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Updated: 9 hours 34 min ago

Here’s the most bizarre currency you’ve probably never heard about.

Fri, 11/21/2014 - 14:24

November 21, 2014
Santiago, Chile

John Lynn was bound and gagged, as the angry mob tied him to a tree and poured a barrel of scalding hot tar over his freshly shaven head and coated him in feathers.

It was June 1794 and the crowd was absolutely frantic. They were taking justice into their own hands.

Lynn’s crime, in their eyes, was having extended lodging to a federal tax collector, who’d come down to enforce a recently imposed excise tax on whiskey.

The brand new US government was deeply in debt and starved of revenue sources to pay back their bondholders. So they did what all governments do in that position: they created a new tax.

They targeted whiskey simply because it was far and away the most popular drink in America.

It was so popular that it was even used as a medium of exchange and a store of value.

You could pass a bottle of the stuff to somebody as a payment for debt owed, and farmers would often turn their excess crop into whiskey as a way to store value for the future.

Whiskey is what people had, what people used, and what people wanted. Therefore it was whiskey that was taxed.

This was a dangerous move, as the American-made drink had risen to popularity during the Revolution, giving it a flavor of patriotism and rebellion—which is why the citizens of Western Pennsylvania weren’t going to take this lying down.

So to enforce their tax law, the new government did so at the point of a gun. Going against all the principles that people had just fought for in the Revolution.

It was the first time in US history that this happened, but it certainly would not be the last.

You can learn more about this in today’s podcast as we discuss where this is going and what bankrupt governments are going to tax next.

[Podcast] Taxes are about violence.

Fri, 11/21/2014 - 14:22

Four countries you need to know about that will revolutionize food production

Thu, 11/20/2014 - 12:13

November 20, 2014
Sovereign Valley Farm, Chile

As we discussed yesterday, the world has certainly gotten itself into a serious pickle.

World population growth and economic trends are causing food demand to soar.

Demographers tell us that over 200,000 people will be present at the dinner table tonight who weren’t even alive yesterday.

And with over a billion people having been lifted out of poverty in the developing world (and more to follow), people are eating more food (and more resource intensive foods like meat) than ever before.

At the same time, farm yields have peaked in the developed world. Science has managed to extract from the ground as much as the earth can give.

Many farmers are quitting the business altogether thanks to rising input costs and absurd regulation, and the amount of farmland is in clear decline.

The arithmetic here is quite simple: the demand for food Calories is rising while the ability to provide those food Calories is falling.

This suggests rising food prices over the long-term, and potentially even shortages.

But behind this uncomfortable data is a clear opportunity: if demand for food is increasing while the supply of farmland is in decline, then high quality farmland is an obvious asset to own.

The question is: where? Not all farmland is created equal.

In fact, much of the farmland in the developed West is already at or near an all-time high, and much of it lacks available water.

Having traveled to over 110 countries, I’ve looked at farmland across the world to see where is the best mix of soil quality, secure water, land title rights, favorable weather, developed infrastructure, labor and land costs, etc.

Far and away the best opportunities lie overseas. And below are some of my top picks which are presently underdeveloped:

CHILE

Farmland in Chile is already inexpensive when compared to North America or Europe; what would cost $15,000 per acre in California would cost barely $5,000 in Chile.

Yet at the same time, the productive output is just as high, if not higher. The weather here is temperate, the soil quality is off the charts, and the all-important land title rights provide clear protection for foreign owners.

PERU

If land in Chile is cheap, it’s even cheaper in Peru. That said, the two countries are entirely different. Peru is still the wild west; there’s very little infrastructure and a million ways to get screwed by locals.

But by comparison, Perus is enormous. And climatically Peru is like a natural greenhouse– steady, constant temperatures year-round that in many cases can double or triple an annual crop yield.

(The downside of this is that Peru lacks the cold hours necessary to properly grow certain stone fruits or develop the sugars which sweeten many foods).

COLOMBIA

As you can imagine, land in Colombia is even cheaper than in Peru. And if you believe the conventional wisdom about the country’s stability, Colombia is even more Wild West.

One of the reasons that Colombia is so full of opportunity is because it’s on few people’s radars as an agriculture option. Yet many of the highland areas provide ideal climate, soil, and water conditions for an abundance of crops to thrive, yet with ultra-low investment costs.

And the government is on an all-out rampage trying to attract investment dollars with generous incentives for foreigners who brave the “Colombia stigma” and come to the country.

MYANMAR

Asia’s greatest agricultural treasure trove is in Myanmar right now; the country is vast and boasts climate zones as diverse as Chile’s, so you can grow just about anything.

Labor costs are almost nothing, and the government is on a clear push to lift restrictions on foreign asset ownership (foreign companies can already lease land for up to 70 years based on a 2012 law).

It’s still completely virgin; Myanmar lacks critical infrastructure or even a functioning financial system, so it’s toally ground floor. But the long-term potential is enormous.
Each of these places has the potential to become an agricultural powerhouse and slow this disturbing food production trend. And this is important.

All the traditional food exporters in the world (like the US) are tapped out. So if there is to be any serious growth in global food production, it absolutely MUST be from up and coming locations that are currently off the radar.

Chile, Peru, Colombia, and Myanmar are four among some of the top countries (there are others) which have all of the right characteristics, including CHEAP LAND. This is a critical variable.

And from my vantage point as a fund manager overseeing agricultural investments, I’m already noticing hundreds of millions of dollars being raised by funds to acquire land in these areas.

And these are the early ones. I expect much more capital will follow behind.

Given this surge of funds, I have no doubt that that the market will eventually correct this anomaly, and we’ll see much higher land prices in the coming years.

The global land rush has begun. So if you’re interested in investing in agriculture, these are some of the places to start looking.

The US is losing 9.5 acres of farmland per minute

Wed, 11/19/2014 - 13:25

November 19, 2014
Sovereign Valley Farm, Chile

More than six thousand years ago, the most advanced civilization on planet was Sumer, rulers of the fertile plains of ancient Mesopotamia in modern day Iraq.

The Sumerians weren’t powerful from their military strength or political system; rather, it was agriculture that developed their civilization.

Quite simply, the ancient Sumerians had developed techniques to produce far more agriculture than they could possibly consume.

This food surplus meant that they could build up a large pool of savings to be used in trade, or to feed workers who could pursue other careers like science and architecture.

Nearly every great civilization ever since has shared the same characteristics– being able to produce more than it consumes.

In fact, no society can survive without the ability to feed itself. We’ve seen this throughout history.

When the Sumerians’ complex , centrally-planned network of canals failed to adequately irrigate their farmland, the civilization quickly declined.

The Roman Empire was notorious for routinely invading other lands looking to secure additional sources of food.

During the American Civil War, a large part of the Union’s strategy was to cut off the South from its food sources, and burn to the ground every acre of farmland they could find.

And despite decades of economic hardship, the French Revolution finally kicked off in 1789 because the nation could no longer feed itself… and people were starving.

Early on in US history, the country’s strength came from this same ability to produce more than it consumed.

And over the centuries the US became farmer to the world, exporting interminable quantities of food like a never-ending breadbasket.

But that trend peaked long ago.

Over the past five years, for example, the amount of farmland in the US has decreased by 5 million acres each year, often due to land development or aging farmers quitting the business.

This is equivalent to losing nearly one square mile of farmland every hour, or 9.5 acres per minute.

The same trend is taking place in China, where more than 40% of the country’s arable land has been lost in recent years due to development, drought, and topsoil erosion.

Yet while we’re seeing a dramatic decline in the amount of farmland available per person in the world’s largest powers, demand is rapidly increasing.

I’m not just talking about population growth, which is a given. There’s also the growth in demand that comes with economic development.

As a nation’s wealth increases, so does its demand for food.

The billion people across Asia being lifted out of poverty into the middle class are consuming more Calories than ever before, and consuming meat for the first time ever.

Raising animals for meat production requires far more land per Calorie than growing fruits, vegetables, and grains.

So not only are people consuming more Calories, but they’re also requiring more land per Calorie.

This is a clearly unsustainable trend: the world needs more farmland per capita to meet food production needs at a time when the amount of farmland is in decline.

On top of all this are the water challenges that many parts of the world are experiencing. California is a great example.

It’s well known that the entire state of California is experiencing EXTREME drought conditions.

What’s less known is that, along with many other crops, California is the world’s top almond producer.

The state produces 80% of the global almond supply, completely dwarfing production in the rest of the world combined.

Yet at the same time, California almond growers consume nearly 10% of the state’s water supply.

Think about it– when you export agriculture, you are also exporting all the resources and inputs that go into producing that agriculture.

So at a time when the entire state is suffering from extreme drought, California almond farmers are essentially exporting 10% of the state’s dwindling water supply.

This math doesn’t add up. And it doesn’t take a rocket scientist to figure out that, at a minimum, the price of almonds is due to rise dramatically in the coming years.

Almonds are just one example. We can see this across the board with food in general.

For most crops, yields peaked long ago; in other words, human beings are already extracting the maximum amount of tons, kilos, bushels, etc. per acre.

And thanks to absurd government and monetary policy, we’re simultaneously seeing rising production costs, as well as idiotic incentives to turn food into inefficient fuel. Or subsidies which pay farmers to not grow at all.

These trends are all converging at the same time, suggesting a long-term rise in food prices, and in some cases even shortages.

This isn’t some sensational, headline-grabbing nonsense. It’s simple arithmetic based on objective, publicly available data.

And it’s a trend that will affect nearly everyone on the planet.

On a small scale, you can do well for yourself by planting a small garden with some fruit and nut trees in your own backyard. Worst case you enhance your property value and have a small supply of organic food.

On a larger scale, owning productive farmland and selling food across the value chain may turn out to be one of the best investments of the decade.

But with farmland prices at all-time highs in the US, and water availability highly questionable, the real opportunities lie overseas. More on that tomorrow.

PS. You might also be interested in our latest post on how to protect yourself from Civil Asset Forfeiture.

Civil Asset Forfeiture: What you can do about it

Wed, 11/19/2014 - 13:15

November 19, 2014
Sovereign Valley Farm, Chile

Tan Nguyen was stopped on the highway for driving three miles over the speed limit. The policeman searched the car and found a briefcase of money that Tan said he just won at a casino.

There weren’t any drugs to be found, but suddenly the cop said he smelled marijuana and confiscated the money.

Now, if you or I were to have taken Tan’s money at the point of a gun, it would be called armed robbery, and we’d go to jail.

But when the state does it, it’s called Civil Asset Forfeiture. And it’s perfectly legal.

What’s more, they’re able to commit this highway robbery without a shred of proof or evidence. And then it’s up to the victims to prove their innocence to get the money back.

It’s not surprising that the system is being abused. It’s such easy money.

And what do these police departments do with the money that they steal? Whatever they want, as it turns out.

Police departments in the Land of the Free have used seized funds for things like a margarita machine, a Zamboni (that thing that cleans the ice on a rink), hiring a clown, or a trip to Hawaii.

And as infuriating as these examples all are, often overlooked are the more sinister examples of what these funds have been used for.

Take the $227,390 used to purchase an 8-ton Ballistic Engineered Armored Response Counter Attack Truck (yes, that spells BEARCAT).

Or the $54,000 spent on twenty-seven military grade M-4 assault rifles. (Both by of these were in Georgia).

Between $382,000 on license-plate readers, $208,000 on electronic surveillance tools, and an undisclosed amount on a “cell site simulator” that can surreptitiously track cellphones—you can see that the stolen money is being used to get better at cracking down on your liberties even further.

The institution that claims to be there to protect is now among the biggest threats to liberty.

Think about it– you have a far greater chance of having your assets wrongfully seized than being the victim of some terrorist attack.

What can you do about it? First off– don’t drive around with a lot of cash. And definitely don’t try to leave the country with a lot of cash.

Leaving the country with more than $10,000 requires making a report with the federal government’s Financial Crimes Enforcement Network (FinCEN), as if it’s some sort of crime to move cash overseas.

Bottom line, if you want to move a lot of wealth, there are better options.

For smaller amounts under $25,000, a few gold coins in your briefcase are a lot less conspicuous than bricks of cash.

If you have trustworthy sources (premium members- see our previous alerts about this), you can buy rare coins and collectibles that are worth much more.

For example, a single five cent buffalo nickel in excellent condition can be worth half a million dollars or more. This is something that you could stick in your pocket and walk out of the country, and no one would ever know.

Digital currency is another option. Through cold storage and paper wallets, millions of dollars worth of digital currency can be held in a simple, random string of characters.

Civil asset forfeiture is clearly a growing problem. But all of the tools and technology already exist to take back your freedom and make sure you don’t become another statistic.

WARNING: new international gang of thieves make the IS and Somali pirates look like amateurs

Tue, 11/18/2014 - 15:07

November 18, 2014
Sovereign Valley Farm, Chile

When the two young petty thieves, Rinconete and Cortadillo, came to Seville they were quickly censured for stealing.

To their surprise, it wasn’t for the theft itself, but instead because they were not registered with the local thieves’ guild.

In this upside-down world imagined by Miguel Cervantes, theft was not a crime, but a craft—performed in the name of God and justice.

And like any other craftsmen of the day, the thieves had formed a guild. There they provided training and support to their members, while maintaining an exclusive right to engage in the trade.

This past month, a real-life guild of thieves was formed. With 51 governments pledging their support to each other for the protection of their ignoble craft of theft. And another 30 pledging to join by 2018.

From day one, governments have been pilfering their citizens’ assets through taxation, claiming a monopoly on thievery.

From the largest institution to the pettiest pickpocket, anyone else who tries to engage in theft is severely punished, as governments work to protect their exclusive right to steal.

Frighteningly, they do this all out in the open, believing that they actually have a moral right to commit theft.

You can see this delusion in the US government’s claims that last year they “lost out” on $337 billion from people avoiding taxes. As if they have some moral claim to the money they’d failed to pilfer.

Nonetheless, they use this claim to justify actively hunting down and penalizing anyone who takes action to avoid being stolen from.

The ones that are doing this are the bankrupt countries, and the deeper they slide into debt, the more desperate they become.

Which is why these broke governments are now joining forces, pledging to to collect and share information amongst themselves about citizens’ bank accounts, taxes, assets and income outside local tax jurisdictions.

Basically—I’ll help you steal from your citizens if you help me steal from mine.

Both the punishment and the likelihood of getting caught for tax evasion are growing. Don’t even bother trying.

However that doesn’t mean that you have no choice but to sit there and let your self be stolen from.

While there are still ways of legally reducing your tax burden from within a country, your best option is to move and diversify.

Diversification is key, because if you have all your eggs in one bankrupt basket, you are really taking on extraordinary risk.

Moving some assets abroad can legitimately reduce some of this risk. And an even greater strategy is considering moving yourself.

Citizens of most countries have the benefit of divorcing themselves from the tax system simply by moving abroad.

It’s a bit more onerous for US citizens. But for Americans living abroad, it’s still possible to earn roughly $100,000 without paying income tax.

In fact, between the Foreign Earned Income Exclusion, Foreign Housing Exclusion, SEP IRA contributions, and more, an American couple can sock away roughly $300,000 per year while paying almost zero income tax.

And if you become a resident of Puerto Rico (which any American can do), it’s possibly to completely eliminate US federal income tax on any amount of money.

By doing so, not only are you taking yourself out of the reach of this gang of thieves, but you are also casting a vote with your feet.

More important than the ballot box, this is a vote that actually counts. And one you have complete control over.

(Don’t worry– if you can’t move, there are still plenty of options to reduce your tax burden and take back your freedom. More on this in upcoming letters.)

You have two options. One can bring you a world of opportunity.

Tue, 11/18/2014 - 14:48

November 18, 2014
Santiago, Chile

Walking across a bridge with ornate classical Roman sculptures trimmed in gold,
I turned down a little Italian street to meet up with a friend for lunch.

As the aroma of pizza wafted around me, I couldn’t help but feel that something was out of place.

It wasn’t the food. It wasn’t me. In fact, it was the street itself.

Because despite all the evidence around me, I wasn’t actually in Italy. I was in Tianjin, China.

Here in the midst of sky-high apartment buildings is a little Italian neighborhood, a historical remnant of the days when the port city was sectioned off by the Western powers.

The Middle Kingdom had once been the most technologically and culturally advanced in the world, but from thinking they were at the top, they had stopped trying to learn from those around them.

So confident in their superiority the Chinese elite had no idea how far from the top they’d fallen.

Thus, when Westerners came to Chinese shores seeking to open up trade, they were flatly rejected.

After all, what did these white devils have to offer them? Were the Chinese supposed to be impressed by these cheap, boring pieces of cloth? Anyone could tell that Chinese silks were far superior.

(Remember, at one point it was the British that were the ones with the cheap manufactured goods.)

With better weaponry and cheaper industrial goods the Western powers easily overwhelmed the Qing empire, saddling the government with huge indemnities and forcing the door open for them to enter the country and trade.

Unrest began to stir across the country. In 1900 this culminated in the anti-foreign ‘Boxer Rebellion’ that launched attacks on foreign businesses and people in Northern China.

Eight of the foreign powers united to quash the rebellion, and once they did, the foreign states took the port town of Tianjin and split it amongst themselves as payback.

No person, business, or country likes to find out that they’ve lost their edge. But the sooner that fact is accepted, the quicker they can get to learning and improving in order to regain that dominance.

In that situation there are essentially two options: you can either get angry and try to reject the fact that the world is changing or you can position yourself to take advantage of it.

Choosing the first option, the Boxers’ actions actually led to greater Western control of China. Achieving exactly the opposite of what they’d intended.

Whereas those that decided to work with the foreigners not only survived, but thrived, taking advantage of the influx of capital, knowledge and cheap products.

Deeply submerged in debt and with increasingly slowing economies, the US and Europe are facing the same two options today as China did merely a century earlier.

Rather than the Italian Concession in Tianjin, we are now seeing an influx of Chinese to Italy.

Businesses that can’t keep up with the heavy regulatory and tax burdens imposed by the Italian government are looking to sell, and the Chinese have the capital and interest to buy.

So while the economy may look bleak in Italy, thanks to globalization there is still an abundance of business opportunities there.

Take for example the three guys who created www.vendereaicinesi.it, which quite literally means “sell to Chinese”. The concept is simple—to help connect the Italian sellers of businesses, real estate and etc. with the Chinese market—and they’re doing great.

The simple shift in attitude, to view outsiders as an opportunity rather than a threat creates a new whole world of possibilities. Those who do that stand to profit most.

Mission Accomplished: Stock market, number of homeless children, both reach all-time highs.

Mon, 11/17/2014 - 12:54

November 17, 2014
Sovereign Valley Farm, Chile

Something is dreadfully wrong with this picture.

In a report just released today by the National Center on Family Homelessness, a team of academics has demonstrated that the number of homeless children in the Land of the Free now stands at 2.5 million.

This is far and away an all-time high and constitutes roughly one out of every 30 children in America.

The report goes on to explain that among the major causes of this problem are the continuing impacts of the Great Recession that began in 2008.

Funny thing, someone ought to tell these homeless kids that the economy is doing great. Of course, we know this to be true because the stock market is near its all-time high.

The Dow Jones Industrial Average now stands at 17,633, just off its all-time high.

Also near its all-time highs is the bond market, and coincidentally, the US debt—which is now within spitting distance of $18 trillion.

In other words, if these kids ever do manage to pick themselves up off the streets, they’ll work their entire lives to pay off a debt that they never signed up for.

And it all comes down to a completely perverse, corrupt, debt-based paper money system.

Yes, no matter what happens in the world, there are always going to be rich and poor. And as painful as it may be, there will always be homeless children. That’s not really the point.

For the most part, financial wealth used to be something that people had to work to achieve. They had to produce something valuable for consumers. They had to develop new technologies and be innovative. They had to take chances and in many cases risk it all.

That’s less and less the case today.

Today one’s station in life is much more tied to how you grew up. If you were born poor, you have a 70% chance of staying poor (according to a recent study from the Pew Charitable Trust).

And needless to say, if you’re born rich, you’re going to stay rich. Much of that is due to the monetary system.

In our system today, unelected central bankers wield total control of the money supply. In their sole discretion, they have conjured trillions of dollars out of thin air, and have thus greatly inflated the money supply.

This monetary inflation has created a number of effects.

On one hand there has been substantial asset price inflation. We’ve seen the prices of stocks, bonds, luxury properties, etc. hitting fresh highs again and again.

And, naturally, it’s people who are already very wealthy who own these assets.

Then there’s the other side– retail price inflation. Think ‘cost of living’. Rent. Food. Fuel. Medical costs. All the stuff that normal people need to live.

Both asset prices and retail prices have gone up.

Now, if you’re already very wealthy, you might spend as little as 1% of your annual income on living expenses, and you keep the other 99% to invest in these assets that keep hitting fresh highs.

In this case, retail price inflation is irrelevant; central bankers are putting so much money in your pocket you don’t even notice the increase in retail prices.

Then there’s the case for everyone else. People who struggle to make ends meet and have to spend 99% of their income on living expenses. If they’re lucky they save 1% of their income.

Obviously to these folks, retail price inflation eats away at their living standards. And a substantial portion of them fall out of the system entirely and end up on the streets.

Again, this isn’t intended to rant against wealth. We tell our students each year at our entrepreneurship camps– wealth accumulated by producing valuable products and services, through hard work, great ideas, and risk-taking, is pure and noble.

By creating wealth for yourself you create wealth for others, and you create progress for humanity.

But we’re not talking about wealth creation. We’re talking about theft.

This system puts money in the pockets of people who are already wealthy by sacrificing the purchasing power and savings of everyone else. The rich get richer, the middle class gets hollowed out, and pensioners get squeezed.

They have completely broken capitalism and replaced it with state-sponsored welfare for select corporations and special interests. Totally destroying upward mobility in the process.

This is a far cry from a society that’s supposed to espouse ‘freedom and justice for all.’

As a system, it’s a complete failure.

But the only reason why it continues to have such destructive power is because we allow it to have that power.

A hundred years ago when they legalized fractional reserve banking and created the Federal Reserve, people didn’t have the options that they have today.

Now, all of the tools and technologies exist for you to completely divorce yourself from this system. Or at a minimum, substantially reduce the power and influence that governments and central bankers have over your life.

Nine of the biggest myths that people believe about the system

Fri, 11/14/2014 - 16:13

November 14, 2014
Santiago, Chile

Years ago, an elderly, frail Japanese martial arts master once boasted a 200-0 record against his opponents.

He claimed to have a unique power that allowed him to inflict serious injury on people without actually laying a finger on them.

Was it Chi? Magic? None of the above. It was a total scam. But that didn’t matter.

You see, the legend of the master’s powers turned out to be far more powerful than reality.

His core following of students believed in the master so much that they would fling themselves across the dojo whenever he raised his pinky finger.

And anyone who saw the display would become transfixed by the perception of the mater’s extraordinary abilities. It was an incredible case of mass delusion.

Everyone believed it, including the master himself. He was so confident in his skills that he put up a $5,000 challenge that he could beat any fighter in the world.

A mixed martial arts champion accepted the wager, and the result wasn’t pretty.

As you can see in the video, the master is quickly knocked to the ground with a broken nose and a pool of blood. Observers scramble to find a doctor to come to his aid.

You can almost hear the sound of reality quickly taking hold from the gasps of his students. No one could bring themselves to believe that the master had been so quickly beaten.

To an outsider, it seems so obvious that this guy is a phony (just watch the video). But mass delusion is an incredibly powerful force.

We see the same effects in the West today—mass delusions everywhere.

People seem to believe their governments are almighty beings capable of performing magic—water into wine, debt into wealth.

Here are some of the biggest myths we see in the system today:

1. The dollar will continue to be the dominant currency.

This is a total farce. Grumblings grow louder around the world to establish a new non-dollar financial system, and China has taken the lead to make this a reality.

2. The US is still the dominant military power in the world.

If you measure by the quality of trained personnel, this is true. But what good is all of that military power if you can’t afford to do anything with it?

3. The police exist to protect the people.

Wrong again. With so much civil asset forfeiture taking place at the point of a gun (federally funded assault rifles), it’s clear they’re far more concerned about protecting those that maintain the status quo than protecting you.

4. Elections make a difference

Completely false. Most Western governments borrow money to pay interest on the money they’ve already borrowed.

In the US, they spend so much on mandatory entitlements and interest they could eliminate almost the entire government and still not run a balanced budget.

At that level of desperation, it matters not who’s in power.

5. Your bank is safe

Your bank might HAVE a safe. But if you look at objective data, many banks in the West have incredibly thin levels of capital and liquidity—the exact opposite of what a safe bank is supposed to have.

Oh yeah, they’re backed by poorly capitalized deposit insurance funds, which are guaranteed by insolvent governments.

And bear in mind that even if your bank is reasonably capitalized, you are still guaranteed to lose money on a tax adjusted, inflation adjusted basis if you you’re holding your savings there.

6. You have to go to college in order to get ahead

Quite the opposite—going to college in many cases can get you behind; just ask any 36-year old still paying down that $100,000 student loan debt.

The world is a big place full of opportunity. Skills and experience matter more than pieces of paper.

Here’s a better option, especially for young people: head overseas, and become an apprentice to a successful, knowledgeable individual that you respect.

Any young person who thinks that going to college is a good idea should just ask any of their unemployed friends saddled with $100,000 of debt if it was worth it.

7. I saw it on TV so it must be true.

Ufff. The mainstream media exist to paint a distorted version of reality so that people are kept placated, docile and largely clueless about what really goes on in the world.

8. Debt doesn’t matter because we owe it to ourselves

Whoever first said this must have a lot of whips and chains in his closet because he seems to enjoy pain.

If we owe the debt to ‘ourselves,’ that means that we will need to default on ourselves.

This means no more Social Security, Medicare, etc. It means causing the US Federal Reserve to become insolvent and spark a currency crisis. It means causing the collapse of every bank in the country.

Sure, no biggie.

9. The United States is the Land of the Free

Draconian surveillance efforts on its citizens. Punitive taxes, fines and regulation. Rising police state. Telling people what they can or can’t put in their bodies, how to grow their food, who to adore, who to hate. Preventing them to collect their own rainwater and live off the grid.

The list goes on and on. And so do the myths. Are there any more that you see? Let us know here, or on our Facebook page.

This is the only vote that counts

Fri, 11/14/2014 - 16:05

November 14, 2014
Santiago, Chile

What’s the biggest lure of elections? That people have the ability to change things by voting someone else in power. At least in theory.

I try not to get too caught up in US politics these days, because that’s one of my favorite parts about going international—I don’t have to get sucked into it all on a regular basis.

US politics tends to affect you wherever you go, so more often than I’d like to I do end up check in on what’s happening.

If you’ve been following the election, I’m sure you know that the Republicans won a majority of the Senate and Obama responded by saying, “I hear you”, but now I’m just going to use Executive Orders to get things done.

That seems a bit anti-climactic wouldn’t you say? All that time and money spent campaigning, all those people interrupting their normal days to go vote—just to be in the same situation as before? For ‘change’ to be hollow?

People in Hong Kong have been asking themselves: is it democracy if the Chinese Communist Party chooses all the candidates?

Along the same lines, in the US when the opposition party takes control of the legislature and the president responds by saying that’s nice, but I’m going to go ahead with whatever I want to do anyway—is that democracy?

To me, this is the kind of thing you’d expect in a volatile third-world country that is pretending to be a democracy in order to receive international support.

It’s not real. Putting your vote in there doesn’t make a difference.

In fact, more than that, voting for politicians demonstrates that you accept the system. You might have your gripes with it, but you still have faith that it is fair and that it works.

It’s like coming home every night to an abusive spouse. You can say, it’s a good system at heart. I can make it change.

But in reality, that’s not going to happen. And by sticking around, you will just go down with it.

In the same way people are duped in every election cycle—“If we can just get the right guy in power…”

It doesn’t matter. The new guy just turns into the last guy. Because the whole system is broken.

As we said earlier this week, the US government debt has increased from $2.8 trillion to $18 trillion in 25 years. The Federal Reserve’s balance sheet has expanded from $285 billion to $4.5 trillion in the same time.

The US is borrowing money just to pay interest on the money it has already borrowed. This is the point of no return. It is arithmetically impossible for the US to ever repay its gigantic debt, since it just keeps adding on to it year after year.

To even start considering it, the US would first have to live within its means by balancing the budget—which would mean eliminating expenses for the military, Social Security and Medicare, which already consume more than 100% of the government’s tax revenue.

Of course, no politician is ever going to do that. So it really doesn’t matter who is in power.

Therefore a far more powerful way to vote is with your life actions.

Vote with your money by trading your dollars for productive assets, land, and precious metals. By doing that, you’re consciously deciding not to be involved in this corrupt debt-based system.

An even larger vote is by deciding to leave. By voting with your feet.

Opting out means that you no longer endorse the system, and that you are establishing your preferences by selecting one that is better. One that treats its citizens better and has more to offer you.

Demonstrating your opinion through your actions is far more powerful than expressing it on a piece of paper.

Is a single vote enough to make a difference?

In the electoral system definitely not. You’ve seen that yourself just this past week.

However, when it comes to voting with your money and your feet by leaving the country, you definitely can make a difference—first of all for yourself.

At once, you can gain greater freedom, richer experiences, and multitudes of opportunity. A better life and positive change? That’s what the point of voting is, isn’t it?

024: No, taxes are not what we pay for civilized society…

Thu, 11/13/2014 - 12:31

“Taxes are what we pay for civilized society.”

The famous quote by US Supreme Court Justice Oliver Wendell Holmes Jr. is inscribed above the entrance to the headquarters of the Internal Revenue Service.

Most people don’t have a clue what he meant, or in what context the statement was made. They simply parrot it around to justify the state’s racketeering behavior.

The logic is as twisted as saying “war is the price we pay for peace” or “debt is the price we pay for recovery.”

They’re all logical fallacies, and assertions backed by zero objective evidence.

There’s not much that’s civilized about confiscating people’s assets at gunpoint and spending it on bombs, drones, and wars.

In fact, taxes in the United States are not even a civil matter– they’re an entirely criminal matter. As nearly every tax communication duly informs us, you can be thrown in jail for failing to file a form.

This is not how a ‘civilized society’ conducts itself.

At the time when Justice Holmes wrote that statement, the average tax rate in the Land of the Free was 3.5%.

Today they keep raising taxes, and they keep printing money, because they’ve built an unsustainable system that depends on debt, overconsumption, and war in order to maintain itself.

Everyone knows it can’t last. And to change the system, they put their confidence in the electoral system. As President Obama himself has said on numerous occasions, “Don’t boo. Vote.”

The truth is that voting is a complete waste of time. The “change” is always hollow; the new guy almost invariably comes an incarnation of the last guy.

US government debt now stands at nearly $18 trillion, and they’re borrowing money just to pay interest on the money they’ve already borrowed.

They blow through almost 100% of their tax revenue just by paying interest and mandatory entitlements like Medicare.

They could literally eliminate almost the entirety of government and still not be able to balance the budget.

Of course, no politician is ever going to admit that or act accordingly. So does it really matter who is piloting the Hindenburg?

The far more powerful way to vote is with your actions.

This, and the whole context behind justice Oliver Wendell Holmes’ statement (it’s rather revealing, really), is what we cover in today’s podcast.

Here’s what I think the financial system will look like in the future

Wed, 11/12/2014 - 14:50

November 12, 2014
Santiago, Chile

Thousands of years ago whenever the Pharaohs of Ancient Egypt passed away, they were buried with all of their gold in a specially constructed tomb.

The idea was to ward off thieves with booby traps and other perils so that these perceived demigods could enjoy their riches for eternity.

It worked. In the case of Tutankhamen, his gold was untouched by both thieves and desperate government tax collectors for thousands of years.

In the Pharaohs’ day, gold was money. Today, it might be even more important than ever.

As advanced as our modern civilization may be, we’ve been playing with fire for more than a century. Every single experiment with unbacked paper money throughout history failed.

And though today’s economists like to think that ‘this time is different,’ our own experiment with paper money will share the same fate.

It’s already moving in that direction. The bubble in fiat currency is now so large that it has simultaneously created all-time highs in nearly every major financial asset class, particularly stocks and bonds.

Bear in mind that these are not tangible assets, but rather ‘paper assets’—nothing more than claims on promises made by others (stockbrokerages, politicians, etc.)

So in other words, the explosion in the supply of paper money has created dangerous bubbles in paper assets. Funny how that works.

And at this point there are no good options remaining to gracefully end the experiment.

Any direction that central bankers go risks inflation, deflation, hyperinflation, or the collapse of financial markets.

If they print, they create inflation. If they don’t print they get deflation.

If they print too much they get hyperinflation. And if they so much as utter the wrong word then financial markets go into a panic.

The situation has become so bizarre that we’re now seeing negative interest rates across Europe.

Central bankers are conspicuously trying to whip up confidence in their poorly capitalized banking systems.

And wealthy emerging markets are moving to build their own financial infrastructure that no longer depends on the West.

This is clearly a system on the slide. And it’s not the first time this has happened.

Throughout history there have always been major shifts in the global financial system.

Reserve currencies change. The way people engage in commerce changes. The rules of the game change.

This time is no different. And we’re currently experiencing the early stages of yet another historic shift.

No one can say for certain what the next iteration of the financial system will look like. But there are a few things we can say for sure-

Today, the US dollar, US government, and US central bank form the cornerstones of the global financial system.

But that game is quickly drawing to a close.

The rest of the world is sick and tired of the US arrogantly dictating rules for everyone else to follow.

They’re sick and tired of the US going deeply into debt and pawning its bonds off to everyone else as ‘risk free’.

So it’s a safe bet that in the future, US paper money and debt is not going to be anywhere near as important as they are today.

We’ll also likely see a new system where banks are far less relevant.

All the technology and all of the resources already exist today to effectively eliminate the need for banks.

Decentralized crypto-currencies and transaction platforms already exist. You no longer need to hold your cash at a bank when you can simply store it in the blockchain.

(This may sound esoteric, but consider that most currency is already stored in digital form. Your bank balance doesn’t really exist except in the digital world.)

You no longer need to apply for a home mortgage or bank loan when entire networks of peer-to-peer lending platforms exist.

For every function that a bank serves, there is technology today that does it better, faster, and cheaper.

It’s time for these financial dinosaurs to hit the historical dustbin.

Again, this is a normal trend of history. The horse and buggy went away a long time ago due to changes in technology. So will fiat currency and conventional banking.

Nothing is going to change immediately. But as Hemingway said, this trend will unfold gradually, then suddenly.

So it does make sense for now to consider your options now, particularly real assets like productive land, operating businesses, and yes, gold.

* Hey, Simon, isn’t gold a bad investment right now? Read more about that here. As well as three offshore facilities I recommend storing gold in.

P.S. Also check out how much Mozart and Beethoven were making more than 200 years ago—translated into today’s dollars.

Three super safe and private facilities to store gold abroad

Wed, 11/12/2014 - 14:25

November 12, 2014
Santiago, Chile

At USD $1160, a lot of gold owners are looking at the paper price right now and panicking.

The conventional wisdom is that, because it takes fewer pieces of paper to buy an ounce, gold is a bad ‘investment’.

This isn’t the right idea. It shouldn’t be viewed as an investment at all.

Gold isn’t something that you buy with paper currency hoping to sell it later on down the road for even more paper currency.

Rather, the entire point of gold is to trade paper currency for something that can hold its value over the long-term, yet is still liquid, divisible, and universally recognizable.

There are almost zero assets that fit the bill. Gold is one of the few.

Gold is real. It has its own challenges (including counterfeit, manipulation, etc.) that make it far from perfect. But it’s physical, tangible, and cannot be conjured out of thin air by central bankers.

What’s more, it’s one of the only private forms of money remaining, and it’s a great way to transport a substantial amount of savings abroad without anyone knowing.

I’ve long been an advocate of moving a portion of one’s savings overseas.

After all, what’s the sense of leaving 100% of your assets within a country ruled by a morally and financially bankrupt government that treats you like a dairy cow?

Moving some of your gold abroad to a jurisdiction that prides itself on maintaining a high level of financial security and privacy protects you against legal thievery your government might commit against you.

Sure, it’s a risk that might never come to fruition. But you won’t be worse off for having stashed some of your gold away privately in a safe, stable jurisdiction.

Consider these three to start:

Singapore

Singapore is currently the world’s top destination for gold storage.

It’s one of the safest places on the planet. There’s practically zero crime. Corruption isn’t an issue, as it’s one of the most transparent places in the world.

Prices for gold storage are incredibly competitive, and with recent legislation that eliminated import duties and taxes on investment-grade gold, premiums are dropping.

(Investment grade precious metals include gold Maple Leaf, Buffalo, Kangaroo, and Panda coins. US Eagles and South African Krugerrands are not tax-exempt as their purity is too low. Silver Eagles, however, qualify for tax exemption.)

Singapore is also home to The Safe House (www.thesafehouse.sg), hands down one of the most advanced precious metals storage facilities in the world.

(Note: I am a director of The Safe House’s parent company, though I have no share ownership.)

Switzerland

Switzerland is the most traditional privacy and financial storage destination. It has many decades behind it as THE place for offshore finance.

And while the Swiss banking industry has suffered a severe blow in recent years from intense pressure from the US, its sophistication, level of service and professionalism in all things related to finance and money is still unparalleled.

It’s a great place for offshore precious metals storage. In fact, all the major online gold services outsource their physical storage to companies such as ViaMat in Switzerland.

ViaMat doesn’t do business with US customers anymore, but there’s a private secure storage option in either Basel or Lugano, called CasaForte (www.casaforte.ch).

Austria

Austria is a very “gold oriented” society. Walk around Vienna and ask the average person what the price of gold is and they’ll likely be able to tell you.

You see it everywhere in town, there is no shortage of places to buy and sell gold, including at just about every single bank in the country.

Furthermore, the Austrian government is not hemorrhaging cash like the United States or Spain. As a result of these factors, the likelihood of a drastic policy change on gold ownership is low.

Bank safety deposit boxes are plentiful, but there is a private facility in Vienna called Das Safe (www.dassafe.com) that I find to be much better.

The reason is because Das Safe is one of the only places in the country (and Europe) where you can store your precious metals anonymously.

Historical figures’ salaries in gold: Mozart and Beethoven

Wed, 11/12/2014 - 14:22

November 12, 2014
Santiago, Chile

When Wolfgang Amadeus Mozart first came to Prague on 11 January 1787, he was an absolute sensation.

His smash hit opera Le nozze di Figaro had been released in the city a few months prior, and the people were absolutely wild about it.

So this time, in 1787, he came to town to conduct the opera himself. This was like the Beatles coming to America for the first time; it was huge.

Mozart was greeted with such adoration, and was hosted at party after party across the city, that he recounted his first day in the city as one of the happiest of his life.

In the month that he was there he also composed Six German Dances and signed a contract with Pasquale Bondini for a new opera for the autumn season—Don Giovanni.

Not much of a slacker, was he?

Despite how immensely productive and popular the legendary composer was, there is much debate about how much money he actually made.

A tragic tale, helped along by the movie Amadeus, has been spun that he died penniless and unaware of the immense impact he’d had on the world of music.

Undoubtedly he might not have ever imagined that he would remain a household name more than two centuries after his death. But there is reason to believe that his financial situation was not nearly as dire as it has been made out to be.

While his annual income is generally estimated to have fluctuated between 800 and 3,800 Austrian florins—when you take into account his earnings from teaching, performance and publication, it is more likely that he was averaging 3,000 to 4,000 florins a year.

That seems to make sense, considering that his German contemporary, Ludwig van Beethoven insisted on being paid no less than 4,000 florins.

Wanting to maintain a certain level of lifestyle in the city, he clearly elaborated what his price was, and two princes and an archduke stepped in to make up his salary, which they committed to pay for life.

At 0.945g of gold per florin, these two celebrated musicians’ wages of 4,000 florins come out to be nearly $150,000.

Incredibly, if Mozart or Beethoven could have been teleported into our modern time, their salaries would buy them a perfectly comfortable lifestyle.

Fiat currency, however, has an entirely different tune.

With each passing day, as production of money increases, your purchasing power declines. And in the end, all you’re left with is just paper.

Try spending that 200 years from now.

Brazil builds its own fiber optic network to avoid the NSA

Tue, 11/11/2014 - 15:31

November 11, 2014
Santiago, Chile

This past week Brazil announced that it will be building a 3,500-mile fiber-optic cable to Portugal in order to avoid the grip of the NSA.

What’s more, they announced that not a penny of the $185 million expected to be spent on the project will go to American firms, simply because they don’t want to take any chances that the US government will tap the system.

It’s incredible how far now individuals, corporations, and even governments are willing to go to protect themselves from the government of the Land of the Free.

The German government, especially upset by the discovery of US spying within its borders, has come up with a range of unique methods to block out prying ears.

They have even gone so far as to play classical music loudly over official meetings so as to obfuscate the conversation for any outside listeners.

They’ve also seriously contemplated the idea of returning back to typewriters to eliminate the possibilities of computer surveillance.

More practically, the government of Brazil has banned the use of Microsoft technologies in all government offices, something that was also done in China earlier this year.

The Red, White, and Blue Scare has now replaced the Red Scare of the Cold War era. And it comes at serious cost.

From Brazil’s rejection of American IT products alone, it is estimated that American firms will lose out on over $35 billion in revenue over the next two years.

Thus, as the foundation of the country’s moral high-ground begins to falter, so does its economic strength.

The irony should not be lost on anyone; on a day when Americans celebrate their veterans’ courage in fighting against the forces of tyranny in the world, we find yet another example of where the rest of the world sees the source of tyranny today.

It’s amazing how much things have changed.

In the past, the world trusted America with so much responsibility.

The US dollar was the world’s reserve currency. The US banking system formed the foundation of the global banking system. US technology became the backbone of the global Internet.

But the US government has been abusing this trust for decades.

Today the rest of the world realizes they no longer need to rely on the US as they once did.

And in light of so much abuse and mistrust, they’re eagerly creating their own solutions.

Just imagine—if Brazil is building its own fiber optic cable to avoid the NSA, it stands to reason that they would create their own alternatives in the financial system to directly compete with the IMF and the US dollar.

Oh wait, they’re already doing that too. Fool me twice, shame on me.

There’s an invisible Berlin Wall being built to trap your money

Mon, 11/10/2014 - 15:17

November 10, 2014
Santiago, Chile

It started off as a simple border checkpoint to keep what Soviet Foreign Minister Vyacheslav Molotov called “Western agents” out of East Berlin.

Then they erected a barbed wire fence and started using a system of official travel passes to cross the new border. East Germans who wanted to visit West Berlin needed to first be granted permission.

Soon the bureaucracy behind obtaining one of these passes become practically insurmountable. And they started issuing fewer and fewer of them.

People still found a way out. And by 1961, the East German government maintained that it had no intention of building a wall.

Later that year they formally closed the border and installed an improved security fence; the East German army tore up huge sections of road to make approaching the fence by vehicle nearly impossible.

Then, for more than a decade, they constructed increasingly sophisticated ramparts, including 45,000 sections of reinforced concrete, each more than 12 feet high.

All along the way the government had told everyone it was for their own good. Their security. The government needed to protect them from all the evils of the outside world, and everyone would be safer with a giant wall.

At that point people were clearly trapped. There had been years of warning signs… slow, gradual steps towards totalitarianism.

With each new measure there were those who saw the trend and left. Then there were those who ignored the trend and ridiculed the ones who left as unpatriotic cowards.

Those who remained behind gradually became accustomed to the new rules. Until one day they woke up to find that the country they were now living in was completely unrecognizable.

But by then it was too late, and millions of Germans were trapped in a failed Communist experiment.

It took three decades, but the Berlin Wall finally opened up on this day in 1989. And back then the Land of the Free was an entirely different place.

Freedom has clearly taken a nose dive. Back then, the government didn’t make its people terrified of men in caves. Combat-clad paramilitary forces weren’t deployed across the country to intimidate citizens and confiscate assets at gunpoint.

But from an economic and monetary perspective the landscape has changed even more dramatically.

Total US government debt in 1989 was $2.8 trillion, less than 50% of GDP at the time.

The Federal Reserve’s balance sheet in 1989 totaled less than $285 billion.

Interest rates in 1989 were 8.25%, substantially higher than the rate of inflation.

And back in 1989, the rest of the world had tremendous confidence in both the US dollar and the US government.

Today it’s entirely different.

The rest of the world (led by China) is actively starting to abandon the dollar and build alternatives to the US-dominated financial system. In fact, Canada just became a renminbi hub.

The Fed’s balance sheet today is a whopping $4.5 trillion, and interest rates are being held to 0%… well below the rate of inflation.

And of course, US debt has exploded to $18 trillion, well over 100% of GDP. The government is insolvent, major programs like social security are insolvent, and it all gets worse with each passing year.

In response, the US government continues to engage in confiscatory policies.

They hunt for every tax dollar they can get with aggressive furor.

When US taxpayers follow the government’s own rules and engage in legal, rational practices to minimize their tax burdens, the government now sets aside its own laws and issues decrees (Executive Orders) on a retroactive basis to go back in time and expropriate people’s assets.

They’ve also passed absurd laws like FATCA and Dodd-Frank to harrass foreign banks and law-abiding citizens.

And the US government continues to levy huge fines against foreign financial institutions (to the tune of billions of dollars) simply for engaging in practices they don’t like.

They’ve turned their tax agency into global bullies who threaten and intimidate the entire world, throwing their own citizens in jail for failing to file simple disclosure forms.

They’ve even imposed a huge exit tax for people who wish to permanently divorce themselves from this system, and charge substantial fees for going through the process to renounce US citizenship.

This is NOT how a free society is supposed to operate.

As a result of many of these practices, many foreign banks and brokerages simply no longer want to deal with US customers anymore. The risks and compliance costs are far too high.

Consequently, these policies have had the net effect of reducing people’s ability to move money overseas.

In a way, their funds are being increasingly trapped in a system where you have almost zero good options.

Bank deposits guarantee that you’ll lose money when adjusted for inflation. Stock and bond markets are at all-time high nosebleed levels. Many banks are still under-capitalized. The government is able to confiscate your assets with a few mouse clicks. And the dollar remains in precarious condition.

Yet if you try to move your money abroad to greener pastures, you’ll find far fewer options available than ever before.

In this way, whether intentionally or not, they have encircled your savings with a sort of financial Berlin Wall.

This Wall is invisible. And it’s been erected with a stroke of a pen instead of the labor of men. But still the same, capital (at least at the individual level) is increasingly finding itself trapped in a failed system.

There are still options to move some savings abroad and out of harm’s way. For now. How long does one wait?

Still happening: Canada just became North America’s first offshore renminbi hub

Mon, 11/10/2014 - 13:31

November 10, 2014
Santiago, Chile

It’s happening. With increasing speed and frequency.

The People’s Bank of China and the Canadian Prime Minister’s office issued a statement on Saturday stating that Canada will establish North America’s first offshore renminbi trading center in Toronto.

China and Canada agreed on a number of measures to increase the use of renminbi in trade, business, and investment. And they further signed a 200-billion renminbi bilateral currency swap agreement.

Moreover, just today, hot off the presses, the central banks of China and Malaysia announced the establishment of renminbi clearing arrangements in Kuala Lumpur, which will further increase the use of renminbi in South-East Asia.

This comes just two weeks after Asia’s leading financial center, Singapore, became a major renminbi hub, with direct convertibility established between the Singapore dollar and the renminbi.

Everyone is in on the trend. All across the world, the renminbi is quickly becoming THE currency for trade, investment, and even savings.

Renminbi deposits in South Korea, for example, surged 55-times in one single year. It’s stunning.

The government of UK just issued a renminbi bond, becoming the first foreign government to issue debt in renminbi.

Even the European Central bank is debating to include renminbi in its official reserves, while politicians the world over are sounding not-so-subtle warnings that a new non-dollar monetary system is needed.

Nothing goes up or down in a straight line. And given how volatile Europe and the global economy continue to be, the dollar may certainly be in for its surges and bumps in the coming months.

But over the long-term it’s glaringly obvious where this trend is going: the rest of the world no longer wants to rely on the US dollar, and they’re making it a reality whether the US likes it or not.

Right now there’s still time to buckle up. If you’re 100% exposed to the US dollar, consider diversifying your investments in real assets, or a currency like the Hong Kong dollar.

Hong Kong dollar is pegged to the US dollar. So if the US dollar surges, the Hong Kong dollar will strengthen accordingly. And because the peg is so tight, the currency volatility is minimal.

But if the US dollar takes a turn for the worse, Hong Kong would likely abandon this peg, thus eliminating your downside risk.

This is a very strong option to consider.

Avoid this accident waiting to happen in investment markets

Mon, 11/10/2014 - 13:25

November 10, 2014
London, England

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

In 1975, Charles Ellis, the founder of Greenwich Associates, wrote one of the most powerful and memorable metaphors in the history of finance.

His essay is titled ‘The loser’s game’, which in his view is what the ‘sport’ of investing had become by the time he wrote it. His thesis runs as follows:

Whereas the game of tennis is won by professionals, the game of investing is ‘lost’ by professionals and amateurs alike.

Whereas professional sportspeople win their matches through natural talent honed by long practice, investors tend to lose (in relative, if not necessarily absolute terms) through unforced errors.

Success in investing, in other words, comes not from over-reach, in straining to make the winning shot, but simply through the avoidance of easy errors.

Ellis was making another point. As far back as the 1970s, investment managers were not beating the market; rather, the market was beating them.

This was a mathematical inevitability given the over-crowded nature of the institutional fund marketplace, the fact that every buyer requires a seller, and the impact of management fees on returns from an index.

Ben W. Heineman, Jr. and Stephen Davis of the Yale School of Management asked in their report of October 2011, ‘Are institutional investors part of the problem or part of the solution?’

By their analysis, in 1987, some 12 years after Ellis’ earlier piece, institutional investors accounted for the ownership of 46.6% of the top 1000 listed companies in the US. By 2009 that figure had risen to 73%.

That percentage is itself likely understated because it takes no account of the role of hedge funds.

Also by 2009 the US institutional landscape contained more than 700,000 pension funds; 8,600 mutual funds (almost all of which were not mutual funds in the strict sense of the term, but rather for-profit entities); 7,900 insurance companies; and 6,800 hedge funds.

Perhaps the most pernicious characteristic of active fund management is the tendency towards benchmarking (whether closet or overt).

Since a capitalisation benchmark assigns the heaviest weightings in a bond index to the largest bond markets by asset size, and since the largest bond markets by asset size represent the most heavily indebted issuers – whether sovereign or corporate – a bond-indexed manager is compelled to have the highest exposure to the most heavily indebted issuers.

All things equal, therefore, it is likely that the bond index-tracking manager is by definition heavily exposed to objectively poor quality (most heavily indebted) credits.

There is now a grave risk that an overzealous commitment to benchmarking is about to lead hundreds of billions of dollars of invested capital off a cliff.

Why? To begin with, trillions of dollars’ worth of equities and bonds now sport prices that can no longer be trusted in any way, having been roundly boosted, squeezed, coaxed and manipulated for the dubious ends of quantitative easing.

The most important characteristic of any investment is the price at which it is bought, which will ultimately determine whether that investment falls into the camp of ‘success’ or ‘failure’.

At some point, enough elephantine funds will come to appreciate that the assets they have been so blithely accumulating may end up being vulnerable to the last bid – or lack thereof – on an exchange.

When a sufficient number of elephants start charging inelegantly towards the door, not all of them will make it through unscathed.

Corporate bonds, in particular, thanks to heightened regulatory oversight, are not so much a wonderland of infinite liquidity, but an accident in the secondary market waiting to happen.

We recall words we last heard in the dark days of 2008: “When you’re a distressed seller of an illiquid asset in a market panic, it’s not even like being in a crowded theatre that’s on fire. It’s like being in a crowded theatre that’s on fire and the only way you can get out is by persuading somebody outside to swap places with you.”

The beatings will continue until morale improves – and until bondholders have been largely destroyed. When will the elephants start thinking about banking profits and shuffling nervously towards the door?

Meanwhile, central bankers continue to waltz effetely in the policy vacuum left by politicians.

As Paul Singer of Elliott Management recently wrote, we inhabit a world of “fake growth, fake money, fake jobs, fake stability, fake inflation numbers”.

Top down macro-economic analysis is all well and good, but in an investment world beset by such profound fakery, only bottom-up analysis can offer anything approaching tangible value.

In the words of one Asian fund manager, “The owner of a[n Asian] biscuit company doesn’t sit fretting about Portuguese debt but worries about selling more biscuits than the guy down the road.”

So there is hope of a sort for the survival of true capitalism, albeit from Asian biscuit makers. Perhaps even from the shares of biscuit makers in Europe – at the right price.

Ready to hit the eject button? Here are five places to start looking

Fri, 11/07/2014 - 13:13

November 7, 2014
Santiago, Chile

As we talked about yesterday, moving abroad isn’t as difficult as you think.

Sure, it’s not always cookies and cupcakes, but the benefits and opportunities of living abroad are often unparalleled.

Only by moving abroad can you truly curtail how much you contribute to your corrupt, bankrupt home government.

And you just might find that in many cases you can live better, cheaper, and enjoy a far greater quality of life than what you could achieve back home.

It’s also important to recognize that there’s very little in this world that’s forever.

So even if it doesn’t work out, you can always head back home later— this time with some overseas experience under your belt, and perhaps even some new language skills.

But it begs the question—where to go? There’s literally an entire world of opportunity out there, but here are a few suggestions to get you looking:

Ireland

For English speakers, moving to Ireland gives you all the thrills of living in a foreign country without the stress of having to learn a foreign language.

The Irish are some of the warmest and friendliest people you’ll ever meet, with a vibrant and upbeat culture. Plus the country itself is really gorgeous. You’ll never look at the color green the same ever again.

Ireland also ranks 9th on the Economic Freedom Index, making it a great place to set up your business in. Doing that can also qualify you for a residency visa itself. [Note to Premium Members: More on this in an upcoming Alert.]

Thailand

With its very laid-back and welcoming culture, as well as all the conveniences of modern life, Thailand is a very easy transition abroad, while at the same time being exotic and otherworldly.

If you’re into tropical beach lifestyle, you’ll love Phuket, which is very popular with expats and offers all sorts of amenities you’d require—excellent health care, international schools, modern shopping malls, a well-connected airport, first class dining etc.

Chiang Mai in the north offers a serene and even cheaper lifestyle amid burgeoning and lush nature and Thailand’s highest mountains. It’s a laid back city that is a major hub for young digital entrepreneurs, as well as retirees.

Estonia

This is an often-overlooked Baltic gem. With a high degree of economic freedom, quaint architecture and culture, low living costs, cheap real estate, great summer weather and ubiquitous knowledge of English, Estonia should be on your radar.

Estonia offers an attractive business residency visa, enabling you to live and move freely throughout much of the European continent (and escape the Estonian winters for a more pleasant Mediterranean climate).

Like its Baltic neighbors Latvia and Lithuania, Estonia is safe, modern, and technically advanced. And it doesn’t hurt that the people seem to all be exceptionally attractive.

Chile

If you’re looking for all the conveniences that you’re used to back home, Chile is a very easy transition. Familiar North American restaurant chains abound, as do huge and modern shopping malls.

Santiago offers all of the first world amenities that you’d expect, such as high quality medical care, private education, and privatized infrastructure.

The weather is excellent and the business climate is refreshingly less burdensome than in the West, yet replete with opportunity.

You also have the advantage of being in the center of South America’s burgeoning tech scene. Who knows, if your idea is good enough you might even get paid $40,000 to move here.

Ecuador

In a recent survey by InterNations, Ecuador turned out to be the top expat destination in 2014.

In particular it’s an increasingly popular retirement destination because of its high quality yet very affordable cost of living, cheap real estate prices, vibrant culture and good weather.

The official currency is the US dollar, which is a comfort to many people.

It’s also an incredibly diverse country, with beaches, mountains, big cities, rainforest and everything in between for you to choose from.

The world is a big place and these are just a few suggestions to get you started.

While it’s important to do your own due diligence based on your personal preferences, this process shouldn’t hinder you in any way in your desire to look for greener pastures.

Go and see for yourself and find out that the transition abroad really isn’t all that difficult.

Here’s what a few people did the last time the system was rigged against them…

Thu, 11/06/2014 - 15:10

November 6, 2014
Santiago, Chile

For most it was their first time on a ship. And now they were trapped on board for weeks to endure storms and seasickness on the high seas.

Packed together like sardines in tiny, rat-infested cargo holds with unappetizing provisions and a constant stench of human waste, early settlers (expatriates) had every reason to not be on those ships.

But there was something far more important than their comfort on board, something which superseded all the risks and uncertainties they were taking: the freedom and opportunity that awaited on the other side of the ocean.

In leaving for the New World, people hoped to escape a system back home that was completely rigged against them.

They had little freedom, few prospects, and a future with almost no security.

And in order to get away from this, a handful of courageous settlers were willing to risk everything… from the known perilous journey to the unknown risks of what awaited them on the other side.

It took weeks on a treacherous voyage across the ocean. And even once they reached new shores, only then did the hard work of establishing shelter and building up a supply of food really begin.

Then there was all the uncertainty. Would they be safe? Would they be alone? Would they be able to find everything they needed?

For at least a handful of people (many of our ancestors), it was worth plunging into the unknown to have a fresh start and the ability to truly live free on their own terms.

Today many folks are faced with a similar quandary. They can’t stand what’s happening in a country that increasingly looks like an alien planet. And they yearn for a freer life on greener pastures abroad.

But fear of the unknown is an incredibly powerful force.

It creates inertia. It’s what makes people stay in bad (or even abusive) relationships. It’s what keeps people working unfulfilling jobs for bosses they despise in environments that suffocate them.

So many people have a voice deep down calling out for them to make a change. But we’re held back by this inertia, fear of the unknown… and more often than not, all the risks we’ve heard about our entire lives.

It’s amazing how much ignorance and misinformation there is out there about the rest of the world.

Mainstream TV makes it look like every country outside of the US, Canada, and Western Europe is the backdrop for a Feed the Children commercial, devoid of basic necessities like running water.

Then, of course, there are legions of citizens, many of whom don’t even have a passport, who wax philosophically about dangerous places overseas that they’ve never been to.

All of this builds the inertia and keeps us rooted.

But the reality is that picking up and leaving is really not so scary. Everything pales in comparison to what our ancestors had to deal with.

Today, we can fly across the globe in a matter of hours. We can do substantial research online and get to know people in far away places before we even arrive.

Once you get in on the ground, you realize that they too have running water and electricity. Surprise, surprise. You realize that these places overseas can be safe, civilized, and exciting.

Sure, there’s still plenty of unknown. You don’t know how to get your mobile phone turned on, or where the best deal on discount tires is, or who brews the best pot of coffee in town.

But all that comes in time. And not that much time, to be honest.

Soon, many new expats quickly find that their lifestyle is far more fulfilling than they ever had back home.

They have a closer, tighter network of like-minded friends. They’re more active, more involved. They feel healthier and spend time in a much more suitable climate.

No, life is not perfect. It’s not all cookies and unicorns. But most of all folks often feel happier and more free.

It’s incredibly liberating to discover that you’re no longer a tax slave whose sole purpose is to feed the Beast, or that the news back in your home country no longer impacts you.

Suddenly you become an amused and disinterested spectator instead of an unwilling participant.

Plunging into a new life abroad shouldn’t be a scary proposition anymore. There’s a world of opportunity out there.

It’s almost 2015. You no longer have to enslave yourself to geography to make a living. It’s possible to earn income far away from your job, your employees, and even your customers.

And you just might find rather interesting entrepreneurial opportunities in your new home.

(Fast-growing markets are often teeming with compelling business opportunities—things that are second nature to you, but still very foreign to your new neighbors.)

There is life out there. And all of the obstacles are in our minds.

So the next time you find yourself disgusted by the system you live in and you’re concerned about your family’s future, remember: our options are far greater and far easier than our ancestors’.

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