• Financial Crisis

    Don’t Trust Your Broker

    6/14/2009 - By 

    About two weeks ago, one of my brokers called and told me that it was time to get back in the market. I laughed at him. I reminded him that I got out of the market entirely in May 2008, and now that events have unfolded, I had little faith in our financial system. But he kept on pushing and pushing, and of course, we were going nowhere, because in my view the downsides far outweigh the upsides. Here are the top reasons why I will never listen to another stockbroker ever again.

    Stockbrokers advise you when and what to buy not when to sell. That was what my broker was doing two weeks ago. He wanted me to buy again. That’s my issue, in all of my years of investing, I have never had a broker call me and tell me to sell. Never.

    That’s what makes it sort of like a Ponzi scheme. As long as people keep on buying and the number of people that sell are minimized, life is great.

    Actually, when I told the exact same broker to sell everything in August 2008, he told me that it was ridiculous. Had I listened to him, I would have lost right about 1/2.

    All of the onus is on you to determine when to sell. And if you are serious about it, it is the high stress role in the relationship.

    A stock brokers options are limited. On top of #1, the only thing that a stock broker can offer by and large are US equities and derivatives there of. What about commodities? They have no ability to hedge risk by getting into commodoties. Commodities such as oil, corn, live stock are all off the table.

    But the list goes on. Precious metals. They have no clue if you want to abate your risk by stock piling some gold and silver.

    How about currencies? No way. You are better off getting an on line account, because your broker has no idea what is going on with the EUR/USD.

    Then last but not least are international equities. There are a few international mutual funds, but by and large, there is not a real good way to get into international equities either.

    It’s like they can play one card from a six card deck, so they just keep playing the same card over and over.

    They are not worried about your financial security. Because they only want to encourage you to buy, and never to sell, they are more interested in their own commissions. That is how they make their money. In fact, the premise of their entire compensation structure is to bring new money into the market.

    When I told the broker how I invested a lot of money in Brazil in certificate of deposits, he pulled out every trick in the book to discount the success. His most significant argument is that I was taking too much risk. Huh? With a certificate of deposit, the risk is much less than the American stock market, and the returns are guaranteed. It just shows the inherent conflict of interest. His goal was not to improve my financial security, it was to sell something.

    Now when I see all those financial commercials on golf tournaments, I don’t believe any of them. In fact, I think the exact opposite. They are more worried about their financial success than yours.

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  • Financial Crisis

    Bubble Butt Heads

    4/13/2009 - By 

    This entire economic crisis has left me more than a little peeved. The reason is that Obama and Bush have been dancing around assigning blame for this huge mess. The reality is that this entire crisis and heartbreak was entirely avoidable. In order to create such a mess with the world’s largest and most powerful economy takes a perfect storm of retards acting overtly and covertly.

    What is an economic bubble? If one looks at any chart related to the housing prices or the stock market during the last 15-20 years, the bubbles are more than apparent. A bubble is by definition something that pops. That means that there is ascent in pricing, followed by a precipitous decline, also known as a crash. Therefore, the people that buy and sell in the beginning of the bubble, win. The people that invest at the tail of the bubble, lose almost everything. When one looks at it through this lens, it is hard to distinguish between a bubble and a Ponzi scheme. The only difference is that the architects of a Ponzi scheme go to jail. The architects of a bubble retire to a private island.

    I think it is suffice to say that bubbles should be avoided, but that’s not what is happening. In
    fact the opposite is occurring, Obama, Treasury, the Fed, and Wall Street are doing everything humanly possible to re-inflate the popped bubble. So let’s start handing out the Bubble Butt Head Awards to the biggest dick heads of the financial crisis.

    The Ratings Agency. First off are the rating agencies such as Standard and Poors, and Moody’s. These butt heads were rating securities as AAA instead of being rated as JUNK. This is not a mathematical problem, or a clerical error. If they had mistaken a AAA security as AA, that would be OK. The reality is that they didn’t even do a mathematical analysis to assess the risk. They just slapped a AAA rating on the security and collected their fees so that other All Star Dickheads could pawn their snake oil throughout the banks and financial institutions throughout the world. These Buttheads belong in jail for fraud of a massive nature but no one is talking about this. More on this later.

    AIG. If you have not read the Rolling Stone piece by Matt Taibbi, do so. The piece is well
    researched, well written, and edgy. Taibbi does not pull any punches, nor should he. These douche bags at AIG made ghastly sums of money that almost makes me want to puke. These Butt Heads were making 9 figure salaries every year. Wait, that doesn’t include performance or retention bonus. We hear everyone talking about toxic assets. The people that designed these worthless pieces of paper all worked at AIG. The reason that these assets are toxic, and the paper worthless is because these fuck heads never had any intention of honoring the commitments.

    Can you imagine if you buy flood insurance for your house? Then a flood comes by and ruins the first floor of your house. Your insurance company won’t pay. Their reason is that they didn’t think your house would ever flood. That would be illegal, and for sure they would be in jail. AIG has done the exact same thing, just on a much grander scale. Again, no one is even look at what AIG is doing is criminal.

    The Fed. As I documented over 6 months ago, the root of the economic crisis is the Fed. That would be Alan Greenspan and Ben Bernanke. This is NOT a Republican/Democrat thing, it’s a Fed thing. Up to this point, it never made sense to me. Over the last 20 years, the Fed printed way too much money. Normally, this would be economic suicide because it is highly inflationary. Ultimately, the currency would become worthless. How did the Fed get away with it?

    The only way is if the the inflation was highly focused on specific areas. These areas are all related to the financial sector. In the last 8 years, America has seen tremendous inflation in three area – the stock market, the housing market, and oil futures. Guess what all of these areas have in common? Wall Street.

    Here’s the news. The Fed does not work for the government. They are an independent company that has enormous power over the American economy. The Fed controls inflation rates, exchange rates, interest rates, and the money supply. Personally, I don’t feel comfortable that an independent company with only nominal ties to our government has so much control over our economy, but let’s leave that aside. The truly insidious, devious and hidden issue is the relationship between the Fed and Wall Street.

    Now the picture is becoming clearer. When the Fed lowers interest rates (by printing more money), the stock market immediately booms. It is a well documented, knee-jerk reaction. The Fed has been printing money and funneling the freshly minted funds to Wall Street. They all became stunningly rich. So now it’s time to throw out the names of the rest of the Butt Heads. Goldman Sachs, Alan Greenspan, Bank of America, Ben Bernanke, Lawrence Summers and on and on. The reason is that the economic mess is as grandiose is because they are all linked together in one way or another. This is the reason why no one is investigating AIG and Moody’s. They are all part of the same circle.

    So in conclusion, in my view, they are all BUTT HEADS. Every single one of them. They talk about toxic assets, well, in my view, they are all toxic Butt Heads. Not all of them belong in jail, but they should not be blocking the ones that do.

    One comment on “Bubble Butt Heads”

    1. I’m glad the FED doesn’t work for the government. If you think the FED is bad just watch what would happen if the Government controlled the banking system, it would be all down hill. As for these pesky bubbles, I like them. Who cares if they pop as long as I get out first. To me life is musical chairs anyway, someone is always left standing

      Reply

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  • Financial Crisis - Politics

    True Economic Stimulus

    3/18/2009 - By 

    It has been over 6 months, since George Bush went in front of the entire nation and told us all that we are all screwed. He succeeded in putting the nation into a panic setting the stage for an unprecedented flurry of government spending. After 1/2 a year of spending, none of the stimulus has had any impact whatsoever. Employment continues to rise, housing prices plummet, and GDP is still shrinking.

    The underlying theory behind the “shop til you drop” stimulus plan is Keynesian economics which became popular during the last depression. Unfortunately, Keynesian economics will nor work this time. The primary reason is that the United States is broke. In the last 50 years, our great country has been transformed from the largest creditor nation to the largest debtor nation. We are broke, and we are addicted to spending more money than we have. Addicted is the only appropriate word, and like an addict, there is only one solution. We must wean ourselves from the addiction, rather than borrow more money. Obama and Bush have been feeding the addiction.

    Rather than harp on our addiction and the root causes, there are actually practical measures that can be done to give the economy true economic stimulus.

    Legal Immigration

    America is perhaps the most desireable country to visit in the entire world. American movies and music extends the American brand throughout every nook and cranny in the world. At a very early age, no matter what country, children are exposed to America. There are millions of foreigners that would love to visit the United States. DisneyLand is the on top of many of the lists.

    This is balanced by the fact that the United States is perhaps the most difficult country in the world to visit. We are returning to the United States for 4 months in April and we wanted my mother in law to come as well. We tried to get a tourist visa for her, but she was denied. Note: my wife was denied twice before she was allowed to enter the country. Here in Brazil, I literally know dozens of people that have been denied tourist visas. I really do not think that I am unusual and it easy to imagine millions and millions of people that would like to visit our country.

    So my first proposal is to significantly expand the tour visa program. This is true economic stimulus. The tourists come to the country to do one thing. Spend money. Tourism can be viewed as an export that will be exchanging their home currency for dollars. It will help the airline industry, the rental car industry, hotel industry and on and on.

    I am not saying we should throw the baby out with the bath water. There are legitimate reasons why the restrictions on tourists visas are so tight, but it is too tight. There are just too many legitimate people being denied that only want to spend money in our country. Let’s let them, and the stimulus will be immediate.

    Hemp and Marijuana Production

    Hemp is one of the most durable and flexible substances in the world. But in the United States, hemp production is illegal. Hemp can be used to make paper, rope, fuel (yes energy!), plastic, etc. Hemp is also one of the lowest cost substances to grow and nurture. Its maturation period is low, and it is resistant many types of insects and diseases that plague many other crops. The benefits of industrial hemp production would be enormous.

    Furthermore the stimulus would be enormous. The US would begin to build the infrastructure to produce useful products from one of the world’s strongest and plentiful crops. It would make many products more affordable, and put the United States on a more level playing field with more progressive nations that have been producing and exporting hemp based products for centuries.

    It all seems ludicrous, but there is one thing holding us back. Paranoia about marijuana. I think paranoia is the right word because our hesitance is irrational and certainly not based on fact. Unlike legal substances such as alcohol and nicotine, marijuana is non addictive. Furthermore, the health effects of abuse of marijuana are minor when compares to those of its legal brethren. On top of all of this, we as a society have already determined the inconsistencies in our laws. Surveys show that over 1/2 of Americans have smoked marijuana at some time in their lives. That’s right, more people have smoked marijuana than have smoked cigarettes.

    Because marijuana use is so widespread, and yet remains illegal, our government spends huge amounts of money keeping up the charade of illegality. Literally millions and millions of dollars are wasted in a futile attempt to sustain marijuana’s illegal image. Worse yet, this story has made a huge turn for the worse. Due the widespread use of marijuana, billions of dollars are being spent outside of the system, and landing in the hands of truly lawless drug lords. The violence has escalated to unfathomable levels, where literally dozens of people are killed in horrific and very public manners.

    There is only one intelligent solution to all of this. We need to make marijuana legal. If we have the wisdom and consistency to fight the irrational religious right, this one act could potentially turn around the entire economy. Allowing hemp to be a true crop will open up many new industries. Allowing marijuana to be purchased legally will allow our police to refocus on the truly pressing issues related to our safety. Furthermore, the revenues from marijuana would be moved from soulless thugs to law abiding citizens. Furthermore, the taxes from marijuana would signficantly eat into the federal and local government deficits.

    Conclusion

    So in conclusion, the country needs real stimulus. The Bush/Obama plan is artificial at best and at worst misguided. Look how much money taxpayers have already lost on AIG executive bonuses. If we have the political will, we can change our country for true stimulus and take the first step toward prosperity.

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  • Brazil - Financial Crisis

    Investing in Brazil

    2/8/2009 - By 

    The Fed announced two months ago that they would drop America’s key interest rate to .25% giving America the unique distinction of having the lowest interest rates in the world. In addition, although Congress is still wrangling, they will soon pass one of the largest spending bills in the history of the nation, wrapped up in a bow and called economic stimulus. Although, it sure smells like pork. These two events have one key thing in common – printing more money. In fact, the United States will begin printing money at an unprecedented rate, not just in the history of our nation, in the history of the world.

    Ultimately, I believe these policies will fail. Furthermore, their policies are designed to promote consumption and penalize savings. I refuse to fall into this trap. I believe that saving money is always prudent, and in these economic times, even more so. There in lies the dilemma. If I want to save money, where should I do that?

    Why Brazil?

    In the United States, it is a non starter. Option 1 is to leave my cash in the bank. The good news is that theoretically, one should never lose the principle. The only exception is if the bank goes bankrupt and one has more than $100,000 in the account. But on the other hand, the interest is very close to zero. Option 2 is to place the money in the stock market. I have now figured out that the stock market is NOT for financial security. It is a high risk place where lots of money can be made and also lost. The stock market is for high net worth individuals and not average investors saving towards retirement.

    There has to be a better place to invest one’s money. Which leads me to Brazil. Brazil has the highest interest rates in the world. Right now, Brazil is paying a little over 1% per month or slightly over 13% per year in interest. Just like the United States, the interest is paid monthly. I sold all of my stocks in May 2008, and now I have moved a good portion of those proceeds to Brazil. Here is the amazing thing. At 1%/month, the interest on my savings far exceeds my living expenses. In fact, even when my two children are in college, the interest will exceed our expenses.

    This is fantastic, but it is also ironic. When I left Gateway, I also had a pile of cash, but there was no true risk free way of gaining interest that would bear any meaningful fruit. The rest of this blog will focus on all the things that I have learned about investing in Brazil.

    I have two banks in Brazil, HSBC and Banco do Brasil. At this point, the primary bank is HSBC. My account is broken into three distinct pieces, checking, certificate of desposit, and investment funds. The investment funds are essentially a composite of the American definitions of money market funds and mutual funds. Note: to my knowledge, there are not a lot of brokerage firms such as Charles Schwabb and Lehman Brothers. Most of these type of transactions are handled through the banks.

    I set up two separate investment funds in HSBC. My instructions were that the funds be extremely conservative and at no time did I want to risk losing any principle. They identified two funds, but there was one big stipulation. The funds had a minimum investment of R$300,000 and R$500,000. In my case, this was not an issue, but I can see that these minimums might be an issue for others that want low risk investments.

    The fund operates just like a money market fund in the United States. I can get on line and immediately move money from the fund into my checking account. Unlike the United States, taxes are deducted immediately when the money moves from the fund to the checking account. Secondly, taxes are automatically deducted twice a year from the fund if no money is withdrawn.

    Taxes

    The tax rates in Brazil are substantially less than income taxes in the United States. Much closer to American capital gains taxes. The maximum tax rate for interest is 22.5%, and the minimum is 15%. The rates slides the longer the money is left in the fund. The first six months are taxed at 22.5% and after two years, the rates falls to 15%. This is amazing! The Brazilian tax code encourages people to save money, which is 180 degrees from the United States, where the goal is to spend it as fast as you make it. I also confirmed that the Brazilian income tax rate is roughly half American taxes, but that is for another day.

    My second account is the certificate of deposit. The CDB (the Brazil acronym for CD) is different than the American version. The American version is a promise to keep the money in the bank for a fixed period of time. The CDB can be withdrawn at any point and any time. In this way, it behaves almost identically to the fund. The only caveat is that it is a little more difficult. I have to call the bank to transfer the funds to my checking account, rather than doing an online transfer.

    CDB has a huge tax benefit. Unlike funds where taxes are deducted twice a year, with CDB, taxes are only deducted when the money is moved to the checking account. This allows one to make compound interest over a space of years rather than a short 6 months. The interest rate on funds is slightly higher than the CDB, however, if you plan to keep the money in the account for years, the tax benefit could well outweigh the interest difference.

    So after a lot of work and worrying, I believe I have achieved one of my life’s goals. My interest income here in Brazil is such that I have an oustanding income without having to work ever again. It is hard to describe the feeling, but there is a certain tranquility. When I describe my experience to my many American friends, almost all of them still feel a hesitancy to invest in Brazil.

    To be honest, I felt the same way! If I had not slowly over the course over the last 5 years transferred safely so much money, I would never have felt comfortable making this happen. But there is a lot more than just experience driving my comfort level for investing in Brazil. Here are some of the many reasons why I think Brazil is a smart place to invest.

    High interest rates

    The Brazilian high interest rates is actually a reflection of an economic policy that is vastly different than the rest of the world. Back in the 1980’s, Brazil went through a period of hyper inflation which ultimately led to the collapse of their banking system and their currency. When talking to anyone in Brazil, everyone in the nation remembers this gloomy period in their history. Therefore, the Brazilian central bank is very cautious about inflation. The best way to keep inflation in check is to keep interest rates high.

    But more importantly, Brazil’s measure for inflation is as accurate as possible. It includes the costs of all goods and services in the economy. The American inflation number excludes the cost of energy and the cost of food!

    There is also a qualitative point. When I talk to my banker in Brazil, she is extremely knowledgeable about macroeconomics. In general, Brazilians are much more sensitive to macro economics perhaps due to the collapse in the 80’s.

    Currency Risk

    I personally have less currency risk than an American since I live in Brazil and have legitimate expenses in the local currency. But even throwing that out, I still think Brazil is a smart place to invest money.

    The first reason is the most overpowering. The US strategy to fight this economic crisis is to print money. Print money to lower interest rates. Print money to bail out distressed companies and banks. Print money to build bridges and new schools. And on and on. This strategy reeks of panic, and is very risky. Ultimately, this strategy is inflationary, and more over puts significant downward pressure on the dollar. To get an idea on the magnitude of the American printing press, check out this video of none other than Fox News.

    The next argument is the high interest rates offset currency losses. If you believe that the dollar will rise, then if that rise is not too significant, the interest rates will offset any losses. Here’s an example. With Brazilian interest rates where they are, your money will double in a little less than 5 years. The dollar is currently at R$2.30. The dollar would have to rise to R$4.6 to stay out of the black.

    How did I do it?

    I have investigated a lot of things, and it was not easy. It is not easy to move money from the United States to Brazil. For example, if an American wanted to own Euro’s, they could setup a foreign exchange account and buy and sell to their heart’s content. Not on the Brazilian real.

    The only way to do this is to setup a Brazilian bank account. The key is to have a visa that is anything other than a tourist visa. Right now, I have permanent residence since I am married to a Brazilian woman. Other options are to get an investment visa, student visa, or work visa.

    It is unclear to me why Brazil makes it so difficult for foreigners to invest in their nation. I believe that if they open up these regulations that the economy would boom. A friend of mine was saying that the key success is to catch a trend on the way up before too many people know. That’s where I believe we are on the curve right now.

    I have been talking to various people in the financial industry. I believe there is a way for a mutual fund or perhaps a hedge fund to create a low risk way for Americans to participate in the high Brazilian interest rates. I’ll keep everyone posted as those discussions progress.

    If you have any comments or questions, leave them below.

    37 Comments on “Investing in Brazil”

    1. Great analysis, Rob. Having been a victim of Brasil’s tight banking regulation policies, I’d like to see some loosening of them. I’d drop a few hundred thousand into accounts there in a nanosecond. I no longer have any faith in US banks or investment houses, and the government will screw up this stimulus package, between the Dems loading it with pork and the Repubs packing it with tax breaks for their friends. It’s looking a lot like sausage…

      Reply

    2. Rob, I wonder if Brazil making difficult for foreigners to transfer money to Brazil is someway connected to the crash of 1997, which happened because of speculative capital. I mean, if any foreigner could transfer money to Brazil, then in the case of any “rumour” (and these rumours are usually more frightening if your money is invested in “a third world country”) withdraw that money, wouldnt that lead to a crash?

      I have no clue if its the same situation, but I just remembered that. Since it seems you have a good knowledge of economics, you might analize it, since you mentioned the 80 crysis but didnt mentioned the 1997 crash.

      Thank you.

      ps: as soon as I win the lottery, I will also invest the money and live from the interest rate 😉

      Reply

    3. Interest rates in South Africa are similar to those in Brazil and, like Brazil, South Africa has been much less affected by the global economic crisis than the US or Europe. For example, until a few months ago ABSA bank in South Africa used to have about one tenth the market capitalisation of Barclays bank in the UK – now, post the melt-down, they are almost exactly equal in size. So it is worth considering opening an investment account at a South African bank. I think (although I’m not sure) there are fewer restrictions on foreign investors than in Brazil, plus everybody speaks English – which can be a difficulty in Brazil if you don’t speak Portuguese.

      Reply

    4. Thanks to coordinated quantitative easing (i.e., debt monetization), ALL currencies will lose substantial purchasing power over the next decade or two. The only way to protect your wealth is to:

      1. Run a business that can maintain pricing power during periods of high inflation.

      2. Own ag real-estate (farmland) that is not likely to be subjected to large increases in the rate of property taxes.

      3. Buy as much physical gold & silver as you can get your hands on.

      Also, it wouldn’t hurt to keep 6-9 months of canned food, beans ‘n rice, and any other storable essentials in case the supply chain breaks down for a sustained period of time.

      Reply

    5. Rob —

      I’d love to hear how you were able to move large sums of money to Brazil. I know wire transfers are possible (and Western Union, etc) but it’s clear you have done your homework, so I wonder if you came up with a smarter way of transferring the money. I am currently wiring $10K per month to Brazil, and getting a good currency rate, until the Brazilian bank converts the USD to Reales.

      Thanks

      Reply

    6. Chris,

      Here is the way I moved the money. In 2003, I setup a banking account to purchase my apartment. At that time, I think there was a loop hole in the law, and I was able to setup my Banco do Brasil account without a permanent residence visa. I just needed to have my birth certificate and my CPF number which is the same as a social security number in the US.

      Once the bank account was setup then I just wired the money from my US account to the Brazilian account. There is like a 1% wire fee, but that is small given the interest rates. You make that up in a month.

      But now the rules have changed and you must have a permanent residence visa to create a banking account. Fortunately, now I have that also since I am married to a Brazilian.

      Even if you are using Western Union to get the money into the country, you still need a bank to put it in to get Brazilian interest rates.

      Reply

    7. I didn’t write clearly — sorry. My husband is Brazilian, so a Brazilian account is not the issue. I am finding that the US banks only wire money in dollars and the Brazilian banks are charging a high fee to convert dollars to reales, so I was just wondering if you had found a way to send in reales, or a way around these conversion costs. I realize someone is going to make money off the transaction, but the costs are higher than it was sending Euros to Spain when I needed to do that.

      Thanks for your comments

      Reply

    8. I have done this many times, and there are two issues:

      1. The wire fees. Both the sending and receiving bank have a fee. Here in Brazil, I have found the receiving fee to be about 1%, which is pretty high in my view.

      2. The exchange rate. They usually give you a hair cut on the exchange rate also. But that said, I usually try to time my transfer so I am getting as high an exchange rate as possible. I also have found that if you are transferring a large amount of money, they will give you a better rate than a smaller amount.

      If you have a Brazilian bank account, then you are in good shape. Some of the fees are high, but the sooner you do it the better, because then you can start earning 1%/month on your money for a certificate of deposit.

      As the economic crisis unfolds, Brazil will start lowering their interest rate as an economic stimulus. We will get less interest, but if you plan to move the money back out of Brazil (I do) then I will make it back on exchange rate since Brazil’s economy will most likely grow faster than the rest of the world, and so will their currency.

      Reply

    9. hey rob, hows it going in brazil? i read your article in investing in brazil and i want to do the same. question: what is the maximun amount that a bank will allow u to invest in their accounts? trying to get big interest return

      Reply

    10. i am from Brazil, my name is Augusto Ferreira and i want to help you guys with that, and also give you some opportunities to invest here.

      Best Regards

      Augusto Ferreira

      Reply

    11. I have a question regarding wiring money to BR, do you have to pay taxes on that money? Another blog I read that the bank could hold your money for months until they check the money isn’t from ilegal sources.

      Reply

    12. I have wired money to Brazil many times and have never had a delay. Some times, I must sign a paper that says the money is mine and not for some other person etc.

      Reply

    13. Interesting perspective on this and I was wondering about “Investing in Brazil” of Bank account, Thanks for tackling this case study.

      Reply

    14. hey r0b, h0ws it g0ing in brazil? i want t0 kn0w what the c0st 0f living is in brazil in br prices, if i am t0 live there. what is the max i can invest in a bank acct? i kn0w the inc0me 0f a brazilian is 465 reals m0nthly, what is the rent like?

      Reply

    15. Hello Robert,

      You are asking a tough question. First off, if you want to look at cost of living in dollar terms, it is high. The reason is that the dollar is very weak against the Brazilian real. Most believe that it will get significantly weaker due to the policies after the economic melt down began.

      On top of that, here in Rio, costs are much higher than other parts of Brazil. I would say that Rio and São Paulo are the most expensive places in Brazil to live.

      Rents in Rio particularly in the areas near the beaches are pretty pricey, although you can get a very nice apartment for probably about R$3000/month, which is about $1800/month at today’s exchange rates.

      On the other hand, certain things cost a lot less. Clothing, food and furniture cost significantly less than the US.

      Hope this helps.

      Reply

    16. Hey Rob,

      Im from Brazil living in Canada for the pass 15 years…and always new Brazil is one the best places to have a good return on your investiment.
      As of now Im trying to figure out the best way to transfer money without lossing too much on exchange rates and bank fees etc…For all of you out there wondering…right now real state is the best investiment with 100% return. Feel free to ask questions at frends31@hotmail.com

      Reply

    17. Hi Rob,

      I just found your blog and I am so impressed that your comments have continued on this post all year! I’m an entrepreneur and I’ve started my company in Brazil, an electric vehicle company. If any of your fans are interested in putting their money this is another means–invest in start up in Brazil–it’s got its own set of risks but the hassles it may be more rewarding. 🙂
      Cheers, Melissa

      Reply

    18. Great blog Rob, and am hoping you can assist me.
      I regularly come and go from Brazil, as a “tourist”, and I have a house in SP and wife is Paulista. I have a CPF and am going for RNE tomorrow. After two wasted meetings with Estillo (BdB) have found great bank manager is Sao Paulo who will open a bank account for me so I can invest (CDI likely). Am here for around 4-6 weeks per year.
      So my question:- what is the trigger that would make me liable for my tax in Brasil on my worldwide income? Is it living here >180 days per year, or merely having a CPF (registered as a foreigner)? The rates of return are great, but if I am taxed on my other income it would be a nightmare. What is the definition of a ‘resident’ for tax purposes?
      Any help would be appreciated. All the best, b.

      Reply

    19. Hi Barney,
      All of your interest is automatically taxed in Brazil. You don’t have to do anything. When you withdraw the money, it is deducted. Also, the tax is deducted if not withdrawn every 6 months. There is one exception which is the CDI and tax is only deducted when you withdraw.

      I don’t think there is a trigger that makes you liable. In fact, it is the opposite. If you wanted to only pay your taxes in Brazil and not in the US, then you would have to renounce your citizenship. Keep in mind that it if you revoke your citizenship, then it is permanent.

      Here’s a link.

      http://travel.state.gov/law/citizenship/citizenship_776.html

      Reply

    20. Thanks Rob. I would be happy to pay the taxes on the interest earned; it still yields much more than I get from my Canadian bank where I have money on CD.
      Im British, and live (domiciled) in a tax free jurisdiction so do not have any tax obligations to any Country (thankfully). Went to Fed Police in SP this week and they told me that I can get my RNE as soon as I return to Brazil from UK with a Residency Visa (from Consulate in London), which I should get due to three years of marriage.
      Am still worried that at some point the Govt in Brasil may consider me a ‘resident’ for tax reasons and block my CPF effectively freezing any assets I hold in Brasil. Any ideas where I can get a definition of Residency in Brazil that would make me liable for tax on worldwide income?
      (Great pictures of your family on your site, you look really happy)
      All the best.

      Reply

    21. thank you for posting this info. I’m investigating moving money from my accounts in the US to brazil. My wife is brazilian and we already have bank accounts there…. does the brazilian government take a piece on the transfer (large amount, not a couple hundred bucks)? or is the 1% fee pretty much the only fee or tax to move the money that you’re seeing? thanks again for this super helpful info. I had read that the gov’t was taking 27.5%, but this was from a message board without alot of info…

      Reply

    22. There is a small fee to wire the money. It is less than the amount that the exchange rate fluctuates so you don’t notice very much. Or sometimes, the rate fluctuates in your favor and you get slightly more than you anticipated with the fee included.

      Reply

    23. Dear Rob,

      Would like to invest in CDI in Real with HSBC, a current premier customer. Residence of Ecuador. What is the deposit rate they are offering and the documentation required?

      Many thanks.

      alanlee

      Reply

    24. The news that I am hearing is that the rate is going up. Because of the economic crisis, rates fell down to 9% in 2009. They are forecasting 11% or better for 2010. Brazil is poised to grow, but they are worried more about inflation now since this year is an election year here in Brazil.

      The documentation requirements have changed. In order to open a bank account in Brazil, you need a permanent residence card. You can either get this by investing in Brazil, retiring in Brazil, or marrying a Brazilian.

      Reply

    25. Dear Rob,

      I am looking for info on how US residents could make the process of paying US taxes on investments in Brazil easier and / or more straightforward – I am referring to CDs, interest, stock dividends (“dividendos” and “juros sobre capital proprio”), etc.

      Thanks,

      Worley

      Reply

    26. Rob,

      I am not sure my first e-mail got through. I am worried about all these investments in Brazil and the tax liabilities in the US. Are people using the IRS form 1116 to claim taxes paid in Brazil as a legal tool to reduce their tax liabilities in the US ? If not what should be the best way considering that the fact that Brazil and the US don’t have a tax treaty but, at the same time, any income in Brazil has to be reported in the US (this is valid for US citizens and US residents)?

      Thanks,

      Worley

      Reply

    27. Be careful with all these investments in Brazil and the IRS. They are going to start actively reviewing the tax returns of Americans living down here.

      Reply

    28. Rob,
      Great information. I am retiring next month (June 30, 2010) and moving to Saõ Paulo to marry a Brasilian professor/doctor who was my sweetheart as an exchange student in Nebraska many years ago. What is the best way to move most of my funds to Brasil and start collecting interest …I have enough funds in cash to meet the minimums you mentioned on investments at HDBC. My finance has her accounts at a federal bank through the USP university system. Do you know if I still am obligated to pay US taxes on the income from the Brasil banks if I live in Brasil for the majority of the year and am a Brasilian citizen? I plan to retain US citizenship also. Eventually we plan to move to northeast Brasil and maybe also spend some time in the US each year since I have family here. Also, I saw on the internet the short term Brasil government bonds (3 months to a year) are paying 12-14%. Can citizens buy these?

      Reply

    29. If you fiancee already has an account, then you only need to wire the money from one bank to the other. First go to your wife’s Brazilian bank and get the wiring instructions, then go to your American bank and get their sending instructions. Normally, you will need to fill out a form on the American side.

      I have also kept my American citizenship. I also still have substantial income in the United States and continue to pay income tax. If you are going to 1) move to Brazil, 2) maintain your citizenship, and 3) discontinue paying American income tax, then there is a chance that you owe money on your interest in Brazil. You should check with an accountant. If this is the case, you are also eligible for an exemption where your first $80,000 of income is tax free.

      Reply

    30. Hi all,

      First of all, thanks for the nice post’s Rob! I’m in the same situation as some of the people above, with the exception that I’m European. I’m married with a Brazilian which has a bank account. I’m currently applying for my Visa, so don’t have a RNE and thus bank account yet.

      I would like to transfer some monies to her account so we would be able to buy an apartment, car,… in short invest a little and prepare our life’s here. In short, could anyone inform me if it’s just as simple as wiring the money (around 60000$ the first time) and around 400000$ tot 500000$ in the second payment (I’m selling my apartment).

      I’ve seen a lot of posts where I read that the Banco Do Brazil will hold the money for some time – and in many times you have to prove that the money is yours. How do I do this? In this case I’ll be transferring the money from my account to her private account…

      Thanks !

      Reply

    31. Hi Giovanni,

      I have two accounts with Banco do Brasil and HSBC. It is true that sometimes Banco do Brasil takes a little longer. I transfered funds last month to Banco do Brasil and it took a while. I believe it took 3 days. It is certainly a nervous process while you are waiting for the funds to hit your account.

      In both the case of HSBC and Banco do Brasil, you have to sign a form that basically states that the money is yours and what you will do with the money. That is, that you are going to purchase something for your personal use, as opposed to invest or purchase a business etc.

      On another note. I also opened up an American account with HSBC. The reason is that my friends tell me that there is a way to link your American and Brazilian HSBC accounts. Once they are linked then you can transfer money between the two accounts in seconds, and without any fees.

      Reply

    33. Question regarding personal bank account (HSBC premier – bulk of savings in CDI)Returning to UK April …. resident visa expires July .. undecided as to renewal @ which either close or put to sleep (23 months) Brazilian company (company account Caixa Economica in which minimal funds)… what is my status regarding HSBC account …. will they close the account if I do not renew visa?

      Reply
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  • Financial Crisis

    Popping Wall Street’s Bubble

    1/4/2009 - By 

    As I have already documented, I sold all of my stocks in May 2008. I feel fortunate, but I know of no one else that has escaped this economic crisis unscathed. The sordid details of the Madoff scandal and the avarice of AIG are just surfacing now. It is riveting how misplaced were our confidences with our financial security. Confucius said “May you live in interesting times.” And this is so very true. I put together these thoughts to help people navigate through these uncertain and interesting times.

    Wall Street = High Risk ≠ Financial Security

    I remember after I left Gateway, I met a financial adviser from Edward Jones. He showed me a chart which showed the returns in Wall Street over the last 50 years. The message was clear, if you leave your money in the stock market for an extended period, you will always get a return. Always. You just cannot get nervous and sell. Holding is good, selling is bad.

    We see the same message in the television advertisements for the financial agencies. Save your money, trust us, and we will prepare you for retirement.

    At best, their marketing is exaggerated, and at worst, it can be considered a sham. The reality is that the stock market is in essence a risky place to invest your money. Unless you have the stomach to lose a substantial portion of the principal you saved, your money should never enter into the stock market.

    Wall Street is like eBay

    If the stock market is so risky with so much downside risk, then why does the stock market keep going up? The stock market is very similar to an auction at eBay. Imagine suddenly there is a large influx of buyers at eBay and the number of sellers stays flat. The average price at eBay would rocket. That’s what has been happened in the stock market!

    First, the financial agencies have been marketing heavily to trust them with your retirement money. It is working. The United States has by far the highest household penetration in the stock market. 45% of US households participate in the stock market versus just 15% in Germany.

    A good chunk of participation occurs through 401K’s and IRA’s. Both of these mechanisms are legals ways to funnel more money into the stock market. In fact, it is better than normal money because money in 401K’s and IRA’s tends to buy and hold. The overall effect is that they make the stock market go up.

    The key message here is that Wall Street’s principle role was to attract more money into the stock market. As long as new money was entering the market, the tide would rise and all stocks would improve. As a matter of fact, one huge way to attract more money recently failed. Imagine the stock market bump, if they managed to privatize social security. All of that money would have gone into the stock market.

    Low interest rate era is almost over

    Complicit in all of this is our government, or better known as the Fed. During the last 15 years, the Fed has embarked on a policy of low interest rates. Their belief has been that low interest rates encourages businesses and individuals to borrow which creates economic growth.

    Additionally, low interest rates move money away from safe investments such as US treasuries to higher risk investments such as the stock market. In fact, it has been like clock work for the last 15 years. The Fed lowers interest rates, and the Dow and the Nasdaq get a nice bump.

    As I have already discussed, now that interest rates are approaching zero, there are no more bullets in the gun. Now what? Wall Street can only go in one direction, and that is DOWN. This is when it becomes clear that Wall Street cannot live up to their marketing hype. Millions and millions of Americans, including myself, bought the hype, and pinned their retirement hopes on Wall Street. Now of all those hopes have been suspended.

    Which brings us to the final saga of US monetary policy. With interest rates essentially at zero, who will fund our debt in the future? Up to this point, China, Saudi Arabia, and others have been willing to pony up. But with economic problems of their own, zero is starting to sound like a crummy deal. It seems that there are only two outcomes. The dollar will take a nose dive becoming one of the weaker currencies in the world. The other and more likely option is to let interest rates rise to help finance our debt. Either way, Wall Street will take another hit dashing the dwindling hopes of American retired couples.

    Portfolio Statement is not your bank statement

    Every month we receive statements from our Wall Street brokerage firms. They do a simple mathematical calculation to determine the value of the portfolio. They multiply the number of shares times the last transacted stock price. This is inherently flawed. Your stock portfolio is not worth that amount because there is no guarantee that you can get that price when you sell. They are called paper profits.

    But the sham is worse than this. Certainly, on the day you receive your statement, you could sell your shares, and you would receive more or less the value on your statement. However, it falls apart quickly, because the last transaction price cannot represent the price for all of the shares. On any given day, if there are more sellers than buyers, the price drops quickly.

    Here’s the problem. I have trained myself, as well as the rest of America, to view my stock portfolio statement similar to my bank statement. When my bank balance is up, I am more wealthy, and when it goes down, I am less. Unfortunately, this simple principle does not extend to stocks. You are not more wealthy until you sell your stocks and never before. Wall Street is truly encouraging people to count their eggs before they are hatched.

    Wall Street is not a surrogate for the health of the economy.

    Here’s the last Wall Street myth I want to debunk. We have all been trained to view Wall Street and the Dow Jones Industrial average as a key indicator of the US economy. In fact, as unemployment and GDP statistics come through, Wall Street acts in knee jerk be it positive or negative. But that’s where it ends. The reality is that during the last 8 years, Wall Street was up, but the economy was not. We were led down a golden brick road of prosperity, but there is no pot of gold at the end of this rainbow.

    Conclusions

    The lesson is pure and simple. Wall Street is for high risk – high reward individuals. One should not be investing in the stock market with their retirement money. Unfortunately, Americans have few good options. Keep your money in savings at a paltry interest rate, or put it all on the line in the stock market. Personally, I have been moving my money out of the country, but few Americans have this alternative easily at their disposal.

    It is indeed ironic that outside Wall Street is a statue of a large Golden Bull. My final conclusion is that
    Wall Street is a lot of Bull but it is far from golden.

    2 Comments on “Popping Wall Street’s Bubble”

    1. Rob,

      Low interest rates on T-Bills & CD’s are here to stay for a long, long time BECAUSE of internationally coordinated quantitative easing (ICQE). What WILL increase is the rate of inflation.

      After the worldwide central banks are finished with ICQE in roughly 10-12 years, they will re-monetize gold. Debt is money with a variable or fixed-rate coupon attached to it (interest). Our federal gov has roughly $12 trillion in debt right now; in ten years this will likely be in the neighborhood of $26-$28 trillion. Between the federal reserve and treasury, our government currently holds roughly 300 million-ounces of gold (this is public info). Once all industrialized nations re-monetize gold, each nation’s gold holdings will be valued, in each country’s respective currency, at the same price as the amount of government debt, while severely restricting a nation’s ability to “print” their way out of a problem. Gold production increases at a rate of 1-1.5% per year, and this would be the percentage that a country could increase their money supply, if they choose not to increase the money supply while increasing gold reserves, their currency’s relative value (internationally) will increase.

      At CURRENT U.S. debt levels, an ounce of MONETIZED gold would be worth around $50,000.

      Watch.

      – Viper

      Reply
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