Learn from the Little Dictator

Thursday, May 10, 2007
Vol. 9 No. 112

In Today's Letter:
Comment: What We Can Learn from the Little Dictator
Wealth: You Can't Keep a Good Metal Down
Bonus Wealth: A French Kiss for Free-Market Policies

What We Can Learn
from the Little Dictator

Today's comment is by Bob Bauman, The Sovereign Society's Legal Counsel and a former Member of the United States House of Representatives from Maryland, 1973-1981.

Dear A-Letter Reader,

I haven't had anything to say about Venezuela's Marxist/Communist/Socialist Dictator, Hugo Chavez, and I'm not about to say anything nice at this time.

Venezuela is simply not that interesting to those of us active in the offshore financial area - just as a real estate investor would not be interested in buying a burning building.

Venezuela's little colonel has shown the usual megalomaniacal traits of all dictators. He has suppressed freedom, accumulated power by unilateral decree and bullied opponents. Now he is on a nationalization kick. In fact, my colleague Mike Burnick has written extensively about Venezuela's asset expropriation in the name of nationalization in his blog.

But there are lessons to be learned from what's happening in the formerly prosperous and free country of Venezuela.

Chavez Strikes Again!

On May 1st, Chavez took over majority control of Venezuela's privately operated oil fields. Predictably, oil output fell by about 4% since the takeovers, just as shortages of certain foodstuffs and commodities have started to appear.

Only two days after Chavez took over the last privately run oil fields, he warned that if the nation's banks didn't follow his instructions, he would nationalize them too. He gave a similar warning to Sidor, the nation's largest steel producer.

The egotistical Chavez stupidly is following the Fidel Castro's proven path to national economic ruin.

So what has this got to do with offshore banking and investment?

One of our primary concerns when we assess countries for tax and other financial advantages is the stability of the local government. We realize that many of our members and readers don't have the firsthand offshore knowledge we're lucky to enjoy. We use our unique access to formulate judgments about foreign governments on your behalf.

Where Your Assets Are Safe from Such Dictators

That's why our top picks are places such as Switzerland, Panama, Liechtenstein and Hong Kong.

Now you may well ask: "Are you kidding, Bob?" Especially because I just listed a pure democracy, a country some see as a banana republic, an absolute monarchy and a Communist controlled city-state, as our four top favorites. How could so drastically different forms of government be considered stable for foreign investment and other financial activities?

Well, truth be told, in each jurisdiction there exist salient factors that have less to do with the formal means of political control and more to do with the actual policies and attitudes of each government.

You may not know all these subtleties, but we certainly do. We watch current events in each place carefully to detect any changes that may be detrimental to offshore financial activity there.

Each of these jurisdictions welcomes foreign capital, protects investors with the rule of law and guarantees financial privacy by law. And in all four jurisdictions it can be reasonably said that political stability will exist for the foreseeable future.

The Little Dictator, Hugo Chavez, is a gross example of what can go wrong in a hitherto normal country. Meanwhile, we'll keep watching for any signs of change in many nations so we can protect you with news about the latest developments.

That's the way it looks from here,
BOB BAUMAN, Legal Counsel

P.S. The Sovereign Society will tour two of our top havens, Switzerland and Liechtenstein, June 21-29 during our European Advantage Tour. Throughout the tour, our 40 guests will hear financial advice from international tax authorities, investment experts, European bankers and more. Between these closed-door-wealth sessions, you will experience the beauty of the Swiss countryside, including the majestic Matterhorn, the historic landmarks of Geneva and the nightlife of Zurich,

It's the perfect opportunity to see Switzerland and take care of your European business at the same time. But please don't delay. We only have a handful of spots remaining. So if you're interested in joining us, please call our Tour Operator, Value Holidays at 1-800-558-6850 today to reserve your spot before we sell out!

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Wealth

You Can't Keep a Good Metal Down

You have to be impressed with this gold bull market.

Even when the U.S. dollar is enjoying a rare rally versus most foreign currencies, gold prices typically post a gain. That's despite gold's historically negative correlation to the greenback. Even in 2005 when the dollar posted a 12% rise versus the euro, gold prices still rose. It's the same story in last week's trading as the euro declined sharply versus the dollar, yet gold prices raised more than US$7 an ounce.

What this tells me is that gold is looking amazingly resilient again this year. I think we'll finish 2007 with spot gold around US$750 an ounce.

However, with the dollar heavily oversold near-term following a bad first quarter, I'm expecting gold prices to soften slightly. But prices should easily hold above US$600 this time around, if prices even reach that low. Last year at this time, central banks were busy "talking down" gold as it blasted through key resistance of US$700 an ounce in early May.

The yellow metal sailed all the way to a 26-year high of US$734 an ounce before central banks warned of rising interest rates to combat inflation, sending gold prices tumbling.

But in a bull market, even the mighty central banks of the world can't keep a good metal down forever. Investors know supply and demand are working in gold's favor, currencies are losing their purchasing power amid bulging deficits and the majority of banks continue to expand credit, debasing their currencies in the process. And, of course, inflation is indeed rising.

Once again I'm giving the same advice I've been giving you consistently since 2001 regarding gold: Use any intermittent weakness or corrections as an opportunity to accumulate gold and your favorite gold stocks.

ERIC ROSEMAN, Investment Director

P.S. In my new report, "The Dirt Digger: 7 Great Ways to Profit from US$75 Silver and US$2,500 Gold," I recommended my "magnificent seven," the best value-based ways to tap into my favorite metals before they sail even higher. Click here to read this report.

Bonus Offshore

A French Kiss for Free-Market Policies

While I was winging my way back from Panama on Sunday afternoon, French voters were streaming to the polls in record numbers - to cast votes. Amid a record turnout, voters exercised their democratic right to choose between two opposing social and economic agendas for France.

The agenda for free-market reforms appears to have won the day, which bodes well for continued European Union growth and integration going forward.

The choice facing French voters in Sunday's Presidential election was between center-right candidate Nicolas Sarkozy and socialist Segolene Royal.

Mr. Sarkozy won handily with 53% of the popular vote. That's a noteworthy accomplishment by itself. After all, Mr. Sarkozy is the son of a Hungarian immigrant, and yet was still elected to the highest office in France, in spite of growing anti-immigration sentiment in the nation.

But Sarkozy's platform was one of change - which resonated well with French citizens who have grown weary of the country's status as the EU's chronic underachiever in economic affairs.

Although France is the world's 6th largest economy, you might not recognize it by glancing at its economic numbers.

Germany was once considered to be the sick man of Europe. But in recent years the baton has surely passed to France. With Germany undergoing a strong industrial revival, France is now mired in sub-par growth as too many state-protected businesses are losing out on trading opportunities in an increasingly globalized business world.

Sarkozy's has promised to shake France out of its bureaucratic rigidity by promising business and social reforms that should make the country more competitive in global markets.

Mr. Sarkozy campaigned on a platform of reduced taxes, deregulation of France's strict labor laws, and stimulating more growth in the economy.

Why, Sarkozy was even brave enough to challenge the third-rail of French politics - the sacrosanct 35-hour workweek - without losing any fingers!

France voted for a crystal-clear mandate for change, another hurdle still looms, as the new president still needs to win a majority in French parliamentary elections coming up next month.

But on Sunday, the French cast a refreshingly decisive vote for a brighter economic future. And if campaign promises can be believed, that vote should lead to positive wealth-creating change for France and for the EU at large.

I'll keep you posted about ways to play the growing economic strength in the EU in the coming months. Stay tuned!

MIKE BURNICK, Senior Editor & Global Markets Analyst

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