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Building Your Financial Fortress
Alettermock2
Monday, October 16, 2006
Vol. 8 No. 206
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In Today's Letter:
Comment:
Your Financial Fortress
Offshore:
Just Say No!
Wealth:
Amazin' REITs
Privacy:
IRS Eases Up a Little?
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Building Your Financial Fortress
Dear A-Letter Reader:
Today I'm just returning from County Clare, Ireland were I presided
over the second "Sovereign Society Wealth Protection Summit." This
unique event was limited to an elite group of Sovereign Society members
and a distinguished panel of Sovereign Society's Council of Experts,
which included professionals from all from across the world -
Switzerland, Liechtenstein, the U.S., the Isle of Man and Denmark. We
discussed estate planning and asset protection with all attendees
intent on securing their financial future.
Nestled in between the Atlantic Ocean and the River Shannon, County
Clare is what foreign tourists expect and hope to see when they visit
Ireland. Clare is renowned for its landscape with the wild Atlantic
cliffs on its west and the magnificent blue-gray River Shannon on the
east. The town of Ennis, nearby, is known as the Irish music capitol.
Early
in the morning you see mist and fog hovering over lush green fields and
pastures edged with ancient stone walls. Clare is known for Irish
traditions - and Dromoland Castle, our meeting place, is at the heart
of that history.
The Castle is a magnificent example of Renaissance architecture
built in the 16th century and a premier Irish castle resort hotel.
According to Burke's Peerage, it is one of the few estates tracing its
history to native Gaelic Irish families of royal heritage. This was the
ancestral seat of the Clan O'Brien, direct descendants of Irish King
Brian Boru (940-1014 AD). Boru was granted the title "Ard Ri", meaning
"High King" because he was the first (and last) leader to effectively
unite all of Ireland under one government, a struggle that goes on to
this very day-- although the news here last week was that unity may at
least be at hand.
The Sovereign Society members gathered here this past week for this
unusually intimate offshore wealth and asset protection "summit" with
private, one-on-one meetings with the Sovereign Society experts
present.
Each of the experts, including myself, strove to assist with each
attendee's personal asset protection planning needs, from beginning to
end. I know first hand that most of them returned home with plans in
place that will serve them well.
I must say that the Americans I talked with here are pessimistic
about the political and economic future of the United States. They
definitely are concerned about the destruction of American liberties,
the abolition of personal and financial privacy, and the deteriorating
value of the dollar -- thus they were looking for real offshore
solutions. As one American told me, commenting on the help he had
received: "If the Sovereign Society didn't exist someone would have to
invent it."
The sad truth is that Americans of even modest wealth are forced to
look to other lands for the guaranteed constitutional rights we once
enjoyed at home. Dromoland Castle and our meeting here serves as an apt
metaphor for the ironclad fortress one must build to protect assets
from predators of all kinds -- the government chief among them. Asset
protection is one of our principal missions and we can and will help
you build your own financial fortress.
That's the way that it looks from Ireland,
BOB BAUMAN, Editor
EDITOR'S NOTE: Interested in building your own
wealth fortress but have no idea where to start? Next month, The
Sovereign Society is hosting our first ever Offshore Advantage Seminar
to teach you how to take advantage of the many wealth opportunities
offshore. A-Letter Readers: Click Here for more information. Sovereign Society Members: Click Here.
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Hong Kong Just Says "NO" to the EU
As
we predicted, one of Asia's two leading offshore tax havens officially
has told the European Union to forget about any exchange of tax
information. EU tax collectors have been whining about billions of
dollars and euros that have fled the EU for Hong Kong, Singapore, and
other offshore havens which have no ties to the EU. The exodus follows
the imposition of the so-called "EU tax directive" last year which
requires EU member states to share tax information about EU citizens
who have accounts or are paid interest in other EU nations. The
directive also requires the EU states to withhold taxes and pay them to
the home countries of recipients of income. Several EU jurisdictions
have opted out of information sharing, although they do collect taxes.
Instead of reducing taxes to keep capital at home, the high EU taxers
are driving cash out of Europe. And Asian jurisdictions like Hong Kong
and Singapore are major beneficiaries of this wrongheaded tax policy.
BOB BAUMAN, Editor
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Amazing REITs
Real estate
investment trusts, or REITs, continue to power ahead in 2006. Since
2000, REITs have dominated the performance charts averaging a stunning
22% annualized return while gaining 23.6% per year since 2003. Combined
with dividends, rising real estate values and the rush to chase yield,
investors have propped-up this sector to record highs.
REITs are dominated by commercial real estate companies, including
office, industrial, malls, and hotels, to name just a few sectors. Each
of these sectors has averaged over 23% per annum over the last three
years, blowing away the S&P 500 Index. So while residential real
estate in the United States has slipped into a bear market this year,
commercial property values have continued to rise amid generally low
vacancy rates across the nation.
But I've got a problem with U.S. REITs.
Like those traded in Canada and Europe this decade, U.S. REITs have
gone through the roof and now provide a historically low yield.
Compared to benchmark 10-year T-bonds, (which currently yield 4.77%),
the average U.S. REIT yields just 4.30%, 47 basis points less than
T-bonds. When REITs yield less than government bonds that tells you
that valuations are plump. It's the same story in the United Kingdom
and other parts of Western Europe and Canada. REITs have appreciated so
much this decade that their effective pay-out has declined to
historically low levels, making them riskier assets compared to five
years ago when yields hovered around 10%.
But for global value investors like myself, there's no real margin
of safety at this point buying U.S. or even Canadian REITs. Yields have
plummeted and property values are not cheap. Instead, I'm bullish on
Singapore real estate, a booming Asian financial hub now competing
against Hong Kong as the region's second financial capital after Tokyo.
Commercial real estate prices in Singapore are still below their
1997-1998 peak, just prior to the Asian economic crisis. Plus, the
average REIT in Singapore pays about 200 basis points (2%) more than
benchmark Singapore government bonds -- a solid indication that values
remain attractive. I just recommended Singapore's best REIT a few
months ago in The Sovereign Individual and I'm happy to report we're
already up 20%, including monthly distributions denominated in a strong
currency, the Singapore dollar.
ERIC ROSEMAN, Investment Director
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IRS Eases Up-a Little-on Expats
As
someone who lived outside the U.S. for more than two years, I gladly
took advantage of one of the very few perks that the government
provides expat Americans.
I'm referring to the "Foreign Earned Income Exclusion" (FEIE)
program, in which Congress, in its benevolence, permits U.S. citizens
living abroad to exclude up to $82,400 in earned income each year from
foreign taxes ($164,800 for a married couple).
Of course, the FEIE doesn't affect the foreign taxes U.S. citizens
working abroad must pay. Fortunately, most (though not all) of these
taxes may be credited against U.S. taxes.
Now, the U.S. Treasury has issued a notice that allows expats to
exclude even more from their U.S. taxes. Expats can now exclude more of
their foreign housing costs in locations where housing costs are higher
than in the United States. The change partially offsets the impact of
an obscure provision in last year's tax bill. This provision imposed
tax on housing, educational, and other subsidies that are commonly
provided by employers to U.S. expats for the first time ever. Among
those hit the hardest by the change are Americans working in places
with high housing costs and low taxes, such as Switzerland.
The FEIE is a poor substitute for the system in the vast majority of
other countries, which for the most part simply removes citizens from
the income tax rolls when they depart for a year or more. This sensible
system is too much for the tax and spenders in the U.S. Congress to
bear, who believe they have the right to tax U.S. citizens on their
worldwide income, wherever they live. Even persons who are U.S.
citizens by an accident of birth (e.g., with a U.S. mother or father,
but born abroad) are supposed to file tax returns with the IRS!
Short of giving up U.S. citizenship, the FEIE is the best choice
Americans expats have to shield their foreign earnings from U.S. taxes.
For more information on how to use the FEIE, see the further resource
section below.
MARK NESTMANN, Privacy Expert & President of The Nestmann Group
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