Wealth International, Limited (trustprofessionals.com) : Where There's W.I.L., There's A Way

W.I.L. Offshore News Digest :: January 2009, Part 1

This Week’s Entries :


We kick off the new year with two articles from e-zine Caribbean Property Magazine (subtitled "Caribbean Living and Lifestyles"). Different authors with different backgrounds and areas of expertise, same subject, and same conclusion: both lifestyle logic and trends already in motion point to a historical "reverse" migration of North Americans to the generally warmer climates and almost uniformly cheaper economies of Latin America.

I had intended to write this month's column on Uruguay. [A month later he did so. See here.] Specifically, I promised to provide you a Rich Report Index on that enticing South American Shangri-la where the majority of the people are of European origin, and the free enterprise system is still welcoming investment and rewarding industry.

But, with the worldwide financial crisis now at full gait, that would be something akin to rearranging the deck chairs on the Titanic, instead of pointing people to the lifeboats. Reports are that over the past eight weeks, investors have pulled nearly $120 billion out of U.S.-managed stock and bond mutual funds. They are looking for safe -- or at least safer -- havens. And it is my job to point you to what I believe are today's safest ventures for serious investors: offshore opportunities.

Now, please do not think for one moment that I am recommending Rich Report readers invest in world stock markets. Frankly, in today's economic climate, that would be like jumping off the Titanic onto the Andrea Doria. As I write this column, the London Times reports that the global credit crunch "is now moving so fast that governments around the world are finding it impossible to keep pace." In Britain, Germany, Japan, and Hong Kong, the markets are plunging precipitously.

So, what, exactly, am I recommending? Just what I have recommended for months now -- and am recommending more strongly than ever right now: diversify your portfolio into Central and South American properties. I am not suggesting that you build new developments, or even invest in those already underway. I am urging you to land bank. Now. And let your money ride.

In short, I want you to "pull a Potter" -- or if you prefer, a "Templeton." And I will pull no punches about it.

If you are any sort of a movie buff, you will remember Henry Potter as the villainous business baron of the Christmas classic It’s a Wonderful Life. When the market crashed, the film's protagonist, George Bailey, warned his depositors, "Can't you understand what's happening here? Don't you see what's happening? Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's picking up some bargains."

In the real, as opposed to the reel, world, John Templeton is the man who made his considerable fortune by "pulling a Potter" of his own. In 1939, you may recall, with Europe at war and America plagued by a lingering Depression, Templeton borrowed $10,000 from his boss to buy $100 worth of every stock on the New York and American stock exchanges selling for no more than $1. In all, he became a much-derided stockholder in 104 companies -- 34 of which were bankrupt. Within four years, his bargain basement specials had reaped an incredible 400% ROI. And he later became one of the wealthiest men in America.

Now, I am not suggesting you are going to get those kind of returns in that short a time with offshore property investments. But, I am suggesting -- no, make that predicting -- that whatever you invest in Latin American property now, in what is certain to be an unprecedented buyers' market, is easily going to reap those kind of rewards within the next decade. And, frankly, with the world financial markets in dire straights and still declining, there is likely not another investment that will come anywhere close. Let me briefly explain why, keeping in mind that I am a staunch free market advocate who agrees with a guy named Jefferson that, "That government governs best which governs least."

The U.S. economy is in the tank, and it is not likely to crawl out soon. In fact, it has tanked so badly in the past fortnight that Russia's Vladimir Putin told his party regulars, "Trust in the United States as the leader of the free world and the free economy, and confidence in Wall Street as the center of that trust, has been damaged, I believe, forever. There will be no return to the previous situation." ...

Add to that the U.S. government's $700 billion bailout plan and partial take-over of the banking industry, and it is clear: If government has not already killed the Golden Goose, it has certainly wounded it -- perhaps mortally. By the time you read this column, a new President of the United States will have been elected. And regardless of which candidate wins, the investment sector of the economy is in for higher taxes, more regulation, union card check, and lower returns.

All of which, to this scribe, means that having found ourselves in a hole, we have decided to keep on digging -- notwithstanding the brutal lessons of Herbert Hoover's ill-fated Smoot-Hawley Tariff and Reconstruction Finance Corporation. And also notwithstanding Sir John Templeton's sage advice, "It has been proven over and over that the best regulation is free competition."

So, where does that leave the serious investor who does not care to foot the bill for The Great Depression, Round II? Hopefully, somewhere south of the U.S. border where in most countries, a growing atmosphere of free enterprise has spurred unprecedented economic growth.

As Universia Knowledge@Wharton reported late last year, "Latin America continued to expand strongly during the first six months of 2007, after a solid performance in 2006. The global economic conditions that began in the middle of this year -- caused by high-risk mortgage crisis in the U.S. -- have led to a downward revision of growth forecasts from the main global organizations as well as financial institutions. Generally speaking, forecasts now call for a modest reduction in the growth rate of the overall region in 2008. Nevertheless, according to the most recent global forecast of the International Monetary Fund, expansion will continue at a strong rate of about 4.25%. That will make 2008 the fifth consecutive year in which growth exceeds 4%."

Personally, I think those IMF projections may be high. But, it also helps that Latin America is no longer almost exclusively dependent upon U.S. markets for economic growth. According to Rafael Pampillon, professor of economics and country analysis at Spain's Instituto de Empresa, "The economic development of China and India provides an opportunity for Latin American countries because they will be able to increase their exports to those two countries" ... [They are becoming] "the factory of the world, and Latin America is playing a very important role by selling raw materials to both countries."

I want you to factor all of this into earlier Rich Reports revealing that (1) according to Ernst & Young, upwards of 60%+ of America's 78 million Baby Boomers will not be able to survive in retirement, and (2) according to Rasmussen, some 30 million Americans now say they are ready to move offshore. And then, I want you to decide for yourself whether the smart money is going to stay in the U.S., where investment values are plummeting by the day. Or, whether it is going to go offshore, where free market values are still held high and where millions of Americas can now live more cheaply, with less hassles, and sunlit skies 365 days a year.

For serious investors, the clear-cut advantages of such an environment may have best been summed up by Cuban-born journalist Carlos Alberto Montaner, the most widely read columnist in the Spanish language. In a piece penned on the heels of the U.S. bail out, Montaner wrote, "In those societies where private property and the rule of law exist, millions of people freely and constantly make billions of decisions to satisfy their own needs, creating what Nobel laureate F. A. Hayek used to call "the spontaneous order," an organization infinitely better suited to generating wealth, assigning goods and services and reducing the levels of misery than the beehives artificially directed by social engineers."

My advice for Rich Report readers: at the very least, immediately diversify into offshore property investments. And even more, if you see even the slightest indication of tax increases, protectionist trends, and inflationary government spending, jump off the Titanic, bypass the Andrea Doria, and make major asset reallocations to the sunny climes of Central and South America. I have a feeling you will be glad you did.

Caribbean Retirement: The Times They Are a Changin’

The much-celebrated Baby Boomer generation is now embarking upon its "Last Hurrah." And just as it has since its inception some 60-plus years ago, it clearly intends to "rage, rage against the dying of the light" -- no matter what it takes, or where it leads.

If that means facelifts and tummy tucks, good enough. If it means donning Dolfin shorts and sweating to the oldies with Richard Simmons, that is not too high a price to pay. And if it means eking out a threadbare living on a barebones income ... well, wait a minute, there has got to be a better way -- and place.

And, in fact, there is.

With 78 million Baby Boomers soon to retire from the work-a-day world, and the cost of living in the U.S. out of control and getting worse, the Western Hemisphere may well be on the verge of the greatest "Population Inversion" in modern history. Tens of millions of Latin Americans have already moved north and more than a million or more North Americans have moved south. And by all indications, the retirees' trek to their place in the sun has only just begun.

Still, for many Americans, when it comes to making the move south of the Rio Grande, the foreboding admonition, "the grass is always greener on the other side of the fence," has long been taken as an article of faith. And, understandably so. To many North Americans, Central and South America are something akin to the dark side of the moon.

But, what if it turns out that not only is the grass greener, but the sky is more blue, the weather is warmer, the lifestyle is far more relaxed and rewarding, and the cost of living is a mere fraction of what it is on the north side of the great divide?

That is a question now facing nearly 10,000 retiring (or, perhaps not-so-retiring) Baby Boomers a day as they leave the comfortable confines of the office suite, watch their savings dwindle by the day -- and look longingly south to the warm climes and welcoming embrace of Latin America. And the answer they are increasingly giving is: Where do I sign and when do we leave?

From the southern banks of the Chetumal Bay to cosmopolite Buenos Aires, retirees are finding that in Central and South America, they can live the "Life of Riley" with a twist of lime for pennies on the dollar. And what once was a migratory trickle could quickly become a torrent.
• In the bayside town of Corozal, Belize, a modern three or four-room home rents for just $800 a month. A maid or a gardener costs as little as $15 a day. Dining out on a full-course meal can come in for as little as $10. And utility bills amount to little more than a few dollars a day.

• In the picturesque city of La Ceiba, Honduras, snuggled between rainforest mountains and the Caribbean Sea, a comfortable two-bedroom home with all of the modern amenities can still be purchased for under $100,000. A full-time, live-in maid may cost $110. And in the local comedores (small restaurants), a full meal may amount to $2-$4.

• In cosmopolitan Buenos Aires, a spacious one-bedroom apartment can cost well under $500 a month. Utilities normally fall under $30 a month. A steak dinner for two runs around $10. And full-coverage health insurance for first-rate medical treatment runs in the neighborhood of $100 per month.
With prices like these, it is little wonder that an increasing number of North American retirees are seeking the serenity, security -- and Golden Years solvency -- of Latin America. And keep this in mind: As they do, they are not settling for a primitive lifestyle and hard-scrabble scrape-bys. They are seeking -- and finding -- first-rate accommodations at Third World prices.

From Monterrey to Santiago, they are shopping at fashionable malls and eating in the finest of restaurants. They are enjoying state-of-the-art Internet transmissions and Satelcast cell phone technologies. Their favorite sports teams come to them in real-time HD. Their emails are dispatched and received at the push of a button. The best of their in-country friends are only minutes away. And their friends from afar can arrive within hours on international flights at a myriad of modern airports.

So, let us put one onerous misconception to rest right from the start: North Americans who move to Latin America need not "go native" ... unless of course they want to. If they want to live like Robinson Crusoe on primitive beaches, or rough it like Quigley in the far outback, that is their choice. But, if they want to live like "Thoroughly Modern Millie" (or Mike) in the lap of luxury (at bargain prices), the opportunities abound throughout the region.

Let us put it this way: The old days of disgruntled expats roughing it on some god-forsaken mosquito coast are no more a part of today's Central and South America than tin horn dictators and banana republics. In fact, today's middle-to-upper-class North American "trans-pats," bolstered by the safety and security of thriving democratic republics, are enjoying the best of both worlds: strong ties "back home" complementing the beauty and bounty of the good life in Latin America, far from the madding crowd.

Latin America – the new American Dream

Let us take a quick look at how this serendipitous situation all came about -- and where it is almost certain to lead for today's retirees. Exactly how many Americans live in Latin America today is almost impossible to ascertain. The U.S. government's last serious attempt to take a head count was in 1999. And it has simply refused even to try ever since. Says, Elizabeth Grieco, chief of immigration statistics at the U.S. Census bureau, "We don't count U.S. Citizens living abroad." And that is that.

Still, the 1999 trial count yielded some significant results -- especially when one factors in that in the near-decade since that count, American's awareness and appreciation of the Caribbean lifestyle has grown considerably. In 1999, the U.S. Census Bureau estimated that approximately 1.2 million Americans were living in Latin America; that is out of a total of some 4 million living abroad.

Of the 1.2 million accounted for, approximately one million had taken up residence in Mexico. The next highest number, some 40,000, lived in Brazil, followed by Colombia with 30,000 and Venezuela, Costa Rica and Panama with somewhere between 20,000 and 30,000 each. Here, in alphabetical order, are the remaining countries (with the American population in parentheses): Belize (2,700), Bolivia (3,000), Chile (12,000), Ecuador (8,000), El Salvador (10,000), Guatemala (10,000), Honduras (10,000), Nicaragua (5,000), Paraguay (2,500), Peru (14,000), and Uruguay (3,500).

Looking at these figures, however, three key points need to be kept foremost in mind when considering the coming "Population Inversion." First, the figures are clearly skewed low because a significant number of old-style expats -- many of whom are rugged individualists who left the U.S. in order to be left alone and simply do not care to register. Governments try, they refuse. And that is all there is to it.

Secondly, many of the Latin American countries had an exponential increase in U.S. immigrants in the 1990s that cannot be adequately reflected in the previous decade's raw figures. For example, between 1990 and 2000, Mexico saw an estimated 57.6% increase in the number of U.S.-born individuals. And in Panama, the increase was nearly identical at 57.8%. If that remarkable growth pattern has continued throughout the first decade of the 21st Century -- and there is no reason to think otherwise -- the population of U.S.-born individuals in those two countries may easily be one-third (or more) higher. And the remaining Latin American countries are likely not far behind.

And, finally, bear in mind that North Americans are not the only immigrants who have discovered life anew in Latin America. Europeans were long ago attracted by the distinctive allure of the region. Particularly in South America, their numbers are staggering -- as is their influence and lineage. From the middle of the 19th Century until 1960, more than six million Europeans descended on Argentina, Brazil, Uruguay, Ecuador and other South American countries. Coming predominantly from Britain, Germany, Spain, Ireland, and Italy, these sturdy Europeans brought their traditions with them. And, their influence still flavors the countries and their cultures.

The bottom line: With the strong presence of North Americans and Europeans manifesting itself throughout Central and South America, today's retirees invariably find a familiar environment that, to many, comes as a welcome surprise. Then, as they congregate in Euro-American enclaves, often insulated, though not isolated, from the rich traditions of the indigenous populations, they again enjoy the best of both worlds.

But, even with all of this, the real story of the retiree's life in Latin America is not so much what once was, or even is now. It is what the future portends. And that verges on a one-world utopianism once considered the sole province of phantasmagoric fiction.

The good life, at a great price – or else?

Imagine living in a spacious 2-bedroom condo by a pristine white-sand beach overlooking the turquoise bay. Just off the veranda, palm trees sway in a gentle breeze. In the courtyard, only a few steps from the back door, mangoes, bananas, and pineapples abound, tended to by a faithful gardener, a distant cousin of the personal maid.

The average bills -- for two people -- come to roughly $1,500 a month, and that includes:
Telephone (local calls)$25
Cable TV$30
Cell phone$30
Transportation (bus, cab)$50
Health insurance (should you wish)$90
Entertainment (theater, dinner)$130
Those particular figures happen to come from Costa Rica, one of the most popular spots for North American retirees in the entire Caribbean. But, generally speaking, they could have come from just about any other country in Central or South America. In some places -- for example, on Roatan in the Bay Islands of Honduras -- the prices might run a little higher. In other places -- like Nicaragua, which MSNBC calls "the world's best-kept retirement secret" -- they could be considerably less.

How important is that to the retiring Baby Boomers of the "Me Generation," used to being "free to do what I want, any old time?"

Well, consider this: The average social security check sent out by the U.S. government to retirees is just over $1,000 a month. For a couple, then, it is $2,000. And that, according to the Department of Health and Human Services, is barely above the U.S. poverty level.

Unfortunately, that is just the beginning of the bad news for those determined to stay stateside. Recently, the esteemed accounting firm of Ernst & Young analyzed the future financial prospects for today's -- and tomorrow's -- retirees. And, to put it mildly, the outlook is not brilliant.

Here, in a nutshell, is E&Y's bottom line for Baby Boomers:

"The analysis finds that almost three out of five middle-class new retirees can expect to outlive their financial assets if they attempt to maintain their current pre-retirement standard of living. To avoid outliving their financial assets, middle-class retirees will have to reduce their standard of living, on average, by 24 percent."

As bad as that sounds, the in-depth analysis is even worse. Remember, the three out of five cited above is just the average. The reality is that in 39 of the 50 states, the number of retirees who can expect to outlive their financial assets is right at, or well above the average -- with the dismal outlook for current retirees in several states topping 70%.

But, as chilling as that is today, the future looks even worse. Those figures are just for what E&Y calls "new retirees" -- those "65 and above who have already entered retirement." The projections for "near retirees" -- those "58 and planning on retiring at 65" -- virtually shout, "Get out while the getting is good!"

According to E&Y, the probability of "near retirees" outliving their financial assets is a stunning 74%. Let us put that into perspective. If the situation is as bad as E&Y predicts, three out of every four Baby Boomers who are now 58 years old and plan on retiring at 65 -- and staying in the States -- will almost inevitably end up living beneath the poverty level.

While no one likes to be a doomsayer, it would be remiss not to point out that E&Y's dismal forecast came out before the current worldwide financial collapse. And that bodes nothing but ill for fixed income retirees.

Right now, the U.S. government is pouring trillions of dollars into the economy in hopes of staving off a near depression. Whether that will work is anyone's guess. But, one effect of the "paper chase" seems all but certain -- as best summed up by the respected financial writer Kevin Phillips: "Our own decade, like the years from 1966 to 1982, could easily see another severe economic turndown and a stock market slump, but one partially disguised by fast-rising prices."

Some predict that the "fast-rising prices" could result in a double-digit inflation rate by 2010, or even sooner. And for "new" or "near" retirees, even with Social Security COLAs, that could spell deprivation -- unless ... unless ...

There is another recent study that suggests a real and present solution to this catastrophic panorama. And it all goes back to the grass being greener, the skies being bluer, and "the cost of living being a fraction of what it is on the north side of the great divide."

According to a recent Zogby survey, tens of millions of Americans may be ready to make the move away from U.S. shores. If they make the right move, much of the above could be rendered moot.

Clearly sensing wanderlust in the air, Zogby's interviewed more than 115,000 Americans (a huge sample size by anyone's reckoning) about the possibility of relocating outside the United States -- on permanent basis. The results showed that as many as 30 million Americans -- one out of every 10 -- now have already decided to move offshore, or at the very least are "seriously considering" such a quantum change.

Here are the precise findings -- and remember: the figures below represent households, not just individuals, so according to the U.S. Census Bureau, each of the figures below can be multiplied by 2.59:
• 1.6 million U.S. households have firmly decided to move offshore and, in fact, are already making preparations.

• 1.8 million U.S. households are "seriously considering" moving offshore and are likely to do so.

• 7.7 million U.S. households are "somewhat seriously" considering moving offshore and "may" do it.

• In addition, nearly 3 million U.S. households are "seriously considering" buying a vacation home or other property offshore.

• 10 million U.S. households are "somewhat" serious about buying a vacation home or other property offshore.
Clearly, any Baby Boomer making the move offshore to low prices and easy living is not going to be left feeling lonely for a lack of friends. Nor are they going to miss the ambiance of the culture they left behind. In short, moving offshore is going to be far more like going to the beach than being left in the breech.

Low Crime and Health Care Costs Complete the Perfect Picture

It is all part of the Population Inversion mentioned above. Think of it this way: Currently some 35 million Latinos now reside as legal residents of the United States. If Zogby's survey is any indication, some 30 million U.S. citizens may soon make the move to Latin America. And just as the 35 million Latinos here have had a major effect on the U.S. culture (as in "Press One for English"), the 30 million ex-pats and trans-pats in Latin American countries will have an equal or, considering their financial status, perhaps an even greater impact.

Even with all of this, however, most "new" and "near" retirees have two burning questions about life in Latin America, the answers to which likely will form their relocation final decision. The first: What about safety and security? The second: What about health care? Both are serious questions that require individual due diligence. But, some observations are in order.

Particularly in the impoverished barrios of Latin America's inner cities, crime can be a serious problem, just as it is in the United States. But, most North Americans who visit, or relocate to, Central and South America rarely, if ever, have reason to venture into the impoverished barrios. And outside of those areas -- particularly in the North American enclaves -- crime in Latin America and throughout the Caribbean is far less than most observers could possibly imagine.

For example, according to NationMaster.com -- a source the New York Times calls "astounding," and BBC World terms, "a statistician's dream" -- Uruguay has far fewer crimes per 1,000 people (21.7) than the United States (80.1). Jamaica has only 14.3, Costa Rica has just 12, and Venezuela records a minuscule 9.3.

Colombia, long considered one of the world's most dangerous countries, now has only 4.9 crimes per 1,000 people. And, in fact, once crime-ridden Bogota now reports barely 20 murders per 100,000 people, as compared, for example, with Detroit, Michigan, with 46 and Washington, D.C., with 31.

Crime is so low in Chile that even the U.S. State Department (prone to see criminals under every Latin bed) reports: "Crime rates are low to moderate throughout Chile and are moderate in Santiago, Valparaiso, and other major cities." While certain areas of Honduras report relatively high crime rates, the British Foreign and Commonwealth Office advises, "The majority of serious crime involves Honduran citizens and does not affect tourists." In the Dominican Republic, "there is a low incidence of violent crime." (Source: Frommer's Travel Guide)

Perhaps the essence of Latin America's safety and security was best summed up by the highly respected Offshore Legal Law Firm in its report on Panama: "What you will not see are teenagers with outrageously colored hair and tattooed bodies gathering in circles in the middle of the night shouting out random curses at random strangers. There will not be bums littering the streets prophesying the end of the world while chugging a bottle of cheap vodka ... You might even find, as some retirees have found, that it is actually a better place to live than your own neighborhood."

Not a bad recommendation for Baby Boomers searching out the good life at a great price. Yet, even with all of that, there is one other important advantage retirees will find all but irresistible in Latin America: first-rate health care at Third World prices. And south of the U.S. border, doctors still make house calls.

In Chetumal, Mexico, a laparoscopic appendectomy, including a 4-day hospital stay in a private room, surgeons' fees, an anesthesiologist, and medication costs $1200. In Argentina, dental implants, gastric bypasses, and cosmetic surgery cost 50% less than the same procedures in the U.S. And in Costa Rica (as well as in other countries throughout the region), prescription medicines are freely available over the counter for up to 80% less than the same drugs in the U.S. Little wonder that the Washington Examiner recently headlined its article on the latest breakthroughs in medical care: "Medical offshoring growing as patients combine tourism, surgery." And even less wonder that last year, an estimated 750,000 Americans traveled offshore for first-rate medical care.

Some 40 years ago, when today's retiring Baby Boomers were shaping anew the world in which they lived, their balladeer of choice, the nasally Bob Dylan, struck the chords that were to become their creed:
Come gather ‘round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or sink like a stone
For the times they are a-changin’.
And now, for many, the Last Harrah of those changing times -- and places -- are likely to lead to the warm waters and welcoming venues of Central and South America's islands in the stream.


This article sweeps aside too many fine points regarding asset protection and tax avoidance to be very credible in those departments. Much better is the overall picture it paints about moving or growing one's business internationally. And it does make a point that is entirely valid, in our view: Having an active international business gives one a lot of flexibility vis a vis asset protection and taxes compared with a purely passive overseas presence.

The current global economic crisis is making it necessary for people to find quick solutions, which may not necessarily provide long-term benefits to solving their financial problems. Day after day, tens of thousands of people are losing their jobs and homes, and those of us who are yet to be affected wait in anxiety to see how this crisis may impact our lives.

In all of this, one thing made true is the importance of efficient, innovative and economical business practices by companies and wiser spending habits on the part of consumers. Unanticipated crises like these also remind us that different ways of protecting our assets, the fruits of our labor, should be explored. And one of these options is the formation of an offshore company, also known as International Business Companies (IBC's).

An international business company does just what its name indicates -- it enables one to do business internationally. IBC's are used for the trading, shipping, exporting, importing, buying and selling of goods and services. Depending on a company's assets and business focus, it will decide which of these it wishes to provide offshore.

Finding the offshore structure that is most suitable to a person's or company's requirements is absolutely necessary in order to identify the ways in which the formation of a chosen offshore entity can be beneficial. Thanks to technology and reliable international courier services, it is possible to operate and provide services in and to any part of the world.

But how does this apply during a financial crisis? Let us postulate the following scenarios. Mr. Smith, an American who lives in California and sells office stationery, wishes to find a new avenue that will allow him to expand his business economically. By creating an offshore department of his stationery company, Mr. Smith may only need to employ one or two new staff members, or train a few of his current employees, enabling him to maintain decent operating costs and save on taxes.

He can expand by exploring new possibilities such as becoming more actively involved in trade by purchasing stationery from an overseas manufacturer and becoming his own distributor of the stationery within the U.S. and/or abroad. Mr. Smith can achieve the latter by also forming an IBC as a shipping company if he is able to make the right connections in order to avoid intermediaries.

One of the major advantages that Mr. Smith can enjoy from his offshore department is the ability he will have to bank online, as one of the main gateways to offshore banking includes IBC incorporation. Offshore banking will provide him with the adequate services that will allow him to receive funds and process electronic payments through customised internet banking facilities.

Mr. Smith will also be able to open various types of accounts such as a company account, trading account, an investment account (if he chooses to trade stocks and bonds or other investment instruments) and a merchant account. With an offshore merchant account, Mr. Smith will be able to offer his services online and receive electronic payments that will be processed by his offshore bank. Now, the only thing that matters to Mr. Smith is finding the ideal offshore bank.

International business companies are capable of carrying out numerous types of commercial activities once they are legal and conducted as stipulated in the Memorandum when the IBC was formed. Setting up an IBC also allows Mr. Smith to take advantage of being exempt from taxes on passive income such as capital gains, wealth, estate, gift and corporate tax that would under normal circumstances be levied on a company by its resident jurisdiction.

Although the IBC will be liable for meeting the necessary taxes that are payable in the countries where its trading activities are conducted, exemption from passive income assists the company in maintaining and accumulating profits. IBCs are generally exempt from taxes for several years, and in Dominica, for instance, tax freedom is given for 20 years. In light of the current credit crunch and economic recession, the establishment of new offshore departments is a sure way of maintaining and improving earnings, while saving thousands of jobs.

Some of the businesses that professionals can look into are marketing, professional consultancy and chat sites, just to name a few; which can all be provided as online services, and a corporate and merchant bank account can be established for fulfilling transaction purposes. Again, branching off into business in this way creates the opportunity of having customers within the local, regional and international spheres and in the spirit of broadening the scope of business, many new avenues exist.

The case of Mr. Braun, of German origin, who is seeking a way to expand his holding services within Europe, is a typical one. Like Mr. Smith, Mr. Braun can fully consider incorporating an IBC branch of his holding company, which will enable him to extend his services regionally. With his new perspective, Mr. Braun is looking at the possibility of even providing loans to subsidiaries in other countries within Europe, on which the subsidiaries may benefit from tax deductions on interest paid.

However, ensuring that he opens an offshore account in a non-EU member country that is not a signatory of the EU Savings Tax Directive will enable him to legally avoid not having to pay the 15% tax on interest accumulated on his offshore bank funds. But, since many clients often feel more comfortable with banks based within their region, Mr. Braun can freely choose to bank using the services of a European-based offshore bank.

With this said, Mr. Braun must also know that EU Savings Tax Directive is only aimed at personal savings and not those of companies and that his privacy is not compromised in the process since tax payments are made in bulk to the receiving country, thus ensuring that the privacy policies of offshore are respected and his identity remains confidential.

True enough so far. The Eurocrats are well aware of the "loophole" which allows legal entities to escape the EU Savings Directive, and are undoubtedly plotting its demise. Admittedly this will take some doing on their part, but they are patient.

Today, many of us find ourselves in disbelief of the current economic crisis when we read about the number of people whose houses are being repossessed. An IBC may not protect your home from repossession, but fully owned property placed in the name of an IBC can be protected in that it becomes the company's property and not yours; while you are the company's beneficial owner.

It is unclear what the author means be this statement. The property may be owned by the IBC while you have stewardship responsibilities and rights of use. It someone wants to call that "beneficial ownership" good luck to them. The whole point of legal structuring for the purposes of asset protection is to divest oneself of ownership. To do that and that call oneself the de facto owner misses the whole point.

Losing a house, then being slapped with a lawsuit by your wife or husband who decides to leave because of frustrated finances can be difficult. Again, in this scenario, an IBC gives wonderful asset protection, as an angry spouse can only make claims on the assets that you personally own.

This steps around the issue of who/what owns the IBC. If you own the IBC owning the property, the "angry spouse" could take possession of the IBC. Nothing has been gained. More sophisticated structures perhaps including one or more IBCs could, however, accomplish the desired purpose.

So by decreasing your personal net worth you also reduce the amount of your assets that can be claimed by your spouse who is demanding millions, or maybe worse yet, the only few square feet of land, jewelry, bonds or cash that your parents left in your name.

Although pilots, doctors, actors, professional sportsmen, boat captains, lawyers and businessmen are generally considered high net worth individuals and are most commonly faced with such issues, many of us "common" people suffer from such losses which can be avoided if we are educated on the legal possibilities that exist for protecting our assets.

So, in terms of protecting your assets, essentially what happens is that, based on the fact that an IBC is a limited liability company, which makes it separate from its owner, assets held in its name cannot be made part of any litigation or divorce settlement that the beneficial owner or owners may experience.

Furthermore, vis-à-vis asset protection, there is no doubt that Mr. Ivanov, a Russian real estate developer will be pleased to find a legal way of protecting his property. Again, by placing all or some of his real estate in the name of his IBC, he can allow it to accumulate in value over a period of several years. Upon transferring his assets to his son Vladimir, he can legally avoid transfer tax, inheritance, gift, death and estate tax by transferring the shares of his IBC to Vladimir. Thus, Mr. Ivanov will save himself money, and avoid bureaucracy with this fully legitimate means of protecting his assets, all while establishing an protective avenue of estate and succession planning.

Not so fast. In Russia, perhaps -- we do not know -- but very little is this easy any more. The shares of an IBC would be part of the deceased's estate. A lot of what is claimed for IBCs in this article are more appropriately ascribed, without too much fine detail, to trusts.

Besides this, by reinvesting the funds accumulated from his IBC, Mr. Ivanov can establish an investment company or mutual, which will be able to make investments and deposit funds internationally. And although the interest or returns made on the funds invested may be liable to taxes in the countries where the funds are located due to the EU Savings Tax Directive, capital gains are generally not applicable.

Given the gloomy financial climate, with plummeting stock markets and escalating job cuts, IBC owners should seek to be prudent in the way they choose to consume the savings made from their IBC's by reinvesting. Let's face it -- the future may have good things in store, but there is still uncertainty in what it holds. So, planning for your retirement can be done as soon as possible by allowing the funds of your IBC to accumulate so that you are guaranteed a sure source of income when retirement comes.

This is a perfectly legal way of tax deferment and you would only be responsible for paying tax on your monthly income during retirement in the cases where this applies.

To conclude, going offshore makes it possible to do business with a corporate vehicle that is excellent for tax savings, protecting assets, broadening business scope and market base in a legal environment that guarantees confidentiality and privacy. The current economic crisis demands finding new ways of improving efficiency, reducing expenses and securing profits, which can be fulfilled by incorporating an IBC ... a sensible answer during times of economic recession.


HMRC’s recently updated computer systems are red-flagging anything out of the ordinary in the search for evidence of tax evasion.

File this one under the classic companywide announcement: "We have noticed that company morale has declined because of our policy of beatings. The beatings will continue until morale improves."

The U.K. is facing the biggest economy-wide shrinkage in 60 years. Treasury tax receipts are falling. The solution? Squeeze more blood from the stone, using your new and improved compressor. Brilliant.

Higher-rate taxpayers and those who are self-employed face a greater risk of a tax investigation, as the Revenue deploys tougher tactics to fill a £7 billion black hole in Treasury coffers.

Simple mistakes in tax returns, big changes in income or expenses from last year or big purchases risk triggering an inquiry by Revenue investigators, tax experts told The Times.

Buy-to-let property investors, wealthy individuals, savers with offshore or foreign accounts and self-employed people who have had a drop in turnover are most at risk, accountants said.

The financial details of partners in law firms or medical practices are expected to be examined closely. Barristers are also under the spotlight because the taxman thinks that they may have been fiddling expenses, including the costs of cleaning gowns and wigs.

Under new guidelines a rise in expenses of 10% year-on-year could prompt a tax investigation, compared with the previous threshold of a 20% variation.

More than a million buy-to-let landlords, who have been battered by the devastating collapse in property values in the last year, face further headaches as investigators examine their tax returns.

Tax experts warn that the Revenue's recently updated computer systems are red-flagging anything out of the ordinary in the search for evidence of tax evasion.

The taxman has the power to investigate any one of the millions of self-assessment returns it receives each year.

Last year the Revenue looked into the affairs of more than 62,100 individuals, but this year that number is expected to soar.

If it uncovers a mistake, taxpayers could face a hefty penalty. In rare cases where the Revenue proves that a taxpayer knowingly committed fraud, it has the power to prosecute.

The Government is facing a £23 billion shortfall in tax receipts as the economy slides into recession -- the first decline in annual tax receipts year-on-year for more than a decade. Accountants say this has coincided with a more aggressive approach from Revenue & Customs, focusing on more than 9 million taxpayers due to submit a self-assessment return by the end of this month.

Mike Warburton, of the accountants Grant Thornton, said: "The Government is short of money. HMRC is under growing pressure to boost tax take and it is already doing that by launching more investigations."

Every year the authorities target groups that they think are routinely flouting the rules. In the past, builders and eBay traders have faced special scrutiny. Anita Monteith, a tax manager at the Institute of Chartered Accountants in England and Wales, said: "If you have switched bank accounts in the last year or made a big purchase, such as a holiday home, you could flash red in the Revenue's eyes and become subject to costly and time-consuming tax investigation."

While putting greater pressure on HMRC to increase the taxes it collects, the Government has also cut staff numbers, leading the Revenue to take more creative or desperate steps to recover lost income. Last year the Revenue admitted that it paid £100,000 for the personal banking records of up to 100 Britons that had been stolen from a Liechtenstein bank.

HMRC argues that it uses risk-based assessments to target taxpayers whom it suspects are committing fraud. However, tax experts warned that an increasingly desperate Revenue would drag more innocent taxpayers into lengthy investigations.

John Whiting, of the Chartered Institute of Taxation, said: "It is inevitable that there is more pressure on the Revenue to raise the amount of cash it collects for the Government."

In the Pre-Budget Report last month the Treasury had dramatically to reduce the amount it was forecast to receive from tax this year, from £470 billion to £447 billion. In 2007-08 it collected £451 billion.

The Treasury has forecast that GDP will fall in the first half of this year before rising again in the last six months.

However, Citigroup, the American bank, believes that Britain's economy will shrink by 2.5% this year -- the biggest fall in 60 years.

Self-assessment forms submitted this month relate to the 2007-08 financial year, which ended in April, but tax experts say that the Government could use the extra cash it collects to balance the books for the current year.

Tax return do’s and don’ts

DO file your tax return by January 31, or you face the threat of a £100 fine. Last year, nearly 900,000 taxpayers were fined for filing late.

DO register quickly for the Revenue's online service if you have never filed on the web before. The deadline for submitting a paper self-assessment form was October 31, so the only way to file now is online. Visit hmrc.gov.uk and click on "self-assessment". The Revenue should send you an activation PIN within five working days.

DO offset expenses to cut your tax bill. It is surprising what you can claim. Mike Warburton, of Grant Thornton, the accountant, said: "I had a client who ran a consultancy from home and was able to claim 50% of the cost of employing a gardener. They argued that the success of the business depended on them keeping their gardens in trim."

DO double-check your form for any errors. The trigger for most investigations is a discrepancy on a form.

DON’T leave it until the last minute to file your return. The Revenue has warned that the days leading up to January 31 are likely to be very busy, raising the chances of the online system slowing down or even crashing. Last year, a record 204,000 taxpayers submitted online returns on January 31.


Any change in domicile may well require you going into business for yourself, unless you plan to work for a multinational -- still working for "the man" and staying in "the system." The rules vary by country; expect that the natives will be heavily favored when it comes to domestic job offerings. You may have a skill specialty that increases your chances for one of those, otherwise the country's government is interested in creating new employment and tax revenues. Here are some Web-based resources for those starting and running their own business.

The number of websites dedicated to helping entrepreneurs is incredible: There are always new sites, to the point that it can be hard to keep track of them. However, I have a few favorites. There are some tools I absolutely rely on for everything from marketing to billing, some blogs I read constantly and a few resource sites that I consult for all sorts of small business issues.

If you are an entrepreneur of any kind, it does not particularly matter where you are in the process. Whether you are just starting out freelancing in your spare time or you have a thriving business and you are looking to expand, there are always new resources that can help you along in the entrepreneurial process. These sites are a great starting point. They are all good resources and you may not have explored all of them.

  1. Startup Nation: Startup Nation offers entrepreneurial advice from a whole slew of people who have been there and done that -- and have the business to prove it. The site has advice on just about every aspect of creating and running a startup.
  2. IttyBiz: This site is an especially valuable resource if you are looking to start an online business, but it has got tons of great information on marketing in general.
  3. Lateral Action: For creative types, like graphic designers, writers and such, there are some special challenges that come with running your own business. Lateral Action offers up advice specially targeted to those fields.
  4. Freelance Switch: FreelanceSwitch has all things freelance -- business advice, ideas for staying productive and far more. Even though the title says "freelance," there is plenty of good information for anyone running their own business.
  5. Escape from Cubicle Nation: Leaving a cubicle in favor of starting your own business is not easy, but this blog helps support such escapees.
  6. Young Entrepreneur: Young Entrepreneur focuses on the challenges that younger entrepreneurs face when they start business. It has also got some great profiles of young entrepreneurs.
  7. Small Business Labs: It is not easy to predict the trends that will affect small business, but Small Business Labs goes the extra mile to help entrepreneurs figure out what has coming next.
Web Applications
  1. Basecamp: There is a reason that Basecamp and 37signals' other tools are so popular -- they work better than a lot of the other options. Basecamp is the company's project management tool. 37signals also offer Highrise (CRM) and a few other great tools.
  2. Blinksale: There are quite a few online options for invoicing. Blinksale is one of the most recommended options, in part because it works well with other tools like PayPal and Basecamp.
  3. Skype: Skype is a popular choice for making phone calls online, but it has a lot of bells and whistles (like video conferencing) that make it a far more useful tool for a small business than you might expect.
  4. LinkedIn: LinkedIn has come in handy for me many times. It is an easy way to find contacts for a wide variety of purposes, as well as get answers and advice on all sorts of business topics.
  5. Zoho: For a full suite of business tools, including CRM [customer relationship management], invoicing, project management and databases, check out Zoho. All of the tools have at least some level of free use, perfect for an entrepreneur bootstrapping a business.
  6. RocketLawyer: If you are not sure where to start with the legalities of running your own business, RocketLawyer provides free forms as well as help with all sorts of legal documents.
  7. Google Docs: At least when you are starting out, Google can be the easiest way to share documents, manage your business's calendar and far more. It may not be a long term solution, but it can help you get started without spending a ton of money.
Resource Sites
  1. SBA: The U.S. Small Business Administration is a treasure trove of information for entrepreneurs. In general, the SBA's focus is helping entrepreneurs create long-lived small businesses, but there are also some great resources for folks further along in the process. If you are not in the U.S., there is still some valuable information on the site -- and you may find a similar agency where you are living.
  2. SCORE: If you find yourself in need of mentoring from an entrepreneur who is already been through it all, SCORE can help you find a mentor. The organization is an amazing source of free business advice.
  3. Freelancers Union: The Freelancers Union offers a long list of resources for freelancers -- and the Union's definition includes a pretty wide variety of entrepreneurs as freelancers. Among the information you can find on this site is health insurance options that do not require quite the expense of other non-employer options.
  4. Entrepreneur: For a huge collection of information on starting and running your own business, start with Entrepreneur. The company behind the site also runs Women Entrepreneur -- a good resource for women looking at entrepreneurship.
  5. BusinessWeek Small Business: Business Week has been a solid source of business information for years. The magazine's small business site is an equally solid resource.
  6. About.com Entrepreneurs: About.com offers a regularly updated resource on entrepreneurship. It is got links to all sorts of other resources, both on About.com and elsewhere on the internet.
  7. Entrepreneurship.org: The Entrepreneurship.org site is run by the Ewing Marion Kauffman Foundation to provide global resources for entrepreneurs.
These sites are only a starting point, of course. They are the resources I use myself -- and I know there are thousands out there I have not seen yet. If you have got any resources that you would like to recommend to entrepreneurs, I would appreciate it if you would share your links in the comments.

Among the suggestions from commenters that look interesting are these:

Finally, we decided to check out the availability of open source project management tools, and found Open Source Project Management Tools. Serena OpenProj is a free, open source, multi-platform "desktop alternative to Microsoft Project," downloadable from this URL.


There are all kinds of sites, including this one, which offer advice of some kind or other for managing your financial life. Just as finance should only be a certain portion of a nation's GDP -- it is a means to an end, not an end in itself -- you really want to be efficient in your allocation of time to finances management. Unless you really enjoy fiddling around with numbers and investments, it will be a chore that takes time from your higher priorities.

Here is a list of "money sites" from Lifehack, a subset of which you may find useful. None of them feature advice on jurisdictional diversification of your asset holdings. Maybe next year's list ...

There are so many personal finance resources online that it is hard to know where to start. There are blogs, web applications, news sites and more. This list is a beginning -- if you take a look at the sites included here, I know you will find something new for 2009. Some of these sites are brand new, some are the online presence of organizations that have been around for decades. But all of them look like they will have great things happening in the next year: these sites have the information that we all need (no matter our current financial situation) to get a great start on 2009.

  1. Get Rich Slowly: I never fail to be impressed by the posts on GRS -- this blog started as a personal financial journey, but has grown into so much more.
  2. I Will Teach You To Be Rich: While most personal finance blogs focus on cutting costs, I Will Teach You ... pushes readers to increase their income, instead. It is an approach that I think is ignored all too often but is absolutely important.
  3. WiseBread: There are plenty of money blogs that focus on one person's journey: It is a useful view point, but there is just as much value in seeing what a community of people come up with. WiseBread offers an amazing community of writers.
  4. Yielding Wealth: When it comes to keep track of news in the personal finance sector, Yielding Wealth is always on the spot with the facts.
  5. The Simple Dollar: Of all the great content on TSD, I recommend the book reviews. There are plenty of great books on personal finance out there and I typically find them through TSD.
  6. Mrs. Micah: Another "speaking from experience" blog, Mrs. Micah is more detail-oriented: her posts offer great tips on how to handle specific situations.
  7. No Limits Ladies: If you are interested in focusing more on the money-making side of personal finance, NLL talks about everything from real estate to building a business. While the blog is geared towards ladies, I do not think that they would mind if guys stop by.
  8. The Frugal Duchess: The Frugal Duchess herself released a book earlier this year, and her blog is full of the same level of advice she dispenses at the Miami Herald.
  9. Five Cent Nickel: Full of practical advice and great deals, Five Cent Nickel offers a quick clue-in on all sorts of personal finance topics.
  10. The Color of Money: While not properly a blog -- The Color of Money is the Washington Post's regular column about personal finance -- you will find tons of great information that does not always make it through the rest of the personal finance blogosphere.
Web Applications
  1. Mint.com: Probably the most popular money management application online, Mint.com is continuing to evolve. Most recently, the application became available on the iPhone.
  2. Wesabe: Another popular money management application, Wesabe is community-oriented. You can get lots of help and advice with any financial situation you encounter.
  3. Shoeboxed: My favorite financial tool of the last year is Shoeboxed: for a small fee, they will take care of sorting and scanning all of your receipts.
  4. QuickenOnline: You can take advantage of the full power of Quicken online -- and for free. It is a solid money management tool, based on Intuit's years of work in the field.
  5. Thrive: If you are in your 20s or 30s, Thrive offers all sorts of personal finance help targeted just at you.
  6. BillShrink: BillShrink helps you compare your cell phone plan and credit cards to make sure that you are getting the best possible deal.
  7. Rudder: When visiting several sites to manage your money is too much, Rudder provides a solution -- it delivers all of your personal finance information straight to your email inbox, allowing you to control your money there.
  8. SmartyPig: SmartyPig offers a head start on savings, allowing you to put money out of reach while you work towards a goal.
  9. Billster: Sharing expenses among a group -- like splitting the rent with your roommates -- got a lot easier with Billster. The site tracks shared bills and payments.
  10. Xpenser: For an easy way to track expenses, consider Xpenser. It works through email, an iPhone app, SMS, IM and Twitter.
  1. Consumer Reports: While Consumer Reports has gotten into blogging in a big way lately, the whole site is very useful even if you are not a member.
  2. Bankrate: No matter what kind of financial information you are looking for, Bankrate can lead you to it: loans, credit scores and taxes are just a sample of this website's resources.
  3. The Motley Fool: The Motley Fool's main focus is investments, although it does provide resources for other financial topics.
  4. Investopedia: Another site focused primarily on investing, the tutorials availbale on Investopedia provide a great education in a variety of topics.
  5. CNN's Money101: For a complete guide to your financial life, Money101 cannot be beat. It is full of step by step lessons that walk you through all sorts of financial projects.
  6. Tip'd: Tip'd launched this year -- it is sort of a Digg for money news. It is full of great articles if you have got some time to spend reading.
  7. Inner8: If you have been looking for a place to discuss investments with other investors, check out Inner8. This new site provides tools to a large investment community.
  8. AnnualCreditReport.com: No matter what all those TV commercials say, the only place you can get all three of your credit reports for free is through ACR. It was established as to legislative requirements and protect consumers.
  9. PayScale: For financial information about your salary, check out PayScale. The site provides information about just where your salary should be.
  10. Kiplinger: Kiplinger offers solid personal finance advice on all sorts of topics, as well as current financial news.

The comments section of this article is worth checking. Not all commenters agree with the above, and some have good additional suggestions.


Help for credit-card holders.

For those who let their credit-card balances rise above the comfort zone, or those who are worried that will soon be the case, here is a useful set of resources to keep handy.

Trust those Katzenjammer, TARP-supported bankers to find new sources of cash -- besides the bailout dollars they are not putting back into circulation.

If you are among the 2/3 of credit-card holders who carry an outstanding balance, you might have noticed that your interest rate was hiked recently, or your billing cycle shortened. Failure to navigate card providers' labyrinthine payment terms successfully can earn you one of several consumer-unfriendly fees.

These are not really new gambits. But they are being pursued with such gusto lately that they have generated a record number of consumer complaints (see here) and spawned federal regulations intended to curb some of the industry's more creative practices, like including the balance from a prior billing cycle in current finance calculations. Alas, these protections will not take effect for up to 18 months.

"The minefield of credit-card booby traps is being cleared, but not soon enough for consumers struggling with debt," says Michael McKinstry, credit researcher at CardTrak.com.

In spotting unfair or deceitful lending practices, several shopping/news websites like CardTrak.com, Credit.com and CreditCards.com can help. They report on new credit-card pitfalls, provide calculators and other tools for comparing card offers, and translate the arcana in credit-card terms and conditions.

CardTrak.com and CreditCards.com give a big-picture view. CreditCards.com identifies the top five card issuers. Coincidentally [or not], they are also among TARP's largest beneficiaries: JPMorgan Chase, Bank of America, Citigroup, American Express and Capital One. CardTrak.com notes late fees and over-limit charges have tripled since the 2001 recession. The average ding for each is $35 now, and those penalties are assessed much more readily than before.

Even more damaging to your wallet may be the growing "spread" between the prime rate and interest rates charged by the dominant card issuers. Trip over some of the terms in your credit-card agreement and you may be graduated up to an annual percentage rate of 28% or more. Under the Rule of 72 [dividing 72 by the annual interest rate tells you approximately how fast your investment -- or debt outstanding -- doubles], at that APR the $5,700-plus unpaid balance carried by the average card holder doubles in just 2 1/2 years. With monthly payments of $200, it will take 4 years to whittle a $5,700 balance to zero, according to CardTrack.com's payoff calculator.

Fewer cardholders have been making progress reducing debt lately. 60-day delinquencies have jumped nearly 24% since August, according to industry monitor Fitch Ratings, which expects complete charge-offs to rise 33% this year. Issuers' portfolios continue to be profitable, however, precisely because they have been able to raise rates on card users, notes Fitch.

Credit.com offers an extensive list of cards across categories, and a free questionnaire that will give you a quick estimate of your FICO score (also available here). The consumer-oriented site also details how that rating is calculated, and how lenders and credit monitors approach credit judgements.

CreditCardClients.com's Savings Agent is another useful search tool. Enter your current card balance and a few other credit details (without any identity information), and Savings Agent will compare your needs to about 200 of the newest card offers, indicating the 10 cards that will save you the most money relative to your current card. CreditCardClients.com's Learning Center helps decipher the legal lingo in Terms & Conditions, or T&Cs, and answers frequently asked questions.

IndexCreditCards.com also follows the credit-card industry closely, and lets you rummage around a frequently updated database of more than 1,200 credit offers. To be included in that listing, IndexCreditCards.com demands that providers make available on their websites relevant details about fees, terms and conditions.

Besides having encyclopedic listings of cards by category, both LowCards.com and CardRatings.com review individual cards. Both sites rank cards across categories, including airline and cash-back cards.

BadCreditOffers.com, on the other hand, is dedicated to finding credit cards and other kinds of loans for people with bad credit histories. The terms might not be optimal, but even in today's market BadCreditOffers.com lists more than 12 potential credit lines, both secured and unsecured, for those with low FICOs. But be careful: Applying for a new card usually will knock a few points off your FICO score.

It is best, of course, to pay credit balances in full every month. But if you must play (and pay), at least know the rules of the game.


India’s stock market may look attractive after its massive slide, but there is probably more pain to come. A host of economic and political challenges could keep a new bull market at bay for more than a year.

India in the abstract is an attractive story. We have heard it all at length in the past, especially when the Indian stock market was booming: growing middle class, educated workforce, English speaking, rule of law, etc., etc. Notable downsides have been corruption, stifling bureaucracy, and capital-unfriendly government policies. Now the market is off 55% from its highs last year. Good entry point? Not yet, this Barron's article argues.

For those tempted to wade into the Indian stock market with a view to making a quick killing after its massive slide, consider the advice that Punch magazine once gave a person who was about to marry: Don't.

Although India's benchmark Sensex has fallen about 55% from its peak a year ago, the market is still not attractive as a short-term investment. November's terror attacks in Mumbai are not even the half of it: The Indian economy, valuation issues and broad political uncertainty all argue for real caution.

Even as absolute valuations have corrected, India's relative valuations remain rich," says Ridham Desai, India Strategist at Morgan Stanley. The market's price-to-earnings multiple, based on expected earnings for the next 12 months, is 60% higher than that of emerging markets as a group. And its price-to-book ratio is a whopping 72% higher.

India fares no better on the dividend-yield front. The roughly 2% dividend yield on the Sensex pales in comparison to what is available in some of the more advanced economies. The dividend yield for the Australian market, for example, is an eye-popping 6.5%, while most other regional markets offer yields well north of 5%.

Seshadri Sen, Associate Director, Research and India strategist at Macquarie Capital Securities, says that even though the Indian markets are trading at just nine times forward earnings, investors need to exercise caution in interpreting that multiple.

"With all the earnings cuts that we have seen from companies, what appears cheap may not be so," he says. "We are seeing a fairly sharp slowdown in the economy, but it remains to be seen whether the markets have discounted all the bad news that is in store."

Just how far the Indian market got ahead of itself in recent years is borne out by comparing the total market capitalization with gross domestic product. In May of 2007, India's market capitalization overtook its GDP; by January 2008, it had climbed to a frenzied 180% of GDP. In comparison, the ratio for the U.S. market at the height of the dot-com boom was 131%. The ratio for Japan at the peak of the market was 150%.

Those heady days for the Indian market seem distant now. In July the market-cap ratio dropped below 100%, indicating saner valuations. [See chart.] But the market's considerable fall since July does not make a persuasive case for a quick return of faith. Any investor betting that the market will go right back up in the short term is essentially saying that there will be an India equities bubble all over again.

While the Indian economy, whose output is now around $1 trillion, looks likely to do well over the next two decades or so, GDP would have to more than double for market capitalization to return to its past glory without valuations being caught in bubble territory. And a doubling of output would likely require at least 10 years of growth, assuming the economy keeps growing at a 7.2% clip.

It also pays to bear in mind that the Japanese equity markets have yet to recapture the orgiastic exuberance that once caused that country's market capitalization to outstrip GDP. Indeed, Japan's Nikkei index is now roughly at 1/4 of the peak set nearly 20 years ago.

One of the biggest reasons for the surge in the Indian equity markets was the inflow of funds from foreign institutional investors. But that luck has not held in the current bear market: Foreigners have pulled $20 billion from the market since the start of 2008, according to provisional data issued by the Bombay Stock Exchange.

In its 24 years, the Sensex, now at 9,647, has held above 7,000 only for the 3 1/2 years starting in June 2005. The index's mammoth 200% gains between 2005 and early 2008 are perhaps never to be repeated again. Even Warren Buffett would have trouble coming up with returns like that.

A new bull market, Morgan Stanley's Desai argues, is at least 15 months away. "Even if we assume that the market has hit its bottom, previous bear markets show that the market almost always tests the previous low before a new bull market gets underway," he says. "This process of retesting took between 15 and 24 months in the previous three bear markets."

He says the Sensex will probably end 2009 at 8,559, down 11% from now -- and it could fall as much as 34%. In a bullish scenario, Morgan Stanley says, the market could climb about 30%.

India is more vulnerable than many of its regional peers when it comes to external financing.

From an economic perspective, Citigroup contends that India is more vulnerable than many of its regional peers when it comes to external financing. The country's current-account deficit and its debt repayments amount to a significant 18% of its foreign-exchange reserves, hurting the outlook for the currency, Citigroup says. An emaciated rupee -- which has lost around 20% so far this year -- leaves those Indian firms that have borrowed overseas more vulnerable to a downturn.

Says Rajeev Malik, head of India and Association of Southeast Asian Nations, or Asean, economics at Macquarie: "The [Indian] government has squandered a great opportunity in recent years to undertake reforms from a position of strength stemming from strong growth and increased interest in the country from global investors. ... India today is experiencing a crisis that is a milder version of what the rest of Asia experienced in 1997: an unanticipated and sudden reversal in the multi-year surge in global capital inflows that causes currency collapse and depresses domestic demand."

He expects India's GDP growth to slow to a 7-year low of 6% in 2009-10. Consequently, the rupee is likely to remain under pressure and weaken from around INR49 against the U.S. dollar now to INR52 by March, but recover thereafter, he says.

There are also geopolitical reasons that do not favor an entry into the Indian market at the moment. For one thing, the country goes to the polls before May to choose a federal government. Most political commentators agree that voters are disenchanted with the current Congress-led coalition, but the other major contender -- the Bharatiya Janata Party -- seems direly in need of a credible leader at the national level. What is more, Pakistan's current economic crisis, though largely unconnected to India, is likely to make fund managers jittery about the entire South Asian region.

So what do you do if you still want to get some exposure to the India growth story? Picking cheap individual American depositary receipts of Indian companies may be the way to go.

Infosys (ticker: INFY), which has a reputation for being one of India's best-managed and most transparent companies, has an undemanding P/E of 11 and a dividend yield of almost 2%. The infotech consulting and software services firm has a cash balance of $1.9 billion, zero debt and a return on equity of 36%. And its cash is held in bank deposits, with absolutely no exposure to mutual funds.

Another stock that appears to offer a decent risk-reward proposition is ICICI Bank (IBN). The stock, which traded around $75 at the height of the India bubble, is now around $18. That is basically where it was trading in 2004, before the India fever caught on. At its current price, the stock is trading at a modest trailing P/E of 14 and an attractive dividend yield of 2.8%.

Shares of the country's largest private-sector bank have taken a beating because of concerns about its international business. With 26% of its loan book coming from overseas, investors are rightly worried about problems that might creep up amid the current credit crisis. The bank has slowed credit growth and is seeking to preserve capital, but worsening global credit-market sentiment might lead to larger-than-expected losses on its international investment book.

If the bank can successfully cope with the crisis, its current share price should provide a good entry point for those with a long-term investment horizon, perhaps five years or longer. Right now, that is about the only way to look at any investment in India.


We need to remove taxes on business. Permanently.

Bryan Taylor, chief economist for Los Angeles-based Global Financial Data, which provides long-term data and research on global markets, explains why eliminating business taxes would be a great economic boost. This recommendation comes from a mainstream, abeit business-friendly, source -- not some "radical" Austrian economist. The argument is straightforward: Taxes are a cost of business which comes out of the hides of consumers and shareholders. Meanwhile it distorts investment decisions and lines the pockets of accountants, tax preparers and -- notably -- lobbiests. In short, business taxes are a highly inefficient way to raise revenues.

Barack Obama has been elected president of the United States in the midst of the worst financial crisis in decades. Economic stimulation has been intense: The Troubled Asset Relief Program has used up $350 billion, and credit facilities from the Federal Reserve have injected more than $1 trillion into the economy. (One of the only bright spots: The $100 decline in the price of oil since last summer saves Americans $2 billion per day.)

Now President-elect Obama is proposing a stimulus package that could reach $775 billion over the next two years; about $300 billion could come in tax cuts to individuals and businesses. Obama says the government could run trillion-dollar deficits for years.

Some are concerned, however, by the fact that the government is trying to address a crisis caused by too much debt -- by borrowing even more, possibly creating even greater problems in the future. Indeed, the new debt will be with us for decades to come.

Yet the causes of the current economic crisis have been building up for decades. Our economic condition is the result of bad corporate decisions -- such as AIG's massive credit-default swap plays -- and poor political policies.

Therefore, the economy needs real change now. The best course is to promote growth and recovery by permanently removing taxes on business, particularly through the elimination of tariffs and the corporate income tax.

This would stimulate the economy, help the middle class, create jobs in America, make the United States more globally competitive and reduce corruption in Washington.

Tariffs are an antiquated legacy of the 19th century. They reduce economic efficiency and provide limited government income. Tariffs are used more to protect industries that lobby Congress successfully for special treatment than to increase government revenues.

The U.S. government worsened the Great Depression when it passed the Smoot-Hawley Tariff Act in 1930. In an ominously similar way, the World Trade Organization's current Doha Round has failed to create a new agreement on freer trade. To set the right example, the U.S. should sidestep the negotiations and eliminate tariffs unilaterally. In 2007, customs duties and fees were $26 billion, or about 1% of federal government receipts. Removing tariffs would have a small impact on government revenues, but would show that the U.S. is not going to repeat the mistakes of the 1930s. Eliminating tariffs would promote global trade and competition, and it could show the world how to survive the economic crisis and profit from globalization. It would benefit the U.S. and the whole world.

As for corporate income taxes, the U.S. was a leader and now it lags. The 1986 tax reform lowered the top corporate tax rate from 46% to 34%, giving the U.S. one of the lowest rates in the developed world. Since 1986, other countries have reduced their corporate taxes, and today the 34% rate is one of the highest in the world.

Most Americans see the corporate income tax as a way that corporations bear the cost of government services. However, corporations treat the tax as a cost of business, which is passed on to consumers in the form of higher prices, to workers in the form of lower wages, and to shareholders in the form of lower dividends.

In other words: Corporations don't pay taxes, people pay taxes.

The corporate income tax also imposes billions of dollars in compliance costs on corporations and distorts their spending, investment and financing decisions as they find ways to reduce their tax liabilities.

Even worse, most corporate tax breaks and subsidies provide special benefits to some corporations and some industries at the expense of their competitors. The Corporate Welfare Information Center estimates that corporate subsidies and tax benefits total $150 billion annually. Eliminating the corporate income tax and tariffs would put thousands of Washington lobbyists on the unemployment line.

The greatest problem with eliminating the corporate income tax is the revenue loss. Since 2000, federal revenue from the corporate income tax has averaged $229 billion a year.

The only way of making up these revenues would be to increase personal income taxes. The Bush tax cuts are due to expire in 2010 anyway, so this tax increase would replace most of the lost revenue from the corporate income tax. Only the top 5% of taxpayers would face higher taxes. The remaining 95% of taxpayers would reap the benefits of eliminating the corporate income tax with no increase in their tax burden.

If corporations pay $229 billion less in taxes each year, that is $229 billion that would be redistributed to consumers in the form of lower prices, to workers in the form of higher wages, to workers through new jobs resulting from more profit and investment, and to shareholders in the form of capital gains and higher dividends.

At zero, the U.S. would have the lowest corporate tax in the world. This would attract U.S. and foreign firms to invest in the U.S. The economic distortions of the corporate income tax would be removed, as would the corrupting influence of the corporate income tax on politics.

Eliminating both the corporate income tax and tariffs would constitute real change for America, for the economy and for the world. It would provide tax reform, not tax redistribution; reduce corruption, not encourage it; provide long-term solutions, not short-term fixes; attract new capital and investment into the United States; and increase jobs, raise wages and lower prices.

Americans are tired of Wall Street and Washington working together at the expense of Main Street. Barack Obama should seize this opportunity to provide America with much-needed corporate and economic reform. Now more than ever, we need real change.


Lifehack is an interesting website dedicated to “lifehacks”: “Any hacks, tips and tricks that get things done quickly by automating, increase productivity and organizing.” More than a "how to cram more activities into your busy life," there are many entries touching on the more metaphysical aspects of life, and how have life be more fulfilling. Not this piece, though! It is about how to cram more ...

At the end of each year, we like to round up some of the most popular articles from each section of the site over the last 12 months. So that is what I have compiled here: The number one tech article for each month of the year, with popularity judged by comment count.

1. How to Get Things Done with Jott

"I first tried out Jott last year, and was really impressed with what it could do. You call their number, say something into the phone, and it sends it as a text message back to you. And it works -- aside from a few odd names and strange words, its transcriptions are pretty much spot on. Apparently they run your voice message through a speech-to-text engine and then run it by a human operator for double-checking." -- Link

2. Increase Productivity and Relieve Pain with the Dvorak Simplified Keyboard

"If you have been looking for a way to increase your productivity without having to train your mind to think or behave in a completely new way, then many will point you to the Dvorak Simplified Keyboard. Well, they are wrong, as I discovered; the time and effort to retrain your mind is quite extensive, but the time spent is worthwhile!

If you are prepared to make some sacrifices -- or rather, put up with some inconvenience -- Dvorak can certainly save you some medical bills and some time." -- Link

3. How to Tell When Your Hard Drive is Going to Fail

"Hard drives form the basis of our computing. The use of computers comes down to manipulating data, and the hard drive is, of course, where we store all our data -- family albums, music, work documents, email, the list goes on.

Most of the components in your computer are electronic devices. They do not fail with time like a mechanical device such as a car. But your hard drive is one of the few mechanical devices used in modern computing, and as such, it is destined to die eventually." -- Link

4. Hard Drive Zen with the Humble Folder

"The hard drive; you bring one home and pop it in your computer, and it is a totally clean slate. You take a look inside the root directory and see the beauty of nothing. But like all hard drives, over time the files clutter up, filling every nook and cranny. Eventually, space runs out, but because you figured you would process your files 'another day,' it takes hours to figure out what is what, where is where and what to delete." -- Link

5. 7 Ways to Use Evernote

"Last week, Lifehack founder Leon Ho introduced me to the beta note taking application Evernote. Evernote boasts a variety of features that make it an excellent application, including automatic synchronization between the web and your other devices, tagging and sorting features, an online client that makes it accessible from anywhere, and a search feature that can even search text stored within images." -- Link

6. Drive-by Tips for Centralizing Your Content on the Internet

"There are so many ways to manage information online, and many ways to centralize various types of information. The main decision is in deciding which data you want to centralize and aggregate so that you can choose the most appropriate method of pulling it all together.

I have called this drive-by tips because I am not going to beat around the bush -- I am going to get straight to the point and direct you to the services you need to start getting your information together, so get ready for a fast ride!" -- Link

7. Dropbox: A Simple Syncing Solution

"Over the years, I have tried syncing my computers any number of ways, from trusting my entire life to a flash drive to uploading everything to Google Docs. Very few options have been idiot-proof enough to make up for my abilities to misplace things, forget to update file versions and generally fail to double check that my computers are all in sync.

I need a forgiving synchronization method -- something that does not require me to initiate back ups or juggle versions. Dropbox seems to be that method. I have actually been using it for over a month now and have encountered an impressive lack of problems." -- Link

8. 10 Free Tools for Collaboration

"With so many people working from home, it is no surprise that the last few years have seen significant increases in the range of collaboration tools available online. They did not just capitalize on a growing trend; they helped to propel it. Here are 10 great, free tools for collaboration, including some of those we use here at Lifehack." -- Link

9. 11 Free Mind Mapping Applications & Web Services

"Mind mapping is a way of taking notes, capturing ideas, exploring concepts and breaking down information into a more readily understood format. It is a place where visual representations and written representations of things merge to create something that is more natural to the mind. It works with and represents the way we think, where as paragraph-based text is not representative of the thought process at all.

There are a million and one uses for mind mapping. You can use it to study for a big exam. You can use it brainstorm new article ideas, or flesh out what needs to be covered in the business plan for a new venture. You can organize a big move of house. Heck, I have seen people use the mind map format for their daily to-do lists (each to their own, eh?)." -- Link

10. Back Up Without Breaking The Bank

"A couple of months ago, I ran into one of my friends sobbing her eyes out. Her computer hard drive had died and she had lost three years of graphic design work. Of course, it was not backed up -- she had thought about it but had not gotten around to picking up an external hard drive.

I have heard this type of story hundreds of times. Every time I hear a new one, I think about how I am going to do better at backing up my own work. I still do not do a great job, but I do have all of my files backed up in one way or another. If I had a major data loss, I could replace most of my work pretty quickly." -- Link

11. 10 Tips for More Effective PowerPoint Presentations

"Oh no! Not another boring PowerPoint presentation! My eyes, my eyes ... !!!"

How much does it suck to be in the audience for yet another drawn-out, boring, lifeless slideshow? Worse yet, how much does it such to be the one giving it? The truth is, bad PowerPoint happens to good people, and quite often the person giving the presentation is just as much a victim as the poor sods listening to her or him.

Here are 10 tips to help you add a little zing to your next presentation. They are, of course, far from comprehensive, but they are a start." -- Link

12. Aggregate Your Social Networks with Eventbox

"Dealing with social media and networking is a chore. There is so much going on in too many different places, and keeping track of all that information is hard enough. Managing your own is another story. EventBox, a beta application for Mac OS X Leopard, is designed with this problem in mind. The purpose of EventBox is to aggregate the various social networks you utilize in one handy desktop application, much like feed readers did for all the sites you frequent." -- Link

Happy holidays, and a productive new year!


Caribbean Nations Urge Obama to End Embargo on Cuba

Caribbean nations are urging U.S. President Elect Barack Obama to end the decades-long American trade embargo on Cuba. Mr. Obama has pledged to ease restrictions on Cuban-Americans traveling to Cuba and sending money there, but has said he wants to maintain the embargo to press for positive changes in the Communist-run country. "The Caribbean community hopes that the transformational change that is under way in the United States finally relegates that measure to history," said Prime Minister W. Baldwin Spencer of Antigua and Barbuda, chairman of the CARICOM group of Caribbean nations, during a recent was meeting in Santiago de Cuba.