Wealth International, Limited

June 2006 Selected Offshore News Clips

(Especially noteworthy articles’ headings highlighted in gold.)


Whenever I saw people wearing t-shirts with “St. Maarten” written across the front, I thought it was just a snooty way of spelling St. Martin. Such was the amount of knowledge I had about this tiny island paradise when I eagerly accepted a job offer in St. Maarten. All ready to board the next plane out, I was quickly brought back down to earth with a list of “documents” I needed prior to departing. I needed a birth certificate, marriage certificate (or non-marriage certificate, whatever that is), divorce decree (if applicable – as it was for me), police report, and a letter from a physician stating that I was in good health. Seemed like a time consuming task, yet doable. But wait. The first three of these documents also needed something called the Apostil Seal. For me this meant two states, seven government agencies and 500 miles. But none of this ordeal dampened my spirits, especially when I announced loudly enough for the waiting line behind me to hear, that the purpose for my request was a JOB in the Caribbean!

Fast forward through selling 80% of my possessions, home, business, car, etc., and assuring my kids (grown and on their own) that they could always get me through email. As fate would have it there was a firm blanket of snow on Boston, Massachusetts, when I boarded the plane for my journey. Arriving in St. Maarten on the 1st of February (I had by then learned there is BOTH a French St. Martin and a Dutch St. Maarten on this island) I was greeted with a bone thawing 84F degrees. The sea was turquoise, the sunshine yellow and I was in paradise. I knew no one. I had never been here before. But I was home.

The biggest industry on this island, not surprisingly, is tourism, and the resort I was employed by was to provide me with my first months lodging until I got settled into a place of my own. After seeing the resort itself, and staying there the first night of my arrival, I was feeling on top of the world. The next day I was more on the top of a hill, and my expectations had a rude awakening. Through no fault of my employing company, I found myself in a 300 sq. ft. studio apartment with no hot water, a door that did not lock and screens that did not begin to keep out dive bombing mosquitoes! All of this was remedied within the next couple of weeks when I found a beautiful one bedroom condo on the east side of the island complete with fuschia, bougainvillea and a patio that faced the sea and St. Barts.

I have been calling St. Maarten home for over a year now. Since St. Maarten (the Dutch part of the island) is a duty free port, and since so many U.S. tourists flock to the island, I am spoilt and can buy basically anything I could in the states. My rent is on par with living on Cape Cod, only I would not have an ocean view there. Water and electricity are not included in the rents, but by taking Caribbean showers (do not let the water keep running – wet, soap, rinse) and by not using air conditioning (I found a place with wonderful breezes) my monthly living expense comes to around $880.

Besides the beautiful beaches and tropical weather, I have found St. Maarten’s greatest resource to be its people. The cultural diversity on this tiny spot of land is huge. The predominate languages are English, Dutch, French, Spanish and Papiamento. These are people who love life. Most have come to St. Maarten for reasons they do not even remember and have just ended up staying. And everyone accepts each other’s remarkable differences. I feel both at home and in a whole new adventure every day.

Link here.


Anson and Quigley were close friends. They were joint owners in a small company that ran a sight seeing boat doing harbor tours in a city popular with tourists. The business had been growing nicely from its fitful start some six years ago. In fact they had sold the initial boat and upgraded to a character wood vessel that was much admired by their many clients as it plied the waters of this lovely harbour city, stopping here and there to point out and admire the local architecture or attraction. The boat was very expensive and they and their wives had gone on the hook to the bank to finance it but they were confident it would pay off very well.

Even though Anson and Quigley were close friends, they did not share common views on personal finances. Anson was by far the more cautious but when he broached the subject of protection from any potential catastrophic event, Quigley would shrug off any of Anson’s suggestions and say that he was quite content with the coverage of their insurance package and change the subject. Anson would drop the subject but set his own plans in motion.

Murphy was aboard their boat one day about a year ago. An elderly passenger had come aboard and was enjoying the day when, on disembarking, he caught his shoe on a gangway cleat and pitched himself clean over the side guard chain and into the water between the boat and the dock. On the way down he hit his head on a piling. They rescued the passenger promptly but sadly the hit on the head proved damaging to the extent that the poor old gentlemen suffered brain damage and was confined to a wheel chair. You would be right in expecting that the gentleman and his goading and expectant relatives would drop the writ promptly and they did. The long and the short of it was that the settlement exceeded their insurance by a very large amount.

When the attorneys did their examination for discovery to expose the partners assets outside the business they found that Quigley had a fully paid for house, a sizeable investment portfolio, a piece of investment property, a large motor home, an antique car and a stamp collection which over the years had become Quigley’s pride and joy and was now worth a tidy sum. They took it all. Even the stamp collection. When they looked into Anson’s affairs they found that his house was worthless because it was mortgaged to the hilt. The mortgage was held by a company domiciled in Panama and duly registered in all the right places. Anson had been making payment as required. He had a few thousand in his checking account, a used car and that was pretty well it. There was nothing more to see or attach – so they gave up on trying getting anything more out of Anson.

The old gentleman’s fall had cost both partners equally in business assets but when it came to the private stuff, Quigley was wiped out and Anson survived almost unscathed. They are still friends but probably will not go into business together again and every now and then they meet at the pub and hoist one together and Quigley looks at his friend – and wonders.

Which one are you? Anson or Quigley?

Link here.


Politically and economically stable, its turbulent history all but forgotten by visitors, Panama is luring U.S. and European retiree baby-boomers dreaming of a millionaire lifestyle on the cheap. Eager to follow neighboring Costa Rica as a magnet for wealthy U.S. and European pensioners fleeing high real estate prices at home, Panama, which uses the U.S. dollar as its currency, is offering perks to retirees ranging from tax breaks to discounts on travel, cinema tickets and fast food.

Much of rural Panama is still dirt-poor with a very basic infrastructure, and while the gleaming skyscrapers of the cosmopolitan capital Panama City are only a short flight from Miami, the city is too hot for most newcomers. Retirees are instead flocking to the area around Boquete, a cool mountain town famous for growing coffee and oranges, where small wooden houses are decked with tropical fruit and flowers year-round and old men play dominoes in the shade. U.S. and European retirees are transforming it into a chic enclave with bistros, a 24-hour supermarket and delicatessens.

Boquete is a world away from the image of a typical “banana republic” that stuck in the minds of many baby-boomer Americans who watched television images of the 1989 U.S. invasion to remove dictator Manuel Noriega and the rioting that followed. Gleaming SUVs jostle for parking space in Boquete’s narrow streets. Foreign pensioners scour bistro menus for low-cholesterol dinners while pouring over maps in search of land to buy. With prices rocketing from $10 to $300 per square meter, there is a gold-rush whiff in the air.

Perched on a volcanic plain in the highlands of western Panama, Casey Koehler’s luxury mansion looks like a slice of prime Florida real-estate beamed down to Central America. Koehler, a former CIA worker, said cheaper living partly drew him to Panama. He said that while he spent $5,000 a month in the U.S. to live in none-too-opulent style, he now spent only $1,200 a month and wanted for nothing. Others, like Ramona and Charles Holmes, who moved to Boquete from California last year, dote on its slower, peaceful pace and its unspoiled beauty. “People thought we were crazy,” says Ramona, a 50-year-old former legal clerk. “They thought we’d be kidnapped. That’s just silly. OK, sometimes we find snakes and tarantulas on our property, but it’s so beautiful here you could cry.”

Not everyone is thrilled with the new influx. Some Boquete locals say the boom, which has pushed up demand, is creating imbalances in its economy which are hitting the Ngobe Bugle indigenous group hardest, such as localized inflation that is putting products like meat out of their reach. Teacher Johnny Zapata said the new arrivals should adapt to their new natural and social environment rather than trying to change it. “They want to stop our festivals. They say we are too scandalous,” he said. “Also, the climate is changing as they cut down trees.”

Francisco Serracin of Panama’s Specialty Coffee Association, says some gourmet plantations are being cleared for new homes. “It could become a threat to the industry. There will be very few of us left who believe in coffee,” he says. Nearby, the church in this devout town has placed a sign in the street bearing a caveat, “Boquetean, if you sell your land, it will die. If you don’t, it will live. Think about yourself and your country.”

Link here.


It has been said that if you spend 15 minutes a year thinking about the economy, you are wasting 13 minutes. That is generally true. But as an amateur historian, I cannot help myself. And I am forced to believe that this is a time when the subject is worth some real thought.

My view is that the longest, and certainly most important, trend in history is the ascent of man. I have little doubt that it will not only continue but accelerate. But that does not mean there will not be nasty setbacks along the way. Possibly the best definition of a depression is a period when most people’s standard of living drops significantly. You can also define it as a period when distortions in the economy and misallocations of capital are liquidated. The distortions are almost always the result of government intervention in the economy, through things like taxes, regulation and currency inflation. Those are the factors that caused the unpleasantness that began in 1929. Since the government is exponentially more powerful and invasive today than it was in either the 1920s or the 1970s, I expect the consequences will be much worse this time around. Things could have come unglued, and almost did, back in the 1970s. I do not see how we will dodge the bullet this time. A depression is probably inevitable this time.

The only serious question in my mind is whether it will be essentially deflationary in nature, as it was the case in the U.S. in the 1930s, or inflationary like in Germany in the 1920s. My guess is the latter because the government is so much more powerful today. Or it could actually be both at once, in different sectors of the economy. Inflation could drive interest rates to 20%. This would collapse the bond and real estate markets, wiping out trillions of dollars of purchasing power – which is deflationary. Meanwhile, that same inflation doubles the cost of food and fuel. In other words, the opposite of what we have mostly had for the last generation, when we had “good” inflation in stocks, bonds and property, but stable or dropping prices in “cost of living” items. This time the pattern could reverse, which would be a nightmare for most people.

And as people become more focused on speculation in a generally futile attempt to stay ahead of financial chaos, they inevitably divert effort from economic production. Which will decrease the general standard of living even more. The situation is not made easier by the possibility that we are at the start of a secular decline in world oil production. Or the fact that Americans, both individually and collectively, are deeply in debt and living on the kindness of strangers. Wrap this economic environment around the so-called War on Terror, which is rapidly morphing into the War on Islam, which could easily turn into World War III, and you are looking at the perfect storm. The odds of a major conflagration are very high, and it is not being adequately discounted. And that will be accompanied, and compounded, by mass hysteria among Boobus americanus.

At that point, your investment portfolio will be among your lesser concerns. People forget that, in every country and time, there is a standard distribution of sociopaths and misdirected losers. In normal times, they seem like normal people. But when the time is right, they show their colors, and they love to get jobs with the government, where they can lord it over their betters. We live in a world of cause and effect where actions have consequences. That being the case, I expect truly serious financial and economic trouble. And the government will make it vastly worse by trying to “do something” instead of recognizing itself as the cause and backing off. I do not see any way out.

How bad will it be? In historical terms, the last depression was relatively short and mild. The longest depression on record was the Dark Ages. Residents of the old USSR and Mao’s China suffered through a depression that lasted decades. I am not predicting it will be that bad, if only because the U.S. has basically much sounder traditions and institutions and vastly more accumulated capital. But it is hard to overestimate how serious this could be. I sometimes joke that it will likely be worse than even I think it will be. The recession of the late 1970s and early 1980s involved a terrible stock market, 15% inflation with interest rates to match, 10% unemployment and a near war with the USSR. But the country not only hung together, it went on to a tremendous rebound. My guess is, however, that the last 20 years of good times will later be viewed as an economic Indian Summer before a harsh winter.

The good news is that no matter what the economic conditions, technology – the mainspring of human progress – will keep advancing. And many individuals will continue innovating, saving and improving conditions for themselves and their associates. Also, it is entirely possible to go through even the worst of times and not get hurt. Indeed to profit from them. If the price of a house you want now but cannot afford falls 75% (as outrageous as that may sound at the moment) while your own investments in the high-quality gold stocks quadruple, you are much better off. That house now really only costs you 1/16th of what it did before. There is time now to structure your affairs so that you are on the right side of the trade.

What indicators should we watch for that might tell us it is about to get ugly? One obvious indicator is how the price of gold is running. Gold is the only financial asset left in the world that is either safe or cheap. It is also under owned and largely unrecognized, which is why the smart money has been moving into it. Then there is the CPI itself – although I do not think it is very accurate, in that all the adjustments, exclusions, weightings and what-nots the government has insinuated into it over the years makes the CPI as much of a floating abstraction as the dollar itself.

Higher interest rates, which we are already seeing, will inevitably burst the real estate bubble, which is floating on a sea of mostly adjustable-rate debt. Higher rates will also crush bonds and probably stocks. And they will devastate the economy since everybody is deeply in debt. There are trillions of U.S. dollars outside of the U.S. Unlike Americans, foreigners have no reason to hold them. And at some point very soon, perhaps when the Fed finally hits the wall on its ability to raise rates, these overseas dollars are going to start flooding back home, while the products and titles to real wealth flow out of America. Therefore, when the trade deficit starts turning around – which most people will think is a good thing – that will be the real tip-off the game is over. Trillions coming back to the U.S. will skyrocket long-term interest rates and inflation. The dollar will go into freefall.

But although I think these are the things to watch, to my way of thinking it makes no sense to wait until the stampede starts to try to get out the door. If you have not done so already, take advantage of the current correction in gold to begin repositioning your portfolio for what is next.

Link here.


A few weeks ago, a young woman, we will call her “Jane”, was traveling from Vancouver to meet with us in Baltimore to discuss our upcoming documentary. Flying from Vancouver to Baltimore is pretty pricey and Jane had been traveling a good bit in recent weeks. So, to save some money, she opted to cross the U.S. border via a shuttle bus to take a flight from Seattle to Baltimore, a much cheaper option. While this seemed like a no-brainer at the time, Jane soon came to regret this decision. Being the only Canadian on a bus packed with American tourists, the U.S. border patrol asked to look through her bag. Jane complied. Then they informed her that they needed to go through her day-planner and her laptop. Confused, but knowing she had nothing to hide, Jane agreed.

The U.S. border patrol then held her in their custody and interrogated her for hours. Apparently they had found some suspicious items in her carry-on. No, not a gun … or scissors … or even a lighter. What they found was – gasp! – three hotel keys in the pockets of her bag. To make a long story short, the geniuses working the border patrol decided, based on their “evidence”, (the hotel keys, various names of hotels that she could stay at in Baltimore, and names and phone numbers of male contacts in her day planner) they could only come to one conclusion. She was obviously a prostitute. They eventually Googled her and found that Jane had been telling the truth – that she is a film producer that travels a lot and does not always remember to return hotel keys. Two hours later, Jane was free, armed with a tale of American bureaucracy at its finest.

While it is a sadly amusing story, it is one that touches on a bigger problem that we are facing in America right now: We are slowly losing our civil liberties to things like the Patriot Act and more recently, the “Real ID Act of 2005”. Last week, the House approved this set of rules that will force states to issue every adult American citizen an electronic ID card. The bill was approved by a 261-161 vote. Reports Detroit’s Metro Times, “… the act seeks to have states drastically overhaul procedures for issuing drivers’ licenses by increasing the amount of documentation required to prove citizenship or legal residency and boosting the personal information contained on each card, including the addition of biometric identifiers such as fingerprints or retinal scans.”

As if that was not creepy enough, law professor and columnist Anita Ramasastry reported, such tags emit radio frequency signals that would “allow the government to track the movement of our cards and us. … unlike with a grocery store checkout, we may have no idea the scan is even occurring; no telltale beep will alert us.” What is next? Microchips implanted in our brains so that Big Brother read our minds along with the ability to listen to our phone calls, read our emails, and know where we are at all times.

Link here.


Dozens of major British companies are working on plans to move their headquarters overseas in an effort to escape Chancellor Gordon Brown’s war on tax avoidance. Senior partners from all the “big four” accountancy firms have said that they are working with large corporations to shift their base offshore if Revenue & Customs does not slow the pace of change to current tax rules. One said those considering the move included a number of FTSE 100 groups. Companies fear they are becoming the target for the Chancellor to make good a yawning gap in public finances and complain that what until recently was regarded as “sensible” tax planning is now being targeted as unacceptable tax avoidance.

Hiscox, one of the biggest insurers at Lloyd’s of London, has struck a deal with the Revenue to transfer its base to Bermuda, a move that could mean a substantial boost to profits. It will announce the proposed shift in the autumn and will seek shareholder approval at an extraordinary general meeting. Already, rival Catlin has moved to the offshore tax haven and pays only 11% of profits in tax compared with nearly 30% for Hiscox – though a “lighter touch” regulatory regime is believed to have played a key part in the decision to move abroad.

Ireland and the Netherlands, which has introduced tax incentives to lure big business, are other destinations attracting the attention of British company bosses. Anneli Collins, senior tax specialist at KPMG, said many major companies were undergoing a “sense check” to gauge where they might relocate, how much they would save and what would be the costs. “A lot of UK tax is paid by relatively few companies and many of those have a choice about where they site their operations,” Richard Collier-Keywood, head of tax at accountant PricewaterhouseCoopers, said. “Lines between illegal tax evasion and legitimate tax avoidance have become muddy.”

Link here.


This island is beautiful-warm and inviting like the people. The Margaritans genuinely care about our perception of their island and are wonderfully welcoming and hospitable. We have been look after by both natives and fellow adventurers and whilst this place is not for everyone, everyone is welcome. The other “transplants” we have met come from all over the world, all walks of life. Many are here to retire with a better lifestyle, others seek excitement or business opportunities. Some have escaped a war torn homeland. But what they all share is a love of the island and an understanding of the need to protect a simpler way of life.

I have been able to find anything I have needed here on the island. The prices vary greatly and the quality may not be the same as you are used to, but if you need it, it is here. Clothing is one of the great passions, so if you need to wear the most trendy, up-to-date clothes, you are gonna love this place! Shoes are also an obsession – every style, color, and whimsy can be found. Believe it or not I was greatly disappointed by all of this. I had expected more of a minimalist approach to clothing … shorts, t-shirt and bathing suits. Although this is fine, people actually dress to impress when away from the beach!

There is a strong Italian influence on the island and you will find this a constant theme throughout the food. Seafood is not as abundant as I had hoped and it pretty expensive. One would think that with ten bazillion fishing villages shrimp and/or lobster would be plentiful and practically free for the taking. Oh well, life goes on. Other things though are very cheap to buy or even make. The “typical” food dishes are like most Caribbean countries … beans, rice, plantains, salad, and an entrée (chicken, meat, or fish).

House prices here are still very low. Because of the vast unpopulated, or scarcely populated areas, I do not see the prices getting out of hand like Costa Rica. At least not anytime soon. There are so many places that remain untouched that it will be quite some time before the island is “filled to capacity.” During the tourist seasons the beaches are packed and rooms are difficult to find. If you plan to come to rent a room long term, make sure it is well before the high season and that the price is fixed. We are renting a condo and took a six month lease just to be sure to have a place during the busy time, but we hope to find a house well before then. There seem to be two schools of thought concerning housing. Some people are pro condo while others are pro single-family residences. The main argument is security, the theory being that in a condo you are more secure and have a better view. Well I have not seen any evidence of that. If you take normal precautions you are no more or less safe in a condo than a single family home.

There is not as much emphasis on the human body as I expected. I guess I thought perfect people with perfect bodies all 20 years old … wrong! There is every size, shape and age you can imagine. This is not where the Latin starlets hang out! With regard to personal safety, well, one of our friends said if you would not do it in your hometown do not do it here. Simple, but true. People in Margarita are just like the people in every neighborhood in America. There are good ones and bad ones, some who are kind, considerate, and loving. This is a great place full of great people. Yes there are one or two that I would not want to meet in a dark ally, so I will not go there. Overall, I think with a sense of adventure and tolerance you will have a blast!

Link here.


When I retired a few years ago I discovered that for the most part, old people in the U.S. are forced into doing old people things, generally with other old people. I knew I wanted more than that. I had lived for the previous 15 years on a beautifully wooded ranch in a pretty rural area near Houston in Texas, but by the time I stopped work, it was surrounded by upscale subdivisions, shopping malls and Walmart.

Prior to my retirement, I had traveled much of Europe, Central and South America, and was always evaluating potential retirement locations. When I realized that my company was going to force me into retirement, I spent a great deal of time surfing the net, reading articles, and trying to determine the real cost of living in various countries. It really is impossible unless you actually go to these places, and stay for at least three weeks. I went to Panama, Chile (which I really liked), Costa Rica, Mexico (the colonial towns), Guatamala (yuk!), Spain, and Canada. My eventual selection was based on family situation and climate. I am married to a Colombian and came to know Bogota really well. Although the city has a reputation for crime, drugs and violence, I felt that it was an exaggerated perception. There are many population centers in the U.S. that suffer just as much from these afflictions.

Bogota, also has, for me, the nicest weather. I had always hated the heat in Texas, along with the massive electricity bills that came with air conditioning. Bogota’s climate is spring-like every day of the year. Daytime temperatures average 68ºF (19ºC), and at night it drops on to about 50ºF (10ºC). Perpetual fall, perfect for me. The city is at an elevation of approximately 9,000 feet and close to the equator. It sits in a large fertile valley with the Andes rising to the east. It is very green and covered with lush plants, flowers, and trees, mostly eucalyptus. The city itself has a cosmopolitan nature, equal, in my view to London, Toronto or Paris. Only a two hour drive to the west of Bogota is Medellin, known as Colombia’s most beautiful city, a vibrant and modern center again with a comfortable climate. While we may be looking for a place we can live more cheaply, most of us are not looking to reduce our creature comforts, nor the availability of the kind of things we enjoy doing. Bogota and Medellin have it all and generally at very affordable prices.

Big difference? The cultural attitude toward older people. Certainly, while there are good and bad people everywhere, those here tend to be noticeably more friendly and helpful. I believe I have made more friends here in a couple of years than I made my whole life in the U.S. We of the older generation are considered to be productive members of society. Parties and other social occasions include young and old and everything in between. People in Bogota tend to be well educated. In some ways, from a university stand point, it reminds me of Boston.

There is of course a lot of poverty here, as in many other South American countries, and indeed the rest of the world, but it seems to be more visible here. But there is also a very large middle class; the average income for professionals (engineers, accountants, lawyers, etc) is about $10,000 a year. It would appear that they live comfortably on that income, and while I am sure they have the same wants and needs as anybody, I get the impression that they live less stressful lives than their American counterparts earning five times the money. For some strange reason there seems to be much more value for the rental dollar than the housing purchase dollar. I would not recommend any expatriot purchase a home anywhere until they have lived there at least a year.

Link here.


The world is full of people with little or no real estate experience (OK, like me) who still claim to know the business well enough to predict a crash. It is also full of real estate industry pros who, deep in denial, seem to expect a soft landing followed by another long, glorious boom. So when an actual real estate expert crosses over to the dark side, it is news. This morning I am reading through a 31-page report compiled for internal use by Colorado Santa Fe Real Estate, a company founded by a serial entrepreneur named Marcel Arsenault, one of the rising stars of the commercial real estate business.

Back in the late 1980s, Marcel was a hippy/entrepreneur in the Ben & Jerry mold who had spent the previous decade mixing up vats of Mountain High yogurt, eventually turning the brand into one of the most popular in the West and selling it Beatrice Foods for a nice profit. He then started buying up Colorado real estate. “I couldn’t have picked a worse time,” he says now. But he held on, and in a couple of years was rewarded with the mother of all fire sales. The government began liquidating the assets it had acquired from failed thrifts, and prime properties were suddenly available for pennies on the dollar. When western real estate values soared, so did Colorado Santa Fe’s portfolio. It now manages upwards of $350 million of property and is sitting on well over $100 million of unrealized capital gains.

In other words, this is a guy who has prospered in both good and bad real estate markets, which makes his current take worth noting. And right now he is excited – about the prospect of another 1990-style crash. Below are some excerpts from the previously mentioned report. As your read this, keep in mind that it is the analysis of someone who for the past 15 years has been very successfully LONG real estate. In the report’s concluding section, “Colorado Santa Fe’s action plan”, Arsenault indicates that they intend to sell most existing properties and short stocks of retail REITs, homebuilders, real estate companies, mortgage insurance companies, and suppliers (construction, copper)! “Colorado Santa Fe is both lightening up and going short. In effect, it’s morphing from a real estate developer (which buys and operates, always on the long side), into a hedge fund, capable of going both long and short with outside investors’ money. That’s a very big change in mindset, hard to pull off but exactly the right approach for what’s coming. I’m an adept buyer. Now it’s time to become an adept seller.”

In 2008-2010 he plans to return to real estate – at “cycle bottom” – by raising an equity pool of $250 million and buying distressed property on a “massive scale ($1 billion)”.

Link here.


STEP has argued that U.S. states are undermining an initiative by the OECD to track global financial data. By continuing to incorporate anonymously-owned U.S. companies for foreigners, the states are ignoring new international “transparency” standards even while their government demands that other countries adopt them, the Society argued. The OECD’s recently issued report, “Tax-Cooperation: Towards a Level Playing Field”, looked at how 82 countries collect and exchange tax information. The report was undertaken following complaints from small finance centers about OECD countries demanding onerous data tracking obligations they were unwilling to implement at home.

According to STEP, the OECD report showed that most small countries with international finance centers have put in place mechanisms which enhance transparency and exchange of information for tax purposes. But U.S. states such as Delaware, Nevada and Wyoming still fall far short of what the OECD is demanding of small countries in terms of transparency and exchange of information. In April 2006, a report by the U.S. Senate’s General Accounting Office (GAO) stated, “Most states do not require ownership information at the time a company is formed and while most states require corporations and limited liability companies to file annual or biennial reports, few states require ownership information on these reports.” The report also noted that most law enforcement officials interviewed by the GAO had said they had closed cases “that reached dead ends because of the lack of U.S. company ownership information”.

Link here.


Ivan Petrovich Pavlov was a brilliant Russian Physiologist whose experiments on animals led to discoveries that would make the demented doctors in World War II, in both Germany and Japan, very jealous. Some of Pavlov’s early work was done on sheep. Unfortunately for the sheep, the experiments on them were so stressful they eventually died of heart attacks. Pavlov’s work on sheep, analogous to stock market investing, is critical for this article because speculators, hedge funds, and particularly retail stock investors, do tend to act a lot like sheep.

Pavlov’s work on the conditioned reflex reaction of sheep to stimuli should be of the utmost importance to the Federal Reserve and world central banks at this juncture in a world where signs of speculative excess – even to the bubble level – clearly remain in all major risk asset classes including housing, commodities, emerging markets, and even major stock markets. Pavlov discovered that if he gave the sheep a mild electric shock, it would bother them very little and their life would go on pretty much as if nothing had happened – as long as the shocks were random. Warning the sheep in advance of a shock by ringing a bell, however, affected their behavior and it changed radically. The sheep were just smart enough to realize that if they heard the bell, the shock was coming. After repeating this exercise a few times, the poor sheep lost control of bodily functions and after a few more warning bells, they started dying of heart attacks.

What Ben Bernanke and the Fed Governors should know, and are likely to find out the hard way, is that markets driven by speculation will react just like Pavlov’s sheep. Indeed, the major market participants and speculators, particularly greedy retail investors, are there to get “sheared at market tops”. Somebody has to buy when the smart money wants to sell and take their winnings out of the casino. Moreover, to keep the herd of retail investing sheep grazing on financial investments including commodities, there needs to be a steady stream of “feel good” press for stocks while analysts and market touts are claiming, “There has never been a better time to invest.”

With fears about a rising core inflation rate and slowing economic growth, Bernanke and the Governors understand too much money was printed up over the last decade. They are not alone. The central banks in Europe are not done raising interest rates either and Japan is just beginning to raise their rates from zero to drain excess liquidity. After 16 rates hikes, the Fed announced it is not done raising rates. This “ringing of the bell” has the sheep sensing that more shocks are coming. This could be downright ugly for the financial markets! We would recommend that the Fed have plenty of tranquilizers and lots of liquidity available to bail out the markets if they keep on scaring the sheep.

The market participants that started running like lemmings for the edge of the cliff are led by the market professionals! They have been heard shouting, “Get out before the sheep panic!” Over the last few months, easy money trades are down, and some Middle Eastern markets have crashed while other emerging markets are in a bear market. Commodities are also in a serious correction, including gold and silver.

All too often central banks tighten until the financial markets suffer a significant failure. Given their behavior and what Pavlov taught us about sheep, they will more than likely create an opportunity to fight a real financial market fire. However, when the Fed has to fight a market event – and cuts interest rates in an effort to save the lives of some of the sheep – you can kiss the dollar goodbye. So, while the dollar has gotten a technical lift over the past week or so, my cash is still going into “non-dollar cash”.

While a general stock market crash may pressure all stocks (including precious metal stocks) to go lower, precious metals and precious metal stocks are being offered now at significant discounts. In the years ahead, the high prices we have all seen in gold and silver will be surpassed many times over. In addition, leaving your money in short-term cash with no price risk while receiving 5%, looks a lot better than losing money in stocks or real estate. Suddenly, risk is a four letter word and cash is not trash.

Link here.


The Center for Freedom and Prosperity Foundation (CFP) has published research showing that tax competition between nations benefits the global economy, leading to better economic performance. The CFP released a research paper, entitled “Tax Havens, Tax Competition and Economic Performance”, which finds, through a review of the recent scholarly literature, that low-tax jurisdictions promote global economic growth. The study presents evidence that so-called tax havens provide a tax-efficient platform for cross-border investment, help boost capital formation, and also encourage pro-growth tax policies in non-tax haven countries – all of which boost economic performance. The paper also points out that the U.S. is the world’s largest beneficiary of tax havens and tax competition, both because the U.S. is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy.

Andrew Quinlan of the CFP said, “This thoroughly researched study demonstrates that low-tax jurisdictions play a vital role in boosting capital formation and thus promoting global economic growth. The U.S. is a disproportionate beneficiary of this process, since America is the world’s largest tax haven.”

Daniel Mitchell, of The Heritage Foundation said, “So-called tax havens have played an important role in the global shift to lower tax rates. But equally important, they provide a refuge for investors and thus minimize the destructive economic impact of anti-savings, anti-investment tax policy in high-tax nations.”

Link here.


Yesterday I got back to Mexico after visiting Washington for a week. Returning to the United States at long intervals is like watching a flower wilt in time-lapse photography. As with the slow but inexorable growth of a tumor, the changes leap out if seen infrequently. Though in historical terms the rot goes fast, very fast, it is not easily noticed day to day. Perhaps the decay is the inevitable destination of mass democracies.

In Washington the stage-managed paranoia leaps to one’s attention, the tightening embrace of government of all things. Washington’s subway illustrates the point. Admonition is constant, typically in a scolding female voice from the loudspeakers. “Children! Do not run … play … or sit on the escalators. Hold your parents’ hand ….” Parents are not to care for their offspring. Mother Metro will do it. Or “Stand Back! Doors are closing!” in a calculatedly bossy tone of voice as the train prepares to pull out of the station. Over and over and over, at every stop. Sometimes the doors could not close for some reason and for minutes the hostile voice repeated its idiot warning. Is there not somewhere in the country a woman who speaks pleasantly? The recorded hectoring is very different from a laconic and practical “Doors closing” from the driver. We are now herded by automated nannies. “Please listen carefully because the menu options have changed.” Anything to save a buck.

Between stops come the warnings to watch other passengers, to report any strange behavior immediately to Metro. Oh. Report strange behavior on an urban subway at midnight. Now, that’s a good idea. Does this mean the para-schiz arguing with the little voices? The dark brooding men talking in unknown languages? The bag ladies with those suspicious bundles? The Arabs speaking in, of all things, Arabic? The last time I was in the city, Metro had removed trash cans from the stations because someone might put a bomb in one. Now, I am told, they have special explosion-absorbent trash cans. Presumably this mummery is fear management to drum up support for an unpopular war. The fact is that you could leave a steamer trunk of TNT on the car and no one would notice.

The Sovietizing of America runs apace. It is not imaginary. The Department of Homeland Security? KGB stands for Committee for State Security. Driving south and then west toward Laredo, Texas we passed through Athens, Alabama, where I lived for a couple of years around 1957. My father was a mathematician working for the Army Ballistic Missile Agency in Huntsville. Athens was then a different America, and to an extent still is. I had not seen the town since I was 11. After 50 years it had changed remarkably little in its center, though it was surrounded by the usual hideous malls and strip development that blight the country today. The philosophy of unrestricted rapine, whether denominated free enterprise or capitalism or communism, is utterly without esthetic sensitivity. So it was in the Soviet Union. The differences between Russia and America are small, and much fewer than those between France and America.

The Limestone Drugstore was still on the square. I once passed a slow summery infinity of afternoons there, reading comic books and drinking ice cream floats. The owner at the time, Mr. Chandler (universally called Coochie, perhaps 70 then) liked little boys, and kept a rack of comic books on the principle of a bird feeder. Today, liking little boys would be considered prima facie evidence of what would be called a “pederasty problem”, and the comic books would doubtless have to carry warnings. In a less admonished age, Coochie just liked little boys. I doubt that the Limestone ever sold a comic book. It was not why they were there. Today some green eyeshade at corporate would notice that those books cost 20 bucks a month, and demand that they be kept in a locked glass case. But the Limestone was not a chain, so Coochie was corporate, and ran his store as he pleased. Freedom, you might call it. The inside of the store had been expanded and looked like most drug stores, but … lo! … the soda fountain was as it had been these many years ago! No comics were in evidence, and, of course no BB guns. These, like everything, would today be illegal.

I ordered an ice cream float in memory of the splendid, variegated, and free country that I had been born into, and that somehow disappeared, and then we got in the car and headed for Mexico, still free.

Link here.


The World Bank is co-financing with Costa Rica a $80 million project to experiment with new market-based approaches to sustainable financing of environmental management under the country’s well-regarded Payment for Environmental Services (PSA) program. The project, entitled “The Mainstreaming Market-Based Instruments for Environmental Management Project” enhances the provision of environmental services significant at the national and global levels. There are three project components. Component 1 develops new sustainable financing mechanisms for the PSA Program through a water tariff, a Conservation Trust Fund, carbon sequestration, and voluntary markets for biodiversity conservation. Component 2 supports the National Forestry Financing Fund in implementing an expanded PSA Program through institutional strengthening and payments to participating land users. Component 3 support the National Forestry Financing Fund’s efforts to remove barriers for medium- and small-holder participation in the PSA Program, through technical assistance, capacity building, and secure land rights.

The World Bank says that Costa Rica is at the forefront of biodiversity conservation and natural resources management. Despite being small – 51,100 square kilometers – the Central American country is one of the most biodiversity-rich countries in the world. Because of its location between the Atlantic and Pacific oceans and its various geographic and climatic systems, it has more than 500,000 plant and animal species, a number of which are endemic or near-endemic.

In addition, says the Bank, Costa Rica is one of the world’s leaders in the development and application of market-based instruments for environmental management. Once known as having one of the world’s highest deforestation rates, Costa Rica achieved net reforestation in the early 2000s. This is due in part to the PSA program, which over the past decade has supported forest conservation on privately-owned lands in priority watersheds and key areas within Costa Rica’s portion of the Mesoamerican Biological Corridor. The project seeks to further this effort by putting into practice the lessons of this decade of experimentation.

The central principles of the Payment for Environmental Services approach are that those who provide environmental services should be compensated for doing so, and that those who receive the services should pay for their provision. The PES approach works by establishing a mechanism to connect service users (e.g., water users) to service providers (e.g., landholders), thus internalizing what had been externalities. Properly implemented, PES mechanisms can be highly sustainable, as they do not depend on the whim of donors or government decisionmakers but rather on the self-interest of those who wish to secure or improve their access to services and of landholders who are contracted to provide those services. Costa Rica’s PSA Program is widely considered the most successful application of the environmental services approach worldwide.

Link here.


Sao Paulo, Brazil has replaced Santiago, Chile as Latin America’s best business city, according to a new ranking of 40 cities in the region. The ranking was developed by America Economia, a Spanish-language biweekly magazine covering Latin American business, and looked at 10 key factors, ranging from the size of the cities’ economies and population to quality of life and regional brandname. Although it scores low on security, Sao Paulo does well in terms of telecommunications competitiveness and innovation potential and it has a good regional brandname. Added to that is the city’s large economy and high population.

Santiago came in second this year. While it is considered to have an excellent regional brand name, very good security and telecommunications competitiveness and does better than Sao Paulo in terms of quality of life, GDP per capita and GDP per capita adjusted for quality of life and violence, Santiago is considered to have less potential for innovation than Sao Paulo and of course scores lower in terms of size of population and city. Monterrey, Mexico came in third, scoring well in terms of GDP per capita and GDP per capita adjusted for quality of life and violence.

With Miami used as the Latin America headquarters for a significant number of multinational companies, the magazine also included that city in its survey. However, Miami fell from second to fourth place on the 2006 ranking. Mexico City, the capital of Latin America’s second-largest economy, came in 7th place. It was pulled down by a higher cost of living and lower quality of life, bad security, and average scores on innovation potential and regional brand name. Buenos Aires, the capital of Latin America’s third-largest economy, came in 9th place.

Caracas, Venezuela, the capital of Latin America’s 4th-largest economy, managed to come in second-to-last place (39th), only better than Paraguayan capital Asuncion. Caracas has very bad security and a weak brand name. In terms of quality of life and security it scores lower than Asuncion. While Caracas is at the bottom within the Andean region, Bogota is on top. The Colombian capital came in at 12th place. Colombian cities Medellin and Cali placed at 34 and 37, respectively. San Jose is the best city in Central America for business, the survey shows. The Costa Rican capital comes in 17th place, a decline of one spot from last year. Panama City comes in 14th place.

Link here.


Dozens of potential home buyers milled about at a reception on New York’s Fifth Avenue, checking out swanky properties. But the buyers were not shopping for New York penthouses. They were eyeing luxury oceanfront condominiums and Mediterranean-style villas thousands of miles away in Philippine resort communities. The event at the Philippine Consulate was one stop on a 5-city roadshow sponsored by the Philippine government to help its country’s home builders market houses and condos directly to Filipino-Americans.

The Philippine economy has been relatively weak. But Manila is hoping that Filipinos living in the U.S. will bring American-style enthusiasm for homeownership to the Pacific Ocean archipelago, lifting the economy in the process. According to U.S. Census data, the median household income for people of Filipino descent was $63,930 in 2004, far above the $44,684 median household income for all Americans. “The hottest market for Philippine residential real estate is the Filipino-American community, since they have the income and the motivation to acquire condos or houses back home,” says Albert del Rosario, the Philippine ambassador to the U.S. “We hope these roadshows will serve to boost foreign investment, sell domestic property abroad and demonstrate confidence in our economy.”

It is the latest twist in efforts by developing countries to boost remittances by expatriates, many of whom are graying in America and thinking about how they want to live out their golden years. Growing remittances to their homelands by immigrant workers in the U.S. and other Western countries have become a vital economic development tool for poor countries. Last year, about $170 billion of remittances world-wide were sent to developing countries by overseas workers, about twice the level of foreign aid that went to those countries, according to the World Bank. If estimates for remittances that are not sent through formal channels are included, the total could be more than $250 billion.

Mexico, Jamaica and some other Latin and Caribbean nations have been marketing to expats for years. But the Philippines is specifically targeting potential retirees with large-scale development projects and new communities that include recreational outlets, shopping and entertainment designed to appeal to people used to similar amenities in the U.S. Landco Pacific Corp. of Manila, best known for its high-end beachfront condos and land sales in the mountains, estimates that during the winter months as many as 80% of its buyers in some projects are Filipino-Americans. Most of these buyers are tapping the equity in their U.S. homes. Landco was showing luxury properties, including some with extra-high ceilings, outdoor Jacuzzis, Asian fusion architecture and picturesque views of the South China Sea. The prices, $175,000 to $215,000, are bargains by U.S. standards. The company also is developing a self-contained agricultural resort community called Leisure Farms in rural Batangas, designed to appeal to hobby farmers. If the Philippine experiment succeeds, more countries are likely to follow.

Link here.


Tax Freedom Day arrived five days earlier in 2006 compared to last year as tax cuts filtered into the system, although Canadians must still effectively work for almost half of the year before all of their tax liabilities are paid, according to the Fraser Institute, the free market think tank. This year, Canadians started working for themselves on June 19th. Last year, it was June 24th and the latest that Tax Freedom Day has ever fallen in Canada was on June 25th, in 2000. Tax Freedom Day then decreased to June 18 in 2001 before increasing to June 22 in 2002 and 2003, and June 23 in 2004.

“Although this year marks a reversal of the recent upward trend in taxation, Tax Freedom Day falls over a month and a half later than it did 45 years ago,” noted Niels Veldhuis, senior research economist at the Institute. “In 1961, the earliest year for which the calculation has been made, Canada’s Tax Freedom Day was May 3," he added. The Fraser Institute calculates Tax Freedom Day to provide a simple reference point about the impact of government tax collection. The Institute has been researching the comprehensive tax burden on the average family in Canada and in each of the provinces since 1977. However, Veldhuis points out that Tax Freedom Day is not intended to measure the benefits Canadians receive from governments in return for their taxes.

Tax Freedom Day calculations include all taxes levied on Canadians such as income taxes, property taxes, and sales taxes, as well as profit taxes, health, social security and employment taxes, import duties, license fees, taxes on the consumption of alcohol and tobacco (“sin” taxes), natural resource fees, fuel taxes, hospital taxes, and a host of other levies. According to the Institute, tax relief announced in the 2006 federal budget has contributed to the decline. The reduction in the Goods and Services Tax (GST) from 7% to 6% accounted for one day of the five day decrease in Tax Freedom Day. In addition, many provincial governments also reduced taxes in 2006.

Government expectations of tax revenues can also contribute to a decline in Tax Freedom Day, which is calculated using provincial and federal government tax revenue forecasts. “The good news for Canadian taxpayers is that the federal government and most provincial governments reduced tax rates in 2006,” commented Veldhuis. However, conservative projections of tax revenues, especially relative to projected increases in personal incomes, can result in the reduction of Tax Freedom Day, Veldhuis explained. “Unfortunately, given the conservative budget estimates of tax revenues there could well be an upward revision to Tax Freedom Day once actual tax revenues are tallied,” he warned.

In 2006, the average Canadian family (with two or more individuals) earned C$79,396 in income and paid a total of $36,650 in taxes. The cash income of the average Canadian family increased by 4.2% ($3,172) between 2005 and 2006. This compares to a much smaller increase of 1.4% ($510) in the total tax bill of the average Canadian family.

Link here.


The IRS has been given the go-ahead to proceed with its controversial project to outsource tax debt collection to private firms, after a number of objections to the bidding procedures were rejected. A Government Accountability Office official confirmed that it has issued its decision to deny the bid protests. An official announcement from the GAO is expected later this week. The IRS confirmed in the report that it has since rescinded its stop work order.

The IRS announced in March that it had awarded contracts to three firms to participate in the first phase of its private debt collection initiative. The project, authorized by the 2004 American Jobs Creation Act, aims to collect an estimated $1.4 billion in additional taxes over the next 10 years. A total of 33 firms took part in the competitive bidding process, and the contracts were awarded to the three of the competitors. However, the project stalled after two unsuccessful firms filed three protests. The first cases of delinquent taxes are expected to be handed to the company in September.

The project has provoked criticism from privacy advocates and lawmakers who fear that sensitive taxpayer data could be compromised by allowing private third parties to do a job normally done by the IRS. Others have also criticised the cost of the project. The collection firms will be allowed to keep 25% of the outstanding tax that they collect, but according to Rep. Steven Rothman, IRS employees can do the same job at a cost of only three cents for every dollar collected. Rothman has succeeded in getting an amendment added to the IRS fiscal budget 2007, part of a transportation funding bill, that will effectively cut off funding to the private companies, although at this early stage (the Senate has yet to draft its proposals) it is unclear whether the amendment will gather enough support to make the final version of the bill.

Link here.


The great dollar sell-off has begun in earnest, although to a large extent, it is being concealed from the public. Wary currency traders have been expecting a dollar-slide for months but were nervous about the possibility of widespread panic. Everyone from Bill Gates to Paul Volcker has predicted that the current trade deficit of $800 billion (7% of GDP) would inevitably produce a weaker dollar, so it is only natural that China, Japan and other foreign lenders would begin to cut back on their purchases. The danger to the U.S., however, remains extreme. If the transition does not go smoothly, it could precipitate a run on the dollar and trigger economic pandemonium. No one wants to see the world’s economic powerhouse pirouetting through the ether in flames. By the same token, no one wants to be the last man holding onto stockpiles of scrip that are diminishing in value.

The delicacy of the situation explains the sudden appointment of Henry Paulson as Treasury Secretary. Paulson is a brainy insider who has the bone fides to manage a very tricky “retreat” from the dollar. America’s economic future will depend heavily on his ability to steer the ship of state through troubled waters. As we said, there was no doubt that China, Japan and others would eventually reduce their dollar-holdings as America’s debt continued to mount. What is surprising though is that a sell-off did not occur earlier when Bush enshrined his reckless tax cuts and profligate spending as “permanent”. The administration’s fondness for living beyond its means has never been in doubt, now greenback will pay the price for Bush’s excessiveness.

Of course, Bush is not the main scoundrel in this morality play. The Federal Reserve has weakened the dollar enormously by engineering one monetary-coup after another. Greenspan’s “cheap mone”q policy has created massive equity bubbles that appear whenever interest rates are absurdly low. When the stock market crashed in the late 90s, millions of working class people lost their retirement and life savings overnight, while wealthy insiders walked away unscathed. Undaunted by the economic carnage he produced, Greenspan again lowered interest rates to a ridiculous 1% in 2001 which created a $9 trillion housing bubble, “the largest equity bubble of all time” (says The Economist). Now, as interest rates inch higher, the housing industry is lumbering towards the power-lines and certain death. The effects on the world economy will be catastrophic.

It is clear that Bush believes that the dollar can survive “devaluation” if the U.S. is able to control the vast oil resources in the Middle East. Foreign countries will be forced to use the dollar in their oil purchases regardless of the staggering trade deficits. The dollar’s value will continue to be pegged to oil while its future will increasingly depend on the military’s success in Iraq and, potentially, Iran. Needless to say, the results are far from certain. Even if the administration’s plans in the Middle East succeed, there are stormy times ahead for the greenback. The U.S. has reached an unsustainable level of debt in government, business and personal finances. Personal savings are down, mortgage payments are up, and credit card debt is higher than ever. The entire country is mired in swamp of red ink for which there is no easy remedy.

Newly-appointed Treasury Secretary Henry Paulson has been given the daunting task of closing ranks with the Federal Reserve and supervising an “orderly devaluation” of the dollar. There is great concern that a “sudden disorderly adjustment” will precipitate a run on the dollar, traumatizing the markets and sending the economy into a tailspin. Regrettably, there are no easy choices. The dollar is losing air, and fast. The accumulated weight of unfunded tax cuts, extravagant military expenses, personal debt, and global trade imbalances have taken a wrecking-ball to the greenback and left little room for hope. Paulson’s job is to turn the dollar’s downfall into a “controlled demolition” rather than a full-system meltdown.

Link here.


Have no fear, America! Despite the claims of alarmists, the United States is not coming underneath the type of steely totalitarian gauntlet where we need fear a knock at the door. No, your Supreme Court has eliminated that fearful scenario. Instead, there will be no knock. In its June 15th ruling in Hudson v. Michigan, the Supreme Court has basically eviscerated the requirement that there be a knock on the door by authorities before the execution of a search warrant. While the prohibition essentially remains in form, the penalty for the failure to knock has lost its major deterrent force – the exclusionary rule.

Quite simply, what the exclusionary rule did was to exclude from the available evidence at trial any evidence that was obtained from a violation of the standards for execution of a search warrant. One of these search warrant standards is (or more aptly, was) the requirement that police knock and announce themselves. While the court has formerly whittled away at this requirement through the use of certain “exigent circumstances”, Hudson effectively lays the practice of knocking in a shallow grave. While the death of the knock is in itself troubling enough, the Court’s rationale may be even more troubling. The Court, relying on the ever arbitrary and equally dubious “balancing test”, weighed the “deterrence benefits” of the use of the exclusionary rule against its “social costs”. Such social calculus always provides an interesting insight into the mind of the Court.

For the majority, “social costs” consist of such factors as (1) “a constant flood” of legal challenges for alleged failures to observe the knock and announce rule, (2) the risk that “officers would be inclined to wait longer than the law requires” after knocking (and we all know that SWAT team types truly tend to agonize decisions before springing into action), and (3) that the delay after knocking (in the past, three seconds has been viewed by the Court as adequate wait time) provides time for the destruction of evidence and the arming of dangerous suspects. Conversely, the “deterrence benefits” of the exclusionary rule as a check on rampant police aggression are viewed as minimal. But even more surreal is the Court’s contention that such law suits might not even be necessary because of the “increasing professionalism of police forces, including a new emphasis on internal police discipline.” Who could argue with that?

One can almost take a perverse pleasure in watching the “originalist” and “textualist” Justice Antonin Scalia hypocritically perform the arbitrary balancing test that girds so many of the Court’s pro-State rulings. It is not explained (if explainable at all) how the supposed “constant flow” of legal challenges to the knock requirement at criminal trial is somehow more onerous to the court system than the constant flow of civil rights law suits which the Court views as a more proper remedy. Of course the real benefit to the aspiring authoritarian state is that those civil rights law suit would most likely be pursued by people in prison. A deterrent to police abuse indeed!

The heralding of contemporary law enforcement as the new Soviet man is instructive as to how the Court sees itself. There is no thought of “inalienable rights” or the 9th Amendment. The much-feared “natural law” of Clarence Thomas is not to be found. Instead, with the Hudson decision, the Supreme Court has not only laid a firm foundation for a police state, they have reminded us that we the people are the ruled and they are the rulers. They are the wise balancers of scales. They are the sole guardians of justice. They are the ultimate guarantors of our rights. So help us God.

Link here.


This past month, I journeyed to Los Angeles for a unique kind of conference. It was called the Value Investing Congress. The gathering featured some of the most successful cheapskates of the investment world. These are the guys who do not like to pay much for anything, who are usually bearish on most things and who like digging around in the dumpsters and sewers of finance, trolling around for overlooked goodies. Basically, a variety of top-performing investors offered up insights and ideas over two days to a packed audience.

My favorite speaker was Mohnish Pabrai, and not because I was so interested in his stock pick (it was Berkshire Hathaway, which, by the way, was probably the most talked-about stock at the conference. Everybody seemed to think it was a bargain). I enjoyed Pabrai’s fascinating and insightful story about Mr. B. U. Patel. B. U. Patel is the founder and CEO of Tarsadia Hotels and probably the richest South Asian in Southern California. He started with one 20-room motel in Anaheim, California and eventually grew to over 4,400 rooms across America – becoming one of the dominant motel operators.

Apparently, the Patels were refugees from East Africa. They had a strong entrepreneurial drive and a smart sense about value. They strived to put themselves in situations where they could make a lot or lose a little. Such situations would cause the Patels to exclaim, “Dhando!” Literally translated, it means “business”. But the connotation was “a very good deal.” Or, as Pabrai put it, “Heads I win, tails I don’t lose much.” Anyway, the Patels would buy a motel for little money down, move their clan in and fire all the workers. The family then ran the motel and dropped prices. In a short amount of time they would fill up the motel and earn lots of cash. Then, they would take their money and do it again and again and again. Each time, they reinvested in new motels in similar situations. In time, they became the dominant motel operator in the country. About 1/3rd of all U.S. motels are operated by Patels – it is about a $40 billion enterprise.

Pabrai’s point in telling this story was to show how they only looked for situations where they could make a lot and lose a little. Mohnish Pabrai created a list of what he calls the Dhando framework, which outlines the Patel philosophy. It is a nice little model for investors.

A couple of the principles could use a little explaining. Number 5 simply means that the Patels are looking to take advantage of relatively easy opportunities. Like their motel operation, it was a simple matter to dismiss all the existing workers – which represented huge cost savings – and replace them with family members. Eventually, this gap closed as the Patels themselves got bigger and as they ran into competition that copied their methods. Number 8 is interesting, too. Pabrai quoted the work of Amar Bhide, who found that most Inc. 500 entrepreneurs had adopted – or appropriated – their central business idea from a former employer – and many times the employer was not even interested in the idea.

Pabrai has a very solid track record, beating all the major indices and 99% of all funds since its inception. He runs a tight, portfolio of only about a dozen names. He makes big bets, holds on to his stocks and “takes naps in the afternoon.” Most hedge fund managers spend the afternoon sweating, not sleeping. For those interested, I highly recommend his book Mosaic: Perspectives on Investing. It is a short collection of insightful essays about investing. Well worth it. Here is a look at his 12-name portfolio, from largest positions to smallest [Berkshire Hathaway is the 5th biggest position] …

Link here.


The Internet is bearing fruit on providing mankind’s growing treasure trove of knowledge every day at very low cost to the consumer. It is on demand, no charge. Digital libraries are springing up all over. Some of them are well-funded by philanthropists such as Larry Ellison (Oracle) and Gordon Moore (Intel). The information provided range from the classics of literature, to free on-line submission of scholarly articles to up-to-the-moment publication of scientific articles and results. Access to information need no longer retard that intellectual growth of the benighted masses, since computers are becoming ubiquitous in the western world and are starting to proliferate in the third world. These resources have tremendous potential to provide the truths that will set men free. An abbreviated list of what is available can be found below while a much larger compendium exists at Yahoo.

Link here.


Donald Trump is busy these days. Apart from running his real estate empire and planning another reality TV show, he is preparing to develop a 62-story hotel and apartment tower in Panama City, Panama. The planned Trump Ocean Club International Hotel and Tower will feature more than 300 hotel rooms and 500 luxury apartments as well as a casino, yacht club and its own private beach. But Trump is not the only one developing highrise towers in Panama. “In Panama City there are new skyscrapers going up all over,” says Robert Baker, president of the American Chamber of Commerce in Panama. Panama is seeing unprecedent interest from U.S. retirees, partly as a result of positive media coverage in Conde Nast Traveler and magazines published by the American Association Retired Persons (AARP). And CBS filmed three Surivivor series in Panama, more than any other country, Baker points out. Panama City has also seen a race between two rival projects aimed at becoming the tallest building in Latin America.

Panama is one of three real estate markets in Latin America seeing heightened interest, according to Rogerio Basso, Latin America real estate specialist at U.S.-based consultancy Ernst & Young. “In general, markets that provide a good combination of air lift from major destinations, proximity to key source markets and coastal locations are experiencing explosive growth,” he says. “In discussions with our clients and the investment community, we are observing that there is heightened interest in Mexico, Costa Rica and Panama.”

The real estate boom is not only limited to the capital in Panama. The K Group, Trump’s local partner on the new tower, is also developing Emerald Bay on Isla Contadora and Coronado Country Club Resort, a major development consisting of 300 apartments and houses, near the main tourist areas of Panama. A new project similar to the Miami Seaquarium is going up in San Carlos and even the Wal-Mart heiress is looking for land in Panama, Baker says. European real estate investors are also developing luxury beach front villas in the Azuero Peninsula, Isla Viveros in the Pearl Islands and Montañas de Caldera near Boquete, according to the International Herald Tribune. “You have a real boom going on here,” Baker says. “Land prices are going up fast and some of the big condos in the city are increasing in price by $25,000 per month.” He expects the boom to last at least five more years, if not another decade.

All across Latin America, there is increased investment from U.S. and European buyers. “Real estate in Latin America is attracting significant interest amongst U.S. buyers searching for second- and third-vacation homes,” Basso says. “The baby-boomer generation is fueling a majority of real estate purchases in Latin America.” And the trend is expected to continue as individuals continue to retire and the U.S. real estate market is seen as less favorable, he says. The U.S. market has been appreciating significantly in recent years, leading many Americans to look for affordable alternatives. More recently, rising speculation about the bubble has had a similar effect. “Concerns about a possible real estate bubble in the [U.S.] is leading investors to assess other markets where fundamentals, and the possibility of appreciation, are still present,” Basso says. The exceptions to the boom are countries like Colombia, Ecuador and Venezuela, which are hurt by iamge problems relating to security or political stability or both, experts say.

Also Argentina is seeing a boom. The country’s economic crisis in 2001-02 led to a strong decline in real estate prices. At the same time, the euro has appreciated against the Argentina peso, leading to bargain conditions for European investors. The result? A boom in residential real estate, especially from Spanish buyers.

In the short- to mid-term, real estate in Latin America is anticipated to continue to experience high levels of interest from both U.S. and European buyers, Basso predicts. “Affordable destinations, phenomenal natural beauty, ease of access, but most importantly, significantly wealth stemming from a retiring baby-boom generation should continue to provide sound demand-side fundamentals to fuel this growth,” he says. “However, it remains to be seen whether these Latin American nations will be able to properly respond with supply-side offering to continue to attract foreign buyers.”

Link here.


You might think that communes are something that became extinct back in the ‘60s and ‘70s. Actually, many people live communally today, in intentional communities, Eco-villages, group marriages, co-ops, ashrams, co-housing groups, even in survivalist and radical religious colonies. Communal living is an excellent choice for people who enjoy deep, intimate companionship with more than one person. It is often very difficult to form and maintain a healthy, mutually satisfying and beneficial relationship with the random assortment of personalities that comprise a typical family. An intentional community can be looked at as a “chosen family”, in the respect that it is made up of people who came together intentionally based on commonalties other than biological (or adoptive) accident. An intentional community differs from a family in the important respect that no one in an intentional community will ever legitimately feel “stuck” with it. Thus, communal living can supply people whose conventional family relationships are dysfunctional or nonexistent with the best a family has to offer, a circle of connected, loving co-experiences with whom to share life.

There can be practical advantages to communal living. Often, a member of an expense-sharing group can live more cheaply than a single person can. People who live in group housing are freer to travel, as there are always going to be others about to water plants, take in the mail, pay the bills, keep company to those who stay behind, and so on. Most important, an intentional community is a social network. The chances are good that someone will usually be available to go out for lunch. To look over a final draft. To try the lunch seasoning. To listen to a cool idea. To take a walk in the sunset. To fall in love with. To learn and to teach something to.

Obviously, communal living can never be as private as a person’s own home. However, parameters can be set to maximize the possibility that adequate privacy will be available for those who sometimes require it. People who need a lot of privacy probably do not belong in a communal setting. People who thrive on human interaction probably do. Communal living is a remarkably viable means for enriching our lives with interpersonal adventure and fun. As a group we have the resources, practical and personal, to actualize the very best of what we can imagine. After all as a group we will know more than individually we could. The sharing and maximizing of resources will improve greatly our quality of life as well as healing our planet.

Link here.


Imagine that you were the finance minister of a small Caribbean island in the early 1980s. Call the island “Amstrandia”. It does not really exist, but it is representative of more than a dozen Caribbean islands and Central American countries. It is a U.K. colony (now called an “overseas territory”), which is almost completely dependent on outside financial aid. To cut support costs, the U.K. convinced Amstrandia to become a tax haven in the 1970s. But the 900-pound gorilla next door, the U.S., did not like that idea. Uncle Sam thought that the U.S. investors who flocked to Amstrandia to take advantage of its zero tax status and strict bank secrecy laws were not paying their fair share of U.S. taxes.

You soon learned that the U.K. Foreign Office, despite having encouraged Amstrandia to become a tax haven, had no intention of defending its haven status. The U.S. Treasury Department decided to force – by various means – Amstrandia and more than a dozen other jurisdictions into ratifying treaties that required them to disclose U.S. interests in banks, mutual funds, IBCs, and asset protection trusts.

If you read the press releases from the offshore jurisdictions that signed TIEAs, you will come away believing that they may be invoked only in the event of probable cause of tax fraud by a particular taxpayer. But that is not what most of the treaties actually say. Instead, most TIEAs state that any information “foreseeably relevant or material to United States federal tax administration and enforcement with respect to the person identified” for investigation must be turned over to the IRS. Not “probable cause” of a criminal or even civil tax offense. Not even “reasonable suspicion”. Merely “foreseeably relevant”. U.S. courts have interpreted this authority as permitting TIEA information requests “even if the United States has no tax interest and no claim for U.S. taxes are potentially due and owing.” In other words, fishing expeditions into offshore accounts are explicitly permitted. The potential for abuse is obvious.

TIEAs are now in effect with Antigua & Barbuda, Aruba, the Bahamas, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Costa Rica, Dominica, Dominican Republic, Grenada, Guernsey, Guyana, Honduras, the Isle of Man, Jersey, the Marshall Islands, Mexico, Peru, St. Lucia, and Trinidad & Tobago. In a handful of these countries, including Mexico and Barbados, ordinary tax treaties are in effect, but in most jurisdictions “encouraged” to sign TIEAs, information flows only one way – to the U.S. TIEAs have had, from the Treasury Department’s perspective, their desired effect. U.S. investment in Caribbean havens has decreased substantially. The U.S. policy of deliberately stifling investment has led several Caribbean governments to the brink of financial collapse.

Jurisdictions that have not signed such agreements include Austria, Liechtenstein and Panama. (Switzerland has consented to a TIEA-like addition to the U.S.-Swiss tax treaty, but its terms are far more restrictive than typical TIEAs.) While pressure continues on these countries, and others, such as the United Arab Emirates, to ratify TIEAs, these jurisdictions have the diplomatic and financial clout to avoid being intimidated by the U.S. Let us hope their determination continues.

Link here.


SecurityFocus writer Federico Biancuzzi interviews Rachna Dhamija, coauthor of the paper “Why Phishing Works” and creator of Dynamic Security Skins. They discuss the human factor, how easy it is to recreate a credible browser window made with images, some new anti-phishing features included in the upcoming version of some popular browsers, and the power of letting a user personalize his interface.

Mr. Dhamija explains, “We wanted to understand why phishing attacks work. We conducted a usability study where we showed 22 participants 20 websites and asked them to determine which ones were fraudulent, and why. We found that the best phishing website fooled 90 per cent of participants.

“We discovered that existing security cues are ineffective, for three reasons. (1) The indicators are ignored (23 per cent of participants in our study did not look at the address bar, status bar, or any SSL indicators). (2) The indicators are misunderstood. For example, one regular Firefox user told me that he thought the yellow background in the address bar was an aesthetic design choice of the website designer (he did not realize that it was a security signal presented by the browser). Other users thought the SSL lock icon indicated whether a website could set cookies. (3) The security indicators are trivial to spoof. Many users cannot distinguish between an actual SSL indicator in the browser frame and a spoofed image of that indicator that appears in the content of a webpage. For example, if you display a popup window with no address bar, and then add an image of an address bar at the top with the correct URL and SSL indicators and an image of the status bar at the bottom with all the right indicators, most users will think it is legitimate. This attack fooled more than 80% of participants.

“We also found that popup warnings are ineffective. When presented with a browser warning of a self-signed certificate, 15 out of 22 participants proceeded to click OK (to accept the certificate) without reading the warning. Finally, participants were vulnerable across the board – in our study, neither education, age, sex, previous experience, nor hours of computer use showed a statistically significant correlation with vulnerability to phishing.”

How important are default settings for complex topics such as crypto configuration? “Choosing the appropriate default settings is a critical aspect of privacy and security design, whether it is for cookie policies or crypto configuration. Most users do not change the default settings. In our usability study, we used the default browser settings in Firefox, and we took advantage of some of those defaults in crafting attacks. For example, Firefox forces all popup windows to display only a small portion of the chrome (the status bar) by default. This allowed us to insert a false address bar and false status bar with security indicators, and the majority of participants in our study were fooled into thinking that this was a legitimate webpage, rather than a fraudulent pop-up. The next version of Firefox may force the address bar to also be displayed by default, which should help more users notice this type of spoofing attack.”

Link here.


The U.S. Treasury Department has attempted to assuage fears that it is snooping on innocent financial transactions as part of an ongoing – and until recently largely unknown – operation to track terrorist financing since 9-11. News that the Treasury Department has been overseeing a CIA program to monitor financial transaction data passed between banks over a system known as SWIFT (Society for Worldwide Interbank Financial Telecommunication), hit the headlines in America and beyond last week, following a report in the New York Times. At a hastily-convened press conference, Stuart Levey, Under Secretary for the Office of Terrorism and Financial Intelligence, defended the program and condemned those who leaked its existence to the media. Levey claimed that the program, known unofficially as “following the money”, is one of the most effective tools at the disposal of the U.S. government to identify and find terrorists.

SWIFT is a financial industry-owned cooperative supplying secure, standardized messaging services and interface software to 7,800 financial institutions in more than 200 countries. SWIFT’s worldwide community includes banks, broker/dealers and investment managers, as well as their market infrastructures in payments, securities, treasury and trade. About $6 trillion in financial transactions is routed through Belgium-based SWIFT everyday, according to the NY Times. As SWIFT is predominantly used for overseas transfers, Levey said that the data does not contain information on ordinary transactions that would be made by individuals in the U.S., such as deposits, withdrawals, checks, or electronic bill payments. However, one former counterterrorism official who spoke to the NY Times on condition of anonymity described the capability of the program as “awesome” and, depending on one’s viewpoint, “troubling”.

Levey revealed that the U.S. government has used the International Emergency Economic Powers Act, a statute passed in 1977, to subpoena records on terrorist-related transactions from SWIFT, although much of the government’s authority for the program stems from the emergency powers granted to President Bush in the aftermath of 9-11. However, according to Levey, the SWIFT subpoena is “powerful but narrow”, as it allows us to access only information that is related to terrorism investigations. The Treasury said that SWIFT was exempt from U.S. laws restricting government access to private financial records because the cooperative was considered a messaging service, not a bank or financial institution.

Link here.


Rejects Fifth Amendment defense against self-incrimination.

The Supreme Court denied the petition for a Writ of Certiorari by Jerome Gippetti affirming the Third Circuit Court of Appeals’ conclusion that an individual’s Fifth Amendment right against self-incrimination is not violated by requiring a taxpayer, in response to a summons seeking production by the IRS, to produce evidence supporting claims made on a federal tax return pertaining to offshore accounts.

In an opinion filed November 8, 2005, the Third Circuit Court of Appeals determined that the production of the Cayman National Bank (CNB) records by Gippetti would have no testimonial significance and therefore the Fifth Amendment claim is without merit. The production of the records are not testimonial because the taxpayer did not prepare the papers and was not competent to authenticate them even if he is required “to locate, retrieve and collect” them from CNB. The opinion did, however, state that the District Court where the case was originally heard needed to rule explicitly on the possession or control of the records in order to enforce the IRS summons or court order to produce the records.

The IRS summons to produce records pertaining to his CNB bank and credit card accounts was issued in February 2003 as part of a civil investigation by the IRS into the 1999 and 2000 federal income tax liabilities of Gippetti and his late wife. Gippetti reported interest income from the CNB bank account on the 1999 and 2000 federal income tax returns and disclosed the existence of the account on forms for reporting foreign bank and financial accounts filed to the IRS. The existence of the CNB credit card accounts came to light as a result of the IRS Offshore Credit Card Project (OCCP), and Gippetti did not dispute their existence. The court case was initiated by the IRS after Gippetti failed to comply with the summons. The OCCP is an IRS initiative aimed at bringing into compliance with U.S. tax laws those taxpayers and other participants using “offshore” payment cards or other offshore financial arrangements to mask or shelter their income.

Link here.


I quit my editing job at the Oil Daily, one of a series of oil and gas-related newsletters published by Energy Intelligence, at the end of April to sort through and pack our belongings and get ready for a move to Chicago this summer. Because I am starting a Masters of Divinity program this fall at the Lutheran School of Theology in Chicago with an eye toward eventual ordination as a minister in the Evangelical Lutheran Church in America. A couple of years ago, I was an editor at the Saudi Gazette, the English-language newspaper published by Okaz, possibly Saudi Arabia’s largest circulation newspaper and the kingdom’s scandal-sheet of choice. The Gazette was relaunched as a slightly titillating tabloid, and I was one of several American editors brought in to oversee and supervise that change. Mostly, I worked with reporters and rewrote copy, and after about six months of that, decided to come back home.

As Jennifer and I were wondering exactly how we would provide for ourselves during the MDiv program, out of blue, the Jeddah bureau chief – a fearless and talented young woman who had been one of the reporters I had coached while I was there – contacted me and asked if I would be willing to join the paper again as a part-time editor, working a couple of hours every morning rewriting local copy, six days a week for about $1,000 per month. It was a no-brainer. I told her yes. So, for the last two months, I have been reworking local Gazette copy, everything from interviews with jailed Moroccan prostitutes to government executioners to the daily police blotter to angry municipal council meetings.

Jennifer wondered if there were going to be any problems with getting paid. Specifically, she wondered if getting wire transfers from Saudi Arabia – even a paltry $1,000 – would suddenly put me (okay, us) on some kind of watch list. I think I dismissed her concern at the time, saying the greater concern would simply be getting paid at all, and not the response of the U.S. federal government. Turns out, however, Jen and I were both right. It took a long time – about 10 days, longer than I would have liked – for that slightly less-than $1,000 wire transfer to wander from Riyadh Bank to our bank in San Antonio, Texas.

The progress of an international wire is interesting. I discovered when I was in Saudi Arabia that most U.S. banks (or at least the one I had an account at) participate in the Belgium-based SWIFT system, used by much of the world to send money hither and yon and apparently tapped by the Bush administration in the days following the September 11 terrorist attacks. Anyone sending 100 Saudi Riyals from Jeddah to Dakha, Bangladesh, via Western Union needs to know that money first flows through New York – virtually the entire world banking system does – making it possible for the U.S. government to watch just about every electronic financial transaction in the world. That is what makes U.S. sanctions so effective. While my cash did not show in my account until Wednesday morning, the folks I had working on the trace said it arrived at in the U.S. – specifically, at a Federal Reserve Bank – on Sunday morning.

And by Sunday afternoon, noticed a regular beeping-clicking sound on my mobile phone every two or three minutes – a sound I had never heard before and one that whoever I am talking with cannot hear. It could be a problem with the phone, which I bought in Saudi Arabia more than two years ago, but the other SIM I have (and do not use very often) does not have the same problem. (Oops, sorry, it does now.) I suspect my mobile phone has been tapped. The timing, starting the same day as my first payment from the Saudi Gazette arrived in the U.S., is just a little too “coincidental”.

Aside from making light of the whole thing – “Hello, this is Charles, and this line is unsecured” – I am not entirely sure what to do about this. Since I started sending e-mail and doing on-line stuff, long ago in 1989, I have always just assumed that someone, somewhere, with a badge and maybe a warrant (but most likely not) was reading or watching or monitoring. Or could whenever they wanted to. Certainly it should not be that way, but it is. And there is not a thing any of us can do to change this any time soon. (Unless you are putting your faith in Hillary Clinton’s or John McCain’s future Justice Departments?) This is the unfortunate reality of the world in which we live right now, of governments staffed by those wishing to know and control everything.

That said, we should not let surveillance, or the possibility of surveillance, silence us or shut us down. At least half of being free is thinking and acting like a free human being, whatever the consequences might be. The possibility that all my phone calls are being monitored (I suspect they are being recorded, and then filtered through software for various phrases and subjects) does not keep me from expressing my views on George W. Bush (idiot), the wars in both Iraq and Afghanistan (disasters), and that the political and social changes in Saudi Arabia since King Fahd died (nothing short of amazing). Besides, I am rather intrigued at the prospect of boring the heck out of whichever FBI or NSA flunky gets to read my conversations.

Link here.
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