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Updated: 11 hours 24 min ago

Italy’s newest bank bailout cost as much as its annual defense budget

Mon, 06/26/2017 - 13:34

Two more Italian banks failed over the weekend– Banco Popolare di Vicenza and Veneto Banca.

(In other news, the sky is blue.)

The Italian Prime Minister himself stated that depositors’ funds were at risk, so the government stepped in with a bailout and guarantee package that could cost taxpayers as much as 17 billion euros.

That’s a lot of money in Italy– around 1% of GDP. In fact it’s basically as much as the 17.1 billion euros they spent on national defense last year (according to an estimate by Italian think tank IAI).

You don’t have to have a PhD in economics to figure out that NO government can afford to spend its entire defense budget every time a couple of medium-sized banks need a bailout.

That goes especially for Italy, whose public debt level is already 132% of GDP… and rising. They simply don’t have the money.

Moreover, the European Union actually has a series of new rules collectively known as the “Bank Recovery and Resolution Directive” which is supposed to prevent failing banks from being bailed out with taxpayer funds.

Here’s the thing– Italy has LOTS of banks that are on the ropes.

So with taxpayer resources exhausted (and technically prohibited), who’s going to be on the hook next time a bank goes under?

Easy. By process of elimination, the only other party left to fleece is the depositor.

Here’s how it works:

Let’s say a bank takes in $1 billion in deposits.

Naturally the bank doesn’t just keep $1 billion in cash sitting in its vault. They invest the money. They make loans. They buy assets.

So the bank’s balance sheet shows $1 billion worth of assets, and $1 billion worth of deposits that they owe to their customers.

But sometimes banks screw up when they invest their customers’ funds. Loans go bad. Borrowers default.

For example, if a bank invested $200 million in Greek government bonds, and then the government of Greece defaults, the bank would only have $800 million in assets remaining.

But they’d still owe their depositors the full $1 billion.

How can a bank with only $800 million in assets possibly honor the $1 billion worth of deposits they owe to their customers?

They can’t. And there’s a word for this: insolvency.

This is the problem with so many banks across Italy (and many other countries around the world). They owe their depositors more than their assets are worth.

Again, the taxpayers are ultimately on the hook from this weekend’s bailouts, along with some subordinated bondholders who got wiped out.

But Italy’s banking problems go far beyond two little banks. This is a systemic issue across the country’s ENTIRE banking sector. And the solution goes far beyond what the taxpayers can afford.

So next time around it could very well be the depositors who end up losing money.

Even if not, it hardly seems worth taking the chance.

By the way, I’m not just talking about Italy here.

You know how they say “time heals all wounds?” Well, not in banking. Some wounds never heal.

And there are countless banks and banking systems around the world that never fully recovered from the 2008 crisis.

This raises the question– why hold money at a shaky bank in a country where the government is in debt up to its eyeballs? Especially when there are so many better options.

Most people never think twice about where they hold their savings, typically opening accounts based on some irrelevant anachronism like geography.

It’s 2017. Why trust all of your savings to a financial institution simply because it’s across the street?

If you run a website, you wouldn’t necessarily choose a web hosting company because it’s located in your home town. You’d find the best company with the best service and best uptime.

If you want to buy a new mobile phone, you wouldn’t just go to a local retailer. You’d probably shop online and find the best deal, even if it’s from a company across the planet.

Why should money be any different?

The world is a big place with LOTS of options and opportunities.

And there are plenty of places where the banks might have MUCH stronger fundamentals, located in jurisdictions with minimal debt.

But if this is too exotic, you could also consider physical cash.

With an at-home safe, you effectively become your own banker, eliminating the middle man and eliminating the risk to your savings.

This is all part of a great Plan B.

Clearly there are risks in a number of banking systems, including most of the West where the majority of governments are themselves insolvent.

Perhaps those risks are never realized.

But it’s hard to imagine you’ll be worse off for holding a little bit of physical cash… or to consider the option of holding a portion of your savings in a bank that’s conservative, well-capitalized, and located in a country with zero debt.

Even if nothing bad ever happens, there’s no downside in having taken these steps.

But if these risks do pan out, your Plan B will end up being the best insurance policy you’ve ever had.


This asset has outperformed the Tulip Bubble, Mississippi Bubble, and dot-com Bubble

Fri, 06/23/2017 - 09:03

This morning I had the pleasure of spending an hour of my life tracking down a missing wire transfer that had been sent to a large, multinational bank more than two weeks ago.

I’m sure you’ve been there, being passed around various departments like the village bicycle, each time having to re-explain the entire situation to someone brand new.

Finally someone found the missing funds, and the person told me me they would release the money later today. But that it would still take 3-5 business days for the funds to hit the recipient’s account.

This is infuriating. It’s 2017. Seriously. It’s not like they have to load a pallet full of cash onto a cargo ship and float it across the ocean.

Banking is completely digital now, and transfers should be instantaneous. At most it shouldn’t take longer than a few hours.

As we hung up the phone I thought, “I can wait for cryptofinance to put you guys out of business.”

It’s true. There’s going to come a day when financial technology eradicates the entire banking system and renders it as obsolete as blacksmiths pounding on horseshoes.

Sending money overseas through the banking system can take several days and cost $20, $50, even $200 or more.

And while cryptocurrency transfers over the blockchain are taking longer today than they used it, transactions are still settled in a few hours, sometimes just a few minutes.

Transfer costs across the blockchain have increased as well. But you’re still talking about a dollar or less.

Compared to the conventional banking system, transferring funds via the blockchain is much more efficient.

The same goes with savings; it’s possible to deposit money directly within the blockchain instead of the banking system. No more fees, no more hassles.

And as long as you take the proper safeguards (just as you would take safeguards to protect your online bank account), holding funds in the blockchain is perfectly safe.

But… it’s not all rainbows and buttercups in the world of cryptofinance. This is a nascent concept, and plenty of unresolved challenges remain.

For starters– complexity.

Bitcoin has clearly become more user-friendly in its eight years of existence, and the other cryptocurrencies and blockchains will certainly follow that trend.

But if you look at Ethereum, right now the world’s second biggest blockchain platform, you need to be a HIGHLY experienced software developer in order to create one of its ‘smart contracts’.

Then there’s the issue of volatility… which may be the single biggest impediment to cryptocurrency adoption.

Again, look at the Ether token that runs on the Ethereum blockchain; on January 1st of this year the Ether price was less than $10. Today it’s nearly $350.

That’s a 35x jump in just over six months.

It’s hard to find another asset with that sort of performance. Ever.

Even John Law’s doomed Mississippi Company stock in the 1700s only increased 20x in a year.

In fact, Ether has outperformed the 17th century Dutch tulip bubble, the 18th century South Sea Bubble, and the 20th century dot-com bubble.

With cryptocurrency, the swings are violent in both directions. It’s NOTHING for Bitcoin or Ether to move up/down 10% in a single week. That level of volatility is almost expected now.

Again, this is a problem– volatility is a major hurdle to adoption.

As an example, big retailers (like Wal Mart) have razor-thin profit margins of less than 3%.

So if Wal Mart were to accept Bitcoin, it’s entirely possible that the Bitcoin price could drop more than 3% before Wal Mart converts the Bitcoin to US dollars… meaning Wal Mart would either lose money or pass the excess cost onto the consumer.

Either way, someone’s paying for the volatility.

Long-term, these challenges are likely going to be solved. Cryptocurrency has only been around for a few years– it needs more time.

I look at something like the Swiss franc, which is 167 years old and used by roughly 8.5 million people within a very tiny geography.

The total market size of the Swiss franc is about $1 trillion based on the central bank’s most recent statement of M3 money supply.

By contrast, the combined market size of Ether and Bitcoin (the two largest cryptocurrencies), is about $75 billion.

Yet their user bases already exceed 15 million with absolutely no geographic limitations. And they’re growing every day.

The Swiss franc, of course, has minimal volatility and zero complexity.

So it stands to reason that when these remaining challenges for cryptocurrency are solved, their supply/demand fundamentals could support prices that are far higher than today’s.

But not yet. There’s still plenty of uncertainty, and a ton of work to do.

For now try to ignore the hype… and the spiraling prices.

Don’t feel like you’re going to ‘miss out’ if you don’t buy crypto today.

A lot of people thought the same thing in the late 90s, that they didn’t want to miss the chance to make money in tech stocks.

Bear in mind the market crashed in 2000, and some of the top performing tech companies like Google and Facebook didn’t IPO until years later.

Right now the most important thing to do is UNDERSTAND cryptocurrency– how it works, the possibilities and challenges, applications and risks.

The same rule applies with any investment– don’t buy anything unless you really understand it, whether it’s a stock, bond, apartment building, or cryptocurrency.

The right education can open the door to new, lucrative investment opportunities. And it can make the difference between a great decision and a terrible one.

So don’t worry about the bitcoin and ether prices right now. There will be more opportunity to make money in crypto.

Instead, focus on the best investment you can possibly make: the one you make in yourself and your own education.


It’s now a “human right” to NOT be offended. Unless you’re the one who’s offended.

Wed, 06/21/2017 - 10:49

In the latest episode of the completely psychotic breakdown of Western values, Canada’s government has just passed a law that champions sexual identity over science.

It’s called C-16, “An Act to Amend the Canadian Human Rights Act and the Criminal Code”.

Both of these codes prohibit discrimination against individuals based on race, gender, sexual orientation, religion, etc.

And this new law includes gender identity in that list.

Great. Nothing wrong with that. All they’re basically saying with these amendments is that transgendered individuals have the same inalienable rights as everyone else.

It’s sad that they actually have to pass a law to enshrine someone’s human rights… and one day our descendants will wonder why that was even necessary, just as today we are appalled that the institution of slavery ever existed.

But as usual there are some problems with the law. Not just the new law, in fact, but with Canada’s entire Human Rights Act.

I found a number of articles online stating that this new law “criminalizes the incorrect use of gender pronouns,” i.e. if someone born a “he” chooses to be “she”, and you say “Mr.” instead of “Ms.,” you’re going to jail.

To be clear, that’s NOT what this new law says. But the danger lies in the incredible ambiguity of the entire Human Rights code.

Section (14)(1), for example, states that “it is a discriminatory practice . . . to harass an individual on a prohibited ground of discrimination. . .” which includes race, religion, etc. and now sexual identity.

This is where things start to become unglued.

Because if your brain is wired anything like mine, you’re probably thinking, “OK, fine, but what constitutes ‘harassment’ ?”

I’m glad you asked. Because Canada’s Human Rights Commission gives us a rather ominous definition:

“[Harassment] involves any unwanted physical or verbal behaviour that offends or humiliates you.”

So in theory, yes, using incorrect gender pronouns could constitute harassment if it offends somebody, and this is a violation of Canada’s Human Rights and Criminal codes.

I’m unclear when ‘not being offended’ became an inalienable human right.

I’m a prolific student of history, but I’m afraid I must have missed that chapter in the development of Western Civilization.

Look, I’ll always be for anyone’s right to choose the way they want to live, as long as you don’t aggress against other people or their property.

You want to sleep with goats? Go for it. As long as they’re not my goats.

Having said that, I shouldn’t be forced to care.

I don’t expect others to change their behavior because of my lifestyle decisions, and I shouldn’t have to change my behavior because some snowflake might be offended.

For me the real clincher in Oh Canada’s new law is its long-winded legislative summary that tramples all over basic science.

Section 1.1.1 tells us, for example, that some people “self-identity with a non-traditional or non-stereotypical concept of gender.”

“Non-stereotypical”? It’s f*cking science.

It’s perfectly fine for people to be whatever they feel. But that doesn’t change the laws of nature: human beings have 23 pairs of chromosomes, one of which determines gender.

Aside from rare cases of genetic deformation, an X+Y sex chromosome means having a male wee-wee. An X+X chromosome means having a female wee-wee.

What exactly is the stereotype here?

Are magnetism and trigonometry also stereotypes?

Has Western Civilization really reached the point where basic science and human anatomy are set aside to ensure that someone doesn’t get offended?

Apparently we have.

If you have any doubts about this, check out how Bill Nye the Science Guy explained X&Y chromosomes to children in 1994.

Pretty simple: XY = boy, XX = girl.

But that was in 1994 when science still mattered.

Today that very segment has been stricken from the episode by Disney’s Buena Vista Television unit, and is available on Netflix only in its edited version.

So if you try watching the show on Netflix, the discussion about gender and chromosomes is no longer there.

Meanwhile, Bill Nye has a new show on Netflix. But instead of actual science, he’s teaching children about “gender spectrum”, “sex junk”, and “butt stuff”.

(Clearly Mr. Nye is on to a revolutionary breakthrough in the scientific method!)

Nye’s gyrating musical guest also gives viewers some sage advice: “Give someone new a handy . . . then give yourself props.

This is what passes as “science” today; and government / media are rewriting the basic laws of nature to ensure that a handful of people aren’t offended.

(I’m offended at how easily other people are offended. But something tells me my grievance would fall on deaf aurally-challenged ears within Canada’s parliament.)

Have you reached your breaking point yet?


Argentina issues 100-year bond. What could possibly go wrong?

Tue, 06/20/2017 - 12:50

Apparently while I was in the air yesterday flying between Asia and Europe, the financial system proved once again that it believes in magic beans.

The latest absurdity is that the government of Argentina sold $2.75 billion worth of bonds yesterday afternoon.

It’s not strange or unusual for a government to sell bonds; it happens multiple times across the world nearly every single day of the year.

What’s totally insane about yesterday’s bond sale in Argentina, though, is the duration of these particular bonds.

Remember that a bond is similar to a loan; as an investor, you’re basically loaning money to whichever government issues the bond.

And, like a loan, a bond has a maturity date– the date at which the government is supposed to pay you back the “face value” of the bond.

Car loans often have a 3-7 year term. Student loans can easily go 10 or 15 years. A home mortgage can last 30 years.

It’s the same with government bonds, which often have a term up to 30 years.

Needless to say, the longer the term, the riskier the bond. Plenty of things can go wrong if you give governments enough time to screw up.

As an example, I own a bank, and I’m obliged to park a portion of my bank’s assets in US government bonds.

So I buy the SHORTEST term bonds that exist: 28-day T-Bills.

As I’ve written many, many times before, the US government is flat broke, so there’s no way I’m loaning Uncle Sam money for 30 years. Or 10 years. Or even 5 years.

There’s way too much that can hit the fan over a longer term period of time.

But I’m reasonably comfortable that Donald Trump isn’t going to default on my bonds within the next 28 days.

So take a guess when Argentina’s new bonds will mature– 10 years? 30 years? 50 years?

Try 100 years. An entire century.

Bear in mind that Argentina’s bonds are considered “junk” because of the default likelihood.

In fact Argentina has defaulted twice in the last twenty years, and eight times since its independence in 1816.

At this rate, the country will default four more times over the next century before this bond matures.

And that doesn’t even take into consideration the country’s history of socialism, despotism, genocide, confiscation of foreigners’ assets, capital controls, wealth taxes, falsification of economic data…

But the risks don’t stop there.

Because in addition to taking a huge bet on Argentina, the suckers who bought these bonds yesterday are also taking on US dollar risk.

Argentina didn’t sell its bonds in local currency. The bonds are priced in US dollars.

This means that investors will receive interest payments in US dollars, and final repayment in US dollars… 100 years from now.

This strikes me as especially idiotic. (A better option for investors would have been gold…)

Given the US government’s pitiful financial condition, it seems foolish to bet that the dollar will still be the world’s #1 reserve currency in 2117.

Or that US dollar inflation won’t have eaten away all the returns.

Hell, the dollar might not even exist in 100 years.

But if it weren’t enough to be taking both the Argentina risk AND the US dollar risk, investors are also paying a big premium near the very top of the market.

If you’ve never invested in bonds before, the most important thing to remember is that bond prices and interest rates have an inverse relationship.

So if interest rates go up tomorrow, the value of the bond that you buy today will decline.

And if interest rates keep going up over the coming years (and century), this Argentina 100-year bond will becomes worth less and less.

How likely are rising interest rates?

Well, considering that interest rates are currently near the lowest level they’ve been in the 5,000 year recorded history of our species, falling bond prices are practically guaranteed.

This means that the price investors paid yesterday is more than likely the highest that the bond will ever be valued at… ever.

So basically investors paid a record high price to buy junk debt from a country with a history of default in a currency backed by the largest debtor that has ever existed in the history of the world.

What could possibly go wrong?

It’s almost worth getting cryogenically frozen just to see how comically bad this turns out.


Take advantage of this free insurance policy for your savings

Mon, 06/19/2017 - 10:00

This is the very first article I’m writing to you on the brand new Macbook Pro that I just purchased here in Hong Kong.

It’s the fully loaded version with 16GB of RAM, a 1 TB SSD hard drive, and 3.5 GHz i7 processor.

Given that I actually run Linux on may laptop and barely do anything outside of word processing a bit of programming, the purchase was probably overkill. But I got such a great deal it was hard to pass up.

You see, Hong Kong has some of the best prices in the world on just about EVERYTHING.

That’s because Hong Kong charges ZERO sales tax or VAT. And there’s no import duty charged on products shipped in from overseas.

Nearly everywhere else in the world you’re going to pay some sort of duty, excise tax, and/or sales tax.

In Hong Kong none of that exists. So shopping here basically means receiving a built-in 10% discount from not having to pay any of the taxes and duties.

That’s why anytime I have a high-ticket purchase coming up (like a laptop or new mobile phone), I almost invariably wait until I know I’ll be in Hong Kong on business.

And Hong Kong’s generous tax model doesn’t stop with shopping; the region also boats one of the most competitive corporate tax rates in the world (between 15% and 16.5%), and extremely favorable individual tax rates that cap out at 17%.

Hong Kong is also a “territorial” tax system, which means that the government does NOT any tax income which is earned abroad.

Plus there’s zero dividend tax, zero capital gains tax, and zero inheritance or estate taxes.

You’d think that a place with such a minimal tax burden would be flat broke. And yet the Hong Kong government is awash with cash.

A few months ago, in fact, the HK financial secretary announced a budget surplus of HKD $92.8 billion– around $11.9 billion US dollars.

Remember that Hong Kong is a tiny place with a small population– so USD $11.9 billion is a lot of money.

If you extrapolate that amount to the US population, it would be as if the US government announced an annual budget surplus of $500 BILLION.

(According to the Treasury Department’s financial statements, Uncle Sam’s actual budget performance last year was an operating LOSS of $1.05 TRILLION.)

Moreover, Hong Kong’s financial secretary announced that their total fiscal reserve was nearly HKD $1 trillion, around $120 billion USD.

That’s their rainy day fund– roughly USD $16,000 for every man, woman, and child in the region.

Again, adjusted for population, this would be the equivalent of the US government reporting a $5.4 trillion fiscal surplus.

(Meanwhile The US Treasury’s financial statements show the government has a NEGATIVE net worth of MINUS $19 trillion.)

These night-and-day differences continue with Hong Kong’s solvent pension fund which recently gave its recipients a raise.

In the US, the annual reports for Social Security and Medicare indicate that both programs are massively underfunded by more than $40 TRILLION and will be fully depleted in just over a decade.

Comically the one thing that Hong Kong routinely screws up with its budgets is their estimates; the government consistently UNDERESTIMATES how big the surplus will be.

Last year, for example, they projected the current year’s surplus would be H$ 11 billion. It ended up being HK$ 92 billion.

When was the last time you remember that happening ?

In the West most major western governments haven’t run a budget surplus in years… even DECADES.

Greece just got bailed out again; that country is going on nearly a decade of being in perpetual financial crisis.

And across the Atlantic the US government breached its debt ceiling several months ago and has had to resort to ‘extraordinary measures’ to keep from defaulting.

By their own calculations the federal government is set to completely run out of money in just three months.

The most shocking part about that is how little anyone seems to care. You’d think this would be front-page news every single day. And in Hong Kong it probably would be.

It’s as if everyone has become numb to America’s pitiful financial state and arrogantly believes things can persist like this forever.

Of course, it won’t last forever.

The West is about debt and consumption. Hong Kong (and much of Asia) is about savings and production.

It’s really not difficult to see where this leads over the long-term.

If you understand this trend, one option to consider is holding a portion of your savings in Hong Kong dollars.

On top of being an incredibly low-tax jurisdiction, Hong Kong also boasts one of the most well-capitalized central banks in the world (the Hong Kong Monetary Authority, or HKMA.)

Whereas in the US and Canada the central banks are nearly insolvent, HKMA has massive foreign reserves backing up its money supply.

In fact HKMA has far more foreign reserves than there are Hong Kong dollars in circulation. That’s almost unheard of.

This makes the Hong Kong dollar a much safer alternative to most other fiat currencies.

But since the Hong Kong dollar is currently pegged to the US dollar, there’s minimal currency fluctuation.

If the good times last forever and the US dollar stays strong (or even rises), the Hong Kong dollar will rise with it. You won’t be worse off.

But should the US dollar ever start heading towards its intrinsic value, HKMA can discontinue the peg.

It’s like having a free insurance policy for your savings— definitely something to consider.


The foreign business incentives in this country can help double your income.

Fri, 06/16/2017 - 05:20

Yesterday I spent all afternoon meeting with government officials here in the Philippines, and I’m still in shock. I’ll explain–

About a year and a half ago I purchased a fairly large manufacturing business that is oddly enough based in Australia.

It’s been a fantastic investment so far, primarily because it generates so much cashflow relative to the price I paid.

With big public companies listed on a major stock market, it’s not uncommon to pay 20x, 50x, even more than 100x a company’s annual profits.

For example, as I write to you early in the morning here in Manila right now, Amazon’s stock sells for 180x its annual profits.

In other words, if you were theoretically to acquire 100% of Amazon’s shares, at current levels it would take you 180 years to recoup your investment.

(This presumes you put all the profits in your pocket, but doesn’t account for the effects of dividend taxation.)

Obviously most investors expect Amazon to keep growing.

But even if Amazon’s earnings were to grow at an annual rate of 25% per year (which would be unprecedented), it would still take almost two decades to recoup your investment.

Private businesses, on the other hand, typically sell for extremely low multiples of their earnings, often as low as 3-4x.

You can see the difference in value pretty clearly: recoup your investment in 180 years (or even 20 years) versus 3 years.

Plus there’s often so much more opportunity for growth.

With a private business you can greatly influence the outcome and dramatically grow the company’s bottom line… something you’ll never be able to do investing in stocks.

And that brings to why I’m in Manila again.

Right now our company is manufacturing its products in Australia… which is crazy.

Australia is legendary for its high business costs, with a minimum wage that is about to exceed A$18/hour (around USD $13.50).

It’s not exactly a low-cost manufacturing hub.

Moreover, there’s endless taxation, paperwork, inspections, etc. that make it almost impossible to do business efficiently.

Plus it’s incredibly difficult to fire underperforming workers in Australia.

If you have an employee who’s lazy, milks the system, or even refuses to show up for work, it’s a time-consuming and expensive process to get rid of them.

Of course, the federal and local governments in Australia always tell us how much they support business and want to create manufacturing jobs…

… yet they’re constantly coming up with insane bureaucracy that has the opposite effect.

In fact, the biggest pro-business move the government has made in the last 18-months has been a tiny reduction in the corporate tax rate from 30% down to… wait for it… 27.5% !

So the CEO and I have spent the last several months shopping around other options, primarily in Asia.

And some places have really rolled out the red carpet.

Vietnam in particular offers a LOT of attractive incentives to foreign investors and entrepreneurs to relocate their companies there.

But, at least for our particular business, nowhere have the incentives been more alluring than here in the Philippines.

Yesterday the government laid out the package for us.

0% corporate profits tax. 0% Value-Added Tax. 0% duty on any equipment we import. 0% export tax. 0% local business tax.

In fact the only tax we’ll end up paying is some trivial payroll contribution that ends up being less than $40 per month per employee. It’s nothing.

(Clearly the low cost of labor here is also attractive. I could pay double the market wage here and it would still be 80% cheaper than what we pay in Australia.)

Based on these fiscal incentives, even if our business doesn’t increase its sales by a single penny, the labor and tax savings alone will DOUBLE our earnings.

I’d never be able to do that buying shares in Amazon. But with a private company, I’m able ot make some strategic decisions that have an enormous impact.

And honestly I haven’t seen a program this good since I established a company in Puerto Rico to take advantage of the island’s amazing 4% tax incentive.

I’ve also been shocked at how helpful and supportive these officials in the Philippines have been so far.

I’ve never had a government official hand me a card and say, “Call me at home anytime if you have questions.”

Well, last night my CEO and I were planning out the business strategy and we had questions.

So we called. And called again. And kept calling each time we had additional questions.

I was amazed simply that they answered the phone at home, after hours… let alone at the breadth and depth of knowledge on so many topics ranging from taxation to the legal environment to operations and logistics.

My biggest takeaway is that these guys really seem to understand that they have to compete in order to attract business.

Not just with words, but with actions.

Capital, talent, and business will always go where they are treated the best and where the conditions are the most favorable.

Most Western governments have totally forgotten this.

They keep passing their destructive rules and decrees, failing to realize that we’re not living under the Feudal System anymore.

We’re all free to pursue better opportunities anywhere else in the world, whether that means moving ourselves, our savings, our assets, and/or our businesses.

In some cases (like moving assets) you don’t even need to leave your living room.

The exciting thing is that there’s an increasing number of jurisdictions right now that are competing for you, including here in the Philippines, Puerto Rico, and many, many more.

And given the power of modern technology, taking advantage of these opportunities is easier than it’s ever been before in human history.


You won’t believe this stupid new law against Cash and Bitcoin

Wed, 06/14/2017 - 09:14

This one is almost too ridiculous to believe.

Recently a new bill was introduced on the floor of the US Senate entitled, pleasantly,

“Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017.”

You can probably already guess its contents.

Cash is evil.

Bitcoin is evil.

Now they’ve gone so far to include prepaid mobile phones, retail gift vouchers, or even electronic coupons. Evil, evil, and evil.

These people are certifiably insane.

Among the bill’s sweeping provisions, the government aims to greatly extend its authority to seize your assets through “Civil Asset Forfeiture”.

Civil Asset Forfeiture rules allow the government to take whatever they want from you, without a trial or any due process.

This new bill adds a laundry list of offenses for which they can legally seize your assets… all of which pertain to money laundering and other financial crimes.

Here’s the thing, though: they’ve also vastly expanded on the definition of such ‘financial crimes’, including failure to fill out a form if you happen to be transporting more than $10,000 worth of ‘monetary instruments’.

Have too much cash? You’d better tell the government.

If not, they’re authorizing themselves in this bill to seize not just the money you didn’t report, but ALL of your assets and bank accounts.

They even go so far as to specifically name “safety deposit boxes” among the various assets that they can seize if you don’t fill out the form.

(Yet another reason to consider storing cash, gold, and silver in an overseas safety deposit box.)

This is unbelievable on so many levels.

It’s crazy to begin with that these people are so consumed by the fact that someone has $10,000 in cash.

But it’s even crazier that they’re threatening to take EVERYTHING that you own merely for not filling out a piece of paper, without any due process whatsoever.

Oh, and on top of civil asset forfeiture penalties, there are also criminal penalties.

Right now according to current law they can imprison you for up to FIVE YEARS for not filling out the form. Five years.

But apparently that doesn’t go far enough to protect us against evil men in caves.

So this bill aims to double the criminal penalty to TEN years in prison.

And if that weren’t enough, this bill also gives them with new authority to engage in surveillance and wiretapping (including phone, email, etc.) if they have even a hint of suspicion that you might be transporting excess ‘monetary instruments’.

Usually wiretapping authority is reserved for major crimes like kidnapping, human trafficking, felony fraud, etc.

Now we can add cash to that list.

It’s not just government spy agencies to worry about, either.

Banks in the US are already unpaid government spies, required by law to fill out suspicious activity reports on their customers.

Then Congress started expanding those requirements to include other businesses and industries that might come into contact with cash.

Stock brokers. Casinos. Currency exchanges. Precious metals dealers. Pawnbrokers. The Post Office.

According to the law (section 5312 of US Code Title 31), those industries are also required to spy on their customers for the government.

But under this new bill, they want to forcibly recruit even more unpaid spies, including any business which issues or redeems ANYTHING that’s prepaid.

Prepaid credit cards. Prepaid phones. Prepaid retail gift cards. Prepaid coupons.

So,, which issues and redeems prepaid gift cards, will be required under this bill to file reports to the government.

For that matter, TGI Fridays and Chuckee Cheese will also become unpaid government spies since they both issue and redeem prepaid vouchers.

Truly these Senators have figured out how to strike at the heart of ISIS.

Further, their bill wants to pull any business which “issues” cryptocurrency under the anti-money laundering regulatory umbrella.

Here’s where these people demonstrate that they have no idea what they’re talking about.

No one “issues” Bitcoin. There’s no Bitcoin central bank. There’s no Chairman of Bitcoin who decides on a whim to increase the supply.

Bitcoin is created automatically amounts that are pre-determined by its code. It’s software.

So the Senate is essentially trying to force the Bitcoin core software to comply with money laundering regulations.

How pathetically clueless.

The bill also attempts to drop a major bomb on Bitcoin by including it in the list of monetary instruments that must be reported when entering or leaving the US.

So theoretically if you leave the US with more than $10,000 in Bitcoin or Ether, you’d have to confess this fact to the authorities or otherwise face the aforementioned penalties, i.e. prison time, civil asset forfeiture, etc.


As you can see, this bill criminalizes or delegitimizes the most mundane and harmless financial activities, all under the guise of keeping us safe.

Of course nothing in this bill is about keeping people safe.

ISIS couldn’t care less about forms and penalties.

This bill is nothing more than another weapon in their ongoing War on Cash… and now cryptocurrency too.


Banks are becoming less safe. Again.

Tue, 06/13/2017 - 09:15

What I’m about to tell you isn’t some wild conspiracy. Or fake news.

It’s raw fact, based on publicly available data from the US Federal Reserve.

This data shows a very simple but concerning trend: banks in the United States are becoming less safe. Again.

And they’re doing it on purpose. Again.

Few people ever give much thought to the safety and security of their bank.

After all, banks go out of their way to instill an overwhelming sense of confidence that they’re rock solid.

They spend tons of money on ornate lobbies in giant buildings. They buy the naming rights to football and baseball stadiums.

And hey, they’re insured by the government.

But it turns out that none of these elaborate distractions means anything when it comes to bank safety.

Safety is actually pretty easy to calculate.

Think about the business of banking– it’s simple. Banks take deposits, and then use that money to make loans and various investments.

For a bank, those deposits represent the amount of money they owe to their customers.

So obviously the total value of a bank’s loans and investments (i.e. its assets) should exceed its total deposits.

This is known as solvency. A solvent bank has SUBSTANTIALLY more assets than it owes in deposits.

That way, if a loan or investment goes bad, the bank will still be able to repay its depositors.

The other safety factor is liquidity, which basically means that, eventually the bank is going to have to give some of the money back.

Perhaps a depositor decides to initiate an electronic funds transfer to another bank… or makes a withdrawal at an ATM.

The bank should have sufficient cash on hand to be able to meet these needs.

Banks that lack proper liquidity can rapidly run into catastrophic problems, forcing them to fire sale assets in order to raise cash, which in turns could trigger a solvency crisis.

In both of these scenarios, solvency and liquidity, cash is king.

(Note that “cash” can mean both physical currency sitting in a vault, as well as a bank’s electronic deposits at Federal Reserve and other cash equivalents.)

For solvency, cash is about as risk-free as it gets.

Anything that a bank does with your money is going to carry some level of risk. Buying bonds. Car loans. Student loans. Business loans. Residential mortgages.

These all carry certain risk of default. Cash doesn’t.

So a bank with higher levels of cash will typically have much lower risk to its solvency.

Simultaneously, a bank with a strong cash position is also liquid, and hence more likely to be able to honor its customers’ transactional needs.

Bottom line, a safe, conservative bank maintains high levels of cash, especially relative to the total amount of deposits.

But that’s not happening in the Land of the Free.

The Federal Reserve’s most recent report on “Assets and Liabilities of Commercial Banks in the United States” published last Friday showed a continuing trend in the erosion of bank safety.

This is a weekly report, so there’s tons of data. And the trend goes back now at least 2.5 years.

Since late 2014, for example, Fed data show that total cash assets at US banks has been in steady decline, dropping roughly 25% over that period.

But at the same time, total deposits at the banks has actually increased around 15%.

So you can see the issue: cash is falling while deposits are increasing. This is the OPPOSITE of what a responsible bank should be doing.

A conservative bank seeks to INCREASE or at least MAINTAIN the level of cash it has on hand as a percentage of customer deposits.

Banks in the US have been doing the opposite– decreasing their cash holdings while deposits have been rising.

Proportionally, the aggregate cash-to-deposit ratio in the US has fallen by 32% since late 2014.

That’s a steep drop.

So what exactly have they been doing with that money, i.e. the money they should be holding in cash?

The truth is we’ll never know.

Banking is a giant black box. We are provided scant detail about what these people are actually doing with our money.

Sure, they’re making loans. But what loans? To whom? Are the borrowers creditworthy? Is there valuable, high-quality collateral? Does the interest rate make sense to compensate for the risk?

No one knows. Not even the banks themselves know.

When you have hundreds of billions (or even trillions) of dollars of assets on your books, it’s impossible to really know what you own.

So we’re basically all in the dark.

I’m not telling you this to suggest that there’s some major crisis looming or that you should yank all of your money out of the US banking system.

But it’s important to understand that banks are not as risk-free as they lead on.

This huge drop in the cash-to-deposit ratio is a conscious decision. It doesn’t happen by accident. Banks are choosing to hold less cash, i.e. be less safe.

(And the government which supposedly guarantees it all is itself insolvent to the tune of negative $60+ trillion. But that’s another story.)

Why take the chance? Why keep 100% of everything that you’ve ever earned locked up in a system that is actively making itself less safe…

… not to mention the industry’s uninterrupted history of fleecing its customers?

There are too many other alternatives out there.

You could consider transferring a portion of your savings overseas to a stronger, more conservative bank abroad.

Or you could become your own banker by holding some savings in physical cash in a safe at your home or a non-bank safety deposit box facility.

Cryptocurrency is an option (though you’ll have to stomach the extreme volatility for now).

Or even something as mundane as buying gift cards.

There are countless options to distance yourself from this system if you simply have the willingness to see the big picture.


Tim Price: “the UK today feels like a very strange, and disturbing, place”

Mon, 06/12/2017 - 14:31

[Editor’s note: This letter was written by Tim Price, frequent Sovereign Man contributor and manager of the VT Price Value Portfolio.]

If you have been voting for politicians who promise to give you goodies at someone else’s expense, then you have no right to complain when they take your money and give it to someone else, including themselves.

Economist Thomas Sowell

It is difficult to know where to begin.

In our election last week, 262 British parliamentary seats fell to a party led by Jeremy Corbyn, a self-confessed Socialist.

Corbyn has also publicly supported the IRA, Hizbollah and Hamas.

Yet his message attracted 12.9 million votes while the United Kingdom is under attack by terrorists. It simply beggars belief.

Sir Richard Dearlove, the former head of MI6, the British Secret Intelligence Service, points out that Corbyn, who seeks the office of Prime Minister, would not be cleared to join either his former agency, or GCHQ, or MI5 (the British equivalents of NSA/FBI).

It is said that you get the politicians you deserve. So what on earth did we do to deserve this?

Sadly we are not criticizing a single political party.

While Jeremy Corbyn offered the UK electorate the sort of swivel-eyed Trotskyism that ought to have died out in the 1970s along with flares and safari jackets, Theresa May has been making her own lurch towards the left.

So a plague on both your houses.

Our politics have gone mad, and our markets have gone mad with them. The plain numbers are stark.

Simon Mikhailovich of Tocqueville Bullion Reserve reminds us of those numbers with a sobering tweet:

A bit of math. With the global debt / GDP ratio at 320% and the cost of average debt service at 2%, it takes 6.4% growth per annum just to service the debt. Not happening.

The rise of Socialism will only create more of these financial challenges.

The only sensible and credible responses to the investment challenge of our times can be to diversify broadly, and then invest selectively, and defensively.

(Longstanding readers, along with our clients, will know that we put particular emphasis on Benjamin Graham-style value stocks, systematic trend-following funds, and gold.)

This is also a crisis of education.

How, aside from craven bribery, could so many young Britons flock to the sirens of socialism?

How did so many millions manage to avoid any grasp of history (or choose to ignore it)?

The millennials and Generation Z are right to be angry. They’ve been chewed up by the system.

But last week this anger manifested itself in the form of some socialist Corbyn supporters burning newspapers.

To anyone with a sense of history, the UK today feels like a very strange, and disturbing, place.


Record “Wealth” in America: 72% of US businesses are NOT profitable

Mon, 06/12/2017 - 14:09

The Federal Reserve in the United States just released a new report showing that “Total Household Wealth” in the United States has reached a record $94.8 trillion.

That’s an impressive figure.

Even more impressive is that Total Household Wealth has increased by $40 trillion since the lows of the Great Recession in 2009.

No doubt there’s probably a multitude of central bankers and bureaucrats toasting their success in having engineered such magnificent prosperity.

And it’s certainly an achievement worth celebrating. As long as you don’t look too closely at the data.

Total Household Wealth is exactly what it sounds like– the total net worth of every person in the United States, from Bill Gates down to the youngest newborn baby.

So when you add up all the 330+ million folks in the Land of the Free and tally up their combined net worth, the total is $94 trillion.

The thing is that the VAST majority of that wealth, especially the incredible growth over the last 8 years, has been from increases in just two asset classes: real estate and the stock market.

In fact, stocks and real estate alone account for roughly 2/3 of the wealth increase since 2009.

I’ll come back to that in a moment.

Now, simultaneously, we see plenty of other interesting data, also published by the Federal Reserve and US federal government.

Both the Fed and Census Bureau, for example, tell us that over 80% of businesses in the US are “nonemployer” companies, i.e. businesses which only employ one person (the owner), and often provide his/her primary source of income.

Yet according to the Federal Reserve, only 35% of these small businesses are profitable. Most are operating at a loss.

In other words, only 35% of the companies which make up 80% of American businesses are profitable.

You’re probably already doing the arithmetic– this means that a whopping 72% of all US businesses are NOT profitable.

That hardly sounds like record wealth to me.

Shifting gears, there’s the little factoid that an astounding 40% of young Americans are living with their parents– the highest percentage in the last 75 years.

And who can blame them considering student debt in the Land of the Free also hit a record $1.4 trillion three months ago, more than double the amount since the Great Recession.

Speaking of record debt, US credit card debt passed a record $1 trillion, and total US consumer credit hit a record $3.8 trillion last month.

Again, all of this hardly seems like ‘wealth’ to me.

Then there’s the issue of wages, which have remained essentially flat since the 2009 Great Recession if you adjust for inflation.

According to the US Department of Labor, inflation-adjusted wages, aka “real hourly compensation” in the US fell an annualized 0.9% last quarter, and fell a dismal 5.6% in the previous quarter.

Adjusted for inflation, the average American isn’t making any more money.

Once again, this is a pitiful excuse for ‘wealth.’

American businesses aren’t more productive either.

The same Labor Department report shows that productivity in the Land of the Free was flat in the first quarter of this year.

And productivity actually declined in 2016– something that hasn’t happened in at least the last 50 years.

Not to mention total economic growth in the Land of the Free has been pretty pitiful, logging a pathetic 1.6% last year.

And GDP growth in the first quarter of 2017 was just 1.2% on an annualized basis.

The US economy has exceed hasn’t surpassed 3% growth in more than 10-years, and it’s only happen two times so far in this millennium.

Seriously? This is “wealth”?

Look, I get it. Houses are ‘worth’ more than they used to be, and the stock market is much higher.

But these effects are heavily influenced by the trillions of dollars that was conjured out of thin air by the Federal Reserve.

ExxonMobil may be the most telling example.

In early September 2008, just prior to the financial crisis, Exxon had recently reported revenues of $72 billion, with $11.1 billion in net operating cashflow.

For the first quarter of 2017 the company reported revenues of $61 billion and net operating cashflow of $8 billion.

Plus, ExxonMobil managed to add nearly $20 billion in debt to its balance sheet over that same period.

So over 8-years, Exxon is making less money and has more debt. Yet its stock price is actually HIGHER.

More broadly, 66% of the largest companies in the US that have given estimates of their earnings for next quarter have issued “negative guidance”.

Companies expect to make less money. But stocks are near all-time highs.

Does this make any sense? Is that also wealth?


This is nothing more than the result of paper money that has been created by central bankers, allocated to a tiny financial elite, and dumped into the stock market.

It’s the same with real estate. Sure, prices are higher. But it’s not because of fundamentals.

In terms of population, there’s only been a 7% increase in the number of households in the United States since 2009.

There’s been a commensurate increase in the supply of homes as well.

So in terms of supply/demand fundamentals, the average price nationwide shouldn’t be that much higher.

But take a look at this chart, courtesy of the Federal Reserve.

The red line shows interest rates, which have been generally falling since 1990. The blue line shows home prices, which have been rising like crazy since 2012.

It doesn’t take a rocket scientist to spot the correlation: record low interest rates mean higher home prices.

This isn’t wealth.

It’s just phony paper.

And as the Great Recession showed in late 2008, phony paper wealth can go ‘poof’ in an instant.

With that in mind, it may be time to consider taking some of that paper wealth off the table and setting it aside for a rainy day.


This is how a “bail-out” becomes a “bail-in”

Thu, 06/08/2017 - 13:50

Here’s the perfect example of how insane our financial system has become.

It was announced yesterday that, after a 24-hour white-knuckled ride, Spanish banking giant Banco Popular had been sold to Banco Santander for the price of just 1 euro.

Note- that’s 1 euro in TOTAL. Not 1 euro per share.

Banco Popular had once been one of Spain’s largest banks.

But just as certain banks tend to do from time to time, Popular sacrificed responsibility and good conduct for quick profits.

They spent years gambling their depositors’ savings away on idiotic, dangerous, pitiful loans. And those bad loans eventually came back to bite them.

The modern business of banking is all about pooling customer deposits together and making various loans and investments with those funds.

Safe, responsible banks make sensible investments.

They maintain extremely high loan standards. And they keep a SUBSTANTIAL rainy day fund set aside in case those loans and investments go bad.

Banco Popular did none of those things.

Back in 2006 during the height of the real estate bubble, for example, Popular maintained a liquidity ratio of less than 2% according to its annual report that year.

This means that over 98% of its customers’ savings had been gambled away on bad loans and bad speculations.

Eventually those risky loans started failing, and the bank started losing money.

Last year alone Popular lost 3.5 billion euros, which is about as much as they earned in all of the bubble years combined.

Fearing for the banks ability to continue servicing its customers, European regulators stepped in on Tuesday and forced a fire sale.

Banco Santander “won” that auction, again, paying a symbolic price of just 1 euro.

This means that Banco Santander will now inherit all the toxic loans (and consequent losses) that Popular had on its books.

The insanity here is that Santander had almost no time to conduct its due diligence, i.e. research the business to understand what they were buying.

Banco Popular had a balance sheet worth over $150 billion with hundreds of thousands of different loans.

It would take months to even begin scratching the surface of such a massive balance sheet.

By comparison, the last time I bought a business I paid $6 million and spent more than a year conducting due diligence.

Santander bought a $150 billion business and spent less than 24 hours trying to understand what they were buying.

This is nuts. And ENORMOUSLY risky for Santander.

But perhaps even more insane is that this deal is now being hailed by European governments and financial media as a wonderful solution to the looming problem of bank insolvency.

It doesn’t take a rocket scientist to understand that this problem wasn’t really solved.

It was just transferred from one bank to another. The assets are still toxic. They just happen to be owned by Santander now.

Most importantly, Banco Popular is FAR from alone.

Here in Italy, in fact, a number of smaller banks are teetering on insolvency.

And regulators have been scrambling trying to find potential suitors to copy this shotgun wedding ‘solution’.

But so far, no success.

Not a single bank in Italy has sufficient capital to absorb the toxic debts of another.

Plus the government itself is totally bankrupt.

So basically an insolvent government and insolvent large banks are trying to figure out how to bail out insolvent smaller banks.

It’s total madness.

And this is the important lesson: eventually they run out of options.

There’s no one left to bail out a bad bank… no taxpayers, no white knight, no bondholders, no shareholders. Nobody.

Except for depositors.

This is when a “bail out” becomes a “bail in”, and the depositors get stuck with the bill.

Bottom line: This matters. It’s your money at stake.

Don’t simply assume that your bank is in good condition. Examine their financial statements and find out for sure.

Don’t keep 100% of your life’s savings at a single institution. Make sure you diversify. If a bail-in ever occurs, it will be the largest depositors who get hit first.

And definitely consider diversifying geographically. Avoid keeping everything in the same country, especially if that country is bankrupt– the bail-in risk is much higher.

The world is a big place and there’s a ton of opportunity out there, including plenty of responsible, conservative places to bank.

And it’s hard to imagine you’ll be worse off because a portion of your savings is in a safe, well-capitalized bank.


Clint Eastwood’s advice on Bitcoin speculation

Tue, 06/06/2017 - 12:05

In 1559 while on a trip to southern Bavaria, Swiss scientist Conrad Gesner spied a curious flower in the garden of a diplomat in Augsburg.

The flower was called a tulip, derived from the Persian word dulband, meaning “turban,” which described its conspicuous shape.

Gesner was intrigued.

He asked the man who owned the flower about its origins and determined that it came from Constantinople in the Ottoman Empire, modern-day Istanbul.

Soon the tulip began spreading across Western Europe.

It was rare, something that only the very wealthy could afford to import directly from Constantinople.

By the early 1600s the rage had caught on to the upper middle class, especially in the advanced economy of Amsterdam and the Dutch Republic.

As demand grew, the price of tulips kept climbing, and soon people started buying up the flowers as a speculation.

In time no one was actually buying tulips anymore to keep them as a personal luxury item like they had done in the past.

Tulips had become nothing more than a speculation– people would buy, hold for a short while, and then sell at a much higher price.

This is the first classic sign of a bubble.

Whenever people starting buying up some item or asset exclusively because they expect to sell it quickly after a rapid price increase, and not for the asset or item’s originally intended purpose, you can be certain that you are in a bubble.

It was the same with the housing bubble back in the early 2000s.

No one was buying houses anymore to live in them, or even to rent them out for other people to live in.

After all, that’s the intended purpose of residential real estate.

No, instead, everyone was buying houses with the sole intention of selling them off in a short while after a rapid price increase.

Presto. Bubble.

The thing about Tulip Mania is that it continued for years, defying any possible logic or reason.

The price history of tulips is shocking, though a bit opaque; no two tulips were the same, so one species of tulip was priced totally differently than another.

Some were more moderately priced. Others were insanely expensive, with famous stories of a single bulb costing as much as a house.

In Charles Mackay’s great book Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, there’s a story of a single bulb of the Semper Augustus species being sold in 1636 for 12 acres of land.

Another was bought for a new carriage, two horses, AND 4600 florins (worth over $160,000 today based on the content of precious metals in the florin at the time).

[Bear in mind that the average house in Holland rented for about 55 florins in the mid 1630s.]

And that wasn’t even the top of the market.

A 1989 academic study published in the Journal of Political Economy, shows, for example, that the Semper Augustus species reached its peak at 5500 florins (roughly $193,000) in 1637.

That’s up from 1,000 florins ($35,000) in 1623, which is still insane.

But Semper Augustus was THE premium bulb. The lower quality species didn’t sell for as high a price, but the price growth far more ridiculous.

A standardized lot of Gouda species, for example, sold for about 1.5 guilders in early 1635. Two years later the price was nearly 10x higher.

Even in the final weeks of the bubble, prices were still soaring.

A standardized lot of Admirael van der Eyck increased more than 3x just between July 1636 and February 1637.

This was right around the time that retail speculators jumped into the market.

Until 1634 the tulip market was dominated by professional growers who had a good understanding of the business.

After 1634, though, people were quitting their jobs to trade tulips full-time.

A lot of them started making unimaginable sums of money, crediting their newfound wealth to intelligence rather than dumb luck.

This is another classic sign of a bubble: when the average Joe starts making tons of money in a market (and often credits that fortune to his smarts).

I’m telling you all of this because Bitcoin just crossed the $2,800 threshold. Actually as I write this Bitcoin just passed $2,900. And by the time you receive this it may be north of $3,000.

Look, I am no detractor of cryptocurrency. Blockchain and cryptofinance are incredibly powerful tools. They are the future.

One day when people actually adopt cryptocurrency as a medium of exchange, there will be real fundamentals underpinning the price.

But right now this is just pure speculation showing all the classic signs of a bubble.

No one is buying Bitcoin for its originally intended purposes, i.e. to be a decentralized medium of exchange.

People are buying because they’re betting that the price will go up. Just like tulips.

But eventually tulip prices collapsed.

The lot of Witte Croonen species that sold for 1,668 guilders in 1637, for example, was worth just 37.5 in 1642, a decline of 97.7%.

Moreover just like tulips, there are countless ‘non-technical’ users who couldn’t tell the difference between Blockchain and Blockbuster that have made tons of money… and think they’re really smart (as opposed to lucky).

This mania with Bitcoin could last for years. It could go to $10,000 or more. Who knows. We don’t know if it’s 1622 or 1632 or 1637.

So if you’re thinking about speculating in Bitcoin right now, there’s only one question to ask yourself:

“Do I feel lucky?”


One more tremendous benefit to studying abroad

Mon, 06/05/2017 - 12:00

It’s that time of year again.

Countless high school students across the northern hemisphere are ceremoniously gliding their tassels from one side of their caps to the other and accepting a rolled-up piece of paper to commemorate the past four years of their lives.

Many of them will be thrust off to university in a few short months, where, at least in the Land of the Free, they’ll be loaded down with tens of thousands of dollars in student debt.

This strikes me as an incredibly cruel (and unnecessary) burden to place on a young person.

For whatever reason, modern society still highly values a university degree, even though they’re ubiquitous.

In 1940, only 4.5% of the US population had a Bachelor’s degree. It was truly something special.

By 2016 that number had risen to 40%. And a full 59% of Americans have at least -some- college.

It’s not special anymore. Having a university degree is now average… no more of a professional differentiator than knowing how to type or use Microsoft Office.

(It wasn’t that long ago when those were actually special skills worthy of highlighting on a resume.)

So it seems crazy to go so deeply into debt simply to stay average.

I’ve written before that anyone who insists on obtaining a university degree ought to consider looking abroad. The benefits are innumerable.

First of all it’s a huge differentiator. If everyone else you’re competing with went to XYZ State University, and you studied in Switzerland, you’ll immediately stand out.

Second, the personal growth and development that come from living abroad is extraordinary, especially during a young person’s impressionable years.

At a minimum you’ll likely have a great chance to learn a foreign language and build a valuable global network, both of which are unique differentiators.

Then there’s the low cost, which is one of the biggest benefits of all.

Over the last 40 years, average tuition costs at US private universities rose 213%. Public, four-year institutions fared worse – a 271% rise.

It’s no wonder that the average student loan debt is approaching $40,000.

Including living costs and incidental expenses, four years can easily run over $100,000.

Candidly, most teenagers might not be sophisticated enough to make a $100,000 decision. So bringing the cost down is imperative.

There are plenty of countries overseas where you can study at a top-tier university for a fraction of the cost back home.

A few months ago my research team conducted a comprehensive analysis of universities worldwide and ranked dozens of jurisdictions based on price and quality.

For example, tuition is free in Venezuela, but you’re not exactly going to receive a globally competitive education (especially now that they can no longer afford toilet paper).

Meanwhile Hong Kong boasts a number of top-ranked universities, but the price is extremely affordable. That jurisdiction ranked #1 in our review for quality vs. price.

My team gave top marks to the UK, Switzerland, Singapore, Norway, Germany, and Israel.

But recently we’ve taken our analysis deeper.

You see, one of the other great benefits about studying abroad is that it’s a great way to obtain foreign RESIDENCY, and perhaps even a second passport.

This is a major component in what I call a Plan B.

Foreign residency ensures that, no matter what happens (or doesn’t happen) in your home country, there will always be somewhere else where you and your family are welcome to live, study, work, invest, and do business.

Plus, most countries have rules that allow legal residents to apply for citizenship and a passport after a certain number of years.

This takes the benefits even further.

With a second passport, not only do you have another country (or multiple countries) to call home, but you’ll be able to travel the world with greater ease, do business in more places with fewer restrictions, and pass on all these great benefits to your children and grandchildren.

It all starts with residency. And in many countries, obtaining a student visa is a great way to get started.

Studying abroad in each of those countries I already mentioned, in fact, can lead to permanent residency and potentially even second citizenship…

… while at the same time you’ll receive a highly competitive, top-quality education without the mountain of student debt.

Oh, and for parents who have been diligently saving for your children’s education, you can even use your 529 college savings plan at some of these overseas institutions.

[Note to Sovereign Man: Confidential members– our updated analysis will hit your inbox later today.]

Think about it– the entire point of going to university is to prepare for the future.

What better way to do that than by knocking out one of the most important components in your Plan B?


Uber burned through almost as much money as NASA last quarter

Thu, 06/01/2017 - 12:43

Uber reported yesterday that its NET LOSS totaled more than $700 million last quarter, despite pulling in a whopping $3.4 billion in revenue.

(This means they spent at least $4.1 billion!)

That’s the latest in a string of massive, 9-figure quarterly losses for the company.

The only question I have is– how much cocaine are these people buying?

Seriously, it’s REALLY HARD to spend so many billions of dollars.

You could have over 100,000 employees (-real- employees, not Uber drivers) and pay them $150,000 EACH and still not blow through that much money in a single quarter.

Even if you think about Research & Development, Uber still managed to burn through almost as much cash as NASA’s $4.8 billion budget last quarter.

The real irony is that this company is worth $70 BILLION.

And Uber is far from alone.

Netflix is also worth $70 billion; and like Uber, they can’t make money.

Over the last twelve months Netflix burned through over $1.7 billion in cash, and they made up for it by going deeper into debt.

The list goes on and on– Snapchat debuted with a $30 billion valuation after its IPO, only to subsequently report that they had lost $2.2 billion in the previous quarter.

Telecom company Sprint is still somehow worth more than $30 billion despite having over $40 billion in debt and burning through more than $6 billion over the last three years.

And then there’s Twitter, a rudderless, profitless company that is still worth over $13 billion.

This is pure insanity.

If companies that burn through obscene piles of cash and have no clear path to profitability are worth tens of billions of dollars, it seems like any business that’s cashflow positive should be worth TRILLIONS.

None of this makes any sense, and investing in this environment is nothing more than gambling.

Sure, it’s always possible these companies’ stock prices increase even more.

Maybe Netflix and Twitter quadruple despite continuing losses and debt accumulation. Maybe Bitcoin surges to $50,000 next month.

And maybe the Dallas Cowboys finally offer me the starting quarterback position next season.

Hey, anything could happen.

Call me old-fashioned, but I focus heavily on risk.

Remember Rule #1 in investing: don’t lose money. Rule #2? See rule #1.

It’s hard to abide by rules #1 and #2 if you buy expensive, popular investments that lose tons of money and don’t have a strategy to turn a profit.

There’s risk in EVERY investment. There’s risk in buying Apple stock. There’s risk in buying government bonds.

There’s risk in holding your money in a bank. There’s risk in stuffing cash under your mattress. There’s risk in doing nothing at all.

The idea is to invest where risk is low, while the potential for return is still high.

One of the best ways to do that is to patiently buy high quality assets for a deep discount.

Buying anything at a discount makes sense to anyone. People like discount clothes, discount cars, discount airfare.

Even in certain investments like real estate, investors look for bargains… like picking up a great home in a great neighborhood at a discount price because of the seller’s divorce or financial hardship.

But with stocks, this bias towards discounts tends to go out the window.

Granted, it’s a lot harder to find discount stocks these days given that just about EVERYTHING is in a bubble.

But if you have the right knowledge and you’re willing to put in the hard work and long hours, you’ll find hidden gems.

Here’s a great example:

My colleague Tim Staermose recently came across a large company based in Hong Kong that he just recommended to readers of his 4th Pillar investment newsletter.

First are foremost, the company is profitable. It has a 13-year history of profitability and a lengthy track record of paying dividends to its shareholders.

Most importantly, the company is deeply undervalued.

Just like buying a great house for less than its market value or construction cost, the company’s stock is selling for a steep discount below what its assets are worth.

To give you an idea, the market value of the entire company currently 25% LESS than the amount of net CASH they have in the bank.

It’s like buying $1 and paying just 75 cents.

And that doesn’t even begin to include all the other high quality assets the company owns, or the fact that they’re consistently profitable and pay dividends.

(4th Pillar subscribers: Remember that the next dividend will be paid to everyone who is a shareholder by Friday June 2nd. So act quickly if you want that dividend.)

Just as assets can sometimes be absurdly overvalued, it’s also possible for assets to be astonishingly undervalued.

This means that there’s an obvious catalyst for growth.

If the market does nothing else but bid up the stock price so that it’s back in line with its cash value, that’s good for a 25% return.

(This is why Tim’s recommendations of deeply discounted companies routinely earns his subscribers 90% or more.)

Most importantly, though, when you’re buying a profitable company for less than the amount of cash they have in the bank, it’s pretty hard to get hurt.

In other words, the risk is much lower.

And I’d much rather make a 25% return without a ton of risk than gamble on the stock price of a profitless company.


The real reason to own Bitcoin

Wed, 05/31/2017 - 11:58

In 1483, just as Johannes Gutenberg’s new moveable type printing press was spreading across Europe, Sultan Bayezid II of the Ottoman Empire issued a staunch decree banning the machine from his realm.

At the time the Ottoman Empire was the dominant superpower in the world, having conquered most of the Middle East, North Africa, and southeastern Europe.

But Bayezid was afraid of the new technology.

He and his advisors felt that the printing press would too easily allow information and new ideas to spread across his empire.

And they believed this would threaten their control and offend the religious establishment.

So not only did Bayezid ban the printing press, he imposed the death penalty upon anyone caught using one.

The Ottoman Empire remained so closed off to new ideas, in fact, that the only western book to be imported and translated for the next 3 centuries was a medical text on the treatment of syphilis.

Needless to say the Ottoman Empire did not remain the world’s dominant superpower for long.

It was during this period that Europe underwent radical growth.

Just a few centuries before, most of Europe was nothing more than a plague-infested backwater of irrelevant kingdoms.

But by the mid-1600s, Europe had surged ahead, in part due to the rapid spread of knowledge made possible by the printing press.

It was the Internet of its time.

And scientists like Isaac Newton would never have been able to ‘stand on the shoulders of giants’ had it not been for that disruptive, revolutionary technology.

Western civilization as a whole owes much of its prosperity to the printing press, which enabled the sharing of information and ideas.

And the example shows how embracing new technology can make an enormous difference in the development of a society.

Today most western governments probably still feel that they are embracers of technology who encourage innovation.

But this is nothing more than a crude fantasy, especially when it comes to one of the most disruptive technologies of our modern time: cryptocurrency.

Cryptocurrency is today’s printing press– a truly game-changing technology that the ruling elite sees as a threat to their control.

This is why there have been so many ridiculous rules and tax policies that disincentivize cryptocurrency ownership– the technology is too disruptive.

Banks have enjoyed unparalleled power and influence for eight centuries, going all the way back to the Medici rule in the early Italian renaissance.

Bankers controlled the money, and were consequently able to control governments, laws, and even wars.

In the fight against Napoleon in the early 1800s, for example, the fate of the British war effort was not in the hands of the generals and admirals, but in the hands of the Rothchild banking family that financed them.

In the early 1900s, it was JP Morgan who engineered a revolution in Panama and imposed a puppet government so that his bank could finance the lucrative canal project.

And just a decade ago the heads of the top Wall Street banks cajoled the entire US government into a trillion-dollar taxpayer-funded bailout.

The only reason banks enjoy such immense power is because they control the money.

But if you think about it, banks are nothing more than middlemen, taking money from depositors and loaning it out to borrowers.

In fact the old joke in banking was the famous 3-6-3 rule: pay 3% on deposits, loan money at 6%, be on the golf course by 3pm.

Cryptocurrency disrupts this absurd middleman monopoly.

Think about it: when you send money to someone, those funds move from your bank, to the central bank, to another bank, and then finally to the recipient’s account.

This is the same way that money used to be transferred 800 years ago…

… which seems almost tragically anachronistic given that we have apps today to send funds directly to a recipient’s mobile phone or email address.

Who needs a middleman anymore?

Why should anyone borrow money from a bank when there are so many Peer-to-Peer and crowdfunding platforms available?

Why pay exorbitant fees and commissions to exchange currency when there numerous websites that exchange money at almost no cost?

Banks as financial intermediaries are about as quaint as taxi dispatchers in the age of Uber.

Cryptocurrency and Blockchain technology are the final nails in the coffin, making it possible to hold your savings in the cloud rather than at a bank.

And if that seems too esoteric, consider that your savings is already ‘digital currency’.

Banks don’t keep bricks of physical cash in their vaults; your bank balance is nothing more than an accounting entry in your bank’s electronic database.

It just happens to be 100% controlled by your bank.

They can gamble your savings away on some idiotic investment fad, charge you ridiculous fees without your consent, and even freeze you out of your own account (‘for your own security’) or deny you the right to withdraw funds.

Cryptocurrency de-centralizes this system. You become your own banker. No more middleman.

THIS is the principal reason to own cryptocurrency.

It’s not about price speculation. Too many people are buying Bitcoin, Ethereum, etc. to gamble on the price.

This totally misses the point.

The idea isn’t to trade paper money for Bitcoin, hoping to trade that Bitcoin back for more paper money later. It’s the same with gold and silver.

There are far less volatile ways to make money and enjoy a great risk-adjusted return.

Cryptocurrency is about divorcing yourself from an anachronistic financial system that has never missed an opportunity to abuse you.

And that makes it worth understanding.

This is especially true if you’re naturally skeptical of the idea or have already passed judgment on Bitcoin as a ‘scam’ without having learned about it first.

Cryptocurrency is the future of finance. And just as embracing new technology can be prosperous for societies, it can also be prosperous for individuals.

Note- I’m not suggesting you buy Bitcoin at $2,000+. Far from it. We’ll talk about that soon.


Read this before following Warren Buffet’s investment advice

Mon, 05/29/2017 - 12:41

Not too long ago I received an email offering the luxury trip of a lifetime to Iceland.

It was a package tour… and super impressive.

We would have our own private helicopters taking us all over the island for seven days. There was horseback riding, dune buggies, even racing Ferarri and Lamborghini supercars across a frozen lake.

Then I saw the price: $150,000.

I looked again thinking I had made a mistake. Sadly the number didn’t change. I looked a third time to make sure the price was in US dollars.

It was.

My immediate reaction was totally predictable. “That’s f*ing insane!” And I could prove it.

I’ve been to Iceland a few times. Beautiful country.

And when I was there I rented my own private helicopter to fly all over the island and go wherever I wanted.

(At one point when I was there in 2013 my pilot and I buzzed the location where they were shooting a ‘north of the wall’ scene from Game of Thrones.)

That was around $2,000 per day. Based on this package, it seemed they were charging around $10,000 per day.

I’ve also done the supercar race, which also runs a few thousand dollars.

And while Reykjavik is a pretty expensive place to visit, staying at the nicest hotel in the city and eating at the best restaurants wouldn’t run more than $1,500 per day, even if you were spending like a drunken sailor, i.e. irresponsible politician.

So you can see my point– the math didn’t add up.

I figured they could have offered all that stuff for $50,000. So the trip was at least $100,000 overpriced by my calculation.

On top of that, there were a number of activities that I knew I wouldn’t like, like the dune buggies.

But if I had signed up for the tour, I would have been paying for that stuff regardless. Overpaying, as it were.

Needless to say I declined.

I grew up lower-middle class. And while we never missed a meal at home, my parents constantly struggled to pay the bills.

That sense of value for money has stuck with me for decades no matter what level of success I’ve been able to achieve.

Travel is a great example. Of course I like to travel in style. But I’m always looking for a great deal.

I just bought a new Round-the-World trip, which is one of THE most cost effective ways to travel in business and first class.

When selecting a hotel, I’ll always shop around, comparing prices of different hotels, and even prices of the same hotel on different websites.

And if I’m going on vacation (which is basically never), I’ll pick and choose the activities that I want instead of pre-paying for things that I’ll skip.

This isn’t rocket science. Most people naturally do the same thing. We’re always shopping for a great deal.

Except when it comes to investing.

Conventional investment wisdom says to put your money in a low-cost index fund, like Vanguard’s S&P 500 fund.

The idea is to gain exposure to large companies that will do well over time, while also achieving instant diversification across hundreds of businesses.

Nice idea.

But in practice, index investing has now become the equivalent of the overpriced travel package.

If you break down the travel package into its constituent components, i.e. helicopter tour, supercar racing, etc., it’s easy to see how expensive each individual piece is.

Similarly, if you break down the stock index into its constituent components, you can begin to see how expensive the individual companies are.

Most investors are completely unaware, for example, of the risks they’re taking by buying the companies that comprise the index at valuations up to 200x or more…

… or that 50% of the index value is just 50 companies (so much for diversification!)

… or that roughly 50% of the index’s 2017 returns come from just FIVE companies: Google, Facebook, Amazon, Microsoft, and Apple…

… or that a full 50% of the companies in the S&P 500 index, i.e. the ‘bottom’ 250 companies, have negative returns.

Like an overpriced travel package full of activities that you would probably skip anyhow, these are companies that you would probably never buy.

But, hey, they’re part of the package, so you’ve already pre-paid for all of them, again, at record high prices.

Sometimes travel packages can make sense– if each activity is the right fit, and the individual components are priced appropriately.

And sometimes index investing can make sense as well, especially if the component companies are great businesses whose shares are reasonably priced.

But few people ever look.

The almost universal investment recommendation is to blindly buy the index, irrespective of its price or value.

You wouldn’t travel this way. You wouldn’t even buy groceries this way.

Chances are you’d probably do research. Read reviews. Look for discounts.

In my case, I’m willing to pay a travel agent who has access to better prices, or hire a local expert on the ground if I’m going somewhere unfamiliar.

Investing shouldn’t be any different.

Warren Buffet has been a particularly notable champion of index investing, telling individual investors at almost every opportunity to buy a low-cost index fund.

But Buffet himself wouldn’t do this.

With his own money, Buffet picks his own investments, carefully selecting each stock based on his own research and analysis.

That’s because he has the sophistication and expertise to do this.

But Buffet also knows that the average person probably isn’t going to lift a finger to improve his/her financial literacy even though the benefits are so obvious.

(Perhaps that’s what keeps them average.)

So the standard advice remains: buy an overpriced package at its all-time high.

In truth the world is full of incredible opportunities, and most of them are not neatly organized in some popular, expensive package.

But they’re readily accessible to anyone. As I often write, you simply need the right education, and the will to act.


… and now for the bad news

Fri, 05/26/2017 - 12:23

In the late 1760s and early 1770s, the government of France was in a deep panic.

They had recently suffered a disastrous and costly defeat in the Seven Years War, and the national budget was a complete mess.

France had spent most of the previous century as the world’s dominant superpower, and the government budget reflected that status.

From public hospitals to shiny monuments and museums, social programs and public works projects, overseas colonies and a huge military, France had created an enormous cost structure for itself.

Eventually the costs of maintaining the empire vastly exceeded their tax revenue.

And by the late 1760s, France hadn’t had a balanced budget in decades.

Debt was ballooning, interest payments were rising, and the government of Louis XV was desperate to do something about it.

There’s a famous story in which the Comptroller-General of Finances summoned all the government ministers to make deep budget cuts.

But no one could come up with anything substantial.

The overseas colonies were too important to cut.

And they couldn’t cut public hospitals… because too many people were now relying on them. Similarly they couldn’t cut veteran pensions either.

At the end of the session they could hardly find anything to cut that would make a meaningful difference.

All of their fancy programs and benefits had become too ingrained in society at that point; and any cut would have proven politically disastrous.

I thought of this story earlier this week when the US government released a sweeping budget proposal that aims to cut the deficit over the next ten years.

In fairness I’m always happy to see any government cutting spending.

But before uncorking the champagne bottles it’s important to understand some basic realities:

The budget slashes $3.6 trillion in spending through 2028 while proposing zero cuts to Defense, Social Security, and Medicare.

And that’s the entire point: just between those three programs, plus paying interest on the debt, the US government already spends MORE than it collects in tax revenue.

In 2016, for example, the government spent $2.87 trillion on Defense, Social Security, and Medicare, plus an additional $433 billion paying interest on the debt.

That totals over $3.3 trillion, which is more than they collected in tax revenue.

In other words, they could cut EVERYTHING ELSE in government: Homeland Security, national parks, funding for the arts, the Department of Energy. Everything.

And there would still be a budget deficit.

This is the most important thing to understand about US federal government spending: the built-in costs are so extreme that they can’t possibly make ends meet.

And the problem becomes worse each year.

Every single day, thousands of Baby Boomers join the ranks of Social Security and Medicare, which only adds to those programs’ costs.

This isn’t some black magic prediction; the Social Security office has precise data on how many people were born in 1952, 1953, 1954, etc.

So they know with a high degree of certainty how many people will be receiving benefits this year, next year, and the year after that.

The numbers just keep going up.

Point is, if they don’t cut Social Security and Medicare, nothing else in the budget really matters.

All of the cuts they’re proposing are financially trivial… it’s like showing up to the hospital with stage 3 prostate cancer and asking to get a cavity filled.

The more they delay the difficult choices, the greater the destruction becomes.

Spending will continue to exceed tax revenue, which means the debt will continue to rise (and interest payments continue to increase).

This cycle never ends.

The big, giant hope right now is that they’ll be able to engineer gravity-defying economic growth, which should theoretically increase tax revenue.

Again, this is a nice idea.

But their projections are extremely unlikely.

Looking back over the last 30-years, the average annual increase in real GDP per capita is just 1.5%.

The government’s new proposal is based on the US consistently achieving 3% growth year after year after year.

Even during the roaring 90s there were only three times in which that figure was over 3%.

So this is extremely unlikely.

But even if by some miracle the economy grows consistently by 3%, it still doesn’t address the government’s $46+ trillion problem with Social Security and Medicare.

Right now based on their own calculations, both programs are going to run out of money in a little more than a decade.

And they estimate the long-term costs of the program exceed revenue by more than $46 trillion.

(To see for yourself, refer to page 61 from the government’s own financial statements, available here. Note how the estimates get worse each year.)

Look, it’s nice to be optimistic and hope for the best. And any attempt to cut the deficit is certainly better than adding to it.

But it’s dangerous (and foolish) to presume that everything is going to work out OK just because some rosy projection says so.

The best-case scenario is that they buy themselves a little bit of time.

But the most likely result is still the same: default.

The US government has $20+ trillion in obligations to its creditors, and tens of trillions more in obligations to its citizens.

Simply put, the government has too many obligations. And their only way out is to walk away from some of them.

This means default.

Given that the US dollar and US government debt underpin the global financial system, defaulting on their creditors would likely cause a worldwide panic that would make the 2008 crisis look like an afternoon picnic.

Meanwhile, defaulting on their obligations to citizens entails deep cuts to… you guessed it… Social Security and Medicare.

The younger you are, the more you can forget about counting on these programs as you grow older.

So it’s time to start taking matters into your own hands and thinking through your own Plan B.


And the best performing stock market in the world is. . .

Thu, 05/25/2017 - 13:02

Pop quiz: What country has the world’s best performing stock market?

It’s not the United States. Or Canada. Or China.

The answer is Venezuela, whose primary stock market index over the last year is up nearly SEVEN FOLD, from 11,700 last summer to a record 72,700 today.

It’s amazing that a country where people are literally starving because there’s very little food available is seeing record stock market performance.

At face value it would seem that anyone who had invested in Venezuela stocks is an absolute genius and swimming in money right now.

But remember that Venezuelan stocks are denominated in local currency.

Officially the Bolivar’s exchange rate with the US dollar is around 10:1. But due to the country’s hyperinflation, the black market rate is closer to 6,000:1.

And that black market rate is also up nearly 7-fold over the last year.

So anyone who had purchased Venezuelan stocks last summer might be up hundreds of percent if you measure performance in bolivares.

But in US dollars you’d actually be down a bit.

This is one of the hallmarks of inflation; it’s not just retail prices that increase. Asset prices rise as well.

But it’s not real wealth.

Think about it– if the value of your home increases by 2% per year, and inflation is also 2% per year, you have zero gain in prosperity.

Or another example: if stock prices increase by 10%, you then have to pay state and federal tax on your capital gains.

Maybe you have 7% left over. Then take out 2% (or more) for inflation. You’ve lost half of your gain.

Ok, still, maybe not a bad sum. But compare that return against the risk that you’re taking: is 5% worth the risk?

This is one of the most insidious effects of inflation: we put up with rising prices because we think that we are becoming more prosperous over time, even though the opposite is usually true.

Inflation is like a cancer that slowly eats away at everything– the purchasing power of your savings, your income, and even your investment performance.

And the people who engineer it have been extremely clever.

Have you ever noticed that official inflation statistics are typically reported on a MONTHLY basis?

The most recent headline from the US Department of Labor’s Consumer Price Index, for example, reads “CPI for all items rises 0.2% in April. . .”

That’s pretty masterful.

I mean, who is going to bat an eyelash at 0.2%? It’s a rounding error. No one cares.

A more intellectually honest way of reporting would be, “Prices increased 10% over the last four years.”

That’s a lot more noticeable.

They also rarely present inflation data alongside wage and salary data.

For example, the inflation report doesn’t say “prices increased by 0.2%, while wages increased by only 0.1%.”

Or more succinctly, “the average worker became less prosperous last month.”

That would be terribly inconvenient for policymakers.

But perhaps their most masterful stroke has been making people terrified of falling prices.

In economics, the dreaded ‘deflation’ is regarded as an absolutely horrific outcome.

The theory is that if prices fall by even just 1%, no one will go out and spend money.

Instead they’ll just sit on their savings and wait for prices to continue falling, and this will send the economy into a tailspin.

Deflation the most absurd fairytale in economics. And that’s saying a lot.

So rather than wanting folks to enjoy a small discount and build up a pool of savings, they’ve managed to convince everyone that a little bit of inflation is healthy and normal.

Losing 10% of your savings every few years doesn’t seem healthy or normal to me.

Instead it feels like a lot like a wealth tax.


Turkish NBA player has passport revoked by ‘the Hitler of our century’

Tue, 05/23/2017 - 11:44

Enes Kanter is a Turkish citizen who plays center for the NBA’s Oklahoma City Thunder.

Like many professional athletes, Kanter has a couple of charities in his name.

His education fund provides first-year college scholarships to support selected US students – including a family’s first female child and children of law enforcement and firefighters who lost their lives on duty.

Kanter’s other charity is the Light Foundation. This one has an international bent, providing meals and clothes to needy families.

A global tour with the Light Foundation stirred up Friday’s troubles.

After traveling to a few countries, Kanter and his team flew from Indonesia to Romania. But upon landing in Romania, Kanter found his passport cancelled by the Turkish embassy.

Kanter’s crime? His political views.

Enes Kanter has long been a vocal critic of Turkey’s president, Recep Erdogan, calling him the Hitler of our century.

Although not a Hitler, Erdogan is far from an angel.

In July 2016 when facing a coup, he ordered his forces to open fire on his own people, killing 270. He had another 50,000 arrested.

Last month in the country’s constitutional referendum, Erdogan consolidated greater power by the slimmest majority – 51% of the votes, if the vote count is to be believed.

With that victory, Erdogan has near dictatorial powers, which is why he was able to unilaterally suspend Kanter’s passport.

Last week, I wrote about Venezuela. There, government-sanctioned snipers scan the streets. Its starving, desperate citizens are trapped inside the country’s borders with no way out.

To Europeans and Americans, Turkey’s crackdown and Venezuela’s hell on earth are a world away from their comfortable lives.

But in the West, symptoms of government overreach that adversely impact its citizens’ futures are everywhere.

The war on cash continues unabated.

Near-zero interest rates return nothing on retirees’ life savings.

Easy credit ensures that any entrepreneur with a bozo idea receives funding. And it fuels both our insane stock market valuations and consumer debt to all-time highs.

US regulators crank out 150, 200, sometimes 300+ pages daily.

And then there’s the ballooning national debts of the Eurozone and the US.

It would be foolish to place all your faith and confidence in only one such government.

Enes Kanter’s experience with Turkey is the latest example. It shows how susceptible citizens are to an out of control government, even when traveling beyond its borders.

Whether locked inside borders like Venezuelans or locked out of travel like Kanter, these cases highlight the importance of having a Plan B.

A savings account in a well-capitalized foreign jurisdiction, investments outside the ridiculously valued stock market (e.g. Peer to Peer lending backed by real collateral), a second residence and yes, a second passport…these are steps to ensure that no matter what, you’ll be okay.

You’re not going to be worse off because you’re holding a significant amount of, say, Hong Kong dollars.

You’re not going to curse the fact that you receive steady and safe investment returns.

And you’re not going to worry about your ability to freely travel around the world.

Oh, and if what happened to Kanter seems impossible, consider this:

On December 30, 2015 when no one was looking, the US government passed H.R. 22 (The FAST Act), which authorizes them to revoke your passport if they believe, in their sole discretion, that you owe $50,000 in taxes.

It’s important to note that they don’t actually have to prove any wrongdoing.

They can make a simple allegation. It could even be a clerical error. Then, poof, no more passport.

It’s important to have a hedge against this to ensure that your entire life and livelihood isn’t held in the hands of a single government.


The Final Show of the Greatest Country on Earth

Mon, 05/22/2017 - 13:50

On May 31, 1866, John C. Ringling was born in Iowa to German immigrants in what felt like an extremely bleak year.

The chaos and devastation from the Civil War that had ended in 1865 were still keenly felt, and the US economy was in the midst of a deep recession

The country was still shaken from the assassination of Abraham Lincoln.

And the new President, Andrew Johnson, was embroiled in a major political crisis with Congress that would soon lead to his impeachment.

(Johnson was also a noted buffoon, once giving a speech in early 1866 to honor George Washington in which he referred to himself over 200 times and accused Congress of plotting his assassination.)

No doubt those were some of the darkest days in US history. And it would have been hard for Mr. and Mrs. Ringling to imagine a bright future for their children.

But John and four of his brothers went on to build the most successful circus empire in modern history– the Ringling Brothers and Barnum & Bailey Circus, known as the “Greatest Show on Earth.”

There were countless traveling circuses crisscrossing the United States in the 19th and early 20th centuries.

But what made the Ringling Brothers’ event so spectacular was sheer scale. They didn’t hold anything back– lions, tigers, elephants.

The Ringling brothers were also masters of efficient logistics.

Like Ray Kroc and Henry Ford, the brothers developed an assembly line approach to the construction, deconstruction, and transportation of their event so that they could swiftly move from town to town.

It was a spectacle itself simply to see their train of railway cars packed with exotic animals stretching on for more than a mile.

Their circus was considered the ultimate in entertainment back then, and John Ringling became one of the wealthiest men in America as a result of this success.

It seemed like the empire would last forever.

But it didn’t.

After peaking in the Roaring 20s, the circus took a major hit during the Great Depression that effectively bankrupted John Ringling, the sole surviving brother.

At the time of his death in 1936, in fact, Ringling only had about $5,500 in the bank (that’s after adjusting for inflation to 2017 dollars).

The circus limped along in the Depression and barely made it through World War II.

Towards the end of the War in 1944, right before they thought their luck would turn, the circus had a major accident in Hartford in which the tent caught fire, killing 167 people.

That nearly bankrupted the company a second time, and several executives went to jail for negligence.

In the decades that followed, American consumer tastes changed.

Television, movies, and music were far more interesting than circus performances, and Ringling Brothers went into terminal decline.

Fast forward to the age of Facebook and YouTube, and there simply wasn’t a whole lot left in the circus that was exotic or interesting anymore, not to mention the animal rights issues.

So yesterday, the Greatest Show on Earth held its final performance in Uniondale, New York, after 146-years in the business.

A century ago this would have seemed impossible.

The early 1900s were the absolute peak for Ringling Brothers, and no one imagined a future where consumers weren’t standing in line to buy tickets.

Candidly I find this story to be an interesting metaphor for the United States itself.

Rise from the ashes. Remarkable growth. Peak wealth and power. Bankruptcy. Gross negligence and incompetence. More bankruptcy. Terminal decline.

And just like how people viewed Ringling Brothers 100-years ago, it’s difficult for anyone to imagine a world in which the US isn’t the dominant superpower.

Instead of the Greatest Show on Earth, it’s the Greatest Country on Earth. And most of us have been programmed to believe that this primacy will last forever.

But nothing lasts. History is full of failed dominant superpowers, from the Roman Empire to the Ottoman Empire. Many no longer exist.

Their declines were almost invariably due to excessive spending, unsustainable debt, military overreach, and a society that abandoned the core values which made it wealthy and powerful to begin with.

Every successive superpower always believes that they will never suffer the same fate. And every time they’re wrong.

This time is not different.

Yes, it’s still a wonderful country with plenty of positive things going for it.

But at its core the United States still has $20 trillion in public debt (over 100% of GDP) and an additional $46.7 trillion in net, unfunded future social obligations (like Social Security and Medicare).

Plus, the government spends an appalling amount of money, far more than they collect in tax revenue.

(In 2016 their total net loss exceeded an incredible $1 TRILLION.)

Former Treasury Secretary Larry Summers summed it up when he quipped, “How long can the world’s biggest borrower remain the world’s biggest power?”

The answer is– no one knows. Maybe months. Maybe decades.

Either way, this trend is one of the biggest stories of our time. And though few people want to acknowledge it, it’s already happening.

We now regularly witness government shutdowns, debt ceiling crises, and gross government incompetence. But this is just the beginning.

The national debt is growing far faster than the economy as a whole. And, especially if interest rates continue to rise, the trend will accelerate.

It’s simple arithmetic.

So while it seems impossible now, the Greatest Country on Earth will some day have its final show as well.

That doesn’t mean the US simply disappears.

But it’s foolish to assume that the insolvency of the world’s largest superpower will forever be consequence-free.

What’s your Plan B?



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