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Freemont Wishes You A Wonderful Christmas And A Prosperous 2014

PUBLICATIONS / Newsletters / 2013 / Newsletter December

Freemont Wishes You A Wonderful Christmas And A Prosperous 2014


The year 2013 is now coming to its end, it is time to reflect on times past before we retire into our warm nests of friends and family.
Without keeping you longer from your Turkey, let’s start with our short review of the past year, and our take on these developments.
2013 will be the year of a great hero (and luckily not a martyr). Edward Snowden. As a US government insider he acted with regards to his conscience when he saw the NSA deliberately breaking the law. His reporting has made a major impact on how we view the digital world and our privacy, and the role the government should play to keep us “safe”.
The most important event of the world did actually not happen. Nobel peace prize winner Barack Obama did everything in power to get the world to bomb Syria, which would have had serious consequences for stability in the Middle East.
Recently the evidence has been mounting that the chemical attack, which coincided with the visit of UN inspectors to Syria, was the work of the US financed opposition, after all. Tellingly, the final report of the United Nations Mission to investigate allegations of the use of chemical weapons did not address the question of who was responsible.
So it appears that at the last moment another US led war based on false pretences was avoided. But to his credit: at least Obama reversed course, albeit at the very last moment, and at the cost of being considered a wimp by the war-hungry media, after reading the sensible words of Putin in the New York Times.
But Obama proved his manliness instead by winning the poker game with the Republicans about Obamacare. It is a great loss for the world that the main remaining predominantly free health care system in the world was dismantled this year.
Whatever its faults, it was the system that generated medical innovations based on the profit incentive from which the rest of the world benefited. It was the system where the patient was considered a customer, rather then the beneficiary of some government program who must be thankful for whatever they got-after waiting in line. It was a system where the individual was in charge of what should matter most to him: his health.
Hopefully the remaining free health care systems in the world, for instance Thailand and the UAE, will remain so and be able to continue on building their current health care systems and continue attracting the best medical staff and customers who get what they are willing to pay for or who simply do not have the time to wait.
The world got a new pope. The old one decided to retire. This new pope has gone on a public relations campaign after all the scandals in the past few years. He also joined the crowd in speaking out against capitalism. Not a bad word for the economy of his home country, Argentina, though, which the 2013 Index of Economic Freedom ranks near the bottom of the list at spot 160 as “economically repressed”.
Cyprus got a bit of shock treatment. The world didn’t come to an end after all. While in other countries that would have been subject to the same experiment, there would have been rioting on the streets, after many having lost their life’s savings in a bank pumped up by the ECB for much too long. The Cypriots are more realistic: a shrug about the impotence of government and back to work. By most standards it remains a very good country to live and do business in, especially for those who don’t expect that the world owes them a living.
Dubai is on a roll. It keeps on defying the wisdom of the world’s intergovernmental organisations, that the tax base needs to be broad, and all the rest. It offers a place unique in the world: with a unique system of raising government revenues, where people can come to live, and let live, work and trade, a superb life style in the balance, but sorry no handouts. In return you get to keep what is yours. Not a bad deal. A refuge for entrepreneur and those on a payroll alike.
Dubai is booming with population up, investment up, numerous new property developments among which a new project with a Trump golf course in what promises to be the Dubai version of Beverly Hills. Infrastructure is being completed, Dubai has the best performing property market in 2013, and it won the Expo 2020 bid.
A new currency took centre stage this year: Bitcoin. The judges are still out as to whether it is the end of banking as we know it or a humongous bubble that must burst. Does it mark the beginning of the end of the era of central banking or will it burst since it is not based on any intrinsic value?
Some notable people have passed away:
Margaret Thatcher. One of a handful of major politicians in government in the past few decades who had the guts to stand up against collectivism.
And Hugo Chavez, who passed away just before he could fully enjoy the fruits of his hard labour when the country ran out of toilet paper.
Nelson Mandela. Who was in his older day exemplifying unity amongst races and functioned as an example of tolerance around the world.
As for the economy, the sentiment in the mainstream media now seems to be that all is well. ack to the old days. No matter that the amount of debt on the books of most countries is manifold the amount that it was before the crisis. Price inflation has not yet reached extreme levels yet, at least not in consumer goods.
Instead the money has gone into the stock market. Stocks have a much higher valuation than a year ago. Putting your cash in stocks appears to be more attractive than leaving it in a bank account, or buying government bonds which have reached the lowest yield in 30 years.
Bernanke announced in June that he might scale back his $85 billion in monthly bond purchases elixir this year and end it by mid-2014. But he retracted after global equity markets lost $3 trillion in the five days. But he is about to leave office and make place for Janet Yellen on a nice note. Because last week he found the magic sweet point, or so goes the common wisdom.
He seemingly convinced investors that tapering quantitative easing isn’t tightening policy. By coupling a $10 billion reduction in monthly asset buying with in return an even stronger commitment to keep interest rates at record lows for a long time. Artificially low interest rates kick the can ahead of the road, encourage terrific risk taking and consequent malinvestments which need to be liquidated at some point in the future, and they rob those who are about to retire – and are thinking of convert their life’s savings into an annuity – of their investment returns. They will just have to work 25 years longer.
With current worldwide fiscal policy we entered uncharted waters. We advice strong caution as to where to invest your hard earned capital.
But hey, the party might just go on for another year. Use the cheap credit wisely, and don’t save! Best of wishes for 2014 and merry Christmas!

Failure Of Obamacare

Last September the much discussed Affordable Care Act came into effect. A policy so special that Obama named it after himself. It looks like Obama might reconsider if that was a smart choice.
In this article, we will first make a quick recap on what Obamacare is and what was its original intention. Secondly, lets look how it turned out.
The Affordable Care Act (ACA)
From Wikipedia:
“The ACA was enacted with the goals of increasing the quality and affordability of health insurance, lowering the uninsured rate by expanding public and private insurance coverage, and reducing the costs of healthcare for individuals and the government. It introduced a number of mechanisms—including mandates, subsidies, and insurance exchanges—meant to increase coverage and affordability”.
Fair enough. It is aimed to help individuals to obtain health care. And how exactly? Wikipedia again:
“The ACA has two primary mechanisms for increasing insurance coverage: expanding Medicaid eligibility to include individuals within 138% of the federal poverty level, and creating state-based insurance exchanges where individuals and small business can buy health insurance plans—those individuals with incomes between 100% and 400% of the federal poverty level will be eligible for subsidies to do so.”
A centralized and mandatory system which will provide insurance for 32 million Americans that are currently uninsured. And that will provide cheap healthcare for the middle and working class. With heavy government regulation.
So far, does it deliver?
How It Turns Out
Before the implementation a number of big (unintended) consequences took place. To name a few:
Employers are required to pay for health care (and face huge additional costs) when they have personnel on payroll for more than 30 hours. So there have been massive layoffs, with the lucky folks getting rehired for 28 hours.
The ACA heavily regulates the interaction between patients and doctors. This has resulted in doctors resigning or retiring early. They think they are the ones in the best position to decide what kind of health care they recommend (and honoring their Hippocratic Oath) and not the government. Others decide they do not want to deal with the bureaucracy.
People with private health insurance packages saw their policy cancelled when it did not live up to the minimum ACA cover requirements. Much more have lost their coverage than obtained new one as is described further below.
Hospitals and doctors face reduced remunerations, with some hospitals having to make cuts. With the increasing amount of clients now eligible for health care and the aging population, it means that the access to health care (and likely the quality) is being reduced. And waiting lists increased.
When It Became A Public Failure
But things became absurd when the website of Obamacare went public. The website production has cost USD 600 million and was designed to support the online enrolling of millions of Americans before it becomes a legal requirement on the 1st of January 2014.
It does not work. Of the almost 9.5 million visitors in the first week only 35 thousands were able to enrol in the mandatory system (3.7 million tried!). This is, when the website was working, because most of the time it was showing only error messages.
An emergency plan was enacted to make sure that everything works smoothly and a number of public re-launches were performed. The result being the website failing on live television and tv-hosts not being able to register themselves.
Where Will It Go From Here?
As of now, more people have lost their health care coverage than have obtained a new one. Furthermore, most of the people who actually enrol find out that they have to pay much more than they used to. Facebook pages and government websites with comment functions are filled with people complaining about it.
As of 19 December, the government has given an exemption to the group of Americans whose existing policies would be cancelled. This could have major implications, when other special interest groups will start looking for exemptions. Why? Because these are the people who need to fund Obamacare in order for it to be afloat.
As of now, the Affordable Care Act is not providing care and not making it more affordable. The legislation enacted is so large and implications so fast that only time will tell the exact result of Obamacare.
So far, it looks terrible.
Our advice, always look for results, and not for fancy stories and ideals.
An International Solution For Individuals
Like with taxes, health care systems are jurisdiction based. When you are living in a country that has or implements collectivist health care policies that reduce the availability of the right care to you, there are options.
International health insurance is available for those who live and work internationally. This is often cheaper than national policies, especially for young people.
For care itself there are countries like Thailand and Costa Rica, where high class doctors are actually listening to your complaints and providing the care you need at decent prices and without waiting lists.
So next to internationalizing your businesses and assets, try also thinking about internationalizing your healthcare!

Keep It Simple, Stupid!

An old universal rule of everything we do sounds: K.I.S.S. (Keep It Simple, Stupid!).
For all businesses and tax payers, it is not only the total height of tax payable that counts. What matters as well is the simplicity of the tax system.
It is always beneficial when the tax agenda is clear, easy and straight forward so that it takes the least possible time to calculate and file. Simple taxes facilitate business development.
According to the World Bank and PwC report “Paying Taxes 2014 – The Global Picture“, the worst rating out of 189 countries belongs to Chad. In general, African countries don’t score well. The Central European economies are not much better, either.
The ratings of Hungary, Czech Republic and Poland show particularly a very time-consuming system that employers have to apply for the payment of all taxes, levies and mandatory contributions for their employees.
The ranking system includes several criteria including the overall tax burden and the time required to complete all tax forms or the total number of tax payments.
Oil rich countries levy minimum tax
The simplest tax systems are in place in countries rich in mineral resources where the state income comes mainly from oil. These countries collect less tax which makes the tax system easier. The top ten of the ranking is occupied by the United Arab Emirates, Qatar, Saudi Arabia, Hong Kong, Bahrain, Singapore, Ireland, Canada, Oman and Kuwait.
OECD: Ireland and Canada
From the OECD member countries, Ireland has the best rating as number 6 and Canada occupies the 8th place. Total taxation of Ireland and Canada is below average across OECD countries, ranging around 30 % of GDP. The average in Western Europe is higher than 40 % of GDP.
Taxes in Canada are divided into federal, provincial and municipal. Total taxation in each province therefore varies. Overall taxation of labour being the difference between labour costs of employers and net wages that employees receive in their bank account, is 30.8 %. The sales tax varies between 5% and 13%. Canada can be found on top positions of various rankings as it was able to combine excellent conditions for both business and family life.
Denmark – higher taxes, but simple
In the evaluation of the complexity of the tax systems, the Scandinavian countries perform very well too. Denmark holds the 12th place, Norway is number 17, Finland number 21 and Sweden number 41. These are examples of countries with rather high tax burden but very clear and easy tax system. It does not take much time to a Scandinavian entrepreneur to comply with the local tax regulations. Everything can be arranged quickly and most of it on-line.


How To Brand An Emirate?


When several years ago Dubai gained international recognition as a famous financial centre, the hereditary ruler of Ras Al Khaimah (RAK) Sheikh Saud bin Saqr Al Qasimi realised that it was the highest time to place the northernmost part of the United Arab Emirates on the world map as well.
With population of only 230,000 and no oil resources, this seemed like an impossible task. Compared to Dubai and other territories in the Gulf, RAK had seemingly very little to offer to foreign investors. The search for its own branding started.
Dare to be different
It was RAK’s difference from all other emirates that became its prime asset. As the ruler said himself: “RAK has its own uniqueness. If we talk about geography, RAK has unique beaches, sand dunes and mountains. It has also a unique rich history and archaeology.”
Tourism has indeed become one of the major pillars of the economy, accounting for almost 10% of the GDP. Within its rather compact territory, RAK offers all the features that tourists seek: as the only one out of 7 emirates, it combines see, sand and mountain ranges. Thanks to its premium hotels and resorts, it offers the popular combination of luxury and adventure. The government is investing $500 million in tourism development projects, which include bringing RAK’s total hotel and resort room inventory to 10,000 by 2016.
Another focal point is education. In 2013, the government reserved 22% of GDP for education. It is currently in negotiations with several foreign universities that are interested in opening their campuses in RAK, following the example of the University of Bolton (Manchester, UK). This school deliberately chose RAK above Dubai as RAK is quiet, cheap and not overpopulated. According to the school officials, the pace of life in RAK is much more beneficial for those who are seriously into studying.
Although there is no oil in RAK, there are other natural resources there. RAK is the largest cement producer in the UAE. The $1 billion RAK Ceramics is the world’s largest manufacturer of ceramic and porcelain tiles.
Meanwhile, RAK’s free trade zone is one of the fastest-growing in the region. It is made up of a business park free zone, an industrial park free zone and a technology park free zone. RAK free zone companies offer 100% foreign ownership, zero corporate tax and the freedom to repatriate profits. This all at a cost of living that is at least one third lower than in Dubai.
Does size matter?
Despite all efforts, the branding of RAK does not move with the expected speed. Can it be due to the limited size of the emirate? Its 1600 square kilometres is only a small fraction of Abu Dhabi (67000 square kilometres). Not quite as RAK picks the smallest territories as its example. Places like Vatican, Las Vegas and Mote Carlo have managed to successfully introduce a clear brand. All they needed was daring to show difference.
It works!
Even though the branding efforts cannot be precisely quantified, the results are here already. Only a few weeks ago, Standard & Poor’s Ratings Services affirmed its ‘A/A-1’ long- and short-term foreign and local currency sovereign credit ratings on the Emirate of Ras Al Khaimah.
According to S&P analysts the outlook is stable. The affirmation reflects their view of Ras Al Khaimah’s limited fiscal risks due to the government’s minimal spending responsibilities, its strong government balance sheet, and ongoing indirect financial support from the UAE…

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