This is what armed revolution looks like

bhGtXjkI3OA 1 150x150 This is what armed revolution looks like

January 20, 2014
Sovereign Valley Farm, Chile

It’s almost exactly like that scene from V for Vendetta.

You know– the part in the end where swarms of people go up against the police with their sticks and Guy Fawkes masks…

That’s what’s happening in Ukraine right now. And with reason.

After weeks of student protests over the government’s failure to sign a European integration and association treaty, the police violently cracked down on protestors, and politicians passed a series of new laws in the middle of the night. Among them:

  • Criminal extremist activity is now redefined, broadly and loosely, that effectively criminalizes protest, press reports, or social media that is anti-government.
  • Insulting a policeman or judge is now a criminal offense. This includes behavior that “patently offends” or “shows insolent disrespect”.
  • Blocking of administrative buildings is now criminalized with a 5-year prison sentence.
  • Anyone who organizes an assembly in violation of ‘established procedures’ can be arrested.
  • The government has streamlined its ability to force Internet Service Providers to block certain websites it deems harmful in its sole discretion.
  • New amendments to the criminal code allow pre-trial and trial proceedings to be conducted, even if the defendant is not physically present to defend himself.

The laws go on and on. It’s Soviet stuff all over again. And people aren’t taking this lightly.

In total defiance of these new laws, the gun-toting police thugs, and the bone chilling winter cold, people are once again out in the streets.

There’s a great video from a few nights ago where the cops were assaulting a few protesters. Then suddenly a swarm of people with nothing more than fists and sticks ran over and began attacking the police.

Watch the video here. (about 60 seconds in length).

Societies, like individuals, have their own breaking points. Citizens can only tolerate so much abuse before enough of them take action. Sometimes that means meeting violence with violence.

I wonder where this line is in the West. Back in the Land of the Free, the government has taken every possible step it can to abuse citizens.

It has enriched banks at the people’s expense. It has robbed the masses of the purchasing power of their savings. It has destroyed liberties, indebted future generations, raised taxes, and regulated the most fundamental aspects of our lives.

All of this has been done shamelessly, unapologetically. For example, President Obama’s “solution” to the NSA spying debacle is to simply outsource the metadata storage to some unknown company.

Pathetically, this is what passes for liberty in the Land of the Free today.

Yet while Ukrainians have clearly reached their breaking points and are fighting it out in the streets for their freedom, it remains unclear where North Americans and Europeans draw the line. Most people don’t seem to care.

Fortunately, anyone who actually values liberty doesn’t need to wait around for Ukrainian-style armed revolution.

The world is a big place, and there are a number of options to reduce our exposure to bankrupt, insolvent, destructive governments.

Every single person who holds dollars in a US bank account, for example, is entirely beholden to the whims of the Federal Reserve Board of Governors.

You can substantially reduce this exposure by moving funds to a place like Norway or Hong Kong, holding krones or Hong Kong dollars.

Or even still, owning precious metals at a foreign depository in a place like Singapore.

You can reduce your exposure to NSA spying by using simple encryption plug-ins for email (see our free report on how to give the NSA the finger…)

You can further reduce your risk and exposure to your home government by obtaining a low-cost second residency in a place like Chile or Panama, to ensure that you always have another option.

There are a plethora of solutions– individual solutions– that anyone can take advantage of. And in doing so, we are relying on ourselves. Not on our neighbors. And definitely not on government.


VIDEO: Cops get away with murder in the Land of the Free

Kelly Thomas Police Beating 1 150x150 VIDEO: Cops get away with murder in the Land of the Free

January 17, 2014
Sovereign Valley Farm, Chile

I have to give you fair warning, this is truly disgusting.

It’s been over two years since Kelly Thomas, a 37-year old man from Fullerton, California was tased and beaten to death by local police.

Thomas was homeless, schizophrenic, and had a long history of mental illness. He’d also had his share of run-ins with the police.

And on the evening of July 5, 2011, Fullerton police approached Thomas once again, this time on suspicion of vandalism.

According to statements given by the police officers on the scene (and video footage), the conversation went something like this:

Cop: “Now you see my fists?”
Thomas: “Yeah, what about them?”
Cop: “They are getting ready to fuck you up.”

And that’s exactly what happened next. Fists. Beatings. Tasers. Followed by multiple other cops who arrived on the scene to participate.

Bear in mind, Thomas was unarmed and defenseless.

There are a number of videos on the Internet from nearby onlookers who were pleading with the police to stop beating Thomas. He can be heard screaming, totally subdued, facedown, at the hands of a team of Fullerton’s finest.

The most graphic video was captured by a nearby security camera, clearly showing six police officers beating Thomas senselessly. It’s utterly disgusting.

Skip to 17:55 to see it for yourself:

After the beating, it became clear that Thomas was in need of emergency medical attention. He was taken to a local hospital, and amazingly, the police instructed one of the paramedics on the scene to first attend to one of the officers’ minor injuries, instead of Thomas who was lying unconscious in a pool of his own blood.

Thomas never regained consciousness and died five days later. He was literally beaten to death by six police officers.

It took two years, but the issue finally went to trial.

But despite overwhelming evidence of Thomas complying with the officers’ requests, and their savage, excessive, merciless beatings of an unarmed man, all six officers were acquitted earlier this week by a jury of their peers.

They got away with murder.

This is the sort of thing you’d expect in Ukraine, Syria, or Equatorial Guinea. And yet, it happened in the Land of the Free… a.k.a. the United Police States of America.

For almost five years now, Sovereign Man has been discussing these concepts– shining a big spotlight on the destructive forces that free people are up against.

Every day, the police state grows more contemptible. Central bankers print more money and rob the purchasing power of our savings. Politicians increase the debt, pass higher taxes, and create more debilitating regulations. Corruption runs rampant.

The trend is obvious for anyone who is paying attention.

Like the Romans, the French Bourbon monarchy, the Venetians, the Ottomans, etc. who came before, this time is not different. We are not different.

When it’s clear that your country is headed down the tubes, it makes sense to spread your interests around the globe. We routinely discuss this strategy, both in this publication and our premium services.

But news like this really drives the point home.

Yes, it’s certainly beneficial to look abroad in order to protect your assets, broaden your investment opportunities, and safeguard against inflation and capital controls.

But there’s a deep, personal element to this strategy as well.

When cops can beat a man to death and walk away scot free, it certainly begs the question– does it really make sense to risk your family’s safety and security on a place that is rapidly turning into a banana republic?

We can -hope- that things get better. We can wait for all out revolution to spill into the streets. Or we can consider some appropriate options abroad, just in case.

Times have changed. And the latter is a rational, sensible strategy to pursue, especially if you’re living in a country that becomes less free by the day.

If not now, when?


Here’s a great way to lose a lot of money–

shutterstock 93925792 150x150 Heres a great way to lose a lot of money

January 16, 2014
Santiago, Chile

There’s a nasty little parasite that exists in nature known as the nematomorph hairworm (Spinochordodes tellinii) which typically infects grasshoppers and crickets.

Once fully grown, the worm is able to profoundly affect the behavior of its host; most notably, the worm can actually compel a grasshopper to throw itself into water.

This is great for the worm as it needs the moisture to reproduce. But for the grasshopper, it’s deadly.

There’s another vile protozoan known as Toxoplasma gondii. According to a 2007 study, rats and mice who are infected with it demonstrate a marked reduction in natural defenses, making them far more susceptible to being eaten by cats.

Nature is full of these unpleasant parasites which cause their hosts to engage in irrational, destructive, or even suicidal behavior.

Of course, they exist for humans too… especially for investors. In fact probably the number one parasite which affects investors is a very peculiar emotion: fear.

Specifically, it’s the fear of missing out that drives so much irrational investment behavior. Nobody wants to miss a big boom, no matter how baseless the fundamentals.

It’s this fear of missing out that compels people to continue investing in stocks, even though they are near all-time highs and trading at Price/Earnings ratios that are historically dangerous.

Ironically, this fear of missing out is stronger than the fear of loss. But if everyone else is jumping in, it’s easier to ignore the obvious risks of losing our life’s savings investing in ridiculously overvalued stocks.

Following the crowd is a great way to lose a lot of money.

Some of the most successful investors in history have been those who had the courage to go against the investment herd mentality. They conquered the fear of missing out, and they bought what everyone else hated… or looked where nobody else was looking.

In today’s investment climate, though, where central bankers are printing trillions of dollars per year and pushing up the prices of assets everywhere, it’s hard to find too many sectors or asset classes that are ‘hated’. But a few exist:

1) Precious metals

The market has all but stuck a fork in gold. It’s done. Or at least, so says the conventional wisdom. Taper talk and sentiment of stronger economic growth have prompted investors to mostly abandon gold, silver, platinum, etc.

2) Mining companies

With losses in the metals and mining margins declining, share prices for mining companies have gone from ugly to bufugly… and many long-term mining investors are collectively ripping their faces off.

3) Emerging market currencies

Currencies across the developing world– Turkey, India Indonesia, Uruguay, etc. have been battered senselessly over the last few months on fears of a global slowdown despite many of those nations’ stronger economic and demographic fundamentals.

As for what’s not hated– that’s easy. Stocks in the US and Western Europe are at/near all-time highs.

The Chinese renminbi is at a multi-year high. And inexplicably, the market is showing a lot of confidence in both the euro and the dollar right now.

Government bonds of heavily indebted western governments are still viewed as no-brainer safe havens.

The governments of Spain and Italy, in fact, just issued new bonds at a record low yields… nevermind 57.7% youth unemployment or obscene levels of debt and deficit spending.

And, despite gradually rising interest rates which adversely impact prices and affordability, US housing is once again front and center in the media as a safe investment.

Last– what’s not even on the radar of the collective investment herd?

In my view, few conventional investors are even thinking about farmland overseas (ex-US), or private equity in developing markets. More on those soon.


How a 17-year old made a fortune in Chile

Palacio Baburizza 150x150 How a 17 year old made a fortune in Chile

January 15, 2014
Santiago, Chile

In 1892, 17 year old Pascual Baburizza stepped off the boat in what looked like an unwelcoming, arid landscape in the north of Chile.

Baburizza had just spent several weeks on a boat travelling from his home island of Koločep, Croatia, which was then part of the dying Austro-Hungarian empire.

Austria-Hungary was once one of the most powerful empires in the world… replete with grandiose palaces, monuments, and a huge army. It no longer exists.

And by the late 19th century, an unpromising future back in his homeland had forced Baburizza to leave and seek better prospects on the other side of the planet.

He quickly found a business opportunity as the region was going through a potassium nitrate boom. Rather than get into potassium nitrate, though, he sold fish and meat to prospectors in the desert… something like selling shovels to gold miners.

The business went so well that he soon began acquiring property and other companies, and eventually expanded into agriculture.

In 1929, at the age of 54, he retired to live in his palatial Italianate villa in Valparaíso on Chile’s beautiful Pacific coast.

Baburizza’s story wouldn’t be much different today, especially in Chile.

There are legions of enterprising, talented, and ambitious young people out there who have realized that they cannot fulfill their dreams back home in Europe or North America.

They’re looking elsewhere, and Chile is receiving a number of them.

Down here, it’s possible for foreigners to obtain a job, start a business, or invest, all with relative ease. And the immigration laws make it easy for any productive foreigner to move here.

The government’s funding program, Start Up Chile, has been a huge success in attracting talented people and innovative businesses here. And with more talent, innovation, and crosspollination the opportunities are expanding.

Just as in Baburizza’s time, this place is still brimming with business and investment opportunities. I come across them every day.

For example, there are enormous problems to be solved (and money to be made) by catering to the needs of Argentine nationals across the Andes, who are once again getting hosed by their government.

That’s why Bitcoin-related services are taking off here.

Satisfying the appetites of the growingly affluent Chileans is another substantial opportunity. Large parts of Santiago provide a pleasant, first world standard of living.

And yet, the offerings here in the consumer, retail, service, culture, and hospitality businesses still lag behind other places in the world with a similar standard of living.

The high-end service space is waiting to be exploited—anything from fine dining restaurants, private schools, boutique hotels, sophisticated bars, etc.

Across the board, the level of service is something that can be greatly improved upon by anyone coming from a more service-oriented environment.

Every week I meet new foreigners who have arrived and are overwhelmed at the business opportunities here. Back home, the competition (and regulation) would be suffocating.

But here, the startup costs are lower, the competition is almost nonexistent, and the opportunities to excel in a thriving economy are abundant.

Pascual Baburizza didn’t wait for things to get better. In his case, they got worse… until the Austro-Hungarian Empire disappeared altogether.

Today, the leap of faith to be made by changing your geography is much smaller than it was in his time. It’s possible for anyone to do who has the courage and the vision to try.


Check out the IRS’s stunning admission of its own mafia tactics

shutterstock 158874281 150x150 Check out the IRSs stunning admission of its own mafia tactics

January 13, 2014
Santiago, Chile

In the 3rd century AD, Emperor Caracalla famously remarked of Rome’s tax policy:

“For as long as we have this,” pointing to his sword, “we shall not run out of money.” (Of course, Rome did run out of money. )

At the time, Roman taxation was so extractive that it drove people into poverty and desperation. Yet the government continued to forcibly plunder wealth at the point of a sword.

Not much has changed.

The Taxpayer Advocate Service, which is an independent office within the IRS, has just released a two-volume report describing the mafia tactics that are being employed by the tax collectors in the Land of the Free.

The Executive Summary alone is 76 pages. And believe it or not, it’s a real page turner.

On page 37, for example, the report states that the IRS largely assesses tax penalties improperly.

Specifically, the Office of the Chief Counsel admonished the IRS that it was not legally authorized to impose accuracy related penalties on certain taxpayers, and that the service should abate those penalties already imposed.

Yet the IRS declined to follow its own Chief Counsel’s legal advice, and it has refused to abate penalties for nearly 90,000 taxpayers.

In the words of the agency’s own Taxpayer Advocate Service, “The IRS’s failure to abate inapplicable penalties signals disrespect for the law and a disregard for taxpayer rights.”

Page 34 discusses how the IRS has abandoned its own checks and balances.

When a taxpayer is deemed to owe the US government money, the IRS is supposed to have a “collection due process (CDP) hearing” to verify that the IRS agent followed the law and consider whether the intrusion on the taxpayer was warranted.

Yet the report states that this has become nothing more than a rubber stamp formality, and that current practices “do not provide the taxpayer a fair and impartial hearing.”

In fact, among the most litigated issues at the IRS, the report states that “taxpayers fully prevailed only about two percent of the time.”

Two percent. If you go up against the IRS, you have a 2% chance of winning. Give me a break. You have more than a 2% chance fighting against the mafia.

Moreover, the byzantine US income tax code, which runs to an incredible 72,000+ pages, “disproportionately burdens those who [make] honest mistakes”, especially as it relates to offshore disclosures.

In fact, the report acknowledges 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.”

It’s not exactly Emperor Caracalla pointing to his sword… but IRS’s policies and tactics are not so far off from a police agency.

They disregard the law and the advice of their own counsel. They disproportionately burden honest individuals. They flout due process. And they push people to abandon their citizenship.

These are mafia tactics, plain and simple. And like the Romans, Ottoman Empire, and French monarchy before, the tax system in the Land of the Free has become a desperate farce marked by fear and intimidation.

This is one of history’s obvious marks of a nation that has reached its terminal decline. We cannot seriously expect this time to be any different.


The safest currency in the world… selling for a big discount

shutterstock 119421730 150x150 The safest currency in the world... selling for a big discount

January 10, 2014
Sovereign Valley Farm, Chile

There’s no doubt that one of these days (hopefully very soon), our current monetary system will be viewed as one of the most absurd financial experiments in history.

Consider the monetary system for what it really is– politicians award unelected central bankers with the power to conjure money out of thin air… a power that they are not shy about using.

In the US, for example, the Federal Reserve’s asset base is now roughly $4 TRILLION, constituting over 25% of US GDP.

When Lehman Brothers went bankrupt a few years ago, the Fed had less than $900 billion in assets. So that’s over a 400% increase in five years, all because they simply willed trillions of dollars of new money into existence.

Of course, the Fed is not alone.

The Bank of Japan and People’s Bank of China among others have printed so much money they make the central bankers at the Fed look like a bunch of amateur hacks.

And while it is my fixed opinion that such destructive behavior will soon drive these paper currencies to their intrinsic values in British Thermal Units, it’s clear that not all paper currencies are the same.

The Norwegian krone is one obvious outlier.

For starters, Norway’s government has ZERO net debt owing to its massive oil wealth. This means that the government’s balance sheet has more financial assets than debt.

The Norwegian government is so cash rich, in fact, that its net financial position is over +100% of GDP. By comparison, the ‘net worth’ of the United States is MINUS 102% of GDP as of the last fiscal year.

More important, however, is the Norwegian Central Bank’s financial position. This is critical to look at.

Just about every currency in the world is issued by that nation’s central bank. The US dollar is issued by the Fed (the US central bank). The British pound is issued by the Bank of England. Etc.

So if you want to understand the health and safety of a currency, it’s imperative to analyze the fundamentals of a central bank. And the most important fundamental to look at is the bank’s net financial position.

Central banks are like any other bank… or any other business for that matter– they have assets and liabilities.

The difference between the two is called the bank’s equity, or capital. And the greater the equity, the healthier the bank.

This makes sense– you want a bank that has a pristine balance sheet with ample, strong, stable assets… and very few liabilities.

This way, when times get tough, the bank has a tremendous margin of safety to ride out the storm. And with central banking, this means a very low likelihood of a currency crisis or any other financial shock.

The best way to make an apples to apples comparison is by looking at a central bank’s equity expressed as a percentage of its assets.

The Fed right now has a paltry $55 billion in equity to support $4.02 trillion in assets. So the Fed’s equity is just 1.36% of its equity.

In Norway, on the other hand, the central bank’s equity is a massive 32.9% of its total asset base. This means Norway’s central bank is 24 TIMES STRONGER than the Fed.

It’s an astounding difference. Between this, and the government debt position, it’s obvious that the Norwegian krone is a MUCH stronger currency.

But here’s the funny thing. Right now, the krone is trading near a multi-year low… around 6.2 krones per dollar.

This isn’t to say that another global financial shock couldn’t temporarily push the krone past 7/dollar. But longer term, it’s a much safer bet than the US dollar. And right now it’s at an attractive entry point worth considering.


How to get a retirement visa in the Philippines if you’re over 35

rsz manila church 150x150 How to get a retirement visa in the Philippines if youre over 35

If you’re over 35, a refundable bank deposit of just $20,000 – or, in some cases even less – buys you residency in the Philippines.

If you’re over 50 and have a pension income of at least $800 a month, a bank deposit of as little as $10,000 will suffice.

Even “ailing retirees,” those who have a non-contagious, pre-existing medical condition, which means they need close medical supervision and extra care, are catered for on the ailing retiree visa option.

No other country in the world that I know of will explicitly and gleefully accept ailing retirees on an official residency program.

The Philippines may be relatively poor, but from my experience, there’s a lot more money around than one might think.

Another thing I’ve always loved about the Philippines is that, when compared to most other Asian countries, it is very welcoming of outsiders.

Filipinos themselves share a mixed heritage, which is a product of the original Malay people who settled in the islands, and the Chinese, Spaniards, and Americans, who came in waves for trade, and as colonizers, and stayed. In terms of its racial mix, the Philippines is a lot more like Brazil than it is like Japan or South Korea.  

How to obtain a retirement residency visa in the Philippines

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You won’t believe this award they give out to Central Bankers

shutterstock 134102282 150x150 You wont believe this award they give out to Central Bankers

January 8, 2014
Sovereign Valley Farm, Chile

The “Ig Nobel Prize” is parody of the Noble Prize that is awarded every year for the most trivial scientific achievement. (‘ig’ is short for ‘ignoble’)

For example, the 2007 recipient for the ‘Ig Nobel Peace Prize’ went to the United States Air Force Wright Lab in Ohio, for proposing the development of a ‘gay bomb’ that could be dropped in hostile territory and make enemy troops sexually attracted to each other. Make love, not war?

(This actually happened. The proposal was part of a $7.5 million funding request in 1994 to develop non-lethal weapons, including one that would create “severe and lasting halitosis”, and “could be used on mixtures of enemy personnel and civilians.” Your tax dollars at work.)

So when I opened my email yesterday and saw the subject line: “Central Bank Governor of the Year”, I immediately presumed it was a similar satire. It wasn’t.

It’s bad enough that our modern society considers the hoodoo of economics to be “science”.

And that we award our most esteemed prizes for intellectual achievement to its master practitioners like Paul Krugman who tell us how bountiful our national wealth could be if we would only conjure more paper currency out of thin air.

These ‘scientists’ have managed to convince the entire world that it’s a good idea to award a tiny banking elite with supreme, totalitarian control over the money supply.

Frankly this idea is even dumber than the Air Force’s. And perhaps the framework of modern central banking will one day receive its own ‘Ig Nobel Prize’.

But for now, it’s taken very seriously. So seriously, in fact, that the Financial Times’ “Banker” intelligence service recently announced the aforementioned ‘Central Bank Governor of the Year’.

Guess who won?

Nope, not Ben Bernanke. You see, while Mr. Bernanke has spent the last several years aggressively expanding the balance sheet of the US Federal Reserve, he has been handily out-printed by some of his peers.

No, this dubious honor goes to Haruhiko Kuroda of the Bank of Japan (BOJ).

Mr. Kuroda’s claim to fame is pushing to double the BOJ’s monetary base within just two years, and joining Japanese Prime Minister Shinzo Abe to create more inflation.

He’s off to a hell of a start.

Since assuming office in March 2013, Mr. Kuroda has printed enough money to inflate his balance sheet by 35.5% in just 9-months. And the Japanese yen has plummeted along with it.

Despite obliterating his currency, the FT absurdly claims that Mr. Kuroda has “restored credibility to the Bank of Japan and inspired confidence in Japan’s economy.”

Bear in mind, the Japanese government is already in position where the NET government debt is over 140% of GDP.

And they’re spending a full 25% of its tax revenue just to make INTEREST PAYMENTS… at a time when interest rates are effectively ZERO.

If interest rates rise to just 1%, the Japanese government will go bankrupt. Yet this is exactly the direction that Mr. Kuroda is going.

His goal is to create inflation of at least 2%. But if inflation is 2%, who in his right mind would loan money to the government at 0.3%? You’d be losing money.

Interest rates will HAVE to rise. Investors will demand it. So Mr. Kuroda’s path will either bankrupt the Japanese government… or he will create a currency crisis by devaluing his currency to nothing.

It’s extraordinary how dire the situation is. Yet Mr. Kuroda is now considered by the grand wizards of the financial system to be the BEST IN THE WORLD. Incredible.


This surprise investment has outperformed Google for the past 10-years

plums 150x150 This surprise investment has outperformed Google for the past 10 years

January 7, 2014
Sovereign Valley Farm, Chile

Later this year, Google will celebrate its 10th anniversary as a publicly-traded company. And the conventional wisdom is that GOOG has been one of the best performing investments of the last decade.

If you had invested $85 in the Google IPO back in 2004, your investment would be worth over $1,100 today… a 13x return.

Over the same period, the S&P 500 has returned just 66%. And if you had taken the plunge into US Treasuries back in 2004, you would have been paid 4.15% per annum for the last ten years.

In light of all this, Google’s stock performance has been undoubtedly stellar.

But there’s an entirely different asset class that few people ever consider which has beaten the pants off of Google’s long-term performance. It’s agriculture. IMG 0924 300x199 This surprise investment has outperformed Google for the past 10 years

I thought about this yesterday as I was walking around the orchard here picking fresh, ripe plums off the tree. We’ll be starting our harvest soon, and the workers are getting everything ready.

The average plum tree can easily produce over 100 pounds of fruit, starting a few years after you put a well-developed seedling in the ground.

And even on a standard-sized residential lot, you can plant 20+ fruit trees.

Assuming a long-term average price of just $0.50 per pound and a 2004 plant price of $4, investing $85 in plum trees 10-years ago instead of Google stock would have yielded well over $6,000 so far.

Even if you’re not a Do-it-yourselfer and allow for harvest costs, loss, pruning, water, and other expenses, you’d still be up more than GOOG. Plus you’d still be grossing $1,000 per year… not to mention the increase in your home’s market value.

More importantly, you would be owning (and producing) REAL assets instead of paper assets– something that can be traded, sold, stored, or if need be, eaten.

And best of all, you wouldn’t have had Ben Bernanke and his central banking ilk as your silent partner for the past decade, manipulating stock prices and causing asset bubbles.

The soon-departing Mr. Bernanke may be the all-powerful grand wizard of financial markets, but he has absolutely no bearing on the fruit production of well-maintainined trees in your backyard.

It’s not just plums, either. Or even fruit trees for that matter.
tomatoes 300x199 This surprise investment has outperformed Google for the past 10 years
You could have bought $85 worth of organic tomato seeds in 2004 and grown thousands of dollars worth of organic tomatos over the last decade from your backyard.

Of course, this sort of notion makes most serious investors laugh. They can’t think past their own noses and only know how to follow the investment herd off the proverbial cliff.

And while this missive isn’t intended to convince our astute readers to rush out and plant trees, it’s at least worth pointing out that there are always profitable options far from the mainstream investment mentality.

More to follow on this soon.


Why do we have faith in gold? (one simple statistic)

whats next gold 150x150 Why do we have faith in gold? (one simple statistic)

January 6, 2014
London, England

[Editor’s Note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]

On December 31st, 1964, the Dow Jones Industrial Average stood at 874. On December 31st, 1981, it stood at 875. In Buffett’s words, “I’m known as a long term investor and a patient guy, but that is not my idea of a big move.”

To see in stark black and white how the US stock market could spend 17 years going nowhere– even when the GDP of the US rose by 370% and Fortune 500 company sales went up by a factor of six times during the same period– the price chart for the Dow is shown below.


20140106 tim price rates1 Why do we have faith in gold? (one simple statistic)

So the US stock market suffered a Japan-style lost decade, and then some. Back to Buffett, again:

“To understand why that happened, we need first to look at one of the two important variables that affect investment results: interest rates.

“These act on financial valuations the way gravity acts on matter: The higher the rate, the greater the downward pull. That’s because the rates of return that investors need from any kind of investment are directly tied to the risk-free rate that they can earn from government securities.

“So if the government rate rises, the prices of all other investments must adjust downward, to a level that brings their expected rates of return into line.

“In the 1964-81 period, there was a tremendous increase in the rates on long-term government bonds, which moved from just over 4% at year-end 1964 to more than 15% by late 1981. That rise in rates had a huge depressing effect on the value of all investments, but the one we noticed, of course, was the price of equities.

“So there–in that tripling of the gravitational pull of interest rates- -lies the major explanation of why tremendous growth in the economy was accompanied by a stock market going nowhere.”

So how you feel about asset allocation this year should largely be a function of how you feel about interest rates.

And if you fear that interest rates are more likely to rise– triggered, perhaps, by a combination of Fed tapering and general weariness / revulsion at the manipulation of so many financial assets– then you should perhaps question your commitment to western equity markets as well as to bonds.

As Buffett wrote in a 1999 article in Fortune magazine, “Secular equity bull markets occur when long-term rates are dropping… and secular bears occur when rates are rising.” This is hardly rocket science.

Of course, 2014 could be yet another year in which equity markets rise further, driven by hopes and expectations of still more QE. But that’s not a bet we’re entirely comfortable making.

Since we’re primarily attracted by valuations and not by momentum, we’re now fishing for equities in a clearly demarcated pool (Asia and Japan– because that’s where values are most compelling).

We are not interested in most western markets because the value isn’t visible to us and the underlying growth (fundamentals, anybody?) looks pathetic.

And our monetary authorities have showered financial markets with kerosene by ensuring that the conventional ‘risk-free’ alternative to equities (i.e. government debt) is anything but.

Yet our exposure to ‘alternative’ assets, primarily precious metals, proved variously problematic last year.

2013 was the year that the mainstream financial media went aggressively anti-gold, and in his magisterial (and deeply witty) 2013 Year In Review, Cornell chemistry professor and economic agent provocateur David Collum cites three pertinent quotations from the New York Times:

“There is simply nothing in the economic picture today to cause a rush into gold. The technical damage caused by the decline is enormous and it cannot be erased quickly. Avoid gold and gold stocks”;

“Two years ago gold bugs ran wild as the price of gold rose nearly six times. But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight. The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels”;

“The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators’ dreams into a nightmare.”

But as Collum also points out, these quotes are from 1976, when the spot price of gold fell from $200 to $100 an ounce. Thereafter, gold rose from $100 to $850.

Why do we continue to keep the faith with gold (and silver)? We can encapsulate the argument in one statistic.

Last year, the US Federal Reserve enjoyed its 100th anniversary, having been founded in a blaze of secrecy in 1913. By 2007, the Fed’s balance sheet had grown to $800 billion.

Under its current QE programme (which may or may not get tapered according to the Fed’s current intentions), the Fed is printing $1 trillion a year.

To put it another way, the Fed is printing roughly 100 years’ worth of money every 12 months. (Now that’s inflation.)

Conjuring up a similar amount of gold from thin air is not so easy.