Category: simonblack

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

JW: “..Someone like Neil Woodford, star investor, who set up his own fund; he says the fundamentals of the economy will be unmoved [by Brexit] either way..
RA: “Well I’m afraid that every, every serious economic forecaster would not agree with that..”
JW: “Are you saying he’s not serious?”
RA: “Not for economic forecasts, clearly.”
JW: “He’s an investor on behalf of pensioners.”
RA: “I’m talking about every major economic forecaster. A weaker economy means lower wages, lower profits, lower dividends, lower investment returns and lower pension contributions as well as lower pension fund investments. This isn’t some kind of conspiracy, this is consensus here… What do pensioners want more than anything else? They want certainty.”

– Today presenter Justin Webb discussing Brexit pensionocalypse with Baroness Ros Altmann, 27 May 2016.

Carve-up, n. “An act or instance of dishonestly prearranging the result of a competition.”

Just two hours before it was barred from issuing any more fatuous propaganda about Brexit, the UK Treasury last week managed to surpass themselves. They warned that if the UK left the EU, the hit to each individual British pensioner would amount to £137 per year. Those with an additional pension pot worth £60,000 would apparently be worse off to the tune of £1,900. (The “forecasts” arrived conveniently alongside news that net migration into the UK had risen to a third of a million people in 2015.)

Economist (UCL, LSE) and pensions minister Ros Altmann was duly wheeled out to defend this nonsense. The interview on Radio 4’s Today programme was entertaining, if nothing else. Memo to Planet Altmann: pensioners may want certainty, but they’re not going to get it, in or out, no matter how confident you are in the “forecasts” of economics bodies like the IFS, the OECD, the NISR [National Institute of Statistics Rwanda?], the IMF, the Bank of England, the LSE.. Just when you thought it was impossible for the fractious Brexit debate to plumb new depths, Ros Altmann got her spade out. Rubbishing fund manager Neil Woodford because he doesn’t happen to swallow the government line about Brexit triggering economic and financial market meltdown is simply ridiculous. The phrase “credible economic forecasts” carries as much intellectual weight as phrases like “military intelligence”. The British economist Joan Robinson was surely right when she observed that

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

Modern economics has a long and inglorious history of believing its own PR.

Conventional (neo-Keynesian) economics is a bastard science. It is not, in fact, a science at all. When the Frenchman Léon Walras, who had serially failed at every job to which he had previously turned his hand, walked with his father one evening in 1858, he was advised by Walras Sr. to have a crack at “the creation of a scientific theory of economics”.

Walras Jr. had previously botched careers in academia, engineering, creative writing, journalism, and banking. That he had been rejected, twice, from France’s prestigious Ecole Polytechnique due to poor mathematical skills tells you everything you need to know about the birth of modern economics.

But Walras Jr. did not give up. Rather, he flunked again. Before Walras, economics had not even been a mathematical field. Eric Beinhocker in ‘The Origin of Wealth’ takes up the story:

Walras and his compatriots were convinced that if the equations of differential calculus could capture the motions of planets and atoms in the universe, these same mathematical techniques could also capture the motion of human minds in the economy.

In other words, Walras hijacked a bunch of principles from the realm of physics and then misapplied them to a grotesquely oversimplified model of his own economy. Modern economics, in other words, was born out of physics envy.

Walras was not alone. Beinhocker points out that he was “not the only economist during his era raiding physics textbooks in search of inspiration”; the British economist William Stanley Jevons is also cited for ‘borrowing’ from the theories of gravity, magnetism and electricity in an attempt to turn economics into a mathematical science.

It isn’t, and never can be.

We have involved ourselves in a colossal muddle,

wrote the British economist John Maynard Keynes in his essay ‘The Great Slump of 1930’;

..having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time – perhaps for a long time.

Keynes was right to warn about the baleful prospects for wealth. The Great Depression would run on for the best part of a decade.

But words matter, and their meanings matter. Keynes’ metaphor of economy-as-machine is not just inaccurate, it’s inappropriate. The economy is not some simple machine that can be driven back to equilibrium (an illusory state that doesn’t even exist in the real economy). The economy is as complex as human nature because the economy is human interaction on a global scale. The economy is us. And by extension, the financial markets are us, too.

Keynes would be proven right about the slump in wealth. But the ‘economy as a machine’ metaphor is invalid, just as Walrasian economics is invalid. The great insight of the so-called Austrian or Classical economic school, inspired by the likes of Ludwig von Mises and Friedrich Hayek, is that the economy is far too complex to be compared to a simple mechanism. The economy is subject to all of the hopes, fears, frailties and illogicalities of human beings. Good luck modelling that.

Not that it has stopped economists from trying.

A key prediction of traditional economics, for example, is that the economy as a whole must at some point reach equilibrium – a prediction made by both the general equilibrium theory of microeconomics as well as by standard macroeconomics. So how long does it take for the economy to reach that equilibrium?

In the 1970s, the Yale economist Herbert Scarf determined that the time to equilibrium scales exponentially with the number of products and services in the economy to the power of four. The intuition behind this relationship is straightforward: the more products and services, the longer it takes for all the prices and quantities to adjust.. if we optimistically assume that every decision in the economy is made at the speed of the world’s fastest supercomputer (currently IBM’s Blue Gene, at 70.72 trillion floating-point calculations per second), then using Scarf’s result, it would take a mere 4.5 quintillion years (4.5 x 1018) for the economy to reach general equilibrium after each exogenous shock. Given that shocks from factors such as technological change, political uncertainty, weather and changes in consumer tastes buffet the economy every second, and the universe is only about 12 billion years old (1.2 x 1010), this clearly presents a problem.

The essential problem of traditional economics is that it assumes a largely closed system of, in Eric Beinhocker’s words, incredibly smart people in unbelievably simple worlds. The reality, as objective non-economist modern commentators tend to agree, is that the economy is closer to being a complex, adaptive, dynamic system – not unlike a living organic being, vulnerable to illnesses and other sudden exogenous outbreaks.

The yin to Keynes’ yang is the great Austrian economist Ludwig von Mises. As part of his magnum opus, ‘Human Action’, Mises wrote about the impossibility of economic calculation in the centrally planned economy:

The paradox of “planning” is that it cannot plan, because of the absence of economic calculation. What is called a planned economy is no economy at all. It is just a system of groping about in the dark. There is no question of a rational choice of means for the best possible attainment of the ultimate ends sought. What is called conscious planning is precisely the elimination of conscious purposive action…

The mathematical economists are almost exclusively intent upon the study of what they call economic equilibrium and the static state. Recourse to the imaginary construction of an evenly rotating economy is, as has been pointed out, an indispensable mental tool of economic reasoning. But it is a grave mistake to consider this auxiliary tool as anything else than an imaginary construction, and to overlook the fact that it has not only no counterpart in reality, but cannot even be thought through consistently to its ultimate logical consequences. The mathematical economist, blinded by the prepossession that economics must be constructed according to the pattern of Newtonian mechanics and is open to treatment by mathematical methods, misconstrues entirely the subject matter of his investigations. He no longer deals with human action but with a soulless mechanism mysteriously actuated by forces not open to further analysis. In the imaginary construction of the evenly rotating economy there is, of course, no room for the entrepreneurial function. Thus the mathematical economist eliminates the entrepreneur from his thought. He has no need for this mover and shaker whose never ceasing intervention prevents the imaginary system from reaching the state of perfect equilibrium and static conditions. He hates the entrepreneur as a disturbing element. The prices of the factors of production, as the mathematical economist sees it, are determined by the intersection of two curves, not by human action.

Keynes was looking for a lever to move the economy. But the lever does not exist. The economy as machine does not exist. The metaphor he used is not grounded in objective reality.

We do not know precisely what might happen if the UK were to vote to leave the EU. It is intellectually and morally unacceptable for economists to pretend that they do.

Notwithstanding Ros Altmann’s hypothetical pensioners and the hypothetical behaviour of post-Brexit financial markets, doubt may be uncomfortable, but certainty is absurd. The tone and content of the Brexit debate, thus far, has been a disgrace – and the economists are amongst the guiltiest parties.

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Shocking. Astonishing. Jaw dropping.

There’s just no other way to describe how cheap South Africa is right now.

Between the worldwide decline in commodities prices, and a major crisis of confidence in the national government here, the local currency (South African rand) remains at the lowest level it’s been… ever.

And that’s made nearly EVERYTHING here dirt cheap if you’re spending foreign currency… especially US dollars.

Just doing something simple like eating out at a restaurant or going to the grocery store can be startling.

Once you do the math and convert the prices back to US dollars, it almost seems like you’re missing a zero.

This also carries over into many asset prices, including certain areas in the property market.

Here in Johannesburg, I saw an amazing home for sale in one of the nicest, upscale neighborhoods with an asking price of about $515,000 US dollars.

Now, half a million bucks might not sound terribly cheap– until you find out what you’re getting for the money.

The house is an enormous seven-bedroom compound of nearly 13,000 square feet.

Pool. Courtyard. Fountains. Private chef’s kitchen. Parking for eight. Separate home for live-in staff. Wonderful neighborhood with top schools, shops, and restaurants.

Something like this would go for at least 20 times that price in Los Angeles, and 40 times the price in London.

Much of this price mismatch is due to the currency anomaly– that the South African rand is so undervalued, AND that the US dollar is so overvalued.

Perhaps this is most obvious when looking at the travel package I just bought.

Longtime readers know that I’m a big fan of special “round the world” fares that major airline alliances offer.

I’ve written about this before– all three of the major global airline alliances offer special fares for passengers when you travel completely around the world.

A typical journey might be, for example, Los Angeles to London to Singapore to Sydney and back to Los Angeles again.

That itinerary takes you all the way around the world, and you’ll pay one simple fare that’s usually quite attractive.

Typically the round-the-world fare is calculated based on the country where you depart.

So if your journey starts and stops from London, your fare will be quoted and priced in British pounds.

But if your journey starts and stops in Los Angeles, your fare will be quoted and priced in US dollars.

The strange thing is that when you convert the currencies, the amounts won’t match even though the journey is essentially the same.

In other words, LA-London-Singapore-Sydney-LA costs $11,400, while Sydney-LA-London-Singapore-Sydney costs AUD 13,600, or about $9,875 USD.

That’s more than a $1500 difference.

This doesn’t make any sense since both itineraries are comprised of the exact same flights, i.e. Sydney to LA, LA to London, London to Singapore, Singapore to Sydney.

The flights are simply in a different order. That’s all. The price should be more or less the same.

And yet, due to these major anomalies in the currency markets, there are major differences in the fares.

Here in South Africa, I’ve just booked a business class ticket that goes from Johannesburg to Asia, then the US, Chile, Madrid, London, and back to Johannesburg.

The price I paid was 70,000 South African rand.

But due to the rand being near it’s all-time low, that’s the equivalent of just $4,500.

To put this in perspective, the same itinerary starting and stopping in the US costs about $12,500 in business, and over $6,600 in economy class.

Crazy. I paid 30% less to fly in business class for the exact same flights that someone would pay in US dollars to fly in economy class.

Clearly this makes no sense (but I’m happy to take the deal).

The reason is obvious: the rand is undervalued relative to the US dollar.

Ten years ago it was the opposite: the US dollar was deeply undervalued relative to other currencies.

Oil was expensive, and major commodities exporters from Brazil to Australia, and even here in South Africa, had overvalued currencies.

Now the pendulum has swung in the other direction.

Commodities prices have plunged, and those same exporters are experiencing major economic slowdowns. Their currencies have all been punished.

Undoubtedly the right equilibrium is somewhere in the middle.

But markets rarely find the equilibrium. They almost always overcorrect.

So now the rand has plummeted and become absurdly weak, while it’s the US dollar that has become extremely expensive.

Sure, it’s possible that the dollar becomes even stronger (and the rand weaker).

But these things routinely go in cycles, and there will be a correction. There always is.

So anyone who owns US dollars has an opportunity right now to trade overvalued pieces of paper for undervalued real assets… as long as you look abroad.

Part of being a Sovereign Man is having a global view– expanding one’s thinking to the entire world.

I’ve written before about how our company is acquiring or has already purchased productive farmland in central Chile, deeply undervalued, profitable businesses in Australia, and real estate in Colombia.

These are all REAL assets. And as long as central bankers continue to print paper money without restraint or regard for the consequences, it’s critical to own something real.

Gold and silver are also real assets, and both are historically inexpensive relative to the US dollar.

Bottom line: take advantage of this opportunity to trade your paper for something of value. It won’t last.

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Very few people know this about me.

But, despite me being 37 years old, I actually have a little sister who recently turned 18 and just graduated from high school.

Technically she’s my half-sister– after my parents got divorced, my father remarried and had another child when I was 19.

We have a great relationship, and I visited her last week when I was in the US to discuss the inevitable dilemma that all young people face: what’s next?

Naturally, the dominant expectation for her is to go to university where the average young person in the Land of the Free walks away with $50,000 in debt.

And, by the way, that student debt is almost impossible to discharge.

So even if you’re forced to declare bankruptcy later in life, your student debt will continue to haunt you forever.

Student debt is really nothing more than a fancier form of indentured servitude.

It keeps people chained to jobs they hate where they have little prospect of personal or professional growth all so that they can keep making those monthly payments.

What’s really ironic is how many of these student loans are owned by the US government.

In fact, according to the Treasury Department’s annual financial statements, the US government’s #1 financial asset is student debt.

That’s really sad.

Now, clearly there are instances where university education can generate a fantastic return on investment, or at least get a foot in the door.

And there are certain professions (like medicine) where it’s absolutely vital.

But expensive degrees and success in life don’t always go hand-in-hand.

Real success depends almost invariably on one’s ability to create value, whether as an employee, business owner, artist, humanitarian, etc.

And in order to create value, it’s critical to have the necessary skills. Execution. Managing people. The ability to sell. Investment management. Etc.

Many of these vital skills simply aren’t taught in a university environment.

I’ve long felt that the best way to learn critical skills is the traditional way: mentorship.

In the past, young people would become apprentices to established merchants, craftsmen, and professionals, and they would learn the trade on the job directly from people who had mastered it.

This system worked for thousands of years until our society apparently ‘evolved’.

So instead of what worked so well in the past, today we expect an 18-year old kid to know exactly what s/he wants to do for the next fifty years, and then make a life-altering financial decision to take on debilitating, non-dischargable debt in exchange for a piece of paper doesn’t actually confer any tangible skills.

This seems like a raw deal. So, I offered a bit of advice to my little sister:

1) Explore.

Get out of your comfort zone and travel. For a few thousand dollars you can generate an exceptionally high return on investment—you’ll learn so much about the world and its opportunities.

Only when you can truly see what’s out there with your own eyes will you be educated enough to make a decision about which direction to take your life.

More importantly, travel and exploration will help develop two of the most important attributes that are critical to success: persistence, and the ability to cope with uncertain outcomes.

2) Seek mentorship.

Find someone who inspires you and who you aspire to be. Then, make yourself indispensable to that person and do whatever it takes to learn.

Sleep on the floor. Offer to carry their suitcase. Work for free. Whatever it takes to spend some time around them and learn.

Be willing to pay the price with your time and energy. But the return on investment will be enormous.

Increase your chances of success by finding other people who are one to two degrees away personally or professionally from your target.

For example, maybe you aspire to be like Warren Buffett.

But if you can’t land Uncle Warren as a mentor, research other successful value investors who are in Buffett’s concentric circles.

This would be people like Prem Watsa, Howard Marks, Jean-Marie Eveillard, etc.

3) Look abroad.

Part of being a Sovereign Man is expanding your thinking beyond borders and making the whole world your oyster.

So if you absolutely, positively feel the need for a university environment, then look overseas for lower cost options.

For example, you can attend one of the best universities in Europe (where Albert Einstein went to school in Switzerland) for less than $600 per semester.

There are dozens of fantastic options overseas.

You’ll receive a fantastic education, great international experience, develop critical language skills, AND save a LOT of money.

Even if you’re terrified of having a degree from a foreign university, then at least try it for a year or two.

Then, if you really feel compelled to have a piece of paper from your home country, you can always transfer your credits and complete your degree back home.

4) Time is your most valuable asset.

You’re only young once. This is the only time in your life where you don’t have any obligations– no mouths to feed, no mortgage to pay, no employees to look after.

You’re free.

Don’t waste your time and freedom indulging in endless leisure activities or posting pictures of your latest dessert on Instagram.

This is the time to truly learn… to put your heart and soul into building the knowledge, skills, and character that can set you up for the rest of your life.

Make it count.

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No one likes to pay for insurance.

If you don’t smoke, if you go to the gym regularly, and if you generally eat well, it just might not seem worth it.

Especially when the average cost of insuring against just catastrophic health incidents can take up about 4% of your income.

But most of us do it anyway.

After all, paying small amounts over time feels a lot better than having to write a huge check when you’re at your worst.

It’s become the norm to take out insurance against just about every possibility—

We buy car insurance in case we get into a car wreck.

We buy house insurance in case our house catches on fire.

We buy life insurance in case we die sooner than expected.

However, there’s one huge threat to our livelihoods that very few insure themselves against: financial disaster.

In comparison to your house suddenly bursting into flames, financial panic is far more predictable and frequent.

Given that the average business cycle lasts about 6 years, the average person will see at least 10 recessions in their lifetime.

So while we may not know exactly the day or month that it will hit, we know it’s coming.

And unlike a heart attack, financial crises don’t come out of nowhere. They can be diagnosed ahead of time.

In today’s podcast as I do a physical on the United States’ economy, in which the vitals are showing serious signs of strain and weakness:

• Incomes have stagnated across the country, accompanied by a major decline in living standards
• The federal government’s cash balances are so low, that on some days it has less than some private companies
• Banks have made it a habit of holding very little cash reserves, leaving them vulnerable to any shocks to the system
• The Treasury has begun blatantly siphoning off funds from the Fed
• Hundreds of pages of regulations are being passed each day to make you less free
• The government and central bank are already stealing from you

Join me as I show how the decline in freedom, government bankruptcy, and an insolvent financial system are all related. I also cover several ways that you can insure yourself quickly and easily against all of this.

Listen in here.

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Just days ago, in the midst of the Puerto Rico debt morass, 24 members of Congress introduced the “No Bailouts for State, Territory, and Local Governments Act.”

The title pretty much sums it up.

Congress knows there’s a massive wave of defaults looming at the city and state level.

Detroit and Puerto Rico are just the tip of the iceberg.

Aside from a few top performers like Alaska, South Dakota, and Wyoming (which, ironically, have no state income tax), many US states have atrocious finances.

Illinois and Maine, for example, have dangerously low levels of cash relative to the debts and obligations they have to pay.

New Jersey and California have are among several states that are technically insolvent, meaning they lack sufficient assets to make good on all the promises they’ve made (like pensions and bonds).

And as the case of Puerto Rico shows, these fiscal imbalances can become a major crisis. Quickly.

Needless to say, the US federal government is in the exact same boat.

Uncle Sam has the worst finances of the bunch– $19 trillion in debt, $40+ trillion in long-term pension liabilities, and decades worth of budget deficits.

But unlike state governments, the US federal government has an ace in the hole: the Federal Reserve.

Right now the Fed is one of the largest holders of US debt; whenever the US government goes into debt, the Fed essentially bails them out by printing money and buying Treasury bonds.

This convenient relationship with the Federal Reserve has allowed the US government to kick the can down the road for years.

Every time they run a budget deficit and need more cash, the Fed prints money.

But states can’t do that.

They don’t have the ability to conjure money out of thin air like the central bank.

So when they run out of funds and can’t borrow anymore, the natural tendency would be for states to seek a bailout from the US federal government.

That’s what happened in Puerto Rico. The island is in default, and as a US territory, they’ve gone to the federal government with hat in hand.

Of course, the US government is too broke to bail anyone out, including itself.

So this new bill was put on the table to prohibit any federal agency, including the Treasury Department, from bailing out ANY bankrupt city, state, or territory (cough, cough Puerto Rico).

What’s even MORE interesting is that the bill specifically prohibits the Federal Reserve from “financially assisting State and Local governments.”

In other words, the Fed is not allowed to print money to buy bonds issued by city or state governments.

So Congress is basically rigging the system in its favor and telling the Fed, ‘Hey, all that money you print is going to end up in OUR pockets!’

As the most insolvent government of them all, Congress needs all the bailouts it can get, and they can’t afford to have any competition from cities and states.

This pretty much tells you everything you need to know about the financial system:

There is so much debt in the system, and these governments are all so absurdly bankrupt, that Congress proposed a special law to make sure they get to steal 100% of the money that the Federal Reserve is conjuring out of thin air all for themselves.

It’s pure insanity.

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[Editor’s note: Tim Price, London-based wealth manager and frequent Sovereign Man contributor, is filling in while Simon is en route to Europe.]

As human beings it’s in our nature to seek out a great deal.

Whether we bag a steep discount on a new car, or stumble across that hidden gem of extraordinarily cheap airfare, we love the feeling that we’re getting a lot for our money.

If you’ve ever found a $20 (or 20 pound) note in an old jacket pocket, you know that feeling well.

But what’s really incredible is that this instinct to seek value rarely applies to investing.

Most investors will follow the rest of the crowd and buy extremely expensive stocks.

We invest when share prices are going up… AFTER the companies have become popular and more expensive.

What’s even more bizarre about this behavior is that there are so many obvious examples of how well value investing can work.

In fact, some of the most successful investors in the world (like Warren Buffett) have made nearly incalculable fortunes by focusing on value.

And many of them have been vocal in trying to educate the public of the virtues of value investing.

Yet as human beings, we are hard wired to stick to the crowd. We are, after all, highly social creatures.

So since most investors tend to prefer owning ultra-popular, expensive companies, it’s quite difficult to break away from the crowd and own something unpopular.

Not to mention, it can take months, even years for the price to measurably appreciate.

So it’s even more difficult to maintain discipline and wait patiently on a company that has a depressed stock price.

The ethos of value investing is simple: buy high quality businesses managed by competent people of integrity at valuations that are as low as possible.

And the longer-term results of this mindset are compelling. Just look–

In his book What Works on Wall Street, author James O’Shaughnessy compares the returns of two different investment strategies: value versus ‘anti-value’.

O’Shaughnessy reviewed historical data to determine how much money you would have made had you invested $10,000 in the 50 ‘most expensive’ vs. the 50 ‘least expensive’ US stocks over a period of five decades.

He calculated most vs. least expensive based on the companies’ Price/Book and Price/Earnings ratios.

Price/Book ratio tells us how much a company is valued in the stock market relative to the value of its net assets, or it’s ‘net worth’.

Price/Earnings tells us the same relative to the company’s profits.

For example, with a stock price of $71, pharmaceuticals giant Bristol-Myers Squibb is valued by the US stock market at roughly $120 billion.

It has net assets of $32 billion and net income of $1.5 billion. Thus, BMS has a Price/Book ratio of 3.75, and a Price/Earnings ratio of 80.

These are both high.

While it’s not such a robotic calculation, value investors seek companies ideally with Price/Book ratios of 1 (or less), and Price/Earnings ratios in the low single digits.

The bottom line? Had you invested $10,000 in the most expensive companies, you would ultimately have ended up with as much as $793,558 after 53 years.

That sounds impressive, until you realize what you could have earned by buying the LEAST expensive companies: over $22 million.

This data is extraordinary and shows that value investing works… as long as you have the discipline to be independent from the crowd.

Tim Price is co-manager of the VT Price Value Portfolio and editor of Price Value International.

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Out here in Eastern Washington’s Yakima Valley are beautiful, seemingly endless fields of abundance and wealth.

But not ‘wealth’ in the conventional sense. I’m not talking about paper money that’s conjured out of thin air by central bankers.

I’m talking about real wealth. Real assets.

Growing up in a lower middle class household where my parents had to work three jobs each just to pay the rent, I never understood what any of that meant.

Like most people, I used to think that ‘wealth’ was how much money you had in your bank account. And for us there was never enough.

It took me years to realize that wealth doesn’t have anything to do with bank balances… it has everything to do with value creation.

And there is perhaps no better example than agriculture.

Agriculture is one of the most fundamental forms of creation. And it’s so simple. You put seeds in the ground, and something real (and valuable) grows.

It’s an amazing process.

I first got involved in agriculture several years ago when I acquired a large farm in central Chile and saw first hand how much wealth (both physical and financial) could be created.

Planting fruit trees on raw land, for example, is like any other successful startup.

It took Facebook and Google a few years to get their businesses off the ground before they could start producing positive cashflow.

Agriculture can be the same way: it takes a bit of time for the trees to grow. But after a few years, they’ll produce fruit (and profits) for decades to come.

The key difference is that with agriculture, nature does most of the heavy lifting.

Plus, every single person on the planet needs to eat. Not even Facebook and Google have that kind of reach.

This is what makes agriculture such a great investment. The fundamentals are incredibly compelling… almost chilling.

The supply of arable farmland, especially on a per-capita basis, declines every year.

And many major agriculture-producing regions around the world are experiencing extreme water crises.

Yet at the same time, world population growth creates greater demand for food, and rising wealth in developing nations drives more food consumption per person.

Think about it: poor people in poor countries consume very few Calories per day.

When economic conditions change and their financial situations improve, they not only start consuming more Calories, but the quality of those Calories changes.

Instead of consuming grains and vegetables that don’t require much land to grow, they’ll start eating more meat (which requires MUCH more land to produce).

This trend is pretty simple: there are more people demanding more food that requires more land at a time when the amount of land available per person is declining.

With such obvious fundamentals, it seems clear that agriculture is a great long-term investment.

It has been that way for a while. As we’ve discussed before, apple trees have outperformed Apple stock for decades.

Even something as mundane as timber outperformed conventional asset classes like stocks and bonds for 27 years.

It seems crazy that agriculture is even considered an ‘alternative’ investment. This is about as real and fundamental as it gets.

And again, it can be quite profitable. But it helps to have a global perspective.

A few years ago I founded one of the largest agriculture businesses of its kind in South America to acquire high quality farmland in central Chile that produces fruits and nuts.

(That’s actually why I’m here in Washington– I’m meeting with some major North American fruit producers based in the valley.)

Growing in Chile has tremendous advantages. While top-quality farmland here can fetch $8,000 to $25,000 per acre, we’ve paid less than $2,000 per acre in Chile.

Not to mention, our labor and operating costs are much lower in Chile.

Plus, because we are in the southern hemisphere and harvest when it’s winter in North America and Europe, the prices that we get paid are quite a bit higher.

This is turning into a fantastic business. But what’s really amazing about agriculture is that the return on investment is even higher when you go small-scale.

For example, you can buy a pack of 10 organic tomato seeds for about two bucks.

Plant them in the ground (or in a planter box on the window sill) and let nature do most of the work.

Those seeds will produce plants, which in turn will produce tomatoes.

Even a pitifully neglected plant can produce 15 pounds of tomatoes, which can either be eaten or sold.

Either way, at $1.50 per pound, you’ve created $225 worth of value across all ten plants from your $2 investment in less than 5 months. Not bad.

(By the way, each tomato produces dozens of seeds, each of which can be planted to grow even more tomatoes. So from a single seed you could create limitless value.)

If you have a house with a yard, you can take things a step further and plant some fruit or nut trees that are appropriate for your local climate.

Not only does this create wealth from the fruit it produces, but it would also likely increase your property value.

This is real wealth. Real profits. Real value. And no matter how hard they try, central bankers cannot control how much fruit your trees produce.

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Almost one year ago to the day, I introduced you to Joe— a US Army combat veteran who lost his leg while deployed to Afghanistan in 2010.

Joe’s story was unfortunately all too familiar… except for one major twist.

Joe’s particular wound was so severe that the Army had to amputate nearly all of his right leg, practically up to his hip.

Now, it’s a rather sad statement that the United States of America is home to the most advanced prosthetic technology in the world.

But since Joe only had four inches of leg bone remaining, no existing prosthetic device could fit him. He needed something even more advanced.

He found out about a procedure called Osseointegration, which essentially involves fusing a titanium rod into the hip, and then attaching a prosthetic leg to that rod.

Joe was an ideal candidate for Osseointegration, and he asked the US government for support.

But the FDA in its infinite wisdom decided that the procedure was too risky for Joe.

Nevermind the fact that it was perfectly fine for Joe to take the risk and get his leg blown off in Afghanistan to begin with.

No… the FDA bureaucrats felt that Joe wasn’t grown-up enough to make his own decisions. So they declined to approve Osseointegration.

Now, Osseointegration was a perfectly valid procedure in other parts of the world—Australia, Germany, Sweden, etc. But not in the Land of the Free.

So if Joe wanted to get his leg fixed, the government told him he was on his own, that he’d have to go to one of those countries and pay for the procedure himself.

By the way, it was going to cost $70,000.

That’s about the time that I found Joe, roughly a year ago. He was trying to raise money on the Internet, and wasn’t coming close to making a dent in the bill.

I was infuriated by his story… how some callous, bumbling, idiotic bureaucracy had denied him the procedure and left him to fend for himself.

I was in a position to help, so I did.

As I’ve written before, one of the benefits of living overseas is that you can generate six-figure income and pay little to no tax.

It’s called the Foreign Earned Income Exclusion. And it’s not some creepy loophole for selfish billionaires.

It’s just part of the tax code that millions of Americans living abroad can benefit from.

I’ve been able to shield plenty of income from tax with the Foreign Earned Income Exclusion…

… income that would have otherwise been used by the US government to send guys like Joe (not to mention countless civilians) to get their legs blown off.

So instead of income being taxed and earmarked for destructive purposes, I used my tax savings to buy Joe a new leg.

Last night we had dinner together, and I couldn’t believe his progress.

He’s walking around now with his new leg, totally unsupported. He doesn’t even need a cane, let alone crutches.

He recently got married and told me that he was able to dance with his wife at their wedding.

He’s even going to participate in a 5K in the next couple of weeks. Incredible.

But perhaps most importantly, there’s been a major knock-on effect from his procedure.

Joe is actively going to medical conferences now, showcasing how effective the procedure has been for him.

And in part because of Joe’s efforts and clear medical success, the US government is starting to permit other amputees to undergo Osseointegration.

I was stunned when he told me this last night.

All of this has happened in less than a year: his life has turned completely around, and even the federal government has now reversed its position on Osseointegration given Joe’s clear evidence that the procedure works.

This drove home such an important lesson: the most powerful change we can make has nothing to do with how we vote, but rather what we choose to do with our finances.

If your income is heavily taxed and goes to support government lunacy, you’ll end up with even more government lunacy.

But if you take the perfectly legal steps to reduce the amount of taxes that you owe, your money can be invested in the change that actually matters to you.

There are so many ways to do this.

Anyone can maximize tax-advantaged retirement contributions, itemize deductions on 1040 Schedule A, or even re-domicile certain business income to a tax-free state.

You can take federal tax deductions and receive credits for everything from medical expenses, university tuition, unreimbursed vehicle expenses for legitimate business purposes, job hunting expenses, side-business expenses, and more.

A little bit of extra effort pays off, and doing this just makes sense.

Slashing your tax bill is certainly the easiest return on investment you’ll ever make.

But more importantly, if you disagree with the way that government wastes your money on war and destruction, reducing the tax revenue they have to squander is the most powerful weapon you have to truly affect change.

PS. There really are dozens of ways to cut your taxes. If you want to learn more about the Foreign Earned Income Exclusion you can read about here.

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On 23 June 2016, this British citizen will be voting to leave the European Union.

To me it’s clear: the EU has not only become too big for its own good, it’s too big to do hardly anything good.

Back in 1975 when the UK first confirmed membership in the EU (when it was called the European Economic Community), it made sense.

Britain has always thrived on international trade, and the EU promised more trade.

But that’s not what happened. The EU didn’t turn into a peaceful, efficient, multi-national trading bloc that enables commerce and prosperity.

Rather it has become an ever-expanding, unaccountable bureaucracy ruling over vastly disparate nations who are increasingly at odds with one another.

And it is precisely the size of this Leviathan that’s the problem… something that was first identified several decades ago by economist Leopold Kohr.

Kohr was an Austrian Jew who only narrowly escaped Hitler’s Germany just before the outbreak of the Second World War.

He had been born in Oberndorf in central Austria, a village of just 2,000 or so.

And Oberndorf’s tiny size came to play a crucial role in Kohr’s thinking about the wealth of nations.

Kohr’s premise was simple: when you get too big, you start having serious problems.

This applies to political unions, from the Roman Empire to the EU, as well as to companies.

Even Warren Buffett has warned that large companies will eventually find it difficult to grow.

Kohr graduated in 1928 and went off to study at the London School of Economics with the likes of fellow Austrian Friedrich von Hayek.

In September 1941, Kohr began writing what would become his masterwork, ‘The Breakdown of Nations’.

He wrote that instead of expanding, Europe should be shrinking back into small political regions (like Switzerland) with a commitment to private property rights and local democracy.

“We have ridiculed the many little states,” wrote Kohr sadly, “now we are terrorised by their few successors.”

Simply put, size creates unavoidable limits… and problems.

And as the European Union has grown ever larger, it smashes horribly into Kohr’s thesis.

We can see this with the spate of problems in Europe ranging from horrific youth unemployment to major border crises to negative interest rates across the continent.

Of all the world’s population centers, Europe is the slowest growing (i.e. most rapidly shrinking) in the world.

The promises of growth and prosperity proved hollow. Yet the Eurocrats want to give Europeans even more: more regulation, more negative interest rates, more size.

Perhaps ECB Governing Council member Vitas Vasiliauskas sums this up the best from his comments last week:

“Markets say the ECB is done, their box is empty. But we are magic people. Each time we take something and give to the markets – a rabbit out of the hat.”

Vasiliauskas is the perfect embodiment of the EU bureaucracy: they believe they are special people capable of performing miracles.

The arrogance and hubris in this statement are overwhelming and tell you everything you need to know about the unelected, unaccountable people who control our lives.

If you want to understand this issue even more, I highly recommend the documentary Brexit: The Movie.

It’s a well-presented masterpiece of government overreach that would likely win an award for Best Comedy if it weren’t sadly true.

If you’re pressed for time, here’s a 60-second snippet detailing the tens of thousand of regulations that crowd our daily lives:

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Recently I was having drinks with a friend of mine who is an ultra-successful US real estate developer and investor.

He told me that his team had just closed a large real estate transaction worth hundreds of millions of dollars, and they got a sweetheart deal from the bank.

The bank is loaning them almost all of the money at an interest rate of around 2%.

But it gets better.

If the Federal Reserve raises interest rates, he has the option of locking in the rate that he has now… so his interest rate will basically never go up.

But if the Federal Reserve lowers interest rates, the rate that he pays on the loan will go down.

In other words, he got an amazing deal from the bank… and it might even get better. But it will never get worse.

Now, this is obviously fantastic for the borrower.

But for the bank, this is an absolute sucker’s bet. There’s almost zero upside.

The bank is putting up the vast majority of the money, their return on investment is next to nothing, and the tiny return they are getting might even go down.

More importantly, if interest rates go up, or if inflation increases, the bank is going to lose a LOT of money.

Of course, the bank isn’t going to lose its own money. Banks never use their own money when they make these crazy loans.

No. Instead, they use their depositors’ money. YOUR money.

So while this is clearly a great bank if you are borrowing money, it would be crazy to be a depositor at this bank. That’s YOUR capital at risk.

This insanity is pervasive across most western banking systems.

They take in depositor funds, keep VERY little of it in reserve, and then go make the most asinine financial speculations with their customers’ savings.

So when banks make stupid bets, it’s ultimately the depositors who bear the risk.

And in exchange for that risk, you are paid a rate of practically 0%. It makes absolutely no sense.

Now, banks are supposed to have ‘Resolution Plans’ to ensure that their risky bets won’t put depositors at risk.

But just last month the Federal Reserve and Federal Deposit Insurance Corporation issued a scathing report criticizing the resolution plans of many major US banks.

Among the usual suspects were banks like JP Morgan, Bank of America, and Wells Fargo, all of whom had resolution plans deemed to be “not credible”.

On top of all of these risks, banks still maintain woefully substandard balance sheets.

Liquidity is a major problem at US banks, which typically hold the tiniest percentage of customer deposits (often as little as 1% to 3%) in cash equivalents.

The rest of your hard-earned savings (97%+) is gambled away on crazy loans and other investment fads.

Look, it doesn’t take a rocket scientist to see that this banking system clearly has a lot of risk.

Bank liquidity is shockingly low. Bank solvency is questionable. Bankers continue making seriously risky bets with your money.

And even eight years after the last crisis, major banks still don’t have credible plans to deal with the consequences when their risky bets don’t work out.

(Note- this is just the FINANCIAL risk. We haven’t even begun to talk about the legal risk, i.e. how easy it is to have your savings account seized or frozen.)

If you look at the data objectively, it’s obvious that it makes no sense to keep 100% of your savings locked up in this system.

As we’ve discussed before, holding physical cash is one option. You can dramatically reduce your bank counterparty risk by cutting out the financial middleman.

Another excellent option to consider is establishing a bank account offshore in a stronger, more credible, debt-free foreign jurisdiction.

Look at Hong Kong as an example.

As a jurisdiction, the government of Hong Kong has ZERO net debt, and the central bank is easily one of the most well-capitalized on the planet.

The average bank in Hong Kong maintains plentiful liquidity at 18.3% of customer deposits (which is 3 to 6 times higher than most US banks).

Capital reserves at Hong Kong banks are also strong, averaging 13.5% of the banks’ total balance sheets (this is twice as conservative as most US banks).

Plus Hong Kong’s deposit insurance fund is actually solvent and maintains its required capital levels.

It’s a night-and-day difference.

In the US banking system, the government is bankrupt, the central bank is insolvent, the deposit insurance fund is undercapitalized, the banks are illiquid, and they’re making high-risk loans that put customers and taxpayers on the hook.

In Hong Kong, the government has no net debt, the central bank is extraordinarily well capitalized, the insurance fund is solvent, and the banks are highly liquid and with plentiful capital reserves.

If you look at the data objectively, it’s obvious which of these two jurisdictions is the safer place to hold at least a portion of your savings.

(That said, the world is a big place, and there are plenty of examples aside from Hong Kong.)

Contrary to the media propaganda, having a foreign bank account isn’t about dodging taxes or anything shady.

Rather, it can be a rational, common sense, no-brainer solution to address the serious risks in your home country’s banking system.

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