What Your Dollar is Really Worth -in Panama and China
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(http://www.sovereignsociety.com/) Today's comment is by Chuck Dolce, senior writer for The Sovereign Society, former broker and member of the Chicago Mercantile Exchange for nearly 17 years, where he specialized in stock index and short-term interest rate futures. He's been on location in Panama, reporting from our 2008 Total Wealth Symposium.
Dear A-Letter Reader,
It's Saturday in Panama and the last day of the Sovereign Society's Total Wealth Symposium. Markets are closed and other than some weekend oil posturing, there's not too much in the news. So while most of the conference has been focused on making and protecting money - I haven't said much about the country of Panama itself. So if you'll indulge me...
Panama is truly spectacular. If you've never been, it's a country on the move. Skyscrapers rise up from what was once a depressed Central American country. Skyscrapers are built IN the ocean. Architecturally, the juxtaposition of the new and the old creates almost a surreal effect. It's 2008 on one side and 1940 on the other.
Panama is a country rebuilding itself both structurally and economically. The third largest economy in Central America, Panama specializes in service industries like banking and tourism. What were once military bases are now malls filled with excellent restaurants, bars and shops. It's now an offshore haven in the ranks of Switzerland and Lichtenstein. It has been the perfect place to host this year's conference.
The Paradise that is Panama
And staying in that line, to start today's sessions we heard from Margaret Summerfield, Managing Director of Pathfinder. Pathfinder is a global real estate company located here in Panama that specializes in relocating to this tiny paradise.
She painted an incredible picture of a country that is at once beautiful, booming, affordable and friendly.
Contrary to what some may think, Panama offers a diverse, yet very temperate climate. Temperatures average in the 80s on the beaches and in the city year-round. But in the highlands region, the temperatures can cool down enough at night to require some heating.
Panama essentially has two seasons - the dry season which lasts from January to April, and the rainy season from May through December. But the rainy season is more akin to summer in Florida. You have hard drenching rains for a couple hours a day and then beautiful sunshine for the rest of the day.
Standard amenities here are all "first-world" level. From cable TV to Internet to phone service. The country is accessible by air from virtually anywhere in the world. The roads are well-maintained and the stores offer some of the best shopping in Central America. The malls are populated with some of the most recognizable names in the world. And at largely affordable prices.
More Bang for Your Buck Here in Panama
The overall cost of living in Panama is about 30% lower than in the United States. You can get a three-course lunch for two with wine for about US$25. (Margaret says she and her husband dine out 6 nights a week...) It's about US$2 in a cab across the city.
A manicure costs around US$7 and you can get a bottle of beer at the store for around 50 cents. A live-in maid will set you back around US$200 a month. Or you can simply get housekeeping services for around US$15-20.
Healthcare is affordable too. An average doctor visit runs around US$35, if you make your appointment the previous day. And the quality of care is excellent. Most medical staff here are trained in the U.S. and the facilities are first rate. Johns Hopkins has just opened an affiliated medical center in Punta Pacifica, one of Panama's residential areas.
Infrastructure development is booming right along with the economy. Panama experienced GDP growth of over 11% last year and Panama is expected to grow another 8-9% this year. And this is not an "inflation-based" economy like so many other countries. In fact, Panama has no central bank to tinker with inflation! Instead, economic growth is productivity driven.
Home to over 200 banks, Panama is the second largest banking center in the world. Plus they adhere to strict banking privacy laws.
Taxes are reasonable. If you live in Panama, you're only taxed on Panama-sourced income. Standard deductions are applicable, including medical expenses incurred in the country. There are property tax exemptions as well, including older exemptions that can be grandfathered in when real estate is purchased. And the real estate boom is continuing. City condos can be had from US$100,000+ to luxury resort residences from US$260,000 and up.
And as I mentioned briefly in Saturday's A-Letter, investment amounts are going to increase soon. How much is anyone's guess, but they are going higher. So if you have any interest in exploring residence options in Panama, the time to act is now.
Back to the Business of Money
Jack Crooks finally arrived from his recent speaking engagement in Beijing at the FX Week/State Agency on Foreign Exchange (SAFE) sponsored conference. It's tough keeping up with someone that in demand. To the great anticipation of the entire crowd here in Panama, he came to talk about Chinese monetary policy and the associated opportunities.
Over the past century, China had seen the damaging effects of a "too-strong" currency. First in its own economy, the silver boom of the 1930s, when its currency was a silver reserve note. Then in the explosion of the yen as a result of the Plaza Accord, which sent the Japanese economy into 15 years of uninterrupted misery.
So for years, China has kept a tight grip on monetary policy keeping it cheap to the dollar.
And this has created somewhat of a symbiotic relationship between China and the United States. China produces cheap good for sale and the U.S. sends them dollars to buy it all. The Chinese then return our dollars by buying treasuries bonds. In doing so, the Chinese help keep rates low in the U.S. and effectively subsidize the American consumer.
This cycle of commerce has had another effect as well. It has kept things fairly expensive at home for the Chinese, effectively forcing personal savings. And all this has led to great growth in China's economy. But it has also caused some pain at home.
The Chinese have been running a relatively high rate of inflation and has begun to incite some domestic unrest. Remember Tiananmen Square? The world thought that was largely a political protest. But in reality it was as much economic as anything. And the Chinese government is not looking to repeat that. So while Chinese authorities may be reluctant to move inflation for the moment, there may come a time when it will be politically unavoidable.
