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Updated: 4 years 35 weeks ago

The one investment you want to avoid at all costs

Thu, 02/20/2014 - 07:18

February 20, 2014
Sovereign Valley Farm, Chile


I read it twice to make sure my brain had processed the number correctly. Yep, 4.1%.

This was the annual yield promised on a new 5-year bond investment that a private banker colleague had sent to me. I couldn’t believe it.

The bond issuance was by a state-owned company in India. And despite the Indian government having a -very- recent history of capital controls, price fixing, and asset confiscation, and despite the company being rated near JUNK status, the bond only carried a yield of 4.1%.

This is really amazing when you think about it. Central bankers have destroyed money and interest rates to the point that near-bankrupt companies in shaky jurisdictions can borrow money for practically nothing.

It’s an utter farce. The rate of inflation is -at least- 3% in many developed countries. Central bankers will even say they are targeting 3% inflation.

This means that if investors simply want to generate enough income so that their after-tax yield keeps pace with inflation, they have to assume a ridiculous amount of risk.

This is a really important point to understand given that the global bond market is so massive– roughly $100 trillion, with nearly $1 trillion traded each day in the US alone.

This is almost twice the size of the global stock market. And even if people never invest in a bond themselves, they’re directly connected to the bond market.

Your pension fund owns bonds. The bank that is holding on to your money owns bonds. The companies listed on the stock market that you invest in own bonds.

Yet bonds are some of the worst investments out there right now. And that’s saying a lot given how overvalued stock markets are.

Here’s the bottom line: adjusting for both taxes and inflation, bondholders are losing money, even on risky issuances.

Think about it– if you make a 4% return and pay 25% in taxes, your net yield is 3%. If inflation is 3%, your entire gain is wiped out… so you have taken that risk for nothing.

If inflation rises just a bit then you are in negative territory.

There are those who suggest that deflation is a much greater risk right now than inflation… and that bonds are great investments to own in the event of deflation.

But here’s the thing– even if deflation takes hold and prices fall, anyone who is deeply in debt is going to feel LOTS of pain. Instead of their debt burden inflating away, now they’ll be scrambling to make interest payments.

So while bonds are a sensible deflationary investment in theory, in practice deflation will only increase the likelihood of default. This puts many bond investments at serious risk.

Last, if interest rates rise from these all-time lows, a bond’s value in the marketplace will plummet. So not only will you have made zero income, you would be looking at a steep loss if you try to sell.

Longer term, fixed rate bonds in weak currencies are almost guaranteed losers and should be avoided at all costs. You would be much better off setting your cash ablaze in a bonfire. It’s at least a better story to tell and will save you years of anguish watching your position erode.

Premium members: watch out for an alert this afternoon in which Jim Rickards (author of the acclaimed Currency Wars and one of the smartest guys in finance) gives some really great investment advice and thoughts on how to structure one’s portfolio amid all of this insanity.

“No, sire, it is a revolution…”

Wed, 02/19/2014 - 08:15

February 19, 2014
Sovereign Valley Farm, Chile

It’s pretty ironic that I have two visitors right now in my home– one from Ukraine and the other from Thailand.

Both of their countries are in the midst of chaotic turmoil right now, characterized by riots and violent clashes between protestors and police.

It reminds me of the old quote from Louis XVI upon being informed in 1789 that the French people had stormed the Bastille. The King asked, “Is it a revolt?”

“No, sire,” the duke replied, “It is a revolution.”

People in both of these countries have reached their breaking points. In Ukraine especially, economic conditions have deteriorated in almost spectacular form.

History is packed with examples of how people rise up in the streets whenever economic conditions deteriorate.

The French Revolution in 1789 is one famous example; the French people finally reached their breaking points after nearly starving to death.

The 2011 Egyptian Revolution and entire Arab Spring movement is a similar example.

In fact, a 2011 study from the New England Complex Systems Institute showed a clear statistical correlation between social unrest and (specifically) food prices. The higher food prices get, the greater the chances of riots and revolution.

This is not a condition exclusive to the developing world; it is a fundamental human trait to provide for one’s family.

And while human beings will take a lot of crap from their governments– stupid regulations, higher taxes, erosion of freedom, and even inflation– the moment that a man is no longer able to put food on the table for his family, revolution foments.

Europe and the US are not immune to this. And with deteriorating wealth gaps, 50%+ youth unemployment, unchecked government power, and a system that disproportionately favors the elite, the conditions are ripe.

The main difference is that Westerners have been brainwashed into believing that the civilized people voice their grievances in a voting booth rather than doing battle in the streets.

It’s a false premise. Unfortunately, so is violent revolution.

As my dictionary so perfectly defines, “revolution” has two meanings.

First, it can denote an overthrow of a sitting government, whether violent or ‘bloodless’.

But in celestial terms, ‘revolution’ denotes a complete orbit around a fixed axis. In other words, after one revolution, you end up right back where you started.

So whether violent or non-violent, or whether in a voting booth or on the streets, revolutions put a country right back where it started.

In the French revolution, people traded an absolute monarch in Louis the XVI for a genocidal dictator in Robespierre for a military dictator in Napoleon.

In 1917, the Russians traded Tsarist autocracy for Communist autocracy.

In 2011, Egyptians traded Hosni Mubarak for Mohamad Hussein Tantawi (who subsequently suspended the Constitution), for Mohamed Morsi (who as President awarded himself unlimited powers), for yet another coup d’etat.

All of this is because of a knee-jerk reaction– ‘if our country is having major problems, we should throw the bums out and let the man on the white horse take over.’

This creates a never-ending cycle in which the fundamental problems perpetuate.

It’s not about any single person or group of people. It is the system itself that needs changing.

In our system we award a tiny elite with the power to kill, steal, wage war, educate our children, and conjure unlimited quantities of paper money out of thin air.

This is just plain silly. And antiquated. We’re not living in the Middle Ages anymore where we need kings to tell us what to do, knights to keep the peace, and serfs to do all the work (and enrich the nobles).

Yet this is not too far from the system we have today.

The real answer is within ourselves. As Ron Paul told our audience in Santiago last year, become less dependent on the government and more self-reliant:

This idea is beginning to resonate with more and more people who are increasingly disgusted with the system… and all parties.

With our modern technology, transportation, and access to information, we have all the tools available to do this.

IMF report: ‘Debt is good’. What are these people smoking?

Tue, 02/18/2014 - 09:40

February 18, 2014
Sovereign Valley Farm, Chile

Probably every kid in the world has at some point dreamed of having a time machine and being able to travel back to the past… usually to see dinosaurs or something like that.

Time travel is an almost universal fantasy. And if I could snap my fingers and turn the pages of time, I’d be seriously curious to check out the thousand-year period between the decline of the Western Roman Empire and the rise of the Renaissance.

They used to refer to this period as ‘the Dark Ages’ (though historians have since given up that moniker), a time when the entire European continent was practically at an intellectual standstill.

The Church became THE authority on everything– Science. Technology. Medicine. Education. And they kept the most vital information out of the hands of the people… instead simply telling everyone what to believe.

People living in that time had to trust that the high priests were smart guys and knew what they were talking about.

Interpreting facts and observations for yourself was heresy, and anyone who formed original thought and challenged the authority of church and state was burned at the stake.

Granted, human civilization has come a long way since then. But the basic building blocks are not terribly different than before.

Anyone who challenges the state is still burned at the stake. And our entire monetary system requires that we all trust the high priests of central banking and economics. Those that stray from the state’s message and spread economic heresy are cast down and vilified.

You may recall the case of Harvard professors Ken Rogoff and Carmen Reinhart who wrote the seminal work: “This Time is Different: Eight Centuries of Financial Folly”.

The book highlighted dozens of shocking historical patterns where once powerful nations accumulated too much debt and entered into terminal decline.

Spain, for example, defaulted on its debt six times between 1500 and 1800, then another seven times in the 19th century alone.

France defaulted on its debt EIGHT times between 1500 and 1800, including on the eve of the French Revolution in 1788. And Greece has defaulted five times since 1800.

The premise of their book was very simple: debt is bad. And when nations rack up too much of it, they get into serious trouble.

This message was not terribly convenient for governments that have racked up unprecedented levels of debt. So critics found some calculation errors in their Excel formulas, and the two professors were very publicly discredited.

Afterwards, it was as if the entire idea of debt being bad simply vanished.

Not to worry, though, the IMF has now stepped up with a work of its own to fill the void.

And surprise, surprise, their new paper “[does] not identify any clear debt threshold above which medium-term growth prospects are dramatically compromised.”

Translation: Keep racking up that debt, boys and girls, it’s nothing but smooth sailing ahead.

But that’s not all. They go much further, suggesting that once a nation reaches VERY HIGH levels of debt, there is even LESS of a correlation between debt and growth.

Clearly this is the problem for Europe and the US: $17 trillion? Pish posh. The economy will really be on fire once the debt hits $20 trillion.

There’s just one minor caveat. The IMF admits that they had to invent a completely different method to arrive to their conclusions, and that “caution should be used in the interpretation of our empirical results.”

But such details are not important.

What is important is that the economic high priests have proven once and for all that there are absolutely no consequences for countries who are deeply in debt.

And rather than pontificate what these people are smoking, we should all fall in line with unquestionable belief and devotion to their supreme wisdom.

It ripped me up inside to see this kid in jail

Mon, 02/17/2014 - 07:49

February 17, 2014
En route from Buenos Aires, Argentina

On the tail end of my Army career over a decade ago when I was still living in the Land of the Free, I used to be a volunteer for the Big Brothers / Big Sisters program.

If you’ve never heard of it, BBBS is a non-profit that temporarily matches up at-risk youth with responsible mentors in an effort to provide kids with positive role models.

When I first enrolled, the administrators linked me up with a kid from the inner city just hitting his ‘tween’ years. I’ll call him “DJ”.

DJ was great. Despite living in one of the most violent, crime-infested areas of Dallas, he had managed to keep a positive attitude on life. He was always smiling, and polite.

And unlike a lot of kids from his area who aspired to be either drug dealers or professional basketball players, DJ wanted to be in real estate sales.

(I used to encourage this by driving him around on the weekends looking at open houses and property listings, trying to teach him the valuation methods that I had picked up over the years.)

Eventually, life got in the way. My business interests and personal philosophy had always been pulling me overseas. And my father (the primary reason I had been living there to begin with) had passed away after a terrible bout with cancer.

DJ and I saw less and less of each other. And in our periodic phone calls, it became clear that he was changing. For the worse.

By the end of high school, DJ had hooked up with the wrong crowd. The constant influence of other youth had a powerful effect on him. And with a father in prison and his mother barely at home, he quickly got pulled into a darker world.

His entire personality was changing. It was as if he had become a completely different person. Gone was the happy kid with solid, realistic aspirations and a drive to succeed. DJ had become a thug, respecting only violence, ignorance, and wanton cruelty to other human beings.

Right after his 18th birthday he was arrested for a whole slew of felonies– and was just old enough to be tried, convicted, and sentenced as an adult.

The last time I saw him I barely recognized him. It was sad… really ripped me up inside.

This story is far too common; I’m sure many of our readers have been in similar situations, watching people they once cared about descend into a chaotic downward spiral.

I’ve been thinking about this over the past few days during my time in Argentina. Because nations, like people, can enter a downward spiral from which they become completely unrecognizeable.

The Economist recently did a great spread on Argentina, explaining how this country– this city– used to be one of the greatest in the world.

In its heydey, Buenos Aires was considered among the wealthiest, most opulent places in the western hemisphere.

A century ago in 1914, GDP per capita in Argentina was higher than in most of Europe, and its economic growth outpacing even the flourishing United States.

And while the rest of the world blew itself to smithereens in the Great War, Argentina very smartly remained neutral.

By 1918, Argentina was one of the only prosperous, debt-free nations left. And the consequent surge in exports to support all the reconstruction in Europe resulted in a heady economic boom.

But that was then. Today is a different story.

Decades of utterly destructive corruption, debt, and absurd economic centralization have taken an irreversible toll on the country and its economy.

Despite its massive potential, abundant resources, huge population, and culturally-ingrained business prowess, Argentina has become a pitiful shell that continually vaccilates into the the 3rd world.

And people here have had their liberties and livelihoods ravaged by a government that has imposed price controls, capital controls, media controls, and people controls.

They have nationalized private pensions, confiscated private assets, jailed opposition, spawned a currency crisis, and corrupted public institutions.

All of this has devastated a once rich culture. Theft, deceit, and coercion are all now unfortunately pervasive. Crime and malfeasance have become the means of survival for a substantial portion of the population.

Like DJ, this place is hardly recognizable when compared to its former greatness– the result of a long, steady decline punctuated by a sudden collapse.

Regrettably there are a number of ‘rich’ Western nations in this cycle as well. And a great many people are waking up each day with this realization thinking “This is NOT the country that I grew up in…”

But this IS what happens after decades of poor choices: Too much debt. Too much war. Too much money printing. Too much regulation.

Just as people in decline enter a vicious cycle where the consequences of their actions begin to feed on each other, nations too reach a point of no return– a bifurcation point where the decay becomes exponential.

And once they reach this point, the trend becomes a one-way decline where they must first hit rock bottom before being able to climb out.

If you’re not willing to be pulled into that spiral, I’d encourage you to consider your own situation.

If you live, work, bank, invest, own real estate, structure a business, etc. all in the same country… and that country is on an obvious decline that you can feel in your gut, then you are taking serious, serious risks with your livelihood.

The oppressive controls employed by the Argentine government provide the perfect case study of what happens to people who ignore their instincts and trust their politicians.

This is why I am so optimistic about the future

Fri, 02/14/2014 - 10:33

February 14, 2014
Buenos Aires, Argentina

It’s clear that in today’s world, young people are constantly getting the shaft. Everyone is, really. But in many ways, young people have it the worst.

Youth unemployment rates in ‘rich’ countries are shocking. Abysmal. Young people are the last to be hired and the first to be fired.

It’s young people who will inherit the mountains of debt that their governments have accumulated. And if they’re lucky enough to even find work, young people will spend their entire lives paying progressively higher taxes so that the politicians can make the interest payments.

They’ll also spend their lives supporting reverse demographic pyramids in pension systems around the world. But decades from now when it’s their turn to collect, those pension programs will have run dry.

It’s young people who are expected to go fight, and die if necessary, every time bloodthirsty politicians decide to go to war to protect the bankers’ interests.

It’s an unfortunate position to be in these days: more costs, fewer benefits, and almost no opportunities. The old tried and true method for success– study hard, get a good job, work your way up the ladder– simply no longer applies.

That’s why it’s more important than ever for young people to break free from this system and set their own path. And to do that, it’s imperative to be armed with valuable skills and a network of like-minded colleagues.

Long-time readers know that I sponsor and host an intensive workshop every summer in Lithuania for aspiring young entrepreneurs and freedom-seekers. And this is precisely our aim– to provide young people with valuable skills and a strong network of like-minded people from around the world.

To do this, I bring in some of the most talented and successful entrepreneurs I know. And together, the instructors imbue some of the most valuable business skills we’ve all accumulated through years of making mistakes and grinding it out in the world.

It’s the sort of stuff they just don’t teach in university or business school.

Not to mention, the network has become something truly extraordinary. Each summer we generally have upwards of 30 countries represented, places like the Philippines, Zimbabwe, Colombia, Bulgaria, and more.

For the students, this means forging strong relationships with people from all over the world. This alone is tremendously valuable.

It’s ironic that we’re discussing this today as I have just landed in Argentina– easily one of the most economically distressed places on the planet. As I’ll describe more on Monday, this country is a clear sign of things to come in the developed West.

But despite the overwhelming economic hazards created by politicians and central bankers, I remain unabashedly optimistic about the future. And it is these camps– the opportunity to spend time with so many brilliant young people– that renews my optimism each year.

This liberty and entrepreneurship camp is free to attend. Our charitable organization foots the bill for the whole thing. Students are only expected to get themselves there, and we even occasionally award travel scholarships.

There is a very competitive application process, though. Each year, the initial interest is often in the thousands. Yet we are only able to select about 60 students.

But if you are a motivated young person, or know someone who fits the description, I’d encourage you to check out this page. Learn more about what we do, and sign up to receive instructions on how to apply.

Totalitarian government at work

Fri, 02/14/2014 - 09:35

February 13, 2014
Santiago, Chile

The IRS scandal caused a massive uproar last year when it was revealed that the agency was deliberately targeting non-profit political groups solely based on their names or political themes.

One of those groups was called True the Vote, a grassroots, non-partisan organization that recruits and trains volunteers to monitor elections.

The founder and president of True the Vote, Catherine Engelbrecht, recently gave testimony to the House Oversight & Government Reform Subcommittee on Regulatory Affairs in which she revealed how the US government used mafia tactics to go after her, her organization, family, and her private business.

As she explained, before founding her non-profit organization a few years ago, her life was ordinary.

Since founding it, though, she has been subjected to more than 15 instances of audit or inquiry by federal agencies ranging from the IRS, FBI, the Bureau of Tobacco, Alcohol, Firearms and Explosives, etc.

In 2012, her business was subjected to inspection by the Occupational Safety and Health Administration (OSHA). And even though the agency said it found no significant irregularities, it still issued a fine of $20,000.

The FBI even investigated her non-profit organization on SIX separate occasions in conjunction with domestic terrorism cases.

This is sickening. While her only ‘crime’ was to try to make the government more transparent, the government went out of its way to ruin her.

She tells her story in a quick seven-minute account. It’s a chilling reminder of what happens when you challenge the state.

I encourage you to watch Catherine Engelbrbecht’s brief testimony here.

This chart will make you want to sell your stocks

Wed, 02/12/2014 - 09:13

February 12, 2014
Santiago, Chile

Three million percent.

That’s the investment return that Andy Bechtolsheim has made on his Google investment.

If you had parked $100,000 in Google stock when it IPO’d ten years ago, your investment would be worth $1.4 million today. Not bad.

But Andy was one of the first major investors in Google before it went public. He wrote Larry and Sergey a $100,000 check back in 1998 for an investment in Google that is worth $3 billion today.

Granted, this is the exception and not the rule. But in the world of private investments, the potential for outsized returns is very real.

Most investors stick to the mind-numbing mantra of stocks and bonds; the size of the global bond market alone is estimated to be well north of $100 trillion (roughly 140% of world GDP).

And owing to this sheer size and liquidity, big institutional investors have no choice but to own stocks and bonds.

But as we have pointed out before, world stock and bond markets are heavily manipulated, if not rigged, by central bankers who control the money supply.

Fundamentals no longer matter. If one single person (now Fed Chair Janet Yellen) says she will print, stocks go up. If she says she will taper, stocks go down.

This isn’t investing. It’s gambling. Financial analysis has been replaced by soothsaying and tasseography (reading the tea leaves), hoping to detect some hint in the direction that central bankers are leaning.

This is the chief reason why I seldom participate in public markets anymore; it seems ludicrous to pile on a giant tidal wave of paper currency and entrust central bankers with my investment returns.

Not to mention, it’s uncertain how long they can keep this party going as the following (rather scary) chart shows. There’s an eerie parallel between the market’s performance today and the runup to the crash of 1929.

It certainly begs the question, though: if you don’t have the appetite to play this rigged game, where can you invest?

This is where the little guy has a HUGE advantage. Because while institutions are chained to the bond market, individual investors literally have a world of options… like investing in private businesses.

Think about it– nearly every successful company out there, like Google, first started out as a private venture looking to raise money from investors.

And now that the rules for crowdfunding have become much less strict, there’s an inspiring amount of opportunity out there, even for small investors.

I come across these sorts of deals all the time. And there are a number of places in the world that are completely overlooked.

Everyone knows about Silicon Valley. There’s no shortage of deals to invest in there, but the region is crawling with angel investors and VC funds.

Chile presents an intriguing opportunity in this sense.

Santiago is becoming a thriving hub of entrepreneurship and has actually been named among the top 20 global startup ecosystems.

The Start-Up Chile incubator program has proved incredibly successful since its launch in 2010, and numerous energetic entrepreneurs are flocking here from all over the world to take part.

Yet Santiago’s startup scene has one major shortcoming: it lacks any significant funding outlet for entrepreneurs that want to scale their businesses.

As the Startup Ecosystem Report says: “There is an overall funding gap in Santiago. In total, Santiago startups raise 97% less capital in stage 2, 94% less in stage 3, and 90% less in stage 4 than [Silicon Valley] startups.”

For such a promising and rapidly developing startup scene, this is a major anomaly… and a big opportunity.

If you’re like me and invest in private businesses, this place is an investment paradise: plenty of great deals, and very little competition from other investors.

These convicted felons are more resilient than the average Joe

Tue, 02/11/2014 - 07:05

February 11, 2014
Sovereign Valley Farm, Chile

I’ve recently read about a program in California whereby inmates at San Quentin state prison plant organic gardens within the prison’s walls:

It’s an incredible irony that, in doing so, these convicted felons are achieving a level of resilience and security that many ‘free’ people on the outside have never realized.

Right now most people are totally reliant on the big system for basic necessities. Just ask any child where our food comes from– the grocery store, of course.

Little thought is given to the often thousand mile journey from field to fork. We simply show up and expect shelves fully stocked with food (or more appropriately, ‘food-like substances’).

We fuel our vehicles by going to the gas station. Again, very little thought is given to the rigor involved in extracting oil off the coast of some tinpot dictatorship, shipping it to a faraway refinery, and ultimately bringing it to the gas pump.

We flip the switch and the lights come on without regard for the complexities of power generation and transmission that start with pulling coal or uranium out of the ground.

We don’t give much thought to any of this because the system has been carefully refined over the decades. And for the most part it works.

Because of this success, we’ve grown to completely depend on it. Few people even know how to change their oil anymore.

On one hand, this is a remarkable achievement. Freed from the burden of growing our own food and fetching our own water, we have more time to specialize in what we do best.

On the other hand, there are serious vulnerabilities in this giant, complex system. We see this every time there is a natural disaster, weather anomaly, or spike in oil prices.

We can also see the cracks forming with the surge in pesticide-resistant ‘superbugs’, instances of major food contamination, and infrastructure failures (anyone remember last year’s Superbowl?)

But perhaps the greatest vulnerability is that this entire system– food, energy, the money supply, etc.– is ultimately controlled by a handful of people. As George Carlin said, “It’s a big club. And you ain’t in it… You and I are NOT in the big club.”

They decide everything– the quality and composition of the food we put in our bodies; the value of paper money; what chemicals go in the water supply… everything.

This effectively makes most people serfs, dependent and beholden to those who control the necessities.

It doesn’t have to be this way. And declaring your independence, or at least reducing your dependence on this system is one of the easiest things to do. You don’t have to be rich. You don’t need to be a rocket scientist. You don’t need a fancy degree.

You can make huge strides with something as simple as a tabletop garden… even just a handful of dirt in a styrofoam cup.

You don’t even need to spend money on seeds. Nearly every vegetable you’ve likely ever eaten already had seeds inside. You probably have a few hundred right now.

More advanced readers may want to consider purchasing a small plot of land and developing their resilience there. In parts of the world (like here in Chile), this can be done on the cheap.

In an inflationary environment where the central bankers who control the money supply are printing with reckless abandon, trading some of their paper currency for land makes a world of sense.

Americans who abandoned citizenship jumped 1,402% last quarter

Mon, 02/10/2014 - 11:04

February 10, 2014
Sovereign Valley Farm, Chile

631 people renounced their US citizenship in the 4th quarter of 2013.

This is an entire order of magnitude higher than the 45 people who renounced in 4Q/2012. And in total, 3,000 Americans renounced their citizenship in 2013– another record high.

The previous record (1,777) was set in 2011, which shattered the previous record before that (1,534) which was set in 2010, which was more than twice the number (742) that renounced in 2009.

You can see the trend here. And it’s not hard to figure out why it’s happening.

As the United States Taxpayer Advocate Nina Olsen recently told Congress in her scathing report about US tax policy:

“[T]ax requirements have become so confusing and the compliance burden so great that taxpayers are giving up their U.S. citizenship in record numbers.”

In her report, Ms. Olsen specifically points to the Foreign Account Tax Compliance Act (FATCA), which was passed by Congress four years ago. She states that FATCA “has the potential to be burdensome, overly broad, and detrimental to taxpayer rights.”

That’s putting it politely.

I have written several times before that FATCA is one of the most destructive, insidious pieces of legislation ever passed. And the worst effects are only now -starting- to be felt.

Among other things, the law requires new disclosures for US citizens with foreign accounts. And just to make sure it’s absolutely clear how the US government views its tax serfs, they put this little ditty in the instructions:

“The fact that a foreign jurisdiction would impose a civil or criminal penalty on you if you disclose the required information is not reasonable cause [to NOT file this form].”

Basically they’re saying, ‘Even if disclosing this information would cause you to go to jail in a foreign country due to their confidentiality laws, we don’t give a damn. We still expect you to file this form. Otherwise we will throw you in jail in the US.’

(yes, there are potential criminal penalties for not filing this form…)

This isn’t exactly how a free society treats its citizens. It’s a constant threat of force with these people. Even the most mundane, bureaucratic tasks are cause for intimidation.

As I have pointed out so many times before, you can’t even apply for a passport (i.e. permission to leave the country) in the Land of the Free without being threatened with fines and imprisonment.

All of this has come at tremendous cost. Aside from permanent damaging the US government’s reputation and its role in the global banking system, the human cost is nearly incalculable.

Think about it– it’s not the Obamaphone recipients who are renouncing their citizenship and leaving the country. These are smart, talented, energetic people who could have actually contributed something.

And as this productive class gets out of dodge, they leave behind more people who want something for nothing… and fewer people to pay the bill.

It’s the same situation the Romans were in back in the 5th century.

Undoubtedly there are folks out there who would call the thousands of people who have renounced ‘cowards’ and ‘traitors’ (though they are in respected company given that the British considered George Washington a traitor).

But lest we judge ‘renunciants’ poorly, we should first ask– is it more honorable to lay down and let yourself be plundered by a bunch of blundering, bungling, deceitful politicians…?

Doubtful. Besides, divorcing yourself from your bankrupt, insolvent government is not the same as divorcing yourself from your culture or values.

You are who you are no matter what color your passport is.

When George Clooney starts pitching government bonds…

Thu, 02/06/2014 - 07:05

February 6, 2014
Lakes region, Chile

Last week in his State of the Union address, the President of the United States laid the groundwork for a new government program he calls “MyRA”.

As he explained to the American people, this program will allow US taxpayers the ability to loan their retirement savings to the federal government (which, according to POTUS, carries ZERO risk).

Given that US Treasury yields fall far below the rate of inflation, this is a big win for the government, and a big loser for the poor suckers who loan them the money.

The President then hit the road, touting his one-of-a-kind program. The Treasury Secretary hit the newspapers, encouraging Americans to enroll.

I can see this unfolding like a War Bonds campaign, appealing to Americans’ love of country to get them to loan their money to the government at sub-inflation yields.

In Italy they’ve already used football stars in patriotic appeals to get Italians to buy government bonds. In Japan they use teenage girl bands to entice wealthy Japanese businessmen to open their wallets for government bonds.

So let’s see how long it takes for George Clooney and Matt Damon to make the pitch for the MyRA program… and how long after that it becomes mandatory for all Americans.

Meanwhile, the IRS is doing its part.

One of the best solutions that we’ve discussed in the past to liberate your IRA from this destructive trend is to set up a particular type of self-directed IRA.

But the IRS has been intentionally making it more difficult to set up these structures over the past year. Now there’s even more roadblocks.

In order to set up this type of structure, it’s imperative to first obtain a tax ID number. But due to agency budget cuts, the IRS is no longer issuing tax ID numbers for domestic entities through its call center. They’re saying that now you HAVE to use the online system.

This is one website that the government actually got right. The tax ID application website is fairly straightforward, and it works great. EXCEPT if you are trying to set up this type of IRA.

So if you’re an individual trying to obtain a tax ID number for your new company, no problem. The online system works great.

But if you punch in that you are setting up a company to be owned by your IRA (or some other entity), then suddeny the system crashes and times out.

I had my staff ring up the IRS yesterday to demand an answer. After two phone calls, each with a 30+ minute wait time to reach a human being, we finally got an answer. Confirmation, actually.

The agent told us that yes, in fact, the online system has been programmed to intentionally reject tax ID number applications for companies that are owned by entities like an IRA.

So they have essentially eliminated the option to apply online. But they won’t let you apply over the phone either.

You can apply through the mail, but that will take 30-days, according to the agent. Or by fax, provided that you first cough up all sorts of other documentation.

It certainly begs the question– at a time when the President of the United States is whipping up excitement over this new program to loan the government your retirement savings, why is their tax agency putting up huge roadblocks for Americans who don’t want to become victims?

What you can learn from the founders of Hong Kong

Wed, 02/05/2014 - 11:58

February 5, 2014
Panguipulli, Chile

As you may know, I’m an avid reader. I devour especially historical accounts of any kind, because I consider lessons of history to be invaluable. As the Latin proverb says: Historia magistra vitae est—history is life’s teacher.

One of my all-time favorite books is a novel by James Clavell, Tai-pan. It’s the second book in his series of six novels known as The Asian Saga—a fictional account of historical facts.

Tai-Pan tells the story of Western, and especially British, traders at the time of the Opium Wars with China. The story starts right after the British have defeated the Chinese Empire in the First Opium War and claimed a barren island in the Pearl River delta as a British possession—Hong Kong.

Tai-Pan is actually a Cantonese term that literally means “big shot”, and was reserved strictly for top foreign businessmen and traders operating in the Chinese realm.

In the story, right after the ceremonial claim of Hong Kong, the eponymous Tai-Pan, a Scottish merchant Dirk Struan, who dominates the trade in tea, silk, and opium, receives letters and dispatches from his son Culum who has just arrived to the Orient from Scotland:

“Finally he broke the seal on his banker’s letter. He read it and exploded with rage.

“What is it?” Culum asked, frightened.

“Just an old pain. Nothing. It’s nothing.” Struan pretended to read the next dispatch while raging inwardly over the contents of the letter. Good sweet Christ!

“We regret to inform you that, inadvertently and momentarily, credit was overextended and there was a run on the bank, started by malicious rivals. Therefore we can no longer keep our doors open. The board of directors has advised we can pay sixpence on the pound. I have the honor to be, sir, your most obedient servant…”

And we hold close to a million sterling of their paper. Twenty-five thousand sterling for a million, and our debts close to a million pounds. We’re bankrupt.

Great God, I warned Robb not to put all the money in one bank. Na with all the speculating that was going on in England, na when a bank could issue paper in any amount that it liked.”

Chillingly familiar, right?

A million pounds was an ENORMOUS amount of money in the 1840s. And here the biggest merchant in the Orient fell into the same trap as many people do today. He failed to recognize the risks and diversify accordingly.

He was obviously aware of the threats, but didn’t act when he had the time and opportunity to do so.

The world is not that different today.

Just last week we talked about how HSBC in the UK is restricting its customers’ access to their own money. As revolting as it seems, this is what banks with capital shortfalls and liquidity crunches do.

Another thing from Europe which has gone completely unnoticed was a hearing in the European Parliament on banking, during which the new German board member of the European Central Bank, Sabine Lautenschlaeger said that it should be possible to wind down failing eurozone banks over a weekend “before markets open in Japan on Monday.”

The threats and warning signs are there for everyone to see even today.

The question is, will you have the foresight to act and mitigate your risks beforehand, or will you end up regretting your inaction, just like the Tai-Pan?

This place is a Europe lover’s paradise in the middle of South America

Tue, 02/04/2014 - 07:58

February 4, 2014
Pucon, Chile

In my travels to 100+ countries over the years, I’ve discovered that there is an indubitable abundance of great places to be.

There are rapidly developing countries in Asia right now on the cusp of massive social and economic transformations, replete with huge opportunities for investors and entrepreneurs.

Many of Europe’s most splendid destinations are on sale. They’re practically giving away property in Greece, Italy, and the Iberian Peninsula these days.

Over the last few years we’ve covered some amazing, far flung locales across the corners of the world– from San Marino and Andorra to Norfolk Island and Labuan to the amazing Galapagos.

But in my view, Chile still stands out above all the rest as having the BEST mix of business, investment, and lifestyle opportunities. And all in a place that is easily THE most advanced, civilized country on the continent.

One of Chile’s best traits is its geographic diversity. It’s astounding that a country this size spans more climate and geographic zones than Europe or the United States.

In the central part of Chile near Santiago, it’s -very- Mediterranean. Dry, temperate climate. LOTS of sunshine. Beautiful vistas of rolling hills, cultivated with vineyards, olive groves, and fruit trees.

In fact, I just had guests from Italy visiting a few weeks ago who remarked how much it reminded them of home… except for the lightly snow-capped Andean peaks off in the distance.

Today, after a scenic road trip, I’m back down here in the south of Chile once again. And compared to the central area, it feels like it’s practically a world away.

The weather and landscape feel much more like the western Alps in Europe.

Even the culture here is very European. This area was settled by German colonists in the late 1800s, and to this day, the German influence has had a profound impact on the region and raised the bar on quality.

The construction is better. The roads are better. Just about everything is maintained to a higher standard than the rest of Chile.

The German influence is also obvious in architecture, cuisine, and even language. I have several local colleagues, for example, who grew up speaking German at home and learned Spanish as a second language.

You see German signs. German restaurants. Driving down the Interlake Highway flanked by the Andes, it’s easy to get confused and think that you’re in the Austrian Alps. It reminds me of Zell-am-See, the famous lakeside Austrian ski town near Salzburg.

Even many of the people here are fair-skinned and light-eyed with surnames like Pfeil and Weiss.

No doubt, when the first group of intrepid European colonists put down roots here in the 19th century, they were taking a big risk.

But that colony of expats grew rapidly as more and more people moved away from their homeland over the last 100+ years seeking a better, richer, fuller life abroad.

Many were escaping the obvious destruction that was unfolding back home.

Down here, they dodged world wars and mass genocide. And they found kinship, camaraderie, and new opportunities, all the while maintaining their traditions and cultural identity.

This region shows that “home” does not necessarily have to be the place where you grew up, or where the government issued your passport.

If the conditions warrant, and “home” is going down the tubes, all the essential elements– language, people, traditions, etc. can be transplanted elsewhere and live on, thriving, for generations to come.

It’s an important example that certainly bears highlighting today.

Summing up Ben Bernanke’s reign in four numbers

Fri, 01/31/2014 - 07:08

January 31, 2014
Sovereign Valley Farm, Chile

First of all, a very Happy New Year to our many Chinese readers.

According to the ancient Zodiac, today we are shedding the coils of the year of the Snake in favor of the Horse.

Given this symbology, it is perhaps a very small irony that today is also the final day in office for Ben Bernanke, chairman of the US Federal Reserve. Let’s review the statistics:

1) When Mr. Bernanke took office in 2006, the Fed had $834.6 billion in assets, the vast majority of which were US Treasuries.

As of Wednesday, Mr. Bernanke’s Fed now counts $4.1 trillion in assets. And the balance sheet is stuffed full of mortgage debt ‘guaranteed’ by insolvent government agencies.

2) When Mr. Bernanke took office, the Fed’s capital ratio (net equity divided by total assets) was 3.22%.

This capital ratio is a hugely important number in banking that represents a sort of ‘margin of safety’. In a severe crisis situation, banks with a higher capital ratio are able to withstand major financial shocks.

Candidly, 3.22% is not high; this means that the Fed would effectively be rendered insolvent if its assets lost more than 3.22% of their value. So the Fed that Mr. Bernanke inherited was not exceptionally healthy.

But today, Mr. Bernanke leaves office with the balance sheet in far worse condition. The Fed’s capital ratio is just 1.34%. And it’s deteriorating rapidly.

Three years ago, the Fed’s capital ratio was 2.17%. A year ago it was 1.82%. Six months ago it was 1.54%. And now today just 1.34%. It doesn’t take a rocket scientist (or a PhD in economics) to see how quickly this is unraveling.

The Fed now has a razor thin margin of safety to guarantee a bloated balance sheet crammed full of questionable assets. This is not exactly the height of responsible stewardship.

Has it helped? I suppose that depends on whom you ask.

3) When Mr. Bernanke took office, the Dow Jones Industrial Average stood at 10,954, and the US government could borrow money for ten years at 4.57%.

Today the Dow is at 15,569, and the 10-year note is 2.65%.

So this has been a pretty good run for folks who have thrown money in the stock market or have heavily indebted themselves.

Yet over 50% of Americans don’t own a single share of stocks. And as of 2010, 10% of Americans own 81% of all stocks.

Then there’s the Federal government, which has been able to pass off trillions of dollars of debt to a willing central banker, as well as generate tax revenue from all the stock investors’ capital gains.

4) Most folks, however, have seen a different side of the Fed’s expansion. The FAO food price index, for example, has increased from 122 to 207, and the labor force participation rate declined to its lowest level in decades under Mr. Bernake’s tenure.

It’s fairly clear if you look at the data objectively that Mr. Bernanke’s policies have left the Fed (and consequently the global financial system) in far more precarious condition than when he started, yet disproportionately benefited the US government and small percentage of society at the expense of everyone else.

This is not to say that Mr. Bernanke is some evil mastermind bent on nefarious ends.

When I listened to him explain his decision-making process at a dinner in Washington a few months ago, it became clear that he is very well intentioned and honestly believes that his policies help.

Unfortunately the road to ruin is almost always paved with good intentions.

Presenting the latest country to lose confidence in the dollar….

Thu, 01/30/2014 - 07:12

January 30, 2014
Sovereign Valley Farm, Chile

Zimbabwe. You remember those guys, right?

The country’s plight with its currency became world famous, the butt of untold jokes in economic circles. At its height, hyperinflation in Zimbabwe reached nearly 90 sextillion in 2008.

That’s a 9 with 22 zeros.

To put it in context, if you had 90 sextillion grains of sand, you could cover the entire surface of the earth all the way to the outmost layers of the atmosphere.

Then, in April 2009, the government effectively abandoned the Zimbabwe dollar. The US dollar became the official currency for all government transactions, and US dollars, British pounds sterling, euros, and South African rand became the most widely used tender in circulation.

I’ve traveled to Zimbabwe frequently; they have some of the best stories you could ever hear about standing in line at the banks with wheelbarrows, and using stacks of paper currency at home for toilet paper or furniture.

Given that Zimbabwe is literally THE poster child for hyperinflation over the last half-century, one cannot understate the irony of their latest announcement.

Just yesterday, the government there announced that the Chinese renminbi (among other currencies) will become legal tender in Zimbabwe.

This is big news. As we have discussed so many times in the past, the current fiscal and monetary antics in the United States are absolutely no different than what Zimbabwe employed several years ago.

Zimbabwe printed its currency in nearly infinite quantities. So has the United States. The only difference is that the US dollar is readily accepted around the world thanks to good ole’ American credibility that was built by previous generations.

But that credibility is rapidly deteriorating. And everywhere you look, there are obvious signs that the rest of the world is quickly moving on from the dollar.

Central banks around the world are stocking up on gold. Major powers like China and Russia are calling for a new reserve currency. And a number of nations (Zimbabwe is the latest) have already begun to use other currencies like the renminbi for international trade and central bank reserves.

It’s happening. And it’s one of those things that will play out like what Hemingway wrote about going bankrupt: gradually, then suddenly.

The dollar’s share of global reserves has slowly fallen from roughly 75% in 2001, to just over 60% today.

But the world will eventually reach a bifurcation point where investors, foreign governments, central banks, etc. panic and start rushing for the exits.

It’s something that could happen tomorrow. Or five years from now. No one knows. But rational, intelligent people shouldn’t be waiting around for it to happen.

I very strongly recommend that you take a portion of your savings and move them into real assets– precious metals and productive land are the most obvious. But even things like collectibles or nonperishable goods (like ammunition) would be preferable to US dollars.

Then there’s other currencies that you can hold. Right now, the Norwegian krone has the strongest fundamentals in the world as it is backed by the most solvent central bank on the planet.

The Hong Kong dollar is also an interesting option because it minimizes your downside currency risk while providing protection against the US dollar’s deterioration.

(Premium members: please refer to your SMC welcome guide for actionable information about holding Hong Kong dollars and Norwegian krone.)

IRA confiscation: it’s happening

Wed, 01/29/2014 - 08:25

I have an old acquaintance named Sam who has a hell of a deal for you.

Sam is actually a pretty famous guy with a big reputation. Unfortunately he has been a bit down and out on his luck lately… but he’s trying to make a comeback. And Sam is prepared to float you a really great investment opportunity.

Here’s the deal he’s offering: you give Sam your hard-earned retirement savings. Sam will invest your funds, and pay you a rate of return.

Granted, the rate of return he’s promising doesn’t quite keep up with inflation. So you will be losing some money. But don’t dwell on that too much.

And, rather than invest your funds in productive assets, Sam is going to blow it all on new cars and flat screen TVs. So when it comes time to make interest payments, Sam won’t have any money left.

But don’t worry, he still has that good ole’ credibility. So even though his financial situation gets worse by the year, Sam will just go back out there and borrow more money from other people to pay you back.

Of course, he will be able to keep doing this forever without any consequences whatsoever.

I know what you’re thinking– “where do I sign??” I know, right? It’s the deal of the lifetime.

This is basically the offer that the President of the United States floated last night.

And like an unctuously overgeled used car salesman, he actually pitched Americans on loaning their retirement savings to the US government with a straight face, guaranteeing “a decent return with no risk of losing what you put in. . .”

This is his new “MyRA” program. And the aim is simple– dupe unwitting Americans to plow their retirement savings into the US government’s shrinking coffers.

We’ve been talking about this for years. I have personally written since 2009 that the US government would one day push US citizens into the ‘safety and security’ of US Treasuries.

Back in 2009, almost everyone else thought I was nuts for even suggesting something so sacrilegious about the US government and financial system.

But the day has arrived. And POTUS stated almost VERBATIM what I have been writing for years.

The government is flat broke. Even by their own assessment, the US government’s “net worth” is NEGATIVE 16 trillion. That’s as of the end of 2012 (the 2013 numbers aren’t out yet). But the trend is actually worsening.

In 2009, the government’s net worth was negative $11.45 trillion. By 2010, it had dropped to minus $13.47 trillion. By 2011, minus $14.78 trillion. And by 2012, minus $16.1 trillion.

Here’s the thing: according to the IRS, there is well over $5 trillion in US individual retirement accounts. For a government as bankrupt as Uncle Sam is, $5 trillion is irresistible.

They need that money. They need YOUR money. And this MyRA program is the critical first step to corralling your hard earned retirement funds.

At our event here in Chile last year, Jim Rogers nailed this right on the head when he and Ron Paul told our audience that the government would try to take your retirement funds:

I don’t know how much more clear I can be: this is happening. This is exactly what bankrupt governments do. And it’s time to give serious, serious consideration to shipping your retirement funds overseas before they take yours.

(Note to members of our PREMIUM intelligence service: look for the recent actionable alert on this topic).

The REAL State of the Union in just 889 words…

Tue, 01/28/2014 - 08:08

Mr. Speaker, Mr. Vice President, members of Congress, fellow citizens:

This summer we will commemorate the 100th anniversary of the start of World War I.

This senseless, destructive war was started and championed by politicians who cared nothing for the 9 million people who lost their lives.

And in doing so, they began a century of warfare which continues to this day.

Our military industrial complex is larger than ever. We have nearly 2 million troops and national guardsmen, plus 3.5 million civilians employed in the defense sector.

With such awesome capabilities, we continue to resort to violence and death to exact political goals which benefit a tiny elite.

All of this has created a police state in the Land of the Free that is a far cry from the country we all grew up in.

Your government has spawned a culture of fear and intimidation. Nearly every federal agency, including the Fish and Wildlife Service, has its own gun-toting police force to pistol-whip citizens into submission.

And we’re stocking up. Your government has recently procured 1.6 BILLION rounds of hollow-point ammunition to supplement our existing supplies.

But frankly, we don’t need guns to harass citizens.

Our tax authorities have become more threatening than mafia warlords. The plunder is so severe that record numbers of Americans are renouncing their citizenship and leaving the country.

There are now dozens of federal, state, and local agencies and courts which have the power to confiscate your assets without any due process.

In addition to your house, your business, and your savings, we also have the authority to take your children away from you as if they are property of the state.

We are here to tell you what you can and cannot put in your own body, or whether you can collect rainwater that falls on own property.

In fact, on any given business day, the federal government issues hundreds of pages of new ‘rules’, proposed regulations, draft bills, executive orders, and/or regulatory notices.

And if you are not compliant with these rules, you may be committing a crime. Whether you know it or not.

When this nation was founded, there were four federal crimes on the books. Today there are THOUSANDS. Plus we have millions of government employees at all levels to enforce the penalties.

All of this, of course, is financed by you the tax slave.

You (plus unborn generations) are the poor suckers charged with paying off the national debt we politicians have created.

Officially the debt is just north of $17 trillion. But if you include Social Security and pension shortfalls, the figure is several times higher.

You’ll never know for sure because we have become masters of deceit regarding official statistics, whether inflation, unemployment, or our liabilities.

But the situation is so dire that the Congressional Budget Office projects the Social Security Administration’s disability insurance trust fund to RUN OUT by 2017.

We get by year after year by increasing the debt. And at well over 100% of GDP, we have truly reached the point of no return.

We are now in a position where we must default. Either we must default on our national debt, or we must default on our obligations to you the citizens.

We may end up stealing your savings. Robbing your Social Security. Taxing you to death. Or simply inflating away the value of our debt.

Naturally, we’re going to screw you in the process somehow… so be prepared for that. Especially the inflationary tidal wave that’s coming.

Our central bank has expanded its balance sheet at an unprecedented pace, creating massive asset bubbles in its wake. These asset bubbles have disproportionately benefited the ultra-wealthy at the expense of everyone else.

Such wanton money printing has also been tremendously destructive to our credibility. Other nations worry about our reckless irresponsibility. That’s why we keep spying on them.

Make no mistake: the consequences of our actions are here. And the days of the United States as the world’s dominant superpower are finished.

As the decline hastens, we will struggle to sell our debt to the world and to ship our dollars abroad. Fewer nations will be interested in our empty promises.

And without the generosity of other nations loaning us money at record low interest rates that fail to keep pace with inflation, you will really be screwed.

When this happens, you can absolutely count on us to clamp down even harder on the economy and control even more of your lives. For your own good, of course.

No, this may not be the country that you all grew up in. But it is the state of our union… whatever remains of it.

And so my fellow Americans, I urge you to grab your ankles and get ready for a little ‘shared sacrifice’.

But don’t worry about me, or my senior staff. We will leave government with cushy pensions, $750,000 speaking fees, board seats on public companies, and top positions in the industries that we have accommodated at your expense.

And of course I will be paid handsomely for the arrogant memoirs I will write in which I deny any responsibility for the shit I’ve gotten you all into.

So when I say “shared sacrifice”, I really mean “your sacrifice”.

Thank you. God bless you, and God bless these United States of America.

This is what banks do when they go broke

Mon, 01/27/2014 - 15:12

January 27, 2014
Santiago, Chile

It’s happening again. This time HSBC branches in the UK are putting limits on customer withdrawals.

Bank employees there have been telling customers that they first must demonstrate to the bank’s satisfaction WHY they want to withdraw their own money. The bank has simply decided in its sole discretion that it won’t give people their own money back.

This is positively revolting– a breach of a most sacred form of trust between a bank and its customers. It would have been unthinkable just 10-years ago. But today it’s par for the course.

Banks across most of the ‘developed’ world have razor thin liquidity and capitalization ratios—meaning that their margins of safety are extremely low.

If just a small percentage of their assets lose value, they’ll go under. Or, if just a small percentage of their customers want their deposits back, they won’t be able to pay up.

This is ultimately what’s happening to HSBC. It turns out their UK operations are in severe financial trouble, posting a major capital shortfall of over $100 billion.

This should come as no surprise. Less than a year ago, in response to how poorly capitalized British banks were, the banking regulators announced that it would allow banks to use creative accounting to boost their numbers.

In one method that was explicitly condoned by regulators, banks were authorized to count FUTURE earnings (i.e. profit that they may or may not earn in years to come) towards their capital TODAY.

It’s like calculating your net worth based on how much you -think- you might be earning 20-years from now.

This is fraud, plain and simple. And I wrote about this numerous times last year.

Of course HSBC is not alone. With few exceptions, most banks across Europe are in a similarly precarious position– highly illiquid and thinly capitalized.

This isn’t rocket science– it’s what broke banks do. We saw what happened in Cyprus last year when banks got “bailed-in” by their customers.

We’re seeing similar restrictions on cash withdrawals in Italy where the amounts are even much lower. Banks in the US have recently started imposing restrictions on international wire transfers as well.

To anyone paying attention, the warning signs are all flashing red.

The days when you could simply assume that your bank is healthy, and a safe custodian of your money, are long gone… and people need to be aware of this.

There are consequences to keeping funds in overstretched and starved-out banking systems. When push comes to shove, those banks will either go under and take your deposits with them (Cyprus), or they’ll make it incredibly difficult for you to access your own money. This is what HSBC is doing in the UK.

Fortunately, not every jurisdiction is the same.

I’ve written, for example, about the strong liquidity and solvency of the banking system in Norway numerous times, where there is enough cash in the banking system to back up 25.5% of customer deposits as of Q3/2013. In Singapore, it’s 24.7%.

Even HSBC as a global bank isn’t the same everywhere. Its UK division might not be worth much, but its Hong Kong operation enjoys a solid 25.9% liquidity ratio. This is nearly an order of magnitude higher than its peers in the West.

There are a lot of options out there. And it’s definitely time to start thinking (and moving your money) in this direction. Otherwise it could be you who wakes up tomorrow to find out that your bank is holding your money hostage.

No inflation Friday: the dollar has lost 97% of its value against stamps

Fri, 01/24/2014 - 05:51

January 24, 2014
Sovereign Valley Farm, Chile

One of the greatest lies of the modern financial system (and that’s really saying something) is about inflation.

The puppet masters who control the system have managed to convince people that deflation = bad, and inflation = necessary evil.

Perhaps the even bigger lie is that of the actual inflation statistics. They tell us that there’s no inflation… or minimal inflation.

And they tell us that the ‘target’ rate is 2%. Bear in mind that 2% annual inflation means your currency will lose over 75% of its value during the course of your lifetime.

But these figures are massively understated. And you don’t have to look hard for proof.

US postage stamp rates, for example, are set to increase this weekend. They’ve been going up almost every year since 2006.

This weekend, the rate for a one-ounce first class letter will rise to 49c from 46c, a 6.5% increase. And the price to send a postcard will rise from 33c to 34c, a 3.0% increase.

If you take a longer-term view, the price of a postcard back in 1951 was just one cent. This means that the dollar has lost over 97% of its value against postcard shipping rates in the last six decades.

Let’s look at this another way.

According to the US Department of Labor, the average household income in 1950 was $4,237. This means that the average US household could afford to send 423,700 postcards back then.

Today’s median household income is $51,017 (and that’s from a majority of dual-income households). This means the average family in the Land of the Free can now afford to send about 150,050 postcards.

It’s a huge difference. The standard of living denominated in postcards has declined by nearly two-thirds since the 1950s.

Short-term, long-term, the conclusion is the same: Inflation exists.

And any suggestion to the contrary that inflation is ‘good’ or at least a ‘necessary evil’ is simply a lie. It destroys both purchasing power and standard of living.

Rational, thinking people need to be aware of this. If you hold a lot of your savings in a bank denominated in paper currencies like the dollar or euro, you will lose.

And I’d strongly urge you to consider holding at least a portion of your savings in stronger, more stable currencies, or better yet, alternative asset classes that cannot be inflated away by central bankers.

This includes productive real estate, precious metals, or even collectibles.

Here it comes– more leading economists call for capital controls

Thu, 01/23/2014 - 05:51

January 23, 2014
Sovereign Valley Farm, Chile

As the saying goes, ‘desperate times call for desperate measures.’

The phrase is bandied about so frequently, it’s generally accepted truth. But I have to tell you that I fundamentally disagree with the premise.

Desperate times, in fact, call for a complete reset in the way people think. Desperate times call for the most intelligent, effective, least destructive measures. But these sayings aren’t as catchy.

This old adage has become a crutch– a way for policymakers to rationalize the idiotic measures they’ve put in place:

  • Inflation-adjusted interest rates that are… negative.
  • Trillion dollar deficits.
  • Endless wars and saber-rattling
  • Unprecedented expansion of central bank balance sheets.
  • DIRECT CONFISCATION of people’s bank accounts.

But hey… desperate times call for desperate measures. I guess we’re all just supposed to be OK with that.

One of those desperate measures that’s been coming up a lot lately is the re-re-re-introduction of capital controls.

It started in late 2012, when both the European Central Bank and the International Monetary Fund seperately endorsed the use of capital controls.

For the IMF, it was a staunch reversal of its previous position, and Paul Krugman lauded the agency’s “surprising intellectual flexibility” a few days later.

The IMF then followed up in 2013 with another little ditty proposing a global wealth tax. The good idea factory is clearly working ’round the clock over there.

Lately, two more leading economists– Harvard professors Carmen Reinhart and Ken Rogoff– have joined the debate.

In a speech to the American Economic Association earlier this month, the pair suggested that rich economies may need to resort to the tactics generally reserved for emerging markets.

This is code for financial repression and capital controls.

The idea behind capital controls is simple: create barriers to restrict the free flow of capital. And if you’re on the receiving end, capital controls can be enormously destructive.

But for politicians, capital controls are hugely beneficial; once they trap funds within their borders, the money can be easily taxed, confiscated, or inflated.

Historically, capital controls have been used in ‘desperate times’. Too much debt. Too much deficit spending. Wars. Huge trade deficit. Intentional currency devaluation. Etc.

Does any of this sound familiar? It’s no surprise that policymakers have once again turned to this ‘desperate measure’. They’re already here.

Iceland has capital controls, over five years after its spectacular meltdown. We can also see capital controls in Cyprus, India, Argentina, etc.

I’ve been writing for years that capital controls are a foregone conclusion. This is no longer theory or conjecture. It’s happening. And every bit of objective evidence suggests that the march towards capital controls will quicken.

This is a HUGE reason to consider holding a portion of your savings overseas in a strong, stable foreign bank where your home government won’t as easily be able to trap your savings.

Other options including storing physical gold (even anonymously) at an overseas depository. Or if you’re inclined and tech savvy, you can also own digital currency.

But perhaps the best way to move some capital abroad is to own foreign real estate, especially productive land.

Foreign real estate is not reportable. It’s a great store of value. It generates both financial profits and personal resilience. It’s a LOT harder to forcibly repatriate. And it ensures that you always have a place to go in case you need to get out of Dodge.

Even if nothing ‘bad’ ever happens, you won’t be worse off for owning productive land in a thriving economy.

Like I said– desperate times don’t call for desperate measures. More than ever, it’s time for a complete reset in the way we look at the most effective solutions. These options are certainly among them.

He aquí: ¡Una grandiosa forma de perder mucho dinero!

Wed, 01/22/2014 - 08:32

16 de Enero del 2014, Santiago de Chile

Hay un minúsculo parasito que existe en la naturaleza conocido como: Spinochordodes tellinii el cual infecta grillos y saltamontes.

Una vez que ha alcanzado la madures este gusano es capaz de afectar profundamente el comportamiento de su anfitrión; entre lo más destacado, este gusano puede hacer al saltamontes lanzarse al agua sin su consentimiento.

Esto es perfecto para el gusano ya que necesita humedad para reproducirse. Pero para el saltamontes eso significa la muerte.

Otro vil espécimen conocido como Toxoplasma gondii, que de acuerdo a estudios, al infectar a ratones y ratas estas han demostrado una reducción de sus defensas, haciéndolas más vulnerables a ser alimento para gatos.

La naturaleza está llena de esos indeseables parásitos que manipulan a sus anfitriones, causando comportamientos irracionales, destructivos, y suicidas.

Por supuesto también existen estos entre los seres humanos… Especialmente para inversionistas. La verdad la mayoría de las veces el paracito más peligros y que afecta a la mayor cantidad de inversionistas es una emoción peculiar, llamada: Temor.

Específicamente, el temor a perder una oportunidad dorada. Esto se puede convertir en una pesadilla peor que el mismo temor a perderlo todo.

Ahora si todo el mundo está tirando su dinero por el mismo agujero, se vuelve más fácil olvidar el riesgo de perder nuestros ahorros de toda la vida, invirtiéndolas en ridículas acciones sobrevaluadas.

La mejor manera de perder mucho dinero es seguir a las masas.

Muchos de aquellos grandes y exitosos inversores de la historia fueron esos que tuvieron el coraje de ir en contra de la corriente y del pensamiento inversionista común. Conquistaron el miedo de perder su oportunidad dorada, y fueron y compraron aquello que nadie quería, lo odiado… o más aun, pusieron la vista donde nadie se arriesgaría a ponerla.

Hoy en día con el clima en la bolsa donde está, donde los Bancos Centrales están imprimiendo trillones de dólares por año y empujando por todos lados los precios de los bienes activos, es a veces difícil encontrar demasiados de esas playas vírgenes, o “acciones odiadas” Pero aún existen algunas:

1. Metales Preciosos

El mercado de hoy en día ha socavado y menos preciado el oro. ¡Está acabado! o eso es lo que la sabiduría convencional diría. Especulaciones y sentimentalismos hacia un crecimiento de la economía, han llevado inversores a abandonar el oro, la plata, el platino, etc.

2. Compañías Mineras

Con la rápida caída del mercado de los metales y los márgenes en minería declinando, los precios de las acciones en compañías mineras han pasado de feas a terribles… y muchos inversores a largo plazo están literalmente yéndose a la quiebra.

3. Monedas de mercados emergentes

La moneda en el mundo emergente- Turquía, India, Indonesia, Uruguay, etc. Han sido maltratadas y subestimadas en los últimos meses por el temor de una crisis mundial, a pesar de esto, estas naciones demográficamente cuentan con un cimiento económico fuerte.

Ahora, hablamos de dónde va la masa, es fácil.

Las acciones en EE.UU y Europa Occidental están cada vez más altas.

El renminbi Chino está en un alza de varios años. Y inexplicablemente su mercado está mostrando mucha confianza en ambos el dólar y el euro en este momento.

Los Bonos de gobiernos de los gobiernos occidentales, los cuales están muy endeudados, aun son vistos con obviedad refugios seguros.

Los gobiernos de España e Italia, de hecho, solo emitieron recién nuevos bonos en un nivel record en bajo rendimiento… Obviando por supuesto la juventud desempleada que alcanza el 57.7% y ni hablar de la gigantesca deuda o el déficit en gastos.

A pesar del incremento gradual de los interés que adversariamente impactan los precios y el bolsillo de la gente. Los bienes raíces en EE.UU son una vez más aclamada por los medios como una inversión segura.

Por ultimo-¿Que podría no estar en el radar del rebaño de inversionistas colectivo?

De mi punto de vista, muy pocos inversionistas convencionales están siquiera pensando sobre tierras para agricultura fuera de los EE.UU o en capital privado en mercados en desarrollo.

Pronto, mas sobre este tema.