Today’s missive is longer than usual. Mostly
because we’ll be taking the rest of the week off for the Thanksgiving
holiday here in the U.S. And because I have some material I want to get
in, and that material runs long.
In addition to a thoughtful letter from
another dear reader, we’ll include our weekly Funnies, as well as an
essay on the topic of expatriation.
Rolling over the Retired
The following email came to me yesterday. It
was written in response to one of my recent rants about the damage the
sheer size and reach of the government is doing to the economy. In it,
Dennis discusses how the government’s decision to adopt easy money
policies has wrecked the financial plans of those living on fixed
incomes and set them up for a devastating fall.
Of course, since this group votes en masse,
as the situation worsens, the government will have to find alternative
ways of mollifying them with funds from the public trough – continuing
the vicious cycle that ultimately leads to default and financial ruin.
Here’s Dennis’s email…
Hi David,
I am a few months short of 70, lived by the
rules my entire life, saved my money so as to not burden my children
and enjoy the duration. In the late 1980s, I made two mistakes. I told
my wife when our investment portfolio reaches "X" amount of money, we
can afford to retire. The first mistake was telling her, because we
hit that number and she expected I was going to do so. Mercifully, I
did not. The second mistake was, I should have actually made the
number 20% higher to cover inflation, unexpected expenses, etc. The
numbers I used were the result of the computer program Microsoft
Money, which supposedly took inflation into consideration.
After 9/11, all things went south and the
portfolio fell well below our magic number, which was not only
frightening but causes one to lose a whole lot of confidence in
himself as an investor. I vowed then and there, if we ever got back
above that magic number, I would take the chips off the table and
never put that money at risk again... and I set the number higher, as
mentioned above. Well, the day finally came, and I did something I had
scolded my parents for doing decades earlier: I took the entire
portfolio and put it into CDs paying 5-6%.
I was conservative enough to forecast a 4%
return, so if we got a 5 or 6% return, we would be in tall cotton for
the duration. The interest income, along with Social Security and some
other income, allowed us to enjoy the retirement life we dreamed of –
not jet-setter multimillionaires, but certainly very comfortable and
not wanting for anything.
Then the first stimulus package went into
effect, and I got jolted pretty good. Every pundit said the bankers
were not lending – but missed the fact that the banks really took the
TARP money to pay off debt. As a result, I had almost 50% of my CDs
called in and could not replace them with anything even close to the
interest rates of the ones called in. At first I was angry, because I
also had set up the CD ladder where 20-25% would be maturing in the
next 12-18 months anyway. I quickly realized I was going to have to go
back to actively managing our investment portfolio if I had any
intention of surviving and staying ahead of the inflation game. TARP
effectively robbed me of my income stream from CDs.
I rejoined Sovereign Society, signed up for
many of the Casey reports, and I am glad I did. The good news is that
we are having one of the best investment return years we have ever
had. Now, with the understanding that very high inflation is on the
horizon, I am cheering every time a CD matures or is called in. Those
are the last thing to be invested in during hyperinflation.
Here’s the rub. Most of our immediate
friends are retired and in similar situations. Some have pensions,
some have more or less to invest, but the common thread is they have
built their nest egg and have to live on it for the duration. As I
talk to many of them about what I have been doing – diversifying out
of the dollar, buying metals, and several things that make sense to me
– I realize I am pretty much alone. I hear things like, "Those things
are too complicated for me," or "Arne has been my investment advisor
for years and I do not want to hurt his feelings," and honest to God,
"My wife would never stand for me buying currency ETFs or a CD in
foreign currency at
EverBank."
Near our summer home in Illinois, there is a
little investment club up where, every other week, we have a ROMEO
(Retired Old Men Eating Out) breakfast. During one of the meetings,
the head of the investment club sat next to me and asked me to come
and talk about diversification out of the dollar, which I agreed to
do. As luck would have it, I got my monthly newsletter from Charles
Schwab, and it had a bunch of pie charts on what they called their
"conservative" portfolio. David, it was terrifying! For the most part
it was in U.S. dollars, and if a senior invested in that, they would
see their nest egg eaten up by inflation in record time. I started my
presentation using that chart, saying if this is what your broker is
telling you, then you really need to seek some additional counsel.
I am screaming at the top of my lungs to all
retirees that will hear me, that they are going to be clobbered by
inflation over the next few years. They smile, nod their head, and
most all have an excuse to maintain the status quo. What really
terrifies me is that many have heavily invested in the market to make
up for their losses a couple years ago and have all their chips back
on the table in stocks. I try to tell them that there will be millions
of seniors moving back in with their kids if they are not careful –
which, to me, is not only cruel but a total loss of independence,
which many would find very, very difficult. David, I feel like I am
banging my head against the wall, and I am truly frightened for many
of our friends.
When you guys publish these newsletters, for
the most part, you are preaching to the choir. Every once in awhile, I
would love to see one that would scare the bejeezus out of seniors
that I can forward to several of my friends to blast them out of their
comfort zone. They are going to have to realize that when the
hyperinflation hits, not only won’t they be able to play golf three
times a week, they might very well be paying $100,000 for their next
Camry.
Dennis M
P.S. When you talked about the top tax rate
going to 50%, there is something you must also consider. Many of the
folks earning over $250,000 are self-employed, so they also pay both
halves of their Social Security and Medicare. The latter is 3% with no
cap on it... and I think that is going to be raised also.
Friday Funnies
This first bit, a map, may seem a tad
unpatriotic to some… but to me, it’s just funny.
SCHOOL -- 1957 vs. 2009
Scenario :
Jack goes rabbit shooting before school, pulls into school parking lot
with rifle in gun rack.
1957 - Vice principal comes over, looks at Jack's rifle, goes
to his car and gets his rifle and chats with Jack about guns.
2009 - School goes into lockdown, Star Force called, Jack
hauled off to jail, and never sees his truck or gun again. Counselors
called in for traumatized students and teachers.
Scenario:
Johnny and Mark get into a fistfight after school.
1957 - Crowd gathers. Mark wins. Johnny and Mark shake hands
and end up buddies.
2009 - Police called, arrests Johnny and Mark. Charge them with
assault, both expelled even though Johnny started it. Both children go
to anger management programs for 3 months. School board holds meeting to
implement bullying prevention programs.
Scenario:
Robbie won't be still in class, disrupts other students.
1957 - Robbie sent to office and given 6 of the best by the
Principal. Returns to class, sits still, and does not disrupt class
again.
2009 - Robbie given huge doses of Ritalin. Becomes a zombie.
Tested for ADD. Robbie's parents get fortnightly disability payments and
school gets extra funding from state because Robbie has a disability.
Scenario:
Billy breaks a window in his neighbor's car, and his Dad gives him a
whipping with his belt.
1957 - Billy is more careful next time, grows up normal, goes
to college, and becomes a successful businessman.
2009 - Billy's dad is arrested for child abuse. Billy removed
to foster care and joins a gang. State psychologist tells Billy's sister
that she remembers being abused herself, and their dad goes to prison.
Scenario:
Mark gets a headache and takes some aspirin to school.
1957 - Mark gets glass of water from principal to take aspirin
with.
2009 - Police called, Mark expelled from school for drug
violations. Car searched for drugs and weapons.
Scenario:
Pedro fails high school English.
1957 - Pedro goes to summer school, passes English, and goes to
college.
2009 - Pedro's cause is taken up by state. Newspaper articles
appear nationally explaining that teaching English as a requirement for
graduation is racist. AFRE files class-action lawsuit against state
school system and Pedro's English teacher. English banned from core
curriculum. Pedro given diploma anyway, but ends up mowing lawns for a
living because he cannot speak English.
Scenario:
Johnny takes apart leftover firecrackers from Guy Fawkes, puts them in a
model airplane paint bottle, blows up an ant nest.
1957 - Ants die.
2009 - State Police, Star Force, Federal Police, and
Anti-terrorism Squad called. Johnny charged with domestic terrorism,
feds investigate parents, siblings removed from home, computers
confiscated. Johnny's dad goes on a terror watch list and is never
allowed to fly again.
Scenario:
Johnny falls while running during recess and scrapes his knee. He is
found crying by his teacher Mary. Mary hugs him to comfort him.
1957 - In a short time, Johnny feels better and goes on
playing.
2009 - Mary is accused of being a sexual predator and loses her
job. She faces 3 years in prison. Johnny undergoes 5 years of therapy.
About Expatriation
I recently received the following from a dear
reader. I started to respond but then realized to answer properly would
take more time than I had, so I put it aside until I could take more
time to finish it. The topic, as you will see, has to do with the idea
of voting with one’s feet.
David,
I am a subscriber to Casey Research who
happens to agree with your assessment that foreign real estate is an
interesting and appropriate place to invest money. For my benefit, as
well as that of other readers, I was hopeful that you might be willing
to spend a little more time in an upcoming Dispatch about that
investment idea. Perhaps provide a little insight into what makes a
potential investment abroad compelling (i.e., what are you looking for
in a property and location), and maybe adding some context to how you
decided to invest in a golf club in Argentina.
Thanks for your help and the service.
Regards,
Robert R.
My reply.
Years ago, thanks to the proceeds from the
sale of a successful business I was a partner in, I set out on a quest
to find paradise on earth.
The impetus for this quest was that government
took 51% in taxes from the last check I received from the sale of the
business. To me, that was the final straw. While I may consider myself
many things, “slave” isn’t on the list.
And so off I went, on a three-year journey
that took me to virtually every country I thought at the time might
offer me the best things in life -- without the hovering presence of
Uncle Sam looking over my shoulder while picking my pocket. I visited
some countries just once while returning multiple times to others.
During my quest, I spent a fair amount of time
in England (love the beer, the humor, and the snooker… hate the twisty
roads), Spain (parts of which I still like a lot), Portugal (also a nice
choice), Cuba (too poor, too challenging as an American), and finally
settled in Bermuda where we lived for most of a year before being driven
to distraction by the density of the population.
Next, it was on to Santiago, Chile, where my
son was born. Chile has attractive qualities – including good food and a
nice climate. But as we discovered over the course of the year we lived
there, it also has horrible pollution and a suspicious and gossipy
culture.
It was at that point that Doug Casey urged me
to check out Argentina, which I did – and which I immediately fell in
love with.
We moved to a hillside in San Martin de Los
Andes, a small town in Northern Patagonia. I don’t want to go overly
long, but in the end several things occurred that resulted in my return
to the U.S. The first was difficulties with the local border agents,
who refused to let my furniture come across the shared boarder with
Chile unless I jumped through all manners of hoops. (Lesson: have a good
lawyer, which I didn’t.)
Also, the weather in San Martin, while nice
for much of the year, experiences a cold and damp winter – including
snow. And, most importantly, I grew bored of retirement at the same time
I became intrigued by the idea of starting an online bank – and so
accepted an offer to help start EverBank.
But I never forgot Argentina as being the
closest thing to paradise on earth I had ever encountered. In addition
to amazing natural beauty, it has, generally speaking, a very cultured
population – almost all of which share a European heritage, with an
attractive mix of English, Italian, Irish, French, Spanish, German, and
more. In combination with the Latin influence, the result is a passion
for good food and wine, a love of intelligent conversation, and an
overall joie de vivre.
While Buenos Aires is just fine for a night or
two, I don’t really care for big cities – and so the outer provinces are
particularly suitable to my personal tastes. Which include horses,
agricultural settings, and wide open places.
To make a long story short, about eight years
ago I returned to Argentina with Doug and a group of friends. We spent a
full week traveling far and wide in Argentina, looking for a good place
to buy big land as an investment, and as a retreat far from the
increasingly homogenized, regulated “developed” world. (When in
Argentina, don’t expect to see any “Click It or Ticket” signs.)
It was during this trip that a sophisticated
and successful Argentine friend pointed us to Salta province and, soon
thereafter, to the quaint wine-growing town of Cafayate – a true gem.
When I say it is Napa Valley before it became Napa Valley, with a strong
dash of Sedona, Arizona, tossed in, you begin to get a sense of the
place.
When
I am there, I am content – which is saying something, in that my days
“back in the world” tend to pass as might those of a hunted man. Here,
there’s always something that simply must get done or to be concerned
about, and then there’s the unending stream of electronic inputs that
assail you from all sides. And I live in a small town in New England. I
can’t begin to imagine life in Los Angeles or some other big city.
In Cafayate, by sharp contrast, life is
remarkably relaxed. It’s the sort of place where lunch is taken in an
outdoor café and dinner followed by a stroll around the main square in
the company of happy families, kids and grannies in tow. The food is
excellent, albeit a bit heavy on the steaks, and the wines rank up there
with the best (and at just a few dollars a bottle). The costs associated
with everyday life is a fraction of that in the developed world.
And you can hire a full-time maid/cook or
gardener/driver for about $200 a month. You provide a good job, at good
wages in local terms, and in return much of the repetitious drudge of
life goes away.
Of course, your tastes may differ, but for me
Cafayate is paradise found.
La Estancia de Cafayate, the project that we
started with our local partners, is the icing on the cake in that, when
finished, it will offer all the amenities we decided are necessary in
order to live a fulfilled life. I won’t go into all the details here –
but only because I’m short on time and space. You can learn more about
the project by
clicking here.
Suffice to say we’re now beginning the process
of building our own home there.
I think that about covers the lifestyle aspect
of living where life most suits you, versus where you have washed up due
to family or career moves.
As I wrote that last line, I was reminded of
Shirley, a Casey Research subscriber, formerly from the Midwest. One day
she picked up and, leaving her otherwise average life behind, moved to
Uruguay where she now has an active social life, pursues her musical
passions, and enjoys the company of interesting friends.
What a stark difference from the desperate
existences lived by so many in more “civilized” climes where life is
expensive, predictable, and grinding. The last time I saw Shirley, she
had been in Uruguay going on two years and couldn’t have been happier.
Back in Cafayate, there is now a rapidly
growing community of like-minded people coming together – over 250
people came to La Estancia’s recent grand opening – along with new
restaurants and services to meet their needs. (On that front, check out
www.cafayate.com,
the website of a young couple from Colorado who recently opened a
restaurant there.)
Now, let me be clear. Along with Doug, I’m a
shareholder in a company that is a partner in La Estancia de Cafayate,
and Casey Research has signed a marketing agreement to help spread the
word about the development in North America. And, as both Doug and I are
owners, we have a further interest in seeing the balance of the
development sell out quickly, as that will just accelerate the final
build-out. So we have a vested interest in seeing others, perhaps
yourself, buy a lot.
But that doesn’t change how I feel about
Cafayate and La Estancia. As we may someday be neighbors, I’m not going
to mislead you.
That said, you might like the beaches of
Uruguay better (I grew up near the beach in Hawaii, so for me, it’s a
“been there, done that”), or Portugal, which has a lot to offer,
including quick access to the capitals of Europe. A number of our
subscribers tell me that Thailand suits their fancy, and another is well
set up in Acapulco. One acquaintance is now living, very happily, in a
small city in the middle of the Amazon jungle.
The point is that it is a big world out there,
and if you aren’t living life to the fullest, maybe because you can’t
afford to due to the cost of things, including taxes, do yourself a
favor and make a list of the places you’ve always thought you might want
to live – and hit the road.
(A tip: If the place of your dreams is really
green, it rains a lot.)
Now, as to the investment angle.
There is an old saying that I think holds
true. “Have your passport from one country, your money in another, and
live in a third.”
There are variations of that, of course – for
example, some of the happiest people I’ve met had homes in two or even
three countries.
One advantage of expatriation for an American
may be that, provided you meet certain conditions you need to discuss
with your tax counsel, you can claim a significant tax credit on your
foreign sourced income.
A problem for Americans, when it comes to
investing overseas, is that it is increasingly difficult to open a
foreign bank or brokerage account. It’s not that it’s against U.S. law,
it’s not. It is rather that these institutions don’t want the hassle of
dealing with Americans. There are, I’m sure, ways around these policies
– but as I don’t deal with such things, I can’t comment on them here.
For most U.S. citizens, however, opening an
account in Canada is still feasible – though you’ll have to visit in
person to do so. Once that account is open, you can typically trade
securities, store precious metals, buy foreign currencies and so on. Of
course, never try to hide your accounts – that’s a fool’s game. The only
real reason to have a Canadian account, then, is to add some small
modicum of financial privacy, and to put one step between you and Uncle
Sam -- which could prove helpful should he roll out of bed one day and
decide to grab your account.
There is, however, another way to diversify
your assets internationally – buying foreign real estate. In addition to
being something you can do in most countries, its very nature makes it
unsuitable for a quick grab or forced liquidation.
Again, because Argentina is my personal area
of focus, I’ll say a few more words about buying land there.
Due to decades of government mismanagement,
the average Argentinean pays it little respect and even less attention.
If you’re a non-citizen, the government is very welcoming – because it
needs the foreign exchange. And the country has a long history of
respecting individual property rights, which is important when you are
considering buying property there.
Also important is that, in many countries,
including Argentina, there are almost no mortgages, which means the
market is “real” and typically less expensive, versus propped up.
And, per above, the cost of daily life in many
countries is a fraction of that in the U.S. As Ben Franklin was heard to
say, a penny saved is a penny earned.
That’s a long – and rambling – answer to a
fairly short question.
Let me close by saying that life in the U.S.
is far from horrible. But it is incredibly expensive, especially when
you take into account the steady barrage of taxes (there’s almost no
property tax in Argentina, for example).
In my view, life is meant to be lived – and
that means pushing outside of my comfort zone and daring to think in
broader terms than just “muddling through.” And that is the mind-set I
found most in evidence during the recent grand opening ceremonies at La
Estancia, when most of the property owners came together for the first
time as a group to toast a life worth living.
(You can read more about the grand opening in
the official publication of La Estancia de Cafayate, which you can
access here:
El Estanciero, November 2009)
And, check the place out by
following the link here.
Miscellany
Pop Quiz: How can the U.S. increase
exports to Asia? It was reported this week that President Obama
is claiming his first presidential trip to Asia was a success, in that
it will help to increase exports to that region. Of course, the only way
that that’s going to happen: let the U.S. dollar continue to fall and
hope the Chinese succumb to U.S. pressure to delink their currency.
As to the Chinese attitude toward this plan,
watch the following skit from Saturday Night Live, around the joint
press conference held by the U.S. and Chinese leaders. I was laughing so
hard, I cried.
http://www.sphere.com/2009/11/23/the-point-snl-skit-a-warning-for-obama/
The next big move for gold?
Ed Steer, editor of the
Gold & Silver Daily, has been closely following the
pending announcement by Gary Gensler, the Goldman Sachs chairman of
theCommodities Future Trading Commission (CFTC), that the number of
contracts speculative commodities traders can hold will be sharply
curtailed. Gensler has made it clear that the tight limits will apply to
metals as well as other commodities, which sets the stage for a
potential blowback for gold and silver where there is an extraordinary
concentration of short positions. Simply, if JPMorgan and the other
large institutions were forced to go into the market to buy back their
huge excess positions, gold could go to the moon.
A caveat, however, is that the initial
response to the announced regulatory changes could cause temporary
dislocations in the marketplace. So, it’s a bit of a crapshoot at this
point – but a crapshoot well worth watching. Which you can do with a
free subscription to Ed’s daily letter.
Meanwhile, you can learn more about Gensler
and
his agenda here.
And that, dear readers is that for this
holiday week.
David Galland
Managing Director
Casey Research
