Source: Brian Sylvester of The Mining Report (4/8/14)

https://www.theaureport.com/pub/na/zachary-schumachers-state-of-the-rare-earths-address

As China’s rare earth production winds down, other sources worldwide could shape up to reward early investors. But there are different ways to play this (slowly) growing market. Zachary Schumacher, international market analyst with Asian Metals, tells The Mining Report how investors can go medium or long on rare earths, and why joint venture and offtake partnerships are the biggest factors in creating value.

The Mining Report: Zachary, it’s good to have you with us. Many rare earth element (REE) projects are uneconomic at current REE prices. Please give us your “state of the sector” address.

Zachary Schumacher: There are a lot of challenges in the market. There’s a good portion of projects that are uneconomic. Current REE prices make it difficult to justify projects. On top of that, there are some environmental issues with processing. Until we see a real change in the market, very few projects stand out.

TMR: Prices for heavy rare earths (HREEs), at least, have shown some signs of price recovery. What’s most likely to create shareholder value in REE equities: higher REE prices, joint venture(JV) offtake agreements, vertical integration or perhaps other factors that you deem to be relevant?

ZS: That’s a difficult question. There’s a timeframe for a lot of things. Long-term investors would be more interested in higher REE prices. If you’re looking for a project to go into production, JV and offtake agreements are important.

TMR: Interesting. Is that because there’s just not a lot of easy access to capital to develop these projects and JV partners provide that, or is it simply about confidence that a given name is on board?

ZS: JVs give access to more capital, which eliminates a huge barrier. Processing costs are a huge capital expenditure for REEs. It also provides somebody who arguably is going to be consuming or utilizing the material in some other aspect in the production chain. It provides a level of technical expertise that reassures investors.

Take Avalon Minerals Ltd. (AVI:ASX) partnership with Solvay. Solvay offers technical experience with processing. You have an opportunity to be outside of China. This partnership is a good way for Avalon to show that it recognizes the cost of doing it alone may be unfeasible. So you have a political, technical and economic benefits.

TMR: Avalon is hoping that this agreement with Solvay will ultimately result in a JV or offtake agreement with a much larger suitor. Does this deal get Avalon closer to a cash-rich partner?

ZS: It definitely improves its position. It shows that it has an option for processing. It’s got to put it high on the list of potential partners looking at sources outside of China.

TMR: The capex for Nechalacho means that a partner will have to be a big-time player. Avalon likes to tout is that it’s the only REE company that has a bankable feasibility study. Does that increase the chances?

ZS: The feasibility study helps. It shows its willingness and the realism of the project. Yes, the partner would have to be a company with deep pockets. The thing is that a lot of these companies need reliable sources of the material.

TMR: Are there any companies outside of China that you consider vertically integrated?

ZS: Molycorp Inc. (MCP:NYSE) is close, but its processing is in China. Rhodia Inc., which is part of Solvay, would probably be the closest. It does some of its processing out of La Rochelle in France. There is some internal consumption, and some is sold downstream. There are a few projects styled to be vertically integrated that aren’t active right now.

TMR: What about Great Western Minerals Group Ltd. (GWG:TSX.V; GWMGF:OTCQX)?

ZS: Great Western is selling the less-than-common alloys, which is driving its REE project. But it’s not in production for its rare earth oxide yet.

TMR: Which companies have shareholder-friendly offtake or JV partnerships?

ZS: Matamec Explorations Inc. (MAT:TSX.V; MRHEF:OTCQX) and Toyota Motor Group have a good one from Matamec’s point of view. Toyota is not asking that much of Matamec. It provides a good avenue for offloading the material and a background of technical experience similar to Solvay and Avalon.

Frontier Rare Earths Ltd. (FRO:TSX) and Korea Resource Corp., or KORES, have some people questioning what role a government organization like KORES will have. At the moment, it’s a confidence booster that provides a level of structural government political support. The offtake agreement is a 10% stake in the company and KORES is obligated to offtake 10% as well. If there’s an increase in the interest, it would up KORES’s control to about 50% and up the offtake of the material to about 50%. That may worry some investors that a government organization could control about 50% of a company, but it’s an economic deal. KORES wants the company to do well. It recognizes, being right next door to China, the need to have alternative sources outside of China. I’m less worried about political ramifications.

TMR: What should an investor who is looking to gain exposure to this sector look for?

ZS: A lot of projects are suffering from being uneconomic at current prices and demand. There are two big issues: where you do processing and how you do processing. Also, how cost effective is your processing and how much material can you process—what volumes are you looking at?

TMR: What’s a suitable capex range?

ZS: Projects can range from $300–400 million ($300–400M) or higher. Anything below $300M is more plausible.

TMR: Greenland Minerals & Energy Ltd. (GGG:ASX) has an agreement with China Non-Ferrous Metal Industry’s Foreign Engineering and Construction Co. Ltd., or NFC. The deal states that Greenland will use NFC’s separation plant to process its concentrate from Greenland’s Kvanefjeld project in Greenland. As an investor, would you prefer projects that produce oxides or is a simple concentrate the better option because of the lower capex and thus lower risk?

ZS: I’m inclined to say oxides, but producing an REE concentrate is much more feasible. It may be more attractive for investors to say, “Hey, I know this company may not be getting into the downstream industries, but I can rely on the overall market to improve demand for HREEs in the long term.”

TMR: Let’s get into another aspect of this business. Some companies, like Namibia Rare Earths Inc. (NRE:TSX, NMREF:OTCQX) in Namibia, are in jurisdictions where it’s easier to get a REE mine permitted. How much of an advantage is that?

ZS: Namibia as a jurisdiction is desirable, with the environmental regulations, distance to ports and the political support that a company like Namibia Rare Earths can gather for a project. Investors want to look at a place that where they can rely on a readiness, a history and a legal framework.

Namibia Rare Earths has a good project. It’s definitely smart for the company to be where it is. It’s an area where it’ll be easier to get started.

TMR: If you were handicapping this race, what is the next publically traded REEs company to have a JV?

ZS: A few have good projects that could warrant a partnership. Ucore Rare Metals Inc. (UCU:TSX.V; UURAF:OTCQX) is high on my list. It has a good base and understands the market very well. Many had concerns about the area’s infrastructure. Alaska obviously has good reserves of a number of materials, but it can be difficult to get them to port. However, the recent passing of SB 99 by the Alaska State Senate puts an additional $145M toward infrastructure development for this project alone. Investors should be pleased to find local political and economic support for a project, but more importantly, financial assistance at this level can offer real assurance to companies looking to partner, as well.

Texas Rare Earth Resources Corp. (TRER:OTCQX) has an interesting project as well. The company is new to the sphere, so investors may be a little standoffish, but I like the project.

TMR: I don’t think a lot of investors know the story with Texas Rare Earths. Can you tell us?

ZS: Texas Rare Earths has been around for several years. It’s one of the smaller projects. It is based in Texas, which the company likes to highlight as a positive. The regulatory environment for setting up a business can be friendlier there.

One of the things that may be holding it back is that it doesn’t really have a lot of its documentation up yet. It doesn’t have a feasibility study, and it’s going to update its existing preliminary economic assessment. It’s looking at a long-term mine that will be able to produce small volumes of 5,000 and 8,000 tons per year (5–8 ktpa) for 20 years.

TMR: Does management have experience?

ZS: I’ve talked to some of the management. They have a technical background. CEO Daniel Gorski has been in the mining industry a lot of years. I think he understands it. He doesn’t come from a background of REEs, but he worked with a uranium explorer previously. It goes a long way in REEs if you understand the difficulty of dealing with radioactive material or even have close ties with people who might offtake some of that material or store it.

TMR: What public company could be the next to bag an offtake agreement?

ZS: I like Quest Rare Minerals Ltd. (QRM:TSX; QRM:NYSE.MKT). Strange Lake is an interesting middle-sized project. Extraction is an issue. Companies are going to look at that and know it. Its location in Québec, an area of Canada that has history with mining, goes a long way.

TMR: Even with the poor performance of the REE sector during the past few years, new players, like Texas Rare Earth Resources, continue to enter the space. Does that mean there’s still money to be made?

ZS: Maybe it’s the other way around. It may be that mining companies recognize that there is still interest in the market from investors. Is there still money to be made on the investors’ behalf? Yes. There’s definitely a level of opportunity out there, should a company get far enough to get into production.

But is there still room? The market is flushed with JV companies that are not quite in production, and even new ones. The difficulty of getting one of these companies into production may be insurmountable even for great projects with good management, good background and low capex. There may be a bit of overconfidence among some people going into new projects.

It’s a two-sided coin. The REEs market is still suffering from the doldrums of the bubble popping. If prices were high, any of these projects would be plausible to come on-line. For the short term, it looks like a number of these projects have no chance.

There’s a timeframe where you can see that there’s growing demand for these products. Look at neo magnets: There’s very few ways to avoid using them. That market’s big in the U.S. The magnet market hasn’t shrunk. They haven’t had any incentive to leave now that prices are falling. It just makes their production cheaper. At a certain point you’re going to see a flattening out of price. Long-term demand for magnets in a hundred industries will likely continue to grow. There’s space for a company or two outside of China to produce, to do processing and to be a very promising investment opportunity for plenty of investors. It’s finding the right one. That’s been the game for the past two years.

TMR: If getting a mine into production was the only way to make money as a mining investor, there wouldn’t be a mining sector. There’s such a small percentage of any mined commodity that actually reaches production. If there was a sudden, dramatic swing again in REE prices, investors could make money on some of these names even if their chances of getting into production didn’t increase at all.

ZS: That’s definitely true. The perception that the market is not doing very well is driven by REE pricing. Consumption is still there. People who consume the material, they recognize that they need to use it. It’s in their cost analysis. They anticipate long-term projections for these materials. Not because the market’s going to flatten out and disappear, but because they need to use it and everybody else needs to use it. If you do see a turnaround in REE prices, there are a number of companies that could benefit investors—even without the project going into production. Investors can still tap into the growing market.

TMR: The message then to an investor is to be long REEs.

ZS: Yeah. Be long or find your moment. Wait for the moment when you see REE prices bottoming out. And we may be fast approaching that level. The future of REEs isn’t bad.

TMR: Thanks, Zachary.

Zack Schumacher joined AsianMetal Inc. as a rare earths and tech metals analyst in 2013. He covers fluctuations in the prices and consumption of these materials and manages several indices that list current market prices. Schumacher received his Bachelor’s degree from the University of Pittsburgh in international relations and Chinese and completed his Master’s of International Business from New York University.

Want to read more Mining Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit The Mining Report homepage.

DISCLOSURE:

1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Namibia Rare Earths Ltd. Streetwise Reports does not accept stock in exchange for its services.

3) Zach Schumacher: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer.

6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

Streetwise – The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110

Petaluma, CA 94952

Tel.: (707) 981-8999

Fax: (707) 981-8998

Email: [email protected]

Live Trade for this Month – Its a bit Corny

ETF Trading Newsletter: In early February I started watching the CORN ETF very closely for a possible new bull market starting and a long entry point. Many of the other commodities had already posted strong rallies while corn sat on the side lines.

The Corn ETF is designed to follow the price of the continuous corn futures contracts. This commodity looked as though it was forming a base (launch pad) for the new rally and possible major bull market to start.

This post walks you through each step of the way from entering the Corn ETF trade, adding to a winning position, tightening our stops, locking in partial profits at our first price target etc.. In fact myself and subscribers are still long the Corn ETF as of today with my ETF trading newsletter.

________________________________________

ETF Trading Newsletter – CORN ALERT #1

We have been watching the commodities index rally for a few weeks now with natural gas, coffee, sugar, gold, silver and several others jump in price. We have been watching the GCC ETF which is a basket of several commodities to get a feel for the commodities market as a whole.

While most of the commodities have posted some solid gains, CORN has yet to pop in price. Corn looks to be forming a stage 1 basing pattern and the volume/money flowing into this fund suggest new money is moving into corn because it looks as though it will be the last to pop and rally in price.

This is similar to how we entered the silver trade a few weeks back. Everything else in the precious metals sector popped and silver lagged giving us a high probability setup.

Both the short and long term the charts of corn look bullish. As usual I will lock in some gains if we get a pop in the commodity, then let the balance ride with a break even stop. If corn is entering a new bull market phase (Stage 2) I want to hold some long term. There is potential for a 19%-30% rise in value.

Corn Trade Information:

Buy CORN etf, Stop $29.90, Downside Risk 6%, Portfolio Size 6%

________________________________________

ETF Trading Newsletter – CORN ALERT #2

New CORN Trade Order Pending

During the past couple weeks we have seen the CORN ETF trade sideways with fading volume. Recently we have seen a couple strong buying days in CORN which I call GET-READY spikes. These typically indicate some big money (insiders) are accumulating a position ahead of good news.

We are currently long CORN already and in the money, which is why I like this second setup even more. Because we already have a profit buffer, making the risk here is lower than normal. If you have ready some of the market wizard books you will also pickup on how the most successful traders pyramid up (average up) in winning trades.

My Plan Of Attack: I only want to buy on strength here focusing on entering the trade once is breaks a previous pivot high which in this case is: $34.06

Trade Setup:

Place a Buy-Stop order at $34.06, GTC (Good Till Canceled), 8% of portfolio position size

This type of order will enter you into the trade if price rallies and breaks that price point so you do not need to sit around and watch the charts. If you do not know this type of order just Google it only or call your broker. It is a very simple and basic order type.

________________________________________

ETF Trading Newsletter – CORN ALERT #3

CORN Position Added

This afternoon our CORN trade order was executed. Yesterday we set a Buy-Stop order so we get entered the commodity if price starts to breakout to the upside. These types of order are just like a stop order in respect that you just enter it and the market and broker do all the work after that.

This is why trading with a plan/strategy is much easier and less stressful. If you have a plan, do the leg work and execute it, things do not seem difficult or stressful. Problem is most traders don’t have a plan and even if they do, most times they don’t follow it. The result is a confused, stressed out trader/investor second guessing their every move.

I have updated the portfolio in the member’s area so you can review positions and protective stops.

________________________________________

ETF Trading Newsletter – CORN ALERT #4

CORN Position Adjustment – Locking in Gains

CORN has been moving in our favor for about a month now. Today’s pop in price has reached my short term measured move using fibonacci extensions and I feel it is time to lock in some gains and move our protective stop to breakeven.

We entered this position twice and your average price per share should be around $32.96.

I am moving my stop to breakeven and selling half of my position today. Current price is $35.10, as we are up 6.5%.

See chart below for a visual:

________________________________________

Why You Need My ETF Trading Newsletter as a Self-Directed Trader

You know it and I know it, trading is extremely difficult, time consuming and can be expensive if not done properly. What I have shown you above is verbatim of what subscribers to my ETF Trading Newsletter received thus far for the corn trade.

I do updated and show the charts live each day in my daily video forecast which members have access to but that is just to keep everyone up to speed on the trade to help manage their emotions and prepare for what it to happen before it happens.

Trade with my proven ETF Trading System

Consider joining my group of happy traders today at: www.TheGoldAndOilGuy.com

Chris Vermeulen

By Dennis Miller, Miller’s Money Forever

Keep this goal in mind as you read on: solid income and growth with minimal risk and no catastrophic losses. Just tuck it in the back of your head.

Subscriber Brian A. wrote sharing a common concern:

“I subscribe to your newsletter for the purpose of diversifying my portfolio as well as taking more responsibility for my investment future. … I look at the soaring S&P and Dow and wonder if both are appreciating from strong fundamentals, or from the Fed’s easy money policy. … I listen to my broker who spouts out information of a resurgence of manufacturing coming back to US soil and (says) equities are the place to be for the near future. The other side spouts banks are insolvent, businesses are closing, (and) if it wasn’t for the Fed propping things up we would be in a recession. Some say we are in a recession. I would like to see you devote an article on the subject of the ‘don’t worry be happy’ crowd verses the ‘doom and gloom’ crowd.”

Well, Brian, ask and ye shall receive. My recommendation, as always, is to look at the data, decide for yourself which camp you fall in—if either—and invest accordingly.

Folks who think things are turning around generally point to statistics published by the Congressional Budget Office (CBO). These numbers—the unemployment and inflation rates and the Consumer Price Index in particular—are used by the Federal Reserve to make or change policy. Those decisions affect the economy and the stock market.

If you swallow these numbers, you can point to a trend line going up. You may not think “happy days are here again,” but you could make a case that we are headed in the right direction.

In contrast, the “gloom and doom” crowd point to data from statisticians like John Williams at Shadow Government Statistics, who make a good case against the accuracy of official government data. Williams’ alternatives to the CPI, official inflation rate, and unemployment rate paint a much different picture.

Unemployment offers an easy example. When a person stops looking for work, the CBO no longer considers him unemployed. I guess that means if everyone just stopped looking, the unemployment problem would be solved.

Many in the gloom-and-doom crowd distrust the government and believe its statistics are produced for the benefit of politicians.

The gap between these two camps is wide. We recently published a special report called Bond Basics, offering safe ways to find yield in the current economy. Shortly after releasing our report, I attended a workshop with one of the top bond experts at a major brokerage firm. As I listened to his excellent presentation, I realized we agreed on many points: interest rates seem to be going up, the value of laddering and diversification, etc. We also agreed that investors (not traders) should buy bonds for one purpose: safe retirement income.

This speaker, however, recommended that baby boomers and retirees buying individual bonds only buy investment-grade bonds and ladder them over an eight-year period. Each year some would mature, and retirees would then replace them with other eight-year bonds. In a rising-rate environment, retirees would eventually catch up he claimed. This expert mentioned inflation only once, remarking that it is “under control” and should remain low.

I went to the company’s website and discovered that five-year AAA bonds were paying 1.92%, and ten-year bonds were paying 3.41%.

Then I went to Shadow Government Statistics. The official inflation rate as indicated by the CPI is hovering around 1.8%. However, using the same method used for calculating the CPI in 1990 (the government has changed the formula many times), the current rate comes to approximately 5.5%.

Now, it only makes sense to invest in long-term, high-quality bonds if you truly believe the government’s CPI statistics. If, however, you that suspect inflation isn’t quite so under control—even if you don’t believe it’s 5.5%—why would you invest in an eight-year bond that’s virtually certain to lose to inflation?

The same logic applies to unemployment numbers. The official number is around 6.7% and coming down. Alternative calculations show a double-digit unemployment rate that is rising. Should you invest heavily in stocks now? It depends again on whom you believe.

How should this affect your approach? If you hold the majority of your nest egg in cash or low-yield investments, you are losing ground to inflation. On the other hand, going all in the market if you are uncertain that the economy is improving could be equally disastrous.

A word of caution: do not let fear of getting it wrong immobilize you! It can be a very costly mistake. Keep learning and researching until you find investments you are comfortable with.

Let’s look at the best- and worst-case scenarios with long-term bonds. If you follow the advice of a bond salesman, you’ll buy long-term corporate bonds. Ten-year, AAA-rated bonds currently yield around 3.41%. Assuming the bond trader is correct and inflation is not an issue, the best you could earn is 3.41%. Is that enough to get excited about when you factor in taxes and the risk of inflation?

In a recent article, I shared an example of a hypothetical investor who bought a $100,000, five-year, 6% CD on January 1, 1977. If he’d been in the 25% tax bracket, his account balance after interest would have been $124,600 at the end of five years. That’s a 25.9% reduction in buying power because of high inflation during that five-year period.

In that light, 3.41% does not look quite so appealing. Yes, inflation was particularly high during the Carter era, so apply a bit of common sense to the example. Nevertheless, what has caused inflation in the past? In general terms, governments spending money they don’t have and printing money to make up the difference. Argentina is a timely example of this folly.

These concerns are why our research team and I paired up to produce Bond Basics. We think there are better risk and reward opportunities than long-term bonds available in today’s market.

Investing in stocks is a different story. We cannot keep up with inflation and provide enough income to supplement retirement needs with bonds alone (unless you have a huge portfolio and are willing to buy higher-risk bonds). That’s why our team picks stocks with surgical precision. We run them through our Five-Point Balancing Test, recommend strict position limits, diversify across many sectors, and use appropriate stop losses.

Our premium publication is named Miller’s Money Forever for good reason. We want to help you grow your nest egg in the safest possible manner under any market conditions. Neither the happy days nor the doomsday crowd can predict the future, so we prepare for all possibilities.

You’ve likely heard the refrain, “Inflation or deflation? Yes.” It’s a favorite of our friend John Mauldin. With that, baby boomers and retirees are forced to become kitchen-table economists and to sift through statistics that may or may not be accurate.

I haven’t been shy about my opinion: I don’t think the economy is improving, so retirees need to risk more than they would like in the market. That’s why our Bulletproof Income strategy prepares for all market possibilities as safely as possible.

Whom should you believe? Well, is the person speaking trying to sell you something? Stockbrokers trying to garner your business tend to be optimistic about the economy. If someone is trying to sell gold or foreign currency investments, they are likely to cite a history of rising inflation and explain how their product can protect you. It doesn’t mean either is wrong. And yes, the same point applies to the humble authors of investment newsletters.

At Miller’s Money we share the reasoning behind every recommendation we make. We want our subscribers to know as much as we do about every pick—pros and cons. If you agree with our reasoning, act on our advice. If not, or if you have additional questions, ask us or sit tight for another pick. Never invest in something you don’t understand or are uncomfortable with no matter who recommends it.

The bottom line is you have to read, learn, do your own research, and make your own judgments. Listen to all sides of any argument, and then do what you think is best.

What could be more important to baby boomers and retirees than protecting their money? Take the time necessary to teach yourself. In time you will become more comfortable trusting your own judgment. If you were savvy enough to make money, you are savvy enough to learn how to invest and protect it. Give yourself credit where it’s due.

sign up for a risk-free trial of Miller’s Money Forever

By Elliott Wave International

Despite the Fed’s leverage and its attempt to inflate throughout the economy, the deflationary pressures in the U.S. are overwhelming. Watch this six-minute clip from Steve Hochberg’s presentation at the Orlando Money Show. To learn more about the inflationary/deflationary process, go to www.deflation.com.

Gain an Advantage Over 99% of U.S. Investors – in Just 15 Minutes You can put yourself among an elite group of investors who step away from the herd. Investors who play by their own rules. Investors who protect their money from little-known risks yet still manage to catch and ride opportunities that no one else even sees coming. Investors who consistently prove that it PAYS to be ahead. That’s why we created the just-released Financial Forecast Nuggets Report. It delivers some of the latest juicy nuggets from our most popular service for U.S. investors. How can our 15-minute nuggets report be so valuable? It’s 100% FREE! Read it now and find out >>

By Alex Daley, Chief Technology Investment Strategist, Casey Research

Much fuss was made yesterday when my colleague Nick Giambruno released a report outlining the incredible tax benefits to be had, by Americans no less (the only people in the world to be taxed back home even when we leave), in Puerto Rico.

As you may have seen, that report was based in large part on my personal experience relocating to the island, a process I started in earnest last October. And, yes, I am here, writing you at this moment from beautiful Palmas Del Mar—if you ask me, the most beautiful piece of coastland on the island, but only just being rediscovered after a long hiatus from the spotlight.

What can I say, I love a comeback story, especially when it looks like this…

Yes, my decision to move to Puerto Rico was influenced by the tax incentives. But they were only one contributing factor. Why I chose to land in Puerto Rico is much more nuanced than that.

It all boils down to one thing: Opportunity.

Everyone likes to save on taxes. That’s a given. But if I’ve learned one thing in my short business life thus far: it’s that it’s always better to make $4 than to save $2.

No disparagement intended to Ben Franklin, but a penny saved is not a penny earned. Not if, in the time and effort saving it took, you could’ve created two or four or eight more pennies for yourself.

I’m here in Puerto Rico because I believe it will provide me with the opportunity to make many more pennies.

Here’s why.

Infrastructure and Convenience

Unlike many other low-tax jurisdictions, Puerto Rico is in the unique position of having been a US territory for a century now. That means all sorts of things, from familiar legal systems to easy travel. But one of the most surprising implications is that US companies and even certain US government agencies have a presence down here.

My town is a few miles down the road from the world’s fourth-busiest Walmart. There is a Costco here. Closer, in fact, than the one we had in Vermont. There’s also a Cartier—I’m not much of a jewelry buyer, but you get my point. Many if not most of the conveniences of the US are to be had here.

And the same goes for far more than shopping. The highways across the island are much like in the US, including, unfortunately, the traffic into and out of the big city. But I’ll take that any day over the frightening, windy back roads that litter Jamaica, Grenada, St. Kitts, the Caymans, and many of the other places considered before settling on this place. And gas here is just a tiny fraction more expensive than back in the States.

Of course, roads rarely matter for me since I work from home, where my simple Internet connection is at least 10 times faster than the one in the office in Vermont—courtesy of Liberty cable. My cell phone, on AT&T, works much better here too.

What’s not the same here (they have the FBI, DEA, etc.) is at least comfortingly familiar (courts, MPH speed limits, and AutoExpreso, i.e., EZPass). But most importantly, it’s fully developed. There’s no grass hut customs office, no lack of a UPS store—the entire infrastructure needed to run a business well is here.

We tend to lose power often, yes. A few times each month for a few hours at a time. And electricity rates are about twice as high as in the States, though we use so much less of it here without any need for heat and barely any for AC. Still, the power bill can be a drag. But not everything can be perfect, even when the weather is:

86 and sunny. All year. ‘Nuff said.

Though my belly says differently, I like to exercise. I spent the last decade of my life split between some of the rainiest and snowiest locations in the US. And I hate gyms.

Since coming here, I’ve lost 14 pounds and counting, just from getting outside to swim, walk, golf, and play tennis—activities that have been closed (to me) most of the year, and that apparently constitute enough caloric burn to make up for my awful, airport-heavy diet. I have more energy, I feel better.

Many people are looking for that same lifestyle. Which, ironically, makes it far easier to recruit talent to the island than to many mainland destinations. I’ve already convinced a handful of people to make the move, and I’m not even actively hiring down here just yet—I’m waiting for some red tape to clear.

If you’re thinking of starting or expanding a business, think carefully about whether it will be easier to recruit people to the tax-free (state tax-free only, mind you) zone in Albany, NY, to the expensive and tiny island of St. John, or to a country bigger than Rhode Island or Delaware with year-round sunshine.

But it’s not like I need to recruit that many people here. There are already plenty here.

Labor, Services and Networking

The other day, during one of those intermittent power outages, I took the opportunity to swing up to Sam’s Club and pick up a few things—all commercial sites, and most high-end homes, have generators to cope. $400 worth of crap I didn’t really need later, I was waiting in line at the checkout, as the obligatory pile of cash was counted out at the register in front of me (almost no one here uses bank accounts or credit cards, and it’s part of their well-known fiscal troubles…).

While waiting, I told my wife about my struggle finding qualified PHP developers. These are jobs that pay $40-50/hour, i.e., $60K to $100K/year, and way up from there. Yet it takes us months to hire for them. The woman behind me in line must have overheard our conversation, because she started asking me if I worked for Palmas and were we hiring—she’d applied a dozen times already.

She, like many others here, was looking for work. The official unemployment rate is 15%. According to the CIA World Factbook, it’s 26%. The median household income is also a relatively low $18,000/year. That’s double most places in the Caribbean, but still quite low compared to the States. Looked at societally, that’s bad. For a business operator, though, it has distinct advantages.

Yes, with high unemployment comes crime. But the reputation this island has garnered in the States is undeserved. The crime rate in San Juan is about the same as in Baltimore, Detroit, Cleveland, or Atlanta. Any large city has crime-ridden areas. But like those cities, San Juan has wonderful neighborhoods too. And it’s surrounded by some beautiful suburbs. Go into the country, like I did, and it’s calm and quiet and borderline idyllic.

Our community is triple gated (community, development, building), which garners comments from friends and family who visit. But it doesn’t need to be. It reminds me of the much more unsightly seven-foot walls with razor wire and broken-glass tops in Spain’s posher areas, which are 90% to convey status. Once you understand the small cultural differences, not moving here because of crime is like not moving to Missouri because of St. Louis, to Florida because of Miami, or to Tennessee because of Memphis.

When you do go to hire, employment laws are close to the same here as in the States. They have Social Security, Medicare, and worker’s comp. Workers from the mainland can come here without a visa (and vice versa). It’s familiar, yet there is a big labor surplus holding down wages.

I’ve been thinking about starting a call center down here—just searching for the right person to run it (I’ve got a job I love and don’t need another one)—as it’s an ideally suited location:

• A highly educated population. 94% literacy rate (India is 78%; China 96%). A 67% high school graduation rate (about the same as Florida and Georgia; well above Nevada, Louisiana, Mississippi, etc.). 22% of the working population have college degrees, not far behind the States’ 33% average and well ahead of many of those same southern states.

• Better average English skills than India or other common call center locations. 50% English-speaking population, versus 21% in India. In reality, I rarely meet anyone who doesn’t speak enough to get along fine with me, a dolt who has yet to learn the language here. But for working purposes, about half the population speaks English.

• No time zone issues. It’s the same time here as Florida or New York (though here they are smart enough not to observe the idiotic tradition of “daylight savings”—it’s the same amount of daylight here all year round and I never have to go to or leave work in the dark, let alone do both for months at a time).

• And plenty of available labor to expand rapidly. The population of Puerto Rico is 3.7 million, a number that is slowly shrinking as more and more people emigrate to the US in search of work—something they can do freely as all Puerto Rican citizens are US citizens.

One of these days—hopefully soon—I’ll find that call center operator who will work for sweat equity to get things off the ground, or the bootstrap customer to pay them. But the labor is there.

And not just labor for lower-skilled work, either. The island has a very large skilled labor population, too, thanks to that high college degree rate. There are hundreds of law offices, accountants, engineers, and other professional firms. Investment banks, construction companies, you name it. The colleges here are strong in math and business. And virtually any service provider or knowledge worker you’d look for in any other major metropolitan area can be found here. I’ve even got investment bankers knocking on the door.

Then there are the other entrepreneurs. One of the things that attracted me most to Puerto Rico wasn’t the tax incentives themselves, but the idea of living near and collaborating with so many like-minded people. And that’s proven as good or better than I hoped. Between everyday social activities and organized mixers like the meetings of the “Act 20/22 Society,” there has been a non-stop barrage of new people to meet, all of whom are as entrepreneurial as I am. Business ideas floated around dinner, hiring tips over golf, late-night real estate investment discussions, dozens of emails to share investment ideas—all just this week.

The one thing that really stuck with me when I read Rich Dad, Poor Dad many years ago was the part that if you don’t hang around with the kind of people who talk about money and how to make money, then you’ll never learn how or find opportunities to make more of it. In life, I have always looked for those kinds of communities, and every place I’ve lived I’ve found small pockets of like-minded people. But here, it’s like I just struck pay dirt.

Ease of Starting and Operating a Business

The same factors that make hiring in Puerto Rico easy make starting a business simple here too.

I fully intend to learn Spanish—it’s good for me, and good for the kids too. But I cannot be expected to do so in a matter of months, and certainly not as a prerequisite to doing business. Thankfully, that’s not been an issue at all.

All federal laws and forms are available in English, for one. Just about everyone you deal with in the business and government world speaks enough English to help you, and the majority, especially the younger population, speak it very well. Unlike farther-flung Spanish-speaking countries like Belize and Panama, running into someone at the local government office who cannot speak enough English to help you rarely happens here, except far outside of the cities. When it does, there are lawyers and accountants everywhere to help.

LLCs, partnerships, corporations, and all that other stuff is effectively the same here as in the US. Payroll services can be had from US companies like ADP or from local ones. Same with insurance for your business, cars, health, and more. Banks are a little slower than in the US, but offer the same services like ACH, wires, credit lines, online access, etc. It’s familiar, simple, and not overly burdened with red tape—you can even set up a corporation online in a few minutes.

Sure, there are some tough parts about starting a business here. For one, they’ve yet to come to terms with virtual work, and the idea is at direct odds with one of their most stubborn bureaucracies: the town office permit folks.

On the US mainland, at least anywhere I have lived, you do not need any special permit to use your home as an office, only as a retail business. Want to found an Internet startup from your garage? No problem. Want to sell antiques from your front lawn? Problem. In Puerto Rico, the model is backwards. To set up an office, you must register it with the town. The towns inspect your office to make sure it is real. They contact your neighbors to make sure they are OK with it. And they come back regularly to do it again and again.

That struck me as odd at first. But the more I considered it, it’s not much different than in the States: to own a business in Vermont, I needed half a dozen forms from half a dozen offices and paid a fee for each one. I didn’t have to pay a fee to get a sales and use tax permit in Puerto Rico, though. They don’t want to get in the way of my ability to pay taxes, as so many US agencies seem to want to. Instead, they are focusing on a different set of problems. Ones unique to a largely urban island with high unemployment. Like trying to stop the streets from looking like a Turkish bazaar as they do elsewhere around the Caribbean—something they’ve managed very well here.

The quirks are just different from the quirks many of us grew up with, because the circumstances are different. But it’s the big things that matter—things like tax policy, access to smart people, services, technology, and more. And there, Puerto Rico scores very highly.

And, Yep, Lower Taxes

I work hard for my money. I work hard to find great investments that translate into profits. And I work hard to run my businesses. And the more of each I get to keep, the more I earn next year by investing it further.

Hopefully, growing up, someone taught you about the magic of compounding interest (I got it from my dad, who more than once said, “Hey, read this article on mutual funds in Esquire.”) Well, one of the things almost none of those lessons include is the effect of taxes. When you pay taxes on your investment income, it decreases dramatically over time. The longer you can defer taxes, the better for your pocket book. If you can reduce them or remove them entirely, the benefits are huge.

For instance, say you invest $100,000 in a 5% CD that compounds yearly. If you pay 35% tax on the interest each year, and reinvest the rest, then at the end of 20 years you’ve earned $89,583 in interest. Not bad for an incredibly conservative investment.

However, take those taxes on interest down to 0%, which Puerto Rico’s new tax incentives provide, and you earned $165,329, or 85% more income. That’s a pretty big tax penalty the US imposes, and that many more years you have to work before you can retire.

If you live in California, where the combined tax rate for some is now in excess of 50%, the effect is even more dramatic. You would have only earned $63,861, losing out on over $100,000 in earnings. That’s enormous!

Yes, you could earn $165K inside an IRA thanks to tax deferral. But then try withdrawing it. At 39.6%, federal taxes chip it right down to $99,858. Get stung by that California 50% and you’re even worse off again.

Now, here’s the real kicker. In order to invest that $100K back home, you already had to pay taxes on it —they don’t let you put nearly that much in an IRA or 401(k) each year. Before you paid those payroll taxes, it was probably $165,000 (assuming the same 39.6% in federal taxes). If instead you earned that income in Puerto Rico at a net effective tax rate of 15%—which can be easily achieved with Act 20 benefits for your business and a 4% tax on earnings—then you would have $147,283 to invest to begin with.

After 20 years at 5%, you’d have saved $243,500 for your retirement—that’s nearly three times what you would have earned in the United States, getting taxed again and again and again. Or about 2.5x what your IRA or 401(k) would have netted you.

It’s not about how much money you have to invest. It’s how much you have to reinvest. And a big part of that is how much you have left over after taxes. Here in Puerto Rico, you could have much more left over, and many more opportunities to invest.

The New Land of Opportunity

To me, this is the new land of opportunity. There is a critical combination here of an underutilized but well-educated workforce, a culture that is obviously changing for the better, and a tax regime that is committed to letting entrepreneurs reinvest more of our money back into our businesses.

Add those three together, and there would be something good going on down here. But there’s another factor: The Internet. With the ability to do many jobs from the convenience of anywhere, thanks to Skype, GoToMeeting, Gmail, Dropbox, and thousands of other tools that finally make the home office a reality, the opportunity is enormous. Computer programming. Asset management. Graphic design. Public relations. Marketing and advertising. Research and development. Information processing. Customer service. The number of service-based businesses that can operate from here is amazing—far more potential than the manufacturing sector ever brought.

Puerto Rico is off to a slightly slower start than its predecessors in India, Singapore, Hong Kong, and even around Latin America in recognizing the value wooing the service economy can bring to its people. However, it is on the right course now and has some tail winds to help it catch up—advantages that no other nation on earth can provide to the world’s largest market of investors and entrepreneurs, Americans.

It’s hard for me to sum up all the things I like about Puerto Rico in a few pages—and there’s no way the editors here will let me go longer, lest I bore you to death. But if you made it this far, then I encourage you to go one step farther. Consider joining me and your like-minded investors and entrepreneurs in Puerto Rico. Join me and the 200 or so other pioneers here in the new land of opportunity. Read my firsthand account of how, right here. And feel free to ask me any questions you’d like—in the comments below, or via email.

GBP sentiment is very positive after today’s U.K. data. Total industrial production increased by 0.9% between January and February, well above the 0.3% forecast, while Manufacturing Production boasted a 1% increase against the same 0.3% forecast.

On the opposite side, the Canadian Dollar is suffering after Housing Starts declined below 190,000 units for the first time in six months, down to 156,823. Building Permits dropped 11,6%, well below the forecasted -2.4%.

Technical Analysis

The break below the 1.8278 support was short lived, as GBP/CAD is crossing back above it after bouncing off of February’s pivot zone at 1.8183.

The pair is heading towards 0.8320, the 50 Simple Moving Average on the 4H timeframe, and it will also test the bearish trendline. With 4H stochastic not yet in overbought territory and sentiment favoring a correction, price is unlikely to reject from the trendline. Above the trendline GBP/CAD is likely to complete a 61.8% Fibonacci correction up to 1.8461.

The pivot zone at 1.8275 is expected to provide support from now on for this

*********
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets

The EURUSD Is Above 1.3720 Again

The EURUSD started a trading session with a positive sentiment and the dynamics of the pair was sluggish. The pair had risen deliberately to the support level of 1.3720 for the entire day yesterday, overcame it and stuck near the resistance around 1.3748. Being corrected, the euro exited out the state of overbought on a 4-hour chart, so now nothing prevents it from a decline resumption. Given surprising stability of the single currency a rise resumption cannot be excluded. A breakout through the resistance in the range of 1.3800—1.3820 will confirm this.

The GBPUSD Needs to Exit a Range

Yesterday, the GBPUSD also corrected after last week’s decline. Despite the pair could correct above the support level of 1.6500 it is unclear if it is correcting now after a decline or returning to way of growth after last week’s descending correction. This can clarify a steady exit of the pair out of the range, limited by the support at 1.6550 and the resistance at 1.6675.

The USDCHF Can Resume a Rise

There are no any interesting fluctuations in the EURUSD. After last week’s rise yesterday the pair corrected to 0.8872, where it was located up to then. Due to yesterday’s decline the dollar has exited out of an overbought state on a 4-hour chart and if it manages to hold above 0.8860—0.8820, then its resumption to current highs at the level of 0.8951 can be presumed. A fall below 0.8820—0.8800 will force to doubt if the dollar is able to resume the ascending dynamics.

The USDJPY Can Decline to 102.60—102.40

Last Friday the USDJPY dropped after a failed attempt to rise above the 104th figure, and yesterday a decline continued. The bears modestly tried strength of the 103rd figure, and then fell asleep just above it. In the Asian session they had the audacity and broke the level, having tested the 102.74 level. They still cannot overcome the bids located here, but downside risks to 102.60—102.40 are kept. A resumption above 103.40 will return the pair to rise.

provided by IAFT

GBP sentiment is very positive after today’s U.K. data. Both Manufacturing Production and Industrial Production increased more than expected. Total production increased by 0.9% between January and February, well above the 0.3% forecast. Manufacturing boasted a 1% increase against the same 0.3% forecast.

Technical Analysis

GBP/CHF was testing the support of an uptrending channel before the data release, with the 50 Simple Moving Average trailing along that line as well.  This test formed a higher low at 1.4731, on the 61.8% Fibonacci retracement on the most recent impulsive wave. With a higher low in place the trend remains bullish, so a higher high is up next.

The pair will be aiming towards 1.4862-1.4871, a major confluence between the resistance from February and 61.8% retracement on the downtrend from 1.5122 down to 1.4466. If price will break above 1.4862, the resistance of the channel goes as high as 1.4944, so there is plenty of upside potential.

The bullish trend will be invalidated only if price forms a large negative price action signal against 1.4862 or if the pair crosses below the most recent low at 1.4731.

*********
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets

Article By RoboForex.com

Analysis for April 8^th, 2014

EUR USD, “Euro vs US Dollar”

After reaching the group of lower fibo levels, Eurodollar started new correction. Stop on my buy order is already in the black. Future scenario depends on how price will move at local level of 38.2%: if it rebounds from this level, pair will start new descending movement.

As we can see at H1 chart, market reached its lower target levels and rebounded from them inside one of temporary fibo-zones. Most likely, pair will reach level of 38.2% in the nearest future. If market rebounds from it, I’ll try to find good entry point to start selling.

USD CHF, “US Dollar vs Swiss Franc”

Franc has already reached level of 38.2% and Take profit on my sell order opened earlier worked. Right now, I’m out of the market. In the nearest future, instrument is expected to rebound from current levels. After that, I’ll consider opening several short-term buy orders.

Earlier market rebounded from upper predicted targets and right now it is trying to rebound from lower levels. However, if instrument breaks them and start correction, I’ll start selling.

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

Article By RoboForex.com

Analysis for April 8^th, 2014

DJIA Index

Despite fast descending movement made yesterday, Index still may start growing up again. Possibly, price is about to finish the second wave and may start new ascending movement inside the third one. I’ll increase my long positions as soon as market forms initial ascending impulses.

More detailed wave structure is shown on H1 chart. Probably, wave (2) is taking the form of zigzag pattern. On minor wave level, market is completing impulse inside wave C. Critical level here is minimum of (1).

Crude Oil

It looks like bulls are going to reach new local maximum. Considering that price is still being corrected inside wave 2, I decided to close my sell order and open a buy one. Stop on my short-term sell order is placed at latest minimum.

As we can see at the H1 chart, wave 2 is taking the form of zigzag pattern. On minor wave level, price is finishing wave (B) inside wave [Y]. In the nearest future, instrument is expected to form ascending impulse inside wave (C).

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.