How Panama Can Diversify (if not save) Your Portfolio


How Panama Can Diversify (if not save) Your Portfolio

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Written by Jesse Levin

Thursday, September 18 2008

Diversify in Panama

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Panama has always served as a safe haven of sorts. It is a financial bastion that seems to be more insulated to the volatile markets and unstable political situations of its neighbors to the north and south. There is no question that the world over is being affected by the tumultuous market downturns in the US, further exacerbated by the collapse of the pillar institutions, however Panama appears to be benefiting.

The worse it gets offshore of Panama, the better it seems to be for the Isthmus. All of the disenfranchised investors and their fleeing capital, whether from political risk, or market uncertainty need a place to nest, and Panama presents one of the best options. The amount of Venezuelan and US foreign nationals relocating, either physically or financially to Panama is growing exponentially.

The Europeans are continuing to capitalize on the exchange rate advantage, and the Chinese are making tremendous infusions of capital to better/increase logistical infrastructure to enable Panama to effectively continue to cater to their ever growing demands. It is time to get back to the basics.

Panama, in the past few years has been caught in a whirlwind of PR as the real estate bubble carried the country into the limelight at warp speed. As the bubble in the city is about to (or is currently bursting), and the chatter has turned to the negative side, people seemed to have forgotten what really put Panama on the map in the first place.

A diversified portfolio that affords liquidity to capitalize on distressed asset opportunities, preservation of the integrity of currently held assets, and cash flow generating mechanisms would be ideal, but difficult to achieve for most. With CD interest rates at a low in the US and in Panama, inflation on the rise in both countries (and there are those who would contest), high lending rates, and totally unstable investment markets, what solutions exist to adapt your portfolio? Land banking, slum lording (not necessarily to people), and farming!

It's time to get your hands dirty. Tangible assets are where it is at, but it requires a shift in the commonly-held paradigm. People have become so comfortable existing in the realm of the capital markets that the idea of working tangible assets seems to have fallen out of grace.

Forgive the cliché, "land, they aren't making any more of it." The demand for food is certainly not decreasing, and will only continue to increase drastically in the immediate future. If nothing else this common fact should be a relatively persuasive argument for the viability of investing in agricultural land, especially in a country with the second largest free trade export zone in the world.

I am not advising those who have decided to shift their portfolios offshore form the US or fleeing Venezuelans to drop everything to become farmers, but I am alluding to the benefit of bolstering the investment portfolio with raw land acquisitions especially in places with added benefits. My rural area of expertise Pedasi, in this realm, has a lot to offer.

The economy in Pedasi, until recently (the past 5-10 years) was entirely agrarian based. Raising beef and producing milk was the mainstay of the population. While the dynamics of the market have shifted rather drastically the underlying fundamentals still remain and should not be ignored. To clarify my point:

Buy land in Pedasi (land banking) and go through a three-stage process that enables you to secure agricultural status for the land exempting you from paying annual property tax. Rent the land to a local cattle farmer to whom you can charge $6.50/head of cattle per month (slum lording). Depending on the type of pasture a farm can cater on average to 15 head of cattle per hectare ($98/hectare/month, not bad).

Not only do you generate cash flow but your property is being watched and taken care of by a caretaker with a vested interest (the cattle farmer). Not to mention the cows will keep the grass and you wont have to hire full time workers during the rainy season to maintain the grass height with machetes. In short, you can own a carry-free, cash flow producing asset that will benefit from appreciating land values being stimulated by the ever-increasing number of foreign investors arriving to the area.

An additional step would to become a true farmer. Bamboo, Cashew, mango, citrus, goat, etc are all viable options. There is at present already a tremendous demand for vegetables in the area. Currently all fresh greenery is shipped in from the northern provinces in pickup trucks. The first person to get an organic farming operation up and running in Pedasi is going to do very well.

I have a friend Brett, the owner of the Lago Bay project outside of Santa Catalina, who recently ran numbers on a cashew farm by me. I don't know what I am required to keep confidential so I will only disclose the fact that according to him, based on a $20,000 + initial investment in the course of three years you could be netting $450,000 + on harvests from roughly 30,000 trees. (I am not a professional farmer, these numbers could be way off), but the concept is exciting none the less. The best part of it was, the harvest occurs during three months or so, and the crop is low maintenance, freeing you to travel and enjoy life for the other 9 months of the year. Way to go Brett I hope you pull of a farm!

The point is, in markets as scary, or exciting, depending on your position as these, it is important to be protected. Pedasi offers the opportunity to secure an investment vehicle (land) that has cash flow producing potential off the bat, shields you against inflation, and avails you to the potential of taking advantage of appreciation, based on the increasing land prices. The appreciation in the most pessimistic of projections would at least produce far and away more then you could secure in a CD, compensating for the risk of investing in a foreign market.

Offices involved for receiving annual property tax exemption
· Catastro, Mida, MEF

· Land's registered value must be $150,000 or less (there are solutions of the value is greater)

· Must have some kind of agricultural activity on land

· If property has not been re-appraised prior to the changing of law three on December 31st of 2007 annual property tax is 2% of registered value if it was reappraised prior to the changing of the law, annual property taxes are 1% of registered value

The author, Jesse Levin is an investment consultant who owns land in Panama and has used it as a way to protect his assets from ailing financial markets abroad.

Image: blog.nj.com/ledgerupdates_impact/2008/09/large_STOCK2.jpg

Comments (1)

Bert: interesting concept

this is an interesting idea, especially for those of us who are concerned about losing our 401ks in the states. are there rules in panama saying that the government may not take your property from you if it is titled? also, about the up coming election, do you have faith in the new woman's campaign if she were to win? i have heard correlations between her and noriega/chavez which makes us hesitant to invest our life savings.
- bored in detroit

September 18, 2008

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