-- Published: Tuesday, 15 April 2014 | Print | Disqus
By Louis James, Chief Metals & Mining Investment Strategist
It is with a troubled heart that I look at the continued fighting in eastern Ukraine. I worry about my friends and students in the country who may well be in physical danger soon, if the conflict escalates. As an investment analyst, itís the financial war the Russians seem quite willing to wage that has my attention.
It should have yours as well.
In our just-released documentary, Meltdown America, one of the experts noted that the Kremlin had already made moves to dethrone the US dollar as the worldís reserve currency before the renewed East-West tensions of this year. Putin has openly threatened what amounts to economic warfare as a response to sanctions placed on Russia after its Crimea grab.
Now bullets are flyingócan Putinís financial ICBM be far behind?
Mind you, the US and global economies are on such shaky ground, they could come crashing down without any help from Gospodin Putin.
One of the things that really struck me while watching Meltdown America was the way the writing was clearly visible on the wall in past cases of financial collapse and hyperinflationóbut no one wanted to believe it.
Thatís the way I see the US today. Life seems so normal and thereís so much wealth even in poorer regions, itís hard to believe the cracks in the foundation could really bring down everything built on it. And thatís exactly why the cracks never get fixed; people donít want to see them, and politicians do everything possible to deny they exist. So they widen and deepen until the collapse becomes inevitableóand I believe we have already passed the point of no return.
Itís just a matter of time now.
Gloomy thoughts indeed, but Iím not here to depress anyone. Hopefully, I can help deliver a wake-up call. Perhaps even more useful, I can tell you what Iím doing about it.
Of course, precious metals and the associated stocks are a key part of my strategy. As Doug Casey likes to say, I buy gold for prudence and gold stocks for profit. If Iím right about the economic trouble ahead, gold will protect me, and my gold stock picks will make me a fortune.
But Doug also says that our biggest risk today is not market risk; itís political risk. He has moved to rural Argentina to get out of harmís way. Iíve moved to Puerto Rico, a US territory that is rapidly becoming the only tax haven that matters for US taxpayers.
Million-Dollar Condos for Half Price
As I type here in my new home office, I glance up and see waves of Caribbean blue crashing on the palm-lined beach. Surfers are out in force. Scattered clouds add to the already amazing variety of colors in the ocean. I wonder if I will have time to go for a swim before dinneróand Iím amazed yet again to think that it was a shot at lower taxes that brought me here to Puerto Rico.
It seems almost unnatural for me to be able to enjoy so much beauty while saving money, but thatís exactly what Iím doing.
The view from my new home office.
You see, the economy here never really recovered from the crash of 2008. This is very bad news for long-suffering Puerto Ricans trying to make ends meet. When I first came here with my wife to check the place out, locals kept asking us why we were thinking of moving here; jobs are scarce, and something of an exodus is taking place in the opposite direction (Puerto Ricans are US citizens and can travel and work freely anywhere in the US).
But I wasnít coming to Puerto Rico to sell hot dogs. My income doesnít depend on the local economy, so its woes are an obvious opportunity for a contrarian speculator like me.
Take the most simple and basic asset class one can invest in as a Puerto Rico play: real estate. The market has been so devastated that million-dollar condos are selling for half price. When we closed on our new place, the seller came up short, and we had other options, so we werenít willing to pay more. The real estate agents involved were so eager to keep the deal from falling through, they kicked in with their own money to help the seller out.
Personally, Iím not a big fan of gated communities, but for people who are concerned about possible social unrest in the future, itís good to know that you can buy properties in some of the most posh and secure communities on the island with no money down.
Now, as much as I like a contrarian bargain, and as much as my wife loves the tropical weather, what really brought us here were the new tax incentives the government of Puerto Rico enacted to make the island more attractive to investors and employers.
The critical point here is that Puerto Ricans are exempt from US federal income taxes, even though they are US citizens. They pay Puerto Rican taxes, of course, and those have generally been similar to US taxes, so the island has never been seen as a tax haven before. That all changed in 2012, when Puerto Rico passed Acts 20 and 22.
Act 22 is basically a 100% capital-gains tax holiday designed to attract investors to come live in Puerto Rico. Exactly what is included or excluded is beyond the scope of this article, but for me, the important thing is that it covers the stocks I already owned when I moved here on January 1, 2014. Given that the market bottomed at almost the same time, I have no gains to be taxed on for 2013, and will not be taxed for the gains I make going forwardóall the way to 2036.
This alone was worth the move to Puerto Rico, in my opinion.
Happily, the application process was simple. My wife downloaded the form and filled it out. I signed it, and a couple weeks later, we got an official tax holiday decree in the mailóno questions asked. I had to accept the conditions of the decree in front of a notary and send in an acceptance form with a $50 filing fee, and that was it. Didnít even have to hire a lawyer.
This tax break is not available to current residents of Puerto Ricoóitís designed to attract wealthy people to come live on the island, after allóbut itís available to all others who move here, including but not limited to US taxpayers.
Act 20 is a tax break on corporate earnings designed to incent job creation in Puerto Rico. The idea is to persuade US employers who might set up call centers in India, or create other similar jobs abroad, to do so closer to home, by offering them a 4% corporate earnings tax rate.
My fellow Casey Research editor Alex Daley has moved to Puerto Rico as well, and weíve formed a company here that exports writing and analytical services to Casey Research in Vermont. This is the basis of our application for Act 20 tax benefits, which has not been approved yet, but which we understand is close.
If we get our Act 20 decree approved, weíll still have to pay regular income taxes on our base salaries, but the lower tax rate applied to our corporate income will result in a drastically lower total income tax rate for us as individuals.
Iíll be sure to let readers know when we get our Act 20 decree approved.
All 100% Legal
The beauty of this is that Puerto Ricoís tax breaks are not shady tax dodges set up by entities of questionable legality or trustworthiness, but perfectly legal tax incentives within the US.
Act 20 and Act 22 benefits are available to non-US persons, but they are especially important to US taxpayers because, unlike almost every other country in the world, the US taxes its
serfs citizens whether they live in the US or abroad.
In other words, while a Canadian can get out of paying Canadian income taxes by moving out of Canada, a US person cannot escape US taxes by moving to Argentina, or anywhere elseóanywhere besides Puerto Rico.
Itís like expatriation without having to leave the US, truly a unique situation.
And itís a win-win situation; people like us bring much-needed money, ideas, and energy to the island, while getting to keep more of what our crisis-investing strategy nets us. We create jobs, rather than take them. We are part of the solution here, and weíve been made very welcome.
Is It Safe?
So thatís why Iím here. Whether or not my Act 20 status gets approved, Iím so happy about my Act 22 decree that Iím convinced we did the right thing moving here.
When I tell people what Iíve done and why, most get immediately excited by the ideaóand then they balk. The first question they ask is usually: What about crime?
Puerto Rico isnít a large island, and a good chunk of its three million inhabitants are clustered in and around the capital city of San Juan. Of course there is crime here, as there is in any large city. There are places I would not walk alone at nightójust as there are in New York City.
Mexico City, Buenos Aires, La PazÖ the capital of any other Latin American country or Caribbean country Iíve been to is much larger, more polluted, and more dangerous than San Juan. In my subjective view, San Juan, with its old Spanish fortifications and amazing beaches, is more beautiful. And you can drink the water here.
Sure, it might be cleaner and safer in Palm Beach, Floridaóbut itís a lot more expensive there, it has less charm, and thereís no Act 20 nor 22. Itís a matter of priorities.
When I say this, most people remain skeptical; they read about the economic problems Puerto Rico has and the financial trouble the government is in, and they wonder if things could get worse.
Of course they canóbut if Doug is right about The Greater Depression about to envelop the whole world, things are going to get worse everywhere.
Here at least, people are already used to massive unemployment. It wonít come as a shock; itís never left since 2008.
Another way of looking at it is that since tropical storms hit the island from time to time (southern Florida is much more prone to major hurricanes than Puerto Rico, but they do happen), people here are more prepared for disasters than in many other parts of the US. The better apartment buildings and hotels have their own electricity generators. Nobody can freeze to death here, anyway, and fruit trees grow all over the island.
Thereís a lot more I could say, but the bottom line is that I think Puerto Rico is a much better place to ride out a global financial storm than Miami, or Anchorage, or almost any city in between. A self-sustaining farm in rural Alabama might be better, but thatís not the sort of place I want to live.
I Like It Here
That last is an important point: if I have to hunker down to ride out an economic storm, it should be in a place where I like being.
Puerto Rico is beautiful and bountiful year-round. I speak Spanish, but most people in San Juan are bilingual, so thatís not really an issue. Our new flat is blocks from the best schools, shops, and restaurants in townóand even the hospital.
I open the window and the fresh air coming off the ocean carries the sound of waves, sometimes laughing children. Thereís more noise pollution during the day, but at night, the city calms down, and we can hear the famous Puerto Rican coquŪ frogs, which my daughter calls ďhappy frogs.Ē Ten floors up, the ocean breeze is cool enough that we have yet to turn on the air conditioning.
The beaches are fantastic, and the clear water makes for great diving. Iíve never been a surfer, but the waves here are famous too, so Iím thinking of trying it out. Thereís no end of other things to try out, and the neighboring islands have their own charms to offer as well.
Granted, my wife and I try to be smart about what we do and where we go, but weíve never felt unsafe hereówell, apart from the crazy drivers.
We like it here. Weíre happy. For tax reasons, for quality of life, and with the potential meltdown of America in mind, weíre glad we made the move.
Find Out More
Doug Caseyís International Man Editor Nick Giambruno, Alex Daley, and I have coauthored a special report on Puerto Ricoís stunning new tax advantages. The report gets into all the details I didnít have time or space for here. We cover all the specifics of what, why, and how. The report includes links to the forms you need, as well as recommended resources, from lawyers to realtors.
Whether youíre thinking about expatriating or youíre just tired of paying high taxes, I think Puerto Rico is a place you should consider. I know of no better resource to help you get started than our special report.
For your own health, wealth, and enjoyment, I encourage you to get your copy today.
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-- Published: Tuesday, 15 April 2014 | E-Mail | Print | Source: GoldSeek.com