September 1, 2014
[Editor’s note: This missive was penned by Tim Price of PFP Wealth Management in the UK, a frequent contributor to Sovereign Man]
“Sir, Arnaud Montebourg, the former French economy minister and the sourest note in the Hollande repertoire, dares to complain of “absurd” austerity policies ? (“Hollande purges cabinet following leftwing revolt”, August 26.) If those policies are absurd, it is because they were not accompanied by the structural reforms so badly needed to make the French economy healthy. I am speaking of long outdated redundancy and seniority labour laws, oppressive regulations for the business sector and the unbearable bureaucratic roadblocks that stand in the way of start-ups.
“To these, one can also add the traditional Gallic mindset of envy, if not outright hostility, towards those French citizens and other Europeans who are willing to work longer, harder and smarter and want to make good money; a mindset that Mr Montebourg never hesitated to parade before the world. Now that he and his cohorts on the left of the Socialist party have departed the government, perhaps François Hollande can move forward and leapfrog France from the 19th to the 21st century.”
- Letter to the FT from Stan Trybulski, Branford, Connecticut, 28th August 2014.
“There’s a great deal of ruin in a nation.”
- Adam Smith.
“You will never understand bureaucracies until you understand that for bureaucrats, procedure is everything and outcomes are nothing.”
- Thomas Sowell.
Much of what we think we know isn’t necessarily so. The invention of the printing press with movable type? Traditionally credited to fifteenth-century Germany and Johannes Gutenberg, it was actually invented in eleventh-century China. Paper also originated in China long before it was used in the West. As did paper money and toilet paper (albeit today, these are pretty much interchangeable). English agriculturalist Jethro Tull is widely credited with the discovery of the seed drill in 1701. It was in fact invented by the Chinese 2,000 years beforehand. The first blast furnace for iron smelting is associated with Coalbrookdale – tragically close to schools in the West Midlands. It was actually introduced by the Chinese before 200 BC. The Chinese were also first to use the fishing reel, matches, the magnetic compass, playing cards, the toothbrush and the wheelbarrow. Perhaps even golf. So how did a society apparently so dynamic and innovative by comparison with the West then enter a centuries’ long decline?
Niall Ferguson, in his excellent book ‘Civilization’ (Penguin, 2012) puts forward six “identifiably novel complexes of institutions and associated ideas and behaviours” that account for the cultural and economic outperformance of the West between, say, the 16th and 20th centuries:
- Property rights
- The consumer society
- The work ethic
He defines these trends as follows:
- Competition: “a decentralization of both political and economic life, which created the launch-pad for both nation-states and capitalism”.
- Science: “a way of studying, understanding and ultimately changing the natural world, which gave the West (among other things) a major military advantage over the Rest”.
- Property rights: “the rule of law as a means of protecting private owners and peacefully resolving disputes between them, which formed the basis for the most stable form of representative government”.
- Medicine: “a branch of science that allowed a major improvement in health and life expectancy, beginning in Western societies, but also in their colonies”.
- The consumer society: “a mode of material living in which the production and purchase of clothing and other consumer goods play a central economic role, and without which the Industrial Revolution would have been unsustainable”.
- The work ethic: “a moral framework and mode of activity derivable from (among other sources) Protestant Christianity, which provides the glue for the dynamic and potentially unstable society created by “killer apps” 1 to 5”.
For our purposes we are most interested in Ferguson’s first “killer app”, Competition. But we will also refer to it in a slightly different context – “the lack of bureaucracy”. As the chart below shows, from 1000 AD to its high water mark in the 1960s, UK GDP relative to China’s was a one-way bet. Since then, however, the trend has gone into reverse.
Source: Niall Ferguson / Penguin Books
What can account for this dramatic reversal of economic fortunes? Economic reforms in China, led by Deng Xiaoping in the late 1970s, are likely to be responsible for at least part of the turnaround. But the relentless and sclerotic expansion of the State in Britain has also played a role.
UK general government expenditure (green) and private expenditure (black) as a proportion of GDP
Source: David B. Smith / Steve Baker MP
As the chart above shows, at the turn of the last century, UK state spending accounted for roughly 10% of the economy and the private sector accounted for the rest. But as the welfare state has swelled, government spending has mushroomed to account, now, for something like half or more of the entire economy. And state spending, by and large, is inefficient spending – at least by comparison with the inevitably more disciplined for-profit sector. In other words, our relative economic prospects have declined in inverse proportion to the expansion (metastasis) of the State. In turn, bureaucratic parasitism likely accounts for productivity differentials in the eurozone; the German State accounts for roughly 45% of its economy, the French State 56%.
Politicians have been able to swell the State thus far only with assistance by two groups: with the involuntary support of taxpayers, and with the connivance of central bankers. Popular resentment of what is laughably termed ‘austerity’ threatens the ongoing indulgence of the first group; the almost terminal straining of market forces by the latter runs the risk of a disorderly collapse of confidence in bond markets, after which continued Western deficit spending would be virtually impossible.
We seem to be close to the endgame. Even as perversely, record-low bond yields (indiscriminately – across markets as diverse as Austria, Belgium, Germany, Holland, Finland, Ireland, Italy and Spain) have sent desperate investors scurrying into stocks instead, those same investors are, with extra perversity, displaying a similar lack of discrimination and not even attempting to locate relative value within markets. Extraordinarily, the Wall Street Journal points out that
“Investors are pouring money into Vanguard Group, the epitome of the hands-off approach to investing, flocking to funds that track market indexes and aren’t run by stock pickers or star managers. The inflow has pushed the mutual-fund giant to almost $3 trillion in assets under management for the first time. The surge is part of a sea change in the fund business in which investors are increasingly opting for products that track the market rather than relying on managers to pick winners… Investors poured a net $336 billion into passively managed stock and bond funds in 2013, handily beating the $53 billion invested in traditional mutual funds of the same type, according to Morningstar. So far this year through July, investors put a net $177 billion into those passive funds, compared with $74 billion in actively managed funds… Through July, passively managed stock funds have seen a net $128.4 billion in investor in flows, compared with $18 billion for traditional stock funds…”
Nor is this lack of judicious investment a product of bullish US market sentiment. The same arbitrary index-following – at all-time highs – is being pursued in the UK. Trade magazine FTAdviser reports that
“Retail investors put more money into tracker funds in July than in any other month since records began, according to the latest IMA data.”
Index-tracking may have merit at the bottom of the market, but at the top?
Having singularly failed to reform or restructure their dilapidated economies, many governments throughout the West have left it to their central banks to keep a now exhausted credit bubble to inflate further. Unprecedented monetary stimulus and the suppression of interest rates have now boxed both central bankers and many investors into a corner. Bond markets now have no value but could yet get even more delusional in terms of price and yield. Stock markets are looking increasingly irrational relative to the health of their underlying economies. The euro zone looks set to re-enter recession and now expects the ECB to unveil outright quantitative easing. If the West wishes to regain its economic vigour versus Asia, it would do well to remember what made it so culturally and economically exceptional in the first place.
September 1, 2014
Imagine this scene:
“Everyone in the country was in shock. People’s net worth had devalued more than 53% overnight.”
“The value in savings accounts dropped in half and neither merchants nor consumers knew how to react because they had never been through something like it before…”
This is how an American business executive described living through Mexico’s devaluation of the peso exactly 38 years ago on September 1, 1976.
Looking back, it was so obvious.
Mexico had a mounting debt, destructive policies, and a woefully unsustainable fixed exchange rate with the US dollar. All the writing was on the wall.
But most people ignored the warning signs and kept their money in pesos.
Mexican President Luis Echevarria even went out on the radio to reassure people that the currency was safe.
Finally, under intense fiscal pressure, the government reached its breaking point. And on August 31, 1976, they made the decision to devalue the peso.
People woke up the next morning on September 1st to a 50%+ decline.
Coincidentally today is also the 75th anniversary of the Nazi invasion of Poland, the event that ultimately dragged the world into war.
Germany had already invaded Austria and Czechoslovakia in the months before.
By May 1939 Hitler had stated very plainly, “the decision remains to attack Poland at the first opportunity.”
Even a week before the invasion, Hitler told his military commanders, “I have prepared . . . my ‘Death’s Head’ formations with orders to kill without pity or mercy all men, women, and children of Polish descent or language.”
Germany had 60 divisions massed on the Polish border ready to invade.
Yet people in Poland were told to keep calm, remain in place, and have confidence in their leaders.
Finally, on August 30, the Polish government ordered a partial mobilization to meet the German threat.
Needless to say, it was too little, too late. Germany invaded only hours later.
This is a familiar story that repeats across history. Despite obvious warning signs, people almost universally allow themselves to ignore reality.
It’s human nature to want to believe that everything is going to be OK. And when our political leaders whisper soothing words of hope and optimism, we take the bait.
Looking back, it was plain as day that Mexico was going to devalue the peso. Everything about the economy and currency was totally unsustainable. Deep down people knew it.
Similarly, it was plain as day that Hitler was going to decimate Poland. And people knew it.
Yet millions allowed their confidence to be misplaced in leaders who assured them that everything was OK.
Are we so different today?
The raw numbers tell us that most banks in Europe are insolvent. Bank in the US are dangerously illiquid.
Most western governments are bankrupt. Pension and social security funds are insolvent.
Financial markets are at precarious valuations. And the dollar is beginning to unravel as the dominant reserve currency.
These are data-driven assertions. And my guess is, deep down, your instincts are also telling you that something is seriously wrong with the system.
Yet we’re all told to keep calm by our leaders. There’s nothing to see here, nothing to worry about.
Looking back, it’s all going to seem so obvious. If a major, global currency crisis hits within the next 12-months, people will think, “duh, how did I not see that coming?”
Unfortunately by then it will be too late.
It takes only a little foresight and planning to insulate yourself from an event that can have disastrous consequences.
If you knew the Mexican peso was at an unsustainable level, why would anyone continue to hold pesos?
Similarly, if all the objective data suggests that the dollar is in store for an epic decline… and that the entire world is on a path to shift away from the dollar, why in the world would any rational person base his entire life savings in dollars?
It takes little effort to actually do something about it. Hold stronger currencies overseas. Own real assets. Move your retirement account abroad where your bankrupt government can’t steal it.
These are common sense steps, just like putting on a seatbelt when you get into a car.
The time to act is now. Why play Russian roulette when the odds are clearly in favor of the house?
Don’t try to time it. Nobody has a crystal ball. It’s irrelevant whether the trend unfolds over weeks, months, or years. It’s pretty clear where this is all headed.
August 29, 2014
En route to the United States
Pop quiz: What do actor Jet Li, opera singer Maria Callas, writer T.S. Eliot, financier John Templeton, actress Elizabeth Taylor, and Queen Noor of Jordan all have in common?
They are all former US citizens who went through the formal process of relinquishing or renouncing their citizenships. (Liz Taylor actually restored her US citizenship in the late 1970s)
Until a couple of years ago, there wasn’t much of a fuss about this. It was a rare occurrence for someone to renounce his/her citizenship.
Fast forward a few decades. The US government is now flat broke (actually in the red to the tune of $17 trillion) and resorting to chasing people to the ends of the earth to get their fair share of your lifetime earnings.
I have many friends overseas who are ‘accidental Americans’. A Panamanian, for example, who by accident of birth ended up a US citizen because her father was born in the Panama Canal Zone.
She lives her entire life in Panama… studying, working, building a business. Then one day she receives a note from the IRS demanding money.
They inform her that, as a US citizen, she is required to pay taxes on her worldwide income to Uncle Sam even though she has barely set foot on US soil. Then they command her to settle up.
Even for folks born and raised in the US, tax compliance has become epically aggressive.
The US tax code is among the most complicated on the planet. Yet the Land of the Free is one of the only ‘civilized’ countries in the world where even a simple misunderstanding can win you a new career turning big rocks into little rocks whilst wearing a Day-Glo orange jumpsuit.
In matters of taxation, you are presumed guilty unless you can prove your innocence.
They have threatened senior citizens with imprisonment and confiscated peoples’ entire life savings merely for failing to file a form.
For example, Anton Ginzburg was fined $1.5 million by the US Department of Justice in 2011. And frankly he got off easy. He faced up to five years in prison.
What was Mr. Ginzburg’s heinous crime? What nefarious deeds had this criminal mastermind perpetrated against a peaceful society?
He didn’t file a disclosure form to report his Swiss bank account.
Note– Mr. Ginzburg wasn’t accused of tax evasion. He was fully compliant in paying his fair share to the US government. He simply didn’t file a form.
This isn’t how a free society should function.
If a government has to collect taxes by terrorizing its people or sniffing out accidental citizens, something is obviously wrong with the tax policy. AND they way they spend it.
After all, who in good conscience wants to go their entire working lives supporting a government that wastes tax dollars on bombs, drones, spying on citizens, and bankrupting unborn generations?
It’s no wonder why the number of Americans renouncing their citizenship is increasing exponentially… and will likely continue to do so.
Back when Elizabeth Taylor and T.S. Eliot did it, it was so rare there was really no process. And no fee.
In fact, renouncing US citizenship was free of charge until a couple of years ago. Then, overnight, the State Department imposed a $450 fee.
Yesterday they increased it once again– to $2,350. That’s a 422% increase.
In its explanation, the State Department whined that the costs of processing renunciations had simply become too high.
It’s curious that a government which denies inflation even exists would complain about the consequences of it.
August 28, 2014
For many people, where we are born has a tremendous impact on our lives.
For example, being born in certain countries might mean that we are obliged to serve in the military, or go fight and die in some foreign war.
In others, it might mean that we are required to pay taxes on our worldwide income, even if we don’t even set foot in that country.
These are obligations that people don’t sign up for. We are born into them, by pure accident. No one has control over where he/she was born.
But if you’re a soon-to-be parent, you do have total control over this decision.
And it’s an important one, because your child will go his/her entire lives affected by the costs and benefits of it.
For the 100+ million babies born each year, I expect most parents don’t give a single thought to –where- their children should be born.
But just imagine—if you pick the right country, you could set your child up for an entire lifetime of benefit.
In certain countries, being born there entitles your child to citizenship (and a second passport), something that will give him/her tremendous options, freedom, and flexibility for his/her entire life.
Here are a few examples to consider:
If a child is born in Brazil, that child is a Brazilian citizen. And a Brazilian passport one of the best travel documents in the world, with visa-free or visa-on-arrival access to 146 countries.
Brazil is a huge melting pot and one of the few places in the world where anybody—all races and ethnicities—can blend in and look local.
One of the nice benefits of Brazil is that it is a natural ‘get out of jail free’ card.
Brazil does not extradite its citizens to foreign countries. So just imagine how much easier Edward Snowden’s life would be if he had Brazilian citizenship as well.
Obviously this is a benefit that no one hopes their child will ever need. But if they should, it could be the ultimate insurance policy.
Chile is another place where children born within the country, in most cases, are citizens. And it’s a great option.
Chile already is a major economic force in South America and I’m certain that its future is only going to get brighter over the long-term.
In terms of passport quality, Chileans are already entitled to travel all over the world visa-free, including to the United States.
In addition, since Chile is a member of the Asia Pacific Economic Cooperation and associate MERCOSUR nation, Chilean nationals receive a lot of additional travel, residency, and business benefits around the world.
Canada, like the US, provides unconditional birthright citizenship to any child born within its borders. And it’s a great option, especially for an American who wants to give birth in an English-speaking country close to home.
There are several unique benefits to Canadian citizenship, including the vast visa-free travel network, access to public medical care (for those who are so inclined), and a tax system that doesn’t chase non-resident citizens to the ends of the earth.
Like Brazil, Panama is a tremendous melting pot of various races and ethnicities. Anyone can pass as Panamanian.
Article 9 of Panama’s Constitution clearly outlines that anyone born on Panamanian soil is a citizen of the country. Parents of Panamanian citizens can apply for naturalization after three years of residency.
Among the great benefits of Panama is its tax system—it’s strictly territorial. So the only income ever taxed in Panama is money that is earned directly on Panamanian soil from Panamanian sources.
It’s also comforting to know that Panama has some of the best hospitals in Latin America—internationally accredited, and some even operating in partnership with famed US hospitals… all at prices far lower than one would pay in the US.
This former British colony currently stands as an option for parents seeking birthright citizenship for their children (for now).
With visa-free or visa-on-arrival access to 138 countries a Barbadian passport is actually just shy of the Brazilian one in terms of travel quality.
It’s also interesting to note that as a citizen of Barbados, your child would also be eligible for special access and privileges with the United Kingdom, and may even be eligible to apply for a British passport if there’s British ancestry in your family tree.
All of this may sound like a daunting, radical step to many people. But it needn’t be.
I’d encourage anyone to consider the prospect of spending several months abroad as an opportunity for growth and personal development.
Plus with a bit of planning and research, this could be something that your children, their children, and so on, could benefit from.
It’s rare that we get the chance in life to have such a profound positive impact on our future descendents with a single decision.
August 27, 2014
I’m still a little bit stunned by what just happened.
30 minutes and $73 later, I just walked out of what was -technically- a hospital, but was much closer to an upscale business lounge at a modern airport.
I had a quick procedure done to fix up a nagging issue sustained in my military days (seemingly a lifetime ago). I was dreading it, but it was over in minutes, and I already feel great.
Back where I come from, the same procedure would go for ten times that. I would have wasted away in a waiting room filling out endless paperwork, then spent countless hours arguing with an insurance company.
Here at Bumrungrad Hospital in Bangkok, I barely had time to sit down before they called me in to meet with the doctor.
As my hands were full with my turkey club sandwich and drink from Au Bon Pain, the nurse anticipated me fumbling with the door and rushed over to open it for me with a traditional Thai bow (the one that rhymes with wow, not whoa), smiling the whole way. I almost felt guilty.
Then the doctor. Educated in the US at a tier 1 school for both undergraduate degree and medical school. Perfect English. Kind, attentive demeanor. Funny. Thorough. Oh yeah… and she’s gorgeous.
The nurse came in and offered some refreshment– a kind of healthy fruit and vegetable juice that was surprisingly tasty.
And then we got down to the actual procedure, which was over in minutes. We made a few jokes and exchanged goodbyes, then I went downstairs with the single piece of paper they gave me and handed it to the cashier.
They told me ahead of time that it would cost 2,500 Thai baht. She rang up a total slightly less than that figure– 2,350 baht, about $73.
‘Hmmm…’ I thought to myself. ‘They underpromised and overdelivered… How rare in any industry, especially medical care.’
I glanced at my phone– it was 30 minutes from the time I arrived. I didn’t wait around for a single minute. I didn’t fill out any forms. I signed just one piece of paper acknowledging the risks of my procedure.
And the price I paid was a tiny fraction of what it would have cost in my home country; this one procedure alone was nearly worth the flight out here.
I’m grateful that places like this exist. Bumrungrad is far from perfect. But the quality of the treatment is excellent, as is the value for price.
And boy does it beat having to sell a kidney in order to pay for medical treatment at a hospital built by some soulless designer with a penchant for whitewashed walls and linoleum tile floors.
Every time I’m here I’m always amazed… that the United States, with all of its intellectual and financial capital, cannot match Thailand.
US industry can provide so many other high quality products and services to vast consumer markets for a reasonable price. Why not something as important as medical care?
The US government has asked the same question. And its answer is, predictably, more regulation and central planning.
Giving people access to affordable, high quality medical care may be a nice idea in theory. In practice, every ‘solution’ they’ve centrally planned, from food safety to education to energy policy, has been disastrous.
Can we really expect the government’s increased involvement and regulations over medical care to be any better?
If you’re bothered by the idea of any government lording over your private health matters, consider looking abroad.
We talk a lot in this column about the concept of international diversification. Where you hold you savings. Where you invest. Where you earn money. Where you store digital assets. Etc.
It’s 2014. There’s no reason to live, work, bank, invest, operate a business, etc. in the same place. You can pick and choose the best places for each of these facets of your life, custom-tailored to your situation, wherever it is treated best.
Why hold savings at an insolvent bank earning interest at rates that don’t come close to keeping up with inflation, when you can shift some funds overseas at a strong, stable bank abroad earning 6% with no currency risk?
Medical care is no different. Just as your capital should go where it is treated best, your health should go where it is cared for best.
Don’t feel like you have to resign yourself to a system whose incentives are stacked against you. There are options. This is one of them. It just takes opening one’s mind to a global perspective.
August 26, 2014
A few days ago I had a conversation with the Chief Operating Officer for our agricultural fund in Chile.
We were discussing water, and he told me that roughly 60% of California right now is suffering “extreme drought” conditions. 30% of the state is in “severe drought”. And 10% of the state is only under “drought”.
In other words, roughly the entire state– the 8th largest economy in the world– is facing a severe shortage of water.
But if you think that’s bad, China is about to take over the spotlight yet again.
A study by China’s Ministry of Water Resources found that approximately 55% of China’s 50,000 rivers that existed in the 1990s have disappeared.
Moreover, China is over-exploiting its groundwater by 22 billion cubic meters per year; yet its per-capita water consumption is less than one third of the global average.
This is astounding data.
More than 400 major cities in China are short of water, with some 110 facing “serious scarcity”.
Beijing and other northern cities get most of their water from underground aquifers. Over the last five decades, China has had to drill increasingly deeper to gain access to water.
Another challenge China faces is logistics. More than 60% of China’s water is in the southern part of the country, but most of the usage is in the north and along the coastlines.
When you consider that this is a country that has almost one fifth of the world’s population and is soon to become the world’s biggest economy, this is rapidly becoming a global problem.
The Chinese are of course well aware of this and are trying to mitigate the consequences by diversifying internationally, or as I call, planting multiple flags.
In China’s case, it’s a ‘water flag’.
Since the most efficient way to save water is not to use it, a sensible strategy is to import water-intensive goods and commodities. Corn and wheat are great examples.
China has been acquiring land across Africa and South America; last week when I was in Ethiopia, the place was crawling with Chinese delegates in the ag business.
The goal is to increase China’s food supply, reduce its dependence on the US for grain imports, and reduce its domestic water demand.
China has the economic capacity to do this. Most nations don’t.
Globally, some two billion people face a water deficit, and dozens of countries have to import water.
Throughout history, water has been the most important resource in the world and a major cause for conflict.
As far back as the ancient Sumerians, wars would break out over control of water supplies in Mesopotamia.
Today, 47% of the world’s non-polar land mass is supplied by rivers shared by two or more states simultaneously. This is an always present but latent source of potential conflict.
We can see that in South East Asia where the Mekong countries bicker over who has the right to build dams and otherwise exploit the river.
All of those countries, plus Bangladesh, India and Myanmar are furious with China’s plans to commandeer more of upstream river sources for itself.
In Ethiopia, where I was just a few days ago, the Grand Ethiopian Renaissance Dam project on the Blue Nile is causing a major diplomatic row with Egypt.
The Egyptians see themselves as the historical “rightful owners” of the Nile River, and they’re in desperate need of the water.
Water availability has enormous political, military, economic, and social implications. And it’s foolish to simply sweep this reality under the rug.
My guess is that tens of thousands of our readers may live in a city experiencing severe water shortages. It’s easy to ignore the problem and trust politicians to fix it. But this is a dangerous course of action.
First of all, stock up. Water keeps, so you won’t be worse off for having a little extra in case there’s a small disruption.
Bigger picture, it may make sense to consider a small bolt hole in a country with abundant per-capita water resources (Georgia, Uruguay, parts of Chile, etc.)
And for investors, owning productive agricultural property in these locations will likely prove to be an excellent investment as farmland in many parts of the world dries up.
More on that another time.
August 26, 2014
[Editor’s note: This missive was penned by Tim Price of PFP Wealth Management in the UK, a frequent contributor to Sovereign Man]
Few films have managed to convey the feeling of approaching menace more effectively than Jeff Nichols’ 2011 drama, ‘Take Shelter’.
Its blue collar protagonist, Curtis LaForche, played by the lantern-jawed Michael Shannon – whose sepulchral bass tones make his every utterance sound like someone slowly dragging a coffin over a cello – begins to suffer terrifying dreams and visions.
He responds by building a storm shelter in his back yard. It transpires that his mother was diagnosed with schizophrenia at a similar stage in her own life.
Are these simply hallucinations ? Or are they portents of darker things to come ?
Nichols, the film’s writer and director, has gone on record as stating that at least part of the film owes something to the financial crisis:
“I think I was a bit ahead of the curve, since I wrote it in 2008, which was also an anxious time, for sure, but, yeah, now it feels even more so. This film deals with two kinds of anxiety. There’s this free-floating anxiety that we generally experience: you wake in bed and maybe worry about what’s happening to the planet, to the state of the economy, to things you have no control over. In 2008, I was particularly struck with this during the beginning of the financial meltdown. Then there’s a personal anxiety. You need to keep your life on track—your health, your finances, your family..”
There’s a degree of pretention in claiming to have a reliable read on the psychology of the marketplace – too many participants, too much intangibility, too much subjectivity.
But taking market price index levels at face value, especially in stock markets, there seems to be a general sense that since the near-collapse of the financial system six years ago, the worst has passed.
The S&P 500 stock index, for example, has just reached a new all-time high, leaving plenty of financial media commentators to breathlessly anticipate its goal of 2,000 index points.
But look at it from an objective perspective, rather than one of simple-minded cheerleading: the market is more expensive than ever – the only people who should be celebrating are those considering selling.
There are at least two other storm clouds massing on the horizon (we ignore the worsening geopolitical outlook altogether).
One is the ‘health’ of the bond markets. Bloomberg’s Mark Gilbert points out that Germany has just issued €4 billion of two year notes that pay no interest whatsoever until they mature in 2016.
The second is the explicitly declining health of the euro zone economy, which is threatening to slide into recession (again), and to which zero interest rates in Germany broadly allude.
The reality, which is not a hallucination, is that years of Zero Interest Rate Policy everywhere, and trillions of dollars, pounds, euros and yen pumped into a moribund banking system, have created a ‘Potemkin village’ market offering the illusion of stability.
In their June 2014 letter, Elliott Management wrote as follows:
“..Stock markets around the world are at or near all-time nominal highs, while global interest rates hover near record lows. A flood of newly-printed money has combined with zero percent interest rates to keep all the balls suspended in the air.
“Nonetheless, growth in the developed world (US, Europe and Japan) has been significantly subpar for the 5 1⁄2 years following the financial crisis. Businesses have been reluctant to invest and hire. The consumer is still “tapped out,” and there are significant suppressive forces from poor policy, including taxes and increased regulation.
“Governments (which are actually responsible for the feeble growth) are blaming the shortfall on “secular stagnation,” purportedly a long-term trend, which enables them to deny responsibility..
“The orchestra conductors for this remarkable epoch are the central bankers in the US, UK, Europe and Japan.
“The cost of debt of all maturities issued by every country, corporation and individual in the world (except outliers like Argentina) is in the process of converging at remarkably low rates.
“In Greece (for goodness sake), long-term government debt is trading with a yield just north of 5%. In France, 10 year bonds are trading at a yield of 1.67%.
“..Sadly, financial market conditions are not the result of the advancement of human knowledge in these matters. Rather, they are the result of policymaker groupthink and a mass delusion.
“By reducing interest rates to zero and having central banks purchase most of the debt issued by their governments, they think that inflation can be encouraged (but without any risk that it will spin out of control) and that economic activity consequently can be supported and enhanced.
“We are 5 1⁄2 years into this global experiment, which has never been tried in its current breadth and scope at any other time in history.. the bald fact is that the entire developed world is growing at a sluggish pace, if at all.
“But governments, media, politicians, central bankers and academics are unwilling to state the obvious conclusion that their policies have failed and need to be revised. Instead, they uniformly state, with the kind of confidence only present among the truly clueless, that in the absence of their current policies, things would be much worse.”
Regardless of the context, stock markets at or near all-time highs are things to be skeptical of, rather than to be embraced with both hands.
Value investors prefer to buy at the low than at the high. The same holds for bonds, especially when they offer the certainty of a loss in real terms if held to maturity.
But as Elliott point out, the job of asset managers is to manage money, and not to “hold up our arms and order the tide to roll back”.
So by a process of logic, selectivity and elimination, we believe the only things remotely worth buying today are high quality stocks trading at levels well below their intrinsic value.
We recently wrote about the sort of metrics to assess stocks that can be reliably used over the long run to generate superior returns.
Among them, low price / book is a stand-out characteristic of value stocks that has generated impressive, market-beating returns over any medium term time frame. So which markets currently enjoy some of the most attractive price / book ratios ?
Consider the relative attractiveness of the Japanese, US, Vietnamese and UK markets, as expressed by the distributions of their price / book ratios.
Over 40% of the Japanese market trades on a price / book of between 0.5 and 1. We would humbly submit that this makes the Japanese market objectively cheap. The comparative percentage for the US market is around 15%.
Even more strikingly, nearly 60% of the Vietnamese stock market trades on a price / book of between 0.5 and 1. The comparative figure for the UK market is approximately 20%.
Conversely, nearly 60% of the US market trades on a price / book of above 2 times. We would humbly submit that this makes the US market look expensive.
There is clearly a world of difference between a frontier market like Vietnam which is limited by way of capital controls, and a developed market like that of the US which isn’t.
But the price / book ratio is a comparison of apples with apples, and US stock market apples simply cost more than those in Japan or Vietnam. We’d rather buy cheap apples.
On any objective analysis, we think the merits of genuine value stocks are now compelling when set against any other type of investment, both on a relative and absolute basis.
Increasingly desperate central banks have destroyed the concept of safe havens. There is now only relative safety by way of financial assets.
The mood music of the markets is becoming increasingly discordant as investors (outside the euro zone at least) start to prepare for a turn in the interest rate cycle.
There is a stark choice when it comes to investment aesthetics. Those favoring value and deep value investments are, we believe, more likely to end up wearing diamonds.
Those favoring growth and momentum investments are, we believe, more likely to end up wearing the Emperor’s new clothes.
We do not intend to end up as fashion victims as and when the storm finally hits.
August 25, 2014
I was sitting on the plane waiting for take off when the captain came on and uttered words you never want to hear in aviation:
“Ladies and Gentlemen, I have some bad news.”
It turned out that a German construction crew had dug up some WWII-era unexploded ordinance, and since it was so close to the Frankfurt airport, they were going to have to shut down all air operations until a EOD crew could take care of it.
With such a tight layover, there was no chance I would make my connecting flight to Ethiopia. And that was a major bummer, because I had a lot of meetings to catch in the morning as soon as I landed.
But it got me thinking– World War II ended nearly 70 years ago. Yet the ramifications of this event… and the consequences of a single person’s decisions from decades past… still affect people’s lives to this day.
Sure, the macro picture is clear. Because of World War II, the US became the world’s largest superpower. The dollar became the world’s reserve currency. US banks came to dominate the global financial system.
But even little, simple things were affected.
There we were– a plane full of people trying to get from point A to point B. And we couldn’t. All because, decades ago, Hitler decided to invade his neighbors and dare the world to stop him.
Of course, this wouldn’t have happened if Germany hadn’t been bankrupted after World War I… an obscene, terrible war waged by fatcat politicians who thought it would be a quick, glorious war.
Sitting there for the 90 minute delay, I had all the time in the world to think about this.
These people in charge– the central bankers and politicians– make decisions that have long-lasting implications, both big picture and small.
Even where you’d least expect it… something as simple and innocuous as a routine passenger flight decades later… gets disrupted because of idiotic decisions made today.
And that’s just the small stuff.
The big picture is far worse. Like World War II, the decisions made today have the power to change our way of life forever. It’s already happening.
Because of so many poor decisions made today by US politicians and central bankers, the rest of the world is rapidly starting to drop the dollar as the preferred reserve currency and adopt alternatives.
This is no longer theory or conjecture. It’s happening. And the implications will last through the next century.
Moreover, the decisions that political leaders are making today are turning ‘rich’ western nations into highly extractive economies… exactly the sort of system I see on the ground in Africa.
These are places where a tiny elite takes most of the wealth and privilege for themselves at the expense of everyone else.
In Africa it’s often done at the point of a gun. In the West, the corruption is far more sophisticated. But the theft is there, plain as day for anyone paying attention.
I invite you to explore this with me more in today’s podcast; in addition, I’ll give you my boots on the ground take from Ethiopia and explain how that country is a stark proxy for what’s happening in the West.
World War II ended nearly 70 years ago. Yet the ramifications of this event… and the consequences of a single person’s decisions from decades past… still affect people’s lives to this day.
Even where you’d least expect it… something as simple and innocuous as a routine passenger flight decades later… gets disrupted because of idiotic decisions made today.
August 23, 2014
En route to Shanghai
Only hours ago the US government announced that a Chinese fighter jet had intercepted an American military patrol plane over international waters east of China’s Hainan Island.
A Pentagon spokesman called China’s actions “unsafe and unprofessional”, and blasted such unprovoked aggression.
There was no mention as to why a US surveillance plane was just off the Chinese coast to begin with. They’re just playing the victim… and rather loudly at that.
Needless to say, the Chinese government has a slightly different story. I asked one of our Sovereign Man team members in mainland China to translate the following article from Sina News.
The first part of the article praises the pilot’s skill and boldness, as well as the efficiency and superiority of Chinese aviation technology.
The Jian-11B fighter, in fact, is 100% Chinese. There is no foreign engine or major component.
As for the rest of the article– I present it below with only one comment– it should be obvious to anyone paying attention that the US is no longer the world’s dominant superpower. It’s certainly obvious to the Chinese.
Stop thief: China rejects the U.S. government calling our aircraft “dangerously close”
(Source: Sina News, http://mil.news.sina.com.cn/2014-08-23/1620797098.html)
Sure enough, it is the American government who stamps its foot first after a similar event.
First the famous anti-China military scholar Bill Gertz played his “danger close” speech for the Washington Free Beacon.
And then the Pentagon also followed and said that it was a “dangerous intercept”. The White House called it “deeply worrying provocation”.
Adm. John Kirby, the Defense Department spokesman, said Washington protested to the Chinese military through diplomatic channels, and called the maneuvers “unsafe and unprofessional.”
Deputy National Security Adviser Ben Rhodes said it was “obviously a deeply concerning provocation and we have communicated directly to the Chinese government our objection to this type of action.”
Such remarks are laughable. As we all know, the United States is the world’s largest hegemonic force and biggest rogue country.
Their various reconnaissance aircraft have been wandering around foreign airspace for decades and watching the military secrets of other countries like a disgusting thief spying over his neighbor’s fence.
However, when the neighbor comes back with a big stick, the thief will turn tail and run away, blaming the neighbor.
When you show people weakness, they will bully you. When you show people strength, they will respect you.
We [the newspaper] believe the Chinese Air Force and Naval aviation should maintain a high level of vigilence and morale in southeast coastal region to prevent the further US action.
America has lost face and does not want to show the world they are sick. They have been lording over other countries for so long, and they will never let it go after they eat this loss.
August 22, 2014
Addis Ababa, Ethiopia
This one is almost too sensational to be real. Almost.
I’ve written to you before about the Financial Crimes Enforcement Network (FinCEN), an agency of the US Treasury Department that chases around people they suspect of committing financial crimes.
Unfortunately, their definition of ‘financial crime’ is not the same as our definition of ‘financial crime’.
FinCEN is completely unconcerned, for example, with the likes of Jon Corzine, who was at the helm of MF Global as it committed some of the worst financial fraud in history.
FinCEN has also not investigated any major US bank executives for their part in manipulating commodity prices or selling out customers to high frequency traders.
Nor have they raised an eyebrow at ratings agencies for gross negligence in slapping AAA ratings on toxic debt securities (which played a key role in destabilizing the banking system.)
Nay. To FinCEN, these are all trivial issues. Instead, the agency has an unhealthy obsession with rooting out little guys they think might have committed victimless crimes.
One of their favorite victimless crimes is failure to file ‘suspicious activity reports (SARs)’; this is a form that the US government demands of essentially any business that deals with paper money.
Banks. Brokers. Payday loan dealers. Remittance businesses (like Western Union). Even casinos.
In other words, the government demands all these organizations to be its unpaid spies. They all have quotas. And if any should fail to file a SAR, they’ll receive a visit from FinCEN.
Let me put this more clearly: even if a banker doesn’t feel like anything suspicious has happened, s/he is still required to file a minimum quota of SARs.
If you walk into a bank and say or do anything that’s slightly out of the ordinary, or simply different than the rest of the bank’s customers, chances are they’ll file a SAR.
FinCEN’s statistics show, in fact, that there has been a surge of SARs filed on bank customers who have conducted any Bitcoin-related transaction (i.e. transferring funds from a bank account to CoinDesk).
I used to know a broker who thought this requirement absurd and immoral. And in order to save his clients’ privacy, he would file all the SARs against himself.
But such values are unfortunately rare. Most bankers, brokers, etc. simply accept the duty of being an unpaid government spy. They’ll smile to your face and then file a SAR because you had the audacity to do something different.
I remember one FinCEN case in which they went after a remittance business in Chicago; the proprietor had been in business for decades and knew each of his customers personally.
He knew their circumstances, what they were doing, who they were sending the money to, etc. Many had even become personal friends. So he didn’t file any of the reports. FinCEN threw the book at him and ran the poor chap out of business. Totally disgusting.
But now comes a new case that takes the cake.
A few days ago, FinCEN enthusiastically announced that they had been working on a CRIMINAL investigation against a casino based in the Western Pacific… thousands of miles from US shores.
FinCEN had apparently sent some of its agents undercover to the Tinian Dynasty Hotel & Casino posing as hard-gambling, wealthy Russian businessmen.
These undercover agents indicated that they wanted to bring in large amounts of cash to gamble at the casino, and expressly requested that the casino not report the currency transactions.
The casino agreed. After all, why would an offshore casino bother reporting anything about Russian nationals to the US government anyhow?
But such logic does not factor into FinCEN’s motivation. So they slammed the casino’s VIP Services Manager (a guy who’s not even a US person) for not filing any SARs.
There’s so many things wrong with this it’s hard to know where to begin.
Jon Corzine (of MF Global) walks the streets a free man.
Yet FinCEN is wasting taxpayer resources sending undercover agents to entrap some offshore casino, and they act as if they’ve infiltrated a major terrorist organization.
This is practically secret police stuff… all because a non-US person working overseas didn’t file a meaningless report on Russian businessmen.
Amid all the debt, graft, and incompetence that’s so prevalent today in government, this is another sad testament to the direction that things are headed.
August 21, 2014
Addis Ababa, Ethiopia
By the late 1920s, Joseph Stalin became the unchallenged leader of the Soviet Union after having eliminated his opposition.
He topped it off in 1929 by serving a decisive blow to anyone that would dare to oppose him by outlawing private gun ownership in the country.
From that year on until 1953 when Stalin died, it’s estimated that more than 20 million Soviet citizens that were seen as a threat to the country’s leadership.
People were rounded up and either murdered outright, or sent to infamous gulag labor camps.
Stalin is an extreme case. But history is ripe with examples of governments which disarm their citizens, only to engage in serious oppression afterwards.
Communist China. Nazi Germany. Cambodia. Guatemala. Uganda. The list goes on and on. Pacification of the citizens is almost always a prerequisite to totalitarianism.
There have been a lot of attempts to disarm, or at least partially disarm, people in the US throughout history as well.
Each time there’s a major shooting somewhere, the chant to ban firearms grows louder.
But the latest proposal is especially telling.
H.R. 5344 is a bill currently going through Congress that would ban the purchase of body armor.
Violation would carry CRIMINAL penalties, including up to ten years in prison.
Many bullet-resistant items on the market now, such as bulletproof backpacks for school children, would be banned by this legislation.
This is incredible given that the legislation is all about banning something that is purely defensive.
Whatever your stance on firearms, I hope we can agree that it’s pretty damn difficult to hurt another human being with body armor.
People buy body armor for protection. That’s the point. Duh.
So why in the world would they want to ban it?
The government claims that “criminals and rampaging madmen” can “wreck havoc” while wearing body armor, and it’s important to shield police from these nefarious individuals.
Uh, wait a sec– you mean the same police that go around terrorizing ordinary citizens who aren’t breaking any laws whatsoever?
The same police who beat homeless people to death?
The same police who shoot and kill innocent animals in broad daylight in the middle of the street?
The same police who scream “I will f***ing kill you!” with their weapons trained on crowds of protestors exercising their constitutional rights?
Right. Those guys.
This is such a disgusting, yet unfortunately predictable, turn of events in the Land of the Free.
It’s enraging. It’s infuriating. And it’s so obvious: the country has become a giant police state. And the trend is not getting any better.
It’s time to set aside emotion. It’s time to set aside a lifetime of propaganda and programming telling you that you live in a free country.
It’s time to look at the objective evidence all around you.
They spy. They steal. They wage illegal wars. They authorize military detention of civilians. They assassinate citizens.
They intimidate. They terrorize. They torture. They suspend due process when it suits. They destroy anyone who challenges them.
And now they want to take away a non-violent means of protecting yourself.
This is our reality. And at a minimum, it’s time for rational, thinking people to come up with a Plan B. What’s yours?
August 20, 2014
Sometimes I am convinced it was completely by design, and not a weird little coincidence, that one of Germany’s most sprawling red light districts is just steps away from the European Central Bank.
This fact becomes comically obvious right around happy hour… as self-congratulatory ECB economists and their bureaucratic bank underlings crowd the bars and cafes after work which are simultaneously frequented by pimps, thugs, and other assorted low-lifes.
One would be forgiven for legitimately asking the question: which of these professions has done more damage to humanity?
My [fiat] money’s on the bankers.
These are the same financial luminaries who, recently, crowded aboard the good idea bus and decided to take interest rates NEGATIVE.
Their logic was that prices aren’t rising enough. This was actually the headline this morning that ran across the Rai (Italian news) ticker while I was consuming some egg-like substance at the hotel breakfast buffet this morning in Rome.
The newsman said something to the effect of “Low inflation makes economic problems worse in Europe.”
Ah, yes. Precisely. The problem isn’t an absurd level of over-regulation, massive unsustainable debt, insolvent banking systems, idiotic politicians, etc.
THE problem plaguing the entire continent… the problem behind sluggish growth for all these years… is that consumers aren’t getting screwed fast enough.
It’s hard to even know where to begin with such an epic level of stupidity. First of all, it’s not even true.
Having just spent the last few months traveling across most of the continent, I was astounded to see the speed with which prices had risen in many places.
I just capped off a week-long vacation with my fellow teammates at Sovereign Man in Italy… same place as last year… and I was charged a whopping 50% increase over last year’s rates.
But this sort of truth doesn’t matter to an economist who actually believes in his ‘science’. It is this ‘science’ of economics which tells us that outsized government debts are irrelevant. That awarding the power to conjure paper money out of thin air is a sound, credible system.
Yet it’s not working. Much of Europe (like Italy) has fallen back into recession.
Even here in Germany, which is supposed to be some sort of econo-mythical superhero carrying the rest of Europe around on its shoulders, the government just announced that the economy contracted last quarter.
Whatever these economic policymakers are doing, it’s obviously not working. So naturally the solution is to try more of the same. Much more.
They’ve already taken certain interest rates into negative territory. The expectation now is that they’ll ratchet rates even further into negative territory.
In doing so, they are effectively screwing hundreds of millions of people. Every single person on the continent who is a responsible saver. Every pensioner. Every retired schoolteacher. Every student. Everyone who works hard for a living and can already barely make ends meet.
Their lives are all about to get a lot more difficult.
Even for the well-heeled, life has become quite stressful. Think about it– there’s almost no place left anymore to hold your savings.
Putting cash in a bank practically GUARANTEES that you will lose money on an inflation-adjusted basis. Stocks are at precarious all-time highs. Bonds are at all-time highs. Many real estate markets are back in bubble territory.
These people have destabilized nearly every major asset class in existence.
On the balance, I’d rather deal with the seedier characters in this neighborhood rather than the suitpanted PhDs pretending to do honorable work.
I want to share more with you about this… not only my thoughts, but those of my colleague Tim Price.
Tim is a regular contributor to this column and one of the few people in professional finance for whom I have tremendous respect.
Tim joined us earlier this week on our group vacation in Italy, and I fortunately had the presence of mind to record our conversation; his insights are absolutely not to be missed.
I encourage you to give a listen here:
August 19, 2014
Imagine yourself hanging off a cliff, clutching to a single rope.
There you are, dangling over the abyss, completely dependent on the strength of that rope. The rope could fray or it could be cut, and there you would go, tumbling straight down.
So to be safe, you would prefer to have more than one rope connecting your suspended body to safe, stable ground, wouldn’t you? Because at least that way, if something happened to the one rope, you would still have something to hold on to.
For most of us in the world, we are born tethered to a single national identity. The passport is our rope. It’s our lifeline, and we depend on it wholly.
Some are blessed with a strong stable rope, which can enable one to feel secure, travel freely, and do business easily.
However, for some, their ropes are beginning to fray from years of being worn down by debt, corruption, and instability.
For those with a weak rope, it’s essential to work on getting more as quickly as possible. That means, a second citizenship, which in addition to providing greater safety, can also give you greater freedom to travel, work, and invest.
No matter how strong you think your rope is now, it is always a good idea to get another one.
A number of countries, including the US and France, have recently been exercising their ability to simply cancel citizens’ passports. Cutting off their freedom to travel entirely.
At the very least, it doesn’t hurt to have a back up plan. You’re never worse off by having multiple options at any given time.
There are a number of ways to go about obtaining another citizenship. The top three methods are either by ancestry, money, or time.
Ancestry is by far the fastest, easiest, and most cost effective way of obtaining a second citizenship, but most people don’t even realize that it’s an option for them.
Take a quick check down your family line to see if you happen to have any family members that were either Italian, Irish, or Polish.
These are not the only countries to offer citizenship based on ancestry, but they are some of the easiest and can be gained not only from your parents, but even your grandparents or further down the ancestry line.
For each of these three, you will need to compile the necessary documents to prove that your ancestor was a citizen of the country at the time of your birth.
Each country has subtle differences in the acceptability of claims, so I recommend that you find a suitable immigration lawyer in the country to help you through the process.
For members of Sovereign Man: Confidential we recently released a thorough report on the specifics of obtaining Italian citizenship by descent and our personally approved contact on the ground, with extensive experience in helping people through the process—including a unique fast track loophole.
There’s really no reason to delay… you wouldn’t wait until your rope was on its very last thread before you began to look for another one would you?
Having a second citizenship and passport provides you with more freedom and opportunity. It’s the ultimate wild card with which you’re not dependent on only one country. Sometimes it can literally save your life.
August 18, 2014
The sniper took a breath in as he put the fleeing form of Peter Fechter into the crosshairs of his rifle.
As he exhaled, he squeezed the trigger, landing his bullet squarely in the young boy’s back.
Watching Peter’s body fall, he mentally congratulated himself on what he’d just done to protect his nation.
It was just after 2pm, August 17, 1962 when Peter’s body hit the ground at the foot of the Berlin Wall.
There he lay in broad daylight for a full 50 minutes, screaming for help, before he was finally carted away.
What had Peter Fechter done to threaten the nation and deserve this public execution?
Nothing at all.
The boy was just an 18-year-old bricklayer, who wanted a chance at freedom, when he became the first person to die trying to escape over the Wall.
52 years later, the same things are still happening, and not in totalitarian East Germany, but right in the United States itself.
This time, the 18-year-old victim’s name was Michael Brown, an unarmed hospital worker, who was gunned down by police on the streets of Ferguson, Missouri.
After both young casualties, people were incited to protest in anger against the brutality of the state, and in both cases, the people had tear gas rained down upon them.
Who could possibly still believe that the police are there to protect and serve the people?
No matter the justifications they came up with, it’s was suddenly clear that the Wall was built to keep people in, not to keep others out.
Just the same, the police today are not there to keep you safe from criminals, but to keep the biggest criminals—the politicians—safe from you.
Though on the surface the current protests in Ferguson are about race, they reveal a much deeper truth about the situation. As they protest, the people are following their instincts, and their instincts are telling them not to trust the state.
We’re seeing people’s trust in the state beginning to crumble, not just with police, but with one government agency after another. More and more people are waking up to the fact that none of these institutions are really there to protect them.
The NSA says it’s there to keep you safe from terrorists, but in reality they’re spying on you to protect their power over the populace.
The Fed says it’s there to make the economy more stable, but they intentionally fuel economic volatility in ways that benefit their friends.
The FDA says it’s there to protect people from unsafe foods, but their regulations and endorsements of certain ingredients actually make your food more dangerous.
There’s an invisible wall going up around us, everywhere in Western civilization. People are starting to realize it and that’s why there’s so much anger. But rather than getting angry or emotional, it’s time to get ready.
Rational people have a plan B.
Because if you wait too long, you’ll wake up one day and see that the Wall has been built, and suddenly stands far greater than your ability to escape it unscathed.
August 15, 2014
Back in March serious allegations came out of the Senate that the CIA was monitoring and even hacking Senate computers. They were denied vehemently at the time by CIA director John Brennan, who went so far as to say “that’s just beyond the scope of reason.”
Unsurprisingly, of course, the CIA has now come out saying that, yes, they did in fact spy on Senate aides’ computers. Oh, and that they’re sorry. Very sorry.
This is stuff that would have been a major scandal not too long ago, causing a public outcry for the heads of those responsible.
Today, it seems par for the course. It’s taken for granted that governments around the world, spearheaded by Uncle Sam, monitor communication via email, phone, social networks, webcam etc. en masse.
And nothing happens.
Despite Edward Snowden’s decision last year to basically condemn his life to that of a fugitive and branded “traitor” by shedding a major spotlight on just exactly how brazenly and extensively the US government invades the privacy of people all around the world, the reaction, at least in the US, was muted.
As the saying goes, ‘The dogs bark, but the caravan goes on.’
Even though government surveillance is becoming more and more invasive, there are ways to shield yourself from prying eyes.
If you agree with the premise that every person has the right to protect their personal matters and privacy from the Big Brother, there are free options to use out there that can ensure your communications, your digital presence and activity, and your data remain secure and private.
For calls, for example, the company Open Whisper Systems has developed apps that protect the privacy of your voice conversations.
If you’re an Android user, Red Phone is an open source app that secures your calls with end-to-end encryption. It uses your normal phone number and default dialer so you make calls just as you normally would, with no additional layers or steps necessary to protect your privacy.
To secure your text messages, the same company also has an app TextSecure that does just that.
If you’re an iPhone user, the developers of Red Phone and TextSecure took care of you too.
You can achieve the same result by using a free app called Signal – Private Messenger. Just as Red Phone, Signal makes end-to-end encrypted calls through Wi-Fi or mobile data, instead of your phone network.
Protecting your calls and texts from prying eyes and ears is just one piece of the puzzle if you want to take back your privacy.
There are so many different layers that you can protect—from your internet browsing to online searches, email, your data storage, payments etc.
We cover all these different aspects and options in our free Digital Privacy Black Paper.
I encourage you not only to implement the stuff we talk about in the Black Paper in order to take back your privacy, but to also share it with your friends and loved ones.
August 14, 2014
Remember in the first Bourne movie when Jason wakes up after being rescued from the Mediterranean Sea?
Suffering from amnesia he doesn’t remember who he is, or what had happened to him. The only clue he has is a tiny surgically implanted projector that displays a safe deposit box number for a bank in Zürich.
For a very long time Switzerland was the hallmark of privacy, especially financial privacy. Swiss banks were known as discrete, prudent and savvy financial partners.
The country’s tradition of bank secrecy goes back all the way to the Middle Ages and was first officially codified in the Banking Law of 1934, which made it a criminal act for a Swiss bank to reveal the name of an account holder.
The reasoning for strict financial privacy and even numbered accounts was simple.
Personal financial matters between bankers and savers should have confidentiality protection, the same as is given to health and legal matters between doctors and patients or lawyers and their clients.
However, after the enormous amount of pressure that the Swiss have been exposed to in recent years, especially from the US and the EU, they’ve rolled over.
In October 2013, the Swiss government stated that it intended to sign an international agreement under the auspices of the OECD that would align Swiss banking practices with those of others.
Thus effectively ending the special secrecy that clients of Swiss banks had enjoyed in the past.
It’s important to understand just how monumental this shift is—for the Swiss to give up their bank secrecy is the equivalent change in the national psyche to Americans giving up their guns.
Swiss banks therefore have lost their allure, sending many of their clients fleeing for other privacy-oriented jurisdictions—Singapore, Hong Kong, Luxembourg, Lebanon, Panama, Cayman Islands etc.
And yet, it’s important to note, that even in those places, real financial privacy within the conventional banking system no longer exists.
Globally, financial nudity is now the norm in banking.
Even jurisdictions that nominally still have financial privacy laws on their books are casting them aside under pressure from the US, and without much of a fight.
If you still want to retain a certain degree of financial privacy, it’s necessary to hold some of your assets outside of the conventional banking system.
Own alternative assets. Real estate. Gold and silver. Collectibles, such as stamps, rare coins etc. Art. Fine wine. Private businesses. Etc.
I know what you’re thinking—where’s bitcoin on that list?
While bitcoin is a great concept and an incredible technology, it doesn’t exactly fulfill our security criteria.
It’s a pseudo-anonymous digital currency that’s not really private. Every transaction is out there in the public domain and is just as traceable as using your MasterCard.
Remember—advocating for financial privacy and banking secrecy doesn’t have anything to do with evading taxes, it’s a fundamental right that every person should enjoy.
I have always considered tax evasion to be against the very core of what we’re trying to do at Sovereign Man, which is to increase people’s freedom and their choice of options.
Evading taxes does just the opposite. All it does is to bring you into the crosshairs of law enforcement agencies, ultimately reducing your freedom and wellbeing.
August 13, 2014
For hundreds of years the Byzantine Empire coined the most popular reserve currency in the history of the world.
Merchants all over Europe, the Mediterranean, the Middle East, and further, used it in trade for centuries.
It was called the solidus, and was introduced by Constantine I in 312 AD.
The solidus held steady at 4.5 grams of 24-carat gold for nearly seven centuries. Hence its Latin name – ‘solid’. The durability of its purity is nearly unprecedented in the history of money.
Its weight, dimensions and purity remained constant until the 10th century when the government began to debase it.
The debasement was gradual at first, then accelerated rapidly.
In a matter of decades its gold content was reduced to almost zero as the Byzantine Empire was scrambling for cash to finance its numerous wars.
Consequently, Emperor Alexios I Komenos drastically overhauled the Byzantine coinage system in 1092 and introduced a new gold coin, the hyperpyron.
It too was soon subject to gradual debasement. And by the mid 1200s the hyperpyron’s gold content fell drastically again.
As the saying goes, fool me once, shame on you. Fool me twice, shame on me.
The rest of Europe had seen this movie before. And when they saw the gold content in the hyperpyron fall, they quickly lost confidence.
By that time, the Byzantine Empire was weak—a shadow of its former power.
Meanwhile, several small kingdoms in Italy were rising in prosperity, especially Florence, Genoa, and Venice.
The Florentines and the Genoese took up the task and minted a new gold coin called the florin, which at 3.5 grams of pure gold was the most wildly circulated trade currency in Europe and around the Mediterranean for a while.
The Venetian ducat gained wide international acceptance in the 1400s. The ducat contained 99.47% of fine gold—the highest metallurgical purity possible at the time.
As the Venetian merchants traveled far and wide the ducat became an internationally accepted trade currency throughout the world.
Even though he didn’t live in Venice, for example, Leonardo da Vinci was paid by the King of France in Venetian ducats—exactly 400 ducats per year, which in today’s dollars equals to roughly $56,000 (and he didn’t pay any tax…)
The ducat was ultimately supplanted by the Spanish dollar (real de a ocho, or Pieces of Eight) with the onset of the Age of Exploration.
Pieces of Eight became so widespread in international trade that they were legal tender in the United States until the mid 19th century.
The clear lesson here is that this stuff changes.
It’s common for the world’s most powerful country to issue a currency that becomes adopted around the world as the standard for international trade.
But whenever that country reaches a point of epic, terminal decline, and especially when it rapidly debases its currency, the rest of the world seeks an alternative.
The US has been enjoying this special privilege for decades now.
The US dollar is the most widely used currency in the world for international trade. Central banks and sovereign governments around the world hold trillions of US dollars.
And while these changes never happen overnight, it’s clear that the dollar is quickly losing this status.
The French Finance Minister recently called for a ‘rebalancing’ of currencies in global trade settlement. The British, French, Canadians, and Swiss are all on board with this trend.
As are, clearly, the governments of Russia, China, and India. Nearly the entire world understands this trend. Everyone but the United States government.
They’ll be the last ones left in the room after nearly everyone else has headed for the exit, oblivious to their own destruction.
People who understand this shift and get out in front of it will make fortunes.
Those who play Ostrich, stick their heads in the sand, and keep all of their eggs in one frail basket are taking the gamble of their lifetimes.
August 12, 2014
If you’ve been a reader of Sovereign Man for any length of time you’ve probably read about our annual youth camp.
Each summer, we bring students from all over the world to a beautiful lakeside resort in Lithuania where my colleagues and I coach them about liberty, investing, and entrepreneurship.
This year’s camp just ended just yesterday. And I’m proud to say it was the best one we’ve ever had.
These camps always leaves me energized and incredibly optimistic.
Because if there’s one trend that holds true throughout history, it’s that, despite all the challenges and problems in the world, human beings rise.
We overcome adversity. We adapt. We advance. And we eventually turn challenges into opportunities.
And it’s young people like the ones we have at our camps which will inherit the opportunities to solve many of those problems.
I’m convinced, for example, that within two decades, today’s banks will be completely irrelevant. So will our version of ‘money’.
It’s today’s young people who will create the companies, platforms, and technologies that will revolutionize this system.
I have a very long-term view on everything. And one of the reasons why I organize and foot the bill for this event each year is because I want to be involved with bright young minds who will be making a difference in the world.
I want to tell you more about what happened at this year’s camp: about the most important skills to develop, plus what I told them about my vision for the future.