Hope You Had an Offshore Account for Monday's Market Meltdown

Monday, Jan. 21, 2008, was a bloody one for global equity markets.  Yet, since most U.S. securities markets were closed for the Martin Luther King holiday, Americans were trapped in their securities positions.  Except, of course, for those with offshore bank accounts in place. 

If you had an offshore account, when you awoke yesterday morning to see the carnage in Asia and Europe, you could have taken immediate steps to protect yourself.  For instance, you could have contacted your offshore banker and left instructions to "short" selected U.S. stocks or index futures.  If you purchased foreign securities on U.S. exchanges (e.g., American Depository Receipts or ADRs), your positions were frozen until this morning.  But if you purchased those same securities on their home exchange, you could have sold them on Monday.  And, I might add, at a much higher price than you might receive today!

Of course, a holiday isn't the only possible scenario that could lead to the closure of U.S. exchanges.  After the attacks of Sept. 11, 2001, U.S. securities markets closed for four days.  During this time, investors with only U.S. bank or brokerage accounts had no way to trade securities.  But investors with foreign accounts could trade foreign securities on foreign exchanges without interruption.

A future attack on the financial infrastructure in the United States or another major country could lead to a longer suspension of trading.  There are historical precedents: in 1914, U.S. securities markets were shut down for four months!

The prudent strategy is to maintain a "nest egg" outside your country of residence in an offshore asset haven that is politically neutral, and thus a less likely target for terrorist attacks.

What country is best for your offshore account?  There are many to choose from, but one of my favorites is Austria, where I lived from 2003-2005.  Based on my experiences there, I've written an "insider" financial guide to Austria, entitled Austrian Money Secrets.  For more information, click here. 

Copyright © 2008 by Mark Nestmann