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The Daily Reckoning | Tuesday, January 4, 2010 Flight or Fight? Readers weigh in on the subject of expatriation, Joel's first mistake of the New Year...and how you can take advantage of it, Plus, Bill Bonner on New Year's resolutions and the importance of doing nothing... Our First “Mea Culpa” of 2011 Joel Bowman From Buenos Aires, Argentina... A quick programming note before we dive into the final installment of our 2010 Best Of Series. Actually, this notice serves as both a very important housekeeping item AND your editor's first mea culpa of the New Year. In yesterday's edition, we mistakenly wrote that the deadline for Reserve Membership expired on Tuesday...today. We were wrong. "Umm... Joel?" our publisher, Joe Schriefer wrote to us yesterday afternoon. "How many New Year's cocktails did you have down in Mar del Plata? You wrote [in Monday's edition] that the deadline for the Reserve expires on Tuesday. It ends TODAY [on Monday]." Ahh... Yeah. Sorry about that. Of course, it would be unfair to punish our readers because of your editor's groggy-headed mistake. So, we're extending the deadline until TODAY at 5PM. That means you still have a couple of hours to grab a lifetime membership to all our most profitable financial research before the price goes up...forever. [Full details here.] The Daily Reckoning Presents: In the final installment of our 2010 Best Of Series, we turn the editorial duties over to you, the Daily Reckoning readership. Way back in June, we asked our Fellow Reckoners to share with us their thoughts and experiences on expatriation. As usual, you complied with a fascinating look at the real life pros and cons of... Getting Outta Dodge by The Daily Reckoning Readership [Edited by Eric Fry and Joel Bowman on June 21, 2010] Were I without family ties, I might consider expatriating to one of the quiet, out-of-the-way towns in Central- or South America that I drove my VW bus through in 1977-1978. Spending a year and a half living life at a slower pace and speaking in a second language was world view- opening for this California born American. Through it all, I met many wonderful, amazingly generous people. Unfortunately, I also saw a lot of grinding poverty and misery. I finally lost count of how many times I stared into the barrel of a loaded submachine gun held by an edgy 19 year-old soldier at some border crossing or roadblock. My experience was life-changing, and made me appreciate the blessings of life in the United States - such as they were then. Thirty years later, I am not sure what I would feel coming home from such an adventure. I am saddened that governments at all levels have completely lost self-control. I am distressed that corporations now find it more profitable to pay off politicians for special subsidies and protections than to compete. I am depressed that Americans now walk away from commitments and belly up to the entitlement bar without any compunctions. We have spent the last forty years eating our seed corn and frittering away our wealth on trifles. I am having great difficulty facing my young adult children with the news that their lives will be harder than mine has been...that college might have been a waste of time and money...that funding my granddaughter's college savings fund may be an exercise in futility...that saving and deferred gratification were cruel jokes that a manipulated stock market, zero interest rates, and future inflation will render worthless. My family is here, so I'm resigned to remaining here to see whatever fate delivers. I feel strongly that we're close to the tipping point, after which collapse is inevitable. While a real, final dot.gov crash will make for very hard times, in the end it may be the only way to break the fever that is killing the country. Perhaps then we can dust off the Constitution and rebuild. ----------- I enjoyed reading the "The Persistent Myth of American Economic Dominance" as I enjoy reading many of the articles here at The Daily Reckoning. Anyway, it was asked, in this article, for us to share our stories with you on "Getting out of Dodge." I went down to Chile in 2008 with the idea of just vacationing and learning Spanish. I found to my surprise that Chile is a great country and an economic power in its own way. It has low government debt, etc. Anyway, I found a job with a tech company making about 15% less than I was making in the US, but my money went so much further. I was able to buy a 2-bedroom 2-bath condo with all the amenities and 24/7 security for about $120,000 US dollars. There was also no income tax. Basically you just pay a 19% sales tax on everything. It was just so simple to live there. The government left you alone and expected you to work for what you got. They also have a privatized retirement plan where you pay 12.5% of your check to a company who manages your stock portfolio for you. Then you pay 7% for your private medical care comparable to US health care. It was nice to never have to fill out any tax forms and to keep roughly 80% of my paycheck every pay period. My wife and I came back to the US after a few years there to give my wife, who is Chilean, the experience of living in the US. I think what I learned from my experience in Chile is there are lots of other countries who understand much better the importance of freedom and keeping government intrusion to a minimum if you want a healthy economy. ----------- My wife and I recently expatriated. We are fortunate that although we were both born in the USA, due to accidents of birth, we hold passports of EU countries allowing us to live and work in the EU freely. Getting a foreign citizenship (and passport) is essential prior to expatriation; this is totally legal in the USA and you do not have to forfeit your US citizenship as a consequence. However, very few will be able to get a foreign passport so easily. The hard way is to live in a new host country for a long period of time and apply for citizenship. Some countries are rumored to sell passports, but this smacks of fraud and I'd be very suspicious of the utility of such a passport if push came to shove. A better way is if your parents or grandparents were foreign born, to check out whether this could entitle you to a grant of citizenship. Germany for one, grants automatic citizenship to children of German nationals born abroad (until recently this only applied to German fathers, not mothers); this is the best way possible since your foreign citizenship is not something you have to apply for - you already have it and perhaps are just not aware of it. Ireland grants citizenship to grandchildren of Irish nationals regardless of where born, but genealogical proof is required. Expect these rights and programs to become more limited or even to vanish over the coming years, so your readers should investigate the opportunities as soon as possible and avail themselves quickly; there is no downside to having a foreign passport 'at the ready', and it makes international travel much easier even if you do not expatriate. We thought long and hard about giving up our citizenships, but in the end we could fathom no logical reason for hanging on, other than blind inertia. As your article points out, the US government has made it very difficult on expatriates in many ways and it's hard to justify blind loyalty when your own country treats you like a criminal. The act of expatriation is disarmingly simple and quick, but best handled by an attorney in a foreign country who specialized in this. You have to be living overseas to do this, and you have to have a foreign passport otherwise you would become stateless, and as a result the embassy people won't let you renounce your US citizenship. ----------- If there were a poll on the issue I think eighty percent of Americans would want to stay put, while twenty percent would pack for an offshore destination. I don't think the issue is as clear-cut as staying in the US or leaving it. Staying or leaving is a shadow issue cut in half. Half the problem is that too many of those who would stay - regardless of how unlivable the US becomes - are confessing apathy and resignation to the rapacity of a government that considers itself too big to fail. The other half of the problem is that those who would choose to leave the US would be confessing to surrender of all hope for the US. The only ones who seem to know where they want America to go are the Progressives, the Socialists, the statists, and the one-world control freaks, who, if floated head to toe, would form a gooey bridge from Brussels through Ivy League campuses to the White House and Congress. The real issue is for Americans to realize that America has been hijacked by the most cynical and diabolical crowd ever assembled in Washington, DC. After that realization dawns, we must re-dream America. We must not settle for pretenders representing us in our nation's top offices. We must re-claim, renew, and reorient America. That's the issue. ----------- I would leave next week if I could liquidate my rental portfolio and personal residence that fast. I'm fed up! I think it will get much worse. If I don't leave soon, they may not let anyone out of the country at all. It's sad because I just found the perfect place to live in the US. ----------- I can only share a perspective of a small business owner. We are a manufacturing company with approximately 25 full time and 8 part time employees. We have been in business 26 years and my sons represent the third generation. I do not expect business to be easy and we don't mind working hard. But I don't understand this feeling that I get from the current administration that we are the enemy. I would repent if someone would tell me what I have done wrong. Hugh Smith Of Two Minds recently quipped that one would have to be insane or a masochist to hire an employee in America. I wonder how long we can remain insane enough to keep this up. ----------- A few years ago I lost my job of 31 years at a mid-size bank, and, to carry me over to retirement, I took a job as a store cashier. It was my trip to the real world. I live and work in Cleveland and the clientele flowing through our store daily is enough to give one pause. A large number of customers are on the food stamp card. Or, as I prefer to call it, the Junk Food Card. The big game is for two people to live together - one with some income and the other drawing unemployment or welfare (or even both drawing welfare). It is very common for food card purchases to consist entirely of pop, candy, ice cream, etc. Then out comes the big wad of cash for the beer and cigarettes. With most of these people it seems very likely that they have no inclination to work at all, and gaming the system is how they wish to live. Then there are the folks drawing disability. Most of them look quite healthy enough to be working - maybe not at a job they had been doing previously, but still capable of gainful employment. Many of our other customers are older people on fixed incomes. People who are working steady jobs are in the minority. The problem here is obviously that the failure to maintain entitlement programs - which truly cannot continue to be funded given today's local, state, and federal government deficits - will almost certainly result in anarchy. The thought of where Cleveland will be in a few years is absolutely frightening. Making things worse, the intelligencia has all fled the city, leaving opportunists to run the government. Every week the news reports are highlighting another local politician that is under investigation for fraud in office. I don't think I'll be moving to a foreign country, but I'll definitely be selling my house in Cleveland and moving to some small town somewhere that has all the amenities I require - with more favorable demographics. And I can understand that moving to a foreign country could be an even better alternative in the long run. So, basically, I'm all for "getting out of Dodge"! ----------- I left the mortgage industry in 2003 and started a stone masonry business. My clientele are wealthy and still spending money. They are moving further out into the countryside and a few are building hardened shelters under their homes as well as installing generators with over capacity propane storage, chickens, gardens, trout ponds, orchards, and enough land to isolate and hide the operation from passersby. A one to one and a half hour ride to town is not out of the norm. They are not all retirees. My employees, friends and family are involved part time (full time, 2nd shift) in food production. We pasture raise broiler hens, beef, pigs, and vegetables. Canning and dehydrating is back in vogue. We are preparing for the worst hoping for the best, raising children, and trying our best to stay in God's grace. Regards, You, The Daily Reckoning Readership, for The Daily Reckoning Bill Bonner Contrarian Investing and Predictions-Plus for 2011 Bill Bonner Reckoning from Baltimore, Maryland... New Year's Resolutions & Predictions-Plus! We're at the beginning of the 2nd decade of the 3rd millennium. What will happen this year? We don't know. Most likely 2011 will be a lot like 2010. That's the way it usually works. Big trends are hard to see. One year seems to wander around much like the one before it and the one after. Only much later can you see where they were going. If 2011 is like 2010 you can stop worrying. Almost everything went up in 2010 - except for real estate. Stocks went up. Even US bonds went up. What went up most was our favorite investment - gold. It closed the year at a record high, giving us a gain of nearly 30%. So far this year, the trends continue. On the first trading day the Dow rose 93 points. Gold went up $15. But wait. Should you bet on stocks and gold? Will gold do as well in 2011? Will stocks go up another year? Do you seriously think we have answers to those questions? You can't know what will happen. Predictions are worthless. So what we give you are Predictions-Plus. What's a prediction-plus? It's better than a prediction; it's the thing that probably won't happen but that you should expect anyway. It's the thing you should believe even if it isn't true. Hey, look, that's the way all the important things in life work. No kidding. You meet a pretty woman. Maybe you could get to be friends. Maybe you could take her on a weekend tryst...like a state governor would. It could be a lot of fun. Most likely, your wife would never know. But you're better off believing she would find out tomorrow! Or, suppose you sent in a fraudulent IRS return in order to get a big refund. You'd probably get away with it; that's a prediction. But here's a prediction-plus: you'll get audited before the end of the week! Likewise, there are predictions-plus in the financial area. What's most likely in 2011? A repeat of 2010. That's what you usually get. But that's not the best thing to believe or the best way to bet. Everyone is betting on higher stock prices, higher gold prices...and higher just about everything. The money is to be made in the Predictions-Plus - betting on the contrary. Here's our old friend Marc Faber with one of them. Bloomberg: Marc Faber, who advised investors to buy US stocks in March 2009 as the Standard & Poor's 500 Index began a rally of as much as 86 percent, said US Treasuries are a "suicidal" investment. Government bonds are likely to decline, said Faber, who publishes the Gloom, Boom and Doom Report. After bottoming in December 2008, the 10- year Treasury yield rose as high as 3.9859 percent in April on government measures to stimulate the economy. Concern about a second recession in three years sent yields lower through October. "This is a suicidal investment," Faber said in a telephone interview from St. Moritz, Switzerland. "Over time, interest rates on US Treasuries will go up. Investors will gradually understand that the Federal Reserve wants to have negative real interest rates. The worst investment is in US long-term bonds." Treasury 10-year note yields will rise to 5 percent from yesterday's level of 3.349 percent, Faber said, without specifying a time frame. As bonds fall over the next decade, he said investors should buy precious metals, real estate or equities. US debt has returned 5.7 percent in 2010, more than erasing last year's 3.7 percent loss, according to a Bank of America Merrill Lynch index. "If you print money, the currency goes down and the S&P 500 goes up," he said. "By the end of 2011, people will look at 2012 and think 2012 could be a very bad year because the policies applied are not sustainable and create a lot of instability. Investors may look at 2012 and 2013 with horror." The Great Correction could make bonds a good buy again in 2011. But it's a bad bet. So here's a prediction-plus: the bond market will crack in 2011. How about stocks? Well, we'll have to talk about them tomorrow. And more thoughts... Would you like to correct your mistakes? Fix your errors? Make yourself a better person? Have more success? Find love, happiness and money in 2011? You need a resolution! Fortunately, most people's lives are easy to improve. They don't have to do anything. They just have to stop doing things that are stupid. Let's talk a little about fat people. What's the solution to fatness? Easy peasy. Nothing. Just don't eat so much. Don't fix a big meal. Don't go out to a restaurant. Don't have a second helping. Just don't do it. We guarantee it will work. The same could be said of most people's financial problems. The average lumpenproletarian can't easily increase his income. He has a job. He earns a limited amount of money. Or he has a fixed retirement income. Unless he is young enough to still have career choices in front of him, his income is already effectively set. His choices have already been made. So if he wants to improve his financial circumstances, all he can do is to work on the expense side of the ledger, not the income side. And while the income side is helped by "commission" - that is, by doing things...the expense side is helped by "omission" - that is, by not doing things. Want the secret to financial success? Make sure the expense number is lower than the income number. How complicated is that? Yesterday, we were in the Miami airport reading in the newspaper about people who are facing severe financial stress. In some cases, they have lost jobs and income. In other cases, they have not saved enough for retirement. Still others simply have let their spending get away from them. What's the solution? The most obvious solution for all is: stop doing it. Don't spend. See something you want? Don't buy it. See something you need? Think again; you probably don't really need it. As we reported yesterday, 10,000 people will turn 65 every day for the next 19 years. Most of these baby boomer retirees are financially unprepared. They don't have enough money saved to live the way they expect to live. But that's just the beginning of the story. If we're right about the Great Correction, standards of living in the US are falling. Jobs will be scarce. Incomes - in real terms - will go down. This leaves almost everyone with a tight budget. What to do about it? Nothing! Cut spending by not doing anything! But what about those poor people in the newspaper? They have to pay for housing. Food. Gasoline. Insurance. Health care. All the usual stuff. After they pay the basics, they don't have anything left. In fact, an article in The New York Times two weeks ago showed how a couple with even $250,000 of income still had almost no free cash. How can you cut discretionary spending if you don't have any discretionary spending to cut? What if you're already down to the essentials? This is where it gets interesting. At a certain point, you have to stop doing nothing and begin to do something radical. We were just down in Nicaragua. On the beach, we met a Dear Reader. "That guy really has it figured out," said Elizabeth. "He has a beautiful house right on the beach. No heating bills. Property taxes are almost nothing around here. And you can't spend much money; there's nothing to buy. But it's a very high quality of life. If you don't miss shopping malls and movie theatres." Of course, you don't have to move to Nicaragua to live cheaply. Many places in America are even cheaper. Small towns in Texas. Arkansas. Tennessee. You can get a enough land to plant a garden. And heat your house with wood. Throw away your credit cards. Heck, it could be fun. [Joel's Note: Wanna take a look at the real estate opportunities down in Nicaragua? Our next available Rancho Santana "Chill Out" Weekend is scheduled for June 7-11. There are only 4 spots left here, though, so you'll have to be quick. As always with deals like this, exclusivity is key. So right now, invitations are limited to Reserve members only. Fortunately, due to the mistake we mentioned above, you still have a few more hours to join. Chill Out weekends are just one of the many benefits to Reserve membership. Check out the rest here...but only 'til 5pm today.] *** A Dear Reader sends a report on the effectiveness of the new see- through-clothing screening techniques at airports: Year-to-date statistics on Airport screening from the Department of Homeland Security: Terrorist Plots Discovered Transvestites Hernias Hemorrhoids Enlarged Prostates Breast Implants Natural Blonds 0 133 1,485 3,172 8,249 59,350 3 Regards, Bill Bonner, for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com The Plight of the Baby Boomers 10,000 boomers will reach age 65 every day for the next 19 years. And few of them have saved enough money. Some were counting on 401(k) plans. But stocks haven’t made any progress in the last 10 years. Others were looking to their houses as a source of retirement financing. They were doing fine until 2007. Since then, the value of their houses has been cut by a third. The Economic Flop that Was 2010 More Risk Appetite for Fiscal Gluttons The Nomadic Nature of Money I was intrigued that a guy named David Thurtell, of Citigroup, surprisingly said, “The liquidity pumped out by central banks means that there is a lot of money sloshing around that needs to find a home.” I was so intrigued that I was tempted to use it as the basis for my first report to the new supervisor for this quadrant of the galaxy, Karpus Klegg the Implacable... The Last Angry Man’s Problem With IMF Gold Sales Investing in Gold Ahead of the Chinese Pilgrim’s Pride Corporation (NYSE:PPC) — Should Benefit from Lower Feed Costs in 2011 It’s early in the new year and time for 2011 predictions. Today, Chris Mayer, Agora Financial’s editor of Mayer’s Special Situations, looks at the upcoming year in terms of commodities and he also provides specific insight on Pilgrim’s Pride Corporation (NYSE:PPC), a vertically integrated chicken products company in the US, Mexico, and Puerto Rico, that exports to 90 countries. The Amphora Report’s 2010 Topics in Review (4 of 4) The Amphora Report’s 2010 Topics in Review (3 of 4) The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor