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A personal introduction [VIDEO]

Thu, 04/28/2016 - 14:49
.sm-webinar-replay .sm-webinar-replay-cta { color: rgb(255, 255, 255); background-color: rgb(235, 147, 25); border: 1px solid rgba(0, 0, 0, 0.1); -webkit-box-shadow: inset 0 1px 0 rgba(255, 255, 255, 0.2); -moz-box-shadow: inset 0 1px 0 rgba(255, 255, 255, 0.2); box-shadow: inset 0 1px 0 rgba(255, 255, 255, 0.2); border-radius: 4px; font-size: 37px; padding: 13px 35px; margin-right: auto; margin-left: auto; margin-top: 25px; color: #FFF; font-weight: bold; display: inline-block; -ms-transform: all .2s ease-in-out; -webkit-transform: all .2s ease-in-out; transform: all .2s ease-in-out; text-align: center !important; text-decoration: none !important; width: 100%; } .sm-webinar-replay-cta .elButtonSub { font-size: 21px; display: block; opacity: 0.7; font-weight: normal; } .sm-webinar-replay .sm-webinar-replay-cta:hover { background-color: #c07711 !important; }   Select Your Sovereign Man Membership And take advantage of these limited time discounts var $fe = jQuery('.main-wrapper .entry .featured-image'); if($fe.length != 0){ $fe.find('img').remove(); }else{ jQuery('.main-wrapper .entry').prepend(''); } jQuery('.main-wrapper .entry .featured-image').append(jQuery('#sm-webinar-html-pg73l0xdo2').html()); jQuery('.main-wrapper .entry .featured-image').css({"margin-bottom": 0}); window._wq = window._wq || []; var QueryString = function () { // This function is anonymous, is executed immediately and // the return value is assigned to QueryString! var query_string = {}; var query =; var vars = query.split("&"); for (var i = 0; i < vars.length; i++) { var pair = vars[i].split("="); // If first entry with this name if (typeof query_string[pair[0]] === "undefined") { query_string[pair[0]] = decodeURIComponent(pair[1]); // If second entry with this name } else if (typeof query_string[pair[0]] === "string") { var arr = [query_string[pair[0]], decodeURIComponent(pair[1])]; query_string[pair[0]] = arr; // If third or later entry with this name } else { query_string[pair[0]].push(decodeURIComponent(pair[1])); } } return query_string; }(); function setCookie(cname, cvalue, exdays) { var expires = "expires=Thu, 01 Jan 1970 00:00:01 GMT"; if (exdays > 0) { var d = new Date(); d.setTime(d.getTime() + (exdays * 24 * 60 * 60 * 1000)); var expires = "expires=" + d.toUTCString(); } document.cookie = cname + "=" + cvalue + "; " + expires + '; path=/;'; } var config = { "pg73l0xdo2": { autoPlay: false, controlsVisibleOnLoad: true, fullscreenButton: false, playButton: true, smallPlayButton: true, playbar: false, volumeControl: false, endVideoBehavior: "default", email: "", } }; var qs =; var vars = qs.split("&"); var str = []; if (vars != "") { for (var i in vars) { if (/^inf_field_Email/.test(vars[i]) || /^contactId/.test(vars[i])) continue; str.push(vars[i]); } } //remove params str = (str.length) ? document.location.pathname + "?" + str.join("&") : document.location.pathname; history.pushState({}, document.title, str); // TODO: Change this to work on ALL wistia videos, no matter what ID _wq.push(config); if (/Android|webOS|iPhone|iPad|iPod|BlackBerry|IEMobile|Opera Mini/i.test(navigator.userAgent)) { //Add logic to display a different thumbnail on mobile devices (iOS & Android) config["pg73l0xdo2"].stillUrl = ""; } _wq.push({ "pg73l0xdo2": function (video) { console.log("I got a handle to the video!", video); jQuery('[data-title="webinar-live-cta-products"]').hide(); jQuery('[data-title="webinar-live-cta-bonuses"]').hide(); video.bind("betweentimes", 2860, 3460, function (withinInterval) { if (withinInterval) { console.log("CTA: Showing CTA & sending FB tracking event"); fbq('trackCustom', 'webinar', {content_name: 'egw_video_cta'}); jQuery('.main-wrapper .entry .featured-image [data-title="webinar-live-cta-bonuses"]').show(); var $el = jQuery('.main-wrapper .entry .featured-image'); jQuery('html, body').stop().animate({ scrollTop: $el.offset().top + $el.height() - window.innerHeight }, 1000); } }); video.bind("play", function () { console.log("Played: Waiting trackingMinPlaySeconds beore sending FB event"); setTimeout(function () { console.log("Played: Sending FB play event"); fbq('trackCustom', 'webinar', {content_name: 'egw_video_play'}); }, 30 * 1000 ) ; return video.unbind; }); video.bind("end", function () { console.log("Video ended - Redirecting..."); console.log("End - Video duration: " + video.duration() + " and video time: " + video.time()); if (video.duration() != 0 && video.time() != 0 && video.time() < (video.duration() - 60)) { console.log("End event called too early. 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It occurred to me this morning that there’s at least a 99% chance that you and I have never met.

We’ve had some absolutely spectacular events all over the world where we’ve been joined by giants like Ron Paul, Jim Rogers, Robert Kiyosaki, Marc Faber, and many more.

But even better, these events have given me the opportunity to meet thousands of our readers.

Sovereign Man readers are some of the most interesting people in the world. People who truly care about freedom, peace, and prosperity.

But given the hundreds of thousands of people who have signed up for this daily letter over the years, I realize that I haven’t had the chance to get to know the vast majority of our readers.

So this morning I decided to record a short video from our offices in Santiago to give you a better idea about who we are and our fundamental ethos.

More importantly, I wanted to leave you with something valuable. So at the end of this video I discuss three very simple tactics that absolutely anyone can implement to dramatically reduce the risks that we face from out of control governments and an insolvent financial system.

Check it out:



It took me a year to close this deal (but it was worth it)

Wed, 04/27/2016 - 13:11

After a mind-numbing, year-long process, one of the longest business deals I’ve ever been involved with in my entire life finally closed a few days ago.

I couldn’t be more excited.

Through Sovereign Man’s parent company, we purchased a wonderful, Australia-based business that’s been around for over 20 years and is a pretty iconic brand in the country.

Plus, it’s had a long history of profitability and zero debt, so it’s a safe, stable source of cashflow.

And given the price we negotiated, we’ve picked this business up at an extraordinary discount.

Just looking at the net assets of the business—its inventories, receivables, tax credits, property, etc., we paid far less than what the company is actually worth.

Moreover, we expect to make all of our money back in about one year.

These are two of my most important investment criteria: how much am I paying relative to what a company is worth (i.e. price relative to its ‘book value’)?

And how much am I paying relative to its annual profits (i.e. price relative to its ‘earnings’)?

The lower those ‘multiples,’ the better; we paid less than 1x book value, and roughly 1x earnings, so I know there’s a big margin of safety, and that we’ll quickly recoup our investment.

It’s difficult to find deals like this, and most of the time they’re only available with private companies.

In public markets where large companies’ stocks trade, these valuation metrics are just insane.

As I wrote yesterday, shares in Netflix sell for an absurd 18x book value, and 328x annual profits!

This is nuts. Clearly the Australian business we just bought is a much better bargain, and it’s why I prefer to buy private businesses rather than popular Wall Street mega-stocks.

I do recognize that it’s much more convenient for most people to buy stocks; you just click a few buttons and you own shares.

This is a lot easier than spending a year of your life and millions of dollars to acquire a private business.

But investors do pay a steep price for the convenience of buying stocks on major exchanges… namely, dramatically overpaying for the investment.

On rare occasions, however, the stock market does provide some ridiculous anomalies.

We talked about some of these yesterday– like when a high quality, well managed company’s stock trades for less than the amount of cash it has in the bank.

As an example, our Chief Investment Strategist recommended a company to our 4th Pillar subscribers last month that had a market cap of $301 million, yet an incredible $523 million cash in the bank.

In other words, the market was giving us $222 million for free. That’s an amazing deal, even better than the business that I bought…

And go figure, the stock price is already up 20% in just a few weeks.

This kind of anomaly does happen from time to time in the stock market, depending on WHERE you look.

The US market is wildly overvalued. But right now we are finding several of these incredible deals in Australia.

And that’s another major benefit, especially for US-dollar investors.

Right now the Australian dollar has been hovering near a multi-year low against the US dollar.

It’s been as high as USD $1.10 per Aussie dollar over the last few years. Today it’s about 76 cents. The long-term average is between 85 and 90 cents.

So not only can you make money when your investment generates profit and increases in value, but you can also benefit when the foreign currency appreciates.

Clearly this is volatile; currencies can go up or down. But you stand a greater chance of gain when you buy a foreign currency well below its long-term historic average…

… and when your own currency is incredibly overvalued.

That’s what’s happening right now, especially between the Australian dollar and the US dollar.

US dollars have been overvalued against most currencies around the world for more than a year.

And since Australia is a major mining country, the Aussie dollar has been hit particularly hard due to the worldwide slowdown in commodities.

This means that US dollar investors can trade their overvalued currency for cheap Australian dollars, and then buy shares of companies that are selling for less than the amount of cash they have in the bank.

So now you can actually make money in at least two different ways– from the company, AND from the currency.

This has been an incredible investment strategy– it’s a great way to generate independent income, and something that anyone can do.

Many of these undervalued companies’ stock prices are as low as $1. So even with a small portfolio, you can accumulate plenty of shares.

Plus, many of the major online brokerages offer international trading, including TD, Schwab, E*Trade, Fidelity, Interactive Brokers, etc.

(If you’re looking for greater international diversification and asset protection, you could open a brokerage account at Hong Kong-based Boom Securities– more on that another time…)

This gorgeous penthouse in the nicest part of town sold for $200,000

Tue, 04/26/2016 - 12:06

My friend Zac’s sprawling penthouse apartment is over 3,500 square feet.

It boasts five bedrooms, a library, game room, office, two large terraces, and exceptional views of the entire city.

Plus it’s located in the nicest part of town, just a short walk from all the best restaurants and nightlife.

The price he paid? Just over $200,000.

You couldn’t even build a place like that for so cheap… so Zac essentially bought his apartment for less than its cost of construction.

That’s an amazing deal.

Now, the one thing I didn’t mention is that his apartment is in the very lovely city of Medellin, Colombia.

This helps explain the cheap price.

While real estate in the developed world goes for nose-bleed valuations, apartment prices in Medellin are heavily discounted thanks to the decades-old ‘Colombia stigma’.

Yet anyone who actually bothers to spend time in the country can see that the worst is clearly over in Colombia, so the cheap prices for real estate just don’t make any sense.

Now, I’m not trying to encourage anyone to buy real estate in Colombia.

The larger theme is that making great investments demands ignoring the popular narrative and thinking both independently and unconventionally.

As we’ve been discussing lately in this letter, this is becoming more and more critical.

Last week I told you how pension funds in most western nations have appalling multi-trillion dollar funding gaps, and are thus unable to meet their obligations to future retirees.

That, of course, is in addition to the US government’s $40+ trillion Social Security shortfall.

You’re basically on your own for retirement.

And yet, as I wrote yesterday, people today have to save three times as much for retirement as their parents did thanks to zero (or negative) interest rates.

That’s pretty much impossible for most people.

Bills, family, education, medical care, taxes, insurance… most people have way too much month at the end of the money to save at all, let alone three times as much savings to stash away.

Plus, for those who can/do save, the conventional options just aren’t producing the results they used to.

The old advice of ‘buy an S&P index fund and hold it for decades’ probably doesn’t make sense anymore.

US stocks, for example, are now in the second longest bull market in modern history.

In other words, it’s extremely rare for US stocks to have risen so far for so many years, and it seems foolish to bet that this rise will continue forever.

Just like seasons of the year, financial markets tend to move in cycles– bull vs. bear, boom vs. bust. It’s been a very loooong summer for US stocks. And winter is coming.

This is a terrible conundrum.

If pension funds aren’t able to meet their financial obligations to future retirees, and conventional investments are unable to produce strong results, how is anyone supposed to adequately save for retirement?

Again, this demands independent and unconventional thinking.

My goal this week is to introduce you to some different ideas that may help.

As an example, look again at Zac’s apartment: he bought a high quality real estate asset for less than its cost of construction.

Understandably, this is not a great fit for most people.

Being an absentee property owner in a country where you’ve never been and don’t speak the language is risky.

But consider the concept for a moment: buying a high quality asset for less than its cost.

Our team has been having a lot of success over the last few years applying this concept to financial markets.

Instead of buying an apartment for less than its cost of construction, we focus on buying shares of profitable companies that are selling for less than the amount of CASH they have in the bank.

That’s not a typo.

Most stocks these days trade at absurd valuations. Netflix is a Wall Street darling. But its stock trades for an astounding 18x book value, and 328x earnings.


However there are corners of the market, particularly with smaller, lesser known companies, where shares sell for well-below book value, and even less than cash.

You can check this for yourself by looking at a company’s balance sheet (all public companies’ balance sheets are available online).

You’ll see the line item “cash and cash equivalents” in the asset column. That’s the amount they have in the bank.

Then subtract any long-term debt they might have indicated in the liabilities column.

Then compare that number to the company’s market capitalization, i.e. the total number of shares (which is also listed in the balance sheet) multiplied by the current share price.

If a company’s market capitalization is less than the amount of cash they have in the bank, you are essentially buying cash at a discount. That’s a no-brainer.

If someone offered you a dollar, would you buy it for 80 cents? Yes please! As many times as possible.

It’s hard to lose money when you’re buying a dollar for 80 cents. And our team has been averaging returns in excess of 50% with this strategy, without having to take on substantial risk.

It seems odd that opportunities like this even exist. I mean, why would a company sell for less than its bank balance?

Clearly, that’s nuts.

Then again, it’s also nuts that the US government is able to rack up a debt level of $19,198,172,774,532.79.

Or that the Japanese government spends 41% of its tax revenue just to service its debt.

Or that banks can hold as little as 1% of your deposits in reserve.

Or that interest rates in many parts of the world are NEGATIVE.

There’s so much in our financial system that’s completely insane. At least you can make money from part of it.

Bear in mind, these deals are rare– but they do exist. We’re finding several of these right now in Australia… and that leads me to another unconventional investment idea.

More on that tomorrow.

Surviving Mission Creep

Mon, 04/25/2016 - 14:56

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

“So there is another reason why Europe isn’t growing and it’s one the central bank can do nothing about. Namely, the 19 governments of the Eurozone and the super-state in Brussels have essentially outlawed it. If you want to know why growth is so tepid just examine the Eurozone’s massive barriers to enterprise and work in the form of taxes, regulation, welfare state extravagance, crony capitalist subsidies and privileges and labour law protectionism.

In a word, the problem is not that private sector credit is too niggardly; it’s that the leviathan state has crushed the ingredients of supply side enterprise and growth. When the state budget consumes 50% of GDP, and its tentacles of regulation and intrusion penetrate most of the rest, the central bank’s printing press is impotent.”
– David Stockman.

The history of economic central planning is not exactly glorious. The Soviet Union’s economy finally collapsed in the late 1980s, but not before over 20 million of its citizens had been murdered. The People’s Republic of China started implementing meaningful economic reforms in 1978, after having terminated the existence of over 45 million of its own people. Central planning in Nazi Germany was admittedly successful in bringing down the domestic unemployment rate, but the success of its wider economic legacy is debatable. Günter Reiman in ‘The Vampire Economy: doing business under Fascism’ highlights the process involved in, for example, a German carmaker of the regime purchasing 5,000 rubber tyres:

The process culminates in the delivery of 1,000 rubber tyres and 4,000 ersatz tyres, albeit after five months.
Ludwig von Mises, in his magnum opus ‘Human Action’, wrote on ‘The impossibility of economic calculation under socialism’:

The paradox of “planning” is that it cannot plan, because of the absence of economic calculation. What is called a planned economy is no economy at all. It is just a system of groping about in the dark. There is no question of a rational choice of means for the best possible attainment of the ultimate ends sought. What is called conscious planning is precisely the elimination of conscious purposive action…

The mathematical economists are almost exclusively intent upon the study of what they call economic equilibrium and the static state. Recourse to the imaginary construction of an evenly rotating economy is, as has been pointed out, an indispensable mental tool of economic reasoning. But it is a grave mistake to consider this auxiliary tool as anything else than an imaginary construction, and to overlook the fact that it has not only no counterpart in reality, but cannot even be thought through consistently to its ultimate logical consequences. The mathematical economist, blinded by the prepossession that economics must be constructed according to the pattern of Newtonian mechanics and is open to treatment by mathematical methods, misconstrues entirely the subject matter of his investigations. He no longer deals with human action but with a soulless mechanism mysteriously actuated by forces not open to further analysis. In the imaginary construction of the evenly rotating economy there is, of course, no room for the entrepreneurial function. Thus the mathematical economist eliminates the entrepreneur from his thought. He has no need for this mover and shaker whose never ceasing intervention prevents the imaginary system from reaching the state of perfect equilibrium and static conditions. He hates the entrepreneur as a disturbing element. The prices of the factors of production, as the mathematical economist sees it, are determined by the intersection of two curves, not by human action.

But Marxist economic theory has other strings to its bow. It has not just murdered tens of millions of people, bankrupted entire nations, and provoked international warfare. It has also provided employment for literally dozens of economists at British universities and newspapers.

Mario Draghi, the unelected Goldman Sachs alumnus now attempting to macro-manage the Eurozone economy via the European Central Bank, was engaged in a bitter-sounding spat with German politicians last week. Germany’s finance minister, Wolfgang Schäuble, had made the not unreasonable assertion that

“It is indisputable that the policy of low interest rates is causing extraordinary problems for the banks and the whole financial sector in Germany. That also applies for retirement provisions.”

Draghi’s response was robust, albeit progressively disingenuous:

“We have a mandate to pursue price stability for the whole of the Eurozone, not only for Germany. We obey the law, not the politicians, because we are independent, as stated by the law…”

It also became progressively political:

“With rare exceptions, monetary policy has been the only policy in the last four years to support growth.”

But neither Mario Draghi nor the European Central Bank has a mandate to support growth. That is not his job.

David Stockman again:

But here’s the thing. The world’s greatest monetary charlatan is nearly out of tricks. He pointedly backed off from helicopter money today because the Germans have obviously drawn a line in the sand. And he can’t push NIRP much farther without breaking what remains of Europe’s sclerotic socialist banking system. And if he tries even more negative carry money under TLTRO it will assuage the margin pressure on European banks but not make the Eurozone’s debt besotted households and businesses a wit more credit-worthy or inclined to borrow.

Mario Draghi is not acting in isolation. The world’s major central banks are now acting entirely outside whatever spurious authority they believe they have amassed for themselves – undemocratically – since the Global Financial Crisis first ignited.

The mandate of the US Federal Reserve System, for example, is “to provide the nation with a safer, more flexible, and more stable monetary and financial system”. After over a century of Fed overseen credit cycles and banking crises, it is legitimate to ask: safer and more stable compared to what?

As the American economist Thomas Sowell points out,

Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it.

Someone should tell Mario Draghi, perhaps.

But in the business of fiduciary investing, we are tasked with operating in the financial world as is, not the financial world as we would like it to be. The financial world as is, is a world of negative interest rates, typically overvalued financial assets and increasingly arbitrary monetary policy. Not an easy world in which Mises’ hero, the entrepreneur, can comfortably operate. But try, he must. The entrepreneur might justifiably counter that the future is never certain.

The asset allocator is tasked with a similar problem. How can one sensibly invest when all prices have been distorted and no prices can be taken at face value (assuming they ever could)? The answer, surely, is to focus solely on those areas of the global marketplace which have the characteristics of high quality, matched by the attributes associated with the possession of a ‘margin of safety’. Along with an association with high quality, ‘margin of safety’ in the financial markets of 2016 implies very specifically the absence of conspicuous overvaluation. Bonds no longer qualify in any real sense, but value equities still do. Happily, investible pockets of them still exist, despite the best efforts of the arch-exponents of mission creep to demolish the working economy.

It’s now almost impossible to save for retirement

Mon, 04/25/2016 - 12:07

My grandfather was something of a Renaissance Man.

He was a farmer, schoolteacher, fisherman, collector, real estate investor… and one of those guys who always seemed to know how to do everything.

He could take apart an engine, build a house with his bare hands, tame wild horses, treat life-threatening wounds, play the guitar… and he was extremely well respected in his community.

Plus, like many from his generation who grew up during the Great Depression, he was also a prolific saver.

Being highly mistrustful of banks, my grandparents dealt mostly in physical cash. They used to keep money in old coffee cans stuffed full of coins and bills.

Every now and again when the coffee cans became too numerous, they would buy government savings bonds.

Of course, that was a different world.

When my grandparents were saving, the government was actually solvent, and interest rates were ‘normal’. You could buy government bonds and expect a decent rate of return.

Plus the dollar was still linked to gold back then, so you could have a confident outlook on your currency.

At the same time, Social Security was also in good shape; you didn’t have to worry whether it was still going to exist when it came time for you to retire.

Sadly, it’s no longer the same today.

As we discussed on Friday, Social Security in the Land of the Free has a shortfall exceeding $40+ TRILLION according to its own annual report.

Simply put, this means that Social Security woefully lacks the funding to meet its obligations, particularly those to America’s future retirees.

This isn’t a problem strictly with Social Security either; one of the major Medicare trust funds (Disability Insurance) is literally days away from going completely broke.

And as the Financial Times reported recently, city and state pension funds across the United States have another multi-TRILLION dollar funding gap.

Nor is this problem distinctly American; the same conditions broadly exist across most of the developed world, especially in Europe.

So relying on just about any western government’s retirement program is an absolute sucker’s move.

Yet even if you take matters into your own hands and save for retirement on your own, you’re fighting an uphill battle at best.

Zero (or negative) interest rates around the world have practically destroyed any reasonable expectation of savings.

When my grandfather was saving, for example, he could buy a 1-year US government bond yielding 4% at a time when inflation was 1%.

That’s a 3% return when adjusted for inflation. Not huge, but for him it was risk free.

Today, the latest government report shows the US inflation rate at 0.9%; yet that same 1-year US government bond yields just 0.53%.

In other words, today you lose more money to inflation than you earn in interest.

So saving money guarantees that you will LOSE after adjusting for inflation, at a time when the US government’s finances have never been more precarious. Crazy.

According to Blackrock CEO Larry Fink (the largest money management firm in the world), people today have to set aside THREE TIMES AS MUCH money to save for retirement as their parents and grandparents did because of these low interest rates.

So not only are you facing a no-win situation with government retirement options like pensions and Social Security, but even saving money on your own requires three times as much sacrifice.

How is someone supposed to put their kids through an astonishingly expensive university system, pay for the shocking cost of medical care, AND set aside three times as much for retirement??

It almost sounds impossible.

Now, this isn’t intended to be a downer. What I really hope to point out is that CONVENTIONAL options and strategies just don’t work anymore.

Buying ‘risk free’ bonds, dumping money in a mutual fund, and waiting for the government pension to kick in just won’t produce the results that it used to.

The truth is there are entire asset classes and niche investments out there that can generate vastly superior rates of return without having to take on substantial risk.

And best of all, these niche assets and corners of the market are only available for smaller investors.

If you buy big, conventional blue chip stocks and funds, there are dozens of ways you’re getting fleeced by Wall Street and City of London.

High-frequency traders, re-hypothecation, bank solvency issues, collusive price fixing, etc. Finance is a big insider boy’s club… and we’re not in it.

But niche investments are way too small for these giant sharks.

Goldman Sachs is probably not going to get into the Burmese art market anytime soon. And that’s not even a good example.

This week I’d like to introduce you to some incredibly compelling, unconventional, yet simple ideas and strategies that could put you back in control and achieve real financial independence.

More soon.

This virtually guarantees that your taxes are going through the roof

Fri, 04/22/2016 - 11:32

Ever since I was a kid, I always knew that cancer runs deep in my family.

My father died more than a decade ago of a horrible brain tumor. His father had cancer. Both of my mother’s parents died of cancer.

I knew all of this before I even understood what cancer was.

Not willing to leave the issue to genetic luck, though, my mother started educating my sister and I to make healthy decisions even when we were very young.

And I’ve heeded these lessons throughout my life. I almost exclusively eat healthy, vitamin-rich, organic food (most of which I grow myself here in Chile). I don’t smoke. I avoid anything toxic.

Most of all I keep educating myself so I know what the best options are at any given time, including those that fall outside of the mainstream.

I don’t feel like I’m any worse off for taking basic steps to educate myself and make healthy decisions to reduce a fairly obvious risk.

I was thinking about this the other day when I read an article in the Financial Times about the “disastrous” $3.4 trillion funding hole in the United States public pension system.

To be clear, they’re not talking about the Social Security mess. That’s an additional $40+ trillion funding shortfall.

The $3.4 trillion gap is referring primarily to city and state pension funds; these pension funds essentially have way too many liabilities and obligation, with too few assets to support them.

And the problem gets worse each year.

Now, pension funds in the Land of the Free are supposed to be backed up and insured by a federal agency known as the Pension Benefit Guarantee Corporation (PBGC).

The PBGC is sort of like the FDIC for pension funds.

There’s just one small problem: in addition to all of these city and state pension funds that are under water, the PBGC is INSOLVENT.

In its most recent annual report, the PBGC (which ensures the pension funds of more than 40 million Americans), showed net equity of NEGATIVE $76 billion.

So not only do these pension funds need a bailout, but the government organization that is supposed to insure the pension funds needs a bailout…

… and all of that is in addition to the $40+ trillion Social Security shortfall.

By the way, if you’re thinking “whew, I’m glad this only applies to retirees in the US”, think again. MOST western nations are in a similar position.

In the UK, for example, the British pension fund gap is at a record high 367 billion pounds. Across Europe the pension fund gap exceeds 2 trillion euros.

There are only two ways out of this:

1) Your taxes are going to go up. Big time.

Cities and states are going to have to steal more of your money in order to plug these holes.

(And for that matter, the US federal government will have to do the same thing with Social Security.)

2) They’re going to default on their obligations to taxpayers.

It’s also likely that, at a certain point, governments will simply change the rules.

They’ll either cut benefits, cancel them altogether, or change the age of eligibility when you can start receiving benefits.

Needless to say these circumstances present a fairly credible risk to people’s retirements.

Yet while you can’t do anything to fix your bankrupt government or their unfunded pension programs, you can reduce the risks and their impact on your own life.

Finance is a lot like health in that way.

Many people unfortunately ignore obvious financial risks, just like obvious health risks. This is a bad idea.

Clearly there are a LOT of things that we cannot control or predict in both health and finance.

But when faced with such obvious risks, it’s easy to take sensible steps to get them under control.

This includes consistently making financially healthy choices, seeking strong financial education to really learn about investing and retirement planning… and thinking out of the box to consider investment options that aren’t so generic and mainstream.

We’ll talk more about some of these options next week.

Meet the selfish tycoon who dodged billions in taxes

Thu, 04/21/2016 - 14:09

Chances are you’ve never heard of Chuck Feeney. And he’s worked very hard to keep it that way.

Feeney, who will turn 85 on Saturday, had an incredibly successful business career, amassing a multibillion dollar empire based primarily on duty-free retail shopping.

I know what you’re thinking: he already sounds like a bad person… earning a vast fortune by enabling shoppers around the world to avoid paying sales tax and VAT.

This alone constitutes an almost incalculable loss of government tax revenue that could have clearly been much better allocated to more wars and bombs!

But it gets worse: Feeney himself became the poster child of offshore tax avoidance.

According to Forbes, this nefarious tycoon “has aggressively tried to avoid taxes at every stage in his career– from setting up his early business in Liechtenstein, incorporating his holding company in Bermuda. . .”

What a surprise… another rich a-hole abusing offshore tax havens in order to keep all of his wealth for himself.

So on top of helping shoppers around the world avoid paying sales tax and VAT, this guy easily bilked the US federal government out of billions of tax revenue.

It breaks my heart to think about all the government programs that weren’t funded as a result of his selfishness.

Just this morning, for example, I was reading about a bold initiative at the National Institutes of Health (NIH).

There was critical research conducted last year where the NIH studied twelve monkeys running on treadmills inside special exercise balls at the Southwest National Primate Research Center.

Needless to say the results of this study are truly game changing for society. I mean… monkeys on treadmills, guys!

We now know, for example, that one monkey vomited, and three others “defecated in their exercise ball”.

What tremendous courage and vision these bureaucrats must have had in putting such a study together.

Unfortunately the program was only granted a paltry $1 million budget, or roughly $83,000 per monkey.

Just think of how many more monkeys could have been observed vomiting and defecating in their exercise balls had Chuck Feeney not been dodging his taxes! It’s a real travesty.

You’re probably wondering how many Ferraris this depraved billionaire has added to his collection over the years…

Well, none, actually.

He’s flown millions of miles in coach, wears a cheap Casio watch, and crashes at his daughter’s apartment when he visits New York City.

It turns out that Chuck Feeney has spent the last few decades giving away his entire fortune to the point that he makes Bill Gates look like an amateur.

Feeney transferred his business interests to his charitable organization in 1984. And for the last 30+ years he’s given away nearly $8 BILLION through the foundation.

Given that Feeney’s personal net worth is now roughly two million bucks (million with an ‘m’), that means he’s given away 99.98% of his wealth.

While the US government has been using your tax dollars to bomb children’s hospitals by remote control, Feeney has been building them.

He has endowed entire universities, funded cancer research, invested hundreds of millions in AIDS benefit to Africa, built a $300 million medical center in California, and developed a new technology hub on New York City’s Roosevelt Island.

He’s made life-changing donations across the world—Australia, Vietnam, the United States, South Africa, Ireland, etc. that have improved the lives of countless individuals.

These aren’t the actions of a narcissistic robber baron.

And yet much of this was made possible by Feeney’s aggressive tax avoidance. He saved billions of dollars that would have otherwise funded the government’s destructive waste.

The entire concept of taxation is grounded in the idea that some politician knows how to spend money better than you do.

But Feeney opted for a different path: taking completely LEGAL steps to stay in control of his savings and make a huge difference in people’s lives.

As we discussed yesterday, the government and media are force-feeding us a narrative that anyone who tries to take control back is some terrible villain.

It’s as if we’re living in the Dark Ages as feudal serfs obliged to serve the nobility.

What a sad mentality.

The truth is that YOU control your life, your income, your assets… not some politician that’s going to squander it on wars.

You decide how to raise and educate your children, or what you should / should not put in your own body… not some bureaucrat who watches monkeys defecate.

That’s what being a Sovereign Man is all about: control.

And the sooner people start taking it back from their governments-gone-wild, the better, more peaceful, and more prosperous the world will be.

Why I’m proud that my tax bill is ZERO

Wed, 04/20/2016 - 12:20

I’ll start with a confession.

Based on the returns I’ve just prepared for 2015, my tax bill for the year amounts to exactly $0.00.

In fact, for the second year in a row, I legitimately owe zero tax. And I’m damn proud of that.

(And no, it’s not from any illegal tricks. I’ll explain how I did it later.)

Not a shred of my efforts goes to help finance bombs, wars, debt, and utterly useless waste.

April is the month where hundreds of millions of people all over the world, including the United States and Canada, file their annual tax returns.

And it raises an important question: what are you really paying for?

Occasionally I hear from friends in very high-tax places (like Norway) who tell me that they enjoy paying taxes, or at least, that they don’t mind very much.

And this may be true in a few countries where people feel like they’re receiving benefits like healthcare, education, a well-funded pension, etc.

But what tangible benefits do you receive in exchange for your federal tax dollars in the Land of the Free?

You pay for a hopelessly unfunded Social Security program that’s tantamount to a Ponzi scheme.

Even by the government’s own numbers, Social Security has no chance of existing, at least in its present form, by the time most taxpayers reach the age of eligibility.

So you’ll pay for your entire working life into a program that won’t be there for you. I’d hardly call this a benefit.

Aside from bankrupt entitlement programs like Social Security and Medicare, taxpayers also fund plenty of bombs and war.

Military spending is the next biggest line item in the US federal budget at roughly $600 billion, though it often balloons far beyond that figure through clever accounting tricks.

If you’re ready to jump to the conclusion that being a major superpower requires a massive military budget, I won’t bother arguing.

But I hope we can agree that it makes sense to spend funds wisely.

As it turns out, this isn’t happening. In 2013 the US Defense Department got caught blatantly cooking the books in order to conceal epic levels of fraud, waste, and incompetence to the tune of trillions of dollars.

This absurd level of waste is very much the case across all of government, whether it was the infamous $2 billion spent on the Obamacare website, or the $856,000 spent to train mountain lions to run on treadmills, or the $1 billion the military spent to destroy $16 billion worth of perfectly good ammunition.

After military spending, the next budget item is INTEREST on the DEBT.

According to the Treasury Department’s Bureau of Public Debt, last year the government spent over $400 billion on interest!

Again, this is hardly a benefit.

Of course, people always point to things like roads and think this is somehow a benefit of paying taxes.

Maybe so. But the Highway Trust Fund that is supposed to build and maintain the roads is flat broke, due to be insolvent in less than 60 days.

So much for the roads.

It’s also easy for some people to think that, if we all pitched in a bit more and paid more tax, these huge fiscal imbalances would be eliminated.

What total nonsense. The institution of government has an uninterrupted track record of wasting taxpayer funds.

If everyone paid more tax, they’d simply find creative ways to waste more money.

Just look at the data: nearly every year the government’s tax revenue goes UP. And yet, so does federal spending!

If you look at the big picture, it’s clear that, at best, you are writing a check that goes into a fiscal black hole.

More realistically, your funds are being squandered on waste and war. It’s pathetic.

And this problem isn’t resolved by having everyone pay more.

If you really want to do something about it, the best method is to starve the beast.

And that’s a big part of being a Sovereign Man: taking legal steps to legitimately reduce what you owe.

Note: this has nothing to do with the ‘Sovereign Citizen’ movement that advocates not paying tax by simply ceasing to file a tax return.

Even if you feel legally and morally right about not filing a tax return, never forget that taxes in the Land of the Free are collected at the point of a gun.

So if you don’t file, you could easily wind up wearing a Day-Glo orange jumpsuit in a Federal Prison Camp. It’s not worth it.

There are dozens if not hundreds of perfectly legitimate ways to reduce what you owe.

For example, anyone can set up and maximize retirement contributions to an IRA or 401(k), thus reducing what you owe in taxes.

In my case, because I live abroad, the Foreign Earned Income Exclusion and Foreign Housing Exclusion have helped reduce my own tax bill down to zero.

The best part is that I get to choose how to spend my own money.

Last year I used my tax savings to help a wounded veteran who had been abandoned by the federal government.

He lost his leg on patrol in Afghanistan, but the government wouldn’t pay for the experimental surgery he needed to start walking again. I was able to help.

I’m already looking for the next person I can help with this year’s tax savings.

The standard narrative we are told by the government and their lapdog media is that tax avoidance is something that self-centered rich assholes do so that they can buy more Ferraris.

This is complete propaganda.

Taking legal steps to reduce what you owe is all about ensuring that your labor goes to the causes that YOU believe in, rather than funding spy agencies and bombing raids on children’s hospitals.

This sense of independence is what being a Sovereign Man is all about.

After three days without water in Chile

Tue, 04/19/2016 - 11:00

Over the weekend, just as I was arriving back to Chile after a few weeks away, the sky above Santiago opened up and started to dump heavy rain on the city.

I was already in the car on the way down to one of our farms once the rains began.

But apparently the downpour was so heavy it caused an epic, almost biblical flood of some of the major rivers in the area.

It was pretty nasty in Santiago; the city just isn’t used to rainfall of that level.

Parts of one of the main highways were totally submerged. Major retail and office buildings were flooded and had to close.

The power grid went down sporadically in a lot of neighborhoods.

And the city’s water system virtually shut down, so millions of people had to go a few days without access to running water.

I’m not trying to paint a picture of chaos and pandemonium; Chile has seen its share of natural disasters, and they tend to deal with such things in a civilized manner.

But still– who wants to go a few days without access to water and electricity?

It’s easy to take basic utilities for granted when all we have to do is flip a switch and the lights come on… or turn a faucet and water comes out.

A lot of us have grown up in an environment where we’ve never even had to think about the enormous effort from thousands of people and millions of tons of resources it takes to make that happen.

That is, of course, until the power and water go out. Then we start thinking a lot about it.

It’s like health, in a way. Few people wake up feeling grateful for being in good health that morning.

But the moment illness strikes we long for that feeling of wellness.

In my case, the flooding didn’t affect me at all. We got a lot of rain down here at the farm, and the power went up and down sporadically, but it didn’t matter one bit.

In addition to generating a healthy commercial profit, the farm where I am right now can also produce its own food, water, and electricity.

In fact, most of our farms are totally self-sufficient in this way. And it just makes a lot of sense.

Being self-sufficient means that no matter what happens in the world, we’ll be able to deal with anything from a position of strength.

But as we discussed yesterday, part of being a Sovereign Man is having a strong sense of independence and self-reliance.

From a financial perspective, that doesn’t necessarily mean being super rich, but rather educating one’s self to build an independent source of income.

It also means having greater independence from the banking system so that you have more control over your savings.

(This is why I’ve long recommended holding physical cash and precious metals, rather than keeping 100% of your savings in a bank with shaky fundamentals.)

From a personal perspective, this concept of self-reliance also means taking steps to reduce your dependence on the big grid.

I feel a bit strange saying this, because I’m not a doom-and-gloom, ‘the end of the world is nigh’ sort of person.

I’m actually quite optimistic about the world and all the opportunities I’ve seen traveling to 120 countries.

But the world is certainly changing, and that carries a degree of risk.

The big titanic governments that ruled that past are rapidly going broke. That, too, carries a degree of risk.

And as our experiences in Chile over the weekend attest, sometimes the unexpected happens.

As a Sovereign Man, I’d rather be in control of my own fate.

And that means not having to depend 100% on the complicated logistics of transporting coal across the country in order for the lights to come on.

If that system works, I can still use it. If it doesn’t work, it won’t affect me.

This is not to say that everyone should live on a self-sufficient farm and grow their own food (though it is a very nice lifestyle).

Start small. And cheap. Buy some bottles of water and store them some place in your home, out of sight and out of mind.

Or even still, just fill up some old bottles with tap water. It’s practically free.

Don’t feel weird about it– it’s not crazy to keep a little bit of extra water around the house at almost zero cost. And you certainly won’t be worse off for having it.

It’s like holding a bit of physical cash: there’s basically zero cost for doing it.

But in the event that any of these risks become a reality, it’ll be one of the smartest things you do.

Raging bull

Mon, 04/18/2016 - 13:09

“The nonsense and frustrations we all witness in this industry every day is a red hot ember that drives us, a prime motivator to push back against the endless firehose of bullshit that the Wall Street machinery manufactures. The single biggest and most profitable product that the Finance Factory cranks out every day is bullshit, and each version of it is slicker and better and more dangerous than whatever came before.

“Our research business model is to create a countervailing narrative to this endless flow of money-losing foolishness. We know that not everyone will be saved, but we can at least provide enough information, data and commentary that an intelligent web surfing investor can find ways to save themselves from the Finance Factory’s finest foolery.”

– Barry Ritholtz.

The human brain is a pattern recognition engine. We see patterns even and especially when they don’t exist. Scientists call this pareidolia: the perception of a face on the surface of Mars, or of a religious icon on a piece of burnt toast. Financial journalism is hardly immune to it. Perhaps most journalism relating to markets is guilty of some form of narrative fallacy, what Nassim Taleb calls “our limited ability to look at sequences of facts without weaving an explanation into them, or, equivalently, forcing a logical link, an arrow of relationship upon them. Explanations bind facts together. They make them all the more easily remembered; they help them make more sense. Where this propensity can go wrong is when it increases our impression of understanding.” We crave certainty and we cannot stand the idea that there may be ultimately little or no very rational explanation for much of what occurs in the financial markets on a daily basis.

Thomas Schuster of the Institute for Communication and Media Studies at Leipzig University has crafted one of the more devastating critiques of financial journalism which will strike a chord with any investor who has read a market bulletin and howled in despair at the barrage of non sequiturs and sweeping presumptions contained within it:

The media select, they interpret, they emotionalize and they create facts.. The media not only reduce reality by lowering information density. They focus reality by accumulating information where “actually” none exists.. A typical stock market report looks like this: Stock X increased because.. Index Y crashed due to.. Prices Z continue to rise after.. Most of these explanations are post-hoc rationalizations.. An artificial logic is created, based on a simplistic understanding of the markets, which implies that there are simple explanations for most price movements; that price movements follow rules which then lead to systematic patterns; and of course that the news disseminated by the media decisively contribute to the emergence of price movements.

Then there is the sort of financial journalism that advocates economic policy. It is one thing to publish a commentary that cobbles together inanities accounting – badly or entirely wrongly – for why the market did what it just did. Such commentary is largely harmless. It is another thing to promote specific policy actions that will have real world consequences, or wilfully to misrepresent market behaviour so as to traduce the explanation of prices.

Martin Wolf in the Financial Times, 12 April 2016, wrote a column entitled:

‘Negative rates are not the fault of central banks’.
The following ‘observations’ are taken from that article. Most of them are questionable.

“Save the savers” is an understandable complaint by an asset manager or finance minister of a creditor nation. But this does not mean the objection makes sense. The world economy is suffering from a glut of savings relative to investment opportunities. The monetary authorities are helping to ensure that interest rates are consistent with this fact. Ultimately, market forces are determining what savers get. Alas, the market is saying that their savings are not worth much, at least at the margin..

Some will object that the decline in real interest rates is solely the result of monetary policy, not real forces. This is wrong. Monetary policy does indeed determine short-term nominal rates and influences longer-term ones. But the objective of price stability means that policy is aimed at balancing aggregate demand with potential supply. The central banks have merely discovered that ultra-low rates are needed to achieve this objective.

Another objection is that ultra-low, even negative, real rates are counterproductive, even in terms of demand. One rejoinder to this argument is that the ECB raised rates in 2011, with disastrous results. The broader objection is that higher rates shift incomes from debtors to creditors. It is highly likely that the former would cut spending more than the latter would raise it. Furthermore, by impairing the creditworthiness of borrowers, the policy would have two further malign effects: it would force borrowers into bankruptcy, with bad consequences for intermediaries and creditors; and it would reduce the expansion of credit. Thus, the argument that raising interest rates would be expansionary is highly implausible. Naturally, savers argue the opposite. They would, wouldn’t they?

Sometimes the devil emerges in plain sight. Strange market forces that are set by central bank fiat and maintained by it. It is central banks that control short term policy rates and it is central banks whose policies of quantitative easing ensure that the yield curve, too, is a policy tool of the State.

Not every FT subscriber takes Martin Wolf’s absurd economic policy guidance lying down. The following was the response from ‘MarkGB’:

There’s nothing for it, Mr Wolf, I am forced to admit that you are totally right.

Negative interest rates are not the fault of central banks. Indeed it is churlish to assume that the people who stride the world stage with their optimal control panels should have the slightest degree of control over anything, optimal or otherwise. Clearly they haven’t.

As regards targeting inflation or creating employment it is equally clear that they haven’t got the foggiest idea about any of that either. They are clueless and therefore blameless. So to hold them accountable for any of that is totally unreasonable of us.

But the biggest injustice of all is to imagine that the people who spend their lives agonising over interest rates, people who rush for a microphone to talk about them every time Ray Dalio sneezes, people who write books about how they saved the world with interest rates and their love child QE…To suggest that those people are responsible for negative rates is just plain wrong…and highly negative by the way.

No, NIRP is the fault of two well-known meddlers in human affairs – the tooth fairy and the invisible spaghetti monster. These are the villains who crept into Alan Greenspan’s study one night in the early nineties and whispered in his ear…’cheap money makes people borrow and spend…it makes things look good on the surface…the pols like that…Don’t worry about paying it back, that’s for another day…’

Yes folks, the invisible spaghetti monster and the tooth fairy have trained a whole generation of Neo- Keynesian Astrologers with Friedman rising and their moon in Krugman…to believe that they are in control of everything but responsible for nothing.

They are the real villains of the piece. Unfortunately they don’t know the least thing about productivity, investment or wealth creation either – their PhD supervisor was Santa Claus and they think it’s all down to him.

So yes, Mr Wolf, you are right – negative interest rates are not the fault of Central Bankers.

To end on a slightly different note, let me say this:

This is no way in a million years that a free market would EVER result in negative interest rates. They are a man-made contraption, a sign of intellectual as well as monetary bankruptcy, a product of groupthink and hubris. Rationalise as you will, justify as you like – markets don’t DO negative interest rates – idiotic central planners and corruptible politicians create the conditions for them, then implement them, then deny responsibility for them.

But there is investing in the markets as we would like them to be – free and untouched by the price controls advocated by misguided neo-Keynesians and socialist policy wonks – and there is investing in the markets as they are today. Bonds, for example, are now an uninvestable asset class – unexploded ordnance in the minefield. Cash in the bank represents a growing counterparty risk combined with a derisory or negative yield. That leaves listed equities as the primary investment choice for anybody seeking income or capital growth.

But many equity markets have seen their valuations artificially manipulated higher by the price controls explicit in QE, ZIRP and NIRP. The only rational response is to seek out pockets of high quality value equity as yet unaffected by the malign distortions of the printing press. They may be few in number but they undoubtedly exist. You are unlikely to read about them, unsurprisingly, in articles from the mainstream financial media.

This artist still makes $300,000 per year from something he created in 1971

Mon, 04/18/2016 - 11:25

It was early spring in 1971 when an obscure American folk singer wrote a song that would change his life forever.

Sitting at a café in Saratoga Springs, New York, Don McLean scribbled the lyrics to a long ballad about an experience he had as a 13-year-old boy.

It began with a radio bulletin that said that Buddy Holly had died in a plane crash. The boy was crushed. But the man used this emotion to write a song that would take the world by storm.

Of course, that song was “American Pie.”

It stayed atop the Billboard music charts for more than a year. And it turned this once obscure folk singer into a global sensation.

More than that – McLean was immediately set for life: he still makes more than $300,000 a year from that song.

Imagine getting paid hundreds of thousands of dollars a year for something you did in 1971!

This story holds the key to one of the greatest business model ever invented: the idea that you can create something once and get paid on it for life.

It’s the royalty business.

In case you’re not familiar with the term, a royalty is a cash payment that you receive over and over again from an asset that you created, developed, or own.

For example, songwriters collect a royalty every time a song they write is played, purchased, downloaded or streamed. That’s why McLean still makes money from American Pie.

Royalties are also common in natural resources. Royalty companies often provide financing to oil and mining companies… and those borrowers pay a royalty on every ounce of gold or gallon of oil that the land produces.

Authors earn a royalty every time somebody buys their book. Inventors receive royalties from their patents.

And people who own royalties don’t have to do anything else to make money… except cash the checks.

The powerful cashflow of this model can be incredibly appealing to investors, and there are even some companies that specialize in acquiring assets that produce royalty income.

In his November 2014 edition of Price Value International, for example, Tim Price recommended a company called Franco-Nevada Corporation that specializes in gold-focused royalty income.

Back then it was very cheap, and Tim’s subscribers have made nearly 50% including both dividends and gains in the stock price… far outpacing most traditional gold miners.

There’s another company called Mills Music Trust still that has an impressive yield of 10% (i.e. the amount of annual dividends it pays to its shareholders is roughly 10% of the stock price).

That’s an amazing yield. But good luck buying shares– the stock has a market cap of just $5 million in the OTC market, and the shares rarely trade.

One of the things I really like about royalties is that they’re REAL assets that produce income, just like agricultural property or a profitable private businesses.

In times of inflation, the value of your asset goes up, thus protecting your savings.

In times of deflation, the cashflow that the asset produces is extremely valuable.

But the real potential with royalties isn’t with publicly traded stocks– it’s in owning private assets that generate income… like American Pie.

It used to be very difficult to do this; owning royalties meant you had to know someone, or be in the business.

Agents, managers and record labels bought royalty rights from singers and songwriters like Don McLean.

But if you weren’t part of the music business, it was very difficult to get in on these types of lucrative cash cows.

Fortunately the entire financial system is changing.

Modern technology has made it possible to bring together people like Don McLean who own royalties, along with investors who want to buy royalties.

It’s a similar concept to Peer-to-Peer lending platforms that match borrowers and lenders, or crowdfunding sites that match entrepreneurs with prospective investors.

It’s no longer industry insiders and big banks that have the deals all to themselves.But today I don’t want to talk about buying royalty companies. I want to talk about an exciting new opportunity that allows you to buy royalty assets directly from the creators and current owners.

You can cut out the middleman and collect these rich cash royalties yourself.

Now, as an artist or patent holder, you can go to a website and offer a portion of your intellectual property to sell to an investor.

And as an investor you can shop for any number of royalty-producing assets.

For example, recently auctioned off another music royalties from iconic bands like the Bee Gees and Eurythmics.

(One recent songwriter royalty sold for 7x last year’s earnings, which translates to a yield of roughly 14%.)

The site is currently auctioning a share of the royalties from comedy films like Dumb & Dumber, and There’s Something About Mary.

That’s the other exciting about royalties based on copyright. Unlike patents, which usually last for 10-20 years… copyright royalties last for much longer… up to 70 years after the death of the creator. That’s why you see popular songs like “Happy Birthday” earn millions of dollars of royalties every year for more than 50 years.

It means that whenever these movies are rented or played on TV stations around the world, the royalty owners get paid.

It’s like being a toll-collector on the pop-culture highway, so the potential is quite interesting. And these photos have another 50+ years of copyright left on them… so if you buy them… you could be getting paid until 2066! (These are the types of assets that could pay for your grandchildren to go to college.)

As we discuss frequently, part of being a Sovereign Man is having income independence. This means owning or creating valuable assets that produce independent cashflow.

Again, this could include assets like real estate or private businesses.

This is an incredibly important part of the “Plan B” strategy we always talk about. And owning royalty-producing assets may make sense for you to consider as part of that.

Actually, Panama has a higher corporate tax than Denmark…

Fri, 04/15/2016 - 13:10

Last night I got robbed.

Not in the literal sense of the word. There weren’t armed men in masks holding me up on the sidewalk in Panama City.

(I’ve been coming here for 13 years and have never once felt unsafe…)

It was at the cashier’s cage at the Veneto Casino.

After a few hours with a friend at the roulette table where I was happy to have walked away at breakeven, I was shocked to find out that the government of Panama takes a 5.5% tax when you cash in your chips.

In other words, if you cash in $100 in chips, you receive $94.50 back.

I had no idea. And I was furious.

This really drives home a major misconception about Panama. The country is being paraded around the mainstream media right now, with protestors ignorantly mocking Panama’s ‘zero-tax’ regime.

Most of these people have no idea what they’re talking about. This casino tax is one of Panama’s many taxes.

They have transfer taxes and dividend taxes and stamp taxes and individual income taxes.

Most ironically, the Panamanian corporate tax rate is 25%.

That’s higher than socialist DENMARK, as well as the United Kingdom (which is supposedly leading the charge against global tax havens.)

The primary difference is that Panama has what’s called a territorial tax system.

This means that the Panamanian government taxes its residents only on income that’s earned within Panama.

So, if you’re running a hotdog stand on the sidewalk in Panama City, you’re going to be taxed.

And whoever owns the amazing speakeasy I went to last night will be taxed on the food and beverage sales from our dinner.

But if you live in Panama and generate your income from overseas, that money is NOT taxed by the Panamanian government.

It’s pretty simple. And sensible.

Think about it—why would any government think they have a claim to tax income earned overseas, especially when that income has already been taxed by a foreign government?

If you live in Panama and trade stocks in Germany, you’re already paying steep taxes to the German government.

What sense would it make for the Panamanian government to tax that same income a second time?

Panama’s tax system is a much more practical model for the 21st century than the way that most other governments tax their residents.

Most countries have worldwide taxes, whereby residents are taxed on every penny they earn around the world.

So if you are a Canadian tax resident but earn all your money in Ireland, the Canadian government will tax you on that income, even though the source of revenue has absolutely nothing to do with Canada.

Worldwide taxation is practically feudal.

It presumes we’re all medieval serfs tied to the land rather than intelligent professionals who can do business in a highly connected world.

And it’s absurd that this system of worldwide taxation is still so prevalent in 2016.

Why is this country so poor?

Thu, 04/14/2016 - 12:50

“What is it about this place that makes it so poor?”

It was a simple question posed to me by a friend as we walked the streets of Managua, Nicaragua earlier this week.

Nicaragua is a lovely place. But it’s poor. Very poor. It’s the least developed economy in Central America… and that’s saying something.

But it’s worth considering: what makes an economy like Nicaragua so poor? And what makes others so wealthy?

Having traveled to nearly 120 countries, I’ve seen the full range of rich and poor nations. And I’ll tell you, it has nothing to do with natural resources or anything like that.

I often have meetings with senior ministers and government officials around the world who tell me all about the amazing resources they have in their country.

“We have so much forestry land,” or, “Our bauxite reserves are among the highest in the world…”

Irrelevant. Venezuela has incredible oil reserves. Yet they’ve been living in poverty for years.

(Now that oil prices are down the Venezuelan government has had to declare every single Friday a holiday because they can’t afford to keep the lights on.)

Ukraine has some of the most exceptional farmland on the planet. But the country is totally broke.

150 years ago, Hong Kong was a tiny village of illiterate fisherman.

50 years ago in Singapore they used to defecate in the streets, and visitors would have to step over rivers of feces in the downtown area.

25 years ago Estonia was still part of the crumbling Soviet Union.

None of those places has any resources to speak of. But they’ve become among the wealthiest in the world.

What’s the difference between Hong Kong and Ukraine? Singapore and Venezuela? Estonia and Nicaragua?

One of the things I’ve learned in my travels over the years is that wealthy nations do have some common characteristics.

The first set is cultural. Wealthy nations have a culture that values hard work. Knowledge. Productivity. Innovation. Risk-taking. Saving. Self-reliance.

I’m not trying to say that people in poor countries don’t work hard. Far from it.

The point is that if working hard and saving money are strong CULTURAL values (which tends to be the case in Asia), a country is going to do better.

Second, wealthy nations have much better institutions. The rule of law is strong. Private property rights are strong. Corruption is limited. Regulation is sensible. Taxation is reasonable and efficient.

It’s simple; no one wants to do business in a corrupt dictatorship.

Bad institutions drive away foreign investors. And as capital is one of the critical components of economic growth, choking off external investment suffocates an economy.

Last (and most importantly), wealthy nations have an “inclusive” economy.

This means that people aren’t medieval serfs toiling away for the establishment. If someone develops skills, works hard, and takes risks, they’ve got a good chance of moving up the socioeconomic food chain.

Economists call this “income mobility”. In the United States it’s known as the “American Dream”.

Yet all three of these factors are starting to disappear in the US… and in the West in general.

America’s self-reliant, risk-taking, hard working, pioneering culture helped propel it to become the wealthiest nation on the planet.

But these traits are rapidly vanishing, displaced by a culture that values instant gratification, consumer debt, and government handouts.

The institutions are faltering as well. Rule of Law is less predictable, with the government changing the rules in its sole discretion whenever it likes.

They pass new rules every day governing everything from what you can/cannot put in your own body, to how you are allowed to raise your own child, with much of it enforced at gunpoint.

And through an official form of theft known as Civil Asset Forfeiture, government agencies now steal more private property from people than all the thieves and burglars in the country combined.

This is banana republic stuff.

Most of all, though, it’s the economic structure that’s eroding.

The inclusive economy of America is vanishing. It’s becoming ‘extractive,’ meaning that the system is designed for the benefit of the establishment and rigged against the individual.

You can see this most notably in finance; central bankers have held interest rates down to practically zero for eight years in order to bail out large banks and the federal government.

Yet in doing so, they have decimated the prospects for retirees, responsible savers, and most of all, young people.

It’s no wonder that the Middle Class no longer comprises the largest segment of the US population, according to Pew Research.

Larry Fink, CEO of Blackrock (the largest asset management firm in the world) said that a typical 35-year old will now need to set aside 3x as much money for retirement as his/her parents did, simply because interest rates are so low.

And William Dudley, President of the Federal Reserve Bank of NY (and one of the most important Fed officials) recently remarked how the US is falling behind in terms of income mobility.

“The chance of achieving the American Dream,” he told his audience, “is not the highest for children born in America.”

That’s a pretty amazing statement, and it highlights how obvious (and important) these trends are.

Again, we’re not talking about ‘What If’. We’re talking about ‘What Is.’ And it has profound implications for your long-term prosperity.

Let’s explore this further in today’s podcast, as we discuss why this trend is really a massive opportunity in disguise to break away from convention and live a life with much greater freedom and prosperity.

Listen in here.

Time to be bullish

Wed, 04/13/2016 - 17:21

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

“We don’t see a recession coming in the United States.”
– Abby Joseph Cohen in a recent Bloomberg interview.

US corporate profits are experiencing a “gut wrenching slump”, according to SocGen’s Albert Edwards, in a research note published last Thursday (‘US whole economy profit slump makes a recession now virtually inevitable’).

“And with the US corporate sector up to its eyes in debt, the one asset class to be avoided – even more so than the ridiculously overvalued equity market – is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default.”

The US profits data are certainly disappointing, as the chart below makes clear.

Source: Datastream, SocGen Cross Asset Research

It also seems likely that US corporate profits, as a percentage of GDP, are in the process of mean reverting after reaching all-time highs, as this chart from the St. Louis Fed shows:

As to prospects for US corporate debt, especially high yield.. Suffice to repeat the maxim that more money has been lost reaching for yield than at the point of a gun. That is likely to hold true especially when cash interest rates and bond yields have been artificially suppressed by the world’s central banks. What is an investor to do?

First, a pertinent snapshot from history.

On May 29th, 1969, Warren Buffett sent out his annual letter to the partners of the Buffett Partnership, Ltd. Within it he wrote:

“ seems to me that.. opportunities for investment.. have virtually disappeared, after rather steadily drying up over the past twenty years.. and a swelling interest in investment performance has created an increasingly short-term oriented and (in my opinion) more speculative market.”
Buffett was winding up the partnership. He could barely have been more candid in his explanation as to why:

“I just don’t see anything available that gives any reasonable hope of delivering.. a good year and I have no desire to grope around, hoping to “get lucky” with other people’s money. I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.”

The stock market then dropped for the next five years.

As individual investors, not a single one of us is under the remotest obligation to play a game we don’t understand. That requirement does apply, however, to any institutional manager labouring under the curse of the benchmark. Being forced to play an irrational game without conviction may account for the peculiarly dismal fund manager performance reported during Q1 2016 in a survey compiled by Bank of America Merrill Lynch. Just 19% of US large-cap managers beat the S&P 500 Index – the worst showing for any quarter in a series going back to 1998. Only 6% of growth funds beat their benchmark. Only 19.6% of value managers outperformed their own index.

The obvious caveat is that one calendar quarter is not, by itself, freighted with overmuch statistical significance, nor should it ever be. But the extent of the comparative underperformance does raise the question of whether the fund management industry as a whole is fit for purpose. Because in a survey covering a much longer period of 10 years (the SPIVA US Scorecard for year-end 2015), conducted by S&P Dow Jones Indices, 82.1% of large-cap managers, 87.6% of mid-cap managers, and 88.4% of small-cap managers failed to outperform on a relative basis.

While Warren Buffett was out of the US stock market between 1969 and 1973, many stocks fell by a dramatic margin but their impact on the indices was largely cancelled out by the relentless rise of the so-called ‘Nifty-Fifty’ glamour stocks – arguably the equivalent of today’s ‘FANGs’. And then even the ‘Nifty-Fifty’ succumbed to the forces of gravity and sheer economic logic, and by end-1973 the market was looking cheap again, and Buffett was back at work within it.

The following table, courtesy of Kokkie Kooyman of Sanlam Investment Management, is instructive. Although Buffett had elected to wind up his limited partnership in 1969, he kept his business interests in the Berkshire Hathaway holding company as a going concern. The table shows the comparative value of $10,000 invested in Berkshire Hathaway stock, and in the S&P 500 Index, beginning in 1971.

By 1974, notwithstanding the new-found valuation opportunity extant in the broader market, Berkshire Hathaway stock was down by 43%, versus a decline of 25% in the S&P 500. By 1975 the discrepancy was even more marked. Berkshire was down by 46% even as the S&P 500 had recouped all of its losses and then some. Forget just one quarter of comparatively poor performance. What about an accumulated four years of it? Would you have sold? Of course, we know with the benefit of hindsight, and this table of subsequent returns, that selling Berkshire Hathaway in 1975 would have been a disastrous decision. As the famed value manager Peter Cundill once observed,

“The most important attribute for success in value investing is patience, patience and more patience. The majority of investors do not possess this characteristic.

Which means that the majority of investors, like those US managers cited above, are destined to achieve inferior longer term returns.

Constant media coverage of (and the fund industry’s own focus on) the US stock market has crowded out coverage of many other markets that have been in the wilderness for years. Fund manager David Iben, in a note entitled ‘The Big Long’, points out that after the 2007 bubble and subsequent waves of QE, malinvestment “is now prevalent in finance, energy, commodities, consumer discretionary goods, emerging markets..” Investors fretted that stock prices were unsustainably high in 2007, a view validated by the ensuing crash. But “eight years later, prices are even higher for many US stocks, for high-end real estate, art, collectibles, tuition, healthcare and entertainment.” And tens of trillions of bonds are trading at the highest prices in the history of mankind. But as Iben suggests, this is not the beginning of a bear market – for many underlying investments, outside the major US indices, we are already in the late stages of a bear market.

MSCI All Country World Index ex-US, for example, looks somewhat different from MSCI World (which itself has a 59% weighting to the US):

Or consider the Baltic Dry Index:

Or the Market Vectors Junior Gold Miners ETF:

Value is in the eye of the beholder. It remains a function of where you look. If your gaze is fixed only on the US stock markets, the chances are you’re not likely to see much obvious value on offer. If your field of view is geographically unconstrained, the chances are you can now see plenty of opportunities worthy of consideration. As Shelby Davis said, “Bear markets make people a lot of money, they just don’t know it at the time.” The bear market in the US may or may not be about to start. The bear market elsewhere has already been with us for years. Time to be bullish – provided it’s in the right markets.

The incredible, intergenerational benefits of having a second passport

Tue, 04/12/2016 - 14:10

It’s been way too long since I’ve visited Managua, and since I was already nearby in Colombia, I thought it would make sense to come check out Nicaragua once again.

One of the people on my staff has a father from Nicaragua, and we were able to obtain a Nicaraguan passport for her as a result.

This is one of the things I encourage everyone to consider: having a second passport makes so much sense.

It means that, no matter what happens, you’ll always have a place where you’re welcome to visit, live, work, or invest.

And aside from a few places like Singapore or Israel where there may be military obligations when you obtain citizenship, there’s usually zero downside in having another passport.

The easiest way to obtain one is if you’re lucky enough to have an ancestor (best if it’s a parent) from a foreign country.

Many countries around the world, from Nicaragua to Italy to Australia, will award citizenship if you have a parent who is a national of that country.

Then there are other places like Poland, Hungary, and Ireland where you can claim citizenship if your ancestors go back multiple generations to grandparents, and potentially beyond.

Even if you’re not part of the lucky bloodline club, there are still other options available to obtain a passport.

For example, you could register for legal residency in a country like Panama (where I’m headed later this week.)

The process of obtaining residency is straightforward (and our recommended immigration attorney gets the job done very efficiently).

Plus once you’re approved, you don’t actually have to spend time in Panama; even with minimal time on the ground you can still maintain your residency status in the country.

And after five years, you’re eligible to apply for naturalization and a passport.

Ultimately having a second (or third, fourth, fifth, etc.) citizenship means having more options. And more options means more freedom.

You can travel to more places, you can live in more places, you can do business in more places.

Most of all, though, having multiple passports is a fantastic insurance policy.

Look, I’m not a pessimistic person. But it’s quite obvious that freedom in the West is in steep decline.

The FBI’s own numbers prove that the US government stole more wealth and private property from its citizens last year through Civil Asset Forfeiture than all the thieves and burglars in the US combined.

The government passes hundreds of pages of innocuous rules and regulations every single day that you’ve likely never heard of; and yet many of them can carry extreme civil, monetary, and even criminal penalties.

Speaking of passports, you can’t even apply for a passport in the Land of the Free anymore without being threatened with fines and imprisonment.

It’s as if everything they do has to be through fear, intimidation, and coercion.

Something broke a long time ago in the relationship between the government and its people.

The government “of the people, by the people, for the people” was replaced with a government that’s rigged against the individual for the benefit of a tiny elite.

You can’t fix this problem by going down to a voting booth and casting a ballot for yet another candidate who promises hope and change.

But you can take steps to make sure that you’re not just some dairy cow to be milked by the establishment.

And you can reduce your exposure to the major financial risks they’ve created after accumulating so much debt.

I call this having a Plan B. And one of the major components of this is obtaining a second residency or passport.

There are so many options available, and most of the really good ones only require a small investment. So your return on investment is extremely high.

The best part about all of this is that, in addition to the benefits to your own freedom and finances, a second passport can extend to your family.

Think about it– once you become a citizen, your children can become citizens. Their children, in turn, can become citizens.

This means that potentially all your descendants down the line can benefit from the action you take today.

In this context, a second passport could very well be one of the best and most lasting investments you can possibly make, and real gift to all future generations of your family.

P.S. We’ve put together some of the most important, foundational elements of a Plan B into a brand new service, Sovereign Man: Explorer.

Inside, you’ll have access to everything you need to ensure that in just a few weeks you’ll have:

  1. Your residency application completed (and be on your way to qualifying for a second passport)
  2. A portion of your savings protected in a well-capitalized foreign bank
  3. Precious metals held in one of the safest vaults in the world (a great hedge against the looming financial crisis)
  4. And clarity on exactly what to do next to protect your loved ones, your assets, and your freedom.

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This place is the Austin, Texas of South America

Mon, 04/11/2016 - 14:34

What an amazing weekend.

We just finished up a wonderful event here in Medellin for members of our Total Access group.

(Total Access is the highest level of Sovereign Man membership, and we routinely hold trips like this to introduce members to business and investment opportunities all over the world, and to the interesting, influential people within our network.)

As an example, we started on Thursday night with a reception for our members attended by prominent Colombian business executives, politicians, and artists.

Then Friday morning we kicked off the formal program by addressing the elephant in the room.

As you’re likely aware, Colombia has been engaged in a civil war for several decades with communist revolutionary groups like the FARC.

This conflict produced a dangerous web of narcoterrorism, paramilitary crime rings, and appalling levels of violence.

20 years ago, Colombia had a well-deserved reputation as the most dangerous country in the world.

But that was then. Today is a dramatically different story.

Most notably, Colombia is very close to concluding a peace treaty with the FARC.

The Colombian government has sent five private citizens to Havana, Cuba to sit at the negotiation table with FARC leaders to iron out the remaining details.

One of those negotiators (who is also one of the most successful business leaders in Colombia) joined us this weekend in Medellin, so we were able to hear about what’s happening with the peace negotiations straight from the horse’s mouth.

His remarks on the peace process and Colombia’s past struggles were truly inspirational.

And while I’m not at liberty to put the details of what he told us in print, it’s clear that both sides truly want a lasting peace.

This has extraordinary implications for Colombia.

Hammering this point home, our next guest was legendary investor Jim Rogers, who flew in all the way from Singapore to join our group.

Jim is literally the only person I know who has traveled to more countries than I have.

And he has witnessed first hand how peace can fuel prosperity in a nation.

War isn’t profitable for anyone except defense contractors.

With peace, people can once again get back to the business of producing, saving, and investing with confidence. That’s what builds an economy.

This is already starting to happen in Colombia, and we expect much more growth in the coming years.

The real turning point was the administration of former President Alvaro Uribe who was able to successfully wind down major military operations against the FARC.

Colombia’s middle class started growing almost immediately as a result, as did foreign investment and international tourism.

If the country is able to stay on track over the next decade, Colombia could become one of the greatest economic success stories of our time.

It’s also a really nice place to be.

Medellin in particular is a vibrant, cosmopolitan city. It’s unique. Artsy. Cultural. Innovative. Even a little bit quirky.

I call it the Austin, Texas of South America.

And it’s dirt cheap, especially now as the US dollar is so overvalued.

Our members were all shocked at how cheap it was to eat out at Medellin’s many fantastic restaurants, and at the absurdly low cost of real estate.

Medellin’s property market, in fact, is still one of the cheapest in the world on a price-per-square meter basis.

One of our speakers, a foreign entrepreneur who has moved to Medellin, told the audience about his 5-bedroom, 3,500 square foot penthouse apartment in the nicest part of town that he bought for just over $200,000.

I’ve been coming to Medellin for years and it gets better every single time.

And yet the reputation lingers.

Colombia is still frequently derided today as a dangerous haven for narcoterrorism, kidnapping, and wanton murder.

We’re not going to wear rose-colored glasses: serious problems still exist. But it’s nothing compared to the old days.

Herein lies the opportunity.

As an investor, I always try to find places where there’s a huge difference between the ACTUAL risk and the PERCEIVED risk.

Most western banking systems are a great example.

As we often discuss in this letter, western banks are extremely illiquid and poorly capitalized.

Their insurance funds fail to meet the minimum requirements and are unable to bail out the system.

The governments that are supposed to back them up are themselves insolvent. And the central banks that support the entire system are insolvent on a mark-to-market basis.

Plus, many western governments have recently passed legislation allowing banks to steal customer deposits the next time they run into trouble.

Yet there’s very little concern out there about banks. In other words, the PERCEIVED risk, i.e. how risky people think the banks are, is much lower than the ACTUAL risk.

Anytime that’s the case, when the actual risk is HIGHER than the perceived risk, it’s time to get out.

Colombia is the opposite. The perceived risk is very high. People think this place is a death trap.

The actual risk is MUCH lower. And our members found that out this weekend when they toured the city and surrounding countryside.

Anytime the actual risk is LOWER than the perceived risk, it’s time to get in… because the crowd is going to be close behind you.

That’s the opportunity in Colombia, and why this place should be on your radar now. Because this vast disparity in risk perception won’t last.


I think Medellin and the surrounding area could be a really great place to retire, and I’m convinced it will be a major expat destination some day. It’s worth checking out as a Plan B option.

But given Colombia’s current tax structure and other major hassles, I would avoid buying real estate as a pure investment.

There are far, far better sectors to invest in with higher returns and greater tax efficiency. Premium members– stay tuned for more.

2,600 year old wisdom from one of the first libertarians

Thu, 04/07/2016 - 13:22

My team and I are holding a very special event for members of our Sovereign Man: Total Access group for the next few days here in Medellin, Colombia.

Medellin is a spectacular city. It’s vibrant and growing, and it has a fantastic energy. I’ll tell you much more about this, and what we’re up to, next week.

But before I sign off for a couple of days to focus on our event, I wanted to leave you with some gentle wisdom that I re-read on the plane ride up here the other day.

Roughly 2,600 years ago, Chinese philosopher Lao Tzu wrote Tao Te Ching, the most important text of the Taoist tradition that encourages harmonious living.

I first read his book more than 20 years ago, well before I started seeing the world with open eyes.

This time around it had a much greater impact.

Lao Tzu was one of the early libertarians; his philosophy is anti-state and anti-authority, and many of the passages seem especially prescient right now.

There’s one in particular that I wanted to share:

When the palaces are full of excessive splendor,
The fields are full of weeds and the granaries are empty.
To dress in elegant clothing, carrying fine weapons,
Gorging in food with wealth and possessions in abundance
this is called boasting of thievery.

Click the links above to see just how prescient Lao Tzu was.

Incredible. US government just screwed itself out of $3 billion in tax revenue

Wed, 04/06/2016 - 16:22

What’s the dumbest thing you can possibly imagine your government doing?

It’s a serious question– think about it for a moment.

Now, whatever you come up with, I’m about to present an option that will probably blow it out of the water.

This morning, pharmaceutical mega-companies Pfizer and Allergan announced that they were bowing to US government pressure and terminating their $160 billion merger that was announced a few months ago.

Big deal, right? Who cares whether or not a couple of drug companies merge?

I’ll explain, because this is really incredible:

Pfizer is based in the United States, where the corporate tax rate is one of the highest in the world at 35%.

Allergan is based in Ireland where the corporate tax rate is 12.5%, and can be as low as 10% for companies engaged in manufacturing.

So the plan was simple. The two companies would merge together and maintain Allergen’s headquarters in Dublin.

That way the new corporation would be subject to the low Irish tax rate rather than the high US tax rate.

It was a great move for shareholders.

Every tax dollar that the company saves is an extra dollar that can be reinvested for growth, or returned to stockholders to spend or save as they see fit.

Those stockholders include countless individual investors, as well as large mutual funds that manage the savings of millions of people.

All of those shareholders were set to benefit from the merger.

But the US government didn’t like that idea. They want all the money for themselves.

So two days ago the US Treasury Department decided to squash the deal.

There were no laws passed. Congress didn’t have a debate or propose any new legislation.

Nor were any courts involved. There was no judge, jury, or legal pleading.

The Obama administration simply set aside the law and changed the rules in its sole discretion to force the deal to break down.

It was an extraordinary example of how the rule of law counts for absolutely nothing in the Land of the Free anymore.

They ignore their own laws whenever they want in order to be able to do whatever they want. This is banana republic stuff.

But to add injury to insult, aside from the offense to freedom and general stability, it was also a financially destructive thing for them to do.

Look at Allergan, one of the two companies involved in the merger.

Even though Allergan is headquartered in Ireland, it still does owe some US tax.

Remember, these are large, multinational companies that end up paying tax in dozens of countries around the world.

Allergan’s actual US tax bill has averaged about $290 million per year over the last five years (which is about $50 million more than Pfizer pays in US tax).

$290 million might sound like a lot of money. But in reality it only paid for about 6 hours and 18 minutes worth of INTEREST on the US federal debt last year.

So this is really a trivial sum for a government that burns through cash like a drunken sailor.

But consider just one of the consequences of the deal getting squashed: Allergan’s stock (traded on the New York Stock Exchange) plummeted.

According to the Financial Times, over $20 billion worth of shareholder value was wiped away in just minutes.

Now, before the Bernie Sanders crowd cheers that evil capitalists have been served their just desserts, think about the implications.

INCOME tax is not the only tax in the Land of the Free.

The US government also taxes capital gains, e.g. the tax you pay on gains when you sell an investment for more than it cost you.

Capital gains tax rates in the US are as high as 20%, not including the 3.8% Obamacare surcharge.

Let’s assume a more conservative federal capital gains tax of 15%.

This means that, since the US government wiped out $20 billion in market value from Allergan, there’s $20 billion LESS in capital gains available for them to tax.

In other words, the US government just cost itself $3 BILLION in potential tax revenue (15% x $20 billion).


For a government that seems so bent on getting every dollar they can, you’d think they would’ve done everything to support the Pfizer-Allergan merger.

After all, it would have meant much more capital gains tax.

But no. They still haven’t figured out that when corporations arrange their tax affairs in a way that’s in the best interest of shareholders, EVERYONE can win.

Instead they did something astonishingly short-sighted.

They cost themselves billions in capital gains tax for the sake of a few hundred million in income tax.

And most importantly they left absolutely no doubt that the Rule of Law in the Land of the Free amounts to absolutely nothing.

It would be pretty hard to come up with something dumber than that.

The original ‘too big to fail’ from 2,500 years ago

Tue, 04/05/2016 - 10:50

[Editor’s note: Tim Price, London-based wealth manager and frequent Sovereign Man contributor is filling in while Simon is en route to Colombia.]

Successful investing requires having an edge. If you do not know what your edge is, you do not have one.

One doesn’t need to be a rocket scientist, or even a die-hard contrarian to have an edge. But given the competition from vast numbers of rival investors, it pays to go down the road less travelled.

Malcolm Gladwell, in his book David and Goliath, examines precisely this approach.

Goliath, a Philistine, challenges the Israelites to “single combat”, a stylized way of engaging with the enemy that avoids the heavy bloodshed that comes from open battle:

“Choose you a man and let him come down to me! If he prevail in battle against me and strike me down, we shall be slaves to you. But if I prevail and strike him down, you will be slaves to us and serve us.”

Goliath expects to be met by an equal. He is a giant, at least six foot nine tall, wearing a tunic made up of hundreds of overlapping bronze scales, probably weighing more than a hundred pounds.

Bronze shin guards protect his legs. Bronze plates protect his feet. He wears a dense metal helmet.

He has three separate weapons, each perfect for close combat. His javelin is also made of bronze, and capable of penetrating either shield or armor. He has a sword at his hip.

And his primary weapon is a type of short-range spear with a metal shaft “as thick as a weaver’s beam”.

Given his sheer size, not to mention the fate of his nation riding on his shoulders, you could say that Goliath was ‘too big to fail’.

So it’s no surprise that the Israelites don’t exactly hurry to respond to Goliath’s challenge.

Finally, David appears. But he refuses sword and armor, on the basis that he’s not used to them.

Instead he reaches down and picks up five smooth stones and puts them in a shoulder bag. He then walks down into the valley to confront Goliath, carrying his shepherd’s staff.

The way Gladwell tells it, we have all been misled about the David and Goliath story.

Goliath is expecting to fight David in single combat, hand to hand.

But David has no interest in honouring the rituals of single combat. He strides off to Goliath intending to fight as light infantry instead. Then he reaches into his shepherd’s bag for a stone.

A skilled slinger in the ancient world was as deadly as an expert sniper.

Medieval paintings show slingers bringing down birds in mid-flight. Irish slingers were said to be able to hit a coin from as far away as they could see it.

The Romans even invented a special set of tongs so that they could extract slingshot embedded in their enemies.

The historian Robert Dohrenwend writes that

“Goliath had as much chance against David as any Bronze Age warrior with a sword would have had against an opponent armed with a .45 automatic pistol.”

The soldiers alongside David thought of power as physical might. But power can come in other forms: in breaking rules, or in substituting speed and surprise for strength.

Not being burdened down by heavy armor, David doesn’t walk to meet Goliath, he runs.

Gladwell also suggests that Goliath, for all his size, had abnormal vulnerabilities, too.

He asks David to come to him. He is led down into the valley by an attendant. He doesn’t even see David until he’s up close to him.

Gladwell suggests that Goliath might be suffering from acromegaly – a disease caused by a benign tumour in the pituitary gland.

The tumour causes the body to overproduce human growth hormone – which would explain Goliath’s extraordinary size. (Robert Wadlow, the tallest person in history, who died eight foot eleven inches tall, suffered from the condition.)

And a common side-effect of acromegaly is poor vision.

Seen in these terms, Goliath never stood a chance.

This is our financial system today.

Banks. Pension funds. Institutional investors. They are all Goliaths in one way or another.

As an example, Bank of America – Merrill Lynch has just published its latest fund manager survey.

This is a regular survey of large investment funds in the finance industry; the respondents are 209 fund managers participated who control $591 billion in aggregate.

They include pension funds, insurance companies, mutual funds and hedge funds.

Each is heavily constrained by a ‘mandate’. Pension funds, for instance, are typically obligated to own long-dated bonds, including European government bonds that have negative yields.

Other funds may be forced to follow a particular market index, even if that index is a sure loser.

Like Goliath, they have tremendous size, but very little ability to see or to maneuver.

But you and I are not managers in the BAML survey, and we certainly don’t have to play by their rules.

We don’t have to own assets if we don’t see value in them. We don’t have to slavishly follow the composition of any given index or benchmark that forces us to hold yesterday’s winners irrespective of how expensive their shares are.

We’re under no obligation whatsoever to be part of the herd. And that’s what gives the individual investor so much power. Freedom. This is our edge.

Porn star explains why you are a scumbag who “gets in the way of justice”

Mon, 04/04/2016 - 15:52

The Internet practically exploded this morning after a detailed report was published proving that dozens of corrupt politicians around the world have been stealing public funds and hiding the loot overseas.

In other news, the Pope is Catholic.

Not to make light of this, but this hardly comes as a surprise. There’s some Grade A filth in positions of power who routinely funnel public funds into their own pockets.

Whether they secret the funds offshore, buy expensive flats in London, purchase Bitcoin, or stuff cash under their mattresses seems hardly relevant.

The real issue is that systems of government routinely put morally bankrupt individuals in control of trillions of dollars of cash.

Seriously, what do people expect is going to happen?

Yet this never seems to be concern. The media outcry always seems to focus on the manner in which public officials hide their assets, not the fact that the funds were stolen to begin with.

This report targets the illicit use of offshore corporations, specifically those set up by a single law firm in Panama.

In reality, this issue hardly boils down to one firm.

There are thousands of law firms all around the world, including in the UK and the United States, that register companies for their clients.

Some of those companies end up being used for nefarious purposes, including fraud and theft.

But it’s crazy to presume that corrupt officials and con artists are the only ones who would ever need a company in one of these “shady” jurisdictions.

(Those “shady” jurisdictions, by the way, include Wyoming, South Dakota, and Delaware.)

Alongside the report is a video with a scantily clad porno actress named Lisa Ann, star of “Who’s Nailin’ Paylin,” a satire in which Ms. Ann spoofs former Vice Presidential candidate Sarah Palin engaged in sexual… congress.

No I am not making this up.

In her video, the porn starlet explains that only arms dealers and scumbags set up asset protect vehicles like anonymous shell companies, which can include something like a Delaware LLC.

Never mind that people in the Land of the Free are living in the most litigious society in human history.

Or that last year the US government stole more money and private property from its citizens through civil asset forfeiture than all the thieves and felons in the country combined.

Given such obvious realities, you’d have to be crazy to NOT take steps to protect your savings.

But if a porn star says that you’re a scumbag who ‘gets in the way of justice’ by setting up a Delaware LLC to safeguard your assets and reduce your legal liability, it must be true.

So let it be written.

Look, the anger and disgust of seeing corrupt people getting away with a crime is understandable, particularly when that crime is stealing from taxpayers.

But nobody ever seems to attack the real problem– that these people are ever put in positions enabling them to steal taxpayer funds to begin with.

Instead the spotlight is always on how they hide it. That’s like focusing on what color T-shirt the ax murderer was wearing.

My concern is that is if corrupt officials shift tactics and start buying gold, there will be calls to outlaw gold. Or if they start holding cash, there will be even louder calls to ban cash.

These reports are incredibly damning for the dozens, even hundreds or thousands of bad actors who abuse the system.

But at the same time they create a mass hysteria that puts law-abiding taxpayers who value their financial privacy into the same category as some corrupt African dictator.

Listen in to today’s podcast as we discuss this trend even more, what I call the “New Dark Ages”.

We’ve entered a time where privacy and personal freedom are trivial inconveniences rather than the bedrock cultural values they used to be.

For example, I question when our society degenerated to the point that a porn star gets to tell us what we should and should not be able to do with our own private property. . .

I’d advise you to turn DOWN the volume. This podcast is probably the most intense I’ve ever done. Listen in here.


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