Why Panama is Still The One

Monday, March 26, 2007
Vol. 9 No. 73

In Today's Letter:
Comment : Here's Why Panama is Still The One !
Wealth : Is Now the Time to Buy Private Equity?
Bonus Wealth : The Fed Blinks - Or So Wall Street Seems to Think

Here's Why Panama is Still The One!

Today's comment is by Erika Nolan, Founding Publisher and Executive Director for The Sovereign Society.

Dear A-Letter Reader,

Several years ago, a Canadian Sovereign Society member came to one of our Total Wealth Symposiums down in Panama. This member planned on staying for just a few days. But instead, he came, he saw and he fell in love with Panama.

This Canadian picked up his home and his entire business and moved to Panama. Now, he's been there over five years to qualify for Panamanian citizenship.

Why would a Canadian want to move his business to Panama? One major reason: the nature of his business allowed him to restructure it in Panama with local employees, and because most of his business is done outside Panama, it pays no corporate taxes in Panama. The best part is that it no longer has to pay the high corporate taxes that Canada imposes - 21%.

Why We Still Love Panama

So why Panama? I'm sure you know by now that Panama is The Sovereign Society's top tax haven. You've also probably read about the soon-to-be new and improved Panama Canal (on the schedule to be completed by 2014 - exactly 100 years after the original canal opened in 1914).

You probably heard all the hype surrounding the booming real estate market in Panama. In fact, just last month both the Wall Street Journal and the Washington Post commented on the real estate market bursting at the seams down in Panama. You may have even read that celebrities like Donald Trump have snatched up real estate down there.

But in addition to hot real estate market, we still love Panama for an entirely different reason. It's because Panama is still what we call a "foreign source income tax haven." That means if you move to Panama, the local government only taxes you on income you earn inside Panama. So if your business is based in say St. Louis, and you live in Panama, you can live virtually tax-free at the local level. And like our Canadian friend, even if your foreign business is technically located in Panama, you can avoid most corporate taxes. (Although Americans still must pay U.S. taxes no matter where they live.)

And of course, Panama has a long tradition as a tax haven for many other reasons. For starters, Panama has statutory guarantees of financial privacy and confidentiality. Violators can suffer civil and criminal penalties for unauthorized disclosure.

Panama also has no double taxation agreements and no tax information exchange agreements with other countries. Washington tried to get Panamanian authorities to sign a TIEA with the United States, but Panama has politely ignored their demands. So basically, Panamanian authorities have what it takes to stand up to anyone (even the U.S.) who would threaten their tax haven status.

What to Do in Panama

Trusts, foundations, offshore corporations - Panama has it all when it comes to offshore structures.

Its corporation law dates to 1929, and Panama has long offered refuge for entrepreneurs seeking to escape hyperinflation and foreign exchange controls in Central and South American countries. More recently, Panama enacted a law authorizing private foundations and patterned it after the best model available: Liechtenstein.

There is also no requirement to reveal a beneficial trust or corporate ownership to Panamanian authorities and no required audit reports or financial statements. That's financial privacy in spades.

On top of all that, Panama has good offshore professional services, with dozens of banks, trust companies and attorneys to choose from to help you set up your offshore trust, foundation or offshore corporation. But just a heads-up: you will need an introduction from a local source to open an account.

And look for more information coming to you about our favorite tax haven later this week as we continue Panama week!

ERIKA NOLAN, Executive Director

P.S. I'll be heading down to Panama to host our Total Wealth Symposium May 2-5. We've invited nearly 30 experts to give you their top and most original ways to grow your wealth in 2007. I'll be introducing our top investment experts, such as Eric Roseman, Mike Burnick and Jack Crooks, who will reveal their most powerful investment picks for this year. We'll also be joined by real estate experts, tax attorneys, offshore banking professionals and privacy experts from around the world. Our early bird discount expires this SUNDAY (April 1st), so click below to register right now and save US$100.

LINK: http://www.sovereignsociety.com/offshore1975.html

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Wealth/Investments

Is Now the Time to Buy Private Equity?

The biggest buzz in investment circles lately is the private equity blitz. These companies, which typically buy established enterprises and then sell off the profitable constituents for big profits, are now raising funds to go public.

The most successful of these companies over the years, Blackstone LP, has earned an absolute fortune for its employees over the last 20 years -- much more than the average Goldman Sachs employee. Neither Blackstone nor its founders need the additional US$4 billion they're raising on Wall Street shortly. So what gives? Why would such a highly-prized private equity outfit seek additional funds from the public?

Well, Blackstone is pretty smart. They realize that this is the ideal time to seek outside financing for additional funds. It's almost like free money for them. The stock market, until recently, has been extremely receptive to new offerings and a well-positioned IPO right now will make a bundle for its founders. Last month, the large hedge fund, Fortress Investment Group LLC made close to US$1 billion in an offering. Again, these guys didn't need the money. But heading to market when it was hot was great timing.

So here's the really big question: with private equity now going mainstream, is this the time to buy into private equity?

My answer is "maybe."

Of course the best time to buy an initial public offering is pre-IPO, if you can get in on the ground floor with the underwriters of the deal. But since most of us can't buy pre-IPO, I suggest waiting several months or more for another stock market correction before buying Fortress or Blackstone. Both are extremely profitable companies and I see no reason why they won't continue to remain valued cash-flow generators. So yes, I'm going to buy these companies when prices head much lower, if only temporarily.

But make no mistake about it. Just because an investment has a "private equity" label attached to its name doesn't mean it's great deal, either.

I'll let you know when to scoop up shares of Blackstone. I have no doubt we'll eventually see a lower share price after this offering hoopla. Stay tuned.

ERIC ROSEMAN, Investment Director

Bonus Wealth

The Fed Blinks - Or So Wall Street Seems to Think

The facilitators of global liquidity - a.k.a. the U.S. Federal Reserve - gathered once again in Washington last week to decide the fate of U.S. monetary policy. To no one's surprise, the Fed left overnight lending rates unchanged at 5.25%.

Considerably more interesting: the Fed apparently inched a bit closer toward a true neutral policy stance. But Wall Street is acting more like a rate cut was already in the bag.

While maintaining its belief that risks of inflation are the main concern, the Fed nevertheless dropped its reference to additional rate hikes perhaps being neccessary. Instead, the Fed adopted a softer, gentler tone stating: "future policy adjustments" (implying either rate increases OR decreases ) will depend on the economic outlook going forward.

With a policy rate currently above 5%, some have accused the Fed of already being too restrictive considering the growing evidence of a slowing economy.

But others believe the Fed has a greater responsibility to reign in loose credit to prevent any wayward "asset bubbles" from growing to destabilizing proportions in financial markets.

So Ben Bernanke and the Fed continue to walk a tightrope, trying as best they can to please all investors all at the same time. For some Wall Street types, those who never met an asset bubble they didn't like, there's a growing belief the Fed should move to cut rates by the middle of this year, and perhaps several times before year-end.

Of course, the boys on Wall Street have hoped the Fed would cut rates periodically before. The Bernanke Fed has subsequently dashed these hopes on several occasions. But given growing evidence of slower growth in the U.S. economy, and in corporate profits, maybe this time Wall Street has got it right.

According to analysts at www.briefing.com , first quarter GDP growth, the broadest measure of U.S. economic output, is expected to fall to a rate of just 2.5%. That's well off the above-trend pace of 5.6% GDP growth achieved this time last year.

Also, profits at America's largest public companies seem to be taking a nosedive, too.

Following 14 straight quarters of double-digit year-over-year earnings growth, profits for companies in the S&P 500 Index are expected to inch ahead just 4.3% this quarter, according to data compiled by First Call. That's only about half the growth rate forecast by Wall Street just two months ago - and well behind the blistering 15% earnings growth rate posted in the first quarter of 2006.

There's little doubt that the U.S. economy is slowing. The real questions now are: how much, how fast and how long? The Fed may be able to help provide some answers depending on the future course of monetary policy.

Wall Street is betting on rate cuts ahead - and perhaps this time they're correct - but they should also be careful what they wish for.

MIKE BURNICK, Senior Editor & Global Markets Analyst

*Save $100!*
In just 5 days, the price of attending our Total Wealth Symposium goes up! Take a few minutes to register today and save a quick $100. LINK: http://www.sovereignsociety.com/offshore1975.html Event Dates: May 2-5 Location: Panama City, Panama

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