Warning about New Zealand Financial Institutions
By admin | July 1, 2009
Although we are generally very positive about New Zealand as an offshore financial centre (I particularly like New Zealand trusts for Asset Protection planning) we are becoming slightly concerned about the way it is being used by some parties. We’ve recently warned on the Q Wealth blog and elsewhere about Hatfield Oak International. And there are numerous other companies out there doing similar things.
The following was received from a reputable incorporator in New Zealand with whom we have worked for some years… and I quote:
Several other companies providing NZ incorporations by misleading people into thinking that the company has been set up in a legally tax free way. In some cases there are breaches of the Companies Act apparent where an Auditor has not been appointed (even though foreign ownership is greater than the 24% level). In other cases clients are being sold ordinary companies with no Constitution as being Financial Institutions. We see incorrect name usage. We see websites making false claims on Licensing. We see an Asian company making false residence claims in connection with Registered Office and place for service of documents. We have recently been contacted by a number of professional clients who are asking to change these companies to our services as they have learned that they were in breach of NZ regulations.
Unfortunately, we are not able to take on most of these companies as to do so would be very dangerous to our business and existing clients. The best that we can do is to form a new company with a similar name and transfer the assets / business of the former company to the new company. We are also concerned that breaches of the current regulations will force a review of the regulations with good clients having to contend with greater compliance (and costs arising). If we can see these obvious breaches without going looking for them we are sure that the Authorities will also have seen them.
So, if you want to put your money in one of these unlicensed New Zealand financial institutions, don’t say that Peter Mac didn’t warn you…!
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Short the Dollar for Offshore Profits
By admin | June 24, 2009
Here’s an interesting guest contribution from Money Morning’s Investment Director Keith Fitz-Gerald, about how to protect yourself from the ravages of inflation. Of course I don’t agree with everything Keith says below – you know how big I am on Gold in particular – but I always believe in offering readers differing opinions. And I do agree that shorting the dollar is a great idea. Everything recommended below you can do through Offshore Brokerage Accounts.
In fact, we sent out a special mailing recently to Q Bytes readers because – as someone commented just today – there are a lot of people out there trying to sell investment tips for hefty fees… but few of them really come through. Keith is different, and his track record speaks for itself:
Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 14 for 14, meaning he’s closed every single one of his trades at a profit. And he did this in the face of one of the most-volatile periods since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.
Here’s what Keith has to say…
Right now, there’s more than $9.5 trillion in cash on the sidelines – or more than twice the amount of money currently invested in stock mutual funds, according to MoneyNet.inc and the U.S. Federal Reserve. Private equity firms alone are believed to hold as much as an additional $1.3 trillion.
While I’ve always doubted that the “money on the sidelines” argument is really all it’s cracked up to be, one can hardly argue with a recently released report from Harris Private Bank of Chicago [part of the U.S. arm of the Bank of Montreal (NYSE: BMO) that notes that stocks have rallied for the next two years whenever money market assets have exceeded 25% of the capitalization of the Standard & Poor’s 500 Index. According to the Los Angeles Times, that figure is now 43%, down from 58% after having peaked in December – and that’s even after the 30%-plus run-up in the S&P 500 since March.
What’s interesting is that many investors holding large cash positions view their money as an asset, when, ironically, it’s really more of a liability at this stage of the game.
Some might take issue with that statement. After all, even we at Money Morning have counseled readers that cash – correctly deployed – can allow an investor to sidestep the worst stretches of a financial crisis, like the one from which we’re currently attempting to extricate ourselves.
But when the markets are as beat up as they as they have been, history suggests there’s probably more upside than downside – even if we haven’t bottomed out yet.
And there’s a broad body of research to support that contention – including our own newly created “LSV (LIBOR/Sentiment/Value) Index” (published as a part of The Money Map Report, the monthly investment newsletter that’s affiliated with Money Morning).
There’s also data sets widely published by others, such as Yale Economics Professor Robert J. Shiller. Shiller has found that when you look at 10-year periods of Price/Earnings (P/E) data dating all the way back to 1871, the markets tend to rise when the average P/E is low, as it is right now. Conversely, when the average Price/Earnings values are high – as they were in late 1999, and again in 2007 – a decline in stock prices is much more likely.
There are obviously no guarantees that history will repeat itself. But if it does, the same data implies we could see real returns of 10% a year or more “for years to come,” as Shiller noted in a recent interview with Kiplinger’s Personal Finance.
My own research seconds the general-market-increase theory, but I’m much more conservative in my expectations of returns and think that returns of 7% are more likely.
Perhaps what’s more important right now is that inflation typically accompanies growth – and with a vengeance. And that means that investors who are sitting on cash “until the time is right” may have their hearts in the right place but are relying on the wrong protection strategy.
My recommendation is a four-part plan that can help lock in the expected returns you want, while also protecting your cash from the ravages of inflation. Let’s take a close look at each of the four elements of this strategy:
- First, protect your cash with Treasury Inflation Protected Securities (TIPs). Even though the trillions of dollars the Fed has injected into the system seem to be having some effect on the critically ill patient the U.S. central bank is trying to fix, we’re likely to pay a terrible price in the future. Forget the hyperinflation scenario so many people are hyping at the moment. While that’s certainly possible, it’s not probable. However, what is likely is a dramatic realignment of the dollar and a general increase in worldwide living expenses.
If you’re based in the United States and have mostly U.S. assets, you may want to consider something as simple as the iShares Barclays TIPS Bond Fund (NYSE: TIP) to offset this risk. The TIP portfolio is chocked full of inflation-indexed securities, but it also offers a healthy 7.46% yield. If you’ve got international exposure, you may also want to consider the SPDR DB International Government Inflation Protected Bond ETF (NYSE: WIP). It’s a collection of internationally diversified government inflation indexed bonds that provides similar protection. Make sure you talk with your tax advisor about both, though. Depending on your tax situation, you may find that because of the tax liability on inflation-related accretion, these are generally best held in tax-exempt accounts.
- Own some gold but don’t go crazy. Despite widespread belief to the contrary, gold has never been statistically proven as an inflation hedge. But the yellow metal has proven to be a great crisis hedge because of the 10:1 relationship between gold prices and bond coupon rates – which obviously are directly related to inflation. Over time, the two move in such a way that having $1 for every $9 in bond principal can help immunize the value of your bond portfolio.
So to the extent that you own gold, do so not because you expect it to rise sharply, but because it will offset the inflationary damage to your bonds. A good place to start is the SPDR Gold Trust (NYSE: GLD) because it’s tied directly to the underlying asset without the hassles or risks of direct personal storage associated with bullion.
- Consider commodities. It’s too early to tell if the so-called “green shoots” that everybody is so excited about are little more than weeds. Therefore, it makes sense to concentrate on picking up resource-based investments. History shows that these things are less susceptible to downturns, but more importantly, rise at rates that far exceed inflation when a recovery begins in earnest.
I prefer companies like Kinder Morgan Energy Partners LP (NYSE: KMP) that are less dependent on the underlying cost of energy than they are on actual growth in demand. That way, if energy prices don’t take off immediately for reasons related to deflation or stagflation, those still will benefit from demand growth. It’s a fine point, but one that merits attention for serious investors. KMP, incidentally, yields an appealing 8.68% at the moment.
- Short the dollar to hedge your bets still further. Not only is the government going to borrow nearly four times more than it did last year, but when you add the complete federal fiscal obligations into the picture, our government owes nearly $14 trillion. This makes the dollar, as legendary investor Jim Rogers put it, “a terribly flawed currency” that could fail at any time.
To ensure you’re at least partially protected, consider the PowerShares DB U.S. Dollar Index Bearish Fund (NYSE: UDN), which will rise as the dollar falls. It’s essentially one big dollar short against the European euro, the Japanese yen, the British pound sterling and the Norwegian kroner, among other currencies.
In closing, there is one additional point to consider. You rarely get a second chance to do anything, especially when it comes to investing. So act now before the markets make it cost-prohibitive to protect yourself. When the economic recovery gets here, you’ll be glad you did.
Peter here again: Well, I hope this helps, and will be back soon with further offshore banking news.
From somewhere offshore!
Peter Macfarlane
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S.O.S.: Swiss Offshore Storage
By admin | June 22, 2009
The article below was recently provided to us by the team of Big Gold at Casey Research. They are offering a free report on offshore gold storage to all our readers. I’ve checked out the report and it is well worth the price :) In fact, it’s worth a lot more, so considering it’s free, I would recommend signing up for it!
This article also considers the stability of Swiss banks and the exposure of Switzerland and the Swiss Francs to Eastern Europe, another topic we have touched on previously…
At Casey Research, our task is to accurately forecast trends, do it early, and help investors profit from what we’ve found. Without claiming infallibility, we’ve gotten it right more often than not, and by distinctly profitable margins.
But research to anticipate what to expect is the easy part. It’s the when-to-expect-it-to-happen that’s tricky, and waiting for a predicted trend change or crisis sometimes can test our confidence. The crisis we warned about years ago is now here, and its arrival has altered many of the rules for investing.
If you’re reading this report, you probably followed our earlier advice and have accumulated a nice-size crisis insurance policy in the form of physical gold. Now you need to decide what to do with that stash of Midas cash. It may have been born in a corner of your sock drawer, but perhaps now it’s stress-testing an attic rafter. Unlike gold ETFs and mining shares resting digitally in your brokerage account, physical gold brings with it questions of space and place: how and where to store it.
As to the how, the most common methods for storing physical gold will be obvious to most investors: concealment, a home safe, or a bank safe deposit box. In BIG GOLD, we recommended using a home safe because 1) it keeps the gold under your immediate control, and 2) it eliminates any risk that storage at a bank carries: emergencies don’t schedule themselves bankers’ hours; if a “bank holiday” occurs, access to a safe deposit box will be lost when it’s needed most; and a court can order the seizure of its contents, or the IRS can freeze your assets.
So that’s it? A one-size-fits-all storage solution?
No, not quite.
As your gold holdings grow, or if you already own sizable weight or are considering a large purchase, keeping all your golden eggs in one steel-and-combination-lock basket may not be the right solution. As we encourage above, having some gold in your immediate control assures that you can see yourself and your family through any calamity. Now ask yourself: can I keep a secret and not discuss it with anyone? Loose lips can only lead to a late-night, ski-mask-clad, armed visitation. How about the “security” company that installed the safe – how tight are their lips?
Further, keeping large amounts of gold in your possession exposes you to a latent threat: political risk. Or in ‘round the water cooler jargon, a “government gold grab.”
Think it won’t happen in the good ol’ U.S. of A.? Consider the surge of government pushiness over just the past six months. The U.S. government has usurped the free market by subsidizing entire industries and embarking on mega-dollar “stimulus” spending schemes, committing trillions to its efforts – money it doesn’t have and must borrow or print. With tax receipts falling off and government debt exploding, the government’s hunt for revenue could lead to increasingly desperate measures.
We’ve seen the 1933 black-and-white version of this script, in which the plot develops into a presidential diktat forcing delivery (confiscation) of gold owned by private citizens to the government in exchange for compensation at the price it finds most convenient. Will the temptation again prove too great? We don’t know. What we do know is that once the credits roll, it’s too late to start preparing.
So the final storage question must be confronted: where should your gold be stored?
Sending Out an SOS: Swiss Offshore Storage
One fundamental rule of investing that hasn’t changed is diversification, and the principle applies to the locations you choose for storing gold bullion. Follow the principle where it leads, and you find yourself thinking about “internationalizing” your gold by holding some of it in another country. But it should be the right country.
So exactly where is where?
The answer is the safest country with the most secure facilities: Switzerland. Yes, still Switzerland.
For our money, er, gold, we can’t think of a country with a stronger legacy of respect for private property. The country traces its formation back to 1291, and the first Swiss Confederation was formed in 1353. Complete independence came in 1648, when the Treaty of Westphalia recognized the final separation of Switzerland from the Habsburg Empire. Over the 361 years following the treaty, Switzerland has maintained its neutrality and shunned foreign military entanglements. Now that’s shock and awe.
The country’s domestic politics are characterized by stable, non-intrusive coalition governments. Such habitual civility, together with Switzerland’s long tradition of respect for individual privacy, has kept this small, largely alpine country atop the list of the world’s most trusted safe havens.
The Franc: Swiss Hit or Swiss Miss
The global financial and economic crisis has recently found its way into Eastern Europe, and the troubles brewing there center on the Swiss franc. The apparently dire situation led economist Arthur P. Schmidt to predict that Eastern Europe’s difficulties would pour over disastrously into Switzerland. His predictions grabbed the headlines and a bit of attention.
So, in keeping with the Casey, “Intensely Curious, Focused on Facts,” we dug behind the headlines. Here’s the big nothing we found.
Engaging in a carry-trade-like gamble, individuals and businesses in Poland, Ukraine, Croatia, Hungary, Latvia, and Belarus borrowed heavily in Swiss francs, attracted by low interest rates. They crossed their fingers for trouble-free repayment as, for a while, their currencies strengthened against the franc. But that strength didn’t last. The global economic slowdown hit Eastern Europe hard, and their currencies fell sharply against the Swiss franc, turning mortgages and other franc-denominated debts into horrible burdens. Said fingers are now doing a lot of pointing at who’s to blame. The size of the problem, according to Schmidt, is 230 billion Swiss francs (US$200 billion), and the difficulty of collecting on the loans supposedly threatens Swiss banks with huge losses that could bankrupt the country. Schmidt refers to Iceland’s recent national bankruptcy as a model.
We don’t blame him for trying, but the report incorrectly assumes that all the Swiss franc loans to Eastern Europe originated at Swiss banks. They didn’t. In fact, it’s Austria’s banks that have the greatest exposure to Eastern Europe. The day after the headlines, Credit Suisse released a report citing the latest figures from the Swiss National Bank that show Swiss bank loans to Eastern Europe totaled just SF33 billion (US$28.7B), or 6% of Switzerland’s GDP. In contrast, Iceland’s banks had lent over 1,000% of GDP.
Our conclusion: we see no evidence of an impending banking crisis or national bankruptcy in Switzerland. Heidi is safe.
To read the full report and learn all about Swiss specialist depositories, click here.
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UK Tax Freedom Day
By admin | June 2, 2009
Today, June 2nd, is Tax Freedom Day in the UK. Tax Freedom Day is the day on which we stop working for the Chancellor and start working for ourselves. So if the average person works from the first of January each year, it will be June before they have earned enough to pay their taxes.
Every major country has its Tax Freedom Day, usually calculated by free marketeers who are still resident there and thoroughly annoyed at having to pay so much tax. Tax Freedom Day is defined by Wikipedia as “the first day of the year in which a nation as a whole has theoretically earned enough income to fund its annual tax burden.” All taxes are included in the calculations, not just income tax. In recent years governments have introduced many so-called stealth taxes.
One thing that is not included in the calculation, however, is the ultimate stealth tax – inflation! And devaluation (The many Brits who own second homes abroad will certainly know what I am talking about here! No economics training required!)
Fortunately, all this only concerns me in passing. Although I was born a Brit, I’m no longer in the UK. Haven’t been for years. Like all UK non-residents, I am not obliged to file a tax return unless I happen to have income in the UK. The same deal applies to citizens of every other country in the world, with one big exception: the USA.
US citizens are required to file tax returns with the IRS wherever they happen to live in the world. Even Americans, however, get the benefit of a complete exemption on the first $85,000 of earned income each year. Not bad for starters. So even Americans can – by using offshore corporate structures, trusts, foundations and the like – pretty much avoid all taxes legally by moving offshore.
There are lots of reasons in this day and age to go offshore which have nothing to do with taxes. I am very fond of telling socialists I meet that most of my clients these days go offshore for reasons that have nothing to do with taxes. They end up having to agree with me, because they too are sick of big corporations and governments taking away our freedom, privacy and civil rights.
When you make that move to become an expat and start to receive your income through an offshore company, you simplify your life so much. No need to waste time keeping records of expenses and tax deductions. The simplicity of working for money, then keeping it, no questions asked, feels like an incredible burden being lifted off your shoulders. If you haven’t tried it yet, you really should! You will enjoy it.
The good thing, though, is that the news is out. You can opt out of unfair taxation. The number of people who are opting out of the tax system altogether, simply by going to live – at least part time – in a country where they can legally carry on their lives and businesses without paying tax. Examples of these countries would be Panama and Belize, amongst others. You can read more about both Panama and Belize, as well as other personal tax-free residence havens, by browsing this very site.
Meantime, would you like to hear some secrets? Would you like to know how to use offshore banks to protect your assets from greedy governments, you could do no better than starting here at my blog. If you feel I could help you individually, remember I do free consultations for members of The Q Wealth Report. There’s a lot more stuff going free too if you are interested in reading more about this topic… like our FREE Offshore Banking and Asset Protection E-Mail Course in association with Q Wealth Report. Have fun – and if you’re in the UK, at least you can breathe a sigh of relief! Come join us offshore soon though.
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A Fresh New Perspective on Panama Banking
By admin | May 26, 2009
I was back in Panama City last week and one of the most interesting meetings I had was with a young man who is setting up a new bank in Panama from scratch, almost single handedly! Right now he spends his days meeting with lawyers, other Panamanian bankers, bank regulators and contractors who are working on installing everything from the floor tiles upwards in the building that will shortly bear the name of his new bank.
Single handedly? Well not quite. What he is actually doing is opening the new Panama subsidiary of his employer, a European boutique private bank that is looking to expand their existing presence in Latin America.
What I liked is the breath of fresh air this will bring to Panama’s rather staid and conservative banks with their ‘take it or leave it’ attitude. For example, they will be offering multi-currency accounts, allowing you to hold 30-plus international currencies in just one account, with one account number and one login access for the internet banking. They are also introducing a customer-focused approach, something that is sorely lacking in Panamanian banks at the moment.
Right now this bank is still not open. They expect to open in 4 – 6 months with full banking facilities including a street level walk-in retail bank with tellers. (In other words this will be a real bank, not just a represenative office.)
However, if you are going down to Panama in the next few months you could certainly meet with this gentleman and start the process of opening your Panama bank account. Feel free to contact me and I will be happy to introduce you. The only condition is that this service is limited to QWR subscribers. There is no charge for personal account introductions, but we do make a nominal charge of about $1000 for corporate account introductions (Panama corporations and foundations, but also IBCs and Trusts from other jurisdictions are acceptable.)
Don’t miss out on this excellent opportunity to open your bank account in Panama!
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