Panama Investor Blog

Some advice for Doug Casey on building Utopia

Doug Casey is a well known investor/economist who's predictions regarding the worlds current and future economy have been both accurate and dire. He has written a number of interesting books and is a regular on MSNBC, Fox and CNN as they can always count on him to forecast doom and gloom as a kind of balanced, almost comic relief to their ever glowing predictions for the markets.

I first learned about Casey from a book he wrote back in the 80's titled International Man. I stumbled on it in a garage sale in the early 90's and it set me on the path of becoming the "international man" that I am today. Now it seems, the path I took that led me to build Valle Escondido in Panama is one he is now taking in Argentina with a project he calls La Estancia de Cafayate. The project is near a small town of Cafayete which is about the same size as our town of Boquete. There is an interesting audio interview with him where he talks about the reasons he is building the project, which I can certainly relate to having been there and done that.

Over the past 9 years it has taken me to complete Valle Escondido I have met many men who had the desire to create their own version of a perfect community. There is a strong force in some of us that is not satisfied with the world as it is and we have the vision, drive and stubbornness to try and create our own version of utopia. We usually select out of the way places where civilization is not so advanced and the natural world still plays a very important role in everyday life. These projects are invariably developed in an out of the way agrarian societies where we "feel" we have stepped back in time because of the laid back, down to earth inhabitants. We are reminded of our youth growing up in the 50's or 60's, just after the last world war and before the advent of big government, technology, pop culture, and the growing health issues facing our society today. But along with this vision of a bygone era we want the same amenities and lifestyle we have benefited from in the 21st century. Finding the balance of both of these attractions is extremely challenging, but it can be done. What follows are my ramblings of what I have experienced as one of these development dreamers in hopes it might help Mr. Casey and others in building their Utopia.

Is North America over populated?

One of the things I like about Panama is the relatively small population of a little over 3.3 million. This rather small population is one of the reasons you don't see such blatant poverty that can be seen throughout most of Central American and Caribbean countries. Costa Rica is the only other country in the area that has been blessed with a rather small population and a manageable growth rate of about 1.3%. That is not to say there is no poverty here. But, even with the reported 40% living below the poverty level you don't see much of it because most are living in the interior on plots of land that provide a subsistence living. Panama also has a large indigenous population who for the most part live in that 40% poverty level and they tend to live in reservations or groups away from populated areas. Of course a city like Panama City which has nearly half of the countries population also has a lot more concentrated poverty, especially on the Colon side of the corridor.

There has been an increase of immigration into Panama over the last few years mostly coming from Colombia and other Latin American countries. Most are seeking better work opportunities or political asylum. According to an article I posted earlier in the year only 26,000 people applied for residency in Panama between January 2007 and March 2009. Of that number there were only about 2500 applications from North America.That is a very small proportion of the population.

With these facts in perspective lets compare this to what is happening in the U.S.. Since 1980 the United States has seen a 33% increase in population and most of it due to both legal and illegal immigration. If you look at the facts of this immigration it becomes obvious that this uncontrolled immigration is one of the reasons they have so many fiscal and growing cultural problems. The U.S. is becoming a very fragmented society because most of these immigrants never become part of the melting pot like they used to during the wave of immigration after the two world wars. Now they don't learn the language and place ever increasing burdens on the health and education systems. I stumbled on a great website that clearly tells the story of American immigration and how it has/is affecting the country. I encourage you to spend some time looking over this data. Unfortunately even if they stopped the huge flow of immigration the country will still grow at unprecedented levels due to what has taken place in the last 30 years.

What's priming the resurgence of the Ayn Rand crap now?

This is the question being asked by DemocraticUnderground.com that caught my attention. This was sent to me by an Internet spider that searches the web whenever it finds my name. It seems that discussion groups in the U.S. are seeing a resurgence of Ayn Rands Atlas shrugged being advertised and promoted in more places than ever. It stands to reason that it would come under attack by those who the book portrays as the real problems in the world. I will not go into the book or its philosophy here, but suffice it to say that is 180 degrees in opposition to what those who are now in control of our political system profess. A quick read of the discussion comments shows how they perceive the producers of the world. Selfish, arrogant, narcissistic, inhumane and sociopath. They acknowledge Rand was comparing her experiences growing up in Communist Russia to the possible future of the U.S., but Communism is more attractive to them than freedom as long as they get a share of what others produce.

This is the growing culture war that is taking place in the U.S. and around the world. People with little knowledge of world history and the foundation of the U.S.A. want to take us back to a world of serfdom and enslavement. They do it on the noble ideals of equality and fairness.

In the end we are are all equally living as slaves to those who dictate the rules of the day.

What product does the government produce to create economic growth?

A recent article about Panama's economy quotes Panamanian minister of Economy and Finances, Hector Alexander making what I consider this outlandish statement. "He recalled that the economic growth achieved by the government allowed reducing unemployment and poverty as well as improving distribution of incomes." This is so typical of politicians to take credit for economic growth, as if they produce a product or employ people who actually make things that do. The world is full of political leaders who falsely believe that they are the producers when in fact they are the major impediments to production.

Name one thing that the Panamanian government or any other for that matter produces and sells to create growth and jobs. I only see them placing barriers to both and then filling government positions with unqualified people they either owe favors to or want to curry favors from. According to another recent article, the number of Panama's public employees now stand at 160,775. You would think that with one person in twenty out of every man women and child in the country working for the government, we could expect efficiency and a smooth running processes for everything from drivers licenses to immigration, but just the opposite is true. Government employees have zero incentives to produce in an efficient manner and in fact have all the incentives to do the opposite, which is exactly what they do.  If your government department is efficient, then they may cut your budget. Inefficiency is always solved with more of other peoples money.

In the same brief statement  Mr. Alexander  states that "reducing unemployment and poverty as well as improving distribution of incomes." The only truth here is that the government is re-distributing incomes and even that in a failed measure if you ere to ask those who are on either side of the equation.

The problem is all too evident. The government is too big and eating up the resources of the the producers in the country, thereby limiting growth and stifling higher incomes for those at the bottom of the economic ladder. When there is any sort of surplus, they take on grandiose projects using other peoples money which in most cases are over budget and involve corruption at multiple levels. They will  put their names on these projects as if they built and paid for them out of their own pockets in an effort to immortalize their brief stop as leaders in their country, which really only serve to remind the more circumspect of their ineptitude.

Of course, they will never admit this and will continue to take credit for growth and employment as if they are producing some kind of product rather than just adding layers of costs to what the real producers produce. So the next time you hear a government official bragging about economic growth ask them what widget factories has the government started to create this growth.

Property Rights, Rule of Law & Sound Money = Panama Prosperity

These three basic principals are the foundation of a countries prosperity. How does Panama rate in these areas? I used to believe that Panama had strong property rights and on the surface it appears to be the case. Panamanians are quick to point out their on-line  public registry and their corporation structures that help protect the owner by providing anonymity.

But when you look at the weak rule of law in Panama, you discover that it is this area where the rights of the property holder are most vulnerable. I have my own experience with corrupt judges and hear from readers regularly about the courts being paid to rule in favor of whoever pays the most for the decision. This corruption of the courts undermine any possibility of a solid right to ones property with equal protection under the law.

And how about sound money? Well, Panama uses the U.S. dollar as its currency which up until recently I would say was a strong foundation. Because they don't print their own money, they do not create inflation and maintained one of the lowest inflation levels of any country in the world. But, as I pointed out in a post earlier this week, the U.S. is printing money like never before and the buying power is decreasing proportionally. The cost of everything has and will continue to go up for Panama because of their dependency on the U.S. dollar.

So what can Panama do to clean up its act and become one of the top countries in the world for strong sustainable growth? First and foremost is to end corruption in the courts by implementing severe penalties for those who make and take bribes. In Roman times a judge caught taking a bribe would be cast of a high cliff along with the one paying the bribe. During that time in Roman history, corruption was nearly non-existent. Panama leadership must do much more than just talk about ending corruption. President Martin Torrijos made it central to his campaign 5 years ago because it ranked high on the list of complaints by the general population. Unfortunately, nothing came of it.

 The new leadership must get serious about corruption and put such fear into the legislature and judicial system that they dare not participate in any form. If Panama's new leadership makes headway in the areas of property rights, rule of law and sound money, Panama could rise to become the best country in the world to invest or to live.

Be sure to view this great video about these foundations.

Bullion sales hit record in rush to safety

A definite sign of the times. Although this article clearly shows that many in the world are turning to gold as a safe haven, that is not the reason for you to do so. They may be driving the price of gold up simply because of supply and demand, but the real value to you will be when currencies lose their luster and inflation rules the day. If you have not purchased gold in some form I encourage you to do so.

Bullion sales hit record in rush to safety

By Javier Blas in London

Published: February 9 2009 18:16 | Last updated: February 9 2009 18:16

Investors are buying record amounts of gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system.

The US Mint sold 92,000 ounces of its popular American Eagle coin last month, almost four times that which it sold a year ago and more than it shipped during the whole of the first half of 2007.

Other countries' mints have also reported strong sales. "Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying," said John Reade, a precious metals strategist at UBS.

Inflows into gold-backed exchange traded funds surged in January, pushing their bullion holdings to an all-time high of 1,317 tonnes. Last month's flows of 105 tonnes were above September's previous record of 104 tonnes, and absorbed about half the world's gold mine output for January, said Barclays Capital.

The new frontier: A new country

I have always been fascinated with the idea of a new country with a new political scheme. The great experiment of the U.S. republic has held for over 200 years and by far and away is the greatest success story in the history of nations. But as a our country of laws have been slowly eroded into a country of majority rule, the masses have discovered they can vote themselves what they want and the constitutional foundation of this "greatest nation on earth" has now turned into an empire. As the U.S. now progresses rapidly toward socialism we will be ruled by elites who will mollify the masses with promises of freebies that will in reality enslave them. The entrepreneurial spirit that made our country great will be demonized and our children will grow up to rise no higher than the lowest common denominator. Anyone who has read Atlas Shrugged can clearly see the handwriting on the wall. All political parties and past and current generations are to blame for this so I will leave the politics behind. That's the way I see it.

As the world turns more turbulent, nation states will be searching for alternatives to save their economies and many "states or provinces" within countries will be looking at separating or succeeding in order to preserve their better economic situation against a nation that will be looking to acquire and distribute their resources. This is already taking place in the U.S. where a number of U.S. states have recently passed legislation to protect themselves from a pilfering national government.

My own experiment of developing Valle Escondido was with the idea of building a "country within a country". Although we are subject to the laws of the Republic of Panama, we have our own set of bylaws (homeowners association), provide or own security, water, electric, and sewage treatment. We are working on being self sufficient by providing our own food in the form of vegetable gardens and aqua farming of Tilapia and trout in our golf course ponds. Even with all of this independence, we are still subject to the laws of the "republic" in which we reside. This republic was chosen because the laws and benefits were most in line with my goals to build a safe haven, but of course they are subject to change with the whims of the political party in power.

There have been a number of attempts at building a new country and to date they have all been unsuccessful. The reason for this is mainly due to faulty technical or economic planing or false assumptions of how a nearby nation will react to a newcomer. The reality of the world today is that all the land has been spoken for and nations are very protective of each square meter of that land whether it be an island or a sea mount. Although many territorial waters extend up to 200 miles this still leaves a vast area of the worlds surface unspoken for which brings me to the reason for this post. A software engineer at  Google  who also happens to be the grandson of famous economist Milton Friedman, have been working on a new concept of a floating country that may be more feasible given the amount of interest and capital it can attract. This is from a CBS story called New Frontier: "Seasteading".

Predictions for 2009

Most people read the daily news and blogs in order to stay up to date with what is going on in order to make decisions about the future. I spend my time going through all the relevant news about Panama and the world economy exactly for that reason. I want to be a step ahead in hopes it will either make me or save me money or headaches. So here are my predictions for the coming year and beyond. I will be monitoring world events and modifying those projections throughout the year as new data comes to light. Right now there is little to be happy about as this is probably the worst economic disaster to ever hit the planet. How will it play out here in Panama? That is what my readers and I are interested in, and there are some bright spots in this otherwise dismal forecast.

Crisis, what crisis?

Looking at the various economic prognostications in the local papers one might be led to believe that Panama is immune from the economic turmoil engulfing the rest of the world. But what many are touting as Panama's strengths protecting it, is really nothing more than timing and time will soon be running out. Panama will succumb to the same problems and in some ways they may be even more severe if its leadership does not take steps to mitigate them.

The worlds economy is like a slow motion train wreck and we are watching as one car after another runs off the track. Panama is near the caboose of this disaster simply because of the nature of the service businesses it is engaged in. Remember that from our frame of reference this wreck began over a year ago with a sub-prime crisis that would be "easily contained." We only started to  see the ugly side of this disaster in September and then it has come fast and furious. Now we have only had two months of turmoil and a day does not go by when we are not a witness to the unthinkable. For Panama's economists to say that they will be unscathed by all of this is the extreme of hubris.

Panama has a large financial services industry that caters to both foreign and domestic clients. Foreign clients typically use the banks to park funds where they believe they will be safe from prying eyes and sticky fingers. Domestic clients use much of those funds to finance real estate projects and other business ventures. The banks have also gotten heavily involved in the growing consumer credit expansion via credit cards and home mortgages that have grown exponentially in recent years.

My contacts in the legal services industry who are forming corporations and foundations around the world are seeing a significant drop in business due to the fact that business formation and asset purchases are slowing dramatically. Panama receives $300 a year in taxes for each of the hundreds of thousands of corporations sold around the world, but when those tax payments come due many will just fail to pay the tax and eventually see them dissolved by the state.

Ship registries are another significant business service provided for merchant vessels making Panama the largest fleet in the world. But ships are being abandon all over the world and I highly doubt if there will be many shipowners paying registry fees if they are not moving products and are leaving their vessels at the docks or sold as scrap iron.

The free zone has seen an increase in business in the last six months, but it is due to the fact that the commodity market that was so hot throughout Latin America has brought a lot of spending from those countries on goods from Asia that have been reaching the port months later. Now that commodity prices have collapsed we can expect to see a sharp drop in volume for the free zone in the coming months.

The red hot real estate market is already showing signs of stalling with  buyers starting to walk away from down payments on only the first wave of condominiums towers being completed. The next wave where even higher prices were paid per square meters will be coming on-line in about 12 months and then the real fun begins.

The canal is dependent on vessel traffic and no matter how they want to spin it, the fact is that shipping has dropped off a cliff. The coming months will bare this out as the ACP will have to show the transits and revenue numbers. But don't worry, "this is only a bump in the road and things will be back to normal before the canal expansion is completed."

With all this bad news the problem is compounded by all of the major infrastructure projects being implemented. New multimillion dollar sewage systems, trans-national roads, cinta costero, and of course one of the largest mega projects underway in the world, the canal expansion. And ALL of them are underway with borrowed money that requires a debt burden. Add to that happy story an over $11 billion dollar debt before any of this new expansion and a sane person would be reaching for the bottle. Crisis, what crisis?

So, what does it all mean?

Watching the TV news and reading the papers, everyone seems to be very surprised at what has happened in the world economy and how fast it has come upon us. There have been  a few voices that have warned us of the impending trouble ahead, but fewer wanted to hear from those doom and gloomers. Most people believed that this was a new world where there would always be high demand driving their home prices ever higher. They believed that the stock market had entered a new paradigm where it would always produce greater returns securing their future retirements and you could always borrow against your ever increasing asset values to live a lifestyle of the rich and famous.

I was one of the chicken little's who worried that the sky was falling even as the sun was shining brightly and everyone was getting rich.  I watched in amazement as my family, friends and neighbors succumbed to the siren call of credit and debt. I really believed that it would all end when the 2001 dot-com bubble burst, but I did not count on the ability of the feds to pump such vast amounts of low cost money and at the same time our leaders lower the bar so even the unemployed could buy their own homes. So here we are 7 years later and the mountain of debt has increase to such a degree that not even the people who thought they were in control, know the full extent of the hole we dug ourselves into.

As we near the end of 2008 the reality of our situation is just starting to come to light. Everyday we see headlines using words like meltdown, collapse, recession and depression.  Words that were only used by the crazy contrarian's who were warning of the dangers. As all this unwinds many will be hurt and some will prosper. The pain of unemployment is just starting to be felt. I am afraid the numbers will grow rapidly and last longer than the pundits are predicting.
Unemployment feeds on itself to perpetuate the lack of consumption.

In the midst of this mayhem we are heading into a contentious election which not only pits extremes of political ideology against each other but race as well. Neither party has even addressed the  financial problem in a meaningful way which means they either don't comprehend the magnitude of the situation facing our nation or they are just too busy trying to gain power.  But just as no one wanted to look a little ahead to see the train coming down the tracks, no one wants to deal with the surgery needed in order to recover from the accident. The will continue to throw debt at debt which is like throwing gasoline on a burning building. The fire will rage until there is nothing left to burn.

When I look into my crystal ball I only see more problems on the horizon, but a friend told me recently that I should not underestimate the ingenuity and resourcefulness human beings. After watching this short video about how technology and knowhow are changing our world faster than we can imagine, it gives me hope. I thank Jim R. for sending this to me and I hope you might find some comfort in it as well.