Alan's Finance Blog

My Favorite Investment Haven For the Next Decade

Dear Sovereign Investor,

The lion is about to roar.

And for those who track the source of the sound, small fortunes await.

The lion is the tiny, island city-state of Singapore – a Sanskrit word meaning Lion City. The country sits at the heart of Southeast Asia, was once governed by British rule, and has its key cultural ties in North Asia – specifically, China.

Individually, those defining characteristics don’t mean much, since many other countries can claim at least one of those attributes. But combined they mean that Singapore is on the cusp of emerging as the most-crucial destination for hundreds of companies desperate to access the rising middle-class of China… as well as the exploding class of emerging consumers all across Southeast Asia, particularly Malaysia, Indonesia, Thailand, the Philippines, and Vietnam.

That consumer population is among the fastest growing in the world, and at the same time pocketbooks across the region are fattening at a rapid pace. Smart companies see the opportunity in the region… and they are rushing in to use Singapore as a base, for reasons I’ll explain in a moment.

To me, it all points to one profitable conclusion. Singapore will be one of the world’s top investment havens for at least the next decade, if not longer…

Singapore: Better than Hong Kong and
as Safe as Switzerland

There’s no question that Hong Kong is an important place to invest some of your money. The city is the gateway to China and one of the three premiere stock markets in the world, arguably more important today than London and New York.

But Singapore is important for a different reason.

Where Hong Kong mainly provides a gateway into China, Singapore’s access includes China and its Southeast Asian neighbors. More important, because it is physically part of Southeast Asia it has a far-deeper understanding of regional tastes and desires. Better still, it has strong banking laws and property rights, which is why many refer to it as the Switzerland of Asia.

And all of that gives Singapore a huge advantage – and the money pouring into the country confirms it. Money is flowing into Asia these days from across the world, but it’s looking for more opportunities than are available in China alone. Savvy institutional investors recognize that uniquely profitable opportunities also exist in fast-developing countries like Malaysia and Indonesia that are packed with hungry consumers that have increasing amounts of money to spend. And the easiest way to reach them is through Singapore.

But those investors are not alone. Many of the nouveau wealthy from Malaysia, Indonesia, Vietnam and elsewhere across Southeast Asia are heading with their cash to Singapore as well, largely because the Singapore dollar, like the Swiss franc, is one of the three best-managed, most-stable currencies in the world. They live in currency and political regimes that haven’t always been stable, and they see Singapore as one of the world’s truly safe havens, right up there with Switzerland.

And it’s a place where companies globally and regionally want to relocate because Singapore currently is the single best place to build a business. Here’s a glimpse of what makes it so attractive:

• #2 in the world as the city with the best investment potential
• #1 for having the most-open economy for international trade and investment
• #1 for the easiest place to do business
• #3 most-competitive country in the world
• The least bureaucratic place for doing business in Asia
• The most-transparent economy in the world
• #5 globally in having the least government corruption

Singapore also operates in English and is based on a British legal framework, making the country easy to navigate culturally for the non-Asian companies and investors who are flooding in to profit from Southeast Asia’s growth. And, as the statistics above show, it is arguably the one market in the world that is most-conducive to business.

A Major Cog in Asia’s Consumer Economy

My first brokerage account in Asia was in Singapore. And it’s a city I love to visit. I know from first-hand experiences, and from meeting with executives of Singaporean companies, that this country is better-positioned than any other to benefit from what’s now happening beyond its borders.

Asia outside of Hong Kong, Singapore, Taiwan, South Korea, and Japan is urbanizing at a pace faster than the rest of the world, according to United Nations research. Local economies across the region are growing more affluent every year. Their populations are better educated much like it used to be in America, when young generations fully expected to live a better life than their parents. Also, worker salaries are rising rapidly and consumer demand for material goods is exploding.

Singapore’s government sees the opportunity it has to become a major cog in Asia’s consumer economy. The Prime Minister has established an Economic Strategies Committee to “deepen capabilities among Singapore companies to seize opportunities in Asia.” Meanwhile, Singapore’s trade agency this summer outlined a “sense of urgency” for Singapore’s largest companies to expand abroad to capture the growth of Asia’s emerging middle class.

That trend has many more years to play out, and Singapore promises to be at the heart of it all. The country’s stock exchange is loaded with consumer-products companies in everything from food and beverage, to tourism, healthcare, and retail.

If you want to participate in Asia’s emerging consumer class, you have to start in Singapore. The lion is about to roar.

Until next time, keep a global view…

Jeff D. Opdyke
Editor, Emerging Market Strategist

Why China Should Be on Every Investor’s Mind

Dear Sovereign Investor,

In the spring of 1989, students demonstrated for democratic reform in Beijing, China. The movement was centered in Tiananmen Square, at the heart of the capital.

I watched the unprecedented coverage from my London office.

On June 4, the People’s Liberation Army moved in, killing hundreds, if not thousands of protestors.

Two weeks later, I talked to my colleague in New York.

“If we want to get close to the Chinese, let’s go there now – while the rest of the world is treating them as a pariah.”

That year, I was stationed in London to run Philipp Brothers’ global precious metals and nickel business. Our commodity trading house had been doing business in China for decades. I had travelled to China several times. I had many contacts there, although they were all government business people and fiercely loyal to the communist government.

We knew that China was the future. Not only did China produce commodities, but she consumed more and more of them each year.

We knew that China would grow and become the most important player in the commodities markets in the decades to come.

We also knew that the commodity trading companies that developed the best relationships over there would not only have an edge in the markets, but with Chinese orders to buy and sell commodities, those with the relationships would run the markets.

I contacted the People’s Bank of China. We were quickly granted visas and appointments with the government agencies that bought and sold everything from gold and silver to copper and the other base metals.

Some of our colleagues (and most of our families and friends) told us that we were crazy to go, it was dangerous. But my colleague and I decided that it was in the best interest of our business to be the first ones there. So we travelled to Beijing at the end of June, just weeks after the massacre.

When we arrived the airport was quiet. The streets were quiet. There were very few foreign visitors. The situation was tense.

The day before our meetings, we visited the square. We looked around at the stains and holes in the pavement. It was a difficult site to behold.

The next day, we were careful to only discuss business with our hosts. They were happy to see us and thanked us profusely for coming.

We all attended a banquet that evening. After many toasts and shots of Mao Tai (which tastes like grain alcohol), our hosts loosened up.

They asked what we were hearing in New York and London. They called it propaganda and said that no one was hurt. The protesters were made to “see the light” and they retreated. It was the party line.

Then they proceeded to reveal the most interesting and perhaps most prophetic information of our careers…

China’s 100-Year Plan

Our hosts explained that China was on a path to reform, but it could not happen overnight. Slow and steady was the only path for the Chinese people to grow and prosper.

You see, according to our hosts, the Chinese had a 100-year plan.

Unlike Eastern Europe that would become a ward of the West after the collapse of the Berlin Wall, no one was there to support China if her economic environment collapsed. The difference was a combination of history and geography. China was on its own while Eastern Europe had the wealth of Germany, France and England to support it.

The Chinese explained that we would see the Eastern bloc countries struggle economically while China would maintain a slow and steady pace of economic reform and growth.

The future would prove that they were on the correct path.

Our dinner ended as did our meetings. It was a successful trip. We built a good relationship with several Chinese officials.

For quite some time, the Chinese came to us with their business, much to the dismay of our competitors. More than that, however, I learned something.

Our hosts were dead right in their predictions.

I do not condone what the Chinese government did in Tiananmen Square. But just as she did then, China knows her path now.

What China Buys, You Should Buy

In the last 22 years, the world has watched China blossom into the second most powerful economy in the world, soon to be the first. China is not beholden to anyone.

Today, with the country in building mode, China is the demand side of the equation in the world of commodities.

China continues to grow and consume. Her emerging middle class is the biggest in the world. As it expands in wealth and numbers, it will continue to support prices for all commodities and raw materials for decades to come.

Evidence of China’s hunger for commodities is felt when she routinely buys on price dips. The need for raw materials in China is significant, and the government understands that strategic stockpiles and investments in commodity-producing companies around the globe will ensure that the country has sufficient supply.

The message for investors is clear – follow China in business. When she buys, you should buy. China is still very much the future.

One way for investors to monetize this trend is to purchase a diversified commodity producing company that will benefit from China’s continued need for raw materials and higher commodity prices.

Rio Tinto PLC (NYSE: RIO) is such a company.

RIO is involved in each stage of metal and mineral production. The company produces aluminum, copper, diamonds, gold, coal, iron ore, uranium and industrial minerals. The company operates in over 50 countries, but primarily North America and Australia.

And, the stock is cheap. RIO is currently trading in the $70 range with a price-to-earnings ratio of 9.96 times earnings. It also pays a dividend of 1.51%. In 2008, RIO traded up to $125 per share.

This powerhouse commodity producer is an excellent way to continue to participate in China’s growth. I would buy RIO up to $74 per share. The stock is a long-term play on continued commodity consumption – which is the China story.

Happy Trade Hunting…

Andy Hecht
Editor, Trade Hunter
Blog: Commodity Options Outlook

How to Stay on the Right Side of the IRS

Dear Sovereign Investor,

The right offshore legal structure can offer many benefits: asset protection, financial privacy, tax savings and access to a wider world of investments.

Yet if your structure is not “compliant,” you risk losing these benefits and worse. You could face significant fines from the IRS and, in the extreme, even jail time.

Fortunately, in June, the IRS announced that taxpayers with offshore investments have through Aug. 31 to disclose previously unreported foreign account holdings. This means Americans have an opportunity to participate in a new “voluntary disclosure initiative” in order to get current on their tax returns without risking jail time.

The IRS has such specific reporting requirements for offshore investments and if you don’t know which forms you’re responsible for submitting you risk making an innocent mistake. Here’s a checklist so your offshore structure is helping you build and protect your wealth and not putting you in legal jeopardy.

Five Steps to Make Sure Your
Offshore Structure is in Good Standing

The truth is, it’s all too easy to run afoul of the U.S. taxman by under-reporting and misfiling the proper returns. So a key principle to keep in mind is that if you should suspect your offshore structure may not be compliant, take quick action to correct any mistakes before the IRS comes a knocking.

Here’s a quick checklist to help you do that…

1. Have Your Offshore Structures Reviewed Annually

Put as much emphasis on your annual financial review as you would for your annual physical.

Prevention is key. Don’t get caught in a bad spot because the tax code has changed – impacting your offshore structures – while you are left in the dark. And don’t assume that a non-U.S. professional will remember which U.S. IRS forms must be submitted. It is up to you to ensure that the taxman gets everything on time and accurately filed.

2. Work with an International Tax Attorney – Not a CPA or Accountant

If you have any concerns about reporting requirements, work with someone who specializes in international structures and tax reporting.

Make certain your offshore structure is 100% compliant. It’s never a good feeling to realize you’ve run afoul of the taxman. But the fate of your finances is in your hands. Rather than run the risk of increased penalties or the threat of an IRS shakedown – be proactive. Chances are, your structures are in good standing. But it pays to know for sure. Obtain the expertise of a licensed professional as well as the time honored principle of attorney-client privilege.

3. If You Discover Under-Reported Income – Seek Criminal Tax Counsel Immediately

U.S. citizens and U.S. resident aliens are required to report their world-wide income annually. If your international tax consultant believes you have inadvertently violated IRS reporting requirements, seek criminal tax counsel as soon as possible.

Under no circumstances should you, yourself, go to the IRS directly to resolve your situation!

Criminal tax attorneys understand the necessary process to resolve most reporting mistakes. Their job is to represent you before the IRS and to work quickly and efficiently to ensure that your structure is fully compliant.

If you can prove reasonable cause and/or the absence of willful neglect for your failure to file the returns, you may be able to avoid penalties.

In a best-case scenario, all you’d be liable for is back taxes plus interest. (Keep in mind, income must be reported in the year it was earned.)

4. Have Your Legal Counsel Hire an Accountant

By allowing your legal counsel to hire a CPA – you will greatly streamline the reporting process. In most situations, you will be required to provide documentation for up to three years (or as much as six years if you have made any mistakes that could be construed as tax fraud).

For example, say you established an offshore trust in 2003. You believed that your offshore trustee was filing the IRS Form 3520A each year. Yet four years later, during a routine conversation, you discover (much to your surprise) that they never filed the form. In order to correct this mistake you would need to go back to the 2003 tax year and file all the necessary documents from that point forward.

Keep in mind that failure to file the form 3520A or 3520 could lead the IRS to assess a 35% penalty against the value of your trust assets.

5. Don’t Liquidate an Offshore Structure Until You Take Care of Delinquent Tax Forms and Penalties

Disbanding an offshore structure will not help you avoid trouble. If the IRS discovers that you’ve closed a non-compliant structure without first getting it compliant, they could bring criminal charges against you.

But there is a silver lining …

The government wants to encourage voluntary tax compliance. So even though the IRS has the right to file criminal charges against anyone who is non-compliant, you can minimize this threat by initiating contact with the agency.

And remember, you are facing an important deadline: Aug. 31, 2011 if you or a loved one needs to apply for amnesty.

In Wealth & Prosperity,

Erika Nolan
Publisher, Sovereign Society

Gold Mining Stocks vs Gold Bullion – Which is the Better Investment?

Dear Sovereign Investor,

Gold has been in a secular bull market now for more than 10 years after blasting off from prices below $300 per ounce in 2001. In 2008, gold surpassed the 1980 high price of $850 and has not stopped rallying since, climbing to $1,577.40 in May of this year.

Over the years, gold-mining shares have had a high correlation to the moves in the underlying gold bullion price. It makes sense… gold producers make more money when gold prices go up and less money when gold prices go down.

However, there have been times when the shares in these companies have either outperformed or underperformed moves in gold. An astute investor can take advantage of these situations to enhance returns in the gold market while always staying invested in gold, the ultimate reserve currency!

Recently, shares in some of the most profitable and well-established gold mining companies have come under extreme pressure. This has caused quite a divergence between the price of gold bullion and the price of mining shares.

Of course, individual companies have their own fundamentals.

Management issues, production yields, currency fluctuations, litigation, political events and other factors impact their net values relative to gold.
However, over the past month we have witnessed a wholesale correction in the basket of gold mining shares. That simply means that either gold bullion prices are too high or the share prices (as a whole) are too low.

Let’s take a look at this daily chart of the Philadelphia Gold and Silver Producer Index (XAU) versus the price of gold bullion:

Gold Stocks Are Really Underperforming Gold Bullion

As you can clearly see, since April 2011 the shares of gold producers have diverged considerably from gold prices.

What This Divergence Means for Gold Investors

In June, my colleague Eric Roseman wrote about the downward move in gold-mining shares to Commodity Trend Alert subscribers. He said…

“The ongoing panic-selling is just way out of whack with the fundamentals. Most analysts are projecting gold-mining stock profits based on $1,000 gold; it’s just insanity. I’ve never seen a market so negative on the prospects of an industry. From their highs earlier in April, the large-cap gold miners are down 18%.”

What’s the implication for gold investors?

As Eric explains, “The gold stocks are still in the tank but that’s where you want to be invested. Judging by previous corrections of this magnitude since the early 1970s, gold stocks should double over the next 12-18 months. The X5 Ratio, which divides the mining stocks into gold, is still at an extreme level trading at 7.43.”

For some context, for the past 25+ years, the ratio has averaged 4.5:1, so the recent divergence in values is significant. In the current environment, gold-mining shares are undervalued by more than 60%.

Remember, these companies take gold out of the ground and sell it. A price of $1,500 per ounce dramatically increases these companies’ profits. Their stock prices don’t currently reflect these higher profits.

What an opportunity!

From 1992 – 1996, gold mining shares outperformed the price of gold bullion. During that period, the ratio of gold to the XAU actually traded between 2.6:1 and 3.5:1. That means gold was very cheap relative to the share prices of gold producers.

Let’s look at the recent price moves of some influential gold miners…

Two Heavyweight Gold Producers Underperform Gold

Here we have a chart of gold bullion prices versus Barrick Gold (NYSE: ABX) and Goldcorp (NYSE: GG) share prices. ABX and GG are heavyweight gold producers who have been around for years, and they are “Class A” gold-mining concerns.

Notice that since the end of April, gold has fallen by a mere 5.18%. Meanwhile, ABX and GG shares have fallen by 19.5% and 15%, respectively! This chart really illustrates that divergence.

A Golden Opportunity in the Miners

The bottom line is that either gold prices are too expensive today or gold mining stocks are too cheap.

As a long-term bull in the gold market, I believe that the latter is true. That’s why I think that there is a “golden” opportunity to switch out of some longer term physical bullion holdings at current levels and purchase shares in top-tier gold producing companies. If the price of gold falls, these shares are less susceptible to downdrafts in price, as they’ve already moved down dramatically!

As I have pointed out many times over the past months, gold’s ascent has been slow and steady. It cannot be characterized as a “bubble.” What the daily historical volatility of the gold market tells us is that the yellow metal tracks currencies such as the U.S. dollar or the euro more closely than it tracks commodities.

As such, despite the short-term gyrations in value, the yellow metal has become the world’s ultimate safe-haven reserve currency. Central banks are net buyers, and investors have been buying and hoarding gold for a decade now. This trend continues, and given worldwide economic fundamentals, there is no reason to believe that this will change anytime soon.

Once gold continues its rally (perhaps after only a modest correction), gold producers’ share prices will have to increase as these companies continue to mine gold and sell it for higher and higher market prices. These companies are bound to see their profits skyrocket, and the price of their shares will reflect this!

There are times when gold prices are cheap relative to gold mining shares. This happened from 1992-1996. There are times, like today, when the opposite is true.

Astute gold market investors should always be looking to “tweak” or adjust portions of their portfolios – switching from gold mining shares to physical bullion or instruments that reflect the physical bullion price as opportunities present themselves.

Happy Trade Hunting…

Andy Hecht
Editor, Trade Hunter
Blog: http://hecht.sovereignsociety.com/

235 Years Later, Is Our Freedom Preserved?

Dear Sovereign Investor,

The Declaration of Independence is one of the most memorable freedom documents of all time. It proclaims every human being’s right to “life, liberty and the pursuit of happiness.”

One of our Nation’s Founding Fathers and our 2nd U.S. president, John Adams, left us some words to consider this Fourth of July:

“You will never know how much it cost the present Generation to preserve your Freedom! I hope you will make a good use of it. If you do not, I shall repent in Heaven that I ever took half the pains to preserve it.”

Adams and his political rival, Thomas Jefferson, our 3rd U.S. president, both died on July 4, 1826.

Ten days before he died at his Virginia plantation, Monticello, Jefferson sent a remarkable letter to the citizens of Washington, D.C., saying he was too ill to honor their invitation to be with them on the 50th anniversary of the Declaration of Independence.

While his words were addressed to the citizens of Washington, Jefferson was speaking to all future generations of Americans – to you and to me.

His letter is considered one of the sublime exaltations of individual and national liberty — his personal vision of the Declaration of Independence he helped to write and of America as examples to the world of the blessings of self-government.

In it, Jefferson expressed his wish that “the annual return of this day” would “forever refresh our recollections of these rights, and an undiminished devotion to them.”

What Would Our Founding Fathers Think?

In light of Jefferson’s admonitions about preserving our rights, it is disquieting to speculate what he would think should he return to see what is happening in modern America.

I think Jefferson, a man of the world and a brilliant intellectual, would be astonished, even sickened, at what has happened to our cherished rights. These are the same liberties for which Adams noted the great sacrifice that had been made by so many.

Ask yourself, have we as a nation and as a people shown “an undiminished devotion” to the rights Jefferson, Adams and so many others fought for — rights for which over a million Americans have died to protect?

How could the 3rd president comprehend that both a “conservative” 43rd president and a “liberal” 44th president had forsaken the constitutional rights about which he spoke so eloquently?

President Barack Obama, as a lawyer and professor who taught constitutional law, has failed to live up to his campaign pledge “to restore our Constitution and the rule of law”… both of which President George W. Bush, certainly no student of the law, did so much to weaken and distort.

Both presidents claimed to have sweeping powers as commander in chief that allowed them to bypass the Constitution and other legal constraints when fighting terrorism, an approach that trampled individual rights.

Did They Die in Vain?

This year is the 150th anniversary of America’s bloodiest conflict, the Civil War. More soldiers died in a moment or two at Antietam, Gettysburg or Fredericksburg than have fallen in Iraq or Afghanistan. But there is a rough and final equality among every one of the dead from then to now.

They died before their time, much of their promise unrealized, and in the service of their country. Lincoln at Gettysburg uttered a string of negatives – “We cannot dedicate; we cannot consecrate; we cannot hallow this ground” – to express our inability to ever fully understand or recognize sacrifice of this degree.

But Lincoln did suggest that we as Americans ought to at least make the attempt.

But how many Americans today would be willing to die, as more than a million before us have done, for our freedoms and liberties? Do we really still have those liberties? Or have our freedoms been taken from us, devaluing the sacrifice of all those who died. Did they die in vain? In his eloquent Gettysburg Address, President Abraham Lincoln suggested that what we do – you and I – will determine the answer to that momentous question.

American independence from Great Britain was fought and won against great odds. But to an incredible degree the U.S. government, under both political parties, has now replicated and become even more destructive of American liberties than King George III and the British ever were.

Under the undefined, open-ended “war on terror” and the failed “war on drugs” politicians have steadily eroded our American liberties. The PATRIOT Act brought back the hated colonial British Writs of Assistance and has all but destroyed Fourth Amendment protections against unreasonable searches and seizures. Indefinite detentions and military commissions resemble the Crown’s secret Star Chambers that had ended before the Revolution began in 1776.

Undiminished Devotion Needed Now

On this 235th anniversary of our Declaration of Independence, 185 years after Jefferson expressed his dying wish that “the annual return of this day” would “forever refresh our recollections of these rights and an undiminished devotion to them,” no honest observant American can say with any certainty that we have honored his wishes.

And yet, it is not too late for Americans to reclaim and reassert the rights for which so many gave their last full measure of devotion.

So what’s to be done?

Well, the American people need to wake up and demonstrate the same fearless devotion to freedom shown by our ancestors – even if that means living, working or doing business beyond American shores.

Many politicians deem these practices as “un-American,” or even criminal. But when we recommend offshore financial havens for placement of bank accounts or asset protection trusts, or suggest countries for a possible foreign residence, we’re not doing so to be “unpatriotic” or anti-American. Quite the contrary – we offer these alternatives because we haven’t lost sight of what it means to be true American patriots.

To borrow the words of our dear friend and Sovereign Society founder, the late John Pugsley…

“What, then, is the defining attribute of a patriotic American?

“Certainly, it could not be that the individual should kneel and unquestioningly accept the authority of the Nanny State – paying any tribute it demands and obeying all its edicts just because it wraps itself in symbols – the Stars and Stripes, or the Presidential Seal or the Washington Monument.

“True patriotism to America must involve a dedication to the same principles that motivated our Founding Fathers when they banded together in rebellion against the tyranny of King George. If there was one thing our Founding Fathers would have wanted to see instilled in the American spirit, it would be a belief that all individuals are endowed with the unalienable right to life, liberty and the pursuit of happiness.

“Real American patriots will stand true to the principles of the American Revolution, and refuse to kneel before state power. If this means protecting their assets or their freedom by putting them beyond the reach of a tyrant, that is what, in good conscience, they must do. In that act, they would follow the lead of the millions of immigrants who fled state tyranny in their own countries in search of liberty in America.”

As true American patriots, we must take it upon ourselves to stay loyal to our principles… even if that means we escape the incursions on our liberties by becoming a citizen of another country or moving some of our wealth offshore.

The truth is that the Bill of Rights and the U.S. Constitution are being gutted and their sacred guarantees rapidly are being destroyed. Once they are gone there will be no turning back. We must act now before it’s too late.

It is my fervent prayer that God may bless America – now more than ever.

Faithfully yours,

Bob Bauman, JD
Editor, Offshore Confidential

Overcoming the Obstacles to Freedom

Dear Sovereign Investor,

When I applied for my first U.S. passport many years ago, I merely completed a simple application form and forked over $25 to the State Department. A few weeks later, my little blue book arrived, ready to accept stamps from friendly immigration agents worldwide.

That world ended on Sept. 11, 2001. Ordering a passport now sets you back $135, and you must also provide your Social Security number.

Currently, you don’t need to present copies of prior years’ tax returns to renew your passport, but Congress could impose this requirement anytime.

And it’s probably safe to assume the requirements will become more stringent as time goes on.

A recent report released by the Government Accountability Office claims the IRS could collect billions in owed taxes by blocking delinquent Americans from acquiring or renewing U.S. passports until they settle their alleged debts.

All of this is to say if you’re a U.S. citizen, it’s more important than ever to get a second passport … just in case.

A Second Passport Is Literally a
Passport to Freedom

A second passport is your key to free movement, greater flexibility and legal tax reduction.

It can expand your travel possibilities. Even a citizen whose passport usually allows easy international access can find a visa denied due to travel restrictions, trade sanctions, or political disturbances. For instance, the United States forbids its citizens from visiting Cuba without obtaining a “license” from the Treasury Department. No other passport carries such a restriction.

It lets you travel if your primary passport is lost, stolen, confiscated, or cancelled. That’s increasingly common in the United States. U.S. citizens can be denied a passport if they owe money to the IRS or child support payments. Even U.S. citizens living abroad must pay tax on their worldwide income. If they fail to do so, the government can decline to renew their passport.

It can reduce your profile to terrorists. For instance, travel in many parts of the world using a U.S. passport can make you an instant target for criminal or terrorist groups. If you travel with a passport issued by a politically neutral country, you’ll present a much lower profile to anyone with an axe to grind against your country.

It gives you greater travel privacy. A U.S. passport is now equipped with biometric identifiers and a radio-frequency identity chip. It can potentially track you everywhere you travel. If you use your U.S. passport to visit a country not favored by U.S. authorities, you may face questioning—or worse—when you re-enter the United States. But, if you use your second passport to enter that country instead, no record exists of your visit in your U.S. passport.

It allows you to travel internationally if your primary passport is withdrawn. The first measure many governments take if you come under investigation, or become an “enemy of the state,” is to confiscate your passport. A second passport renders that sanction much less effective.

It gives you the right to reside in other countries. A passport from a member of the European Union, for instance, gives you the right to live or work in any of 27 EU countries. Another example: a passport from a member of the Caribbean Community (e.g., the Commonwealth of Dominica), gives you the right to live or work in most other CARICOM countries.

It can aid in international tax planning. For Americans, a second passport has another benefit: it is an essential prerequisite to expatriation; i.e., giving up U.S. citizenship in order to permanently disconnect from U.S. taxing authority.

Who Qualifies for a Second Passport?

In most cases, if you qualify for a second passport, your spouse and minor children will also qualify.

It’s possible that you qualify for a second passport by virtue of your family history, marriage, or religion. If not, you can acquire citizenship and a second passport following a period of prolonged residence in most countries. Physical residence for a period of three years or longer is generally required to qualify.

If you don’t want to wait that long, a handful of countries offers “instant” citizenship in return for a monetary contribution or investment. The Commonwealth of Dominica and the Federation of St. Kitts & Nevis are the only countries with an official, legally mandated, economic citizenship program.

The least expensive economic citizenship program is from Dominica, with total costs for a single applicant coming to about $100,000. You’ll generally receive your passport six to nine months after you apply.

In all cases, applicants must pass a strict vetting process that includes a comprehensive criminal background check.

Overcoming the Obstacles to Freedom

Individuals who might qualify for a second passport hesitate because of perceived obstacles. Fortunately, you can usually overcome them.

In my experience, the biggest obstacle for a person who wishes to acquire a second passport is a past indiscretion that led to arrest or detention. In most cases, this will show up on the police record that must be submitted with your application.

Fortunately, most misdemeanors won’t disqualify you from receiving a second passport—only a felony. My company has successfully processed second passport applications for individuals with DUI, trespassing, or other misdemeanors on their record.

Another common obstacle is a name change. If the name on your birth certificate doesn’t match the name under which you apply for a second passport, you need to show proof that you legally changed your name. For married women who assume their husband’s name, a certified copy of a marriage certificate is sufficient. But for other name changes, you’ll probably need to go through a formal name change process. In many common law countries, including St. Kitts & Nevis and Dominica, this process is called a “deed poll.”

A third obstacle may occur if you can’t find the required documents. One of my clients, for instance, lost his college diploma, which was required for an application for second citizenship. What’s worse, it couldn’t be replaced because the university he attended had closed. The solution was for the client to produce a college transcript, together with a sworn affidavit certifying his attendance and graduation. This turned out to be an acceptable substitute for the actual diploma.

If you sincerely believe you can benefit from, and qualify for, a second passport, don’t let minor obstacles get in your way. Many times, you will be able to overcome them—and often, they are a small price to pay for the benefits that come with dual citizenship.

Sincerely,

Mark Nestmann
Wealth Preservation and Privacy Expert
Blog: http://nestmann.sovereignsociety.com/

Rising Property Values Make Real Estate in this South American Country a Safe and Stable Investment

Dear Sovereign Investor,

If you’re looking for an environment where your money is safe, your property investments are profitable and your family can feel safe and secure…

Consider becoming a resident of Uruguay.

Uruguay is one of the most economically developed countries in South America, with a high GDP per capita. The Economist ranked it 21 out of 167 countries on the 2010 Democracy Index. And according to Transparency International, Uruguay is the 2nd least corrupt country in Latin America, behind Chile.

Besides these accolades, Uruguay has even more to make it the best offshore residence for you.

It is one of only a few remaining countries with a sound banking system that welcomes Americans and provides far greater financial privacy than you get in the United States. It also has a pleasant climate and friendly citizens.

And becoming a resident is relatively simple to do. All that’s required is your presence.

But before you begin to plan your move, there are several details you should know. For instance, immigration law states that residency is granted to those “who show intent to reside in Uruguay.” This means you must have an established address in Uruguay (rented or owned), which the Immigration Department may randomly verify.

Now, this does not stop you from spending several months outside of the country during your application process. But you must meet the minimum “presence requirement” or your application may be delayed.

After Uruguay grants you permanent resident status, you keep your status so long as you do not live outside of the country for more than three years.

The beauty and stability of this place make these requirements easy to meet. And since you have to stay in the country for a few months every year, you should consider investing in local property…

Property in Punta del Este –
a Worry-Free Investment

Punta del Este is Uruguay’s answer to Newport, Rhode Island.

Bridge nights and cocktail parties are part of the routine. Many wealthy people make their home there, and international cruise ships regularly visit the harbor.

As an Atlantic Ocean-side town, Punta del Este has a great deal of “old money,” which makes it a more established re-sell market.

Prices are not cheap because of international demand, but your investment is safer because you’ll be able to find a buyer when you want to cash out.

There are currently 70 new developments in Punta del Este, all of them without mortgages. It’s a cash business that is owner/developer financed.

The lowest entry-point price on the peninsula is $300,000. The lowest you’ll pay for a studio apartment in the area is $160,000. Historically property in Punta del Este has increased in price and holds value well.

The rental market is strong during peak summer season — January to March – with a return of 3–4%.

Adjacent to Punta del Este is the small town of La Barra. It is highly sought after so you’ll pay between $600,000 and $800,000 for property there. But with art galleries, shops, narrow, European-style streets, and youth oriented activities, from daytime sports on the fine sandy beach to all night discos, it is well worth the investment.

Another great place to invest in Uruguayan property is in the country’s capital…

Montevideo: One of the World’s Safest Cities

Montevideo is an attractive, modern city — among the safest in the world.

Located on the southern Atlantic coast of the country, the city contains many impressive high-rise buildings.

The average price for a 2,500 square foot apartment in this area is about $550,000. New construction prices are higher, closer to $750,000. A smaller apartment of about 1,800 square feet, in an equally good section of the city, would cost you around $350,000 plus.

Most apartment buildings have association fees of a few hundred dollars a month. These allow you to use common areas and enjoy a parking spot.

Overall, the Uruguayan property market has a dependable security that makes investments safe and stable. For example, farmland prices have increased in value 10 times since 2002 to a present average price of $2,100 per hectare.

Uruguay is not a country where you should look for a cheap retirement. Its first world living standards come with first world prices.

For First World Living
Without Big Brother… Go to Uruguay

Uruguay offers you financial and physical security – you feel safe walking the streets in Montevideo or Punta del Este… or anywhere else in the country.

What else makes Uruguay a great offshore haven?

It is an open, free market economy, with no exchange controls or foreign currency limitations. 80% of bank deposits in Uruguay are in U.S. dollars or euros. Accordingly, the prices for most big-ticket items like real estate and cars are denominated in U.S. dollars.

An export-oriented agricultural sector characterizes Uruguay’s economy. It has a well-educated work force, and high levels of social spending.

The country’s main industries are tourism and farming. Political stability has boosted the economy. It has a strong property market with high liquidity and consistent growth. And acquiring residency is relatively easy.

If you want to learn more about what the country can offer you, I recommend you schedule a trip to see the country first hand. If you like what you see, return and rent a place for at least six months so you can see if you’d really like living there full-time.

As an offshore haven, Uruguay is definitely a place to consider seriously.

Faithfully yours…

Bob Bauman, JD
Editor, Offshore Confidential

August 2nd: A Day of Reckoning for U.S. Bonds

Dear Sovereign Investor,

Imagine two guys, John and Pedro. They both need to borrow money from you.

John is practically bankrupt. But he has never defaulted on any loans before, so John has a great credit score. With this high credit score, John expects to borrow money from you at a low interest rate.

In stark contrast, Pedro is in great financial shape. But he has defaulted on loans before, so his credit score is poor, and he’s prepared to pay you a higher interest rate for the loan.

Who would you lend money to?

If you’re like most investors, you would pass up the higher interest rate from Pedro and lend money to John instead. You would see that higher credit score and think John is the “safest debtor” (even though he’s nearly bankrupt).

John represents the U.S. Treasury. Pedro represents many emerging market countries that have improved their fiscal situation in the past decade or so and now offer higher rates.

Today, I want to show you why lending money to such emerging market countries is a much more strategic and profitable way to build your retirement fund.

More importantly, I’ll show you why U.S. Treasuries are anything but “safe”…

The U.S. Has Raised Our Debt Limit 74 Times

While everyone is focusing on Greece, another much larger country is getting very close to defaulting on its bonds…

The United States.

According to the U.S. Treasury, if the Congress fails to raise the debt ceiling, our country will default on August 2nd.

Congress created the debt ceiling back in 1917 to give the U.S. Treasury the ability to issue debt without asking Congress for permission. But the Treasury can only borrow up to a specified amount, so debt doesn’t get too out of control.

But the ceiling hasn’t really prevented that from happening. According to the Congressional Research Service, they have raised the debt limit 74 times since 1962. And they’re about to raise it once again.

Republicans can’t agree with Democrats on a deficit-reduction plan. But both sides agree the debt ceiling has to be raised. Nobody wants to be blamed for a U.S. default.

So at this point, it’s very likely Congress will raise the debt ceiling by a small amount, but they won’t create any long-term deficit-reduction plan.

In other words, Washington will just buy more time – like they have been doing for the past 50 years.

And this has important implications for your investments. Let me explain…

Why the Status Quo Is Bad for Your Retirement

When Congress raises the debt ceiling once again, they will just be maintaining the status quo. They won’t take any long-term austerity measures to fix our debt situation.

That status quo is dangerous to your retirement income.

It means the U.S. will continue on the path of losing its AAA status. We need that triple-A rating from all the rating agencies to keep our overseas investors.

If we lost that rating, the value of the Treasuries will take a big dive.

The status quo also means the dollar will continue its long-term downtrend, and you will continue losing purchasing power.

The lack of any long-term fiscal plan also casts a cloud of uncertainty over businesses. They can’t make important decisions, such as hiring and investing, if they have no idea how the tax environment or the U.S. dollar will look like in a couple years.

In other words, the status quo means the U.S. will just keep digging itself in a deeper hole. It means the dollar will continue to plunge. It means the Fed will have to keep interest rates near 0% indefinitely.

This is not a pretty picture if you rely on Treasuries for your retirement income. The good news is you don’t have to. There are better options.

Looking for Safer Options in “Risky” Places

In the 90s, investing in emerging market bonds was not for the faint of heart. You had a very real chance of never earning your money back – even if you held those bonds to maturity.

But those days are long gone.

Bonds from some emerging markets are looking much safer than debt from many developed nations. Countries such as Peru and Indonesia, for example, have a much healthier fiscal situation than the U.S.

Besides safety, these bonds offer much higher yields. Right now, Indonesia pays 6.88% on their 5-year bonds. Peru pays 3.40%. South Africa pays 7.50%.

Compare that to the meager 1.6% the U.S. will pay you to hold a 5-year Treasury – and hold your money in sinking U.S. dollars for five years.

Currency diversification is just one more reason to invest in foreign country’s bonds.

Besides a higher yield, you get the safety of investing in stronger currencies than the U.S. dollar. So you basically get paid to diversify away from the declining dollar.

With all these benefits, you would think that most investors would be looking abroad for higher interest plays for their retirement. But somehow many continue to invest in U.S. treasuries looking for safety.

Don’t make that mistake. It’s much easier to build an income stream outside the U.S., far away from the U.S. dollar.

Best Regards,

Evaldo Albuquerque
Editor, Exotic FX Alert

Reefer Madness in the Grain Markets

Dear Sovereign Investor,

In 1965, Neil Simon brought The Odd Couple to Broadway. The play was a smash hit about two mismatched roommates, Felix “The Neat Freak” Unger and Oscar “The Slob” Madison.

The characters were portrayed by acting legends Jack Lemmon and Walter Matthau, who later starred in the 1968 film version of the play. In the 1970s, Tony Randall and Jack Klugman reprised the roles of Felix and Oscar in the hit TV show.

Forty years later, on June 23, 2011, The Odd Couple debuted in Congress…

Ron “The Libertarian” Paul and Barney “Big Brother” Frank are the latest iteration of Felix and Oscar. And, they are perhaps the oddest couple of them all!

These two well-known Congressmen have announced that they are co-authoring the Frank/Paul Marijuana Legalization Bill, or H.R. 2306. This piece of legislation, if passed, will repeal federal penalties for production, distribution and possession of marijuana.

The Ending Federal Marijuana Prohibition Act of 2011 is consciously modeled after the repeal of the 18th Amendment, which allowed states to establish their own rules governing alcohol. This is the first time such a bill has been introduced.

It will leave states free to address the issue as they see fit. The federal government’s role would be limited to preventing the importation of marijuana into states that continue to ban it.

Barney Frank said, “The bill has no chance of passing” in the near future. But it is “a first step.”

The legislation is consistent with the political ideology of Representative Ron Paul, a committed Libertarian. But I am a bit confused by the stance Barney Frank is taking on this issue.

I can only believe that Frank’s motivation is driven by some Orwellian-Huxleyan fantasy of Big Brother feeding a type of soma to the American masses. This could just be Frank’s attempt to numb the public as he continues to push through Big Brother-type legislation like his namesake, the Dodd-Frank bill that imposes the meddlesome hand of government on the financial markets.

Two politicians with two totally different agendas – an “odd couple,” to say the least…

So folks, as a person who will probably support Ron Paul in the next election, I am in favor of this legislation. The amount of money required to keep marijuana illegal is staggering. Think of the governmental costs in terms of law enforcement and prison expenses. Think about the potential tax revenue that this “commodity” could bring into the coffers of state and federal government.

As a sovereign individual, I also believe that prosecuting responsible adults who choose to use marijuana interferes with personal freedom. After all, we can already choose to drink alcohol or smoke cigarettes. The prohibition of marijuana just does not make sense from a practical, financial and moral point of view.

What Would a Country that Has
Lifted the Pot-Ban Look Like?

Well, I was recently in Venice Beach, California. When you walk along the beach in Venice every other store either sells marijuana paraphernalia or medical marijuana itself, or offers medical exams for a “license” to purchase the drug.

I was approached by a young man in dreadlocks who asked if I was interested in procuring this license. I don’t think he was a physician. I told him that I did not have any current medical problems that would qualify me for one.

He told me not to worry… “Do you have a hang-nail? Do you have $40 bucks in your pocket?”

Apparently, $40 bucks is all it costs to purchase a marijuana license in California!

Now, I don’t think legalizing pot will lead to “reefer madness,” as many fear… not even close. A lot of Americans already smoke pot and will continue to do so whether it is legalized or not.

It is possible that demand for corn chips and snacks will increase dramatically to satiate a munched-out American populous.

But seriously, I expect the biggest impact to be on the commodity markets.

Marijuana: The New Cash Crop

America is the breadbasket to the world. The U.S. feeds itself and many other countries that import our corn, wheat, oats and soybeans.

Farmers always decide which crops to plant based on the relative economics of each commodity. We have seen crop substitution cause dramatic price movements in these commodities over the past few years.

Higher oil prices led farmers to plant more corn for ethanol production. As farmers planted corn in lieu of other crops such as cotton, soybeans and wheat, these other commodities appreciated dramatically in value.

The supply and demand equation tilted towards deficit in the production of the crops not selected for planting. In fact, we saw cotton prices rally over 500% in 2009-2010 when farmers planted corn and wheat instead of cotton in 2008.

Pot won’t be cheap, at least initially, if it is legalized. U.S. farmers will be tempted to grow marijuana in lieu of other crops. They will profit many times more from growing weed than they would from growing corn, soybeans, wheat, cotton, rice, rapeseed, oats or any other grain.

The bottom line is that the legalization of marijuana would cause shortages in traditional crops and huge price rallies for the grain complex. Fertile land is finite and farmers will make choices based on economics.

Cashing in on the Pot Bonanza

Companies like Archer Daniels Midland (ADM), Bunge (BG) and Monsanto (MON), as well as other agricultural processors and even cigarette manufacturers, would all look to profit from this newly legalized crop. They have a responsibility to their shareholders to do so – these companies are in business to make money.

Where there is demand for a commodity, there will be companies looking to supply and maximize the yield of that commodity. The U.S. could very well go from the breadbasket of the world to the smoke shop of the world.

Not to worry… in the long run demand is rationed by price, and over-supply will depress the price of a commodity. As the U.S. gets used to growing this new, profitable crop, prices will adjust to reflect supply and demand fundamentals.

However, initially, the legalization of marijuana will cause the prices for all agricultural commodities to skyrocket as farmers look to cash in on the initial marijuana bonanza!

Marijuana will be traded on exchanges just like any other raw agricultural commodity so that farmers and consumers can hedge their price risk. (I told Sovereign Investor readers recently how they can make money from the increased volatility created by producers and consumers trading in these markets.)

I believe that Rep. Ron Paul is well intentioned with this piece of legislation. It all comes down to sovereign rights for this principled politician. On the other hand, I believe that Rep. Barney Frank is either banking on pot as the new soma, or buying some farmland to cash in on the bonanza that he wishes to create.

The Broadway version of The Odd Couple won a Tony award. Neil Simon was nominated for an Oscar for the screenplay. The TV version of the show won several Emmy awards. I wonder if the Congressional version has any awards in its future…

Happy Trade Hunting…

Andy Hecht
Editor, Trade Hunter
Blog: Commodity Options Outlook

You’re Being Watched

Dear Sovereign Investor,

Creepy, but true…

Every time you go shopping, surf the Internet, or share an online news story with a friend, someone is watching.

In fact, there is an enormous, multibillion-dollar industry based on collecting personal data.

What books you buy…

What search terms you type into Google…

Even what charities you donate to.

It’s called “data mining.”

Retailers like Wal-Mart and Target use this technique to analyze local buying patterns.

Websites like Amazon and Netflix “data mine” your purchase and movie rental history in order to recommend products or films you might enjoy.

And the Central Intelligence Agency (CIA) is constantly “data mining” blogs, forums and wi-fi networks to identify terrorist “chatter.”

It’s a little creepy.

But it’s perfectly legal…

And what most people don’t know is, Wall Street banks and hedge funds are doing the same thing.

Now, individual investors can use this strategy to time the market.

Let me explain.

Twitter Predicts the Market?

Last year, a former U.S. Government Scientist named Johan Bollen published an eye-opening study called “Twitter mood predicts the stock market.”

In short, he analyzed the daily content of millions of online data feeds by using a pair of mood tracking tools.

And he found that by tracking American “mood states,” he could predict whether the stock market would rise or fall, with 87% accuracy – up to four days in advance.

Needless to say, this discovery caught Wall Street off-guard.

And now, some very powerful interests are scrambling to make it their own:

One former Goldman Sachs insider has funneled over $30 million into this “data mining” phenomenon.

Google and the CIA have invested millions of dollars together and now claim they’re using this technology to predict the future.

And U.K.-based Derwent Capital launched a $40 million computerized hedge fund to exploit the discovery. But they received so many investor phone calls, they’ve been forced to open a waiting list.

Over the past 12 months, I’ve been experimenting with a similar “data mining” strategy to win or breakeven on seven out of every 10 trades – without violating anyone’s privacy.

Instead of stocks, I’ve targeted the $4 trillion forex market. I’m using conservative leverage that gives me the ability to earn 10 to 20 times more than I ever could buy on the S&P 500.

Truth is, most traders don’t bother with currencies. But it’s simple to track the trend of any major or exotic currency and pounce when the moment is right.

Here’s how…

I’ve developed a basic, two-step strategy to minimize risk and maximize returns in the forex market.

The first part smoothes out the crazy gyrations so you can tell where the price of a currency is heading – higher or lower.

The second part – what I call “data mining” the forex market – can tip you off to a major breakout point.

It starts with knowing the direction of the trend…

Tip #1: Don’t Trade Against the Trend

One of the best ways to determine the overall trend is, drop a 50-period simple moving average on a currency pair’s daily chart. Check out an example of this below:

If the trend line is pointing down, you know that you have a better shot of playing against this currency pair. If the trend line is pointing up, you will have better odds if you go long.

Do this and you will gain a significant edge over other traders who waste time and money fighting the trend.

Tip #2: “Data Mine” the Market to Know
What the Masses Will Buy or Sell Next

Most people think it’s impossible to know when an established trend will reverse course. For good reason. Few traders (outside Wall Street hedge funds) possess the right technology to spot these subtle movements before it’s too late.

But over the past 12 months, I have been experimenting with a “data mining” strategy – similar to Dr. Bollen’s.

It tells me when to hop into a trade, hop out, or simply wait on the sidelines.

And though it’s not right 100% of the time, it’s helped me gauge with high confidence whether a currency pair will explode higher or lower – by letting me know if the masses are likely to pile into (or out of) a currency.

I’ve found this technique works very well on major currencies like the Euro and Australian dollar. But it works even better on a tiny corner of the forex market, made up of emerging market currencies.

My Exotic FX Alert subscribers have had the opportunity to benefit from this strategy for months. And we’ve used it to see currencies erupt anywhere from 7% to 132% higher… in as little as two weeks.

If you’d like to hear the full story on how this works, and whether it’s appropriate for you, we’ve recorded a brief tutorial video that explains everything.

I’ll be releasing it later this week. Until then…

Best Regards,

Evaldo Albuquerque
Editor, Exotic FX Alert