|
|
|
Our
on-line
newsletter bulletin now going on our seventh year!
Offering our clients and readers news items and headlines
often not covered by the mainstream media, articles of interest
regarding banking, economics, real estate, taxes, living or investing
abroad, plus much more. Finally, our very popular readers write
in section, with answers to some of the questions many of our readers
have - that no one else wants to answer truthfully, except us!
Want to See our
Other Back Issues from 2002 - 2006?........Click Here
|
|
|
|
Visit
The Main Newsletter Section &
Read Past Issues On-Line:
Dominican Republic
Real Estate, Residency
Filing, Banking and Interest Rates.
Panama Residency and Retirement. Naturalization and Dual
Citizenship - Expatriate Issues.
Economics commentary, inflation, housing, stock markets and investing -
Plus a Whole Lot More ! .
|
Our October 1, 2007 Newsletter
Edition
|
.
THE
NEW 2007 DOMINICAN REPUBLIC RESIDENCY PROGRAM FOR RETIREES &
INVESTORS:
.
Over
the past few weeks we have gotten a large number of inquires from
people that have heard rumors about a new program for retirees and
investors in the Dominican Republic. It is no longer a rumor, but
rather a fact as of June 2007. Those guys (and gals) down at the
Congress have finally gone and done it (after talking about it on and
off for over 8 years now). In other words, they have now created
what possibly could be one of the absolutely best programs in the
entire Caribbean or Latin America for retirees or investors, all things
considered, and I am glad to say that I am a bit proud of them for
it. Which is to say, at a time when American and European middle
class citizens are finding themselves struggling with higher costs of
living, higher taxes and inflation, the Dominican Republic has in
essence come to the rescue. Here is how it works:
.
For
those people interested in retiring or relocating, who happen to have
some stable source of income, either from government pension (Social
Security), a private pension or annuity, or even independent income
from investments (dividends or interest) - this is the ideal program
for you. Since there is no age specified for participation, let
us examine how this would apply in the practical world (and as a
comparison to say, Panama as an example). Let us speculate that
you are 40 years old, you have just sold your business, and are too
young to qualify for retirement programs elsewhere solely because of
your age (as would be the case in Panama). No problem in the case
of the Dominican Republic. What you need to do is invest your
funds into any kind of investment that will generate a steady monthly
income of interest or dividends, anywhere in the world that you wish
and not necessarily in the Dominican Republic. So, this could
mean bank accounts, bonds or annuities that maybe you decide to have in
Europe, Hong Kong, or anywhere else that suits you. In addition,
you can also put some funds into local bonds or fixed income
investments (bank certificates of deposit, commercial paper) inside the
Dominican Republic in Pesos, in order to draw down a monthly income in
the local currency as well. The financial requirement in such a
case is that you must have an independent monthly income of at least
US$2,000 and an additional US$250 per month for your spouse or children
(if you are married with two children, then as an example, a total of
US$2,750 per month in such an example). It does not matter where
the investments are located, because it is ALL TAX-FREE in the DR, and there is
no age limit to qualify (such as 50 plus in some other countries).
.
Let
us say you are retired or close to retirement age. In that case
you need to prove a monthly pension income of at least US$1,500 from
any pension source, be it a government run pension or private
one. In fact, theoretically, if a 40 year old applicant set up a
private annuity, and started taking the annuity income right away, that
should allow you to qualify as a retiree rather than an investor (with
the lower amount applicable). But regardless of which status you
chose, you benefit from: Zero Tax regarding the title transfer taxes
when you purchase your first home or apartment and Zero Tax on interest
income or dividends derived from investments abroad or local. In
addition, Fifty Percent OFF any annual real estate taxes you might owe
(remember that any real estate valued at RD$5 Million Pesos or about
US$150,000 is 100 percent free from any annual property taxes
regardless, but you would pay tax on the prorated value above that
amount). This special provision cuts those potential taxes in
half, should they apply, due to a real estate value being greater than
US$150,000 - or RD$5 Million. Also, Fifty Percent OFF any capital
gains taxes you earn as a shareholder of a company not involved in any
commercial or industrial activities (in other words, a holding company
only). Plus, Tax-Free importation of your personal effects and
belongings as a new resident (although port fees, storage fees, and any
related shipping costs of course must be paid by you directly as these
things have nothing to do with taxation or duty)
.
The
only question you may have is: who then does not qualify? The
answer is anyone involved in a commercial or business activity, or
better stated, someone that is not simply a passive investor or
retiree. So, if it is your goal to simply retire or live as a
passive investor, then this program would be perfect for you. If
you were interested in establishing a business, or conducting some
other kind of commercial activity, then in such a case, you could not
qualify for this specific program but would apply under another venue
for residency (which of course still may be very attractive and many of
our clients have in fact done so).
.
With
regards to many of our European and Canadian clients, this retiree or
passive investor program would be a very attractive solution tax wise,
as in such a case, proof of residency in another country (outside of
Europe or Canada respectively) allows such people to declare themselves
non-resident in the former country, thus opting out of local taxation
in the country of citizenship, meaning Canada or the EU. In other
words, obviously if your investment or pension income is tax-free in
the Dominican Republic, as your new home of residency and tax domicile,
AND also tax-free in terms of your country of existing citizenship as
well, then you have a 100 percent tax-free scenario, as it applies to
investment or retirement income all the way around.
.
Americans
of course still need to be concerned about tax implications as it
pertains to US taxes, even though such income would be 100 percent
tax-free in the Dominican Republic, as the US government certainly
seeks to tax Americans on world-wide passive income (investment income,
etc.) regardless. In other words, for Americans more so than any
other nationality, to get the same benefit, renouncement of US
citizenship would really be the key solution. But, there are of
course some legitimate and legal strategies to employ without
renouncing citizenship, and of course we work with our clients on some
of these options.
.
.
IN
THE NEWS:
.
.
RETIREES
LOOK ABROAD, HOPING THE GRASS MIGHT BE GREENER:
Lower
Living Cost, Beauty Lure Americans Overseas
By
Lisa Bonos, September 10, 2007
.
With
careful planning and lots of passion, some baby boomers are turning a
dream of an overseas retirement into reality. They're lured to distant
climes on the promise of a higher quality of life. Often they discover
a lower cost of living, stunning natural beauty and a sense of
community. It's difficult to know how many U.S. retirees seek new lives
overseas. Neither the Census Bureau nor the State Department break out
numbers on such people. That makes Social Security figures the closest
estimate. According to the Social Security Administration, 441,693
beneficiaries, or about 1 percent of those in the system, received
benefits while abroad as of the end of 2005. The AARP points out,
however, that these numbers do not take into account people who may
live abroad but collect Social Security payments at a U.S. address.
.
http://www.washingtonpost.com/wp-dyn/content/article/2007/09/10/
.
EDITORS NOTES:
The above article states that: It's difficult to know how many U.S.
retirees seek new lives overseas. Neither the Census Bureau nor the
State Department break out numbers on such people. By our
estimates, the numbers are probably far greater than their wildest
imaginations, and it is not just retirees. We have noticed a
trend in the very recent years of younger people (ages 20 to 45) that
are leaving, and often enough, young families with toddlers in
tow. While it may be true that retiring baby boomers are
exploring less expensive options abroad, the real story is the number
of younger, non retirement age, people who are heading for the
exit.
.
.
WHY
YOUR WALLET MAY WANT A NEW LIFE IN THE SUN
By
Laura Harding, September 18, 2007
.
Thousands
of Scots emigrate every year, citing better jobs, more favorable
weather and large ex-pat communities as their motives for the move. But
finance comes into it too. As young families struggle to keep
their heads above water with rising interest rates, taxes, property
prices and cost of living, the lure of sunnier climes has never been
stronger. Some 32,000 people left Scotland in 2005 to join the
5.5 million Brits that now live overseas. Since 2000, 163,000 Scots
have started a new life elsewhere.
.
Across
the UK as a whole, a total of 200,000 emigrated last year, mainly to
Australia, Spain and France. Australia is welcoming these new
residents with open arms - moving down under has never been
easier. On 1 September new rules came into effect that mean an
extra five points will be awarded for passing a standard English
language test under Australia's points-based immigration system.
.
Jason
Hemmings, a director at Albannach FM, an independent financial advice
(IFA) firm, said the biggest lure of foreign shores was a better
quality of life at a lower cost. In Scotland, in most cases, both
parents have to work and therefore need childcare. The growing cost of
living is undermining what people want to achieve out of life. When the
cost of living is less, it gives people choice about whether or not
both parents work and where the children go to school.
.
http://business.scotsman.com/index.cfm?id=1435642007
.
EDITORS NOTES:
The truth of the matter is, it is not just Australia that is welcoming
these people with open arms. Also, from the article is a survey
question whereby it is reported: According to research by
Self-trade, more than one in five young people said they would leave
the UK if the government decided to abolish the state pension.
How is that again? Is the UK government thinking about abolishing
the US equivalent of Social Security? This is one of those kinds
of questions you would rather not hang around long enough to find out
the answer.
.
.
INFLATION TRUMPS AVERAGE PAYCHECKS -
By Scott Burns -
September 16, 2007
.
I'd
like to say a few words about the futility of work. I'm
serious. Take a look around. Today, we're all 24/7, strutting
with Black-Berries and Blue-tooth, miles from the long-lost desk and
office, not to mention home. At the risk of being rude, I'm wondering
if all this frenzied effort pays off. We know it does for some.
.
If
it didn't, Starbucks and Whole Foods would not exist. There wouldn't be
enough people who can afford $3 for a cup of coffee or $2.69 a pound
for free-range organic chicken. But the operative word here is
some. It's time for Joseph Vineyard, the trendy guy who eats
free-range chicken, to meet Joe Six-Pack. If you look at the
averages, the statistics give a simple message: Hard work does not
equate to economic progress. It hasn't for decades. We may need hard
work to keep body and soul together (not to mention pay the Visa bill),
but average-worker paychecks clearly show that inflation continues to
trump wage gains for most U.S. workers.
.
This
is not a recent problem. Twenty years ago I wrote a column titled The
Coming War Between Generations. It showed that the average worker
had lost ground to inflation from 1970 to 1987. The same worker was
also losing ground to retirees because the average retiree Social
Security benefit was also rising faster than workers' wages.
Since workers pay the bills for Social Security recipients, that's not
a healthy situation.
.
The
situation got worse over the next nine years. Workers' wages grew
slower than inflation in all but one of the nine years from 1988
through 1996, sometimes by a lot. In 1990, for instance, workers' wages
rose 3.3 percent, but the rate of inflation was 5.4 percent. And,
again, the average retiree's Social Security check grew faster than the
average worker's paycheck in seven of the same nine years. (Workers did
better than retirees in two years, 1994 and 1996.) Surely the
last 10 years have been better, right? Only slightly. The
percentage of increase in the average worker's wages has been larger
than the percentage of increase in the average retiree's benefit check
in all but two of the last 10 years, 2004 and 2005. When it comes
to the battle against inflation, the score isn't quite so good.
Inflation has trumped wage gains in four of the last 10 years: 2001,
2003, 2004 and 2005. Unfortunately, that isn't the end of the
story.
.
http://seattletimes.nwsource.com/html/businesstechnology/2003886345_burns16.html
.
.
ON
TWO U.S. COASTS, RENTERS SQUEEZED BY LACK OF AFFORDABLE HOUSING
By David Crary and
Rachel Konrad - Associated Press September 16, 2007
.
This
isn't how Simon and Jennifer Morris envisioned married life - sharing a
charity-subsidized suite with four other hard-up families, abiding by a
curfew and other rules that make them feel they are back in high
school. But for a working-class couple with two small children,
trying to stick it out in their pricey hometown, housing options are
few.
.
They
abandoned their previous one-bedroom apartment when the rent rose from
US$1,200 to US$1,425. Public housing has long waiting lists, so they
moved into a shelter for dislocated families in a converted YMCA. The
goal: Save enough money to move south and buy a home where costs are
lower. Around them, southwestern Connecticut's Fairfield County
is booming, due partly to an influx of investment banks. New housing
projects routinely cater to the affluent. But everybody forgets
the poor guy - the one who pumps your gas, who builds your hotel, who
bags your groceries, said Simon Morris, a 35-year-old carpenter.
The cost of living is driving us out.
.
On
both coasts of the United States, and many cities in between, hundreds
of thousands of renters face comparable plights. The home mortgage
crisis has received far more notice, but experts say the ranks of
renters with dire housing problems are growing faster than the ranks of
defaulting homeowners. The Center for Housing Policy reports that
the number of working-family renters paying more than half their income
for housing has soared from one million to 2.1 million since 1997.
Overall, advocacy groups say there are nine million low-income renter
households and only 6.2 million units they can reasonably afford.
.
These
people spend huge portions of their income on their housing, said
Sheila Crowley, president of the National Low Income Housing
Coalition. They don't do things that we all would like to do -
save money to buy a house, or for college or retirement. It's a very
day-to-day existence. In the Stamford area, a breadwinner needs
to earn more than $30 an hour to afford the rent of a typical
two-bedroom apartment, the highest figure in the nation. San Francisco
ranks a close second - placing immense burdens on residents such as
schoolteacher Meagan Devine and retiree Jose Morales.
.
Devine,
30, lives with her sister, who is eight months pregnant, and
brother-in-law in a one-bedroom apartment in San Francisco's Sunset
district. She sleeps on the couch and spends weekends at her parents'
house in a distant suburb, where she keeps her clothes and books.
In October, she'll begin house-sitting for family friends in Berkeley,
who will be on sabbatical until Jan. 1. After that? She isn't sure.
.
Devine
isn't an itinerant hippie or recent college grad trying to map a career
path. She's a professional with a master's degree in math, and could
likely command a six-figure salary at a Silicon Valley engineering
firm. But since college, she has yearned to be a teacher. After
getting her master's, she taught the children of crop pickers.
After taxes and a US$350 deposit into a retirement fund, she takes home
about $2,500 per month. One-bedroom apartments in desirable
neighborhoods - near friends and public transit - start around $2,000
per month. Studios start around $1,500. Devine said she'll likely
settle for roommates - a fate she didn't envision for herself after
college, and a far cry from her dream of home ownership.
.
Technically,
she could afford her own modest apartment - but she wants to heed the
standard advice and not spend more than a third of her income on
housing. That's not easy; experts say nearly a quarter of San Francisco
renters spend more than 50 per cent of their household earnings on
rent, and the market has grown tighter as the mortgage crisis deters
some young adults from home-buying. Devine rarely goes out to eat or
buys new clothes, but despite a frugal lifestyle has been unable to
whittle down $3,000 in credit card debt. You have to make big
sacrifices - not just whether to buy a house or not, said Devine.
I want to have kids - but what would I do with them? I can't even
afford my own place. Devine works at least 50 hours a week,
including several hours each weekend grading quizzes. Some of her
colleagues moonlight as waitresses, bartenders and weekend nannies.
.
Jose
Morales, now 78, moved into a modest Victorian house in San Francisco's
working-class Mission District in 1965, shortly after emigrating from
Peru. The rent was $80 a month, and he used leftover earnings to
travel, buy nice clothes and eat well. The rent is now $864 - a
bargain by local standards but an unmanageable fortune for Morales. A
former tennis instructor, he hurt his back last year and now relies
entirely on a Social Security payment of $900 per month. After
paying the rent, he has $36 a month for expenses, including food and
medications. He eats at city-sponsored senior centers, which charge
$1.50 per meal, buys cut-rate produce from local bodegas and takes
freebies from friends. He never travels. He doesn't own a
television or radio. Among his few new clothes are tennis sweat shirts
that pro shops sell him at a discount.
.
I'm
skin and bones - it's a miracle I'm still here, said Morales, who's
lost 20 pounds since last year and developed osteoporosis.
Morales knows he might live better in Peru, where relatives could help
and the cost of living is a fraction of California's. But that would
end his quest for American citizenship. I came here because the
U.S. was a great country, Morales said. But housing has become a
big injustice.
.
http://www.abcnews.go.com/Business/wireStory?id=3604317
.
EDITORS NOTES:
The article highlights Ms. Meagan Devine, a thirty year old
professional woman with a master's degree in math, who is sleeping on
the sofa in her sister's one bedroom apartment, and when asked about
the possibility of a family in the future, she says: I want to
have kids - but what would I do with them? I can't even afford my own
place. And then we have the 78 year old Mr. Morales, who would
seemingly rather starve to death in California so he can hang on to his
quest for American citizenship (having US$36 dollars left over for
groceries after paying the rent is not what I would call a tenable
situation). Call me crazy, but I would rather live decently in
Lima, Peru (with a Peruvian Passport) rather than go hungry in San
Francisco. In fact, I recently went to check out some apartment
rentals in the suburban areas of Lima, and I found quite a few small
but decent places ranging from US$350 to about US$550 per month.
I also found a bed and breakfast that, for US$18 per day, offers a
clean room with private bath. If Mr. Morales simply got himself
on an airplane (probably quite an expense I do realize, considering his
budget), the poor fellow can have a decent place to stay with one meal
a day throw in, with roughly half of his current Social Security check
left over for good measure. In other words, considering his
US$900 per month social security, while he might not be able to afford
a lifestyle of the rich and famous, he can get by certainly better in
Lima than in San Francisco. In any event, the point is, I think
this is more of a growing trend inside the US, in terms of lifestyle
and cost of living.
.
.
HEARD OFF THE STREET: CALCULATING INFLATION
DEBATED TO THE CORE - September 16, 2007 - By Len Boselovic,
Pittsburgh Post-Gazette
.
Correlating
the Federal Reserve Board's latest pronouncement on inflation with the
experience of filling up at the pump or stocking the family larder
brings to mind Mark Twain's adage regarding the three varieties of
lies: lies, damned lies and statistics. Readings on core
inflation have improved modestly in recent months. However, a sustained
moderation in inflation pressures has yet to be convincingly
demonstrated, the Fed said in its Aug. 7 statement.
.
For
those in need of a translation, the Fed says if you exclude energy and
food, the cost of living has improved modestly. But, there's still a
chance prices could spike. Like many who are paying $2.75 for a
gallon of gas and $3.50 for a gallon of milk, you may think excluding
energy and food when measuring inflation is disingenuous. But some
economists say it is a more accurate long-term measure of inflation
because energy and food prices fluctuate more than the prices of other
goods. The debate over core inflation and headline inflation, a
measure that includes food and energy prices, highlights the ongoing
examination of how accurately the Bureau of Labor Statistics' consumer
price index measures inflation. The federal agency has made a number of
changes over the last decade in the way it calculates the CPI.
.
http://www.post-gazette.com/pg/07259/817683-28.stm
.
EDITORS NOTES:
According to some very recent statistics that are calculated up to
September 2007, It would seem to be the case that Ben Bernanke and
Company has been increasing the money supply by a whopping 14 percent
annually (see the link below). Of course, the official version is
that there is no inflation, it's all in your mind, but that is what
many said about the housing bubble too. Also, the statistics via
the link below show the estimated current true rate of consumer
inflation (September 2007) to be about 11 percent or so (and
rising). However, if some of the other additional statistics are
true, which claim that the US economy has been in recession for the
past 12 months already (with a negative economic growth rate of minus 2
percent), and if it is also true that the elves working on the printing
presses at the Fed have been inflating the money supply by 14 percent
annually, then it would not be an extreme leap of faith to predict an
inflation rate in the US approaching double digits going forward.
Again, assuming these statistics are more accurate than some others
being reported (by the US Government Bureau of Labor Statistics, for
example).
.
But
indeed one thing we certainly are convinced of, is that the inflation
was always there, and it is only now that we are seeing it come out in
consumer prices, as running the printing press is not the only way to
inflate the money supply or pump unsupported liquidity into the
system. Artificially low interest rates also serve the same goal,
and this was the favored method of the former central bank chairman,
Mr. Greenspan (Bernanke seems to favor ink instead, although he is also
tinkering with low rates as well at the moment). In other words,
while it is estimated that wages have only increased by 10 percent in
the last decade (and some economists actually calculate a net decrease
in income overall), housing prices have gone up by more than 50 percent
during this same period, and we know that education and medical related
costs have gone up dramatically and exponentially as well.
.
However,
most consumers narrowly view the inflation experience as it pertains to
retail prices in stores (or as it pertains to their personal shopping
experiences). And so, relocation of manufacturing to low wage markets
(such as China) has had the effect of HIDING the true
inflation rate from the consumers. After all, some pundits
(and politicians) have called attention to the fact that certain
consumer prices (electronics for example) have either stayed the same
or even decreased, and as a result, have claimed there is no inflation,
which is naïve at best, and outright fraud at worst (in terms of
accurate information given to the public). Which is to say, by
relocating manufacturing and dramatically cutting wage or labor costs,
US companies had been able to offer stable or even declining retail
prices (inside the US) in the past, while earning even higher profit
margins (which is also why we said in the past that higher profits
reported in recent years by US manufacturers were a smoke screen,
because they were the result of one time reduced labor costs and NOT
due to higher or ever expanding sales necessarily, or sales made with
cash as opposed to credit). Also, as we reported in previous
newsletters, the middle class and consumer spending is on the rise on
the developing or emerging markets, which is not what is happening
inside the US (which is why many US companies now are relying on
foreign sales, meaning non domestic US, for a large percentage of their
current income). For many CEO's of large corporations, it would
indeed seem that this idea of where the future growth and sales would
be coming from has been noticed and planned for.
.
In
other words, possibly seeing the trend coming, this could be one
explanation as to why US companies have thrown their support behind
NAFTA, CAFTA and other free trade agreements (one key components of
such agreements is to dupe the foreign country into lowering their
import tariffs to zero for US companies or their products, so such
products can enter the local market in the foreign country with a lower
retail price in theory if the tariff is eliminated). On the other
hand, the argument or promise made to the small foreign countries is
that tariffs will be eliminated for them as well, so in theory the
country has the opportunity to export more to the US and supposedly
sell without a tariff or tax tacked onto their products
accordingly. Of course, this is all in essence and in our
opinion, a calculated fraud perpetuated on these other smaller
countries, as we believe that the American consumer is tapped out and
will not be buying more stuff, imported or otherwise, zero tariff or
not, going forward. Also, in addition, is it really true that
exports from non US NAFTA or CAFTA member countries have skyrocketed
(exports from these countries to the US)? Indeed, Mexico's number
one problem has been watching much of the jobs and manufacturing fly
off to China (a non NAFTA country).
.
However,
with respect to comments about the American consumer being tapped out,
or that the buying binge is coming to an end - what evidence do we have
of this? Well, the savings rate in the US has turned negative for
the first time in almost 70 years AND almost all of the previous buying
spree was done with borrowed money (home equity loan money or credit
cards). Perhaps this is a strong accusation, but not one we are
making for the first time (we touched upon this idea before, as we
hinted in 2005 that the so-called US economic growth was propped up
with debt, and not based upon true rising disposable incomes of average
consumers). In any event, the key point regarding American
consumers is that the inflated money supply had gone into the stock
market and housing markets, creating bubbles in each, and now of course
the gig is up, in terms of the inflation finally showing up in retail
prices. However, with the US Fed greasing the skids further, the
only logical outcome can be more inflation down the road. We see
no other logical result.
.
http://www.shadowstats.com/cgi-bin/sgs/data
.
.
GREENSPAN
SEES POLITICAL PRESSURE ON FED AS INFLATION PICKS UP
By
Craig Torres - September 15, 2007
.
The
Federal Reserve may need to double its benchmark interest rate to at
least 10 percent by 2030 to contain inflation, sparking a political
showdown that could challenge its independence, former Chairman Alan
Greenspan said. Slowing productivity and rising wages abroad will
probably cause U.S. consumer prices to climb in the next quarter
century, Greenspan wrote in his book, The Age of Turbulence:
Adventures in a New World, published by Penguin Press. His outlook
includes a reversal of many of the trends that aided the success of his
own tenure at the Fed.
.
There
are already some signs that political scrutiny is rising. Democrats
including Barney Frank of Massachusetts, who heads the House Financial
Services Committee, called last week for a meaningful cut in interest
rates. Federal Reserve independence is not set in stone, wrote
Greenspan, 81, who led the Fed for 18 years until January 2006.
The dysfunctional state of American politics does not give me great
confidence in the short run and there may be a return of populist,
anti-Fed rhetoric, he wrote. To keep inflation under 2 percent,
the Fed, given my scenario, would have to constrain monetary expansion
so drastically that it could temporarily drive up interest rates into
the double-digit range not seen since the days of Paul Volcker,
Greenspan wrote.
.
http://www.bloomberg.com/
.
.
GREENSPAN NOTES INFLATION THREAT - By Andrew Farrell,
September 13, 2007
.
With
Alan Greenspan as chairman, the Federal Reserve sharply cut interest
rates in the wake of the dot-com bust. Today's Fed, however, lacks the
same freedom to lower rates because of the threat of inflation, says
Greenspan. We were dealing in an environment back there where
inflation was easing. We could have acted without the fear of stoking
inflationary pressures. You can't do that anymore, Greenspan says in a
60 Minutes interview that will air Sunday. From 2000 to 2003, the
Federal Reserve cut the federal funds target rate to 1.0% from
6.5%. One drawback of interest-rate cuts is rising prices. U.S.
inflation is just under 2% over the past year and there are indications
it could get worse. Soaring prices for key commodities around the
world are sending up fire-engine red alarms, says Forbes Senior Editor
Elizabeth MacDonald. She points to elevated energy and food prices that
could whip inflation higher.
.
http://www.forbes.com/2007/09/13/
.
EDITORS NOTES:
The Maestro chimes in and tells us we have a problem with inflation,
and I am sure there are many in government who would prefer he simply
shut up and go fishing (and enjoy his retirement). However, Mr.
Greenspan should know best, after all he helped create it, with
artificially low interest rates and with the later piece of genius
regarding the running of the presses (not to be confused with the
running of the bulls, but same result - some people end up with wounds
inflicted in their rear end). However, even more interesting is
Greenspan's own comment that: The dysfunctional state of American
politics does not give him great confidence in the short run.
How's that again? The former head of the Federal Reserve does not
have great confidence in America? To be more clear, Greenspan is
predicting that mounting political pressures will probably force
interest rate cuts in the US, at a time when inflation is on the rise,
and many other central banks are trying to protect (and stop) a
currency devaluation. Ergo, if we know that inflation is indeed a
problem, and the US central bank (the federal reserve) cuts interest
rates, you can say Adios to the value of the old greenback. Of
course, I do not have to tell you, as the currency exchange markets are
valuing the US Dollar downward accordingly already, not to mention the
commodity markets as well (oil, gold).
.
.
STOCKS
BOLSTERED BY FED CUT, DOLLAR STRUGGLES
By
Ana Nicolaci da Costa - September 19, 2007
.
LONDON
(Reuters) - Global equities rallied on Wednesday after an aggressive
U.S. rate cut allayed fears that a credit crunch which has plagued
markets could drag the U.S. economy into recession, but the dollar
suffered a blow. The dollar struck a 15-year low against a basket
of currencies after the Fed rate cut eroded the yield appeal of the
U.S. currency. The weakness of the dollar pushed gold prices to
16-month highs.
.
The
Fed will be looking very closely at the macro and micro data including
earnings statements from the banks, and we wouldn't rule out two more
cuts by the end of the year, said AXA Investment Managers strategist
Franz Wenzel. But losses in 10-year U.S. Treasury prices
suggested bond investors were already worried that in an attempt to
shield the world's largest economy from the recent turmoil, the Fed
could be shying away from its vigilance against inflation.
.
http://today.reuters.com/news/
.
EDITORS NOTES:
The Fed cuts rates, the US Dollar hits a 15 year low, gold goes up over
US$700 and oil hits US$82 per barrel (just wait until it passes
US$100). In the words of Gomer Pyle: Surprise, Surprise. In
any event, we now know that Benny B. has picked his poison, which is of
course inflation. What's your poison? Regardless, since we
can now postulate as to what to expect in the US, let us take a look at
what is going on elsewhere in the world.
.
.
INFLATION IN INDIA DROPS TO TWO-YEARS LOW,
BUT RISING FOOD PRICES REMAINS A CONCERN: The
Associated Press - September 14, 2007
.
India's
inflation rate dropped to a two-year low of 3.5 percent in the week
ended Sept. 1, according to government data released Friday, but
analysts said the headline number was misleading as it masked a faster
rise in prices of food and essential goods. The 3.5 percent
increase marks a big improvement compared to February, when the
inflation rose to a two-year high of 6.7 percent, stoking fears that
the economy might be overheating.
.
It
has since fallen as demand for manufactured products have turned weak
following monetary policy tightening by the central bank. The
government's decision to keep fuel prices unchanged, despite rising
global crude oil rates, also contributed to moderating the inflation
rate. But prices of food products and other essential goods have
been rising, and analysts said the latest drop in the headline
inflation number may not be enough for the central bank to loosen its
policy.
.
http://www.iht.com/articles/ap/2007/09/14/business/
.
.
CHINA
BATTLES INFLATION
Forbes
Business Magazine - By Vivian Wai-yin Kwok, Sept. 14, 2007
.
While
investors around the world are looking for a reduction in America's key
interest rate next week, inflation-wracked China went the other way on
Friday. For the fifth time this year, the central bank said it would
raise its benchmark rate, in this case following a report of price
increases at an 11-year high rate. With its currency kept
artificially low, however, China seems destined to suffer continued
inflation as money pours into the country as a result of its growing
economy and trade surplus. The People's Bank of China raised its
one-year lending rate by 27 basis points, to 7.29% from 7.02%. One-year
deposits will rise by a similar amount, to 3.87% from 3.60%. Both
increases take effect on Saturday.
.
http://www.forbes.com/markets/2007/09/14/
.
.
CONSUMER
PRICES POST BIGGEST INCREASE IN 11 MONTHS
By
David Rosenberg - Bloomberg News Service - September 16, 2007
.
Israeli
consumer prices rose 1 percent in August from a year ago, the biggest
annual gain since September 2006, as a three-month decline in the
shekel lifted the cost of dollar-linked housing. Inflation
accelerated from 0.3% the month before, the Jerusalem-based Central
Bureau of Statistics said by telephone. Prices were expected to
increase an annual 0.9%, according to the median estimate of seven
economists surveyed by Bloomberg. Prices rose 0.7% in the month,
the statistics bureau said.
.
The
shekel lost as much as 10% of its value in the 11 weeks to August 1,
rekindling inflation after nine months of price declines. To keep the
inflation rate from rising above the targeted one to three percent
annually the central bank has raised its benchmark lending rate by a
half point to four percent since July. The shekel has regained about
half of its losses. The Bank of Israel raised interest rates,
which contributed to the shekel's strengthening, Shlomo Maoz,
chief economist at Excellence Nessuah Securities & Investments,
said in a phone interview before the release of the index.
.
http://www.jpost.com/
.
.
SWITZERLAND
SEES INFLATION A BIGGER RISK THAN CREDIT CRUNCH
By
Lionel Laurent, September 13, 2007
.
The
Swiss National Bank chose to tackle the current financial crisis a
little differently from its neighbors in the euro area on Thursday,
opting for a key interest rate hike to 2.75% from 2.5%. Much like its
counterpart in Sweden, the bank said the global financial crisis could
eventually slow economic growth, but it believed inflation was a bigger
concern for the moment. The central bank said that by increasing
the target range of the three-month inter-bank lending rate to
2.25%-3.25%, with a fixed target of 2.75%, it was aiming to calm the
Swiss franc money market. The so-called Libor rate has in reality
exceeded this target, hitting 2.9%, but this is a far cry from the kind
of spread seen in Britain, for example, where a crisis in credit
confidence has seen the London Libor hit 6.75%, a full 1.0% more than
the base rate of 5.75%.
.
http://www.forbes.com/markets/2007/09/13/
.
.
INFLATION
IN OMAN HITS 5.98 PER CENT
.
DUBAI:
Annual inflation in Oman accelerated to 5.98 per cent in the year to
July, up from 5.57pc in June, as food costs and rents jumped, official
data showed yesterday. The consumer price index rose to 111.6
points compared with 105.3 points in the same month last year,
according to data published on the Ministry of National Economy
website. The cost of food, beverages and tobacco, which account
for about 30pc of the index, rose 11.3pc in July, on par with its
growth in the prior month. Rents in Oman, which have a weight of
about 15pc, also rose 8.5pc, the Ministry said. The ministry
revised June consumer price index to 110 points from 110.3 points, the
data showed. Oman, which pegs its Rial to the dollar, relies
heavily on imported food and has been hit by rising prices as the US
dollar decline this year against major currencies. The dollar hit
a record low against the euro last week. Oman has repeatedly
ruled out revaluing the Rial. The decline in the dollar is a
passing phase, Oman's acting central bank governor Mohammed Nasser Al
Jahadmy said earlier.
.
http://www.gulf-daily-news.com/
.
EDITORS NOTES:
The decline in the dollar is a passing phase? I honestly do not
think so, not in the overall long-term and not when you look at the
statistics, the debt, the pending un-funded social welfare liabilities,
not to mention US political pressures to lower interest rates (when
many central banks elsewhere are increasing rates to stop their
currency from losing value in world exchange markets). If just a
passing phase as Oman's acting central bank governor Mohammed Nasser Al
Jahadmy says, and only temporary - - - then why not keep interest rates
stable or even cut the rates, in tandem and in sympathy with the US
Federal Reserve? I will tell you why. Because when push
comes to shove, political ally or not, friend or foe, no country in
their right mind is going to allow themselves to go down with another
sinking ship. The above article states that: Oman has repeatedly
ruled out revaluing the Rial (which means downward, just to be
clear). Even the Israeli Government (the Israeli central bank),
supposed friend and ally to the US, increased rates to protect their
own currency. My grand-father used to say that: Self
Preservation is always stronger than friendship (he was a smart old
guy). Stated another way, when it comes to money, friendship has
its limits indeed.
.
.
MORTGAGE
MADNESS WILL END IN INFLATION, INFLATION, INFLATION
By
Iain Macwhirter - September 16, 2007
.
THERE
ARE two kinds of chancellor, said Gordon Brown famously, failures, and
those who get out in time. No surprises for guessing which category
Gordon fits into. Poor Alistair Darling (I still can't get used
yet to calling him the chancellor) has been left to cope with the
consequences of a decade of Gordonomics. The air is ringing to the
sound of stable doors slamming as the livestock disappear over the hill.
.
On
Thursday, Darling gave the City a stern lecture on how it wasn't the
government's job to bail out banks which had indulged in irresponsible
lending and borrowing. It was time to get back, he said, to good
old-fashioned banking. The very next day, Darling bailed out Northern
Rock, a byword for irrational exuberance in the mortgage market. It had
been financing its too-good-to-miss mortgages by dabbling in American
sub-prime. It's very nice of Mr. Darling to use our money to bail
out this company and its managers. I'm sure Northern Rock will be
equally eager to help those low-income home owners who will be unable
to pay the increased mortgage rates the bank will be charging in future
as it tries to rebuild its finances. Of course, everyone insists that
NR is a very sound, solvent business with solid assets and good
prospects. Everyone, that is, except investors, who have been dumping
Northern Rock shares as if they were radioactive. If the FSA is right,
and this is such a good business, why does it need to fall on the mercy
of the Bank of England to avoid going bust? After all the banking
scandals of recent years, it's hardly surprising that people are
queuing up to get their money out of Northern Rock's few outlets. I
would.
.
But,
at least we don't have any sub-prime to worry about here, do we? Good
old British banks have been prudent lenders, ensuring mortgages have
been given only to people who can pay, and on the basis of rock-solid
assets. Have they heck. In fact, the British banks have been throwing
money at home buyers without a thought for the consequences for most of
the past decade. Just ring up one of the websites. You don't even have
to prove your earnings. Even at the height of the ruinous US
housing boom, US banks weren't offering 125% mortgages or six times
your earnings to people earning as little as £18,000 a year. Yet
that is what British high rollers such as Alliance and Leicester and
Northern Rock have been doing. They have been helping first-time buyers
get on to the housing ladder by offering interest-only mortgages over
40 years - mortgages so good you don't even get to own the house after
you've paid for it.
.
http://www.sundayherald.com/news/heraldnews/
.
EDITORS NOTES:
This article fits in, in terms of sentiment and argument, with the
previous article we highlighted in our September 1 newsletter, which
was written by the Editor of Fortune Magazine, Mr. Allan Sloan (Escape
Of The Enablers, August 17, 2007). Unfortunately, we are talking
about the UK in this particular case, and maybe this explains why 5,000
British Citizens per week are leaving, or otherwise stated, getting the
heck out of there. In short, the modus operandi seems to be: bail
out all the idiot bankers, let the public pay for it, and the let value
of the money supply (inflation, devaluation of the currency) be
damned. However, here is one idea as to what to do about it
(courtesy of Forbes Magazine):
.
.
FOR
GOLDEN YEARS, INVEST ABROAD
By
John Christy, Forbes International Investment Report, September 12, 2007
.
How
are you planning to spend your retirement? Sailing in the Greek isles?
Learning to cook while living in a Tuscan villa? Perfecting your golf
game in Scotland? Skiing in the Swiss Alps? Or maybe just lying on the
beach in Bali? If your dreams include these or any other exotic
adventures, you can't afford to wait until retirement to start
exploring the world. It's time to pack your bags now--at least as far
as your portfolio is concerned. When your grandparents started saving
for retirement, international investing wasn't much of an option. Their
choices--if any--were limited to a handful of international mutual
funds and big global companies with shares trading in New York. And
back then, brokers and other financial advisers didn't have decades of
academic research to draw upon or fancy Power-point presentations to
illustrate the case for going global.
.
Trouble
is, even though the current generation of investors is spoiled for
choice when it comes to international markets, most folks still keep
the vast majority of their money at home, just like Grandma and Grandpa
did. Sure, lots of Americans have dabbled in foreign stocks or
funds, but how many have actually built truly global portfolios? It's
hard to say, but based on some data that I've seen and tons of
anecdotal evidence, my guess is very few. And during a market panic
like the one we've seen this summer, I wouldn't be surprised to see
more investors cutting back on international exposure, especially when
it comes to serious money like 401(k) plans and other retirement
accounts.
.
Don't
get me wrong. I'm not one of those gloom and doom conspiracy theorists
who think America is about to go the way of the Roman Empire. But when
I look overseas, I see too many opportunities to ignore.
.
International
stocks have performed well in recent years, but they still offer one of
the best combinations of value and growth that you can find in any
asset class. U.S. stocks are trading at 16 times 2007 estimated
earnings, with expected earnings growth in the 7% neighborhood. Compare
this with emerging markets, where stocks trade for about 14 times
earnings and offer 15% growth. Even stodgy old Europe is on course to
deliver better earnings growth than the U.S.--and it's cheaper too, at
14 times earnings.
.
Planning
for retirement involves making a lot of assumptions about the future.
It's tough enough predicting what the economy and markets will do next
quarter, let alone several decades from now. But there's one
thing I can almost guarantee. The forces of globalization will continue
to boost the importance of international markets, particularly emerging
economic powers like China and India. Now is the time to make sure your
retirement portfolio has a meaningful stake in these markets of the
future.
.
http://www.forbes.com/2007/09/12/
.
.
READERS
WRITE IN:
.
Hello
John - I've said it before and I'll say it again - I truly appreciate
this newsletter. PLEASE keep up the great work (I know you will).
I have a question: I read somewhere recently that some countries
(I think Ireland was one) offer passports to non-residents that can
prove ancestry (maybe recent ancestry). Can you shed some light on
that? Also, if this is actually true, can you tell me if Germany is one
of those countries? Not that a German passport or citizenship is all
that attractive, since it's a high tax, welfare-state country, but it
still may be valuable to have the second passport, especially if it's
somewhat simple to obtain. Thanks in advance for your assistance.
.
EDITORS REPLY:
You are certainly correct that some countries view citizenship as an
issue of familial ties or bloodline and as such, there might be
opportunities to re-claim, as the best way I can explain it, the
citizenship of your parents or grand-parents. Ireland is one
country that seems to have this possibility open, as does France, Spain
and Italy as well. I do not know off hand about Germany, but it
could never hurt to ask. My advice is to contact the nearest
consulate of such a country (the nationality of your parents or
grand-parents) in order to find out the requirements and documents, if
indeed there is a channel available. To be sure, having an old
passport, birth certificate or baptismal certificate and related
documents from your parents or grand-parents will help you build your
case. However, do not think that a passport from an EU country is
necessarily a bad idea. While it certainly is true such countries
have very costly state welfare programs, and high taxes as a result, it
is also true that you can declare yourself non-resident for tax
purposes, while at the same time maintaining such a passport for travel
purposes. This is one major advantage that EU citizenship has
over US citizenship. In other words, such countries do not tax
their citizens to death, or on worldwide income, when such a citizen is
living outside the country, whereas the opposite is true for US
citizens. For this reason, the US passport has been called the
most expensive passport in the world (and not because of any visa free
travel benefits).
.
.
ANOTHER
READER WRITES:
.
How
does the current UK and American mortgage problems affect the selling
of real estate in the Dominican Republic? What, in your opinion should
be the new target for real estate in DR.
.
EDITORS REPLY:
Well, first and foremost, what you have is actually a CREDIT problem in the US and the UK
(or we can say a loose money problem), which has happened to filter
into or effect the real estate market (after first creating a stock
market bubble, and then the housing bubble), but of course credit card
delinquencies have sky rocketed as well, so it is not just housing that
is effected. Which is to say, the real estate markets in both
countries (the US and the UK) are in trouble to be sure, but the real
underlying cause is over extended credit, artificially low interest
rates that has created too much liquidity (far below what the rates
would be if set by the free market and not the US Fed, plus this excess
liquidity creates an oversupply of money and thus inflation),
foolish lending practices by banks and credit card companies - and that
is where you have to make the comparison or analysis.
.
This
leads me to say what I have already said before, which is that all this
credit crisis nonsense will NOT
affect the developing or emerging markets in the sense that it will NOT
be repeated in such emerging market countries. Why? Simply
because such emerging or developing markets (The Dominican Republic,
India, Vietnam, Cambodia, Bolivia, and a long list of others) are
primarily CASH economies, and therefore no credit crisis (if there is
no credit, or fairly little credit overall, then how can there be a
credit crisis?). Let me explain this further.
.
It
is not to say that people in those other countries do not borrow money,
as they indeed do. But, if you look at how the majority of
consumers in these markets conduct their personal affairs, and in the
case of foreigners buying real estate in these markets, it is primarily
cash (all of our clients pay cash in the Dominican Republic, in part
because they do NOT want to take on additional debt, and in part due to
the 15 percent mortgage interest rates offered by the local banks,
which are unattractive in comparison to US rates). And of course when
someone does borrow money in these countries or markets, the local
banks want anywhere from 20 to 50 percent down payment, co-signors and
aside from that, you have qualify regardless via documented income
(none of this no income verification nonsense, as has been the case in
the US). Meaning, the loan portfolios of the banks in these
countries are collateralized with real equity (as opposed to warm
wishes and financial fantasy in the US and the UK), and as such are in
a much, much better financial shape. Not only that, as a
borrower, you are going to think twice about walking away from a
mortgage when it perhaps took you 5 years to save the down payment, and
when that amount adds up to a substantial sum. In the US, people
are walking away because there is no financial pain involved in doing
so (and why you are seeing a rash of abandoned homes in the US as
well). So again, it is important to understand what the real
issue is, or the true dynamics at work when making a comparison.
.
In
regards to the long-term outlook for the real estate market in the
Dominican Republic, I can only say that such real estate still remains
to be a bargain when compared to the rest of the Caribbean (there are
exceptions, but overall, the DR is probably still priced at a 30
percent discount, with some of newer or more extravagantly priced
projects aside, although even some of these newer luxury projects have
seemingly sold out with buyers paying cash as well, so hard to say what
is considered over-priced). However, your question seems to be
more focused on the idea of the Dominican Republic continuing to be a
growth market, in terms of real estate, going forward.
.
It
is an interesting question, and all we can really do is consider the
facts or demographics. Which is to say, first off, just as the
case in other markets, such as India, that have also seen recent
appreciation in prices, a sizeable portion of the purchases were made
with cash, or very stringent lending practices. This means less
likely a case that any economic downturn in and of itself will result
in a large number of foreclosures or forced sales. Also, in terms
of the local market, it is more of a case of people viewing a house
purchase as a HOME rather than something to be flipped for
speculation. There are exceptions to that, but generally
speaking, the overall real estate market psychology tends to be more on
the conservative side, at least among the local buyers.
.
Looking
at the foreign market, or non locals buying in the DR, which to some
extent includes Dominicans living abroad who want to move back home to
get away from the taxes and so on, I think there are some generic
comments to be made about the specific economic status of these buyers
also. Which is to say, anyone currently living on the margin, or
people that were living like a trapeze artist balancing a mountain of
debt over their heads, are irrelevant in the non US market, as these
are not people who will be buying properties or have bought in the past
either. In other words, the question is - will a severe
recession inside the US or the UK have a dramatic effect on the
Dominican real estate market? My tendency is to say NO, not to
the extent you might think, because anyone living precariously on
credit in the past was not someone who was a real estate buyer in the
past anyway in these countries (real estate outside of the US or UK
respectively).
.
Why
do I make this comment? Simply because those people that were
looking to buy real estate with the same no money, no income
verification that they found to be the norm in the US, quickly realized
these local financial or lending institutions in the so-called banana
republic countries (and elsewhere, such as India for example) were real
banks with real lending requirements, and as a result such buyers
balked and walked away when they found out an actual substantial down
payment was expected of them by the bank (not to mention the much
higher interest rates as well). Those buyers that had cash, are
solvent, and probably will be solvent in any kind of economy, are the
kinds of people buying real estate (for cash), and I suspect will be
the same people buying going forward. Such people are a group
that has a number of options open to them, and considering the better
value for real estate in the DR as compared to other Caribbean
destinations, PLUS the favorable tax incentives, one can speculate that
those attributes will continue to steer some of them to the Dominican
Republic (which was the case previously) as before. And so, as we
have mentioned already, I do not necessarily think a possible severe
economic downturn in the US will be as painful abroad as it could be
domestically. In the other words, if a major case of a severe and
potentially long lasting flu (in the US, economically speaking), then
the case of an annoying headache in other countries (as a fallout).
.
Also,
remember that the US economy only accounts for 20 percent of the
world's GDP or economic activity. While a substantial number to
be sure, it also means that 80 percent of the world's GDP is coming
from elsewhere, independent of the US economy. Looking at sales
from Trumps high end real estate project in Punta Cana (in the
Dominican Republic) the statistics indicate that one third were sales
to Americans, one third to wealthier Dominicans, and one third to
Europeans or other nationalities (Latin Americans). So, if the
Americans stop buying, one could theoretically argue that it might
effect one third of your sales, but not all. And with that said, I do
not think such sales from better off Americans will dry up altogether,
because these buyers, generally speaking, are not consumers living on
the edge, as they say. Here is a recent news article of interest
on this very topic:
.
IMF
WARNS FINANCIAL MARKET TURMOIL WILL CONTINUE
By
Angela Balakrishnan - September 24, 2007
.
The
impact from the turmoil in financial markets will continue to be felt
next year with the US BEARING THE
BRUNT of the slowdown in economic growth, the International
Monetary Fund predicted today. IMF managing director Rodrigo de
Rato said that WORLD GROWTH
should remain firm, but will be below levels seen this year and last as
downside risks intensify due to the global credit crunch. Mr De
Rato added that MOST COUNTRIES
should be able to cope with the financial conditions, which he said
will have a particular impact on America next year. It has an
effect on the real economy which will be felt more in 2008, with GREATER INTENSITY IN the United States,
LESS IN OTHER AREAS.
.
http://business.guardian.co.uk/markets/story/0,,2176193,00.html
|
|
|
