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Offshore Investments Directory

offshore investments

In the past when analyzing the investment habits of most investors, it was discovered that on average most people would invest about 80 percent of their savings into what is commonly know as fixed income investments (bonds, commercial paper, bank certificates of deposit) and  about 20 percent into equities (stocks) or other kinds of investments (commodities, gold, real estate, etc.).  And of course looking at the current world economy and the interest rate environment, considering yields are so low in the so-called more mature economies of Europe and North America, what has been a recent phenomenon is the search for higher yields in the emerging or developing markets.  However, we tend to think investors should think about the larger picture and longer trends when it comes to investment strategies.  In addition, it is also important to understand why yields are low in one place and higher in others in order to make sound investment decisions for the long haul.

Economic Growth Factors Regarding Investment Choices

To start off with, it is important to understand that all economies have a tendency to go through different phases just as is the case with us in our life span.  In other words, we as humans have different phases of our investing lives often generally described as the savings or capital accumulation phase and then the period of our lives when we are retired.  Youth of course gives us the energy and where with all to work hard and save whereas as older age means that while we have accumulated knowledge over the years, our bodies are not in the hyper energetic state they were in the past.  Economies also have a natural tendency to go through growth and then mature as well.  Of course a country and local economy in any country is perpetual in terms of it's own life, and the economy must some how re-adapt and change if it ever is to try and recapture growth again.  In other words, stagnation and decline are in the cards if political leaders do not plan and act accordingly.

The world in 2014 is at the moment experiencing a number of both economic and perhaps political changes as well.  There are countries that can be considered to be in the mature or plateau phase whereas others are in the the quickly growing stage of youth at the moment.  However, whereas almost all economies in the past were agricultural based, the advent of technology and the industrial revolution has transformed economic growth away from farming and more towards manufacturing and production of technological goods.  Which is to say, the economic growth for countries and economies over the past 100 years or so has come from those cases whereby nations became industrialized, whereby the agricultural based economies were left behind.  But, what we are now seeing is the previous industrialized economies becoming stagnant and encumbered by high wages, high taxes and slower if any growth at all.  The former agricultural economies are now becoming industrialized with the benefit of being able to offer LOW WAGES, LOW TAXES to compete and take away production from the older, mature industrialized nations.

The interesting thing about this is that the new growing  nations do not need to start at zero as their mature predecessors had to do.  Instead, they can simply adopt and implement the new and current technology as it exists, and build on top of it.  It is for this reason that countries such as China has been able to do in 20 years what it took countries such as the United States perhaps 80 years to accomplish.  Of course, in order to maintain this growth projectile and lead, the emerging markets (such as China) have intelligently pushed to have the research and develop within their own borders as well and not just the manufacturing component.   The previous excuse or argument regarding the US and Europe was that while the manufacturing had moved to low labor cost nations (such as China) that they had nothing to worry about because the R & D and the innovation would stay in these older economies.  Well guess what?  There are more patents now being issued to Chinese citizens and or companies than any other nationality.  In addition, China and other nations trying to mimic it (Vietnam) are spending heavily on improvements in the educational sectors of their home countries to guarantee they remain out front with research and development.  So, these newly industrialized nations are trying to capture both the manufacturing and the innovation, which leaves the previous European and North American nations is a dire predicament.

offshore Investing Driven By Demographics

In terms of all the previously wealthy industrialized nations, there are a number of things going on to tell you where they are headed (not someplace good) and mainly the issue is demographics coupled with shall we say an attempt at social welfare and state central planning created upon certain assumptions (the assumption of unlimited demographic and economic growth, which is clearly not the case today).  In terms of the demographics we think it is no secret that Western Europe, the United States and Japan all face a lopsided phenomenon in terms of a huge aging population.  This was a direct result of the so-called baby boom that occurred after World War II.  In a normal demographic distribution, in order to maintain the nation's economic growth, you will usually see a much larger number of births and young people coming into the labor force in comparison to the older people and retirees – and this is what you see in the emerging or developing markets (minus China due to their one child policy).  However, in the US, Europe and Japan we have a much larger number of older people and a relatively very small number of younger people coming into the work force.  If the manufacturing and jobs have gone away (and less jobs to be had) this is not a bad thing per say in terms of long term employment (less jobs, but also less people to be employed).  But, it also means much LESS tax revenue being collected and this is a serious problem with a welfare state benefit system built upon a pay as you go paradigm (also known as a Ponzi Scheme).   Which is to say the financial well being of the welfare state benefit system hinges upon more and more younger people coming into the work force, paying taxes and supporting the retirees.  But this is not the case with the US, Europe and Japan, and thus the grave solvency problems with the finances of the welfare benefits system today, and for the next 30 years or so (assuming the Baby Boom generation retiring today will certainly live and continue to collect checks from the government retirement system for the next 3 decades, which is not an unreasonable assumption).

We do have another story however in the up and coming emerging or developing markets.  First off is the high number of births and demographic growth in terms of a much larger younger population coming up behind a fairly small retiree population.  The challenge of course will be to grow the economy in these countries to guarantee job or employment growth for all these people, but there is no lop sided statistics as we have in the US and Europe.  Second, much of the manufacturing from the former industrialized nations has already gone to these low cost, low wage jurisdictions.  Third, and perhaps most important over the long term, is the fact that many of these emerging markets are starting to trade directly with each other and cut out the middle man as they say.  In other words, many American and European brands are being manufactured in these other countries via offshore company subsidiaries.  As such, the parent company can achieve a tax savings back in the former high tax parent nation but in reality, the manufacturing and sale is coming out of the new low tax, low cost emerging market nation.

What Does This Have To Do With Offshore Investing ?

A well known US bank robber named Willy Sutton appeared in court (for bank robbery of course) and the presiding Judge asked Willy why he robbed banks.  The reply was: because that is where the money is.  Likewise, you need to invest where the growth and income opportunities are, and or will be in the coming years.  And the where in the equation is the up and coming emerging market nations that probably will dominate the manufacturing, exports and overall growth in the coming years.

In addition, aside from having a number of other advantages on their side, one major benefit is that most of these markets do not have bloated and extensive social welfare benefit programs to manage.  You might think such a thing is terrible, but is it really?  Full blown state planning (Communism and or extreme cases of socialism) has not worked.  And for that reason, China is now more capitalist than the US in some respects.  Vietnam more free market than Spain, and so on.  What has improved the social condition and has fueled what can be called a growing middle class has been economic improvement, not state hand outs.  And so many of these emerging or developing markets never had a social welfare program as it exists in the US and Europe because they could not afford it.  Now that they are experiencing economic growth and an ever increasing middle class, they might not need it.