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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Your Link to Freedom, Privacy & Prosperity in the Offshore World
Wednesday, December 3, 2003 - Vol. 5 No. 143
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In This Issue:
* COMMENT: Heed Buffet's Warning!
* OFFSHORE: Swiss Bank Secrecy May Become Constitutional. Swiss Right Prospers. Jersey May Join EU. Caymans Defy UK Demands. Why the BVI? Bermuda Real Estate Scarce.
* WEALTH: Euro Makes Europe. Japan Warned. Swiss Recovery. Russian Tax Collectors Like IRS.
* PRIVACY & RIGHTS: US Wants Offshore Kidnapping Power. UK Wiretaps. Swiss Electronic Signatures.
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COMMENT: Heed Buffet's Warning!
Dear A-Letter Reader:
Top investment managers are getting out of the U.S. dollar.
In a recent interview, Warren Buffet, perhaps the most successful investor in history, and Chairman of Berkshire Hathaway Inc., wrote "Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in, and today holds, several currencies."
Legendary investor Sir John Templeton, founder of the Templeton Group, says that the US economy is in trouble and the US stock market is broken. He anticipates a 40% drop in the value of the US dollar and a precipitous fall in real estate values.
Value guru Jeremy Grantham says a sucker punch is coming from this bear market rally and that government and personal debt which should have cleansed itself during the economic slowdown (but did not) will create an economic black hole that could cause a serious US dollar crash.
If you live in the United States or hold any dollar denominated investments, when the dollar falls, your investments silently fall in value. How can you defend yourself from this insidious process?
One way of doing so is by using a technique I have used with great success for more than 20 years. I call it "multi-currency sandwich."
Overseas private banks commonly lend money in a choice of currencies to clients who have assets held by the bank. You can leverage your deposit depending on the securities you purchase. You benefit from the difference between the higher returns on the leveraged investment and the lower cost of borrowing.
For example, if you deposit US$100,000, at some banks, you can leverage up to four times if you wish to invest in bonds. This would allow you to borrow US$400,000, giving you a total of US$500,000 for investment purposes. If you invest US$500,000 in bonds paying 7%, the annual return would be US$35,000. You could borrow the US$400,000 in a low interest currency, for example Japanese yen, with a current interest rate of 1.625%, amounting to US$6,500. Your annual profit would be the difference between these amounts, or US$28,500, less fees and commissions of approximately US$6,500, for a net return of US$22,000.
This equates to a 22% annual return on your original US$100,000 investment. The higher the leverage, the higher the potential return, but also the higher the risk. For those who wish to take less risk, the returns with one, two or three times leverage thus would be lower.
The downside is that these borrowed currencies could rise versus the invested currencies, so one has to calculate risk also. I feel that in these volatile currency situations, no one should risk more than he can afford to lose. Now it's not the yen-peso sandwich that is so attractive. The peso is likely to drop with the dollar and the yen could rise still more.
Instead I'm recommending borrowing in the dollar and another low interest currency to invest in a basket of loans and investments that gives the power of leverage, but also spreads risk. You gain added income, currency diversification versus the US dollar and the added opportunity for foreign exchange profit if the currencies held rise versus the currencies in which you are borrowing.
Even with no change in the relative values of the currencies, I'm projecting this trade will earn nearly 27% over the next 12 months.
Gary Scott
P.S. For my most current multi-currency sandwich recommendation, Sovereign Society members click here LINK: Not a member? To learn more about membership in The Sovereign Society and to access the above report click here,
LINK: http://www.agora-inc.com/reports/SVS/WSVSDC14/
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Comment LINKS:
* Templeton Trepidations, Buffett Battle Stations.
LINK: http://www.financialsense.com/fsu/editorials/fox/102803.html
* Secrets for Wealth Jan. 2004 Seminar includes recommendations
for multi-currency sandwich investing.
LINK: http://garyascott.com/courses/publishing.html
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* OFFSHORE *
SWISS MAY ENSHRINE BANK SECRECY IN CONSTITUTION
ZURICH: House of Representatives considers constitutional amendment.
Only AUSTRIA now has a similar constitutional protection. LINK:
http://www.swissinfo.org/sen/swissinfo.html?siteSect=113&sid=4509003
* Post-election Swiss conservatives prosper at expense of center. LINK:
http://www.swissinfo.org/sen/swissinfo.html?siteSect=111&sid=4497289
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JERSEY CONSIDERS EUROPEAN UNION MEMBERSHIP
ST. HELIER: Surrender to EU could end tax haven, offshore status.
LINK: http://www.accountancyage.com/News/1132103
* JERSEY upset over possible tax increases due to zero corporate tax.
LINK: http://www.tax-news.com/asp/story/story.asp?storyname=14282
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CAYMANS DEFIES BRITISH LABOUR DEMANDS
LONDON: Caymans defiant in dispute over EU tax directive. LINK:
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1069493634162
* Primarolo Issues Ultimatum To Cayman Islands.
LINK: http://www.tax-news.com/asp/story/story.asp?storyname=14274
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WHY THE BRITISH VIRGIN ISLANDS?
A primer on why the BVI stands out as an offshore financial center.
LINK: http://www.mondaq.com/article.asp?articleid=22011&lastestnews
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BERMUDA REAL ESTATE VERY SCARCE
HAMILTON: 'Pent-up demand' causes high prices, shortage. LINK:
http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20031202/BUSINESS/112020038
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* WEALTH *
EURO: A NEW TIE THAT BINDS EUROPE
Since Jan. 1, 2000 the euro has been blurring Europe's national borders.
LINK: http://news.bbc.co.uk/2/hi/europe/3254764.stm
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JAPAN WARNED ON ECONOMIC FUTURE
TOKYO: O.E.C.D. study says banking system in shaky condition. LINK:
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1069493651105
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SWISS ECONOMY SHOWS NEW SIGNS OF RECOVERY
ZURICH: first positive quarterly growth in a year. LINK:
http://www.swissinfo.org/sen/swissinfo.html?siteSect=161&sid=4493600
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THE RUSSIAN I.R.S.
MOSCOW: Just as boorish and obtuse as American IRS agents
LINK: http://www.sptimes.ru/archive/times/924/opinion/o_11092.htm
* Yukos denies report of US$5 billion in unpaid taxes.
LINK: http://news.bbc.co.uk/2/hi/business/3257560.stm
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AMERICAN COMPANIES FORCED TO COLLECT E.U. TAXES
US firms selling goods to Europe must become EU tax collectors.
LINK: http://www.heartland.org/Article.cfm?artId=13768
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* PRIVACY & RIGHTS *
U.S. GOVERNMENT WANTS FOREIGN KIDNAPPING POWER
Can US agents legally nab people in foreign countries? LINK:
http://www.washingtontimes.com/national/20031201-101823-2641r.htm
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UNITED KINGDOM POLICE LOVE WIRETAPS
LONDON: And the numbers grew and grew over the years.
LINK: http://www.statewatch.org/news/2003/nov/teltap01.htm
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SWISS FIRST TO O.K. ELECTRONIC SIGNATURES
ZURICH: Net will have same effect as written signatures in 2005. LINK:
http://www.swissinfo.org/sen/swissinfo.html?siteSect=105&sid=4509386
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* THE SOVEREIGN SOCIETY OFFSHORE A-LETTER. *
Bob Bauman, Editor * Daniel Aponte, Jr. Research Asst.
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