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Updated: 5 hours 33 min ago

Venezuelan woman earns her entire living standing in line to buy toilet paper

Tue, 01/27/2015 - 12:38

January 27, 2015
Sovereign Valley Farm, Chile

At two in the morning, Krisbell quietly slips out of bed so as to not wake the two small children curled up next to her.

She grabs her phone and quickly dials her friends’ numbers as she’s already headed out the door to get the day’s intelligence report.

Most importantly—where is milk, sugar, and toilet paper being sold today?

From the moment price controls were levied in the country, there were shortages of everything in Venezuela.

Each month, it’s become increasingly difficult to get basic goods. And the lines are growing longer and longer.

Not everyone can afford to wait in line half the day just to get a few supplies.

And since you can’t even get everything in one store, it takes the second half of the day to get the rest of what you need—if there’s even anything left by then.

Friends and neighbors had started coming to Krisbell, asking her if she could help them get things from the grocery store.

They all have to work just to be able to afford the food in the first place, and they can’t spare the time to stand in line.

So (as reported by Bloomberg) Krisbell started taking on clients. Now she has enough that she’s earning her entire living from waiting in line.

Imagine—an entire cottage industry (absurd as it may be) now exists in Venezuela because of destructive government polices.

Everyone in the country has to pay extra for their basic goods, while others dedicate their professional lives to the unproductive task of standing in line.

(If this seems far-fetched, consider that the US tax preparation industry takes in $6 billion annually for dedicating itself to the unproductive task of filling out Byzantine tax forms…)

There’s no limit to the stupidity and destructiveness of people in power, and Venezuela’s President Maduro is a prime example.

This man (and his predecessor) took the country with the largest oil reserves in the world and crippled it to the point that Venezuela now imports oil.

And that was before oil prices plummeted. Now the country is even weaker.

Venezuela’s government is now on the brink of defaulting on its financial obligations… just as it has already defaulted on its obligations to its citizens.

It’s a sad example of what governments do when they go bankrupt.

Almost invariably they manipulate the currency and print money.

This eventually causes inflation to get out of hand and prices to soar. They try to control it by imposing price controls.

And because it becomes unprofitable for businesses to produce at artificially low prices, shortages ensue.

Then they institute capital controls to trap money inside the country.

This movie has played out so many times before. And yet people rarely learn.

The consequences of terrible decisions creep up gradually, and then suddenly. Most people don’t realize what’s happening until it’s too late.

The resulting economic hardship often leads to extremism, or dangerous populism. Just look at what’s happening across Europe (and especially Greece with its new radical left Prime Minister).

But it all starts with a bankrupt government and decades of destructive policies.

We’ve all seen what’s happened with Venezuela. If you’re in a bankrupt nation, make sure this doesn’t affect you. Make sure you always have a Plan B.

Part of this includes having a rainy-day bank account in a secure, offshore jurisdiction. In many places, this is getting harder to do, but here’s one simple trick to help you set up a non-resident foreign bank account.

One simple trick to set up an offshore bank account in Hong Kong

Tue, 01/27/2015 - 12:24

January 27, 2015
Sovereign Valley Farm, Chile

We’ve been very vocal in the past about the importance of holding a portion of your savings at a safe, stable bank offshore. The reasons are numerous:

  • Many foreign banks are much healthier than their Western counterparts who usually have razor-thin capital and tight liquidity.
  • Foreign banks typically make it easier for you to diversify your currency exposure, so that you don’t bet your whole savings on a shaky fiat currency that can be devalued overnight.
  • Foreign banks are further from your home government’s reach. Capital controls, exchange controls, asset freezes etc. become irrelevant when you bank in a safe foreign jurisdiction.

There are many other reasons to look globally for your banking needs, but these are among the most critical.

Problem is, it’s becoming increasingly difficult to open a foreign bank account in many top jurisdictions.

Bankrupt Western governments led by the United States have embarked on a global witch hunt to treat foreign banks (and their customers) like criminal terrorists.

Legislation like FATCA (Foreign Account Tax Compliance Act) and globally coordinated information sharing agreements have scared banks so much that they’re now very reluctant to open accounts for non-residents.

Taking on foreign clients used to mean extra business. Now it just means extra risk, not to mention a massive regulatory headache as well.

Even a place like Hong Kong, which has traditionally been one of the best and easiest jurisdictions to bank, is starting to close its doors to non-resident bank customers.

Just a few months ago you could stop in Hong Kong for a day or two, pop into a bank, and leave within a few minutes with a bank account.

Not anymore.

One of the best offshore banking locations in the world is now essentially out of reach for most people.

Fortunately, there’s a relatively easy trick to get over this hurdle.

For individuals, it can be challenging to obtain residency in Hong Kong (and it’s probably not worth doing just to establish a bank account).

But you can establish ‘corporate residency’ very easily by registering a new Hong Kong company.

Moreover, there are corporate secretary firms that can take things a step further by providing local director services, i.e. local residents who are nominally attached to the company in name only, but exercise no power or authority.

This would prove to any bank that your company has a local presence, i.e. residency in Hong Kong.

And with a local company in place, you’ll be able to establish a corporate bank account at a number of Hong Kong banks.

Bear in mind, Hong Kong banks are some of the most liquid and well-capitalized in the world.

And if you’re a US dollar investor, the Hong Kong dollar represents a very convenient alternative.

Since the Hong Kong dollar is pegged to the US dollar, you can hold Hong Kong dollars with minimal currency risk.

This would be beneficial if the US dollar stays strong. If oil prices continue to fall in US dollar terms, for example, they also fall against the Hong Kong dollar as well.

But if the US dollar were to suddenly drop, or if there were a serious shock to the system, the Hong Kong monetary authority could simply de-peg… and you’d like see a 20% overnight gain, just like we saw with the Swiss franc recently.

Obviously the best place in the world to hold Hong Kong dollars is at a Hong Kong bank. So if that interests you, I definitely recommend you consider this shortcut option to establish an account.

Seven decades of data prove this is a really dumb idea… (but they’ll do it anyhow)

Mon, 01/26/2015 - 13:31

January 26, 2015
Sovereign Valley Farm, Chile

Roman Mairano had just married his sweetheart, and now he was eager to find a way to support her and their future family.

Both he and his new bride had come from very humble backgrounds. And hoping to build wealth, he began looking for new opportunities.

Roman went to a few wealthy contacts in the city and pitched to them that he had a plan to transport lumber to a city where there was a great deal of construction happening.

He offered that if they would back his venture financially, he would give them three-quarters of the profits upon his return.

They agreed. And in the year 1155, Mairano sailed with a shipload of lumber from Venice to Constantinople.

The venture was a success, as was the follow-on venture. Soon he was able to finance most of the journeys himself and keep a higher proportion of the profits.

Now, Roman’s story may be a parable. But it’s representative of untold numbers of people across Venice during the city-state’s golden age.

This form of financial partnership back then was known as a commenda, and it was prevalent throughout the Venetian economy at the time.

The commenda was essentially an early form of a limited partnership; it allowed people with energy and ambition to team up with investors who had capital to risk.

This was an incredibly unique arrangement in the Middle Ages: financial innovation and economic freedom. The Venetian state left people alone to take risks and prosper without the need for constant regulation and intervention.

Thanks to this level of freedom, Venice flourished and became a center of prosperity in the world at a time when the rest of Europe was still in the Dark Ages.

Venice’s currency, the ducat, even became a widely used reserve currency—ducats could be found in use as far away as Central Asia and China.

And all the opulence and beauty that you can still see in Venice today was essentially built in those times of economic freedom centuries ago.

Unfortunately not everyone was so keen to see mass prosperity.

A handful of wealthy families in Venetian society viewed the economy as a zero-sum game, as if someone else’s success were taking place at their expense.

Gradually they used their accumulated wealth to seize control of the government and impose restrictive rules aimed at cutting off commercial opportunities for new entrants.

They even created a police force where one had never existed before to enforce the government’s edicts.

It didn’t take long for wealth and prosperity to shift. Florence and Bologna very quickly became the new centers of wealth and prosperity, and Venice went into terminal decline.

This is a common story throughout human history. There’s almost always an elite, or government, with a ‘scarcity’ mentality that believes in the zero sum game, i.e. for anyone to be a winner, someone else has to be a loser.

This is a deeply flawed view. And you can see this misconception at work when they try to increase tax revenues by raising income tax rates.

This is a typical tactic. When they’re short of cash, governments almost invariably raise taxes.

Of course, the numbers show that raising taxes rarely affects total tax revenue.

In the United States, federal government tax revenue has been roughly 17% of GDP since the end of World War II, regardless of the tax rates.

In other words, the government’s ‘slice’ of the economic pie has been an almost constant 17%, no matter if they raised taxes or not.

Why? Because when they raise taxes, it provides certain economic disincentives.

People have less of a reason to invest, start businesses, or develop infrastructure. And this reduces the overall economic growth rate.

There’s a very looooong history which clearly establishes this point. And you’d think that a government would look at the data and recognize the obvious truth: their scarcity mentality doesn’t work.

But no.

Sadly, in the face of such overwhelming data, the Obama administration is now pushing to raise tax rates once again, including a capital gains rate that is almost double what it was in 2013.

The old joke about the definition of insanity is trying the same thing over and over again and expecting a different result.

My dictionary defines insanity as extreme foolishness or irrationality.

All joking aside, I find such behavior to be extremely irrational given the overwhelming volume of data… hence… insane.

Since the government’s slice of the pie isn’t going to change at all, the obvious answer is to do whatever they can to make the ENTIRE PIE bigger.

As the case of Venice clearly shows, that means guaranteeing economic freedom: leave people alone to take risks, thrive, and succeed.

What we’re seeing today across most of the Western world, unfortunately, is a strong push to stifle any such ambitions.

That’s why it’s crucial for any enterprising individual today to seek out places that allow ambition, talent, and drive to prosper.

The goods news is that thanks to the Internet and modern transport, it’s easier than ever to do so.

Here’s one example of how people are doing that.

Fresh out of college, here’s how you can live plush

Mon, 01/26/2015 - 13:15

January 26, 2015
Sovereign Valley Farm, Chile

Right out of university Jack took the first job he was offered, as an entry-level investment broker in central London.

He was happy at first, thankful that he’d been able to get a job straight away, while many of his friends had difficulty in landing one even after months of searching.

But his contentment diminished as he found that between rent, his monthly metro pass, and food costs each month, his paycheck seemed to simply evaporate.

He cut back where he could, living far out on the fringes of the city. But while that meant lower rent, it also meant that his transportation costs were much higher. Not to mention nearly two hours a day in transit.

Nearly all of his time and energy was being devoted to just getting by. He didn’t feel like he was actually living.

One day, sick of staring at a fellow passenger’s armpit on his way home from work, Jack decided that there had to be a better way to live.

So when he got home that night he went online and researched his options. And in a month, he’d quit his job and moved to Shanghai.

Jack didn’t have a job, flat, or anything lined up before he got there, but within a week he had numerous offers to teach English at local private schools.

All of a sudden he was earning a solid wage working just 25 hours a week, versus 60+ hours a week in London.

On top of that, because of the differences in living standards, his salary went much, much further.

His transportation costs were about 10% of what they’d been in London. And since a taxi fare cost just a few dollars, he could grab a cab without thinking twice.

His daily bland $5 supermarket sandwiches were now replaced with steaming hot bowls of wontons for less than $1.

A month’s worth of rent in beautiful Shanghai apartment was the equivalent of what he’d paid for a week in his seedy London flat.

Suddenly he had a lifestyle that he’d have had to wait years to attain in London. And on top of that, he was able to start saving money for the first time in his life.

He didn’t stay in an English teaching job for long either. Because of his background, his improving Mandarin skills, and thirst for greater heights, he joined a private equity firm in Shanghai after about a year.

Jack’s accelerated experience is just one of the endless examples of how the path to getting ahead is not linear.

It’s no longer about climbing a ladder, single file, as you wait your turn for promotion. Opportunities are everywhere, and there are endless ways to advance.

Not only will it get you to a better place in life more quickly, it can also be more enjoyable along the way.

Who has the patience anymore to wait until retirement to live life to the fullest?

And even if things abroad don’t work out, you can still come out of it with invaluable international experience, knowledge and contacts, and maybe even a second language.

All of which you can leverage to leapfrog your way ahead either in your home country or the next place you go to.

Congress proposes bill to restore First Amendment rights… then kills it

Fri, 01/23/2015 - 11:00

January 23, 2015
Santiago, Chile

To this day, many governments around the world maintain a tight grip on dissent.

Students in Thailand have been arrested for using a three-fingered salute they saw in the movie Hunger Games.

In Turkey, Twitter, Youtube, and other social media sites have been blocked. And in Russia the word “crisis” has been banned from use in public.

You can see the backlash of insecure governments against the free expression of their citizens everywhere.

There was a time long ago when the US was a refreshing outlier in this trend.

At the time of its founding, the Land of the Free took a bold stance in asserting that its citizens all had a number of inalienable rights.

But gradually these rights have been chipped away, particularly in this century as we’ve seen the rise of a tradeoff between liberty and security.

Today the US is rapidly joining the ranks of insecure, oppressive governments rather than moving apart from them.

Yes, someone in the United States can still technically publish an article that is critical of the government.

But you cannot have comfort in your privacy. You can have no reasonable expectations that your phone, emails, and social media accounts will not be hacked and monitored by the government that you are being critical of.

You can have no reasonable expectations that your financial accounts will not be frozen, nor that you will be spared by abusive tax authorities for starting a grassroots political opposition group.

We have seen people arrested for feeding the homeless, for collecting rainwater, and for dancing at the Jefferson Memorial.

On balance, exactly how free is this?

In the name of security, one major thing they have been cracking down on over the last few years is taking photographs and video recordings in public places.

We’re not talking about sneaking into the CIA headquarters. We’re talking about normal people taking normal pictures of public areas.

Amtrak famously invited the nation a few years ago to take pictures of its trains. Photographers obliged, and many of them were arrested or detained by police for engaging in suspicious activity.

Apparently taking a photograph is now considered suspicious activity. You can no longer take photographs of something so insipid as an airline safety briefing… or TSA checkpoint.

And this doesn’t even begin to describe the consequences of photographing police officers and federal agents engaging in public duties in public places.

It’s all forbidden… in the name of security.

(The government invades our privacy saying that if we have nothing to hide, we have nothing to fear. Ironically they do not apply the same standard to themselves.)

This past month, one Congressman finally said that enough was enough and proposed a new bill to bring back our First Amendment rights.

The bill stated that photographers taking footage in public areas should NOT be restricted by threats of confiscation or arrest as these things infringe on our rights to free speech.

When you think about it, it’s really sad that they needed to propose a new law to give Americans back their Constitutional rights.

Nevertheless, that’s what happened. And the bill was submitted.

Then they killed it.

Just two weeks after the bill was submitted, it was squashed.

So as pathetic as it was that they needed to submit this bill to begin with, it’s even worse that they killed it.

And that, ladies and gentlemen, tells you everything you need to know about the state of justice and liberty in the Land of the Free.

Just off the phone with Jim Rickards: The economy is on a knife’s edge [AUDIO]

Thu, 01/22/2015 - 15:14

January 22, 2015
Santiago, Chile

You probably know Jim Rickards as the author of two incredibly insightful books on finance and global geopolitics: Currency Wars and The Death of Money.

Jim worked on Wall Street for 35 years and has an intimate understanding of how global finance and the monetary system work. He knows and regularly talks with key policymakers at the Fed Board of Governors and US Treasury, and he testifies before Congress on financial matters.

Bottom line, he’s an extremely respected person in the world of finance. Not some tin-foil hat, gloom and doom guy.

When he speaks, every sensible person should listen.

I have an excellent relationship with Jim, and we talk often. He’s also going to be one of the speakers at our investment event in a few months.

We talked again this morning and I found the information and insights he was giving so valuable that I asked him if I could share them with you. To which he happily agreed, so I hit the record button.

The stuff he shared is truly remarkable.

We talk about the US economy and its fundamentals, the Fed (“The Fed has the worst models. I’m not joking, they have the worst forecasting record of all time. Over the past five years they have been consistently wrong, by orders of magnitude.”) and what they’re most likely to do (or not do).

He discusses how the economy is really on a knife’s edge right now as the great battle—between natural forces that are pushing for deflation and central banks and governments that are pushing for inflation—plays out.

He shares his advice on what investors are supposed to do in this environment (hint: prepare for both and hold real assets).

We talk about oil prices and how the fallout from oil’s drop is likely to wipe out a significant part of the $10 trillion debt market related to oil. If the default rate hits only 10%, this means a trillion dollars is on the line. More than in the sub-prime crisis a few years ago.

Jim also gives an exact number of what the price of oil is likely to hover around in the medium term and why (hint: it’s all about Saudi Arabia vs. the shale industry).

He also talks about gold and how its perception is starting to change (it’s being treated as money and not as a commodity)—and much more.

It’s a conversation packed with so much valuable information that it’s impossible to recap it all here—I strongly encourage you to give it a listen:

http://www.sovereignman.com/expat/powerful-investment-wisdom-from-jim-rickards-the-economy-is-on-a-knifes-edge-2-15997/

The crucial takeaway here is that there are so many different and competing forces at play. And while it might all seem fine and dandy, especially in the US, people shouldn’t be lulled into a false sense of security by the temporary respite.

Sure, the dollar is strong against other fiat currencies at the moment, the stock markets are at all time highs, and the headline unemployment number is lower than it used to be—but rational people understand major risks just beneath the surface and have a plan B.

Teenager answers: If America has $18 trillion in debt, can it still claim to be a wealthy nation?

Wed, 01/21/2015 - 14:09

January 21, 2015
Sovereign Valley Farm, Chile

Last night’s State of the Union address had one conspicuous omission, and it’s huge.

It’s bigger than all the wars, it’s bigger than the stock market, it’s bigger than the government, it’s bigger than the wages of all the people in America, it’s bigger than the economy.

It’s bigger than America itself.

And it seems incredibly strange to me that the President of America failed to mention it even once (nor was it mentioned in the Republican response).

It is of course, the national debt.

This, to me, is very dangerous. It suggests that the people in charge are in complete denial about the single biggest issue this country faces. And there’s a reason for that.

I recently saw a video where a teenager posed a question: If America has $18 trillion in debt, can it still claim to be a wealthy nation?

His conclusion was pretty simple—sure. His reasoning? Because we owe it to ourselves.

This is the flawed, dangerous, and ignorant logic that they’ve managed to convince people is true.

But this only scratches the surface of the problem. History shows us that heavily indebted nations invariably suffer serious consequences. But more importantly it’s the system itself that needs a fundamental reset.

Today’s podcast is long overdue (it’s been almost a month). I’m proud to present a deluxe edition that covers these challenges, where this trend is going, and what you can do about it.

Because, as it turns out, the solutions are as old as the problems themselves. And while you cannot fix your government or its debt, you can certainly take steps to set up your family and loved ones for whatever happens down this turbulent, yet exciting road.

http://www.sovereignman.com/podcast/029-the-one-word-that-was-conspicuously-absent-from-last-nights-state-of-the-union-address-podcast-15977/

P.S. I’m pleased to announce we’re having an exciting offer to join Sovereign Man: Confidential for the next few days. I encourage you to check it out; it’s only available for a limited time. We’ll send you more details soon.

11 facts that won’t be in tonight’s State of the Union address

Tue, 01/20/2015 - 14:54

January 20, 2015
Sovereign Valley Farm, Chile

When President Obama ascends to the podium this evening to deliver his State of the Union address, he’ll undoubtedly shine a spotlight on the many strengths of America.

And to be fair, he’s right: the United States has a lot going for it.

Cheap energy, rapid innovation, quality universities, reasonably low crime rates, abundance of arable land, highly productive culture, etc.

The real issue, however, isn’t where the United States is today. The problem is where it’s going. And quickly.

  • Today’s young Americans, for example, are the first generation to be poorer than their parents.
     
  • They will also pay all their lives into a retirement system that won’t be there for them when they get there.
     
  • Young Americans indebt themselves more than anyone else on the planet to attend university, requiring them to spend a large part of their careers paying off debt.
     
  • Americans of all ages are earning less than they did two decades ago when adjusted for inflation. Yet they’re paying more in taxes.
     
  • And US taxation is an increasing burden not only in quantity but complexity.
    According to the IRS itself, “tax requirements have become so confusing and the compliance burden so great that taxpayers are giving up the US citizenship in record numbers.”
     
  • But despite record levels of tax collection, the national debt keeps increasing. It now stands at more than $18 trillion, well over 100% of GDP.
     
  • In fact over 14% of all federal tax revenue collected goes to pay interest on the debt. Another 20% goes towards destruction, war, bombs, drones, and spying.
     
  • They also create roughly 200 pages of new rules and regulations every single day. These rules govern something as sacred as what you can/cannot put in your own body, or often make it more difficult to do business.
     
  • Many of these regulations carry severe civil and criminal penalties; this is why the rate of civil asset forfeiture is skyrocketing, and why America leads the world in the number of people incarcerated.
     
  • More people rot away in US prisons than did in the Soviet gulag at the height of communism. And many Americans are serving hard times for victimless crimes of failing to abide by some obscure regulation.
     
  • In total, there were 79,066 pages of new regulation passed last year, with a total regulatory cost of $181.5 billion (based on the government’s own estimate).
     

Years of such absurd mismanagement and arrogance (FATCA, endless wars) are causing the US dollar to lose its clear dominance as the world’s currency of choice.

This will have enormous consequences for the US and Americans’ standard of living.

It won’t happen overnight, but the consequences are already unfolding. The train has left the station.

That’s precisely the point. It’s not where you are today, it’s where you’re going. And the trend is pretty obvious for anyone paying attention.

We know deep down that there are consequences to waging endless wars.

There are consequences to racking up $18 trillion in debt.

There are consequences to treating people like milk cows and regulating every aspect of their existence.

There are consequences to awarding total control of the money supply to an unelected central banking elite.

And the primary consequence is this: despite the enviable number of Starbucks and iPads per capita, Americans are working harder to make ends meet, and are far less free, than they used to be.

That’s not progress. It’s precisely the opposite (which I suppose is congress). And we haven’t even scratched the surface.

Government debt grows every year, far outpacing GDP growth.

And thanks to this debt, plus all the wars, terrorizing of foreign banks, excessive money printing, spying, etc. America is rapidly losing its goodwill in the world.

The real consequences are not apparent yet. They’ll come when the dollar loses a substantial share of its global reserve status.

Make no mistake– it’s possible that could only be a few years away.

And despite all the obvious warning signs that we’ve been seeing for years, it’s going to catch most people with their pants down.

The truth is that you cannot fix your bankrupt government. But you can make a conscious decision to reduce your exposure to what’s obviously a failed system.

Standing in the street with signs and leaflets trying to raise awareness is a noble endeavor, sure. But it’s not going to change the system. It won’t make you more free.

Going to the voting booth is what we’re programmed to do, yes. But casting your ballot isn’t going to safeguard what you’ve worked for your entire life to build.

These are steps that you can take yourself.

You can choose, for example, to move your savings from a highly illiquid domestic bank to a new bank offshore that is objectively ten times safer, and pays forty times more interest on your savings.

You can begin using international structures to protect your assets and minimize your tax burden– legally slashing what you are currently forced to contribute in order to fund their wars and illegal spying.

You can look into establishing an alternative residency, so that if things get so bad that you need to leave, you’ll already be set up. You might even want to explore investing and doing business in thriving places around the world.

These solutions all make sense no matter what happens.

Even if you don’t agree with my assessment of the State of the Union, you’re not going to be worse off if you take some basic precautions and hedge your bets.

6 places to consider for foreign residency if you ever need a plan B

Tue, 01/20/2015 - 14:12

January 20, 2015
Sovereign Valley Farm, Chile

In the aftermath of the recent wave of terror attacks in France a number of voices have commented on the unstable political and cultural climate in France.

Among them is Israeli Prime Minister Benjamin Netanyahu, who has called on French Jews to “come home to Israel” where they will be safer.

He even urged Israeli lawmakers to enact new legislation to make it easier for French Jews to immigrate to Israel.

There’s of course a lot of sensationalist talk going on right now.

However, rational people do have a plan B. You might never need to use it, but if you do, you’ll be acting from a position of strength and confidence, instead of fear and insecurity.

Last week we talked about the richest man in Asia, Li Ka-shing, and how he’s diversifying abroad to protect his assets, business, and family.

This is what rational people do—they seek out prudent solutions and alternatives so that all their eggs are not in any one country’s basket.

Underneath the surface there’s a lot of strife and potential for cultural, economic, social, and military conflict in the world right now.

Governments are broke and becoming more and more desperate.

As things deteriorate further and anger towards the system rises, we can expect more rioting, more violence, more revolutions, and even outright war.

This also creates ideal conditions for radical political ideologies to take hold—we’re already seeing that happening across Europe.

In spite of everything, there are pockets of the world where you can find good news, safety, and opportunity.

It just makes sense for people to seek out alternatives in today’s climate. You want to have a safe haven where you can go just in case. Having options will help you and your family sleep better at night.

Where would you go if things went really difficult and you needed to skip town, whether for a short or long term?

You don’t want to have this discussion while you’re packing your bags. You would do well to think about it while you still have time to prepare.

Where are the places that you’d want to go?

Aim for safe, stable countries with growing economies where you can obtain residency fairly easily.

You might consider investigating some of these places as potential safe havens for foreign residency:

Andorra

Nestled high in the Pyrenees mountains between Spain and France, this tiny principality is an often overlooked European gem. It’s peaceful, safe, and gorgeous—and a short trip from Barcelona.

You can get residency there by forming a company, enjoying some of the lowest taxes in the world.

Australia

Although a relatively difficult (i.e. expensive) place to obtain residency, there is a back door.

Norfolk Island is halfway between Australia and New Zealand, has great weather and outdoor lifestyle, and is not on anybody’s radar.

As long as you can demonstrate that you can financially support yourself, you can obtain residency in this Australian island territory.

Chile

One that I’m keen on, of course, and where I’m spending a lot of my time. It’s safe, peaceful, civilized, and incredibly diverse.

North Americans would find it familiar in many ways, plus there are many business and investment opportunities down here.

Right now, getting residency is still very straightforward, practically for everyone. Don’t expect this to last, however, as Chile is becoming a popular option for a lot of people.

Netherlands

If Andorra is not for you, but you’re still considering Europe, Netherlands is a potential alternative. Especially for US citizens who can form a company and obtain residency in the country (and gain access to Europe’s borderless Schengen Area) easily on the basis of the Dutch-US treaty.

Panama

Still one of the easiest places in the world to obtain residency for a long list of citizens from countries that have “friendly relations” with Panama. And you don’t even have to spend any time there to maintain it.

This was a temporary presidential measure a few years back, however, so don’t expect this option to last forever.

Philippines

They officially call it a ‘retirement visa’, but if you’re over 35, you can easily become a resident of this beautiful tropical country with a simple refundable bank deposit.

Or if you’re over 50 and are receiving some sort of pension income of at least $800 per month, it’s even easier.

English is widely spoken and you’ll find a lot of the creature comforts from home, owing to the long US influence in the country.

These are a few options from all over the world that should suit just about anyone to establish an alternative residency overseas.

Having foreign residency means you can legally stay and work there for as long as you want without having to worry about being kicked out.

It’s a plan B that you wish you might never need—but you’ll sleep much more soundly at night knowing you have alternative options if you do.

Presenting the decline of the West in just 6 seconds

Mon, 01/19/2015 - 12:23

January 19, 2015
Santiago, Chile

Savino Gugliemetti stared down the 20-meter lane towards his destiny.

He could hear his pulse pounding amid the deafening silence of the auditorium, and feel the sweat dripping from the intense LA heat outside.

He let out a powerful exhale, leaned forward, and began to charge the outstretched pommel horse for his final vault.

It was over in seconds. Landing firmly, he lifted his hands and confidently faced the cheering crowd knowing that he’d won gold.

That was in 1932 at the Summer Olympics in Los Angeles. And when Gugliemetti won that gymnastics gold medal in 1932, the world was an entirely different place.

Perhaps most importantly, the British Empire was the most dominant superpower in the world, and the British pound was the world’s primary reserve currency.

But the tides were already beginning to change.

By 1932, wealth and power were shifting towards the United States, which had already become the world’s largest economy decades before.

And the US dollar was increasingly becoming the dominant currency in world trade.

It was pretty clear what was happening– the century would obviously belong to America. It was only a matter of time.

Fast forward to 2012, this time in London. The world gathered again for the Summer Olympics.

And in the gymnastics vault competition, South Korean competitor Yang Hak-Seon won the gold medal with a routine that was unfathomable back in 1932.

In fact, you can see the two routines side-by-side with this incredible, 6-second video.

Eight decades ago, Gugliemetti won the gold medal with a vault that six year old girls can perform in their sleep these days.

And eight decades from now, someone else is going to win the gold with a routine that makes Yang Hak-Seon’s look amateurish and cute by comparison.

Things change.

Back in 1932, the world was changing. Britain was on the way out, and the US was on the way in.

Today things are changing once again.

China has smoothly taken over both the UK and the US economically to become (once again) the largest economy in the world.

Just as the US got ahead economically by dominating trade and production at a time when Europe was constantly at war, China today is dominating trade and production at a time when America is in a constant state of war.

Not to mention, China is rapidly divorcing itself from the US-dominated financial system. And its renminbi is quickly becoming a competing reserve currency to the US dollar.

All of this comes at a time when the United States continues to be hobbled by debt levels that are rising nearly every day, and have officially surpassed $18 trillion (over 100% of GDP).

Just as a gold medalist can’t expect to remain a champion forever, neither can a nation.

The world is in constant flux. And though we might not like change, resisting it is detrimental.

That’s why international diversification is so important.

For example, don’t hold all of your savings, income, property, assets, etc. all within the same country, simply because that just happens the country of your citizenship.

Wealth, savings, income, livelihood– these are all far too important to be left up to accidents of birth.

There are places out there that have solvent, stable, top quality banking systems (Andorra, Hong Kong, etc.) and present far safer options to hold your savings than where you’re probably currently banking.

There are places out there that present much better investment value than your home country’s stock market (which is probably at an all-time high).

There are places out there where you can structure yourself to reduce (or even eliminate) your taxes… and it’s completely legal.

And there are places out there where you can live your life with more freedom, less stress, and more opportunity than you could even begin to imagine.

You don’t bet everything on whoever is champion today, assuming that s/he’s going to continue to be champion forever.

And for people who see the trends coming and position themselves to take advantage of them, there are untold fortunes to be made… and saved.

About that “strong” dollar

Fri, 01/16/2015 - 11:27

January 16, 2014
Sovereign Valley Farm, Chile

I’ll admit that I wasn’t much of an athlete as a kid, at least in any traditional sport.

(I famously struck out a tee-ball when I was five years old, managing to hit the stationary tee three times in a row. I’m not sure this feat has ever been duplicated before or since.)

But my parents still enrolled me in all the local sports leagues ‘til about sixth or seventh grade– you know, the ones where they have to put your kid in the game as long as you pay the dues.

Fortunately (or rather unfortunately) they lumped all the sorry kids onto the same basketball squad. Strength in numbers— we all sucked together.

And, bearing in mind this was the 80s, our opponents wasted no time pulverizing us into dust, then rubbing our noses in defeat.

Every single game was like a bad Karate Kid sequel… except more guys in skeleton costumes without the climactic Crane Technique victory at the end.

Occasionally (by which I mean rarely), one of us would miraculously score a basket.

This was a momentous achievement for us, and one that would be wholeheartedly celebrated by the entire team.

And invariably there would be someone from the opposing team who would jog by and snarl some pithy 80s sports metaphor, my favorite being “Scoreboard.”

Now, if you’re not a native English speaker, “scoreboard” is an idiomatic expression generally employed by some gigantic douche-bag to remind people that he’s still winning.

It basically means, “Whatever you’re saying, doing, or arguing doesn’t matter, because we’re winning.”

I’ll use an example: “Yeah, the US has $18 trillion in debt and a central bank that’s nearly insolvent… but you know what? Scoreboard.”

The point being that the dollar is ‘strong’ right now relative to other currencies. A number of currencies from the euro to the Japanese yen, for example, are all near multi-year lows.

So, who cares about the dollar’s weak fundamentals because it’s so strong right now. Right?

It’s important to first understand that global capital flows are extremely fickle.

Central bankers around the world have conjured trillions of currency units– dollars, euros, yen, etc. And those currency units have to find a ‘home’ somewhere.

If you’re holding $10,000 or even $10 million, many people just stick it in a bank.

But if you’re sitting on hundreds of billions, you have to find a safe place to park it.

Traditionally (and absurdly), institutional investors favor government bonds as that ‘safe place’.

It used to be you could just park it in some western government bond and walk away for a nice dinner and a movie.

Not anymore. Now you have to be constantly worried and alert.

Because in an instant, the US government could shut down again. Japan could default on its prodigious debt (in excess of 200% of GDP). The eurozone could come apart.

Any number of things could happen.

And as a result, capital regularly shifts from one major currency to another based on the market’s assessment of risk, i.e. which one is the ‘least ugly’ right now.

At the moment, the US dollar is choice.

This isn’t necessarily a vote of confidence for the dollar. It’s more like a vote against all the others.

If big institutional investors must choose between bankrupt America and bankrupt Europe, right now they choose America.

But this is a decision that can and will be changed in an instant. Just look at the Swiss franc.

Since September 2011, the Swiss National Bank (SNB) had essentially put a ceiling on the appreciation of the Swiss franc with respect to the euro.

The franc had been rising for months. And I predicted in July 2011 that the SNB would intervene with some sort of controls.

They did, shocking the world with this statement on September 6, 2011:

“With immediate effect, [the SNB] will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”

Investors yanked their money and the franc dropped like a stone.

But a few days ago, the SNB reversed this control. They are now no longer limiting the rise of their currency.

And the franc soared 10% almost instantly– a HUGE move for a major currency.

Why did this happen? Because in a universe of options that only includes the dollar and euro, the dollar wins.

But if you expand that universe even a little bit to include the Swiss franc, suddenly the real truth comes out.

Investors have far more confidence in Switzerland than the United States. They’d rather hold francs.

The next one to watch is the Hong Kong dollar.

Right now the HK dollar is pegged to the US dollar. But I’ve said it before: there may likely come a day when the Hong Kong Monetary Authority stops importing US monetary policy and abandons this peg.

We’ll see the same immediate surge. And anyone holding HK dollars will have a lot to gain.

What we can learn from the richest man in Asia

Thu, 01/15/2015 - 14:11

January 15, 2015
Santiago, Chile

It was nine months ago when we reported that Li Ka-shing, the richest man in Asia, had sold all of his major assets in China.

In 2013 when he started dumping his Chinese property holdings he was being ridiculed and criticized. Everyone was bullish on China’s real estate market.

It turns out you don’t want to bet against a man with a track record like Li’s.

Li Ka-shing’s grasp for major trends is unmatched. And he demonstrated his shrewdness and insight yet again when China’s real estate market went into correction mode last year.

He got out right at the peak of the market.

He recognized that China’s major credit bubble isn’t sustainable. Behind closed doors, the bosses in Beijing know it too.

A recent report by the chief economist at the Bank of Singapore reveals that the Chinese leadership is desperately trying to conceal the effects of excessive credit and engineer a ‘soft landing’.

And yet Chinese credit expansion continues.

Data from the Bank of International Settlements shows that in 2014 credit expansion’s share of GDP growth soared by 14%.

Since the end of 2008, credit expansion has accounted for 79% of China’s GDP growth.

Historical data and analysis shows that such levels of credit expansion inevitably lead to a lot of bad debts that can’t be repaid.

We’ve already seen first ever Chinese corporate defaults as a result of these policies, and we can expect more.

The long-term trend for China is of course, positive, but this doesn’t mean it’s going to be a smooth ride along the way. Nothing goes up or down in a straight line.

Right now, renminbi assets are falling and renminbi is weakening. Capital is fleeing China in fear of a major credit crunch.

Li was one of the first to spot this trend, and he got out.

Moreover, he’s hedging his bets across the board.

His most recent move is to restructure his investment companies and move them to the Cayman Islands.

Li is being very prudent– moving his money and his assets far away to safe, stable locations so that no single government has control over him.

Until now he was very much dependent on a single jurisdiction. He resides in Hong Kong and has Hong Kong SAR citizenship. His business interests were centered in Hong Kong and China as well.

Now, Hong Kong is an incredible place. The banks are well-capitalized, the government is solvent, and there’s a lot of economic opportunity.

But no matter how safe you think your home country might be, it NEVER makes sense to be completely dependent on one place.

Li understands that. Hedging your bets is crucial.

He has already acquired a second passport (Canada), and now he’s moving certain business interests and cash assets abroad.

In doing so, Li is also making sure that the wealth he worked to build over his entire life will be properly safeguarded for his family.

It’s hard to imagine he’ll be worse off for doing any of this. And if the worst happens, Li will be much better off for following his instincts.

This is good advice for anyone.

Remember: rational, successful people have a Plan B.

Rational, successful people take steps to minimize their downside risk.

British government wants to outlaw secure communication

Wed, 01/14/2015 - 10:34

January 14, 2015
Santiago, Chile

Well at least someone finally had the candor to just come out and say it.

In the wake of recent terror attacks in Europe, British Prime Minister David Cameron has called for an end to secure communications technology.

In other words, he wants to ensure that you will never again be able to use encryption technology to maintain privacy.

Nothing should be safe from government’s prying eyes. Nothing.

This is the same sad cycle repeating itself yet again: something terrible happens, and government reacts by awarding themselves even more power and taking away even more freedom.

Prime Minister Cameron’s remarks came in a press conference in which he stated:

“The simple principle is this: do we want to allow a means of communications between people which, even in extremis, with a signed warrant from the home secretary personally, that we cannot read?”

“And my answer to that is, no, we must not. The first duty of any government is to keep out country and our people safe. . . The powers that I believe we need, whether on communications data or on the content of communications, I’m very comfortable that those are absolutely right for a modern, liberal democracy.”

Nice. Spying. Censorship. Unlimited control.

Cameron’s statement starts with a very fundamental premise that is repeated by politicians around the world (especially in the Land of the Free): ‘the first duty of any government is to keep our people safe.’

No, actually it’s not.

Politicians say over and over again, and people believe it. It becomes axiomatic through repetition.

But in fact there’s absolutely no legal or moral basis for that assertion whatsoever.

In the United States, for example, the Preamble states very clearly that the Constitution was drafted for multiple reasons.

Sure, one of those reasons is provide for the common defense. But there are several others, including to “secure the blessing of our liberty to ourselves and our posterity.”

Nowhere does it say… anywhere… that ‘homeland security’ is far and away the most important duty of government.

What’s really interesting is that national defense and security are mentioned a grand total of… TWO times… in the entire body of the Constitution.

The first comes in Article I, and it’s a scant mention:

“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence. . .”

The only other time it’s brought up is in a little corner of the Constitution called the Second Amendment:

“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”

How interesting.

It turns out that security is not the responsibility of the government… but rather the right of the people to have the opportunity to protect themselves. Hmmm.

Well who needs that stupid Constitution anyhow.

Back in the UK, it’s a bit more complicated.

There really is no British Constitution… rather a series of laws and statutes that go back to the iconic Magna Carta from eight centuries ago.

What’s interesting is that out of any of these documents, from the 1689 Bill of Rights to the Terrorism Act of 2000, there is no such assertion that the government’s primary responsibility is to protect its citizens.

Conversely, there’s a hell of a lot of language about government’s duty to safeguard civil liberties.

Yes there are bad people in the world who, from time to time, do horrible things. That’s life.

But a little bit of anxiety is a small price to pay for freedom… especially when governments present a far greater threat to your security and livelihood than extremists.

Besides– did you ever notice how this seems to only work in one direction?

Acts of love, generosity, and compassion occur on a daily basis.

Yet they do not relax gun control laws every time a firearm is used safely and responsibly.

They do not increase our freedoms whenever a complete stranger gives up a kidney to save a child’s life.

But once in a blue moon, a bad guy blows something up and they take away our freedom.

This is ironic, because, whenever this occurs, politicians frantically rush to tell us that we should not judge Islam by the isolated acts of a few.

But in taking away everyone’s freedom and treating us all like criminal terrorist suspects, why are they effectively judging all of humanity because of the isolated acts of a few?

Funny how that works.

Ouch. Ukraine’s foreign reserves collapse 54% in the last quarter

Wed, 01/14/2015 - 09:26

January 15, 2015
Santiago, Chile

What a surprise! It turns out that endless military conflict, corruption, and epic fiscal mismanagement can take a serious and rapid toll on an economy.

Ukraine started off last quarter with $16 billion in foreign reserves; today they have $7.5 billion. That’s a 54% decline in just 3 months, losing 24% in just the last month alone.

So the trend is not only getting worse, it’s accelerating. They’re not only heading over a fiscal cliff, they’ve put the pedal to the floor.

Foreign reserves are essentially a measure of a government’s savings. It’s how much gold, foreign currency, and other forms of savings they have stocked away.

It’s the stuff they need to do business with the rest of the world. When a country runs out of it they’re in for an absolutely epic crisis.

Like the old joke about Brazil, Ukraine the country in Europe with the most potential. And it always will be.

Despite having well-educated and inexpensive labor, loads of natural resources, and a favorable tax regime to attract foreign investment, they never seem to get it right.

The country is legendary for its corruption. In Ukraine both the government and the banks are literally controlled by the mafia.

After all, why waste time with extortion and gambling when you can just print money and tax the citizens?

Ukraine has had a very difficult road. All the conflict, wasteful spending, debt, and decrease in reserves has taken its toll.

Ukraine is now suffering through severe retail price inflation, asset price deflation and economic stagnation. It’s the worst of all possible economic outcomes.

All this sounds pretty terrible, until you look at the numbers and realize that the United States has even less in foreign reserves, more debt, and of course is engaged in its own endless military conflict.

These are facts. And it’s incredible how greatly one country suffers the consequences, while the other one doesn’t.

How has that happened? At the end of the day it all comes down to confidence.

People choose to maintain confidence in the US government, the US dollar, and US banks. Even when the data shows that the Land of the Free is worse off than Ukraine.

Confidence however is a fickle beast and can move on whenever there is a change in the direction of the wind.

Now, I’m not suggesting that the US will turn into Ukraine.

But with such negative fundamentals, it certainly makes sense to at least consider whether its worth holding the entirety of your net worth, all of your opportunity, all of your livelihood, all of your family’s security in a bankrupt country?

After all, you wouldn’t bet it all on Ukraine. Look at the data and ask yourself if there’s a difference.

The world is a big place. There are plenty of opportunities to diversify abroad… places with stronger banking systems, less debt, and more economic freedom.

There’s no need to take everything you worked for your entire life to achieve and gamble it on a bankrupt government.

It begins: IRS launches International Data Exchange service

Tue, 01/13/2015 - 16:25

January 13, 2014
Punta Arenas, Chile

Yesterday, the IRS announced the International Data Exchange Service.

If you’ve not heard of it, it’s is an outgrowth of the Foreign Account Tax Compliance Act (FATCA), which requires every single bank in the world to get in bed with IRS to share information about customers.

We’ve said this over and over, FATCA is probably the dumbest law in the history of the United States. And I don’t say that lightly, because there’s definitely stiff competition.

Like any other bankrupt government, the US government has taken to intimidating its own citizens and the entire world in an attempt to make ends meet.

Their hope was that the minority of people committing tax evasion would come clean and that it would result in some huge boost in tax revenue.

But the fact is that tax revenues actually haven’t improved at all.

Looking at tax revenue as a percentage of GDP, the numbers haven’t budged at all from their long-term average. Not a single bit.

So in actuality, FATCA has done nothing positive for America.

That said, FATCA has managed to destroy what little remaining credibility the United States government still had.

Bear in mind these people have spied on their allies, dropped bombs by remote control, and force fed people negative real interest rates and $18 trillion in debt.

But if that weren’t enough, FATCA goes after foreigners with absurd logistical challenges, commanding every single bank on the planet to comply.

Here’s the ultimate irony: there are nations in this world that are not recognized by the United States. The Turkish Republic of Northern Cyprus. Abkhazia. Etc. Yet banks in these regions still have to sign up with the IRS.

It’s like– you don’t exist. But you must still comply.

The IRS tells us that so far more than 145,000 financial institutions have already signed information-sharing agreements.

Now with yesterday’s launch of IDES they have an online platform to invade customer privacy at every one of those banks. This is a terrible trend.

I was talking to Jim Rickards the other day, author of both Currency Wars and The Death of Money (both excellent books).

He was telling me how decades ago he could ring up a bank and open an account over the phone in just a matter of minutes.

Now, because all these governments are bankrupt, banks have become unpaid financial spies required to treat customers as if we’re criminal terrorists.

The lifeblood of capitalism is capital, and banks are supposed to be the responsible stewards of our capital.

So by obstructing the ability of banks to engage in commerce, the US government is grinding down the pitiful remains of global capitalism down to the mere punch line.

This has consequences.

Perhaps more importantly, and the reason we think FATCA is the dumbest or at least the most destructive law in US history, is that it provides an enormous incentive for the rest of the world to simply avoid dealing with the United States.

There’s no bank on the planet that likes FATCA.

The only reason they comply is because the US has a nuclear option: sign up for FATCA or else we’ll withhold 30% of all transfers that go through the United States.

This is a big deal for banks.

Since the US dollar is the world’s dominant reserve currency, the majority of global transactions are denominated in US dollars and cleared through the US banking system.

This makes the US banking system critical to global finance. And it has long been a major advantage to the United States.

You would think that a government entrusted with such an awesome responsibility, from which it has benefitted for decades, would treat this advantage with dignity and care.

But no. Instead, the US government has turned its banking system into a weapon with which it threatens the entire world.

It doesn’t take a rocket scientist to realize that the rest of the world is one day going to create its own alternative system. One that would no longer rely on the US dollar.

Oh wait– they’re already doing that.

With FATCA, the US has shot itself in the proverbial foot. They’re practically begging the world to please take away its last remaining financial advantage.

And the rest of the world is listening.

Punta Arenas: it’s like being in a Spanish-speaking Scandinavia

Tue, 01/13/2015 - 15:49

January 13, 2015
Punta Arenas, Chile

I consider myself very fortunate to be able to travel as much as I do. In 36 years so far I’ve been able to visit 116 countries.

There are so many incredible places on this planet that it’s hard to say which one is my favorite.

Thailand is easily one of them. Everything about the place, from the beautiful temples, the deferential treatment given by Thais and their easygoing nature, to the beaches and the food is wonderful.

Europe is a great place to spend time as well. Not particularly attractive for business, and their ongoing troubles are a big sap on the region’s appeal to stay there long-term, but the culture, food, history, and scenery are unbeatable.

Italy is among my favorites. I spend every summer there at a centuries-old villa in the heart of wine country, enjoying non-stop homemade Italian food, wine and the company of my energetic Italian hosts and my close friends.

Of course it’s no secret that I’m a big fan of Chile too.

I’ve been spending a lot of time here over the last few years and the more I get to know the place the more I’m stunned by its incredible diversity.

It stretches from the driest place on the planet, the Atacama Desert, all the way down to Antarctica where I just came from.

(Chile, Argentina and Britain all share a claim to the same part of Antarctica that is currently overwritten by the Antarctic Treaty System—even though officially Antarctica doesn’t belong to anyone, it’s no man’s land.).

This incredible climatic diversity means that it’s like having Arizona, Nevada, California, Italy, Germany, British Columbia, Austria, Switzerland, Scandinavia, and Alaska—all within the same country.

The curious thing about my trip to Antarctica is that this was a domestic trip. During the whole travel there, and now back to Punta Arenas, nobody ever asked to see my ID. No TSA agent ran his plastic gloves over me, and no border agent stamped my passport.

Somehow the world didn’t come to an end despite us doing all of this transcontinental activity without any government bureaucrats.

Here in Punta Arenas, the deep south of the world, some 50% of the population traces their roots back to Croatia, believe it or not.

The town itself is very European, just like many of Chile’s southern cities. It’s clean, quaint, and well-maintained.

It’s also a great jumping point to Chile’s world famous Torres del Paine national park with some of the most awe-inspiring landscapes in the world, as well as to Antarctica.

It’s inexpensive too, made even more so by the fact that it’s a tax-free zone.

Chile, with its incredible diversity, really does satisfy a lot of appetites.

China’s stock market just went full retard

Tue, 01/13/2015 - 15:39

January 13, 2014
Punta Arenas, Chile

Well if this isn’t a screaming indicator, I don’t know what is.

China’s stock market has long been known as somewhat of a casino. Because of the nature of the Chinese writing system, stock symbols in China are numbers, not letters.

And as a rather superstitious lot, it’s long been common for many individual Chinese investors to pick stocks, not based on any fundamentals or prospect for future growth, but solely on whether the numbers in the stock symbol are ‘lucky’.

Just like playing the lottery, it’s really more gambling than investing.

Chinese stocks have been on a tear for the last six months. After spending the past several years bouncing around the bottom and suffering a crushing decline from continual all-time highs, Chinese stocks have soared 50% or better since last year.

And now that everything is nice and frothy once again, individual retail investors are back in record levels.

This was the case in 2005, 2006, and 2007 when Chinese stocks were practically doubling every year– towards the end of the boom, retail investors poured into the market betting their lucky numbers.

Then after the crash (and subsequent multi-year drought), all the retail investors got scared away. Nobody wanted anything to do with the stock market.

Now that the stock market is soaring once again, retail investors want back in.

The latest rage according to Bloomberg is individual investors buying ‘cheap’ shares.

In principle this is a solid investment strategy– buying shares of companies that are selling at a discount to their net asset value.

Except that’s not what Chinese investors mean by ‘cheap’.

Rather than looking at key valuation metrics, earnings multiples, book value multiples, or even the potential for long-term profitability… individual investors are just looking at share prices.

Their logic– if a share price is high, it’s expensive. If it’s low, it’s cheap.

In other words, with no further analysis whatsoever, they view a stock selling for 5 yuan as a much better investment than a stock selling for 50 yuan, simply because the 50 yuan share price is higher.

Of course, we know that nominal share prices are no indication of whether a company is cheap or expensive relative to other companies.

That’s why valuation metrics (like the familiar Price/Earnings ratio) and good ole’ fashioned analysis exist.

But what we’re seeing now in China is a record number of individuals flooding into the stock market. Bloomberg tells us that 80% of all equity transactions are from individual investors, many of whom are clearly inexperienced.

This is a huge warning sign. And frankly it would be hilarious if it weren’t so worrying… and sad that so many people are setting themselves up to lose.

Of course, it’s not just China. We’re seeing the same trends as stock markets across the world reach new highs: individual investors piling in at record rates.

It’s rather interesting that whenever something has been going up, people believe it’s a great investment and will continue to go up.

More realistically, all of this is a just another sign that there are serious problems in the financial system.

Markets everywhere are overheated. There’s too much hype. Too much expectation that everything will continue to go up in a straight line.

These are pretty classic signs of the top… and it begs an important question: would you rather miss out on another 20% gain, or skip out on a looming 50% loss?

This may be the most important transaction in the history of finance

Mon, 01/12/2015 - 15:15

January 12, 2015
King George Island, Antarctica

Six years ago today, Satoshi Nakamoto, the developer and founder of Bitcoin sent ten units of the cryptocurrency to his colleague Hal Finney as a test.

This was the very first bitcoin transaction ever recorded. And it may possibly go down as one of the most important financial transactions in modern history.

I should caveat this by saying that I am not necessarily a ‘Bitcoin-bug’. But the reason I own bitcoins is because I am even less of a paper bug.

Centralized, un-backed paper currency is one of the worst experiments in the history of finance.

We have awarded total control of our money supply to a tiny elite of unelected bankers that has the power to conjure trillions of units of currency out of thin air in its total discretion.

It has left in its wake an endless trail of busts, panics, recessions, and depressions, not to mention the greatest level of financial inequality that the world has ever seen.

Now– inequality is nothing to gripe about. Equality in and of itself is an absurd ideal.

Human beings are all different. And wherever one person’s skills are more economically valuable, that person will achieve greater wealth.

It’s a simple calculus. Improve the skills to improve the income.

But what this centralized paper monetary system has created is an environment where people rise to the top, not through skill and talent, but by graft and bloodline.

If you were born middle class, you stay middle class. You keep fighting to make ends meet, you keep going into debt, and you keep getting penalized with negative interest rates for saving your money.

And if you were born rich, you stay rich… even if you’re a complete moron.

This is banana republic stuff, brought to you by an absurdly corrupt monetary system.

The idea of Bitcoin changes all of that.

Understandably, most people don’t get it. It’s too technical. And a lot of folks can’t conceptualize what a ‘digital’ currency even is.

But consider this: US dollars. Euros. Pounds. Canadian dollars. Yen. Renminbi. These are themselves nearly digital currencies.

The vast majority of dollars aren’t found in paper form in your wallet and purse. They exist as digits… merely entries in an electronic ledger at a bank.

When you send a wire transfer from one bank to another, it’s not like some guy with a satchel full of paper cash treks across country to make a deposit. It all happens in the digital world.

So in this respect, the concept of digital currency is not terribly esoteric.

What really makes Bitcoin revolutionary, though, is its Decentralization.

No one has any control over it. No one can manipulate its supply. No government can destroy it.

And NO ONE can use it as a tool to reward bankrupt governments at the expense of responsible savers.

This is an extraordinarily noble idea: take the power out of the hands of the central banks and let the market decide.

But while Bitcoin does have a well thought-out design to implement this concept, there are plenty of weaknesses.

For one, the blockchain (Bitcoin’s underlying digital ledger system) keeps growing; it’s already 30 GB in size, and we haven’t even scratched the surface of the tip of the iceberg.

Imagine how large and unwieldy it will be in another six years.

This means that transactions (which can already take several minutes) could get even slower, and validation could require even more computational intensity and energy.

Security is also still an issue, as evidenced by last week’s breach on the Bitstamp exchange, which resulted in $5.4 million of cryptocurrency being lost.

But these weaknesses only spell opportunity to improve. They are lessons to be incorporated into the next generation of cryptocurrency and related services.

So regardless of whether Bitcoin remains the most popular digital currency, it started what will certainly prove to be a revolution of money.

Bitcoin is proof that all of the tools and all of the technology already exists to divorce ourselves from our corrupt monetary system.

We don’t have to own paper currency. We can hold gold or bitcoins.

We don’t have to use an insolvent banking system. We can transact through the Blockchain.

We don’t have to lay down for bankrupt governments desperate to steal everything from their citizens. We can move the entirety of our liquid assets into the digital world.

Whether you understand the technical specs or not… whether you are suspicious of digital currency or not… I hope we can at least agree that this is a powerful ideal.

And it’s one that isn’t going away.

As much as they’ll try, governments and central banks cannot stop this technology. The revolution has already begun.

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