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Monday, June 17 2019 @ 04:55 PM UTC

The "Panama As Economic Lifeboat" Scenario

Money Matters By DON WINNER for - It's an interesting cup of tea leaves to ponder, the US economy these days. I'm one of those guys who can dial up the Bloomberg channel on television and listen to hours of talking heads discussing the various macro economic scenarios and how they might play out in the US and therefore by proxy the global economy. Current themes include the existing $12.1 trillion dollar national debt, what to do about it, and what the potential trickle down effects might be. Another important topic currently being discussed are the likely economic impacts of the looming healthcare bill now being fondled by the Senate. For this article I don't want to get political at all, and I just want to focus on the economic situation as it regards Panama, living in Panama, and long term investment potential in Panama. We already have a considerably large English speaking expatriate community living here, people who are either full time or part time residents and retirees, as well as many more who have purchased property and who have been thinking about or planning to retire here once they are done with their working careers in the US. The argument now, in the wake of the global financial crisis and the collapse of prices in many sub sectors of the US real estate markets, is that "you can now buy cheap houses in Phoenix, Las Vegas, or St. Petersburg" so therefore Panama has lost most of it's charm. I can't challenge those realities. If you only want to look at the situation through the lens of a short term real estate investor, elements of that argument are absolutely valid. However, in this article I will consider and analyze some of the longer term strategic scenarios to consider so that hopefully you will be able to make your choices and decisions from an informed position. (more)

What's Going To Happen To The US Economy: Some of the voices out there are getting downright shrill. And when voices go up in both octaves and decibels, that usually can be attributed to fear. Plain, old fashioned, nothing new about it - scared. There is no greater fear than fear of the unknown and right now people simply don't know what's going to happen in the next few months or next few years. Their sense of not knowing is being hyper inflated by the debate over the massive healthcare bill. Employers are afraid and not wanting to hire new workers because they don't know how much that's going to cost them. Personally, I feel strongly that the US economy (and therefore the global economy) would rebound strongly overnight if the politicians in Washington DC would wake up one morning and announce "the healthcare bill is dead - it's not going to happen." People would breathe a sigh of relief and then get back to work. But as it is, this endless debate and discussion, coupled with a multi-thousand page proposal that almost no one has actually read means that no one knows what's going on or understands the implications of what might be passed. Therefore they can't see into the future so their fear of the unknown is enhanced and magnified. Practically speaking, from an investment capital point of view, many are sitting on the sidelines wringing their hands in a state of confusion mixed with dread. No wonder there are no new jobs being created in the US.

Spend, Then Tax: As far back as I can remember Republicans have always used the phrase "tax and spend Democrats" to describe their opposition. However in the case of the current administration the timing has been reversed. Now, it seems like the politicians controlling Washington are spending the money first - lots of it. Billions if not trillions of dollars of uncontrolled federal spending. I think most people are like me in that we have a little "money meter" in the back of our head somewhere. We instinctively know when we've spent more than we have, and going into debt makes us uneasy. When we spend more than we have, even at an individual or micro level in business, we know that eventually we will either have to pay that money back or go bankrupt - those are the only two options. The US is now just borrowing more money, printing more money, and acting in a fundamentally irresponsible manner - and all of us citizens know it. This creates even more fear and worry and dampens any inkling to spend or invest. So, when you combine the fears of the unknown over the healthcare bill together with fears over unchecked federal spending and the deficit, what you end up with is something akin to "frozen panic" - the deer in the headlights scenario in which people are effectively rendered incapable of helping themselves or of making smart choices with long term or strategic upsides - because all they can focus on are the approaching dual headlights - the looming debt on one side and the looming healthcare bill on the other.

If You Stand Still - "Splat!" We all know what happens to the deer in the "deer in the headlights" scenario - usually the deer becomes venison and the Camry needs a new windshield. However when it comes to the security of your financial future you don't want to be the deer. There is plenty of time to take effective actions that will protect and insulate your retirement nest egg in ways that will keep you from having to eat out of trash bins in your golden years. The point here is - move! Chances are your investments are not correctly or properly positioned to protect yourself from the coming "perfect storm" scenario, economically speaking. If you think you're OK then consider the following. Do you have the same financial advisor who let you get your ass kicked when the market tanked last year? Did you fire that dude for not saving your 401K? Now that the markets have recovered somewhat, did that guy take the credit? In short, chances are very good that you are not getting excellent advice with regards to investment and money management, if you're getting any at all.

About Risk: All investment decisions involve some kind of risk. Even if you turn your entire portfolio into cash and hide it under your mattress you might get wiped out by the falling value of the US dollar and hyper inflation, so that's a bad plan. The trick is to select a path that will work best to preserve your individual wealth in these uncertain economic times. If you're young, you've got lots of cash, a great job, and a steady source of reliable income then you might be in a position to assume a higher degree of risk and position yourself to take advantage of some of the mega trends that will be emerging as the future unfolds. However uncertainty plays both ways and if you assume large amounts of risk then you could end up losing the lot. Only play with what you can afford to lose. Most retirees are looking at that trash bin again if things don't work out as planned.

Panama As An Economic Lifeboat: Did you notice the Panamanian economy sailed quite smoothly through the most recent global financial crisis, and that we here in Panama were practically unaffected by the whole thing? The Panamanian economy continued to grow and expand nicely and more jobs are being created. Foreign Direct Investment continues to pour in. The $5.25 billion dollar project to expand the Panama Canal is on track - a massive spending project for a country with only 3.3 million inhabitants. Conservative businessman Ricardo Martinelli has been in office as president since July 2009, and for the most part his national policies revolve around issues of economic responsibility and holding those who have abused this country accountable for their actions. He's popular, and he's speaking with his actions, creating even more confidence among foreign investors. The hallmark of his administration will be another massive spending project to build a "metro" public transportation system for Panama City which is long overdue. In short, while the US economy is suffering from panic induced inaction thanks to widespread uncertainty, here in Panama local and international investors have a newfound sense of confidence, thanks to a road ahead that's relatively clearly defined.

Capital Preservation: If you approach your investment strategy with a much simpler goal - to preserve the value of your capital over the medium term - your decisions become much easier to identify. Most people look at the stock market trying to pick the stocks they think will go up in price in order to earn a return on their investment. But what if you simply what to pick a stock that's solid in it's position and very unlikely to go down, under practically any circumstances? There are lots of ways to park capital in Panama for the mid to long term in investments that are almost guaranteed to remain stable. For example, consider the companies from around the world that are reaping the benefits from the expansion of the Panama Canal and other large infrastructure spending projects. About $3 billion dollars of the expansion project will be going to Spain's Sacyr Vallehermoso together with Impregilo (Italy), Jan de Nul (Belgium) and Panama’s Constructora Urbana (Cusa). Want to park some capital in a relatively zero-risk scenario? Chances are all of those stocks in their respective markets where they are traded around the world are relatively safe. Watch the news carefully to see who wins the contracts to build Panama's new metro system for the same reasons. And, there are all kinds of spin offs and trickle down to suppliers that will be happening, as well.

It's Not All About the Real Estate: Real estate values fluctuate over time, we all know that. Many people only know one large investment intimately, their house, most likely the single largest investment of their lives. And a weird thing happens with regards to real estate, and it's especially true with real estate in Panama. Anyone who has ever bought a house or an apartment suddenly becomes an expert willing to offer up their keen observations and opinions. My advice - ignore most of that rookie stuff. Just talk to the real experts, real estate agents who spend all day long dealing with both buyers and sellers. They are almost always happy to talk to you (at least for awhile) and they can spot the trends, tell you what's selling, what's not, what's a good deal or a great deal, etc. Make up a list of questions, actually write then down in a notebook and run through them all. Ask many different people the same questions to be able to compare and contrast their answers later. Then, use your own big brain, draw your own conclusions, and then make your decisions and take your actions based on those conclusions. Remain flexible and prepared to adjust your course of action over time. Expect and be prepared for change. But with that having been said...

Again, It's Not About Real Estate: My "Panama as lifeboat" scenario is not based 100% on real estate investments, beyond the concept that you should look to buy or invest in something that will retain it's value over time. Like, about 14 months ago at the peak of the market boom I found and bought a 210 square meter, two story, four bedroom penthouse located right in the middle of Panama City for about $500 per meter. Of course it needed some TLC but I'm fairly certain that the money I've invested will retain it's value over time - if I ever decide to sell that property I'll get my money back, at the very least. You hunting for real estate investments, look for things that will retain their relative value over time, and focus on price per meter and location as primary yardsticks. There are lots of ways to skin a cat, and for example there are more people renting rather than buying now in Panama as additional inventory becomes available. This is a "mega trend" in Panama I predicted years ago with the advent of the construction boom. There are now many more properties available, and much of that will be put on the rental market, driving down rental prices, and making renting for awhile a more attractive option, at least in the short term. It gives people the chance to "try on" Panama for awhile before committing to a large real estate investment.

The Tax Man Cometh: I've published several articles recently in which the IRS says they plan to hire hundreds of new agents and to open new offices overseas, specifically in Panama City. Uncle Sam wants your money, no matter where you live. And, when the US economy goes to crap again and taxes are significantly increased, aggressive tax collection efforts against US citizens living overseas will probably increase (trend.) Meanwhile, people want to find ways to move their money offshore to avoid paying those taxes. Frequently rookies will set themselves up for a fall, one way or the other. Either they break the law and expose themselves to US federal prosecution for tax evasion, or they try to manipulate the system to use Panamanian corporations and foundations to hide their money from the tax man. However, many times those scenarios mean you lose ownership or control over the assets, and unscrupulous lawyers or investment advisors can rip you off and take everything from you. I hear these sob stories all the time from people who were trying to play the system who ended up getting caught in the gears one way or the other. Whatever you choose to do, take it slow, walk through this minefield very carefully, talk to qualified experts who you can trust, and take actions to verify and validate what you are being told through second and third and fourth opinions. Take no hasty action - if someone is pressuring you to "pay right now" or "transfer the funds immediately" that should translate into one thing - "STOP!!!" If for no other reason - Don Winner said so. There are no investments in Panama that require the immediate transfer of large sums of money. You should only let go of the cash when you are absolutely sure you're doing the right thing. Trust your instincts.

Want A Sanity Check? Are you about to dive off the deep end with some kind of an investment in Panama? If you pay me for my time I'll be happy to go over everything with you, to help you double or triple check things out, to make sure you're not about to get your nuts cut off. Of course this is not my primary business but I'll do it for a fee, and I am now working with several people who have been victimized over the years as they take complicated legal action to recover lost funds that never would have gotten hurt if they had consulted with me before doing the deal. Suckers get caught up in the moment of the scam, and usually it just takes an outside voice - any outside voice - to smack them back into reality before signing the check or the contract or whatever. It's easy to talk to these people after the harm has been done and ask them "what the hell were you thinking" and the answer is always the same - "it seemed like the thing to do at the time." If you're doing something that involves breaking the law don't waste your time by calling me, because my advice will always be the same in those cases, don't do it. Al Capone went to prison on a tax rap. You don't want to follow his lead.

Preserve, Protect, and Defend: There are lots of ways to use investments in Panama as an economic lifeboat in the face of the uncertain times looming before us. Don't think about finding ways to make a whole lot of money in a short period of time, but rather ways to safely park capital where it won't get crushed when the US markets tank. And I think - tank they will, it's only a matter of knowing when. Take small and cumulative actions to protect your capital from the coming storm, and consider Panama, with it's fasting growing economy in Latin America, as an opportune lifeboat you can use to ride out the storm.

Copyright 2009 by Don Winner for Go ahead and use whatever you like as long as you credit the source. Salud.

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