March 24, 2014
Sovereign Valley Farm, Chile
When it comes to investing money, there’s no such thing as a sure thing.
Even the ‘safest’ investment in the world (US Treasuries) is anything but safe.
I mean… on what planet does it make sense to loan your hard-earned cash to the biggest debtor that has ever existed in the history of the world?
Once you deduct taxes, the net return you’ll receive won’t keep pace with the official rate of inflation. It’s an insane investment… hardly ‘risk free’.
There’s risk in everything we do. There’s risk in making investments. There’s risk in doing nothing and simply holding cash.
This is one of the reasons why I like real assets. It’s very difficult for farmland to go to zero. And if I buy wisely and carefully, I can decrease my downside risk substantially.
It’s not often that the stock market brings us such opportunities.
Most stock markets around the world now depend on the whims of central bankers, not fundamentals.
And they’re so frothy with paper money that stock valuations are astronomical. There’s just no value left.
This is a huge reason why I don’t invest in stocks. But the opportunity in Russia today is so remarkable, even I had to make an exception.
Amid all the sanction talk since this whole Crimea debacle kicked off, Russia’s MICEX stock market index has tanked. So has the Russian ruble.
This decline has very little to do with a change in fundamentals and everything to do with political posturing. The White House went as far as to tell people to NOT buy Russian stocks. Apparently they listened.
The average large cap stock in Russia now has a price/earnings ratio of just 5.32 (compared to 17.20 for the S&P 500 in the US).
Plus the average price / book ratio in Russia is just 0.62. Peanuts.
Look at Gazprom as an example, which has a price/book ratio of about 0.33 and a P/E ratio of 2.33.
Gazprom’s market cap is roughly $80 billion. But it’s NET assets are worth about $260 billion. Plus the company generates a whopping $33 billion per year in profit.
This means (theoretically) that if you had an extra $80 billion laying around, you could buy Gazprom, sell off the assets, and put $180 billion in your pocket.
Obviously that couldn’t actually happen in real life. But it gives you a sense of the value at stake.
And when you can buy productive assets in an emotionally-charged, inefficient marketplace for substantially less than what they’re actually worth, it substantially reduces the downside risk, especially if you are holding for the long-term.
This is a major bargain that rarely comes along, especially given that there is very little which threatens these companies’ long-term earnings or dividends.
Gazprom is still going to produce oil and gas.
But if Russian stock prices AND the ruble recover, foreign investors will be looking at tremendous profits.
Even if stock prices stagnate, though, these companies are still generating significant profits and paying out dividends to their investors. So you’ll be getting paid handsomely to wait.
There are a number of Russian companies (like Gazprom) which trade on the Pink Sheets or foreign exchanges like the LSE.
But if you prefer to keep things uncomplicated, there are a number of ETFs which exclusively hold Russian stocks, like the SPDR S&P Russia Fund (RBL).
March 24, 2014
Palladium is like the Rodney Dangerfield of precious metals. It never gets any respect.
If you ask someone about precious metals, in fact, just about everyone has heard of gold and silver. And occasionally platinum.
But palladium is one of those obscure precious metals that few people think about, or even know about.
Aside from actually having its own currency code (XPD), palladium is widely used in a variety of industrial applications, from spark plugs to catalytic converters to hydrocarbon ‘cracking’ to electronic components.
And here’s something most people don’t know: most of the world’s palladium is mined in Russia.
Since October 2013, Palladium prices have had a moderate boost—about a 5.3% increase in five months.
But given what’s happening in Russia, prices could soar. In fact, with trade sanctions looming, palladium could be taken off the world market indefinitely.
As the following chart shows, palladium has just broken out to a new 52-week high and is showing strong upward momentum.
Moreover, if you look at the 5-year chart, it could be about to break out to even longer-term highs.
I would consider buying palladium today, with a stop-loss order to protect your capital, at $759. That means if the market should prove this thesis wrong, the loss would be limited to just 4%.
I think the near-term upside target is the 5-year high of $855. That’s about an 8% gain from where we are today.
An upside of 8% versus a downside of 4% makes palladium a good risk/reward trade, given that the odds of the higher-price outcome are much better than the odds of the lower-price outcome.
But if tensions between the West and Russia escalate and trade sanctions stay in place for a prolonged period, $855 could be a very conservative upside target for palladium.
The last time Russia withheld palladium supplies from world markets back in 2000, the price rose 151% from a low of $433 in January 2000 to over $1,090 an ounce by January 2001.
In a scenario like that, palladium would be an incredibly profitable trade.
One easy way to take a position in palladium is via the ETFS Physical Palladium Shares (PALL on the New York Stock Exchange).
A new physical palladium ETF sponsored by Standard Bank has also just launched in South Africa.
And Absa Bank, which already sponsors the world’s largest platinum-backed ETF, has also announced it will launch a palladium ETF called NewPalladium. It will list on the Johannesburg Stock Exchange on March 27th.
These new palladium ETF launches, coming at a time of tightening supply due to Russian sanctions, could easily add more upward momentum to palladium prices, as they will withdraw supply from the market to physically back their shares.
However, if you want to avoid the possibility of any counterparty risk, there’s no substitute for owning the physical metal yourself.
The Royal Canadian Mint has in the past minted palladium versions of its very popular and instantly recognizable Maple Leaf bullion coins.
You can also buy 1 troy ounce palladium bars from most major dealers.
Jim Rickards, author of one of my favorite books Currency Wars and his upcoming book “The Death of Money: The Coming Collapse of the International Monetary System”, joins me today to discuss the death of money.You’ll hear about:
- Why a collapse of the international monetary system is coming
- Why it will be bigger than last time, and bigger than central banks
- Why he thinks the Fed can’t print their way out of the next crisis
- And why you won’t like the solution
Liked this? Subscribe on iTunes and share it with a friend below:
March 20, 2014
Sovereign Valley Farm, Chile
A few months ago, I told you about a bold report published within the IRS that absolutely blasted the agency’s mafia tactics.
In its 2013 annual report to Congress, the Office of the Taxpayer Advocate wrote that the IRS shows “disrespect for the law and a disregard for taxpayer rights.”
Further, the report says that the current system “disproportionately burdens those who [make] honest mistakes,” and that “tax requirements have become so confusing and the compliance burden so great that taxpayers are giving up their U.S. citizenship in record numbers.”
We all know the stories. The IRS has nearly infinite power to do whatever it wants, including freezing you out of your own bank account without so much as a phone call, let alone due process.
In the Land of the Free, people think they’re innocent until proven guilty. This is total BS. If you are only suspected of wrongdoing, you can be locked out of your entire savings.
This is an incredible amount of authority to wield.
But the British government has just gone even further.
Buried in its most recent budget package is a curt little paragraph that reads “The Government will modernise and strengthen [the tax agency's] debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax.”
Read that one more time just to let it sink in.
The British government is setting an absurdly low threshold at £1,000… about $1,650 in back taxes.
And they’re saying that if the tax authorities believe you owe even just a minor tax debt, they will not only FREEZE your assets, they’ll dip into your bank account and TAKE whatever they want.
Judge, jury, and executioner. They get to decide in their sole discretion if you owe them money, and they get to take as much as they want to satisfy the debt.
I can’t even begin to imagine why any Brit in his/her right mind would continue to hold a substantial amount of savings in UK banks.
You are practically begging for the government to relieve you of your hard-earned savings.
Even if you haven’t done anything wrong, and have paid up everything that you owe, the slightest clerical error could have them plunging their filthy hands into your account.
These issues are worldwide. Whether you’re in the US, UK, France, Cyprus, etc., when governments go bankrupt, these are precisely the sorts of tactics they resort to.
Rational, thinking people need to be aware of this trend. And it behooves absolutely everyone to come up with a plan B. Because at the rate things are going, Plan B may very soon become Plan A.
March 20, 2014
Sovereign Valley Farm, Chile
As any long-time reader of this column knows, we routinely draw from historical lessons to highlight that this time is not different.
Throughout the 18th century, for example, France was the greatest superpower in Europe, if not the world.
But they became complacent, believing that they had some sort of ‘divine right’ to reign supreme, and that they could be as fiscally irresponsible as they liked.
The French government spent money like drunken sailors; they had substantial welfare programs, free hospitals, and grand monuments.
They held vast territories overseas, engaged in constant warfare, and even had their own intrusive intelligence service that spied on King and subject alike.
Of course, they couldn’t pay for any of this.
French budget deficits were out of control, and they resorted to going heavily into debt and rapidly debasing their currency.
Stop me when this sounds familiar.
The French economy ultimately failed, bringing with it a 26-year period of hyperinflation, civil war, military conquest, and genocide.
History is full of examples, from ancient Mesopotamia to the Soviet Union, which show that whenever societies reach unsustainable levels of resource consumption and allocation, they collapse.
I’ve been writing about this for years, and the idea is now hitting mainstream.
A recent research paper funded by NASA highlights this same premise. According to the authors:
“Collapses of even advanced civilizations have occurred many times in the past five thousand years, and they were frequently followed by centuries of population and cultural decline and economic regression.”
The results of their experiments show that some of the very clear trends which exist today– unsustainable resource consumption, and economic stratification that favors the elite– can very easily result in collapse.
In fact, they write that “collapse is very difficult to avoid and requires major policy changes.”
This isn’t exactly good news.
But here’s the thing– between massive debts, deficits, money printing, war, resource depletion, etc., our modern society seems riddled with these risks.
And history certainly shows that dominant powers are always changing.
Empires rise and fall. The global monetary system is always changing. The prevailing social contract is always changing.
But there is one FAR greater trend across history that supercedes all of the rest… and trend is the RISE of humanity.
Human beings are fundamentally tool creators. We take problems and turn them into opportunities. We find solutions. We adapt and overcome.
The world is not coming to an end. It’s going to reset. There’s a huge difference between the two.
Think about the system that we’re living under.
A tiny elite has total control of the money supply. They wield intrusive spy networks and weapons of mass destruction. The can confiscate the wealth of others in their sole discretion. They can indebt unborn generations.
Curiously, these are the same people who are so incompetent they can’t put a website together.
It’s not working. And just about everyone knows it.
We’re taught growing up that ‘We the People’ have the power to affect radical change in the voting booth. But this is another fairy tale.
Voting only changes the players. It doesn’t change the game.
Technology is one major game changer. The technology exists today to completely revolutionize the way we live and govern ourselves.
Today’s system is just a 19th century model applied to a 21st century society. I mean– a room full of men making decisions about how much money to print? It’s so antiquated it’s almost comical.
But given that the majority of Western governments borrow money just to pay interest on money they’ve already borrowed, it’s obvious the current game is almost finished.
When it ends, there will be a reset… potentially a tumultuous one.
This is why you want to have a plan B, and why you don’t want to have all of your eggs in one basket.
After all, why bother working so hard if everything you’ve ever achieved or provided for your children is tied up in a country with dismal fundamentals?
March 19, 2014
Truth can be a damn difficult thing to digest sometimes.
Some of us have been there. You get that news from the doctor that you, or a loved one, has just been diagnosed with a serious disease, and it hits you like a ton of bricks.
Several years ago my father was diagnosed with a brain tumor known as a Glioblastoma (GBM). A GBM diagnosis is essentially a death sentence– it’s one of the most aggressive tumors in existence, and it grows in the part of the body that modern medicine understands the least.
I clearly remember the neurosurgeon telling us, “There have been some miraculous advances in medicine over the last 20-years related to the treatment of cancerous tumors. Unfortunately, this tumor is not one of them.”
It was a tough pill for everyone to swallow… especially my father.
Our natural defense mechanism as human beings is to deny reality. These sorts of things happen to other people, not to us.
It’s this same defense mechanism that leads people to ignore the obvious fiscal realities of their home country despite overwhelming objective evidence.
After all, debt-fueled collapse happens to other countries. Not to us.
We go our entire lives being told that our country is different. We’re special.
We have televised ‘experts’ going on TV explaining why our debts and deficits don’t matter. And Nobel Prize-winning pseduoscientists complaining that our debts and deficits aren’t big enough.
But deep down you know the truth.
In the Land of the Free, the Government Accountability Office (GAO) recently released its 2013 Financial Report of the United States government.
This is the government’s best attempt at an honest accounting of its books. And even though they use a different accounting system that gives them special advantages, the picture is still remarkably bleak.
We all know that the US government has racked up a substantial debt; as of this morning, total outstanding public debt is $17,546,814,482,078.90. ($17.5 trillion)
But it’s not all about the debt. Debt is not necessarily evil… and it’s important to look at the situation qualitatively in addition to quantitatively.
Let’s drop a few zeros and consider this in terms of personal finance.
Assume you had $1.75 million in total debt. That sounds like a lot to most people.
But if you had $3 million in liquid assets to offset the debt, plus $500,000 in annual income to pay interest, living expenses, and just about any contingency that could come your way, you’d be in great shape.
It would be even better if that $1.75 million in debt financed a lucrative real estate investment which was generating a 25% cash-on-cash return for you.
But that’s not the case for the US government.
Despite the Obama administration touting a budget deficit of “only” $680 billion in 2013, the GAO’s more accurate accounting shows a total government cost of $3.8 trillion on total revenue of $2.8 trillion.
In other words– the administration wasn’t exactly honest with the American people– the deficit was more like $1 trillion, not $680 billion. But it gets worse.
The GAO added up ALL the US government’s assets in 2013. Aircraft carriers. The highway system. Land. Cash and financial assets. The total is $2.97 trillion.
The liabilities, on the other hand, total $19.88 trillion. This includes the official public debt, plus all sorts of IOUs and loan guarantees.
This means the net EQUITY of the US government is minus $16.9 trillion.
Moreover, the US government’s cash position is a mere $206 billion… roughly 1.1% of its public debt. This isn’t enough to cover net interest payments for the next year.
Unlike a savvy investor who borrows cheap money to purchase productive assets, the US government borrows money to pay interest.
Quantitatively AND qualitatively, the data point to an inevitable conclusion: despite all the propaganda, this is NOT a risk free environment.
And understanding these trends and consequences is absolutely critical to your long-term financial survival.
March 18, 2014
[Editor’s Note: Tim Staermose, Sovereign Man’s Chief Investment Strategist, is filling in for Simon today.]
Forget tapering. Forget Ukraine. The largest single risk to the world economy and financial markets right now is China.
What’s going on in China reminds me a lot of what I witnessed firsthand when I lived in South Korea in the 1990s, before that economy’s crash in 1998.
Just as China now, South Korea was an immature, state-controlled financial system funneling cheap money to well-connected and politically favored large enterprises.
Fuelled by a steady diet of cheap money, these companies kept adding capacity with no regard to profitability or return on capital. They simply focused on producing more stuff and expanding their size. They employed more people, and everyone was happy.
But, all the while, they were borrowing more and more money, until eventually they collapsed under the debt load when liquidity dried up.
Before Korea, the exact same thing happened in Japan, and a giant, unsustainable debt binge brought the “miracle economy” to its knees.
But the Korean and Japanese debt bubbles are nothing compared to what we see in China today.
Consider this: in the last five years, the Chinese created $16 TRILLION in credit that is now circulating in the economy… financing ghost cities and useless infrastructure projects.
Floor space per capita in China is now 30 square meters (about 320 sq. ft.) per person. Japan was at that level in 1988. And the economy burst the following year.
More astounding, this $16 trillion in credit is DOUBLE the $8 trillion in credit that China created in the previous 5,000+ years of its existence.
The Chinese government recognizes it has a problem. It realizes it can no longer keep the dam from breaking. And in the past week, it bit the bullet.
In the last two weeks, Chaori Solar and Haixin Steel were allowed to default, i.e. they weren’t bailed out.
This is the first time in China’s modern history they’ve had a default, let alone two. They can no longer keep the game up, and the dominoes are beginning to topple.
I cannot stress this enough. What we’re witnessing is a major paradigm shift.
Of course, the Chinese government claims they can control the impact of these “relatively minor” corporate defaults.
But as we saw during the sub-prime crisis in the Unites States, the complex web of inter-linkages in the financial system means they are playing with fire.
I expect many more defaults in China in the coming weeks and months. I expect some important Chinese financial institutions to get into trouble.
And I expect the Chinese government will completely lose control over the situation.
My recommendations are 2-fold:
1. If you have any exposure to Chinese stocks, or the Chinese Yuan, I strongly suggest you reconsider.
2. If you have investments in iron ore or copper producers, get out.
But it’s not all doom and gloom. It’s going to take time for China to suffer through this crisis. But, if the Chinese government lets the dominoes fall where they may, the country will be better off in the long term.
The lessons from markets such as South Korea and Indonesia, in aftermath of the 1997-1999 Asian economic crisis, are clear.
If China frees up and liberalizes its financial markets in the face of a crisis, writes off bad loans, and closes down insolvent banks, it will emerge in a much stronger position once the crisis blows over.
And there will be lots of money to be made buying good-quality Chinese shares during the crisis. But, for now, it’s time to brace for the downturn.
It was almost exactly one year ago to the day that an entire nation was frozen out of its savings… overnight.
Cypriots went to bed on Friday thinking everything was fine. By the next morning, they had no way to pay bills or buy food.
It’s certainly a chilling reminder of how quickly things can change. And why.
The entire crisis sprang from a mountain of debt. The government had accumulated too much debt. The banking system had accumulated too much debt.
And banks had lost a lot of their customers’ money making risky, stupid bets on things like Greek government bonds.
By March 2013, Cypriot banks were almost entirely devoid of cash.
Sure, customers could log on to a website and check their bank balances.
But there’s a huge difference between a number displayed on a screen, and a well-capitalized bank that actually holds abundant cash.
The government was too insolvent to bail anyone out. And as a member of the eurozone, Cyprus didn’t have the ability to print its own money.
So they did the only thing they could think of– confiscate customer deposits.
And they imposed capital controls on top of that to make sure that people couldn’t withdraw their remaining funds out of the banks as soon as the freeze was lifted.
It was a truly despicable act. But again, even though it all unfolded overnight, the warning signs were building for at least a year. Especially the debt.
When countries, central banks, and commercial banks accumulate too much debt, and specifically too much debt relative to assets, you can be certain there is trouble ahead in the system.
Think about it like your own personal finances. If you have a million dollars in debt, that seems like a lot. But if you own a home worth $5 million, you are still in good shape financially.
If, on the other hand, you have a million dollar mortgage for a home that’s worth $250,000, you’re in deep trouble.
The US government’s official, ‘on the books’ debt now exceeds $17.5 trillion. This is an enormous figure.
If the Uncle Sam just happened to have $20 trillion or so laying around, however, this debt load wouldn’t be a big deal. But that’s not the case.
By the US government’s own admission, their own financial statements show net equity (assets minus liabilities) of MINUS $16.9 trillion.
That’s including ALL the assets: Every tank. Every bullet. Every body scanner. Every highway.
Then you have to look at the Central Bank, which is itself teetering on insolvency.
The Federal Reserve’s balance sheet has exploded since 2008, and right now the Fed’s net equity (assets minus liabilities) is about $56 billion.
That’s a razor-thin 1.34% of its $4 trillion in assets (it was 4.5% before the crisis).
Here’s the thing: in its own annual report, the Fed just admitted that it had accumulated ‘unrealized losses’ totaling $53 billion. This is almost the Fed’s ENTIRE EQUITY.
So in the Land of the Free, you now have an insolvent government and insolvent central bank underpinning a commercial banking system that is incentivized to make risky, stupid bets with their customers’ money.
To be fair, I’m not suggesting that bank accounts in the US are going to be frozen tomorrow morning.
But a rational person should recognize that the warning signs are very similar to what they were in Cyprus last year.
And if there is one thing we can learn from the Cyprus bail-in, it’s that it behooves any rational person to have a plan B, even if you think the future holds nothing but sunshine and smiley faces.
Having a plan B can mean a lot of different things depending on your situation– moving some funds abroad, securing a second source of income, having an escape hatch overseas, owning physical gold, holding extra cash, etc.
You’re not going to be worse off for having a plan B based on the possibility that there -could- be some problems down the road.
But if those consequences are ever realized,and Plan B becomes Plan A, it might just turn out to be the smartest move you’ve ever made.
If you think this makes sense then I encourage you to sign up for our free Notes From the Field if you haven’t already done so, and you can also share this article with your friends below so they’re not without a plan B if things do take a turn for the worse.
March 17, 2014
Dallas, Texas, USA
For our second Sovereign Man podcast, I’m pleased to bring along a special guest– my friend Peter Schiff, who I’ve just spent the last week with darting around the Caribbean. In today’s podcast, Peter and I focus on gold: why you should own it, and what’s happening in the marketplace right now. If you know anything about Peter, you can probably already tell that this edition will be highly entertaining.
Peter and I were both speakers at an investment conference that I’ll tell you about. And while I generally turn down all the speaking invitations I receive, this event was really great, and I’m glad I went.
There’s a lot going on in the world and sometimes it’s just too hard to capture everything in a 500 word missive.
In our first podcast episode, we cover a range of topics from the Sovereign Man worldview and the deteriorating personal freedom in America to telling examples from history, and give some very timely advice that rational thinking people ought to be considering right now.
I encourage you to download it, put it on your mobile device and listen to it at the gym, in the car, and share it with your friends, and also feel free to let us know what you think.
You’ll find it on iTunes as well in the very near future, along with more exciting episodes.
March 14, 2014
Ambergris Caye, Belize
One of the great things about being a foreigner in developing countries is how easy it is to get access to influential decision-makers.
If you’re in the UK or US, for example, the chances of sitting down with the President or Treasury Secretary are almost nil.
In developing countries, this access is much easier to obtain. I often start with a country’s biggest law firm—top lawyers are typically very well-connected… as are real estate agents and property developers.
Through this approach, I’ve routinely been able to meet with Prime Ministers, Presidents, Ambassadors, government ministers, etc. around the world to gain unique insights into who exactly is running the country, and what their next moves are.
Here in Belize it’s no different. And I just had the chance to sit down for a nice chat with Jose Manuel Heredia, Jr., the country’s Minister of Tourism.
In our conversation, we talked investment opportunities in Belize, residency, and what the government is doing to make things easier and more streamlined for foreigners.
He gave me some really insightful data, including a sneak peak at how they are planning on vastly improving Belize’s popular retiree program.
Once these improvements are made, I would rank residency in Belize quite favorably relative to other options. So this country should definitely be on people’s radars if they’re looking for a potential escape hatch.
You can read excerpts of the interview below:
Simon Black: It’s no secret that Belize certainly has a lot of great things going for it. This isn’t some hidden paradise nobody has ever heard of—the word is definitely out. Beautiful Caribbean setting. English language. And so close to the US and Canada—as you point out, at 2.5 hours, it’s quicker to fly from Dallas to Belize than from Dallas to Washington, DC.
And it’s really been growing, changing, improving… it certainly has since I was last here.
Minister of Tourism: I would love to say that even though my hometown is right here in San Pedro, Belize, I believe this is one of the best destinations in the world.
If you had asked me six years ago about Belize, I would have felt that it was just another place to be. But today, learning to appreciate what we have and seeing what Belize has and having traveled so much now, I can see that we have a complete package.
Simon: Speaking of a complete package, let’s talk about a popular package here that Belize offers for foreigners—a sort of ‘residency’ package you call the QRP.
MoT: The QRP (Qualified Retired Persons) program was founded and initiated several years ago. We are always trying to make it more attractive.
To qualify, someone has to be able to demonstrate $2,000 in monthly income, and be at least 45 years old.
Simon: Is it a really bureaucratic process?
MoT: Being the minister, I try to make sure that I can expedite this process to get it done as soon as possible, so that people feel like they can get things done in Belize.
I mean, I actually get involved personally to make sure that people have confidence that when they’re applying, they will be able to have their QRP and residency within the shortest possible time.
Once through the process, people have residency to live in the country and can bring anything that they want to bring into the country– household goods, a car, a boat, an airplane, all free of duties. And any income is not taxable as well.
Simon: In the past, there have been some issues with this program—that the QRP does not lead to Belizean citizenship. But you mentioned that this is probably changing.
MoT: Yeah. In the past, if you wanted to become a citizen of the country, even though you might be living ten years over here on the QRP, and you wanted to become a citizen, you would have to give up your QRP and start from scratch [with a different residency program].
We want to change this. The attorney general and myself, we talk to [the other ministers and leaders in government], and say that if you have lived legally for five years in Belize, even under the QRP, you can qualify for citizenship.
Simon: That’s fantastic, it’ll fix a major flaw in the program, thanks for that information.
So, one of the other very interesting things about this place is that there is some interesting investment opportunity in the tourism space. Here in Ambergris Caye, the island definitely goes through periods where some of the hotels have an occupancy rate of practically 100%.
MoT: Yes. As I mentioned before, forty percent of tourists to Belize come here to the island.
Simon: And those tourist numbers are growing rapidly.
MoT: Yes- we embarked three years ago on an aggressive marketing campaign, and it has started to pay off fruitfully. Two years ago, our tourism growth was 10.5%. Last year it was another 7.5%. Based on the numbers we saw in January, we are projecting similar growth this year.
Simon: Belize has a lot of islands, but this is definitely one of the nicest and most developed. But being an island, it is constrained by size, and that limits supply. Do you know how many hotel rooms are on the island now?
MoT: If I am not mistaken, then I am sure we have about two thousand rooms.
Simon: Two thousand rooms. Okay. Not really a ton of space, then.
MoT: No. Thirty years ago, back when San Pedro was a small fishing village with probably no more than two thousand residents, we had one hotel with just 7 or 8-rooms.
Simon: And you mentioned earlier, you’ve worked with a few other major airless to establish new service to Belize, including Copa in Panama… so that will really open the South American market to you.
So, with two thousand rooms, do you know, more or less, what the occupancy rates are right now across all those rooms on the island?
MoT: At this moment, I think we are doing better than sixty percent.
Simon: What was it like back in 2008, 2009 in the early days of the recession?
MoT: At that point, it was no more than forty percent. Slow season was terrible. A number of the hotels had to close during that time because it was just not sustainable.
Simon: And the slow season is getting shorter and shorter now.
MoT: Yes. Slow season used be the end of July. August. September. October. November. Today, the peak season runs all the way to September.
Simon: That’s really interesting. Some friends of mine are getting involved in the hotel business here, and they’ve shown me the numbers. It matches exactly what you’re saying—the growth rates are very interesting, and they’re projecting to be able to return 20% or better to investors, even under a rather conservative scenario. And they’re very confident in making the investment here.
MoT: The investment confidence here is strong; it has to do with a government’s credibility. Belize used to be perceived as one of the most corrupt countries in the region. And when we took over a few years ago, the credibility of the previous government was zero.
Simon: Yeah, Belize was pretty famous for scandal and corruption.
MoT: Today, the credibility of government is higher. And with the confidence so great now, I am seeing more and more nationwide development starting to happen. The potential is great.
Simon: Excellent, thanks so much for the insights.
March 14, 2014
Ambergris Caye, Belize
One of the key lessons we can take away from history is that the global financial system changes… frequently.
In ancient times, Roman coins were used across the region by Romans and non-Romans alike who engaged in trade and commerce.
Given how destructively successive Roman governments debased their coins, however, the reserve burden eventually fell to the Byzantine Empire, whose gold solidus coin became the dominant currency in world trade.
Over the centuries, this standard changed several more times. The Venetians, Florentines, Spanish, French, British, etc. each issued the world’s dominant currency at one point or another.
But the fundamentals of those currencies changed. Governments engaged in wanton debasement, mismanaged their economies, and accumulated massive debt levels. And eventually the world shifted to new currencies.
Since the end of World War II, the US dollar has been the dominant currency in the world.
And even though Richard Nixon ended the dollar’s convertability to gold and unilaterally abandoned the US government’s obligations under the Bretton Woods system back in 1971, the world has still clung to the dollar for the past 43-years.
But this is changing rapidly.
The Chinese, which have their own economic issues to deal with, are starting to dump Treasuries in record numbers.
Central banks are buying up more gold. Foreign countries are entering into bilateral currency swap arrangements with one another. And world governments are starting to (rather embarrassingly) demand that the US get its budget and fiscal house in order.
Most tellingly, though, member nations of the International Monetary Fund are starting to revolt.
As one of the major organizations spawned from the post-war financial structure, the IMF’s original goal was to ensure the smooth development of a new global financial system.
Over 180 countries have since become members of the IMF. But the organization runs on a quota system, with each member nation having a certain percentage of the IMF’s overall votes.
The US, for example, has the most power by far with a 16.75% share of the vote. Japan is a distant second with a 6.23% share.
This puts the US in the driver’s seat. And it’s been that way for decades.
But most of the other 180+ nations have had enough. And they’re pushing the United States to massively overhaul the current quota system.
Even typical allies are breaking ranks. Australian Treasurer Joe Hockey recently told reporters at a financial conference that they will “actively lobby” the US to reform the IMF quota issues, and that “Congress must understand that it is in the interest of the US to reform the IMF. . .”
India. China. Just about everyone imaginable is pushing for major IMF reform. Everyone except the Land of the Free. The US government seems to like things the way they are. And Congress has been very intransigent in adopting any planned reforms.
These people have their heads buried in the sand so deep that they can’t even hear the rest of the world SCREAMING for a new financial system.
This is going to happen, whether the US wants it to or not.
And while no foreign government wants a collapse of the dollar, they do very much want an orderly rebalancing of the financial system. This is already under way.
The US government may pretend that everything is fine and dandy. But given the overwhelming objective evidence out there, folks who aren’t on board with this major trend are ignoring it at their own peril.
March 14, 2014
Ambergris Caye, Belize
My research team recently passed along a piece of legislation they were looking at called the “ENFORCE the Law Act of 2014.”
It immediately piqued my interest… because anytime you see all CAPS in government documents, it signifies some absurd acronym. And the ‘ENFORCE the Law Act’ did not disappoint.
ENFORCE stands for “Executive Needs to Faithfully Observe and Respect Congressional Enactments”.
And the stated objective of the legislation is “to protect the separation of powers in the Constitution of the United States by ensuring that the President takes care that the laws be faithfully executed. . .”
The bill goes on with specific language to authorize Congress bringing civil legal action against the President of the United States, or any cabinet secretary, for implementing some rule or executive order that does not conform with Article II of the Constitution.
This pretty much sums up the sad state of affairs in the Land of the Free.
When Congress has to pass a new law just to get the President of the United States to, you know, follow the Constitution that he swore to ‘support and defend’, you can be certain that the system has become broken beyond all repair.
This isn’t a commentary on the current POTUS; the disturbing trend of rapidly expanding executive abuse has been increasing for years.
It has nothing to do with Mr. Obama, or Mr. Bush before him, or future Presidents that will continue to expand their offices.
It’s the system itself that is fundamentally flawed. The model is simply no longer valid. Having an election and voting in a new commander-in-chief won’t fix the problem. All you’re doing is changing the players. It’s time to change the game.
March 13, 2014
Belize City, Belize
Nearly four thousand years ago, King Hammurabi of Babylon laid out his eponymous “Hammurabi’s Code”, a series of laws that is still famous to this day.
Most people know Hammurabi’s Code as “an eye for an eye, a tooth for a tooth”. Yet what few realize is that the code was actually one of the original attempts at government wage and price controls.
Hammurabi’s Code decreed, for example, that the daily rate of pay for a tailor would be five grains of silver, and a farm laborer would be six grains of silver. The cost of hiring a small animal for field work would be four bushels of corn. Etc.
Of course, Hammurabi’s attempts to control prices didn’t work one bit. In his book The Old Babylonian Merchant: His Business and Social Position (published 1950), historian W.F. Leemans writes:
“Prominent and wealthy tamkaru [merchant traders] were no longer found in Hammurabi’s reign. Moreover, only a few tamkaru are known from Hammurabi’s time and afterwards . . .”
Despite the economic failures of Hammurabi’s experiment, though, wage and price controls have been tried again and again throughout history.
2,000 years later, Emperor Diocletian of the failing Roman Empire issued his Edict on Wages and Prices. The ancient Athenians tried (and failed) to set grain prices, and even had a small army of regulators to oversee the price controls. So did the the Zhou dynasty in ancient China.
Today you can see various forms of wage and price controls all over the world– from the blatant (Argentina) to the subtle.
Major farm subsidies in the United States, for example, are a form of price controls. Monetary policy (especially keeping interest rates at effectively zero) are a form of price controls.
Yet today President Obama is set to lauch another far more obvious form.
The central planner-in-chief is going to sign an Executive Order to require employers to expand overtime pay in the Land of the Free. This, on top of his recent proposal to increase the minimum wage 39% to $10.10 per hour (not that there’s any inflation).
Obviously this ‘decree by executive order’ strategy shows the political system for what it is: there is no republic, there are no checks and balances, there is no adherence to the Constitution.
They do whatever they want, however they want, with total immunity.
The troubling part about this executive order (aside from being yet another soon-to-fail wage control) is that it essentially abrogates millions of work contracts across the country.
Employers and their workers have long since agreed to terms of employment that may or may not include overtime pay.
Today President is unilaterally voiding any specific provisions about overtime pay in existing employment contracts, all in his sole discretion, and all without Congressional oversight.
The rule of law means nothing.
And even though any high school economics student can tell you that wage and price controls don’t work, the government is pressing ahead with vigor, damn the consequences.
Given their continued destruction of the middle class, perhaps it’s time we bring back ‘an eye for an eye, a tooth for a tooth.’
March 12, 2014
Deep within the Congo basin along the banks of the Kasai River exist two native peoples– the Lele and the Bushong.
The two tribes are practically the same people, separated only by a river.
Yet when two anthropologists went to Africa in the early 1950s to study these tribes, the differences they found in their standards of living were astounding.
As Mary Douglas wrote in her book The Lele of the Kasai, “Everything the Lele have or do, the Bushong have more and can do better. They produce more, live better, as well as populating their region more densely than the Lele.”
The Bushong tribe was rich. The Lele tribe was poor. The Bushong used nets and traps to catch fish and game. The Lele did not. The Bushong had a “profit-motivated, wealth-accumulating economy”. The Lele did not.
The Bushong ate a much more abundant diet. They excelled at agriculture as well, planting five crops in succession in a two year rotation cycle. And they accumulated large pools of savings (excess food) for trade with other tribes.
The Lele barely subsisted.
As you can imagine, the Lele tribal structure was very centrally planned. The tribe imposed a rules on labor and employment, wealth redistribution was rampant, and there were heavy tithes to be paid.
This lack of economic freedom in the Lele tribe caused huge imbalances.
Just like the differences between North and South Korea, or East and West Germany during the Cold War days, there was very little that actually separated these people… very little except politics and economic freedom.
Similarly, it was the abundance of economic freedom in places like Hong Kong that led to their rapid growth and wealth.
Hong Kong had no major resources to speak of. Its prosperity is based solely on being a place where individuals were allowed to trade and thrive.
Here in Honduras, they’re trying to take a page from that playbook.
Last year the government approved a series of initiatives for what they call Zonas de Empleo y Desarrollo Económico (ZEDE), or Employment and Economic Development Zones.
The idea is that a handful of special zones in the country will be established that essentially have no taxation and their own administrative court systems (or apply laws and courts from any other country).
Naturally, a lot of folks will probably scoff at the idea– after all, what nut case would want to set up a business in what’s now a thick jungle in Honduras?
Then again, there were probably a lot of Brits in 1897 who thought the same thing about an illiterate fishing village on the South China Sea.
But history shows us that money and talent goes where it is treated best, and those places prosper far beyond all the rest.
That place might not be Honduras (it’s certainly possible this project won’t succeed)…
But as the debt and paper-based global financial system continues its terminal decline into insolvency, you can be sure that there will be a mass migration of talent and capital to the few places that still provide freedom and opportunity.
People will realize that they are being taxed more just to pay interest on a rising debt, meanwhile their money is worth less and their standard of living is falling.
Once they realize this, they’ll start looking for greener pastures elsewhere, just as human beings have always done throughout history.
March 11, 2014
Caribbean coast, Honduras
How’s this for irony–
In our modern monetary system, the term ‘fiat currency’ refers to this absurd notion of paper currency that is conjured out of thin air by central bankers and backed by nothing but hollow promises.
‘Fiat’ is a subjunctive conjugation of the Latin verb ‘fiō’; literally translated, it means “let it be” as in “Let there be light.”
Or in this case… ‘let there be paper money,’ which pretty much crystalized the absurdity of our monetary system.
Former Fed Chairman Ben Bernanke summed this up nicely in a 60 Minutes interview he gave a few years ago in which he said, “We can raise interest rates in 15 minutes. . .”
And he was right. Central bankers can change interest rates whenever they want.
If you think about it, interest rates are nothing more than the ‘price’ of money. It’s the rate that people pay when they ‘demand’ money in the form of loans based on the supply of money available.
But this price of money is incredibly influential around the world. Interest rates affect the prices of shares in the stock market. Oil. Agricultural commodities. Real estate. Automobiles.
Almost everything we touch is affected by interest rates.
So in setting the price of money, we have given central bankers the power to effectively set the price of… everything.
Make no mistake, this is a form of price controls. And there’s not a doubt in my mind that one day (probably soon), future historians are going to look back and wonder how so many people could be bamboozled.
We have somehow been conned into believing that the path to prosperity is for the grand wizards of the financial system to conjure paper currency out of thin air.
Yet this notion of ‘money backed by nothing’ is an absurd fantasy that has failed every single time it has ever been tried before in history.
I bring this up because I want to share a chart with you that I presented yesterday to a savvy group of investors.
Bear in mind first that a central bank, like any bank or business, has both assets and liabilities.
Central bank assets are things like gold and government bonds (e.g. US government Treasuries).
Central bank liabilities are the ‘notes’ that they issue. And if you’re wondering what a central bank ‘note’ is, just look in your wallet.
If you’re in the US, those aren’t dollars. The dollar was defined by the Coinage Act of 1792 as 416 grains of standard silver.
Rather, you’ll see the paper in your pocket says “Federal Reserve Note”– a liability of the US central bank.
The difference between assets and liabilities is called equity, or the bank’s capital. And well-capitalized banks maintain substantial capital as a percentage of their assets.
You could think about this as a margin of safety. The less ‘capital cushion’ a bank has as a percentage of its assets, the less it will be able to withstand shocks to the system.
I tracked this data for the US Federal Reserve. And as the chart below shows, there has been an astounding decline in the Fed’s ‘margin of safety’ over the last few years.
The lower this line goes, the more the Fed gets pushed into insolvency.
Note that the trend levels out in early 2012, only to start another steep decline a few months later just as they told us the economy had ‘recovered’. This is apparently what recovery looks like.
The question I ask is: how low does this go before there’s a currency crisis?
March 10, 2014
En route to Honduras
Editor’s note: The following is an excerpt from an interview with Robin Speronis, the woman in Cape Coral, Florida who Simon wrote about recently that got bullied by the local government simply because she was living off the grid.
Simon: So, Robin, you’d been living a completely self-sustainable lifestyle, unplugged from the grid, collecting your own rainwater, harnessing solar power etc. since January 2013.
Then the local authorities found out… and decided to come after you aggressively just because you weren’t plugged in to the grid.
Robin: I was writing a book about living off grid, and I also have a blog where I published a few chapters—and my story got picked up by a local Fox affiliate, because they thought what I was doing was cool and wanted to do a special report on the topic.
That special report aired on November 14 last year, and immediately the next day the local code enforcement came and placed these placards on my door that said “Do not enter, do not occupy. This property is unsafe and unfit for human habitation.”
Simon: But you had been living there for eleven months.
Robin: Right. And they decided to use the Florida statute for trespassing. It was illegal for me to be living on my own property. No notice, no hearing.
Oh, and the code that they cited on that placard said that the interior of the home was unsanitary. Of course, they’d never been inside the house.
Simon: I understand they applied some vague international building code… quite a stretch just to find some violation.
Robin: Yes, the whole code is very vague, there’s no definition of what “unsanitary” means. They didn’t want me being an example for other people, so they just tried to terrorize me. But I won’t let them.
Simon: Right. And since then you’ve taken them to court basically, and you’ve had an administrative hearing. Was that something that you pushed for or was that something that the city pushed for?
Robin: Well, my story was picked up and got a lot of media attention. Initially the city backed off, and they were even ignoring my lawyer’s calls, hoping that it would blow over.
But because I was technically still a trespasser in my own home I wouldn’t let this go away. So we had a hearing.
The city read off five pages of assorted codes that I was in violation of. I already got most of them voided. So that was a big victory.
Simon: This is so typical. These government officials look at you and decide, “We’ve got to get her. She’s doing something we don’t like.” And so they just come up with pages of senseless code violations hoping that something will stick.
It’s all about terrorizing people, making them obedient, and readily dependent on the system. And anyone that defies that is an enemy to them, someone they have to go after. So they tried to make an example out of you and terrorize you.
As I’ve written so many times before, we’re all guilty of violating some obscure law or regulation. They have criminalized –everything-. You can’t even apply for a passport anymore without being threatened with imprisonment.
I’m very glad that you didn’t cave in. Thank you Robin, this is very encouraging. Best of luck with your case in the future.
March 7, 2014
I needed a caffeine jolt late this morning after the long journey up from South America.
And while I’m generally averse to aspartame, high fructose corn syrup, and other government-sanctioned poisons, I did briefly consider a hit of Coca Cola as I walked past a vending machine on my way out of a grocery store.
Then I saw the price.
To give you some quick background, this was the same grocery store my mother used to shop at when I was a kid. And if I was really lucky, we’d stop for a can of coke on the way out– 25 cents back then.
Fast forward to today–. I’m a grown man of 35 now instead of a 9-year old kid. And while the store has changed hands a few times, there’s still vending machine near the entrance.
Same coke, same 12 ounces (though now in a plastic bottle instead of an aluminium can).
Price today? $1.50. [note, this is the vending machine price, not grocery store price.]
Put another way, $1 would have bought me 48 ounces of Coca Cola 26 years ago. Today that same dollar buys me just 8 ounces.
This means that the dollar has lost 83.3% of its value against Coca Cola over the past three decades, averaging roughly 6.6% inflation per year.
Some readers may remember the price of Coca Cola being just 5c back in the early 1950s (for a 6.5oz glass)… meaning the US dollar has lost 93.8% against Coca Cola over the past six decades.
Now, we are taught from the time we are children that ‘a little inflation is good…’
And when central bankers tell us they’re targeting an inflation rate of 2% to 3%, that certainly doesn’t seem so bad. 2% is practically just a rounding error. But bear in mind a few things–1) An inflation rate of 2% is not price stability.
As Jim Rickards frequently points out, even with just 2% inflation, a currency loses over 75% of its value during an average lifespan. This can hardly be considered monetary stablilty.
And this practice of gradually plundering people’s purchasing power over time is incredibly deceitful.2) Even if, they rarely meet their target.
As this case shows, 6.6% certainly ain’t 2%. The official statistics and research papers may say 2%. Reality is much different.3) Wages often don’t keep up.
According to the US Labor Department, the median weekly wage back in 1988 was $382… or roughly 18,336 ounces of Coca Cola.
Today the median weekly wage is $831.40… or just 6,651.20 ounces.
So as measured in Coca Cola, the average wage in the Land of the Free has declined by 11,684 ounces per week– a 63.7% decline over the last three decades.
You can make a similar calculation denominated in Snickers bars, gallons of gas, etc.
If you have a big picture, long-term view, it’s clear that standard of living is falling.
Some readers may remember decades ago– a single parent could go out and, even with a blue collar job, comfortably support a growing family.
Today, dual income households struggle to keep their heads above water. This is the long-term plunder of inflation.
And just to give you a reminder of what things used to cost, I’ve pulled a page from the March 7, 1988 edition of the Bryan Times of Bryan, OH: 26-years ago today.
You can scroll through the paper and note the prices:
25c for a dozen eggs. 69c for a loaf of bread. 49c for a pound of Chicken. A brand new Mustang LX for just $9203.
That’s the Federal Reserve for you. 100 years of monetary destruction and counting.
Cartagena, Colombia: Because of a $47 dispute the whole world got to know about Cartagena, a city on Colombia’s Caribbean coast. For all the wrong reasons, unfortunately.
Two years ago Cartagena hosted the Summit of the Americas, a get-together of all heads of state for countries from North, Central, and South America, bar Cuba.
Before Barack Obama got there a group of Secret Service agents that descended on Cartagena decided to have some fun. And apparently it was a wild night.
It would probably all go down unnoticed – including the summit in Colombia itself – had it not been for a huge ruckus and dispute the next morning with the girls that the agents brought back to their hotel over the payment for their services.
Cartagena deserves its attention for a host of other reasons, however.
It was one of the most important cities during the expansion of the Spanish Empire in the Americas. Its port was a major trading hub for gold and silver mined in New Granada and Peru. Galleons loaded with precious metals would depart from Cartagena for Spain.
Because of its economic and subsequent political influence in the Americas the city had a strong presence of royalty and wealthy viceroys. Its riches made it the top target for pirates and Cartagena is THE city most associated with pirates in the Caribbean, and the world.
To defend against the plundering the Spanish have built an elaborate system of walls, fortifications, bastions, and castles. The construction began after the attack by Francis Drake in late 16th century and took an incredible two hundred years to complete.
Thanks to those efforts, however, Cartagena’s old colonial town is today immaculately preserved.
It’s an incredibly charming place full of colorful balconied houses, open plazas, imposing colonial administrative and religious buildings, horse-drawn chariots clomping through the streets, performers, flamboyant fruit sellers, musicians… etc.
The place has a great jovial vibe. But that’s not all there is to Cartagena.
Just a 5-minute taxi ride away and you can change the fairy-tale romantic old town for a Miami Beach-like setting in Bocagrande where new high-rise hotels and apartment buildings are popping up like mushrooms after autumn rain.
No wonder the place is a tourist magnet. Most of them are from other Latin American countries, however. There are hardly any Western tourists here, apart from an odd backpacker.
For now the property market is largely driven by Colombians who have favored this Caribbean town for a long time. It’s still an “undiscovered” investment haven when it comes to foreign, and especially Western investors for now.
That’s something that’s bound to change as Colombia goes through its transformation period and sheds it bad-boy image.
A few European investors have already started coming in. But the potential that Cartagena has is enormous, given its bountiful attributes.
And the time to get in on the action and enjoy the spoils of its rise to prominence again is now, especially as practically no one else is looking at it.
March 5, 2014
En route to Colombia
President Obama released his 2015 budget proposal yesterday… and as expected, it contained even more language about his MyRA initiative.
As we’ve discussed so many times in the past, IRAs are an irresistible kitty for such a bankrupt government.
The US government itself estimates that over $5 trillion is tucked away in American retirement accounts.
They need that money. Your money.
Think about it– the Chinese are starting to dump their US Treasuries in record numbers. The Social Security trust fund is also on track to start dumping Treasuries in order to pay out record numbers of retirees.
The US government is struggling to come up with new funding sources… and retirement accounts are by far the easiest target.
Why? Because the majority of retirement accounts at trapped at big Wall Street banks, which are all de facto agents of the government. All the Treasury Department has to do is make a phone call.
Of course, they’ll claim that it’s for your own good. I suspect they’ll wait until there’s a big stock market crash and then say “We must protect Americans from such risky investments. And that’s why today we are requiring these banks to invest a portion of the retirement accounts they manage in the safety and security of US government Treasuries.”
A few weeks ago in his Sad State of the Union address, President Obama announced this MyRA program– a new initiative that will “help” Americans invest directly in US Treasuries.
Then he looked everyone in the eye and said, “These accounts will never go down in value…”
Naturally. How could loaning money at rates which don’t even keep pace with inflation to a country that has racked up more debt than any other nation in the history of the world possibly pose a risk?
After announcing MyRA, Mr. Obama took to the streets, and his team took to the media… flooding newspapers and airwaves with MyRA propaganda.
Yesterday’s budget announcement constitutes the next phase: automatic enrollment.
And I suspect that, just like Obamacare, there will soon come a time when it will become MANDATORY to have some sort of retirement plan set up, naturally with the government option at people’s fingertips.
This isn’t some far-fetched conspiracy theory. In fact, it’s already happened in so many countries over the last few years– from Argentina to Ireland to Poland.
In fact, even the Treasury Department grabbed government pension funds at least three times since 2011 in order to plug temporary funding gaps.
The Federal Times, a publication for senior government managers, ran a story back in 2011 entitled “Treasury raids your pension – but don’t worry, Geithner says”.
This idea is no longer theory or conjecture. It’s happening, and the conclusions are all supported by the data.
Anyone who thinks ‘that will never happen here’ is really fooling themselves… and playing very dangerous games with their hard-earned savings.