What You Can Learn From Madoff And Stanford

“A reader wrote recently, Kathleen,” writes our friend and international tax attorney, “to say that ‘Panama brokers are a joke.’

“In the wake of the Madoff mess in the States…and the emerging Stanford bank mess in Antigua and Panama…this is a good time to address that remark.

“The reader is correct, of course. There are issues with investment managers in Central America, including Panama. A lack of regulation, licensing, and continuing education has led to a lot of scams, incompetents holding themselves out as investment managers, and inefficiencies in the industry.

“For example, I heard recently about 500 investors who lost money in a Panamanian FX trading scam. They came to me seeking representation.

“You have to remember, though, that scams and incompetence are not limited to Central America. The biggest investment scam in history, the Bernard Madoff mess, was perpetrated right here in the United States. (See: Look at Wall St. Wizard Finds Magic Had Skeptics.)

“What the Madoff scam has taught us applies doubly to anyone investing offshore: Do your own due diligence and don’t rely on marketing materials.

“When selecting an offshore investment manager or online trading platform, here are eight rules to follow:

1. The most basic rule is this: If the returns promised by the manager are too good to be true, they probably are. Look for another manager. No one can guarantee 12%+ on your money, unless he’s gambling. And no manager makes strong returns year after year. The market is cyclical.
2. Don’t believe someone who promises higher returns with less risk. Higher returns always mean higher risk.
3. Work with a firm that has been around for at least five years…the longer the better.
4. Find a firm that is responsive to your inquiries, both before and after you open your account. The number one complaint U.S. investors have with offshore firms in Central America or the Caribbean is that they are slow to respond to e-mails and questions.
5. If a country offers a broker/dealer or other type of license, select only firms that have gone through that process and have their books audited. In most countries, the local Banking Commission regulates investment firms.
6. If security is a major concern, invest with a bigger bank in Panama. I note that this security comes at a higher cost and with less varied investment options.
7. Understand what you are investing in. In the U.S., the highest-risk investments are limited to high net worth investors who, presumably, understand the risks and don’t gamble more than they can afford to lose. However, just about anyone can find and put money into high-risk investments offshore. So I say again: Invest only in products, funds, and instruments that you understand.
8. Diversify! Never put all of your assets with one firm or one manager.

“Bottom line, I’d say that Panama provides the best balance between privacy and security, as long as you work with a quality bank, brokerage firm, or investment manager. Their economy remains strong, and their reliance on the U.S. dollar as their base currency is proving to be a major benefit. I also rate their banking industry, regulation, and security far superior to other competing countries, such as Belize.”

Kathleen Peddicord

“I didn’t realize poetry was so important in Nicaragua,” writes young Marketing Manager Harry this morning: Passion for poetry in Nicaragua

Used to be, Panama’s Carnaval celebrations overtook the entirety of downtown. The parades and general merry-making were centered on avenida Balboa, the city’s main drag, along the Bay of Panama. And the days of fiesta brought the entire city to a standstill.

As the city grew, this couldn’t continue, so they moved Carnaval to via Espana, the next big boulevard back from the bay.

Then, two years ago, the city fathers realized they needed to contain the chaos further and designated Transismica, the capital’s third big thoroughfare, as Carnaval central.

The effect is that, while the highway known as Transismica, a pedestrians-only zone this week, is 24 hour raucousness…the rest of the city is a ghost town. Streets are empty, offices are closed, business is on hold. We ventured out over the weekend to find downtown Panama City quieter than we’ve ever seen her.

“We should go over to Transismica to have a look at the party,” I suggested to Lief yesterday afternoon.

“That could be a dangerous idea,” Lief replied.

We can hear the fireworks and the music even from our distant position. How can we resist venturing over to see what all the fuss is about?

Don’t worry, dear reader, we’re on it. For you, no risk is too great. We’re off.

Watch this space for my report from the party.

“We have been reading a lot about Panama and visited recently. We loved it and are thinking of investing in Casco Viejo. However, we are confused about the Panama City market. It seems that there are too many high-rise condos, and we have been reading that this is really not the right time to invest there.

“Do you consider Casco Viejo a different market? Do you think the prices in this area will come down? Would you consider this a wise investment at the moment for the long term?”

— Véronique M., Canada

Yes, Casco Viejo is a market unto itself, separate from the high-rise tower market of the rest of Panama City.

And it’s evolving as a foreign market, because most Panamanians don’t want to live in Casco Viejo. They want new and shiny. Casco Viejo is old and crumbling.

For many foreigners, though (like me), Casco Viejo is what you come to this part of the world to find. It’s charming, historic, and romantic. The rest of Panama City is a jumble of ever-taller condo towers and constant road construction. Casco Viejo is shady plazas and parks surrounded by centuries-old brick-paved roads and overlooked by once stately 200- and 300-year-old French- and Spanish-colonial facades.

The important thing to understand about Casco Viejo is that they’re not building anymore of it. Not in Panama City…and not anywhere. Travel the world over, and you find only a limited inventory of buildings like the ones in Casco Viejo.

People who appreciate history and architecture recognize this market fundamental. So, while there isn’t much demand among the local population, there is a global demand. And the supply, again, is permanently limited.

Prices in Casco Viejo have been moving up for the past decade. They surged a few years ago and now have leveled out. I don’t think they’ll fall, though…not dramatically so. Frankly, anecdotally, the area is busier than ever. I visited last week to find eight busloads of cruise-goers wandering along the streets that Paul Gauguin once enjoyed, buying in the souvenir and gift shops and filling up the restaurants and cafes.

Bottom line, while I’ve been cautioning against an investment in a Panama City condo for the past 18 months or longer…yes, I’d buy in Casco Viejo today. Don’t look for appreciation in the short term, but a renovation project in this World Heritage Site enclave would leave you with something rentable and worth owning.