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The Panama Boom!
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Friday, October 13, 2006
Vol. 8 No. 205 |
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In Today's Letter:
Comment: Boom in Panama
Sovereignty: Not Quite Free Enterprise
Wealth: Hedge Funds Going to Pot? II
Currencies: Surprise Down Under
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The Panama Boom
Dear A-Letter Reader:
I haven't said much about Panama recently. The bank tour in Europe and an asset protection seminar in Ireland have kept me busy.
But I will be visiting Panama in a couple of weeks and that reminded me of a controversy that is developing in Panama. The question is whether "the real estate boom in Panama City may be a bubble." When I was there a few months ago I was again amazed at the numerous, multi-story condos springing up everywhere in Panama City. The Pacific and the Canal waterfront is beginning to look like a miniature version of the Shanghai building boom I witnessed last year. Construction cranes are everywhere and Donald Trump announcing he would build one of his Trump Towers in Panama City was just icing on the cake.
In a guest column in Latin Business Chronicle, Sept. 26, Walter Molano claimed that "the real estate boom in Panama City may be a bubble." He argued that Panama's infrastructure is inadequate to meet the newly built apartment boom in Panama City. "Although the newly built towers are beautiful, the roads are atrocious, the hospitals are inadequate, and the pollution is rampant."
Based on my own observation I can't quite agree. Frankly, 50 story condos are not my cup of tea, but the roads and streets in Panama City have improved immensely in recent years compared to the 1970's when I often visited Panama as a Member of the U.S. House of Representatives. In recent years, I have visited a medical clinic and received good service, with the doctor's fee and the prescription costing half what it would in the United States. As to pollution, the waters around the city look as clean as they ever have -- which is not all that great.
We often speak, rightly so, about Panama as a world class tax haven, a place that provides great asset protection with trusts and family foundations and guarantees your financial privacy. But over the last decade, Panama has become a home away from home for thousands of American, Brits, Canadians and others from across the globe. Whether it is in Panama City or rural Boquete in the west, Bocas del Toro in the east or even Contadora Island, foreigners have been buying and building second and retirement homes. All of these second homes are only an hour away from Miami by plane -- and sell at prices considerably lower than the same real estate would cost in America.
No one disagrees that Panama is booming. Major international companies, retirees from across the globe, expats looking for second homes, and real estate investors are discovering the numerous advantages of Panama. The economy is growing more than 6% annually with the possibility of exceeding 7% in 2006. The Latin Business Chronicle (9-19-2006) agrees: "Panama is set to grow more than any other country in Latin America next year, the [IMF] fund predicts."
On October 22nd, the citizens of Panama will vote on whether to expand the Panama Canal to allow the largest modern ships to pass through. The "Yes" votes are leading the latest polls by a 20 percent margin. Assuming the referendum passes, eventually these Canal expansions will mean another 50,000 jobs, and further economic growth of an already booming nation.
Defenders of the government claim it has "a well thought out plan working hand in hand with private enterprise for the development of the infrastructure." That includes repairing the city streets of Panama City as well as the major highway systems. Examples include the newly built Centenario Bridge, expansion of Corredor Sur (Panama City's freeway), and new busses. Well financed plans are being developed for waste disposal and pollution control.
Panama has two major housing markets: one upscale for internationals and another moderately priced for the local market. Panamanian citizens can apply for government assisted, 5% down, low interest loans. As a result the moderately priced local housing market is booming along with the international higher priced market.
What I am saying is that the next six months or so may see an increase in Panama real estate prices. If you are considering Panama as a retirement or second home you should begin looking now. As one writer says: "The trend is firmly established. Panama continues to offer attractive prices compared to North America and Europe."
Jon Hanna, an attorney in Panama sums up the situation: "The real factor to consider is the oldest law of economics; supply and demand. For a whole host of reasons, people around the world are interested in moving to, vacationing in and investing in Panama. The demand is there and steadily growing separately from economic conditions in other places around the world. Panama will continue to prosper and grow for many years in the future."
That the way that it looks from here,
BOB BAUMAN, Editor
EDITOR'S NOTE: This weekend only, it's the Bauman Book Bonanza! Purchase any of Bob Bauman's books and take 20% off the regular price. Check your email this afternoon for details on how to save on such popular titles as Where to Stash Your Cash, Panama Money Secrets, The Complete Guide to Offshore Residency, Dual Citizenship, and Second Passports and more.
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Not Quite Free Enterprise
A few years back, Professor Edmund Phelps underscored the importance of earning a respectable wage to foster self-worth and responsibility in his book titled, Rewarding Work: How to Restore Participation and Self Support to Free Enterprise. He argued that it's been increasingly difficult for unskilled workers to earn a respectable wage because productivity has come to rely more on knowledge and skills and less on brawn and hard work. So what was his solution? He wanted to impose a graduated schedule of tax subsidies to enterprises for every low-wage worker they employ. Basically, as firms hired more low- wage workers, the labor market would tighten and pay levels would rise.
In spite of the respect I have for both Mr. Phelps' knowledge and position, and also in spite of knowing that he is an advocate of entrepreneurs and private enterprise, I'm afraid I was peeved at his proposal to take dollars out of my bank account and give them to some company to subsidize an unskilled worker. Maybe this idea isn't quite as bad as welfare, but still...
Now Phelps has won this year's Nobel Prize for economics for an entirely different idea. He pondered the relationship between inflation and employment and concluded that consumer price expectations and unemployment rates are key determinants to inflation. This is the same idea that now widely influences monetary policy.
Hmmm. I have a sneaking suspicion that central bankers themselves nominated Mr. Phelps for the prize. With central bank policy struggling to keep inflation at bay, policy-makers such as Ben Bernanke, appreciate any theory that deflects the blame for inflation away from themselves. What better than to lay it on the doorstep of those mindless consumers who, (Horrors!) are driving prices higher through their irrational fear of higher prices. Shame on them!
Tinkering with the symptoms of price inflation, such as trying to influence people's expectations, or messing with subsidies or incentives to alter the unemployment rate, or ultimately, as politicians eventually do, passing laws against price increases, is bolting the barn door after the horses have escaped. Good grief, Charlie Brown, all you need to do to stop price inflation is to stop monetary inflation!
And it doesn't take PhD in economics to figure that out.
JOHN PUGSLEY, Chairman
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Hedge Funds Going to Pot? Part II
Back in the early 1990s, hedge funds were designed to make money for their investors. Today, these products are designed to make money for their general partners and managing directors. The industry has grown so large that many managers are struggling to make a profit. In 2005, a record 850 hedge funds closed their doors because they couldn't survive as a business. Even when they're charging a whopping 20% incentive fee, they still can't make their business model work.
Hedge funds today are faced with crowded trades and most of all, the lowest volatility for global markets in nearly a decade. Volatility is the regular diet that feeds hedge funds and strategies predicated on trends. Yes, some hedge fund strategies like distressed debt, convertible arbitrage, and event-driven have fared well this decade, but the majority of these strategies have suffered.
The bottom line is that with the advent of low-cost and liquid exchange-traded-funds, I can select the investment theme I want without paying a 20% performance fee. Sure, it takes some legwork, but as a professional investor I've just about had it with hedge funds. I prefer the "buy-and-hold" approach to investing, selecting low-cost ETFs and top-performing value-based equity managers for the long haul. It's cheaper, safer, and much more liquid. And you know what? I've done better than most hedge fund indices this decade, too.
To be fair, many hedge funds deserve a place in a diversified portfolio. After all, in a universe of over 6,000 products, you're bound to find some great managers. But today, most of the great hedge funds are closed to new investors and the remaining lot are still relatively new. In my book, I'm not comfortable giving some 26-year-old hot trader money. I like to see some experience first.
I still invest in hedge funds. But increasingly, I'm moving away from this once seemingly unique asset class as more money chases mediocre returns. In the investment business, when too many people are doing the same thing, the cliff is usually not far away.
ERIC ROSEMAN, Investment Director
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A Surprise Down Under
So what's going on down under? Well the currency market continues to like yield, or the prospect of higher yield. Today the Australian dollar is sharply higher on news of better-than-expected job growth in the country, which pushed unemployment to a 30-year low of 4.8%.
Before today's report, many analysts were expecting a deceleration in the Australian economy. They were expecting Australia's central bank would pass on interest rates at their next meeting. Today's surprise quickly changed the dynamics. Now it's the tight labor market which we're told will lead to "inflation pressures."
It rarely fails-surprises move prices the most. Analysts gain wisdom after these surprises happen. Here's what they are saying now, according to the Australian newspaper The Age:
"HSBC Bank chief economist John Edwards said he expected inflation would be 'sufficiently high enough' for the Reserve Bank to raise rates in November."
"'Glenn Stevens [Reserve Bank Governor] (is saying) that the thing he would most regret is letting the higher rate in inflation be sustained,' Mr Edwards said. 'He reaffirmed that it (a rate increase) is a very lively possibility, and (yesterday's) employment number strengthens the case.'
"Westpac senior economist Anthony Thompson is also expecting the central bank to tighten."
So for now, we have higher rates expected from Down Under. Let's watch for any follow through tomorrow. If we get a follow through, it could suggest the Aussie dollar may have put in an intermediate-term bottom (in this case, intermediate is defined as a multi-week time frame, as intermediate-term high established about six weeks ago).
JACK CROOKS, Currency Director
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Further Resources
Rewarding Work: How to Restore Participation and Self Support to Free Enterprise
Click here to purchase a copy from Amazon.com.
How to use and avoid hedge funds
http://www.offshoreadvantageacademy.com/
Jobs Rise Likely to Lift Rates
http://www.theage.com.au/news/
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