t do much better than microfinance - that is loaning money in small amounts at high interest rates to small business people in developing countries. The great thing about this investment is you can earn great returns and do good, helping entrepreneurs in the developing world, at the same time. It is something myself and a few of my clients have been investing in for several years now.

Read the rest of Peter’s article at Symbiotics.ch

While my co-editor Richard has just written a fascinating article for Q Wealth Report on the rise of the east, regular readers know that I am bigger on Latin America. That doesn’t mean I disagree with Richard’s predictions (quite the contrary in fact) but I simply understand better Latin America and Europe. By definition, one can’t be an expert on everything.

Somebody whose opinion I greatly respect on Latin American investments is Gary A. Scott, and he recently posted on his blog an interesting insight into why Latin American markets have taken a beating, although the fundamentals are not so bad. This has created opportunities galore for investors.

But to invest in Latin America, the old saying “You don’t know until you go” applies more than ever. Latin American investing is for those of us who choose to live here in the region. There are lots of excellent lifestyle reasons to live in Latin America and the Caribbean, and not just the relatively low cost of living. I’m talking of course about beaches, food, and friendly people.

Jyske Bank says, in a recent multi currency emerging market update:

“Dante has again sent the emerging markets into purgatory and although all countries are hit hard at the moment, those countries which have been living modestly must also be the ones that will end in Heaven instead of ending up in inferno… We maintain that the Latin American countries are in a better position than the Central and Eastern European countries. But as long as we are in purgatory, nobody is unaffected.”

But as Gary says, bad conditions in emerging countries now create extra good business opportunities. Read more of Gary Scott’s commentary on Latin America…

Opening a bank account offshore may appear, at first glance, to be a very paperwork-intensive process. It’s no longer just a matter of filling out a form on the internet then mailing off a copy of your passport.

But don’t despair. You’ll need a good dose of patience, and you will need to follow step-by-step instructions precisely. If you can do that, and your money is clean, you are in. Still, today.

People sometimes forget that banks are in business to receive deposits. I know a lot of bankers, and the main thing constraining them from doing business with you is bureaucracy and reputational risk. Banks want clients and they will look for ways take your deposit if they possibly can do so, within the regulatory framework they have to abide by.

The more substantial your business, of course, the more accommodating they will be. By this I don’t mean that banks are corrupt. I mean that if you want to invest a thousand dollars, bankers naturally have to apply a systematic, cookie-cutter approach administered by low-level personnel – and if you don’t fit in to that, they will just refuse your business.

On the other hand if you have a hundred thousand or a few million to invest, they will take the time to look more fully at your personal circumstances and can afford to dedicate more high level staff time to dealing with you. Your account application will be reviewed directly by the people who have the power to make decisions and the will to accommodate you as best they can.

It’s worth mentioning that some readers have wanted to open an account with the minimum balance, with a view to making a much larger deposit later if they are satisfied with the service. While that might make sense in most business relationships, in offshore banking it is probably not a good strategy. If the banks see serious money you will get better service from the start.

This is an extract from The Q Practical Offshore Banking Guide 2008 by Peter Macfarlane. It is available free for download in the Members Section of www.QWealthReport.com If you are not already a member, you can sign up online now to benefit from a library of free exclusive reports!

I’m so often asked by clients “will my new offshore bank be required to report that I have an account with them?”

Here, for the benefit of my blog readers, is my standard answer.

Although there is a lot of variation between countries, the usual answer will be “no.” If you follow the basic advice you’ll find in The Q Wealth Report, in particular taking care to avoid the effects of the US Qualified Intermediary rules and EU Savings Tax Directive, banks will not automatically report anything about your account to anybody.

The more important question is this: will they give up your  information they have if asked about the account? Obviously, if someone just walks in off the street to ask about your account, they’ll be given a cold shoulder. But nobody serious will waste their time doing that. If anyone ever asks your offshore bank about you, the person doing the asking will almost certainly be a representative of the local government in the offshore haven, who has been persuaded to do so by some foreign power.

You can search around to open your account in the jurisdiction with the strictest privacy laws. However, if someone with official authority is on the warpath against a specific name or account number, it really doesn’t make a lot of difference. Any bank, anywhere in the world, will co-operate. Get that: nowhere in the world has privacy laws that will protect you against enquiries from a major western government. But, first, they will need to know that the account exists, under what name, and in which bank. Without that information, investigators can do very little.

Banks might claim that they will respect your confidentiality. They might even hold out for a while. If you have taken the time and trouble to maintain an excellent relationship with your bank, they might tip you off that someone was asking questions… but in the end, they will reveal all. I promise you.

I thought Liechtenstein had some of the strictest privacy laws. In fact it did, and still does. But, if someone breaks those laws, the fact that they are wanted for a criminal offence in Liechtenstein and are now hidden in a German witness protection programme probably won’t be of much comfort to you.  That’s exactly what happened recently when a former bank employee allegedly sold a list of account holders to German and British tax authorities for five million euros just recently.

In another recent UK case, it was shown that it was actually easier for the British police to obtain information on a bank account on the offshore island of Guernsey, than it was from a bank in the mainland UK! Guernsey (after a few scandals) now bends over backwards to appear co-operative. Local courts there will just rubber stamp any application for co-operation they get from places like the UK or the USA without giving them serious attention, because to refuse co-operation in a money laundering investigation would be political suicide. Whereas in the mainland UK, judges still sometimes actually ask some questions and demand to see real evidence of a crime before allowing the police to conduct a fishing expedition into a suspect’s banking records. So much for offshore confidentiality!

For the reasons mentioned above, it is well worth considering keeping your money in a more low-profile country, a place where nobody would think of buying stolen bank records for millions of euros. Remember that everything outside the borders of your own home country is offshore to you.  All banks, especially the offshore variety, offer some degree of privacy. Exactly how much privacy you get these days depends not so much on the law, but on you!

You must verify that there are no routine reporting requirements between the bank where you opened your account and any tax authority that has any possible interest in you. If they do not file any reports, the bank will not be a source of any leaks – until and unless somebody asks them directly about your account. If that happens, you should always assume the worst case scenario – that they will spill the beans immediately.

It is up to you to tell absolutely no one about your offshore account. Jealous ex-spouses and business partners are a major source of information on offshore accounts – and every other kind of damaging information on you. Everything may be fine now, but who knows what will happen to your relationships over the next few years. If you want to keep your account secret, you have to keep your mouth shut. Never leave any records of your secret accounts where others can access them.

We repeat: the only real way to keep a bank account private is to tell absolutely no one about it. Keep any electronic records encrypted.

This is an extract from The Q Practical Offshore Banking Guide 2008 by Peter Macfarlane. It is available free for download in the Members Section of www.QWealthReport.com If you are not already a member, you can sign up online now to benefit from a library of free exclusive reports!

“Money isn’t the most important thing in life, but it’s reasonably close to oxygen on the ‘gotta have it’ scale.”

Zig Ziglar

Australia: Where the Beer Is Great and the Bonds Are Better

By Andrew Gordon

About a year ago, my father invested in a Merrill Lynch bond. I looked it over… noted its high rating… and saw nothing wrong with it.

Not long after that, I was speaking to a vice president of Bank of Nova Scotia. I asked him about the bank’s exposure to the subprime crisis. He said it was negligible. I then asked him about the GMAC loans it had recently bought. He said they were fine… the defaults lower than they had projected. So I added the bank to one of the portfolios I recommend to my subscribers.

The Merrill Lynch bond has since plunged and then rebounded. And the Bank of Nova Scotia’s shares are almost exactly where they were when I made my recommendation. That’s much better than most North American banks have done over the past year.
 
No harm, no foul?

I’d be the stupidest guy on the planet if I thought there were no lessons to be learned just because those investments didn’t turn to mush.

Fact is, my assumptions have changed.

Had I known then what I know now, I would not have touched that Merrill Lynch bond with a 10-foot pole. And I wouldn’t have cared if a high-ranking bank official swore to me they weren’t exposed to the U.S. subprime mortgage market. I wouldn’t have believed him. I definitely would have put off investing.

The housing bust, subprime mess, credit crunch, and resulting financial crisis have done more than just bring the market down. They’ve led to a stunning collapse of confidence that has infected the entire investment world. Banks don’t want to lend to each other… institutional investors no longer know what’s safe… and retail investors don’t believe anything anymore.

How can they? The rating agencies have proved beyond a shadow of a doubt that they do not understand derivatives. Their ratings are worthless.

And the brokers and analysts who follow every twist and turn the market makes? The last year must have made them so dizzy that they can’t see the forest for the trees. They’ve been making one bad call after another.

A few months ago, for example, Buckingham Research estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days. This is one of dozens of examples I could cite.

There’s so much uncertainty in the investment world that we can no longer fall back on our long-held ideas of what makes a safe investment.

Munis? Sorry. Thanks to the shaky status of the monoline insurance companies (which insure munis), they’re no longer the safe investments they used to be.

Money market funds? They’ve been hit too. Some brokerages are covering losses with their own money rather than pass them on to those who invested in these supposedly safe havens. Good move. I don’t blame them.

What’s left? Oh, yes. How could I forget U.S. government bonds? Okay, they’re still safe… but are they really investments? I mean, can anything you get a negative return on be considered an “investment”?

I don’t think so - and that’s exactly what you’re getting with them. A 10-year Treasury note would give you a 4.01 percent yield. Meanwhile, inflation is running at 4 percent, and that excludes food and energy prices. The real rate of inflation would be much higher.

Investing in U.S. bonds is worse than giving the government a free loan. Instead of the government paying you for the loan, you pay the government for the privilege of loaning it your money.

Do you feel honored? Or cheated? Well, I can’t speak for you. But this is the kind of honor that could land me in the poorhouse. I’d say cheated.

So… is there any investment that is truly safe?

There sure is. Australian government bonds have never looked better than they do right now. And this is the perfect time to jump into them…

Not only because Australia has one of the strongest economies in the world. Unemployment is at a 33-year low. And prices of its two big exports - coal and iron ore - are at historical highs. It doesn’t hurt that around 66 percent of Australia’s exports are commodities.

And not only because Australia is effectively shielded from the problems we’re having in the U.S. They trade mostly with fast-growing Asia. In fact, 60 percent of their exports go to Asia.

The biggest reason the timing couldn’t be better is because the Aussie government has been raising its key interest rate to stave off inflation. They’ve raised it all the way to 7.25 percent. They’re at or near the top of their rate-raising cycle.

Other interest rates, including bond rates, feed off this basic government rate. If this rate is more than twice as high as the U.S. benchmark interest rate, then most of the other rates will be too - including Australia’s government bond rates.

Sure enough, the Queensland 10-year government bond pays a nice 6.99 percent interest. That’s not quite twice as high as the equivalent U.S. government bond rate, but it’s close.

What’s more, you can buy these bonds for a discount. And the discount isn’t going to get any better.

Here’s why…

The Australian government paused its key interest rate hikes three months ago. That means, for now, interest rates have peaked in Australia. The only way they would go higher is if the Reserve Bank of Australia resumed rate hikes. That’s possible, but unlikely.

And if you don’t want to tie up your money for 10 years? There’s another group of Australian bonds that could be perfect for you. I’m talking about corporate bonds, including bonds issued by GE - one of the biggest companies in the world.

These GE bonds are triple-A rated - the highest rating bonds can get - which means they come with very little risk. Usually, the lower the risk the lower the yield. But these highly rated bonds offer high yields of 7.97 percent. (Ask your broker for 8.5 percent coupon February 2011 maturity bonds from GE in Australia.)

Or you might prefer Australian bonds from Nestle, the huge Swiss firm. Its bond is double-A rated and offers a yield of 7.0 percent. (Ask your broker for 7.25 percent coupon January 2011 maturity bonds from Nestle in Australia.)

Because these bonds mature in 2011, they would tie up your money for less than three years. To get in before prices go higher (and yields go lower), you should buy Australian bonds NOW.

Buying international bonds is pretty easy… as long as you go to the right place. You can always go to a full-service brokerage specializing in international bonds. But many of the bigger brokerages are able to trade them, too, so call a few and find out.

You could also call up your broker. Ask him to recommend someone who does overseas bonds. Or you could call my colleague Richard Panchookian. (He’s with International Assets Advisory - telephone number: 800-432-0000, ext. 514.) He has several Australian and Queensland bonds to offer.

This article appears courtesy of Early To Rise, the Internet’s most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com.