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Updated: 10 hours 8 min ago

How I made an extra 15% by buying this stock on a foreign exchange

Wed, 09/02/2015 - 15:06

September 2, 2015
Vienna, Austria

Recently I wrote to you explaining why I’d just purchased shares of Royal Dutch Shell.

Shell is a giant in the oil industry that’s been in businesses for more than a century. And while I almost never buy stocks, they were practically giving this one away.

When I bought Shell, the shares were trading for less than the company’s net tangible asset value.

In other words, the price I paid was essentially less than the company’s ‘net worth’, i.e. the total of their cash and assets minus all the debt.

This is like buying a beautiful home in a great neighborhood for less than the cost of its construction.

Bear in mind that Shell generates billions of dollars in profit each year and pays a substantial dividend to its shareholders of nearly 7%.

Given the cheap valuation and strong dividend yield, it felt like a no-brainer.

Now I don’t have any illusions about where this company is going.

I expect it could stay very cheap for a long time. It could even get cheaper.

I’m not trader, and I have no expectations that I’ve somehow magically timed the bottom.

But I’m quite comfortable holding shares of a well-managed, profitable company for many years.

And there’s one more that I haven’t told you yet that made this an even better investment:

Like many large multinational companies, Shell’s shares are traded on multiple stock exchanges around the world.

In this case, you can buy Shell’s stock on the London Stock Exchange, the Euronext Amsterdam, and the New York Stock Exchange.

Each of these exchanges is located in a different country and subject to different rules and regulations. And nowhere is this more apparent than in matters of tax.

Whenever a company pays out a portion of its profits to its shareholders (known as a dividend), that dividend could be subject to local tax based on where it was paid.

In Amsterdam, the Dutch government charges a 15% withholding tax on dividends paid to foreign investors in most cases.

This means that if you buy shares of Shell through the stock exchange in Amsterdam, any dividend paid could be taxed at 15%.

However, if you buy the shares through the London Stock Exchange, there’s ZERO withholding tax.

That’s because in the UK they’ve eliminated withholding taxes on dividends paid by public companies.

Think about what this means: you can buy the exact same shares of the exact same company on different exchanges.

But by buying them on the London exchange instead of Amsterdam, you save yourself 15%.

The offshore brokerage I use (which we have recommended to our premium members) allows me to easily choose which stock exchange I want to purchase the shares.

So literally with a click of a mouse button, it’s possible to boost your investment return by 15%.

This situation is not unique to Shell… or Amsterdam for that matter.

There are places where these tax rates can exceed 30% or more. And even if you are taxed on dividend income in your home country, chances are the tax rate will probably be a lot less than 30%.

And that’s precisely the point: dozens of nations have complex tax codes, each with substantial differences.

The key is being able to exploit those differences and use them to your advantage.

It’s perfectly legal to do, and sometimes it really is as easy as clicking your mouse button and saving 15%.

That’s 15%, by the way, that won’t be going to fund any destructive wars, bombs, body scanners, and debt.

This is a far better way to affect change than punching a chad in a voting booth.

If you’re dissatisfied with the immoral ways that politicians spend taxpayer money, you can cast a much stronger ‘vote’ by taking very simple steps like this to restrict their resources.

They don’t want you to know it, but you have a tremendous amount of power.

Because all it takes to beat the system in 2015 is an Internet connection, a bit of financial education, and the will to act.

Italian Prime Minister calls for a revolution

Tue, 09/01/2015 - 15:38

September 1, 2015
Spoleto, Italy

In 1543, Polish astronomer Nicolaus Copernicus published his truly revolutionary work, De revolutionibus orbium coelestium.

For centuries prior, humanity had held the Ptolemaic belief that the Earth was the center of the universe.

Copernicus shattered that belief, demonstrating mathematically that it was the sun at the center of the ‘universe’, with the earth revolving around it.

Though Copernicus died soon after his book was published, his ideas sparked a radical shift, not only in humanity’s view of the world, but in how we viewed our place in the universe.

Recently the current Italian Prime Minister, Matteo Renzi proclaimed that it was time for Italy to have a “Copernican Revolution” in its tax code.

I understood the reference immediately.

Long ago, Italy’s tax code was developed based on a government-centric view of society.

This is the idea that government is the source of growth and development, while the citizens merely exist to revolve around and support it.

As such, the country’s taxation was designed to extract as much wealth as possible from the people to fund the government.

This mistaken belief has been shared by so many declining super powers throughout history.

It was the same held by the Ottoman Empire, where the bureaucrats infamously believed that people existed to support their position rather than their positions existing to support the people.

Just like the Ptolemaic model of the universe, this is not just a different way of viewing the world, it’s completely wrong.

What’s required now is a Copernican Revolution– a complete reset to start thinking that productive people, capital, and business are the real sources of wealth and progress.

Nowhere is a revolution in thinking more needed than in the Land of the Free, which has created a tax code so Byzantine and unfair that each year thousands of Americans make the gut-wrenching decision to renounce their citizenship.

The United States, for example, is the only civilized country in the world that taxes citizens who don’t even live in the country on their worldwide income.

Not even the Chinese, French, or Norwegians do that.

But that doesn’t even begin to scratch the surface.

For a country that claims to be the freest and most capitalistic, the US tax code is truly a barbarous relic.

Its 73,954 pages are completely incomprehensible and almost impossible to be fully compliant.

And as people struggle with the inscrutabilities of their tax code, they face outsized fines and even imprisonment for mistakes that would be civil or administrative matters in any other country.

Meanwhile, companies in the US are penalized with one of the highest corporate tax rates on the planet and discouraged from bringing their global profits back home.

This is absolutely nuts in an era where companies can shift jurisdictions in a heartbeat. And there’s a lot of competition out there.

In the United Kingdom, the British government has been working for years to cut corporate taxes and attract international business to its shores.

In the Baltic region countries like Estonia and Lithuania are using the simplicity of flat taxes to do the same.

Singapore and Hong Kong maintain their appeal both with low rates and constant efforts to make compliance even easier.

Even Rwanda, angling at becoming the Singapore of Africa, has made a point to streamline its tax code.

While countries around the world are waking up to what works, the US remains clueless and inert, making no real movements toward reform.

The last major revision to the US tax code was thirty years ago.

Think about that– Top Gun was dominating the box office the last time the most advanced economy in the world reformed its tax code.

Back then there was no Internet. China was unmistakably a third-world country. And US debt was ‘only’ 46% of GDP.

Things are completely different now. And it really tells you a lot that even the Italian government has realized it’s time to make a serious change.

But there’s a big problem preventing the Land of the Free from moving forward: the US government still holds the narcissistic Ptolemaic view that they are at the center of the universe.

They think that you exist to support the government, not the other way around.

This is not something that gets fixed by punching a chad on a ballot and ‘voting the bums out’.

You’d be a lot better off investing your energy and resources towards learning about all the completely legal, no-brainer ways to reduce what they take from you.

It’s like dealing with an unruly child by taking his toys away. And as this gang refuses to fix their own screwed up tax code, it’s time to take their toys away.

There are countless ways to do this, but I’ll give you a great example tomorrow.

My alternative Big Mac Index is screaming that these currencies are cheap

Mon, 08/31/2015 - 14:13

Spoleto, Italy
August 31, 2015

If you’ve ever picked up a copy of The Economist magazine, you’ve probably heard of the Big Mac Index.

This is an interesting tool where a bunch of reporters from around the world are forced to go into McDonalds and find out the price of a Big Mac in local currency.

In Santiago, Chile, for example, a Big Mac runs 2,100 Chilean pesos, which is around $3. Meanwhile the average price for a Big Mac in the United States is $4.79.

This suggests that the US dollar is substantially overvalued against the Chilean peso.

It’s the same story across most of the world. In Russia, a Big Mac costs 107 rubles, which is just over $1.50.

The reason The Economist uses the Big Mac is because it’s basically the same product no matter where you go in the world.

There are some subtle differences, but McDonalds generally serves the same pink foam disguised as beef wherever you go. So in theory it should all cost the same.

When a Big Mac is too cheap or too expensive, this suggests that the currency is either undervalued or overvalued against the US dollar.

Now I’d like to add a new way of comparing currencies: airfare.

As I travel around the world, I often buy what are known as round-the-world tickets (RTW).

RTW tickets are issued by airline alliances like OneWorld or Star Alliance, and they’re typically very cost effective.

RTW is just like it sounds. You fly, for example, from London to Chicago to Shanghai to Dubai and back to London, all for one special fare.

It’s a cheap, easy way to see the world.

But I’ll let you in on a little secret that I’ve picked up over the years: the price of a RTW ticket varies dramatically depending on the city where you start.

As an example, I just researched a OneWorld RTW ticket with the following itinerary:

Los Angeles – Sydney – Bangkok – Hong Kong – Johannesburg – London – Los Angeles.

Six different cities around the world on five continents.

Now, if I start and stop that itinerary in Los Angeles, the price for a business class ticket is $14,164.60.

That’s not a bad price for a business class experience. But if we experiment a little bit, something interesting happens.

Starting and stopping the journey in Los Angeles means that OneWorld prices my ticket in US dollars.

But it’s also possible to fly the same route by shifting the cities. For example, instead of starting/stopping in LA, I can start/stop in Sydney.

So the route becomes Sydney- Bangkok – Hong Kong – Johannesburg – London – Los Angeles – Sydney.

It’s the same flights to the same six cities, I just start/stop in a different place.

Here’s what’s crazy: if I start/stop in Sydney instead, the price changes. Now instead of $14,164.60, it’s $15,272 Australian dollars, which is about $10,900 USD.

So the same six flights now cost you 23% less.

Note that the RTW ticket is always priced in the local currency of the city where you start.

And unlike the Big Mac Index where the results are skewed by the costs of ingredients, property, and labor, here you’re comparing the exact same product.

I did the same with each city on the list, and the most incredible difference came when I started and stopped the trip in Johannesburg.

Johannesburg – London – Los Angeles – Sydney – Bangkok – Hong Kong – Johannesburg.

Flying to the exact same cities, the price is now 81,395 South African Rand.

Based on current exchange rates, this is just barely over $6,000.

In other words, you pay over $14,000 by starting/stopping in LA, and just $6,000 to start/stop in South Africa, even though you’re visiting the exact same six cities on the exact same flights in the exact same business class cabin.

What’s even more amazing is that if you do the exact same itinerary from LA in economy class, the price is $7,545.

So that means that if someone flies from LA, they’ll pay more to fly in coach than someone starting in Johannesburg pays to fly in business.

Clearly, you’d be better off buying a separate ticket to South Africa and beginning your RTW journey from there.

Or you could spend about $200 and get a ticket to Vancouver, and start a RTW from Vancouver, which costs about $10,000 in business class and gives you a $4,000 savings.

Now, I’m not here to tell you about how to save money on airfare (though I hope you give it a try).

The bigger idea is that it’s clear that the US dollar is painfully overvalued against nearly every currency in the world.

Right now the dollar appears to be the “safe” place to put your money. However, this isn’t based on anything.

The fundamentals for the US dollar are terrible, but people keep dumping money into it like trained monkeys simply because nothing else in financial markets makes any sense.

To be clear, I fully expect the dollar to get even stronger as even more trained monkeys pile into US dollar assets.

But it’s important to show that this perception of ‘safety’ is based on a complete myth. Every credible fundamental suggests that the dollar is dangerously overvalued.

In the long run these things tend to equalize, and the dollar’s strength may end up being the biggest bubble of all.

Of course, it raises the question– if not the US dollar, then which currency is the safe haven? The euro is garbage, the Chinese are fighting a depression, Japan is a disaster.

And that’s precisely the point.

When every option in the financial system is grounded in absurdity, the only solution is to start looking for safety outside of it.

All of your hopes and dreams come down to 0.25%

Fri, 08/28/2015 - 17:04

Spoleto, Italy
August 28, 2015

Charles Dickens opened his 1859 masterpiece A Tale of Two Cities with one of the most famous introductions in literary history:

“It was the best of times, it was the worst of times… “

This line is notoriously incomprehensible to high school students around the world.

But as paradoxical as it sounds, it truly hits the nail on the head in describing social inequality.

Dickens wrote his book about the struggles in England and France just prior to and during the French Revolution.

For the aristocracy it was the best of times.

These people were born into a life of unparalleled prestige and luxury simply by accident of birth, without ever having to work a day in their lives.

The working class, on the other hand, toiled away in starvation devoid of any opportunity, freedom, or hope.

For them, it was the worst of times.

Right now the Fed is going to meet in Jackson Hole, Wyoming to discuss what they’re going to do about interest rates.

Interest rates have been kept at zero for years, and now there is talk that they might raise rates to 0.25%.

This is far from a guaranteed thing. In fact, one of the most influential members of the Fed has already stated that with stocks swooning they likely won’t raise rates after all.

That tells you everything you need to know about the Fed. They’re not there for the economy; they’re there to keep stocks in a bubble.

Through their interventions they’ve created massive risks in the financial system, from which the tiniest elite has received disproportionate benefit.

Over the last four years, the top 80 billionaires saw their wealth increased by 50%, while the incomes for the rest of the population remained stagnant.

Adjusted for inflation, the average worker is actually far worse off than they were 15 years ago.

They are the ones who have had to suffer the consequences of the Fed’s actions.

They’ve endured gyrating financial markets, banks that are pitifully capitalized, and insolvent national pension funds—taking all of the risk, but none of the reward.

It might not be the worst of times, but with inequality rising, it’s getting there.

There’s nothing wrong with inequality itself.

There are no two human beings on the planet who are equal. In fact, even trying to strive for equality is both impossible and really boring.

We all have different talents and different productive abilities.

I’m never going to run as fast as Usain Bolt, and I’m just going to have to live with that.

The issue arises when people are able to disproportionately benefit without having to lift a finger at the expense of the rest thanks to a corrupt financial system.

When an entire class of people is able to grow wealthier to the tune of trillions of dollars, simply because central bankers print money and stick everyone else with the bill—that creates huge problems.

Right now, while the Fed is meeting in Jackson Hole, there is a group of activists also meeting there to protest against Fed policy.

100,000 people have signed a petition telling the Fed not to raise interest rates.

They claim that the recovery has only helped Wall Street and the wealthy, whereas for the working class wages haven’t gone up at all. And they’re right.

But what is really sad about this is the fact they’re begging the Fed to not raise rates until wages have gone up.

All these people have their hopes and dreams tied on a quarter of a percent.

That’s how ridiculous things have become.

People are so horrified that if money isn’t absolutely free that all hell will break loose—that people are going to go broke, the market’s going to crash, and that there won’t be any jobs.

That’s a pretty sad state of affairs, and it is by no stretch of the imagination the foundation for a free and prosperous nation.

It is the height of central planning and it is a form of economic tyranny.

Fortunately, this system is on the way out.

Nations are going bankrupt, entire banking systems are nearly insolvent, and national pension funds are already broke.

Governments and central banks have backed themselves into a corner with no way out.

Just look at China: one of the most authoritarian governments in the world can’t control its own market.

And that’s what’s so exciting.

When everything they try isn’t working, it’s clearly time to hit the reset button.

And for those who are ready for it, this will bring a whole new world of opportunities.

Dickens closed his book with a poignant quote that I think it very fitting here:

“I see a beautiful city and a brilliant people rising from this abyss, and, in their struggles to be truly free, in their triumphs and defeats, through long years to come, I see the evil of this time and of the previous time of which this is the natural birth, gradually making expiation for itself and wearing out.”

The perfect place to witness the collapse of financial markets

Wed, 08/26/2015 - 15:49

August 26, 2015
Spoleto, Italy

It couldn’t be any more beautiful here.

Every year we descend upon the Umbrian countryside here in Italy, about 2 hours northeast of Rome for a retreat.

It’s a time and place reserved to foster relationships with friends, colleagues, and members of our Sovereign Man community, where three generations of the same Italian family take care of us in a beautiful 400 year old villa.

One of the people here is my friend and colleague Tim Price.

You know Tim from his regular contributions to Notes From the Field, and he’s also a successful London-based wealth manager.

Tim and I sat down today in this beautiful and serene environment and talked briefly about the gyrations in global financial markets.

Tim wittily remarked (as he often does) that there’s no better place to be witnessing the collapse of financial markets.

China’s economy is declining rapidly, dragging down global commodity prices, developing nations, and financial markets. That rout has now reached the US as well.

It appears that the can has finally been kicked to the end of the cul-de-sac.

As Tim and I discuss in this video, the financial crisis in 2008 was brought on by too much debt, too much printed money, mispriced risk, and interest rates that were far too low.

In the past seven years, they’ve only managed to increase debt, print even more money, misprice risk even more, and drop interest rates into negative territory.

Looking back it will all seem so obvious. And that financial reckoning may now be upon us.

Take a look and listen from our conversation (we actually made a video recording for a change) from beautiful Spoleto, Italy:

It’s time to do absolutely nothing.

Tue, 08/25/2015 - 12:57

August 25, 2015
Spoleto, Italy

[Editor’s note: This letter was written by Tim Price, frequent contributor to Sovereign Man’s Notes from the Field, and editor of Price Value International.]

Hundreds of thousands of years ago, our early ancestors had a unique way of dealing with volatility.

If something was truly threatening, our instincts would kick in. So we would either dispose of threats by hitting them with a rock (‘fight’) or by running away from them quickly (‘flight’).

This ‘fight or flight’ response served our ancient ancestors well. If it hadn’t, we wouldn’t be here.

‘Fight or flight’ serves the modern investor less well.

Responding to an opening 1000 point drop in the Dow by clubbing your screen with a rock is hardly an optimal strategy.

Neither is dashing out of your house or office instead.

Dealing with wild market swings– like a $150 billion intra-day round trip in Apple’s market cap– has to be a learned response instead. That isn’t easy when the financial media is yelling “Fire!” at the top of its voice through a megaphone.

How you respond to this week’s extraordinary market volatility should be a function of how your investment portfolio is structured.

If you have a sensibly diversified portfolio, with holdings of cash at reputable banks, and investments in high quality businesses with little or no debt bought at prudent valuations, and perhaps an allocation to real assets like productive real estate or gold, then what are you really worried about?

(And if your portfolio consists of low quality, poorly managed, heavily indebted companies, you may need to think about replacing your financial adviser.)

As JP Morgan himself once said, markets fluctuate. If you’re tempted to sell good investments today because of heightened market volatility, you should ask yourself why you bought them in the first place.

And if you’re losing sleep because of the manic gyrations of the stock markets, perhaps you have too high an exposure to stocks to begin with.

Perhaps the best quote so far to emerge from this week’s collective panic is from the fund manager who remarked that the stock market is the only market where things go on sale and all the customers run out of the store.

Human beings are emotional animals. We crave certainty, especially in financial markets where such certainty cannot possibly exist.

And at times of high drama, we tend to lose any ability to account for the bigger picture or the longer term.

But just because others are acting irrationally doesn’t mean you have to join them.

Benjamin Graham, the acknowledged father of value investing, once remarked that “in the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.”

These are clearly testing times for all investors. But allowing emotion to hijack your investment process is just as clearly the wrong thing to do.

For a sensibly diversified investor, the appropriate response is to dial down the volume from the financial media. And then to do precisely nothing.

It’s official: the renminbi is out of the running for now

Fri, 08/21/2015 - 14:51

August 21, 2015
Rome, Italy

For at least the last decade, China has been positioning the renminbi to take over as the world’s reserve currency.

Over the years they’ve gradually established credibility for the currency on world markets, and have begun strategically chipping away at the institutions cementing the US dollar’s dominance.

This year, there was a chance they could be catapulted towards that goal.

Because this year, the International Monetary Fund was scheduled to reevaluate which major currencies its reserve currency, the SDR, should be pegged to.

If the renminbi were to be included in this basket, that would have confirmed its international importance.

And as the IMF only makes this decision once every five years, the pressure was really on.

Frankly the IMF was in a pretty tough position.

On one hand, not including China’s renminbi in the SDR this year would be a signal of how out of touch and irrelevant the institution has become.

But on the other hand, by including the renminbi, the IMF would be capitulating to the idea that China has overtaken the West, and that the dollar-denominated financial system is finished.

Tough call—damned if they do, damned if they don’t.

Just a couple weeks ago I wrote to you predicting that the IMF would crush China’s hopes of joining the SDR this year. And that’s exactly what happened.

When China’s stock market started to slide a few months ago it was a gift in disguise to the IMF. It wasn’t that China’s financial markets were thrown into chaos. Those things happen from time to time, especially when economies are so bloated on fiat paper.

The real problem was how the Chinese government reacted to it, scrambling to fix the situation like trying to catch a falling knife.

They froze stock prices. They jailed short sellers. They even tried whipping retail investors into a frenzy, pushing them to go out and mortgage their homes to buy more stocks.

The string of authoritarian measures they implemented looked plain desperate and amateurish, leaving the rest of the world thinking, “same old China.”

Thus, China’s 10+ years of trying to convince the world that they are serious and credible were in vain.

It was all the excuse that the IMF needed to exclude China this time around.

They weren’t even set to make this decision for another couple of months, but seized the opportunity to do it now.

Any celebrations on the part of Western countries, however, would be misguided.

This doesn’t actually change anything for them.

You see, China is not the biggest threat to America’s dominance. The United States government is.

The more they borrow, print, regulate, and intimidate the closer they bring themselves to the brink of collapse.

Whether or not China is in the picture, that financial reality will still catch up.

I rarely buy stocks, but I just bought this one. Here’s why.

Fri, 08/21/2015 - 13:29

August 21, 2015
Rome, Italy

I grew up in Texas in a middle class household to two very hard-working parents.

And to say we were middle class may even be a stretch. We were definitely clinging to the bottom rung of middle class.

Money was always a problem. And my parents each held multiple jobs in addition to making a go of their own business in order to make ends meet.

I never missed a meal. But the constant stress and worry about how we were going to pay the bills that month was palpable.

We didn’t have medical insurance or any savings, meaning we were just one illness or urgency away from being wiped out.

There always seemed to be too much month at the end of the money. So every penny mattered.

We didn’t buy anything unless it was (a) necessary, and (b) a major bargain.

Things eventually got better, as they tend to do. My parents found their financial footing and became more successful. And I’ve done well in life.

But I’ve taken those middle class values with me into the world, and they’ve deeply impacted my own investment ethos.

Just like what was drilled into me when I was a kid, I can’t stomach overpaying for anything. Even when investing, I’m only interested in a major bargain.

This happens occasionally in investment markets, though it’s extremely rare today.

There are plenty of profitable, well-managed companies out there. But they’re incredibly expensive. Twitter, for example, has a valuation of $17 billion. Yet it lost nearly $600 million last year.

Netflix manages to grind out a profit; but the company is valued at more than 200 times its earnings.

AirBnB is a private company. Yet its value is at least $25 billion even though it doesn’t own a scrap of real estate or turn a profit.

These all strike me as extremely expensive. And ludicrous.

But it’s unfortunately the norm these days.

Most financial assets are in major bubbles, whether it’s real estate (yes US housing is at that point again), stocks, bonds, private equity, etc.

So it’s very difficult for anyone with middle class values to invest… unless you expand your thinking to the whole world.

There are pockets of value out there if you look hard enough– like mining companies and developing markets.

Let me give you an example of something that I bought recently, and talk you through my thought process. As a caveat, I should tell you that I generally dislike stocks.

Stock markets are a rigged game designed to extract wealth from the little guy and put it in the pockets of investment banks and high frequency traders.

So for me to be interested, there better be some serious value on the table.

Royal Dutch Shell, one of the world’s largest oil and gas companies, is a good example.

Thanks to the slide in oil prices down to $40 (and perhaps lower), Shell’s stock price has been hammered.

So the company is trading right now at the value of its net tangible assets.

In other words, by buying Shell stock, I’m purchasing every asset the company owns at COST.

Yet on top of that, they pay a 7% dividend yield.

In real estate, it’s like being able to purchase a beautiful house in the best part of town at a price that barely meets the cost of construction.

And on top of that, there’s built-in rental income that starts putting money in your pocket right away.

This is a solid deal in my mind, especially for a company that has a long-term history of consistently growing its dividend yield.

(By the way, I can reinvest the dividends that they pay me into more shares, so I’ll be continually adding to my position over time.)

The added benefit is that Shell is not a US company.

I bought the stock overseas (I’ll explain why next week) and paid in British pounds.

So I could make money off the dividend. Or if the stock price goes up. Or if oil prices go up. Or if the pound appreciates against the dollar.

That’s one of the primary benefits of investing internationally: there are a LOT of different ways to make money.

And it makes a ton of sense to do this now that the dollar is at a 10+ year high against nearly every major currency out there.

(Again, developing markets are looking especially cheap, and I also bought into some of them as well, including Russian and Colombia.)

To be clear, I’m not recommending that you follow me into this.

It’s entirely possible that Shell’s stock gets cheaper. In fact, I’m expecting it. I also expect it will stay cheap for a very long time.

I just have the willingness to wait, because I know that it’s hard to lose when you buy profitable assets so cheap. Plus, Shell has seen worse in its history.

During World War I, for example, German forces wiped out over 20% of Shell’s production capacity.

So I’m confident they’ll be able to weather $40 oil without collapsing.

Young people: read this before you f**k up your lives

Thu, 08/20/2015 - 09:52

August 20, 2015
Rome, Italy

If I wrote down the term ‘imaginary number’, you’d probably think I was talking about some central bank economic forecast or government budget projection.

But in mathematical parlance, an imaginary number is defined as the square root of a negative number.

You know that the square root of 25 is 5, because 5 squared (i.e. 5 x 5) equals 25. And the square root of 1 is… 1.

But what about the square root of -1?

That’s an imaginary number. It doesn’t exist in the real world, just like the 5th dimension, or trying to define the shape of the universe.

Our adult minds have tremendous difficulty conceptualizing these ideas. But it’s not nearly as difficult for children.

We’re all born with a blank slate with imaginations so powerful that the ideas of infinite dimensions and mythical number systems seem completely valid.

Kids have imaginary friends, after all. So why not imaginary numbers and imaginary dimensions?

But we become intellectually constrained as we grow older, no longer able to grasp imaginary concepts.

Much of this comes from an education system designed to destroy independent thought and imagination, and to teach children to subordinate themselves to authority.

It’s a bizarre system that rewards kids for sitting still, shutting up, and memorizing cookie-cutter answers to intensely complicated questions.

Sometimes a child’s mind proves far too independent and creative for such banality, and its natural instinct is to rebel.

Sadly, rather than be celebrated, those children are told that they have a disease (ADHD) and then pumped full of medication to make them more compliant.

It’s completely disgusting. And despite legions of teachers who truly care about their students, the system is unfortunately ineffective.

As we discussed last week, the vast majority of students in the Land of the Free are ranked as ‘below proficient’ by their own government in reading, mathematics, history, geography, and even civics.

Let the irony of that last one sink in: the government-controlled education system fails to adequately educate students about the government.

That pretty much tells you everything you need to know. And yet it gets worse.

After surviving the public school experience, kids are then pushed into one of the most expensive financial liabilities of their lives: university.

Look, university certainly has some merits. And for certain vocations like law or medicine, it’s an absolute must.

But in the vast majority of cases, the sole purpose of university is to churn out obedient workers who will spend their entire lives paying ever-increasing taxes to the government.

Young people graduate with $50,000 in debt, yet totally devoid of any real skills.

They don’t know anything about managing money. Or making money. Or creating real value in the world. Or making a difference.

Instead they’ve been trained to be task rabbits.

And thanks to the massive student loan debt looming over their every decision, they’re forced to take the first gig that comes their way simply so that they can afford to start paying interest.

There are no other options. There’s no freedom to explore, to learn, to experiment.

The next 20 years of your life end up being dictated by a choice you made when you were 18 years old to take on an enormous amount of debt.

If you’re a young person, think very carefully about this decision, because it’s one of the most important ones you’ll ever make.

Statistically speaking, your student debt will likely outlast your marriage. It’s that important. Choose carefully, and do not underestimate the gravity of the decision.

Now, we’ve talked about alternatives before. If you’re stuck on the idea of university (or your parents are stuck on the idea), consider looking abroad.

There are some excellent tier-1 universities overseas that cost almost nothing.

But even more importantly, consider learning some real skills.

And I’m not talking about underwater basket weaving.

Dedicate yourself to truly learning about money– making it and managing it. Selling. Negotiation. Raising capital.

These are hugely valuable skills that stand the test of time no matter what the prevailing economic conditions are.

Think about what problems the world will be facing in the future, and learn about those industries.

Think about what countries will be rising to power in the future and learn about opportunities in those countries… and their languages!

Most importantly, never forget that we learn best by doing.

No one becomes a great guitarist by reading a few magazine articles. You have to spend countless hours practicing on a real guitar.

Even better, find a guitar master and learn directly from one of the best in the world.

There’s a term for this: it’s called apprenticeship.

Apprenticeship is the oldest method of education in the world, and it remains the most effective today.

Think about the impact that you want to have on the world. Think about what inspires you, and how you want to inspire others.

Think about the values that you stand for and the life you’d like to achieve.

Then go out to find someone doing it. Make yourself indispensable to that person so that you can learn as much as you possibly can.

Be fearless. Start at the bottom. Sleep on the floor if you have to, and soak up every morsel of knowledge until you become ninja-skilled in your chosen field.

Consider this approach. It’s a hell of a lot cheaper and a lot more valuable than indebting yourself for eternity.

When governments go broke they go “on sale” — here are some great deals I’m seeing

Wed, 08/19/2015 - 15:02

Paris, France
August 19, 2015

Earlier today I had a great meeting with a government minister in Antigua, who’d phoned to update me on their economic citizenship program.

If you’re not familiar, an economic citizenship is a legal process backed by formal legislation whereby an investor can make a large donation or investment in a country in exchange for a passport.

Antigua’s is still quite new, and it’s well-priced.

After undergoing a strict due diligence process and providing a minimum donation of roughly $250,000, you can obtain an Antiguan passport— which provides visa-free travel to over 130 countries including most of Europe, Latin America, and more.

Now, $250,000 may not seem like pocket change…

… but for the right person—like a high income earner who is ready to renounce his/her citizenship, or a wealthy Chinese entrepreneur looking for easier travel options, the return on investment is substantial.

I am not encouraging you to go out and do this. Quite the contrary; I actually think economic citizenship programs aren’t worth the money for most people.

After all, there are easier ways to obtain a second passport– through naturalization, family heritage connections, etc.

If you have Polish or Irish grandparents, for example, you might already qualify for another passport.

And this is a great benefit. If you’ve ever looked around and felt like you can barely recognize the country that you’re living in, you want to have another option.

A second passport provides that option. It’s more freedom, more choice. And a fantastic insurance policy.

But the larger point I want to make here is just how many governments are starting to do this.

Malta. Cyprus. St. Kitts. Dominica. Etc. Each of these countries has experienced dire economic straits.

St. Kitts is actually one of the most indebted nations in the world. And their economic citizenship program is one of the tools keeping them afloat.

When nations go bankrupt, they’re forced to reengineer their thinking. They’re forced to start being more competitive and put ALL options on the table.

And I’m not just talking about economic citizenship.

In my travels around the world, I’m starting to see this more and more– financially strained governments introducing new programs to attract talented people, productive capital, and successful businesses.

The British government, for example, has been steadily reducing its corporate tax rates over the last few years in an effort to attract more businesses to their shores.

Indonesia recently launched a visa-free travel regime to attract more foreign tourists and compete with its neighbors in the region.

Vietnam just introduced a whole suite of new incentives for foreign investors, making it much easier to travel and invest in that beautiful country.

Even in Italy the government is taking a swing at reforming its Byzantine tax code to create a friendlier business environment.

Most governments are in this position because they have to be.

They need the money, so they have to get very creative to attract the right kind of people to their shores.

This is the bright side of economic crises: because once governments realize they’re going bankrupt and get serious about reversing the trend, they’re forced to get competitive and start treating investors and businesses like valued customers.

This is a new trend that’s emerging, and it’s really exciting to see. I think it’s only going to continue– more tax incentives, easier foreign investment rules, more economic citizenship programs.

(In fact, I’m sure we’ll soon see Greece come out with its own economic citizenship program as well.)

Yet while near every cash-strapped country on the planet is starting to recognize its fiscal realities and take action to do something about it, there’s one nation that obstinately refuses to become more competitive.

And that nation, of course, is the United States of America.

The Land of the Free has the most outdated tax code imaginable, with hundreds of thousands of pages of obtuse regulations, and a “Just Say No” attitude towards productive people and businesses.

And they don’t seem to care.

Talented people, productive capital, and successful businesses will go where they’re treated best. And prosperity will follow in their wake.

This is a huge trend. Countries all over the world are trying to roll out the red carpet to provide incentives and attract great people.

By looking at governments’ efforts now it’s easy to see where the countries are headed in the long-term, and where you want to be.

This government printed so much money the mint workers went on strike

Tue, 08/18/2015 - 15:10

Paris, France
August 18, 2015

I’m the world’s worst tourist.

To give you an example, I’ve been to Paris at least 50 times yet I’ve never been to the Eiffel tower.

The prospect of standing in line to look at stuff doesn’t thrill me in the slightest– least of all when that stuff happens to be the monuments of destructive monarchs.

Here in Versailles (which I’m visiting at the request of my parents) is an epically grand palace that remains one of the top tourist attractions in the world.

It’s one of the finest reminders of the largesse and stupidity of empires.

This colossally expensive, and self-centered palace was all for the benefit of one guy (Louis XIV) at the expense of everyone else.

And it’s this kind of largesse that ultimately bankrupted France.

It took time, but by the late 1700s France was completely broke and was borrowing money just to pay interest on the money they’d already borrowed.

In 1789, starving French peasants famously revolted and ousted the king. But as they soon discovered, revolution didn’t make their fiscal problems go away.

It doesn’t matter who’s in power. Debt will follow citizens around like a bad rash.

And so, the newly empowered National Assembly came up with a bold solution. They decided to print money.

The first batch was in April 1790 at 400 million units– a sum that was considered astronomical at the time.

And they promised that was all the money they would ever print.

Of course, they kept printing. And printing. And printing. They printed so much that the workers running the printing press actually went on strike from being overworked.

By 1795 they had printed some 35 billion units; almost a hundred times as much as they had originally promised.

(That number was so large at the time that they didn’t even have a word for ‘billion’; they just called it 35 thousand million.)

As you can imagine, this ultimately resulted in hyperinflation and the complete loss of confidence in the currency.

One of the greatest books ever written on the topic is Andrew Dickson White’s “Fiat Money Inflation in France”, originally written in 1876.

White wrote the book in hopes of convincing policy makers in the United States to avoid making the same mistakes.

Needless to say, they didn’t listen. And here we are more than a century later in the midst of one of the greatest financial bubbles in history.

I really recommend picking up White’s book. It’s a great read and it’s short.

I’ve read it several times, from which I’ve come away with three key lessons that I’d like to explore with you today.

1) It is the people themselves who ask for the instrument of their own demise. They cheer when their policymakers conjure something from nothing and make phony promises.

2) Yet even with all the central planning in the world, and the tightest capital controls, price controls, and information controls, you still can’t prevent the collapse of an unsustainable financial system.

Delay, perhaps. But never prevent.

3) Lastly, even when paper currencies are doomed to fail, they always go through periods of strength.

French paper currency in the late 1700s went through periods where it actually increased in value.

In 1792, for example, the currency surged 20% after the French army scored a major victory.

It was exactly the sort of thing to make politicians say, “See! Paper currency is a great idea.”

And yet it still failed, just as every experiment with paper currency always has.

The French episode highlights each of these lessons, and we’re seeing each of the same things unfolding today.

Listen in to today’s podcast as we explore each of these three lessons, as well as the solutions.

If you think the dollar is ‘strong’, you really need to understand this.

More importantly, we’ll talk solutions. Because the solutions today are the same as they were three centuries ago: get your money out of a bankrupt system.

The good news is that it’s easier than ever to do this.

Listen in here.

Want to see the future of America? Check out this astonishing survey of government workers.

Mon, 08/17/2015 - 17:30

August 17, 2015
Paris, France

Deep within one of the darkened parking garages of Terminal 1 at Charles de Gaulle airport, there’s an attractive young French girl who’s desperately trying to manage an entire fleet of rental cars by herself.

She’s basically the only person working the garage for one of the major car rental agencies, so she has to take care of every single pickup and return by herself.

It’s pretty clear that she’s overwhelmed and completely stressed out– she has too much work and simply can’t handle it.

On Saturday morning when I arrived to Paris, I passed by the main desk of the rental car agency within the terminal to pick up my keys and contract.

But when I got to the garage and looked at the car, I noticed there were some pretty big scratches and dings.

Not a big deal… but I needed someone from the agency to annotate my contract so that they wouldn’t charge me later for damage that I didn’t cause.

I tried flagging down this girl for a quick signature. Instead I got a rather frantic ‘talk to the hand while I deal with the 30 people in line before you.’

Twenty minutes later I was still waiting for a simple signature. Honestly I didn’t really even care at that point; I was much more intrigued watching this poor girl bumble around haplessly trying to do way too much with too few resources.

It struck me as so curious why one of the largest car rental agencies in the world would have just one worker at one of their busiest tourist transit points.

If you look around in France, it’s actually quite typical to see. And the answer isn’t hard to find: regulation.

Between all the taxes, rules, and inflexible labor laws, it’s simply too expensive and risky for businesses to hire employees in France.

So as a result, French companies tend to hire fewer workers– far fewer than they need to get the job done right… which means that quality suffers.

It’s a sad thing to see when companies have to care more about regulatory nonsense than providing a great product or service to their customers.

Nowhere is this more apparent than in France’s bloated public sector, where roughly a quarter of the country’s labor force is employed.

French bureaucracy is legendary, and it is the primary disability of otherwise productive businesses.

Curiously, French bureaucrats are rewarded handsomely for making people’s lives more difficult. They have shorter working hours, longer vacations, great medical care, and guaranteed employment for life.

It sounds a lot like the US, actually, which isn’t far behind. In fact I recently stumbled across a pretty scary survey of the job satisfaction of civilian government workers.

It showed that 91.2% of US government workers think that their work is important.

In other words, the people who tell us what we can or can’t put in our bodies, or that we can’t collect rainwater, or tell kids they can’t shovel snow from their neighbors’ driveways— think they’re providing a valuable service for society.

The truth is the exact opposite. I’m sure they’re all very nice people. But government bureaucracy is the problem, not the solution.

Ever single business day of the year, hundreds of pages of new regulations are published in the Federal Register that most people aren’t even aware of.

In the last year alone, an astounding 79,066 pages of new regulations and proposals were published.

Note- these aren’t laws passed by congress. They’re ‘rules’ created out of thin air by obscure agencies within the executive branch, each of whom has the authority to make up new rules on a whim.

Like the Bureau of Economic Analysis, for example, which recently commanded every American with a foreign company to fill out an absurd survey under threat of a $20,000+ fine.

This is not exactly the sort of thing that makes people more prosperous and free.

And yet the apparatus grows, suffocating innovation and quality beneath it.

At this point people seem to get it. I doubt anyone is going to complain that the government isn’t big enough.

The problem is that people think they can fix it in a voting booth.

That’s lazy thinking. Voting doesn’t affect anything; all you’re doing is changing the players, not the game.

If you’re truly fed up with the system, one of the most powerful weapons you have (other than your feet) is your money.

Bureaucracies thrives on funding. Money. Specifically– YOUR money.

So if you want to change the system, stop supporting it. Take every option available to legally reduce what you pay in taxes to the government.

Deduct legitimate business expenses. Use the foreign earned income exclusion or Puerto Rico exemption. Set up captive insurance and finance companies. Buy whatever you can online from states without sales tax.

As an example, I maintain a US mobile number so that my mother can more easily call me.

But I set up the billing address in Nevada, which has the 2nd lowest cell phone taxes in the country.

I obviously don’t live in Nevada. I don’t even live in the US. All it took was a Nevada address (which hardly costs anything), and the net savings is several hundred dollars each year.

These steps don’t need to be complicated.

But a little bit of effort can go a long way in reducing what you legally owe, which, aside from saving you money, also reduces how much you directly contribute to the destruction of your country.

The #1 reason why Donald Trump is the chimpanzee America needs

Fri, 08/14/2015 - 11:33

August 14, 2015
Istanbul, Turkey

Just a few weeks ago, US talk show host Stephen Colbert was asked if he thought that Donald Trump had a chance of becoming President of the United States.

Colbert responded sincerely. “Honestly, he could. And that’s not an opinion of Trump. That’s my opinion of our nation.”

He’s right. The Land of the Free may very well be ready for something completely different. And Trump certainly seems able to deliver.

He is, after all, unique in his field. Donald Trump has never served in politics, and his blunt style is almost the exact opposite of every other major candidate.

But there’s one thing that really sets him apart, that, in my opinion, makes him the most qualified person for the job:

Donald Trump is an expert at declaring bankruptcy.

When the going gets tough, Trump stiffs his creditors. He’s done it four times!

Candidly, this is precisely what the Land of the Free needs right now: someone who can stop beating around the bush and just get on with it already.

As history shows, a default is inevitable.

The calculus is quite simple: when governments take on too much debt, they start having to divert a huge amount of their tax revenue just to pay interest.

This means that, at a minimum, the government has to sacrifice many of the promises they made to their citizens. They cut other programs in order to have enough money to pay interest.

But that’s not too popular. So instead they typically just borrow more money… until they’re borrowing money just to pay interest on money they’ve already borrowed.

This makes the problem exponentially worse.

Debt skyrockets. And soon the government is spending more on interest payments than national defense. (The US is almost at this point).

Eventually a bankrupt government has no choice: either default on their bondholders, or default on the obligations they made to their citizens. Or both.

This could take the form of a ‘selective default’. For example, the US government could default on the $2.4 trillion that it owes the Federal Reserve.

Or the $1.2 trillion that it owes China.

These are both possibilities.

But the prospect of default on “risk free” US government bonds would throw the global financial system into a tailspin; not to mention it would be the final nail in the coffin for the US dollar’s dominant reserve status.

Fortunately there are easier options for Uncle Sam.

The biggest debts that are owed by the US government are the obligations they owe to you.

Specifically, all the benefits like Social Security and Medicare they promised to American taxpayers.

The US government’s own numbers estimate these obligations at nearly $42 TRILLION, completely dwarfing what they owe China, or anyone else.

Then there’s the obligation they have to preserve the purchasing power of the $12 trillion held by the American people.

That’s the current value of the money supply in the United States right now.

History shows that debasing a nation’s currency is one of the easiest and most effective ways for bankrupt governments to plunder their citizens’ wealth, little by little over time.

As I explain in today’s podcast, the hard reality that most people don’t seem to get is that the US government is bankrupt.

This isn’t some wild assertion or conspiracy theory; their own financial statements show that the government’s ‘net worth’ is NEGATIVE $17.7 trillion.

And yes, the US is already borrowing money just to pay interest.

In fact the combined expenses of interest on the debt plus mandatory entitlements like Social Security nearly exceed their entire tax revenue.

In other words, you could eliminate nearly everything we think of as government– the EPA, the IRS, Homeland Security, etc. and it wouldn’t make a dent in the national debt.

When things get this dire, it doesn’t matter who sits in the chair.

You might as well elect a chimpanzee in the hopes that Mister Bubbles might accelerate the decline.

Donald Trump may very well be that chimpanzee. Especially given his unparalleled experience in declaring bankruptcy.

Nations that pass the economic point of no return can’t rebuild until they hit rock bottom.

And the US is way past that point. So let’s get on with it already and hit the reset button.

Join me for more in today’s podcast as I break down the details of the US government’s $60 trillion in liabilities– and what you can do about it.

Wealthy Chinese are paying BIG money for this piece of paper

Thu, 08/13/2015 - 15:18

Istanbul, Turkey
August 13, 2015

Four years ago, just as he was about to board a flight to Hong Kong, Ai Wei Wei was stopped by border officials and had his passport confiscated.

As an outspoken anti-government activist, the Chinese artist was no stranger to government threats. But this time it was real.

Taking away that little document meant taking away his freedom. He was now stuck at the mercy of the very government he criticized.

Confiscating a citizen’s passport is easy for governments. They don’t even need to charge you with a crime.

After all, “your” passport really belongs to them. They’re just taking back their own property.

(Americans– just look at the front page of your passport and you’ll see for yourself– it doesn’t belong to you.)

Chinese intuitively understand the value of a second passport. Older generations remember the days during the Cultural Revolution when migration and foreign travel ground to a halt.

No matter how terrible things were under Mao, they were unable to leave.

Even younger Chinese, now with a taste of freedom and disposable income, are well acquainted with the limitations of the one passport.

Whenever they want to travel abroad, Chinese almost always have to apply for a visa. This can take a great deal of time, money, and effort. And there’s no guarantee they’ll be approved.

So while consumer appetites in China have grown for everything from houses to cars to Coach bags, so have they grown for second passports.

In fact, it’s one of the hottest items in China among the wealthy.

While a Louis Vuitton bag might give you bragging rights, a second passport can provide a lifetime of safety, opportunity, and freedom.

Many families in China are spending everything they have on economic citizenship and residency programs.

Demand was so high for one immigrant investor program in Canada, in fact, that it was shut down to deal with the backlog.

It recently reopened. But now it’s capped at just 60 applications, and the investment qualification nearly quintupled.

Meanwhile, Chinese investors fork over $5 million in order to qualify for Australian residency and citizenship.

The wealthiest people in the country know a good investment when they see one, and they know that a second passport will pay off many times over.

Fortunately most people don’t need to pay such steep prices for peace of mind.

In fact the easiest route of obtaining citizenship is through ancestry.

You may have already lucked out by being born in a developed country. But check your heritage and you might find that you’ve won the lottery again.

Some countries readily award passports to anyone who can prove ancestral ties.

Ireland, Poland, and Italy are three of the most welcoming nations to their descendents, so check if you can prove any family links there.

If so, then you might be just a few months away from a top quality second passport at minimal cost.

If that doesn’t apply to you, another option is to put in some time.

You can become a naturalized citizen of many countries simply by establishing residency and spending some time on the ground. Think of it like sweat equity.

In Chile or Panama, for example, you can qualify to apply for naturalization after five years of residency.

Chile is an excellent low-cost option as its citizens can travel visa-free to the US, Canada, Europe, and more.

Panama is a great choice too, and you don’t even need to spend much time on the ground.

Then there are places like Argentina where you can qualify to apply for naturalization after just 2 years.

Bottom line– a second passport is a phenomenal insurance policy that makes sense for anyone.

But like any insurance, the benefit needs to exceed the cost.

So while many of the world’s wealthiest spend hundreds of thousands or millions on a second passport, it’s important to remember that with a bit of time and effort, you can obtain a great citizenship with a very low investment.

What China’s devaluation means for the future of the dollar

Wed, 08/12/2015 - 13:08

August 12, 2015
Istanbul, Turkey

As the saying goes, “Fool me once, shame on you. Fool me twice, shame on me.”

(… to which George W. Bush famously added after flubbing the aphorism on live TV, “can’t fool me again!”)

For months, despite every shred of data pointing to a weaker economy, China’s currency has been strengthening.

This was really counterintuitive. When an economy is weak, its currency tends to suffer.

But that didn’t happen in China.

Even when China’s stock market suffered one of the biggest crashes in history a few weeks ago, the currency barely moved.

None of this made any sense.

Just look at Greece– problems in that single nation, one of the smallest economies in Europe, dragged down the currency used by 18 other nations in Europe to its lowest level in more than a decade.

But when problems broke in China, the renminbi actually got stronger. And party bosses insisted that they would not devalue their currency.

Fool me once.

Yesterday they showed the world what their promises really mean: nothing. And in a surprise announcement, they devalued the renminbi by roughly 2%.

2% might not sound like very much. But in currency markets, especially for a major one like China’s, 2% is a huge move.

Curiously, in the very same announcement, Chinese officials stated that they would not devalue the currency again, and that Tuesday’s move was a one-time thing.

Fool me twice.

Less than 24-hours later they did it again — a second devaluation that saw the renminbi tumble to as low as 6.57 per US dollar, a 6% decline in roughly 36 hours.

Again, this is a steep drop for a currency, and I expect that there’s more to come.

(Our Chief Investment Strategist Tim Staermose has been predicting this for quite some time– premium members, we’ll send out an update shortly on his investment recommendations.)

All of this raises an interesting question about the future of the US dollar.

Because if an economy as large and powerful as China’s has had to concede defeat, does this mean that “King Dollar” will rule forever?

No chance.

Remember that the dollar’s strength is derived from its status as the primary global reserve currency.

Nearly every government, commercial bank, and central bank in the world holds US dollars in reserve, and the dollar is used as the primary currency in global trade.

Whether in Saudi Arabia or South Africa, a barrel of oil is priced in US dollars. Even jets manufactured in France and sold to European airlines are priced in US dollars.

But this status is by no means written in stone. The US dollar is not the first global reserve currency, and it won’t be the last.

We can go back in time to the Byzantine solidus, or the Venetian gold ducat, or the Spanish dollar, or the British pound, and see that no reserve currency lasts forever.

Especially when its fundamentals are so poor.

The US government is insolvent. Its major institutions and pension funds are insolvent. The central bank is borderline insolvent.

These are not any wild assertions; their own financial statements admit their insolvency.

Which means that there’s nothing underpinning the dollar’s reserve status except confidence.

And confidence is very fickle. Like a high school popularity contest, it wanes and it booms.

Right now that confidence is on an upswing, primarily because every other major option looks really bad.

The euro is acting out its Oedipal complex. Japan is a complete fiscal disaster spending over 25% of tax revenue just to pay interest. And China is rapidly deteriorating.

Sure there are some outliers like the Swiss franc that are in better shape. But the market for Switzerland’s currency is far too small to absorb trillions of dollars in global capital flows.

In the beauty pageant of major currencies, the US dollar is clearly the least ugly at the moment.

And I think anyone owning dollars should look at this as a gift.

Right now we have a tremendous opportunity to sell what’s expensive and buy what’s cheap.

The dollar hasn’t been this expensive in years. And many non-dollar assets haven’t been this cheap… ever.

Here in Turkey, the lira is at its lowest level in history. The South African rand is at its lowest level in history. We wrote about Indonesia’s rupiah on Monday.

I’m looking at real estate in Colombia at the moment where US dollar buyers can pick up high quality property for less than the cost of construction.

In Chile, the cheap exchange rate and slowing economy helped our fund to recently close on a farm at $4.3 million that cost $10 million less than two years ago.

In Australia there are a number of junior mining stocks that are trading for less than the amount of cash that they have in the bank.

(Again, premium members please expect a forthcoming alert on this.)

There are countless deals like this all over the world… especially if you’re buying in US dollars.

It’s foolish to expect that any reserve currency will last forever.

And it’s even crazier to expect a reserve currency with such pitiful fundamentals as the US dollar to last forever.

But markets are not orderly and efficient. They are chaotic.

Which means that, on rare occasions, enormous opportunities present themselves to buy high quality assets on the cheap.

That opportunity is now.

Government “accidentally” poisons major water source

Tue, 08/11/2015 - 15:15

August 11, 2015
Istanbul, Turkey

When I was a kid, I ‘accidentally’ lit my parent’s living room carpet on fire.

A friend of theirs had been over the night before and left his cigarette lighter on the coffee table.

And as I had never seen such magical technology before as instant fire at the push of a button, I started playing with it right away.

It only took a few minutes before I began burning the perforated edges of my dad’s dot matrix printer paper, all of which fell right out of my hands towards the carpet like how streaks of flaming meteorites fall to the earth from outer space.

Looking back it wasn’t really an accident.

The truth is that I was an idiot. I shouldn’t have been playing with fire (literally).

It certainly wasn’t the first, and would not be the last mistake that I ever made. We’re human. It happens. And we have to forgive ourselves when we screw up.

But when governments screw up, it tastes especially bitter.

This morning we all found out that the US Environmental Protection Agency caused a massive spill of more than 10 MILLION liters of toxic chemicals into the Animas River in Colorado.


At first the EPA admitted to about 3 million liters. But now another government agency with better data is saying, in fact, that it’s over 10 million liters.

The river flows into New Mexico and Arizona where it eventually joins Lake Powell, a major source of drinking water for Las Vegas, San Diego, and Los Angeles.

One can hardly call this an accident.

Just like when police ‘accidently’ shoot unarmed black men on a regular basis.

Or when the Defense Department ‘accidentally’ drone strikes a children’s hospital.

Or when the Treasury Department ‘accidentally’ fails to safeguard incredibly sensitive financial and personal information on over 100,000 taxpayers.

Or when ‘accidentally’ enrolled thousands of people into the government’s registry of sex offenders.

Or when the Census Bureau ‘accidentally’ funded a $2.6 million study on prostitutes in China.

The list goes on and on.

Hey look, we all make mistakes. But this is serial incompetence. It’s not about individuals screwing up their jobs, but rather an entire system designed to fail.

The Federal Reserve was founded 100 years ago to prevent banking panics, stabilize prices, and create stability in the financial system.

Yet ever since the Fed took over control the US economy, there has been an almost uninterrupted pattern of bubbles, busts, crises, and recessions.

The Department of Energy was created on August 4, 1977 to drastically reduce America’s reliance on foreign oil, which at the time was about 55% of US consumption.

Yet after four decades and tens of billions of dollars spent annually, the US still relies on foreign sources for about 55% of its total oil needs– all according to data at the very department that’s supposed to reduce it.

The US Department of Education has spent billions since 1979 trying to improve education in America.

Yet their own numbers show that reading scores have remained flat, and that nearly 2 out of 3 children in 8th grade still lack proficiency in both reading and math.

This is total insanity. Literally. My dictionary defines ‘insanity’ as extreme foolishness characterized by irrationality.

Of course my preferred definition of insanity is the old favorite about trying the same thing over and over again while expecting a different result.

This is how government works. Whenever there are problems created by government, they simply create more government.

We know deep down this system doesn’t work.

We know that government bureaucracy is a joke (generally the butt of many jokes, which are funny because they’re true…)

And yet we allow ourselves to be deluded every four years by election hype.

We allow ourselves to believe that the problems will go away, that THIS time will be different, if we just get the right person in office.

People thought the same thing back in 2008 with Barack Obama. And George W. Bush back in 2000.

The excitement for the 2016 election is already palpable. People are fed up. But they believe that one of these candidates has the secret key to fix everything in this giant ‘accident’ we call government.

Unfortunately this is delusional thinking. And yes, insanity.

I’m sure most of them are very nice people, and perhaps well-intended.

But the problem is the system itself: awarding the power to regulate nearly every aspect of our lives to a bankrupt, centralized authority which churns out over 80,000 pages per year of new rules and laws.

It’s time to stop investing in this process and start investing in yourself. Because these people aren’t going to fix anything.

When your government has to spend more money on mandatory entitlement programs and interest on the debt than it collects in tax revenue, you might as well elect a banana to be the President of the United States.

Nothing is going to happen by changing the players. You have to change the game.

And sometimes that means walking away from the table.

This currency has lost 97% of its value against the US dollar

Mon, 08/10/2015 - 09:22

August 10, 2015
Bali, Indonesia

[Editor’s note: Sovereign Man’s Chief Investment Strategist Tim Staermose is filling in today while Simon is teaching at his annual youth entrepreneurship workshop.]

In 1970, one United States dollar bought 360 Japanese yen. It also bought 363 Indonesian rupiah. Today, that same dollar buys just 124 yen. But, it buys over 13,500 rupiah.

Let that sink in. While the yen has gained 190% versus the greenback over the past 45 years, the Indonesian rupiah has lost over 97%!

First lesson: clearly, it matters a great deal in what currency you keep your savings.

But the above numbers are backward-looking. A shrewd investor will sell what’s expensive and buy what’s cheap. And the Indonesian rupiah certainly qualifies.

Indonesia is the world’s fourth most populous country. There are over 160 milion people just between the ages of 25 and 34, all with their peak earning and spending years ahead of them.

The economic growth potential from these people working, producing, and rising into the middle class is tremendously exciting.

Developing nations in this stage also typically have a significant apetite for giant infrastructure projects as more and more people graduate up the transportation pyramid from bicycles to motorbikes to small cars.

They need higher quality roads, and more of them. And as many of these new middle class start traveling by airplane for the first time ever, they also need more, bigger airports.

To give you just one example, there are almost no direct flights from Indonesia to Europe and there are none at all to the United States.

This doesn’t make any sense– modern, fuel-efficient jet aircraft can easily cover the distance.

The problem is that the main airport in Jakarta, Indonesia’s capital city, was built in the 1960s, and the runway is not strong enough to handle the weight of a fully loaded Boeing 777.

Consequently, Indonesia’s national airline (Garuda) has to deliberately NOT SELL about 20% of the seats on their flight from Jakarta to Amsterdam in order to decrease the weight.

This sounds like a crazy thing to have to do in 2015.

Because as Garuda is mostly owned by the government, they can fly routes like this that almost guarantee they’ll lose money.

But a normal airline that actually has to be concerned about profits won’t bother with something so economically inefficient.

That’s why most passengers traveling between Indonesia and Europe (or North America) end up having to inefficiently transfer via a third destination elsewhere in Asia.

There are so many more examples, ranging from Indonesia’s notoriously clogged road network to its inefficient port network.

But rather than view these challenges in a negative light, as a long-term investor I prefer to view them as a great opportunity to buy something that’s cheap (but has a lot of potential to grow).

One interesting investment possibility is a exchange-traded fund known as the Aberdeen Indonesia Fund (ticker symbol: IF).

This fund invests in Indonesian businesses typically listed on the stock exchange in Jakarta.

While the fund’s share price is denominated in US dollars, the stocks that it purchases in Jakarta are priced in rupiah. So if the rupiah improves, the fund’s US dollar share price will increase in value.

But there’s an even more interesting aspect to this fund.

As I write this letter, Aberdeen Indonesia Fund’s share price is $6.52. Yet each share has a ‘Net Asset Value’ of $7.36– 12.9% more.

This means that the fund’s assets (i.e. the Indonesian stocks that it owns) are worth 12.9% MORE than what the fund itself is worth.

So you can get an additional discount on Indonesian assets that are already selling for cheap.

And it doesn’t hurt that the fund pays a healthy income distribution each year as well. If this year’s distribution matches last year’s, you’ll be looking at a 8.4% yield.

Taking some exposure to the Indonesian currency and stock market today while the dollar is strong and the rupiah is weak seems a low-risk proposition to me.

Though you do need to have a long-term view. There is no guarantee the rupiah won’t go even lower in the short term. Picking a bottom is impossible.

But I like things that are cheap and hated, and that’s why it is already on my radar.

Important update to FBAR filing requirements

Thu, 08/06/2015 - 12:33

August 6, 2015
Vilnius Lithuania

Here’s a great example of how an important rule that may affect your life gets BURIED within a giant piece of legislation—

At first glance the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 doesn’t seem like it should have any impact on foreign bank accounts.

But in fact it does significantly.

This piece of legislation signed into law last week, changes the filing deadline for an FBAR by over two months.

If you’re not familiar, the Report of Foreign Bank and Financial Accounts, commonly known as the FBAR, is a form that US taxpayers must submit to report foreign bank and financial accounts.

In general, any US citizen, resident, corporation, partnership, LLC, etc. which either has a financial interest in, or signature authority over, a foreign financial account or accounts, must file the FBAR. Given that the aggregate total across all the accounts was at least $10,000 at any point during the previous calendar year.

Curiously, the FBAR is not filed to the IRS. It goes to the Financial Crimes Enforcement Network (FinCEN), and is submitted electronically via form FinCEN 114.

The FBAR filing deadline used to be June 30th every year, meaning that you had until June 30th to report all your financial accounts for the previous calendar year.

Now, HR 3236 changes the filing date to April 15th of each year to coincide with the US tax filing deadline.

This is pretty important news if you have a foreign bank account given that there are steep penalties for not filing.

But you won’t ever hear about it. At least not from the government.

Important changes like this are quietly passed and buried under hundreds of pages of legislation.

Yet they just expect you to know about it. As the old saying goes, ‘ignorance of the law is not an excuse.’

It’s as if these politicians honestly believe that people are sitting around watching CSPAN all day and reading the text of all the laws being debated.

And often times, the rules and regulations aren’t even passed by Congress.

In the Land of the Free, executive agencies have the authority to create their own rules, all of which have the same weight and effect as the laws passed by Congress.

And the volume is astounding.

Just yesterday, in fact, there were over 300 pages of new rules and regulations published in the Land of the Free, and nearly 80,000 published last year.

These rules govern things like what we can and cannot put in our bodies, how we can educate our own children, and what we’re allowed to do with our own property.

It’s impossible to keep up with all of this. And yet these rules often come with severe administrative, civil, and even criminal penalties for non-compliance.

You, at this exact moment as you read these words, are in violation of probably half a dozen regulations that you’ve never heard of, buried deep within over 175,000 pages of rules.

It’s all part of how the government in the Land of the Free has turned everyone into a criminal for simply existing.

Which means that if you ever get on the bad side of some bureaucrat, or anyone ever decides to go after you, they’ll easily be able to find dozens of charges to bring up against you.

And it’s not going to stop.

You can see in this bizarre video that the government is practically BRAGGING about how much they regulate you:

This is what freedom means today in America.

And while I can understand that there are a lot of nice conveniences to living in America, it’s time to be honest with yourself and to acknowledge that freedom is no longer one of those conveniences.

Get a world-class degree for less than the cost of a bus pass

Wed, 08/05/2015 - 12:05

Vilnius, Lithuania
August 5, 2015

Conventional wisdom tells you that a university degree is the best investment you can make for your career.

Invest the time and money now, they say, and you’ll make heaps more in the future.

The thing is, that’s not really happening anymore.

Tuition costs have skyrocketed, meaning a far higher initial investment, while potential returns have slumped.

From baristas to janitors, some 43% of graduates don’t even need a degree for the jobs they have.

This basically means that they are four years behind and $50,000-$100,000 worse off than if they’d just gotten that job straight out of high school.

There are better uses of one’s time and money than getting a degree.

But, if you feel like you absolutely HAVE to have a degree, at least do it smartly.

Treat education like an investment. Think about both the capital and opportunity costs, and calculate the expected returns.

The costs are the time and money that could be spent doing other things; while the potential returns are the knowledge, connections, and opportunities you stand to gain.

Then, look for great deals, where you can maximize your returns.

As is the case with most investments, many of the best deals are found overseas.

Peking University is the most prestigious in China; yet tuition runs less than $5,000 per year.

Here you would be rubbing elbows with China’s elite business circles, providing invaluable connections for doing business in the country later in life.

Meanwhile, you’d be saving on living costs and building up fluency in one of the world’s most important emerging business languages.

Ecole Polytechnique Federale de Lausanne, where you’d be studying at one of the finest universities in the world—in ENGLISH—for less than $1,500 a year.

Even if you just want to drop in, EPFL lets you attend classes without being awarded a degree for about 50 bucks per course.

This is a steal given that EPFL ranks higher than Cornell, Brown, Northwestern, Rice, Carnegie Mellon, Dartmouth, UC Berkley, BU, Duke, McGill, NYU, and many other top-ranked US schools.

Technical University of Munich, one of the most highly regarded universities in Europe, where you can get an advanced degree for a whopping $120 a semester.

AND that includes a free bus pass. I mean, it’s like being paid to go to school.

My favorite investment deals are always the ones where I can get something for nothing.

I love a great real estate deal, for example, where I can buy a high quality home for less than the cost of its construction. Or buying a company (stocks) for less than the amount of cash that it has in the bank.

Getting something for nothing is almost always a great deal. And they’re out there, whether you’re talking about traditional investments, or the investment you make in yourself (like education).

What stuns me is how few people take advantage of this, especially when they come from high cost countries like the United States.

In fact, only about 4,600 American students are enrolled in all of Germany, where tuition costs throughout the country are uniformly low.

Just think about it– imagine spending next to nothing while graduating debt-free, with international experience, and possibly even another language under your belt?

Now that is how you make going to university profitable.

Some clear thinking about the price of gold.

Tue, 08/04/2015 - 11:34

August 4, 2015
Vilnius, Lithuania

On April 2, 2001, the price of gold closed the market trading session at $255.30.

And that was the lowest price that gold has seen ever since.

In US dollar terms, gold closed the 2001 calendar year higher than it did in 2000. Then it did the same thing again in 2002. And again in 2003.

In fact, after reaching its low in April 2001, gold closed higher for twelve consecutive years– something that had never happened before in ANY financial market with ANY asset.

Then came a correction; the price started falling, and gold is now on track for 2015 to be its third down year in a row.

What’s incredible is that, despite its history of gains, and 5,000 years of tradition behind it, gold is rapidly becoming one of the most widely despised assets.

But before we pronounce it dead and write the final gold eulogy, however, let’s consider the following:

1) Nothing goes up (or down) in a straight line. After 12 straight years of unprecedented gains with any asset class, it’s not unusual to have a meaningful correction.

(Just imagine how severe the correction in stocks will be. . .)

And like all frantic booms which go way past sustainable levels, corrections also overshoot fair value.

This correction in the gold market could easily last for several more years, with prices potentially well below $1,000.

But then we could just as easily see another massive surge all the way past $2,000 and beyond.

That’s the nature of these markets– to be extremely fickle (and highly manipulated).

Even over a period of a few years, the market can show about as much maturity as a middle school lunchroom, complete with pubescent gossip and inane popularity contests.

But it’s rather short-sighted to completely lose confidence in an asset that has a 5,000 year track record because of a few down years.

2) The gold price shed nearly 5% after the government of China announced recently that they owned 1,658 metric tons of gold.

This amount was lower than what many investors and analysts had been expecting, and the price of gold dropped as a result.

My question- since when did anyone start believing official reports from the Chinese government?

Seriously. The Chinese have a vested interest in understating their gold holdings.

They know that doing so will push the price of gold LOWER, which is exactly what they want.

China is sitting on trillions of dollars in reserves right now, a portion of which they’re rapidly trying to rotate OUT of US dollars.

So it’s clearly beneficial to the Chinese government if they can sell dollars while they’re strong and buy gold while it’s cheap.

And if they can push gold to become cheaper, even better for them.

3) Remember why you own gold to begin with.

Gold is a very long-term store of value. Notwithstanding a few down years, gold has maintained its purchasing power for thousands of years.

Paper currencies come and go. They get devalued, revalued, and extinguished altogether.

How much would you be able to buy today with paper money issued by the 7th century Tang Dynasty? Nothing. It no longer exists.

Or a pound sterling from 1817? Very little. It’s barely pocket change today.

Yet the gold backing up that same pound sterling from 1817 is worth over $250 today (165 pounds).

Even in modern history, the gold backing up a single US dollar from 1971 is worth vastly more than the paper currency that was printed 44 years ago.

But even more importantly, aside from being a long-term store of value, gold is a hedge— a form of money that acts as an insurance policy against a dangerously overleveraged financial system.

How much will your dollars and euros buy you in the event of real financial calamity? Or if there’s a major government default or central bank failure?

No matter what happens in the financial system– whether it collapses under its own weight, or cryptofinance technology revolutionizes how we do business– gold ensures that you’re protected.

4) Resist the urge to value gold in paper currency. We all have this tendency– we invest in something, and then hope it goes up in value.

But that’s a mistake with gold. It’s a hard thing for some people to do, but try to stop yourself from thinking about gold in terms of its paper price.

(It’s also important to remember that there’s a huge disconnect between the ‘paper price’ of gold, and the physical price of gold.)

Remember, gold is not an investment; there are plenty of better options out there if you’re looking for a great speculation.

So the notion of trading a stack of paper currency for gold, only to trade the gold back for a taller stack of paper currency misses the point entirely.

5) Having said that, if you find it too difficult to do this, and you catch yourself constantly refreshing the gold price and checking your portfolio, you might own too much.

Listen to your instincts; if you’re always feeling frantic about the daily gyrations in the market, lighten your load.

Don’t love anything that won’t love you back. Stay rational. Own enough gold that, in the event of a crisis, you will feel comfortable that you have enough ‘real savings’… but don’t own so much that you’re constantly worrying about the paper price.


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