CheetahhhhhhhBlog Mark III

One phrase Bug has started using recently is “Let’s get out of here!”

Anyway the Bug will be 3 in October and we want him to attend US schools and grow up in a “normal” environment, so we’re targeting repatriation within 2 years at the latest, for his kindergarten. At the moment he can’t go out unsupervised, so it hardly matters where we’re located. In 2 years, however, he’s going to want to go out and play. This is not an acceptable environment for it. Emerati children are almost entirely unsupervised and so, for example, we see 6 year old kids driving 4-wheelers around our neighborhood. If you’re going to be an expat in the Middle East, our current location is about as good as it gets. Nevertheless.

We are generally planning on returning to Madison, which is the only place I’ve ever considered “home”. However we also have a unique opportunity which will probably never arise again, viz, we’re shipping everything and starting from scratch and thus can actually go anywhere. There are a number of places I kick around in my head occasionally. For example Chi Town gets a few thoughts occasionally. However I’m 97.9% sure we’ll be going home to Madison, partly because of Extreme Pizza, and partly because I want Bug and Tristan to attend Edgewood High School. Also Van wants to live in the Willy Street neighborhood and have a red bike with a basket. Me, I want to get 2 Aberdeen terriers named Lewis and Stuart.

This isn’t an official announcement of our repatriation. It’s a press-leak. It’s going to happen in the near future, I can tell you that much.

This US war on tax havens coincides with the collapse of the US banking system, and the government propping it up. I can’t help but think that the reason for the IRS’s enthusiasm about hassling UBS bank in Switzerland stems from an acute desperation for cash. Uncle Sam has spent a fortune in the last year and is projected to be running a deficit the size of Texas…. er, Jupiter… and so I bet you the IRS has been given a brief to squeeze. I wouldn’t also be surprised if the number of IRS audits goes up dramatically. If I was filthy rich, as I said previously, I wouldn’t try hiding my money in Switzerland or the Caymans any more. I would have done that up until last year. Not any more however. Now we’re forced to take more dramatic measures. If I were filthy rich and wanted to avoid giving Uncle Sam my money, I’d do one of the following:

• Move (physically) to a tax haven nation such as Monaco or Panama and take my money offshore permanently, and not return to US soil so that the IRS can’t arrest me
• Create a foundation in Liechtenstein or Panama with some non-US person as a beneficiary, so that the foundation cannot be taxed under US law. Use anonymous lawyers to be the public-listed board of directors of the foundation. Then use the foundation as a holding company for my assets, investing with no taxes. The only tricky part here is you need to be very careful about the money flow to you, as Uncle Sam will be watching. I would have a public contract with the foundation as a “financial advisor” and pay yourself a salary with benefits. Uncle Sam will tax the salary, of course.
• Create a US corporation, to take advantage of lower US taxes on corporations
• Create a UK company and operate outside the UK, to escape UK taxes
• Live in London and pay a flat 30% tax to the queen (this saves rich people a lot of money)

Yep, these are our tax avoidance options as I see it, and I’ve looked into the matter very closely. The problem with avoiding US taxes is that Uncle Sam is watching now. Before, he wasn’t watching. He knew what you were doing behind his back but he decided not to make an issue of it. Now he’s making an issue of it. And Ucle Sam’s reach is longer than yours, no matter how clever you might think you are. This is called hedging your bets–a smart person will assume Uncle Sam can track you. This means our tax avoidance options are growing slim.

I started putting out my Market Comment mostly for my mother, who, it was revealed, knows nothing about how to manage her retirement fund. I find it inconceivable that you’d work for half your life saving money and then not know what to do with it. In the very least you should take a look at the chart of the SPX every day. And certainly you should never take financial advice from anybody else, particularly some random guy in a blog. This “don’t listen to me and learn how to trade on your own” caveat aside, here goes my Monday Market Comment.

I liquidated my Citibank shares on Friday, because they’d had a nice rally above 5. I made a 200% profit on C since March. As I said last week, I anticipate a drop in the near future, ie from now until Halloween, and my plan is to re-acquire C then. I am still planning for a drop. I am actually planning what to buy after Halloween. On my list:

• C–cheap, too big to fail
• ETFC–very cheap, I think here I will buy the stock and sell short options
• FNM & FRE–too big to fail and cheap
• F–almost certain to emerge as the biggest US carmaker
• EWZ–I’ve expressed my thoughts on Brazil elsewhere, I think it’s where the long term money is
• FXI–China mirrors the US economy but more extreme. China is also where money is to be made. I also view FXI as a leading indicator of the SPX.

We went to the hospital in Dubai for poor little Tristan’s first immunization. He cried a good one. Bug didn’t cry a bit when he had his. Tristan likes to put on a good squawk though. He has a rash which doesn’t seem to be getting better. I am annoyed also, my insurance doesn’t cover immunizations. What the hell kind of insurance doesn’t cover immunizations. Apparently they want my kid to get really sick later on in life so they can spend 7000% more insuring me. The bastards. Makes me miss Saudi, where all medical care was free.

I have spoken occasionally over the years about the hidden costs and troubles of being an expat. One is the necessity of buying the same thing 2 or 3 times, because your stuff is spread out over 2 or 3 countries. For example we have 2 Ikea fondue pots, one in Capoocan and one in the UAE. Bug has 2 Ikea tents, one here and one in Madison. We have 2 fancy baby strollers, one here and one in Capoocan. NNow I have to start buying a second round of baby clothes because all of Bug’s old clothes are in Capoocan also. Another hidden cost I’ve discovered recently is that I must buy very expensive “no medical-exam” life insurance, because I am not present in the States to buy proper life insurance, and I am not a Filipino citizen and so can’t be insured there, and I don’t trust Filipino or Emerati insurance companies anyway (insurance companies going bankrupt, refusing to pay, etc.). So a hidden expense, forced to buy expensive American insurance.

I’m watching Euro CNN right now and several commentators have remarked that “it’s a day trader’s market,” ie, it’s impossible right now to make any informed judgments except in the very short-term.

I said previously that I expect a decline, because of seasonal patterns, but I also said the market is extremely unpredictable because of massive government intervention.

Because of all this, the best advice at the moment is to stay in cash. Profitable investors are actually in cash much more often than they are in the market. This is because cash is safe, while being in the market means risk. Indeed when I teach my sons how to manage money, the most important concept I will discuss is risk management.

I’ll tell you what I’m doing personally, though. I’m presently completely in cash, except I have a lot of long-term calendar options on Citibank. My cash is waiting for about Nov 1st, which is when we can anticipate the seasonal pattern of the Christmas rally. So basically, unless conditions change, I’m waiting 2 months and then will buy heavily.

Vanessa was unexpectedly admitted to the hospital yesterday for surgery. It was a pregnancy complication. She’s OK. The surgery only took 10 minutes. I picked her up from the hospital about an hour ago. It’s been an exhausting 24 hours because Bug spent half of it crying for mommy, and the other half clinging to me me to make sure I can’t get away.

One of my favorite series of books is Frank Herbert’s Dune. Really great books. I had to take a break from them because I’d read them so many times. It’s been about 5 years since I last picked up Dune. I started reading it again today and, after 5 years, it’s nice and fresh.

Well it’s Ramadan. Another frakkin Ramadan. You can sense how thrilled I am.

I’m getting us life insurance. I didn’t really see the benefit until recently. It’s like hedging investments. This thought never occurred to me until recently. For example, you estimate it will cost $100,000 to raise your son and send him to college, so $100,000 in life insurance is a hedge (against my death or incapacitation). When I invest, everything is hedged. This is why I really rarely lose money investing. The applications of hedging in real life only recently occurred to me. I suppose I’m a slow learner.

So anyway what with the Bug crying and clinging to me for 24 hours, I am actually a bit of a basket case. After I brought Van home, I promptly went to the bedroom and shut the door for some quiet time.

If you’ve read the newspaper at all in the last year, you’re no doubt aware that the US has been throwing its muscle at Swiss banks, forcing UBS to reveal confidential account information in an attempt to catch US tax evaders. I can’t help but disapprove of the US for this. The world is well served by having a place where we can have some privacy. Swiss banking privacy has actually eroded long before this and if you really want privacy you have to do more than fly to Zurich. In America it’s pretty well known that you fly to the Caymans if you really want banking secrecy. This has actually eroded also however.

Ironically Vanessa and I just opened an offshore account a few days ago. We opened an account with Lloyd’s bank on the Isle of Man. The Isle of Man is a tiny island in the Irish Sea which is yet is not a part of the United Kingdom. It has no taxes and a degree of banking privacy, yet it also participates in the UK bank guarantee scheme (like FDIC guarantees on AMerican bank accounts). We opened this account not for evading Uncle Sam’s taxes, but rather for convenience. We have euro, dollar, and sterling check cards. As long as I don’t have over $10,000 in the account, I am not required by law to report the account to the IRS, so I suppose if it comes down to it, I will keep the balance at $9,999, which is what I imagine a lot of people do. Personally I would advise people to report honestly to the IRS, simply because their reach is long and it would be unpleasant to have the IRS comb through your books.

As I see it, the reason to have money offshore is not for tax evasion. Back before computers, it was quite feasible to have secret bank accounts in Switzerland and Liechtenstein. How would anybody ever get you? Now we have satellites watching everything, and everything is tracked electronically. It’s just not worth the risk any more. Rather, I would say the reason to have money offshore is for asset protection. And indeed that’s another reason why Vanessa and I are now banking with Lloyd’s.

So recently I gave birth to two babies: little Tristan, and my company Teggatz Enterprises LLC. The company is a baby that’s been in the works for a while. It serves three purposes: asset protection, tax reduction, and inheritance (ie a structured and planned inheritance that Uncle Sam won’t tax).

Anyway it’s been rather hard to set up an American company from the Emirates. It’s actually been a hell of a lot of work. My wife has seen me clicking away at the computer for hours. So, we passed a last hurdle today. Teggatz Enterprises LLC has a bank account. It had to be a corporate bank account that I could set up completely online, and that was the tough part actually. We’ll be banking with those nice folks at Bank of America.

The company will go operational next week. This week is options expiration, which means I will be liquidating my positions tonight or tomorrow. I will begin shifting the money into the corporate brokerage account next week.

It’s been a lot of work getting the company operational, and I feel like cracking open a bottle of champagne and celebrating actually.

OK, now for my market comment.

As I have pointed out previously, the market is in a bit of a psychotic frame of mind, where any little bit of news will send it shooting up or down. The news has been mostly good lately. Most people say the recession has ended.

The Wall Street Journal had an article suggesting that the market may be in a holding pattern through 2011, ie, not much movement up or down. I’m inclined to agree with this generally speaking. However historically when we look at rallies, and compare this one statistically, we must draw the conclusion that this rally probably has a bit more juice in it. And the one thing we know about history and statistics is that history has a strong tendency to repeat itself.

Nevertheless I am cautious at this point in the short term, because we are coming up on Sept and Oct, which have a very strong seasonal pattern of seeing the market tank. End of last Aug, I didn’t like the smell of things and just pulled everything out, and thank God I did, as it saved me from the massive market collapse. It is only prudent to observe that the market has a very strong tendency to hit its yearly low right around Halloween. So in the short term I am cautious, I would suggest little upward movement or downward movement.

The problem is that massive government intervention worldwide has made the market very unpredictable.

So in sum, for the short term, I am cautiously bearish. If you are already invested, I suppose I would hold your positions, unless a big drop becomes apparent.

As always I could be completely wrong about everything.

The headline on MSN Today says that the real cost of having a baby is $367,000. This is an alarming figure but I believe it. I am very meticulous about financial planning and you’d probably be rather surprised how far in advance I actually plan things out. So the total cost of kids has not escaped my attention, and I have actually remarked to many people that I’m not sure I can afford another.

So I took Scarlet, my pretty red SUV, to the Kia dealer to get the damage repaired from our mishap in Dubai. Well, the guy at the dealer called the insurance company and it turns out that the police report lists ME as being at fault. WHAT A LOAD OF CRAP! I couldn’t believe it. The whole report with the police took place in very rapid-fire Arabic and, truth be told, I can only comprehend so much in Arabic, and that’s when people are speaking slowly and clearly, and so this huge frakkin detail escaped my attention. I still can’t believe it. The guy who hit me (from behind, mind you) obviously did nothing but lie. I’m fairly stoic and there is obviously nothing to be done at this point, so I’ve already accepted it and moved on. The guy at the car dealer felt bad for me and said he’d only charge me AED450, or about $120. Add to this the cost of the car rental I now have, and that lying jackass in Dubai will have cost me about $250.

First of all, we went to the American consulate in Dubai yesterday to get little Tristan a passport. According to the jackasses at the consulate, I was unable to document that I have lived in America, and so little Tristan has no passport. I had just about everything you could imagine. Passport, driver’s license, police reports, diplomas, confirmation certificate, baptism certificate, divorce decree, you name it. I have it. But according to the jackasses at the Dubai consulate, none of this proves I lived in America for the required period.

I was spitting mad. And that’s putting it politely.

Anyway luckily little Tristan has a backup nationality. We went to the Filipino embassy and they’re going to issue him a passport with no problems. The more the merrier, you want to be Filipino, then come and join us.

I have stood on my soapbox in this blog a bit lately about taxes and I could not help but exclaim angrily to my wife about how my taxes pay the salary of that jackass vice-consul in Dubai, yet he is completely worthless to me. And what the hell is going on here anyway. Do I look like I’m Nigerian or something? How can any sane person tell me that almost 40 years of documentation, such as driver’s license, police reports, diplomas, confirmation certificate, baptism certificate, divorce decree, etc, are not proof that I’ve lived in America????? So anyway I pointed out to my wife, who disapproves of my attitude toward taxes, I exclaimed to her, “You see why I don’t like paying taxes?!?!?!?!?!?!?!?!?!?”

For my Monday market commentary, it’s 823AM New York time and the futures are WAY WAY down. I’m going wait until I can make an intelligent comment about what’s happening. The futures are down so much that that seems the only relevant thing at the moment.