May 23, 2013
Dallas, Texas, USA
Last week when I arrived to Bangladesh, the immigration officials there were positively ecstatic to see a foreign tourist entering the country.
I’ve also been to places in Africa and the South Pacific where you’re greeted upon arrival by dancing tribespeople singing songs of welcome.
It’s not quite the same in the Land of the Free. In fact, before they even let people in the country, they program us to be afraid and intimidated.
For one thing, all the immigration officers are armed. There’s absolutely no reason for a government agent to carry a loaded pistol when all he does is stamp a passport. This is EXTREMELY uncommon in the rest of the world. Only in the Land of the Free.
Just like the airport security farce, which has millions of travelers assume the “I surrender” pose inside a radiation machine, US immigration checkpoints are there to train people to be afraid and submit to the state’s authority.
When you step back and look at the whole government apparatus, it’s apparent that this culture of fear and intimidation applies across the entire spectrum.
We’re programmed, for example, to be terrified of the IRS. It’s to the point that getting audited consistently ranks among people’s top fears in the Land of the Free, right up there with snakes and unexpected death. It’s quite sad, actually.
And whether this Soviet-style idea to target opposition political groups came from the top or from the lower ranks, it smacks of an entire organizational culture gone awry… one that thinks it has unlimited power and authority to squash anyone it wants.
We’re also programmed to fear the police… who are more commonly donning combat boots, assault rifles, and these hideous Urban Assault Vehicles as a show of force, as if they’re on patrol in Kandahar.
And we’re programmed to subordinate ourselves to the interests of the state… whether it’s “shared sacrifice”, i.e. everyone must universally suffer because politicians are incompetent, or ratting out our neighbors to Homeland Security (if you see something, say something) or the IRS.
There’s so much more. We’re told that we can be attacked by drones, held in military detention, or have our children taken away by the government. These are powerful tools in stoking a culture of fear to keep an entire civilization under control.
Yet these constant abuses of power are diametrically opposed to how a free society is supposed to conduct itself.
You’re probably aware of a particularly fitting quote, most frequently credited to Thomas Jefferson– “Where the people fear the government, you have tyranny. Where the government fears the people you have liberty.” It’s absolutely true.
(There is no evidence that Jefferson ever said this, nor is the phrase contained in his works. It was first seen in print in John Basil Barnhill’s article, ‘Indictment of Socialism No. 3′ in 1914.)
Jefferson did write in a 1789 letter to Welsh philosopher Richard Price that “wherever the people are well informed they can be trusted with their own government; that whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights.”
Unfortunately this isn’t happening; ‘the people’ aren’t rising up to set things right.
And this is an important reminder: we cannot rely on a government or society to provide us with freedom or the economic opportunity which stems from it. We can’t wait for tens of millions of people to ‘wake up’ and ‘vote the bums out’. Or take to the streets.
If history is any indicator, the fear and intimidation will likely get worse. This problem doesn’t just go away, and it doesn’t resolve itself.
The only viable strategy is to abandon the herd and focus on what we can all do as individuals to safeguard our wealth, preserve our liberties, and ensure the continued safety of our families.
May 22, 2013
[Tim Price, frequent Sovereign Man contributor and Director of Investment at PFP Wealth Management, is filling in for Simon today.]
James Montier’s bible on behavioural finance, ‘Behavioural investing’, points out two recent discoveries by neuroscientists that have relevance to all investors:
1) We are hard-wired to think short-term, not long-term
2) We also seem to be hard-wired to confirm to the herd mentality
A particularly intriguing experiment used by Montier to illustrate these points relates to our tendency towards ‘anchoring’.
In his words, anchoring is “our tendency to grab hold of irrelevant and often subliminal inputs in the face of uncertainty.”
Feel free to follow the experiment yourself:
1. Write down the last four digits of your telephone number.
2. Is the number of physicians in London higher or lower than this number?
3. What is your best guess as to the number of physicians in London?
The idea of this experiment is to see whether respondents are influenced by their phone number while estimating the number of doctors in London. The results of the experiment can be seen below:
As the chart indicates, respondents with last-four telephone digits above 7-0-0-0 suggested, on average, that there were just over 8,000 doctors in London. Those with telephone digits below 3-0-0-0 suggested 4,000 doctors.
As Montier concludes, “This represents a very clear difference of opinion driven by the fact that investors are using their telephone numbers, albeit subconsciously, as inputs into their forecast.”
So our thesis goes as follows. In the absence of reliable knowledge about the future, investors have a tendency to anchor onto something – anything – to help them predict future market returns.
And what better anchor to use for future market returns than prior ones?
This is where the story gets more intriguing.
When looking at the UK stock market in discrete 20-year blocks, the period from 1980-1999 is the only one in the last 300-years in which inflation-adjusted returns averaged between 8% and 10% per year.
We think the story gets more intriguing still, because a good part of those returns was somewhat illusory in nature.
More specifically, given that they occurred during a once-in-a-century period of extraordinary credit creation, those market returns were in large part borrowed from the future.
This is the same way that governments have been funded, and their colossal bond markets serviced– by essentially loading the ultimate cost and the final reckoning onto the next generation.
So it seems that investors are not anchoring their predictions of future market returns to the past, because, as the data shows, long-term real returns have been quite low.
Instead, investors are anchoring their predictions to the very recent past that they have direct experience with, i.e. the twenty-year period between 1980 and 1999, even though this period was an anomaly compared to the last 300-years.
If this thesis is even half correct, investors piling into stocks now on the premise of recapturing some of those 8% – 10% real annual returns, are being at least somewhat delusional.
The credit bubble has burst. Messily. The stock market has not necessarily woken up to the fact. This does not detract from the sensible analysis of equity market opportunities.
But for any investment, its most important characteristic is its starting valuation. Buy attractive equities at sufficiently undemanding multiples and you should rightly expect to do well.
Investors, however, seem to be anchoring their market predictions to recent returns of the past, therefore buying ‘the index’ expensively, inclusive of a grotesque bubble of credit. One can expect this to end in a train wreck.
May 21, 2013
[Editor’s note: Sovereign Man’s Chief Investment Strategist Tim Staermose is filling in today while Simon is en route to the United States.]
Myanmar is among the hottest “frontier” investment markets today.
The country is going from an authoritarian regime to democracy, from a conflict situation to a situation of relative peace, and, most importantly, from a closed economy of state-owned companies, to an open, free market economy.
Such positive change all at once in one country is unprecedented.
Fund managers are falling over themselves to invest there. At The Myanmar Investment Summit in Hong Kong last week, I met some of them.
The problem is, at this early stage there is no easy way to invest. There is a stock market. But, it has only 2 listed companies: Myanmar Citizens Bank, and Forest Products Joint Venture Corp (FPJVC). But they don’t actively trade.
There are also two public companies controlled by Myanmar’s leading tycoon Serge Pun.
First Myanmar Investment Co., Ltd. trades “over the counter” in Myanmar among well-connected locals. But there is no stock market listing. The other is Yoma Strategic, the group’s Singapore-listed arm. But it’s already surged to a nosebleed valuation.
With so few investable vehicles, that leaves the private equity market. There are already plenty of people setting up such funds to capitalize on the wave of money sitting on the sidelines ready to wash into the Myanmar economy.
These funds will all need local businesses and projects to invest in. And that’s where the real opportunity lies.
For the right person, getting to work on the ground sourcing deals for all these “frontier investment funds” to invest in could be enormously lucrative. I’m talking about generational wealth potential.
Come up with a good idea, or find a great investment on the ground in Myanmar, and there is practically an unlimited amount of capital available for the project.
And there’s huge potential in the country. There’s a young population roughly 50 million people that’s simultaneously one of the cheapest work forces in Asia as well as one of the fastest growing consumer markets.
Manufacturing, tourism, agriculture, construction and building materials, real estate development, transportation, logistics… you name it, the country needs it ALL.
However, it’s not going to be a walk in the park. Myanmar still sorely lacks basic infrastructure.
Blackouts are commonplace. Just 25% of the population has access to electricity. There’s no functioning banking or financial system. Outstanding credit to GDP is just 5%. And, only 6% of the population has telephones.
So for now, it’s largely been a case of waiting for the infrastructure to improve… which is starting to happen.
Several independent power producers are getting ready to turn on the lights. The government will be announcing the winners of tenders for two new telecoms licenses in the near future. Credit cards are beginning to be accepted, and the banking system is being modernized.
And with the country’s profile on the international stage constantly improving, the time is ripe.
May 20, 2013
In what may go down as one of the most obtusely out-of-touch policy memos ever written, the United Nations Food and Agriculture Organization recently released a paper entitled “Edible Insects: Future Prospects for Food and Feed Security.”
For 171 pages, the paper argues for insect-based diets, explaining why governments should “[d]evelop a clear and comprehensive legal framework” to ensure that we all start eating insects.
So what’s the UN’s reasoning behind this? How could the organization possibly justify such an idea?
Simple. Because it’s better for the environment.
As the paper states, “[i]nsects… emit considerably fewer greenhouse gases (GHGs) than most livestock,” and, “eating insects is not only good for [our] health, it is good for the planet.”
Sounds disgusting, no? But it’s all good, according to the report, because the Tukanoan jungle village (population 100) in Colombia eats invertebrate insects. Therefore, so should we.
They recognize that people might be put-off by such an idea. So their solution to resolve the ‘disgust factor’ is for governments to sponsor ‘bug banquets’ in order to reduce prejudice against insects.
It seems the fanaticism of these bureaucratic do-gooders has now reached epically farcical, and even dangerous levels; they view the government as an instrument to jam poorly-conceived solutions down people’s throats… in this case, almost literally.
This agenda ties in nicely with other government initiatives that tell people what they can / cannot put in their bodies: aspartame and high fructose corn syrup– good; raw milk– bad.
The paper also cites the cost factor. Without a full-frontal acknowledgement that food prices have been rising, the authors make a strong case for the economic benefits of insect-based nutrition.
Of course, anyone who has been to a grocery store in the last five years knows that food prices have been rising. A recent poll of Globe and Mail readers found that 53% of those surveyed have cut back on purchases because of rising food prices.
And when you look at the big picture for agriculture, it’s not pretty.
World population growth and the rising wealth demographics across Asia are driving unprecedented increases in demand.
Meanwhile, peak yields, soil erosion, weather challenges, water shortages, and declines in arable land worldwide are causing decreases in supply.
Then there are a number of destructive policy initiatives– price controls, export restrictions, etc. which lead to further supply reductions.
Plus the mother of bad policy, monetary policy, is creating trillions of new dollars in the financial system. Much of this finds its way into the agricultural commodity markets, driving food prices even higher.
Bottom line: rising demand, decreasing supply, and bad policy mean the best we can hope for is rising food prices. The worst case is potential shortages.
It’s a real problem. But with due respect to cultures that do eat insects, something tells me that global consumption Palm weevil larvae ain’t the solution.
I remember a few years ago when Bill Dudley, Goldman Sachs alumnus and current President of the New York Federal Reserve Bank, spoke at an event claiming that there was no inflation because the price of the iPad 2 was lower than the iPad 1.
At the time, this sounded like the modern day equivalent of “Let them eat cake,” the quip most commonly attributed to the wife of France’s Louis XVI months before their beheading in the 1790s.
The United Nations has clearly taken this to a whole new level. “Let them eat insects.”
It’s just another reminder of how truly out of touch these people are… and that placing any level of confidence in government to solve the world’s problems is dangerous course of action.
May 17, 2013
Well, you have to admit one thing– the United States Senate certainly has its priorities straight.
Early last week they passed S.743, the Marketplace Fairness Act. This bill requires US-based online merchants to charge, collect, report, and pay sales tax to the roughly 9,646 jurisdictions within the Land of the Free which levy such a tax.
And while grounded in well-intended socialist dogma as a means to ‘level the playing field’, all the bill will really do is stick consumers with a higher price tag on the products they currently purchase online.
Curiously, though, the Senate then introduced S.958 this week. This bill actually aims to DECREASE certain taxes that are currently charged… on beer.
Not to be outdone by such wisdom, though, the government of Spain announced a plan this week to seize homes that have been foreclosed on by banks and developers.
Politicians will then let Spanish families stay rent-free in those homes for up to three years.
It’s a bit of a reverse-Cyprus situation; instead of confiscating assets from bank customers, the government wants to confiscate assets from banks.
Again, well-intended. But this will likely destroy the mortgage market in Spain; who in their right mind would want to make home loans in that country anymore knowing that the foreclosure mechanism is unenforceable?
The plan should also do a great job scaring off foreign investors; remember, the Spanish government is desperate to reduce the excess housing inventory, and they recently announced a program offering residency to any foreigner who spends about $200,000 on Spanish property.
But instead of rolling out the red carpet for foreign investors, they’re now broadcasting a very loud message: “We do not respect private property rights.”
Again, just like the IRS targeting opposition political groups and illegally seizing the medical records of millions of Americans, or the Justice Department seizing phone records from the AP, this sort of Marxist land grab is something that you’d expect in Belarus or Venezuela.
So basically what governments in Europe and the Land of the Free are telling us is– Beer and Populism: good. Private property rights, freedom, privacy, business, price stability: bad.
These people clearly have their priorities straight.
Before signing off for the week, I wanted to give you a few more thoughts on Bangladesh.
Bottom line, there are definitely opportunities in this country. With such a huge population, cheap work force, and abundant resources, the potential is evident.
At the moment, though, most of the great investments in Bangladesh are private deals. This is the same case as Myanmar.
Public market investing in Bangladesh is fairly uninteresting. The stock market in Dhaka trades at about 17-times earnings with no dividend yield. Right now it’s down about 50% from it’s all-time high, but it still doesn’t strike me as cheap.
One lucrative opportunity is in private lending. So many locals have been shut out of the banking system because of bad policy and tight liquidity, but the need for capital is very strong.
For similar reasons, my colleagues in Mongolia set up a private lending business there, and they’re currently making 3% to 4% per MONTH lending to local businesses who cannot obtain loans through the Mongolian banking system.
Given the need for capital and the appetite for development that I’ve seen on the ground in Bangladesh, I suspect that figure can be exceeded here.
Agriculture is also interesting. Land leases are quite cheap. And the soil is incredibly fertile since the majority of the country is in an alluvial floodplain.
But the prevalence of natural disasters and government policy that inhibits large-scale farming operations really increases the risk level. On a risk-adjusted basis, it’s very hard to beat South America for agriculture returns.
Have a great weekend.
NEWSFLASH: In another demonstration that the United States is no longer the Land of the Free, the Department of Homeland Security has just seized the US bank accounts belonging to Mt. Gox, the world’s largest Bitcoin exchange. This certainly underscores the importance, once again, of diversifying internationally.
The Department of Homeland Security issued a seizure warrant to Dwolla, a US e-commerce company that provides online payments, for the money in Mt. Gox’s Dwolla account. The seizure of funds was triggered by an alleged failure of the company to comply with US financial regulations.
This is just another reminder of how governments operate when the going gets tough– they regulate, monitor, confiscate, restrict, and steal.
May 16, 2013
As I’ve been traveling across Asia recently, one recurring theme I’ve been seeing are these constant headlines that ‘inflation is under control.’
Across the region, and in fact across the world, the official statistics tell us that inflation is moderate, so it’s OK to continue printing more money.
Aside from being one of the biggest scams in modern finance, there are some serious flaws with this line of thinking–
First, central bankers almost universally focus on ‘preferred’ inflation metrics which typically ignore price increases for food and energy.
This may work fine and dandy in the developed world where people often spend less than 10% of their household income on food.
But in poor countries… where the other 90% of human beings live… people can easily spend upwards of 50% on food and fuel.
That central bankers willfully eliminate these important factors from their analysis effectively ignores 90% of the world’s population. It’s disturbingly out of touch.
Being on the ground in some of Asia’s poorest countries, it’s clear that inflation has not moderated… and that tens of millions of people’s lives have been turned upside down because the price of onions and turnips and chickens has gone through the roof.
This has very much been the case here in Bangladesh, where the surging prices of legumes, rice, and flour has hammered the 160+ million population.
Disingenuously, they say that “non-food inflation moderated to 7.12 in February from 7.79,” and use this as justification to keep printing. But the drop in iPad prices is no comfort to the guy who can’t afford to buy chickpeas for his family in Dhaka.
Meanwhile, many world stock markets are at their all-time highs– the US, Malaysia, Germany, Philippines, India, etc. Curiously, this stock market growth correlates perfectly with the amount of money printing that’s transpired (see chart).
See a pattern?
It’s not just stocks, either. Many of the world’s bond markets are also at, or near, their all-time highs. Even junk bond yields are hovering at 5%. It’s absurd. Not to mention other asset classes… such as US farmland, beef prices, etc.
Doesn’t it seem a bit strange that so many investments across the world can simultaneously be at their all-time highs? And are we really to believe (with a giant bull tearing through the cover of the Economist magazine) that this is a consequence-free environment?
Even US residential real estate is posting sensational price increases… much to the pleasure of mainstream financial media. One can almost hear the uncorking of the champagne bottles.
It’s important to point out amid all this euphoria, though, that nearly every known instance of hyperinflation started with a rise in asset prices. And in this case, frighteningly enough, we’re seeing a rise in almost ALL asset prices.
This was famously the case in post-Revolutionary France in the1790s. People actually cheered the idea of creating more fiat money because the values of their properties and assets kept rising.
Eventually, so did everything else. Between 1790 and 1795, the price of flour increased more than 100-fold, from 2 francs to 225 francs. Or a pair of shoes from 5 francs to 200.
And all the while, politicians pushed to print even more, threatening that if they didn’t, the country would plunge into deflation! Sounds familiar?
Bankrupt governments almost invariably resort to the same desperate tactics– like polluting the currency into hyperinflation, selling it to the people as ‘for their own good’, and criminalizing any alternative (like we just saw today with Bitcoin).
Some of the most dangerous words on earth are “this time is different.” It’s not. This time is never different.
May 15, 2013
The only English word my taxi driver knew was “shit”. And perhaps, given the state of his vehicle and road conditions, it was the most appropriate.
I lost count of the number of pedestrians we nearly mowed down on the way from the airport; it was difficult to see anyhow– the shattered glass from the bullet hole in his windshield obscured my view.
This was no typical third world taxi ride. Because… there are developing countries. And there are really poor countries. And then there’s Bangladesh– a country so destitute it makes sub-Saharan Africa look wealthy by comparison.
Bangladesh is so poor that the World Trade Organization has awarded it “Least Developed Country” status. It’s a dubious honor that’s supposed to impart 100% duty free, quota-free access to ‘rich’ countries like the United States.
But even despite such incentives, the manufacturing sector is running far below its potential; the nearly constant social unrest and political stunts tend to scare away foreign investors.
I saw this first hand as I spent the day exploring the city and meeting with locals– not a single westerner to be seen outside of my hotel lobby.
Spending time with bankers, brokers, and lawyers today, it’s clear one of the major reasons why the country is so poor is because there is an utter lack of access to capital.
Capital is the lifeblood of an economy… and of business. Without it, neither can function. But Bangladesh’s completely dysfunctional, government-dominated banking sector has nearly eliminated access to capital.
Politicians make the worst bankers– they wouldn’t know a good deal if it hit them in the head. Just in the last quarter, in fact, default rates at the state-owned banks soared 40%.
Meanwhile, small businesses and micro-enterprises are stuck without access to capital.
I saw the effects of this while walking through a market today– groups of metal workers were hammering away forging tools by hand, just like medieval blacksmiths.
They use technology from the Dark Ages because anything that’s remotely capital intensive just isn’t possible with the current financial system here.
This restrains productivity, production, growth, development… everything. And what you end up with is a GDP per capita that’s lower than even Myanmar’s– a country that has suffered from economic sanctions for more than a decade.
The bright spot in Bangladesh is that private industry is starting to fix this.
Private banks, for example, constitute the fastest growing portion of the financial sector. Their product offerings are superior, customer service better, and the banks are better managed and more highly capitalized.
You may also be aware that Bangladesh is the epicenter of microfinance; just down the road from me is the Grameen Bank headquarters, the microfinance bank founded by Muhammad Yunnis that revolutionized the industry.
These private-sector players are making a big dent in the government finance monopoly. And I expect that the flow of business credit will improve dramatically in the coming years.
Bigger picture, this is a huge market. Bangladesh crams 160 million people into an area smaller than the state of Iowa. It’s dirt cheap. There are trade incentives. There are natural resources. There’s a lot of turmoil and chaos at the moment. And best of all, it’s practically off the radar.
These are all great ingredients for an interesting long-term speculation. I’ll report back on what I find.
May 14, 2013
Some days one can’t help but look at the headlines and think of Ayn Rand.
With all the destructive measures by desperate governments from Cyprus to Argentina, it seems sometimes like we’re reading from the pages of her seminal work, Atlas Shrugged.
But what we’re seeing now seems to have far surpassed Atlas Shrugged. We’re definitely into 1984 territory.
We’ve recently learned that the US federal government has (a) secretly tapped the Associated Press’s phone records, and (b) used the nation’s tax authorities to target opposition political groups.
This is the same sort of thing one would expect from Belarus or Azerbaijan. But these sad events are, unfortunately, no longer surprising in the Land of the Free. Nor are they isolated.
One appalling example is the case of Richard Hatch, who I spoke to a few days ago. You may remember that Richard won the first season of the TV series Survivor back in 2000/2001… and the million dollar prize that went along with it.
Tax-wise, it was a complex matter; the production took place off the coast of Borneo, so the prize money was technically Malaysian-sourced income. Plus a number of other issues.
But Hatch and his tax team filed returns. They claimed the prize money. They paid tax on it. They event sought additional guidance from the IRS.
Never once did the IRS issue a ‘notice of deficiency’, essentially a routine letter they send when they think you owe them money.
And yet, Hatch was ultimately charged with a crime– ‘attempted’ tax evasion.
Now, it’s absurd that tax evasion is even a criminal matter in the Land of the Free. It’s even more absurd that ‘attempted’ tax evasion is a crime.
But it defies all reality that an individual, who was fully up to date on his filings and being advised by licensed tax professionals, was personally tried and convicted of such a ridiculous charge, having never once been notified by the government that he owed a single penny.
After this shocking conversation with Richard, I spoke to William Binney, a 35-year veteran of the NSA. During our call, Binney walked me through some very technical details about the government’s illegal monitoring and archiving of ALL Internet traffic, and HOW they’re doing it.
William Binney is a man of tremendous integrity; he resigned from the NSA to protest the wanton dismantling of the Bill of Rights.
Since then, government thugs have kicked down his door at gunpoint. He’s been maliciously sued by Uncle Sam. He’s had his private property seized. All because he continues to expose the crimes that they’re committing.
And these are crimes, plain and simple… clear violations of the Fourth and Fifth amendment.
Bottom line, EVERYONE is being monitored. Every email is being archived. And the data is being shared across the government spectrum with law enforcement as well. This is important.
Today, there are thousands of crimes on the books in the Land of the Free. If they want to, they can get you for anything, even ‘attempted tax evasion’. You can’t even apply for a passport without being threatened with jail time.
And with such ubiquitous surveillance, they can get any information they need to seize property or incriminate anyone they want on whatever stupid law they can dig up.
The easy course of action is to live in denial– “It can’t happen here, it won’t happen to me.” Everyone wants to think this. But it does happen. And given the trend, it’s going to happen much more.
This isn’t intended to be gloomy, rather a sobering wakeup call. Sometimes the hardest thing to do is step back, look at the big picture, and realize that these tactics are no longer fiction. This is now reality in the Land of the Free. Welcome to 1984.
May 10, 2013
Each time I’m in Singapore, I’m continually impressed at the country’s extraordinary growth.
Friends of mine tell me about their experiences growing up here in the 1940s and 1950s. The downtown area that is now covered with soaring towers of steel and glass were once repugnant cesspools devoid of running water or proper sewage.
Every day, locals would take buckets of human waste from their shacks and dump them into the nearby bay.
Nobody probably imagined that, within a few decades, Singapore would be the premier financial destination in the world… as well as one of the wealthiest.
Today there are more millionaires per capita in Singapore than anywhere else; one in six Singaporeans has a net worth in excess of one million. And for the average Joe, median household income ranks among the top worldwide.
Not to mention, standard of living in Singapore is very high– schools, medical care, goods and services– all among the best on the planet.
Even more incredibly, they built this without a single drop of oil reserves. Singapore isn’t Kuwait. It’s a small island with effectively no natural resources to speak of.
While much of the developed world languishes under the massive burden of staggering debt and painful unemployment, Singapore has ZERO net det. And the unemployment rate is below 2%.
This isn’t some phony made-up number either. My friends who own businesses here tell me that there are labor shortages… they just can’t find any new people to hire.
So how did this all happen? One key principle– economic freedom.
In Singapore, business is treated incredibly well. Bureaucratic, regulatory nonsense is kept to a minimum. Corruption is nonexistent. It’s easy to set up a business and start competing. Plus taxes are ultra-low and highly competitive.
Right now a small business that makes a $100,000 USD annual profit pays an effective tax rate of just 1.2%. A $1 million annual profit would have an effective tax rate of less than 12%.
Bigger businesses can negotiate directly with the government for preferred tax rates, often 10% or less.
Capital is also treated incredibly well. The banks are well capitalized, the currency has long been one of the best performing in the world, and Singapore has become a major crossroads of cross-border trade and investment opportunity.
Last, Singapore treats productive, talented people incredibly well, including foreigners. It’s possible to obtain residency by starting a business here or getting hired. And, like corporate, personal tax rates are low.
Income tax on a $250,000 (USD) salary has an effective rate of just 12.4%. And there are no capital gains or dividend taxes.
Despite having such low tax rates, the government is awash with cash and runs a huge budget surplus. They’ve also managed to sock away a tremendous amount of money in sovereign wealth funds.
The lesson is clear. Bankrupt western government are trying to increase control over their respective economies– regulating, inflating, and taxing their way to a bigger slice of a rapidly shrinking economic pie.
Singapore, on the other hand, has focused on helping make the pie bigger. And it’s amazing how rapidly it can grow when governments step out of the way and allow people to keep what they earn.
If I told you that your bank only held 1% of its customer deposits in reserve, would you feel that your money was safe?
If I told you that the insurance fund which backed your bank deposit only had enough cash to bail out 0.35% of the banking system, would that make you feel any better?
Probably not. But this scam is the reality in the US banking system… and across the West.
As an example, US Bancorp has $248 billion in total customer deposits according to their most recent reporting, yet a mere $6.9 billion in cash… roughly 2.8%.
PNC Bank holds just 1.8% of its customers’ $248 billion deposits in cash. And BB&T holds barely 1.0% of its customers’ $131 billion deposits in cash.
These figures are indicative of the entire western financial system. Banks hold a very small percentage of customer deposits in cash. The rest is sitting in loans, bonds, and other securities of indeterminable value– mortgages that are still under water, shaky commercial real estate deals, etc.
Truth is, nobody really knows what’s on their books. Loan portfolios are like a black box, and the liquidity structure doesn’t leave a lot of room for error.
Think about it. If the slightest thing goes wrong– a spike in customer withdrawals, a decline in bond prices or commercial real estate, etc.– banks simply don’t have any rainy day funds set aside to handle it.
And who can blame them…? The FDIC, one of the US banking system’s chief regulators, has a mere $33.0 billion reserve fund to insure $9.3 TRILLION worth of deposits in US banks… a ratio of just 0.35%. And the FDIC is backed by the insolvent US government!
Bottom line, we simply can no longer afford to blithely assume that our bank… our most intimate financial partner… is in good financial condition.
The good news is that in 2013, it’s no longer necessary to save within the confines of our home country; it’s possible to establish a bank account in a country where the banks are actually well capitalized and liquid.
Singapore is one of those places. In fact, Singapore has ZERO net debt and has never had a banking failure in its history. Plus the banks are swimming in cash.
UOB Bank, for example, has 33.7% of its customer deposits in cash equivalents. OCBC holds 35.8%. These banks are literally 10 to 30 times more liquid than their western counterparts.
With a bit of legwork, it’s possible for both individuals and businesses to open insured accounts at either of these banks.
Today I even managed to convince one of my bankers here to open business accounts for US LLC’s… which means that anyone with a global self-directed IRA can hold retirement savings at a well-capitalized Singaporean bank. More on this soon.
The advantages of banking here are obvious; pitting the US against Singapore, there’s simply no comparison.
If everything goes fine and there are no major hiccups in the world, you won’t be worse off for holding some savings at a highly capitalized bank in Asia’s most dominant financial center.
Yet if there’s another major meltdown like we saw in 2008, or worse… these insolvent Western governments pull a Cyprus… then having funds in Singapore may turn out to be one of the sharpest financial decisions you could have made.
Reporting from Singapore
May 8, 2013
The worldwide movement to tax, confiscate, and regulate everything imaginable turned a new page earlier this week when the “Marketplace Fairness Act” passed in the US Senate.
The bill still needs to clear the House of Representatives. But its fundamental purpose, enforcing state sales tax for online transactions, is almost guaranteed.
Even if they don’t manage to successfully push the bill through this time, they’ll just re-propose a new version of it in a few months’ time until it finally passes and destroys the digital economy.
First, there’s the obvious consequence of the end-user consumers having to give governments more of their hard earned savings to pay for bombs, drones, and body scanners.
Additionally, though, the law would bury -any- business that has an online presence with an enormity of paperwork and tax filings.
Consider the prospect for a budding entrepreneur in the Land of the Free– start a business and go blind on tax reporting to dozens of states, then pay through the nose for Obamacare. Sounds like a great deal, right?
They might as well send greeting cards to productive citizens saying “Please leave the country, thank you.” And they should. Because this is a perfect example of how diversifying internationally can work for you.
Fact is, this law would not apply to foreign companies who do business online and sell to US-based consumers.
Simply as a matter of practicality, it’s not possible to get every business in every jurisdiction in the world to marshall the appropriate resources behind complying with such an absurd requirement. How do you get an e-tailor in India or Bhutan to track, report, and pay sales tax on a customer in Kansas?
More importantly, though, there is a vast network of international treaties– Double Taxation Agreements, Free Trade Agreements, etc.– protecting foreign companies from such tax.
As an example, the US-Singapore Free Trade agreement has an entire section devoted exclusively to e-commerce. So even from a legal standpoint, a US-based tax would not apply.
The solution is clear. Folks who are primarily doing business online, or thinking about doing business online, ought to seriously consider getting professional advice to move the business overseas.
Here in Singapore, you can register a new business, inclusive of secretarial and resident director services, for about $3,000 USD.
It’s well worth it. The banking system here is modern and well-capitalized. And the support services for an online business ranging from web hosting to credit card processing are excellent.
Moreover, Singapore’s tax system is one of the most competitive in the world. Right now, for example, a $100,000 net income in 2013 would end up with an effective corporate tax rate of just 1.2%. A $1 million net income would result in an 11.88% effective tax rate.
If that’s too expensive, the Marshall Islands has a zero percent tax rate and lower corporate registration costs (<< $1,000 total). Yet it’s still possible to access Singapore’s excellent digital and financial infrastructure with a Marshall Islands company.
Online companies are by far one of the best ways to take advantage of international diversification. You can set the company up in one place, bank in another, process credit card transactions in another, host your web site in another, outsource employees to another, etc… all in the specific jurisdictions which make the MOST sense for your business.
It’s completely 100% legitimate. And in doing so, you might just dodge a bureaucratic land mine.
Reporting from Hanoi, Vietnam
I’m not much of a fiction reader, but about two years ago a friend turned me on to a couple of books by Daniel Suarez– Daemon, and its sequel Freedom.
I won’t ruin the plot, but it’s an excellent story with gripping insights into what the future could look like after a crash of the global financial system.
When in Vietnam, I’m constantly reminded of a quote in which one of the main characters says:
“Anyone who has ever tried to share pizza with roommates knows that Communism cannot ever work. If Lenin and Marx had just shared an apartment, perhaps a hundred million lives might have been spared and put to productive use making sneakers and office furniture.”
He’s right. It seems so obvious… Communism cannot work.
This country is one of the few remaining places in the world that still officially considers itself a Communist state.
After defeating the French in the 1950s and ultimately winning the “American War” as they call it here in the mid-1970s, Communism was in full swing. The country was a veritable paradise for state-loving Marxists.
And yet, within a decade, Vietnam was easily one of the poorest countries in the world despite having dazzling potential.
First of all, it’s gorgeous. If you’ve never been, Vietnam has one of the most beautiful coastlines on the planet, and that’s really saying something.
This city, Hanoi, is really an Asian version of Paris; it’s sophisticated, romantic, highly cultured, and culinary… yet absurdly cheap.
(As an aside, if you’re an art lover, you’ll be shocked at the quality and value of local artwork here. I bought a number of pieces that I’m excited about.)
The country’s population of 90 million is a huge consumer market. And the labor force is educated, ambitious, hard working, and inexpensive. It’s a manufacturer’s dream.
Vietnam is also abundant in natural resources– from fish and agriculture to offshore oil and gas.
It all seems like a no-brainer growth story. But years of Communism ran this place into the ground. As author David Lamb writes, “Vietnam was like a racehourse whose jockey kept yanking on the reins rather than giving the animal its head to find full stride.”
By 1986, over a decade after the reunification of north and south, Vietnam was as poor as it had ever been. So the government embarked on a new policy called Doi Moi, a Vietnamese version of Perestroika.
People were given the right to ‘enrich themselves’, and privatization (though they didn’t call it that) became commonplace. The results were obvious.
Inflation fell from 700%+ to single digits. Vietnam went from being a net importer of rice to one of the largest exporters. It also became an export powerhouse with other agricultural products like cashew nuts, coffee, and more.
Most importantly, standard of living improved dramatically for tens of millions of people.
But now the government has gone and screwed it up all over again.
At the onset of the global financial crisis in 2008, the Vietnamese government began following the lead of the United States and Europe in spending its way out of recession.
Yet as the unfortunately named Dong is not an international reserve currency, Vietnam instead simply suffered a new crisis brought on by rising budget deficits, higher debt, and steep inflation.
When it became clear that such tactics don’t work, the government increased its desperation and devalued the Dong. Three times. In less than eighteen months.
Inflation soared and the government imposed wage and price controls trying to control inflation.
Locals abandoned the currency, and gold was in huge demand– until the government stepped in with new decrees which ‘highly discouraged’ gold ownership. (If only people had stored their gold outside the country…)
All of this is a classic, textbook response. When governments are in trouble, they try to control everything. But these measures never work… they only make things worse. And today, the economy is in pretty bad shape.
Vietnam’s property market is in shambles. Unemployment is stubbornly high. GDP is sluggish at best. Inflation is still a big problem. And the government was caught, rather embarrassingly, fudging its official statistics.
There are few places in the world I can think of which have more bottled up potential. And it’s all being squandered by a tiny elite. This is, perhaps, the story of things to come in the West.
[Editor’s note: Tim Staermose, Sovereign Man’s Chief Investment Strategist, is filling in for Simon today from Hong Kong.]
It took me two attempts. But, today I opened an account at the Bank of China.
The reason? They’ll no longer buy gold bullion from you unless you bank with them.
I wasn’t selling personally. But, an overseas friend is having a temporary liquidity crisis, and asked me to liquidate a couple of ounces from his stash.
I went to the Bank of China and Hang Seng Bank to see where I’d get the better deal for his Maple Leaf coins.
It was no contest. Hang Seng quoted me the Hong Kong dollar equivalent of spot gold. But, the Bank of China quoted me 4.5% ABOVE the spot price of gold.
Needless to say, the choice was obvious. As was the opportunity.
Given the price differences, I realized instantly I could buy Maple Leaf coins at Hang Seng at the spot price of gold plus their HK$50 mark-up, and then sell them for almost 4.5% more at Bank of China.
Talk about a perpetual money machine.
But as it turns out, Hang Seng doesn’t actually have any Maple Leafs to sell right now! So, no dice today. I’ll check back soon.
Even without the easy arbitrage, though, I went ahead and opened the Bank of China account to get my friend the best deal.
And let me tell you, it wasn’t easy… even though I’m a Hong Kong resident.
At the first branch I tried, they wanted not only a copy of a current utility bill from my Hong Kong residence, but also a proof of address from my “permanent home.” In their limited worldview, this means an address in the country that issues my passport.
I told them I’ve not lived in that country for over 17 years, certainly don’t have an address there, that Hong Kong is my permanent home, and why was that not good enough?
They refused to budge. So, I walked out.
Fortunately my second attempt at a different branch, worked out better. They were satisfied with my explanation.
The lessons here are four-fold:
1. Physical gold is hard to buy right now in Hong Kong. Hang Seng had only Australian Kangaroo nuggets in stock, and no Maple Leafs.
2. Selling your gold at a fair price if you have an emergency is getting tougher too. The paperwork and rules and regulations are becoming stricter, even in a freewheeling place like Hong Kong.
I cannot be sure, but I suspect The Bank of China’s new requirements are part of the whole anti-money laundering regime.
If you have an account with them, they’ve already had a chance to rake over all your private details, and hopefully satisfied themselves that you’re not a criminal terrorist mastermind.
3. Opening bank accounts in Hong Kong is becoming more and more difficult, too. It would not surprise me if there comes a time when even the likes of HSBC start refusing non Hong Kong residents.
But, for now:
4. If you don’t succeed at one particular branch, persevere. Results tend to vary depending on whom you are dealing with.
Of course, if you deal through the right channels, it’s still very simple.
Singapore has similar bank policies as Hong Kong. But attendees who came to our Offshore Tactics Workshop in Santiago, for example, were able to walk away with a Singapore bank account without even having to go to Singapore.
It’s a perfect illustration of the power of relationships, and especially Simon’s strong network of contacts around the world.
May 2, 2013
en route to Hanoi
The world is truly an enormous place… and, despite the dearth of good news and positive trends out there, I still see a lot of amazing opportunities in my travels.
But it’s really important to remain grounded about the challenges that face us. As I pen this letter to you, in fact,
- The NSA’s Utah data center, which will intercept every phone call, email, and tweet sent across the Internet, is nearing completion.
- The Marketplace Fairness Act, which will create additional sales taxes on US-based Internet transactions, is set to pass the Senate next week.
- The government of Cyprus just passed the final bail-in measures, officially authorizing the direct confiscation of people’s savings in that country’s banking system.
- The Bank of Japan recently announced its intentions to double down on their already unprecedented money printing operations.
- Not to be outdone, the US Federal Reserve just announced that they will maintain their Quantitative Easing program, which dilutes the existing money supply by more than $1 trillion annually.
- At $16.83 trillion, the US federal debt is at a record high and set to breach $17 trillion early this summer.
- President Obama recently proposed to cap the tax deferral benefit on Individual Retirement Accounts in the Land of the Free
These are clear warnings signs that a rational person simply cannot ignore.
Bottom line, nations are going bust. And the worse things get, the more desperate their tactics become.
This isn’t the first time that the world has been in this position. This time is not different.
History shows that there are serious, serious consequences to running unsustainably high debts and deficits. And those consequences have almost invariably involved pillaging people’s wealth, savings, livelihoods and liberties… either directly or indirectly.
What’s happening right now is playing out in textbook fashion. More taxes, more debt, more printing, more confiscation, less freedom.
And in case it still weren’t obvious, I’d like to present Ron Paul and Jim Rogers, speaking together at our event in Chile a few weeks ago, with their own views on the situation.
May 1, 2013
I really hate to be negative… but this is positively revolting. Disgusting. Indescribably offensive.
In the Land of the Free recently, a California couple had their child kidnapped by the state. At gunpoint.
It all started in mid-April when Anna and Alex Nikolayev took their 5-month old son Sammy to the hospital in Sacramento to be treated for flu symptoms.
The parents didn’t particularly care for the treatment that their son was receiving. Doctors were pumping him full of antibiotics and soon began talking about performing surgery.
Anna and Alex argued with the doctors and said that they were going to get a second opinion; they took the baby and went to another hospital where another physician deemed it perfectly safe for the child to return home with his parents without the need for surgery.
The next day, with the family resting comfortably at home, the police showed up with Child Protective Services.
Alex, the father, went outside to talk to them where he was thrown to the ground by police. Officers then relieved him of his house keys and proceeded to let themselves into the house with hands on their pistols.
Then, still with their hands on their pistols, they told the mother “I’m going to grab your baby, and don’t resist and don’t fight me…”
The child was then ripped from his mother’s arms and placed into state custody, where he remained for a week.
Yesterday, a Sacramento County judge ordered that Sammy be transferred to a hospital in Palo Alto (120 miles away), and that his parents finally be given unfettered access to their son… under the condition that the State of California’s Child Protective Services continue to monitor the ‘situation’.
Guns. Cops. Government bureaucrats. Courts. Kidnapping. A dysfunctional medical care system.
This is what it means to be in the Land of the Free… where collecting rainwater, consuming raw milk, or seeking a second opinion on your child’s medical care is now criminalized.
When you don’t even have the basic right to make decisions about your own child… and when your own child can be forced from you at gunpoint in your own home that was entered illegally… you know that freedom has officially hit the waste bin of history.
Perhaps the greatest irony is that the parents are originally from Russia… but they had to come to the United States to find the Soviet Union.
Have you hit your breaking point yet? If not now, when?
April 29, 2013
ABN Amro, the Dutch state-owned banking giant, recently revised its global macro and gold outlook, forecasting a $1,300 gold price by the end of this year.
Moreover, the bank forecasts $1,000 gold by December 2014, and $800 gold in 2015. Why?
“The authorities — especially in Europe — have acted to reduce systemic risks and inflation is going down rather than up. . . Other assets will become increasingly more attractive as the growth outlook improves.”
Wait, hang on; they lost me with the ‘all is well in Europe’ argument.
Across the continent, the dominos are falling far faster than Angela Merkel, the ECB, and even the IMF can stand them back up again.
Slovenia is now in need of a banking sector bailout. Even according to the OECD’s latest economic survey of the country, “Slovenia is facing a severe banking crisis”.
This, amid continually rising debts and record high unemployment in the region.
To put this in context, the number of unemployed in Spain now exceeds the entire population of Madrid… representing about 13% of the entire Spanish population and 27% of the nation’s workforce.
ABN Amro’s reports go on–
“Systemic risks to the financial system and the global economy have declined notably, despite the bailout of Cyprus.”
Er, “despite the bailout of Cyprus…” You mean the one involving outright confiscation of people’s money? The one where the Russians wagged their fingers at the EU for acting like the Soviet Union?
Sure, despite the bailout of Cyprus, everything’s dandy. And other than that, Mrs. Lincoln, how did you enjoy the show?
ABN continues: “Another blow [to the gold price] will come when the Fed’s first rate hike (that we expect in early 2015) comes into view.”
Now, bear in mind that US debt already exceeds 100% of GDP.
Even using the US government’s own ridiculous budget projections (which assume 3.5% REAL GDP growth) Uncle Sam will still accumulate over $5 trillion in debt over the next decade.
But here’s the thing– the current $16.75 trillion of US debt has an average maturity of just 65 months. This means that the US government will be on the hook to repay a huge chunk of its debt within the next 5 1/2 years.
So in addition to issuing $5 trillion (optimistically) in new debt, they’ll also have to re-issue trillions more in existing debt.
Someone is going to have to mop up all that debt. The question is… who?
The Chinese are actually REDUCING their Treasury exposure as a percentage of total US debt (see chart). This is consistent with their objective to strengthen the renminbi.
The story is the same with Japan at the moment, whose nominal US debt holdings have actually been decreasing.
The US Social Security trust fund is also a major holder of US debt. Yet, according to the Washington Post, roughly 10,000 people EACH DAY become eligible to receive Social Security pension benefits.
Given the increased outflows and high level of US unemployment (fewer people paying into the system), it’s doubtful that the Social Security trust fund will have sufficient cash to bail out the Federal government.
This leaves the US Federal Reserve as the lone player to mop up all this debt. There simply are no other options; the US government will default in all likelihood, unless the Fed continues debauching the currency to buy Treasuries.
This will drive even more money into real assets, pushing prices higher… especially gold.
Jim Rickards, fund manager and author of the acclaimed book Currency Wars, spoke at length about gold and the future of the global financial system at our Offshore Tactics Workshop in Chile earlier this month.
Needless to say, his forecast for gold is… slightly different than ABN Amro’s.
Later this afternoon I’ll send you a short video clip of his remarks so you can see this analysis for yourself. It’s some of the best insight on gold I’ve ever seen.
April 26, 2013
Koh Samui, Thailand
The flight from Penang to Koh Samui is quick. And it’s incredibly cheap.
Unlike their Western counterparts, Asian discount air carriers actually walk the walk. You can zip around the region for flights often costing just $50 to 100.
And it’s well worth it, there is much to see in Asia… from the obvious opportunities in Cambodia to the clear lifestyle advantages in Malaysia to here in Samui, which has some really spectacular beaches and a great international crowd.
Like the flights, it’s cheap here. A spectacular ocean-front villa here with a private swimming pool is setting me back about $150… which barely registers a second-rate motel anymore in the West.
And for budget travelers, backpacker beach hostels go for just a few dollars a night.
I’m emphasizing pricing here because I’m trying to make a point about travel– it need not be expensive.
Many major airline alliances like One World and the Star Alliance, for example, offer special ’round the world’ fares, taking you across five or six continents over the span of several months, for just a couple of thousand dollars if you don’t mind coach.
This is quite valuable… especially considering that travel is a far better teacher than a conventional education. The experiences and knowledge one gains on the ground around the world cannot be taught in any classroom.
This is one of the things that we always encourage at our summer entrepreneurship camps: For young people, the world is devoid of the opportunities of the past. And, to get ahead, they’ve got to think differently– build real skills, accumulate unique experiences, and seek opportunities in overlooked places.
(You can find out more about our free summer entrepreneurship camp, and how to apply, by visiting www.BlacksmithCamp.com.)
Before signing off for the week and getting some much needed R&R, I wanted to address a question we received several times this week.
One of our readers, Robin T, summed it up by asking– “Simon, I see you’re in Cambodia; I’ve read on the Internet that there is an economic citizenship program available there. Is this real, or a scam?”
Sure. It’s simple. There is no ‘economic citizenship’ program in Cambodia.
In certain countries like St. Kitts or Dominica, you can make an investment in the country and potentially receive a passport in return.
There’s also a new program in Europe (just outside of the EU) that few people know about. Only Sovereign Man has presented this option publicly, and we even flew out the country’s retired Minister of Foreign Investment to address attendees at our workshop in Chile a few weeks ago.
So these programs do exist. But not in Cambodia.
The Cambodian government grants certain investment incentives through its development council; upon making a $300,000+ investment, foreigners potentially qualify for a reduction in the residency period that’s required to become a naturalized citizen.
But as an official at the development council told me, there are still a multitude of requirements to obtain citizenship… like, oh, language proficiency. Anyone going to learn Cambodian anytime soon?
Yet a bunch of clowns on the Internet present Cambodia as if you just pay some money and they hand you a passport. And this is just not true.
Look, international diversification IS a great solution… a time-tested way to reduce your exposure to a bankrupt, corrupt government. But it has to be done the right way.
And there are more productive options for your hard earned savings than trying to buy some silly travel document issued by a corrupt bureaucrat in a third world country.
At a minimum, it puts you at significant risk. Even if the deal works out and you end up with a passport, imagine the scrutiny you’ll get if you ever try to use it… especially if you look like a Westerner.
Instead, with some time and effort, it’s possible to become Belgian, Brazilian, Singaporean, etc. And to do so legitimately, in the light of day.
There’s no shortcut to doing things the right way. But unfortunately, there’s also no shortage of digital snake oil salesmen who rake in huge fees by exploiting people’s fear and ignorance.
My best advice with respect to any such program you may be curious about– always ask to see the law, and to speak directly with the officials in charge of the ‘program’.
Have a great weekend.
April 25, 2013
George Town, Penang, Malaysia
Though few people have heard of Penang today, it once ranked among the most opulent destinations in the world.
Ceded to the British East India Company in 1786, Penang was a critical trading hub for European imperialists; it thrived as a free port along critical eastern trade routes and rivaled even Singapore’s importance.
By the early 20th century, cosmopolitan Penang was famed as a must-visit for the international elite– from silent film stars such as Charlie Chaplin and Douglas Fairbanks to celebrated authors like Rudyard Kipling and Joseph Conrad.
Fast forward 100 years and Penang’s reputation for glamour and intrigue has been supplanted by Hong Kong and Dubai. But it’s still an amazing place.
First of all, it’s incredibly civilized. Most folks come to this little Malaysian island expecting rural Cambodia. Instead they get coastal Portugal.
The infrastructure, from roads to digital communication, is first rate. It’s clean… and in many cases, polished and sophisticated.
It’s also multicultural. Penang’s history has made the island a pan-Asian melting pot, plus a very healthy mix of Westerners– Portuguese, British, and even Dutch.
Nowhere is this more obvious than in local cuisine, among the finest in Asia. Restaurants are fantastic, serving some of the most eclectic fusion dishes imaginable.
One of the best parts about Penang, and Malaysia in general, though, is the price. It’s shockingly cheap to live here without having to sacrifice quality… all wrapped up in an entrepreneurial economy that still thrives on its freewheeling tradition.
Today, Penang functions as an export processing zone whereby entrepreneurs import raw materials duty free, add value, and export. Rather than manufacture socks and underwear like much of Asia, though, Penang’s highly skilled workforce produces microchips. And everywhere you look, it seems, are help wanted signs.
Another nice thing is that there are several ways to obtain residency here, including purchasing a home or demonstrating basic financial solvency (less than $200,000 in cash and roughly $3,300 per month in offshore income). See Malaysia’s My Second Home program (www.mm2h.gov.my) for details.
Let’s be honest; if history is any indicator, there may come a time when getting out of dodge is the only choice left.
Throughout history, there have been periods of intense chaos and turmoil. And in each instance, there were always people who were ahead of the trend– from Bourbon landowners who left before Robespierre’s Reign of Terror, to Jews under Nazi Germany.
Again, this isn’t a doomsday prediction. Far from it. But given the potential for epic financial failure in the world, it certainly behooves a rational, thinking person to consider options overseas.
And, as history shows, sometimes this even means a foreign residence.
Trust me on this– if it ever comes down to you having to hit the eject button, you won’t want to start the planning process while you’re packing your bags.
Knowing where you would go should the need ever arise, and even having residency lined up, is a good idea… no matter what happens. You won’t be worse off for it.
And if you’re going to start that planning, Penang is definitely a destination you may want to consider.
April 24, 2013
George Town, Penang, Malaysia
When you’ve got a guy like Senator John McCain who says “The battlefield is the United States of America,” it tells you that almost nothing is safe in the Land of the Free.
Whatever remains of civil liberties is going to feel the full brunt of the state’s boot heel.
They’re already regulating some of the most fundamental aspects of life, from how we are allowed to educate our children to what we can / cannot put in our bodies to the very nature of money.
People are forced to hold their savings in insolvent banks backed by insolvent insurance funds backed by insolvent governments. And those insolvent governments have demonstrated that they are perfectly willing to directly confiscate accounts.
Retirement funds have proven to be an easy, tempting target. A number of countries including Argentina, Ireland, and Hungary have appropriated private pensions. Even the US government temporarily dipped into federal employee pensions.
Western governments are making every possible effort to take over the Internet. Despite every previous attempt (SOPA, PIPA, etc.) failing due to public outcry, they keep trying and trying (ACTA, CISPA, etc.).
They’re raising taxes, creating new ones (including Maryland’s new ‘rain tax’), imposing capital controls, racking up debt, and rapidly devaluing their currencies.
It all reeks of desperation… and it’s all so obvious. At least, for anyone paying attention.
Unfortunately it’s easy to lose sight of the truth. After all, how can there be any economic problems when the stock market is at an ‘all-time high’ and Nobel Prize winning pseudo-scientists tell us that debt levels don’t matter?
Truth is, these enormous challenges shouldn’t be ignored. The entire global financial system is sitting on a bed of dynamite. Central bankers are dousing the pile with gasoline while politicians are standing around smoking.
The potential for epic disaster cannot be understated.
This is not to say that the world is coming to an end. Far from it. History is quite generous with past example of once-great civilizations that collapsed under the weight of their own hubristic debt.
Things didn’t end. They changed. Simple. And that’s what’s happening now in a textbook fashion.
Governments in trouble almost ALWAYS resort to the same destructive tactics. When things are clearly on the decline, rather than INCREASING freedom and opportunity, they try to control EVERYTHING.
We’re already seeing the early stages of this with competitive devaluation, basic capital controls, and bank withdrawal limits.
These will soon give way to wider capital controls, increased border controls, wage and price controls, asset confiscation, and more.
It only delays the inevitable. The more they control, the more rapid the deterioration becomes. Again, this isn’t some sensationalist prediction; it is the very common historical trend.
The other thing that history shows us, however, is that there are always a handful of people who see the writing on the wall and take action. And that action has almost universally involved looking abroad and diversifying internationally.
This is a time-tested strategy that was once available only to the wealthy landed class. But with modern air transport, digital communication, and global competition, solutions are now available to just about anyone.
I’ll be honest with you– moving one’s assets, business, and even family overseas isn’t easy. These are complicated topics with numerous tax, financial, and professional implications. So go carefully and rationally.
But when structured properly, history shows that a well-informed offshore strategy can have a generational impact should chaos ensue.
And, should nothing ever go wrong in the world, you won’t be worse off for it.