Category: simonblack

August 20, 2014
Frankfurt, Germany

Sometimes I am convinced it was completely by design, and not a weird little coincidence, that one of Germany’s most sprawling red light districts is just steps away from the European Central Bank.

This fact becomes comically obvious right around happy hour… as self-congratulatory ECB economists and their bureaucratic bank underlings crowd the bars and cafes after work which are simultaneously frequented by pimps, thugs, and other assorted low-lifes.

One would be forgiven for legitimately asking the question: which of these professions has done more damage to humanity?

My [fiat] money’s on the bankers.

These are the same financial luminaries who, recently, crowded aboard the good idea bus and decided to take interest rates NEGATIVE.

Their logic was that prices aren’t rising enough. This was actually the headline this morning that ran across the Rai (Italian news) ticker while I was consuming some egg-like substance at the hotel breakfast buffet this morning in Rome.

The newsman said something to the effect of “Low inflation makes economic problems worse in Europe.”

Ah, yes. Precisely. The problem isn’t an absurd level of over-regulation, massive unsustainable debt, insolvent banking systems, idiotic politicians, etc.

THE problem plaguing the entire continent… the problem behind sluggish growth for all these years… is that consumers aren’t getting screwed fast enough.

It’s hard to even know where to begin with such an epic level of stupidity. First of all, it’s not even true.

Having just spent the last few months traveling across most of the continent, I was astounded to see the speed with which prices had risen in many places.

I just capped off a week-long vacation with my fellow teammates at Sovereign Man in Italy… same place as last year… and I was charged a whopping 50% increase over last year’s rates.

But this sort of truth doesn’t matter to an economist who actually believes in his ‘science’. It is this ‘science’ of economics which tells us that outsized government debts are irrelevant. That awarding the power to conjure paper money out of thin air is a sound, credible system.

Yet it’s not working. Much of Europe (like Italy) has fallen back into recession.

Even here in Germany, which is supposed to be some sort of econo-mythical superhero carrying the rest of Europe around on its shoulders, the government just announced that the economy contracted last quarter.

Whatever these economic policymakers are doing, it’s obviously not working. So naturally the solution is to try more of the same. Much more.

They’ve already taken certain interest rates into negative territory. The expectation now is that they’ll ratchet rates even further into negative territory.

In doing so, they are effectively screwing hundreds of millions of people. Every single person on the continent who is a responsible saver. Every pensioner. Every retired schoolteacher. Every student. Everyone who works hard for a living and can already barely make ends meet.

Their lives are all about to get a lot more difficult.

Even for the well-heeled, life has become quite stressful. Think about it– there’s almost no place left anymore to hold your savings.

Putting cash in a bank practically GUARANTEES that you will lose money on an inflation-adjusted basis. Stocks are at precarious all-time highs. Bonds are at all-time highs. Many real estate markets are back in bubble territory.

These people have destabilized nearly every major asset class in existence.

On the balance, I’d rather deal with the seedier characters in this neighborhood rather than the suitpanted PhDs pretending to do honorable work.

I want to share more with you about this… not only my thoughts, but those of my colleague Tim Price.

Tim is a regular contributor to this column and one of the few people in professional finance for whom I have tremendous respect.

Tim joined us earlier this week on our group vacation in Italy, and I fortunately had the presence of mind to record our conversation; his insights are absolutely not to be missed.

I encourage you to give a listen here:

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August 19, 2014
Rome, Italy

Imagine yourself hanging off a cliff, clutching to a single rope.

There you are, dangling over the abyss, completely dependent on the strength of that rope. The rope could fray or it could be cut, and there you would go, tumbling straight down.

So to be safe, you would prefer to have more than one rope connecting your suspended body to safe, stable ground, wouldn’t you? Because at least that way, if something happened to the one rope, you would still have something to hold on to.

For most of us in the world, we are born tethered to a single national identity. The passport is our rope. It’s our lifeline, and we depend on it wholly.

Some are blessed with a strong stable rope, which can enable one to feel secure, travel freely, and do business easily.

However, for some, their ropes are beginning to fray from years of being worn down by debt, corruption, and instability.

For those with a weak rope, it’s essential to work on getting more as quickly as possible. That means, a second citizenship, which in addition to providing greater safety, can also give you greater freedom to travel, work, and invest.

No matter how strong you think your rope is now, it is always a good idea to get another one.

A number of countries, including the US and France, have recently been exercising their ability to simply cancel citizens’ passports. Cutting off their freedom to travel entirely.

At the very least, it doesn’t hurt to have a back up plan. You’re never worse off by having multiple options at any given time.

There are a number of ways to go about obtaining another citizenship. The top three methods are either by ancestry, money, or time.

Ancestry is by far the fastest, easiest, and most cost effective way of obtaining a second citizenship, but most people don’t even realize that it’s an option for them.

Take a quick check down your family line to see if you happen to have any family members that were either Italian, Irish, or Polish.

These are not the only countries to offer citizenship based on ancestry, but they are some of the easiest and can be gained not only from your parents, but even your grandparents or further down the ancestry line.

For each of these three, you will need to compile the necessary documents to prove that your ancestor was a citizen of the country at the time of your birth.

Each country has subtle differences in the acceptability of claims, so I recommend that you find a suitable immigration lawyer in the country to help you through the process.

For members of Sovereign Man: Confidential we recently released a thorough report on the specifics of obtaining Italian citizenship by descent and our personally approved contact on the ground, with extensive experience in helping people through the process—including a unique fast track loophole.

There’s really no reason to delay… you wouldn’t wait until your rope was on its very last thread before you began to look for another one would you?

Having a second citizenship and passport provides you with more freedom and opportunity. It’s the ultimate wild card with which you’re not dependent on only one country. Sometimes it can literally save your life.

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August 18, 2014
Spoleto, Italy

The sniper took a breath in as he put the fleeing form of Peter Fechter into the crosshairs of his rifle.

As he exhaled, he squeezed the trigger, landing his bullet squarely in the young boy’s back.

Watching Peter’s body fall, he mentally congratulated himself on what he’d just done to protect his nation.

It was just after 2pm, August 17, 1962 when Peter’s body hit the ground at the foot of the Berlin Wall.

There he lay in broad daylight for a full 50 minutes, screaming for help, before he was finally carted away.

What had Peter Fechter done to threaten the nation and deserve this public execution?

Nothing at all.

The boy was just an 18-year-old bricklayer, who wanted a chance at freedom, when he became the first person to die trying to escape over the Wall.

52 years later, the same things are still happening, and not in totalitarian East Germany, but right in the United States itself.

This time, the 18-year-old victim’s name was Michael Brown, an unarmed hospital worker, who was gunned down by police on the streets of Ferguson, Missouri.

After both young casualties, people were incited to protest in anger against the brutality of the state, and in both cases, the people had tear gas rained down upon them.

Who could possibly still believe that the police are there to protect and serve the people?

No matter the justifications they came up with, it’s was suddenly clear that the Wall was built to keep people in, not to keep others out.

Just the same, the police today are not there to keep you safe from criminals, but to keep the biggest criminals—the politicians—safe from you.

Though on the surface the current protests in Ferguson are about race, they reveal a much deeper truth about the situation. As they protest, the people are following their instincts, and their instincts are telling them not to trust the state.

We’re seeing people’s trust in the state beginning to crumble, not just with police, but with one government agency after another. More and more people are waking up to the fact that none of these institutions are really there to protect them.

The NSA says it’s there to keep you safe from terrorists, but in reality they’re spying on you to protect their power over the populace.

The Fed says it’s there to make the economy more stable, but they intentionally fuel economic volatility in ways that benefit their friends.

The FDA says it’s there to protect people from unsafe foods, but their regulations and endorsements of certain ingredients actually make your food more dangerous.

There’s an invisible wall going up around us, everywhere in Western civilization. People are starting to realize it and that’s why there’s so much anger. But rather than getting angry or emotional, it’s time to get ready.

Rational people have a plan B.

Because if you wait too long, you’ll wake up one day and see that the Wall has been built, and suddenly stands far greater than your ability to escape it unscathed.

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August 15, 2014
Spoleto, Italy

Back in March serious allegations came out of the Senate that the CIA was monitoring and even hacking Senate computers. They were denied vehemently at the time by CIA director John Brennan, who went so far as to say “that’s just beyond the scope of reason.”

Unsurprisingly, of course, the CIA has now come out saying that, yes, they did in fact spy on Senate aides’ computers. Oh, and that they’re sorry. Very sorry.

This is stuff that would have been a major scandal not too long ago, causing a public outcry for the heads of those responsible.

Today, it seems par for the course. It’s taken for granted that governments around the world, spearheaded by Uncle Sam, monitor communication via email, phone, social networks, webcam etc. en masse.

And nothing happens.

Despite Edward Snowden’s decision last year to basically condemn his life to that of a fugitive and branded “traitor” by shedding a major spotlight on just exactly how brazenly and extensively the US government invades the privacy of people all around the world, the reaction, at least in the US, was muted.

As the saying goes, ‘The dogs bark, but the caravan goes on.’

Even though government surveillance is becoming more and more invasive, there are ways to shield yourself from prying eyes.

If you agree with the premise that every person has the right to protect their personal matters and privacy from the Big Brother, there are free options to use out there that can ensure your communications, your digital presence and activity, and your data remain secure and private.

For calls, for example, the company Open Whisper Systems has developed apps that protect the privacy of your voice conversations.

If you’re an Android user, Red Phone is an open source app that secures your calls with end-to-end encryption. It uses your normal phone number and default dialer so you make calls just as you normally would, with no additional layers or steps necessary to protect your privacy.

To secure your text messages, the same company also has an app TextSecure that does just that.

If you’re an iPhone user, the developers of Red Phone and TextSecure took care of you too.

You can achieve the same result by using a free app called Signal – Private Messenger. Just as Red Phone, Signal makes end-to-end encrypted calls through Wi-Fi or mobile data, instead of your phone network.

Protecting your calls and texts from prying eyes and ears is just one piece of the puzzle if you want to take back your privacy.

There are so many different layers that you can protect—from your internet browsing to online searches, email, your data storage, payments etc.

We cover all these different aspects and options in our free Digital Privacy Black Paper.

I encourage you not only to implement the stuff we talk about in the Black Paper in order to take back your privacy, but to also share it with your friends and loved ones.

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August 14, 2014
Spoleto, Italy

Remember in the first Bourne movie when Jason wakes up after being rescued from the Mediterranean Sea?

Suffering from amnesia he doesn’t remember who he is, or what had happened to him. The only clue he has is a tiny surgically implanted projector that displays a safe deposit box number for a bank in Zürich.

For a very long time Switzerland was the hallmark of privacy, especially financial privacy. Swiss banks were known as discrete, prudent and savvy financial partners.

The country’s tradition of bank secrecy goes back all the way to the Middle Ages and was first officially codified in the Banking Law of 1934, which made it a criminal act for a Swiss bank to reveal the name of an account holder.

The reasoning for strict financial privacy and even numbered accounts was simple.

Personal financial matters between bankers and savers should have confidentiality protection, the same as is given to health and legal matters between doctors and patients or lawyers and their clients.

However, after the enormous amount of pressure that the Swiss have been exposed to in recent years, especially from the US and the EU, they’ve rolled over.

In October 2013, the Swiss government stated that it intended to sign an international agreement under the auspices of the OECD that would align Swiss banking practices with those of others.

Thus effectively ending the special secrecy that clients of Swiss banks had enjoyed in the past.

It’s important to understand just how monumental this shift is—for the Swiss to give up their bank secrecy is the equivalent change in the national psyche to Americans giving up their guns.

Swiss banks therefore have lost their allure, sending many of their clients fleeing for other privacy-oriented jurisdictions—Singapore, Hong Kong, Luxembourg, Lebanon, Panama, Cayman Islands etc.

And yet, it’s important to note, that even in those places, real financial privacy within the conventional banking system no longer exists.

Globally, financial nudity is now the norm in banking.

Even jurisdictions that nominally still have financial privacy laws on their books are casting them aside under pressure from the US, and without much of a fight.

If you still want to retain a certain degree of financial privacy, it’s necessary to hold some of your assets outside of the conventional banking system.

Own alternative assets. Real estate. Gold and silver. Collectibles, such as stamps, rare coins etc. Art. Fine wine. Private businesses. Etc.

I know what you’re thinking—where’s bitcoin on that list?

While bitcoin is a great concept and an incredible technology, it doesn’t exactly fulfill our security criteria.

It’s a pseudo-anonymous digital currency that’s not really private. Every transaction is out there in the public domain and is just as traceable as using your MasterCard.

Remember—advocating for financial privacy and banking secrecy doesn’t have anything to do with evading taxes, it’s a fundamental right that every person should enjoy.

I have always considered tax evasion to be against the very core of what we’re trying to do at Sovereign Man, which is to increase people’s freedom and their choice of options.

Evading taxes does just the opposite. All it does is to bring you into the crosshairs of law enforcement agencies, ultimately reducing your freedom and wellbeing.

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August 13, 2014
Spoleto, Italy

For hundreds of years the Byzantine Empire coined the most popular reserve currency in the history of the world.

Merchants all over Europe, the Mediterranean, the Middle East, and further, used it in trade for centuries.

It was called the solidus, and was introduced by Constantine I in 312 AD.

The solidus held steady at 4.5 grams of 24-carat gold for nearly seven centuries. Hence its Latin name – ‘solid’. The durability of its purity is nearly unprecedented in the history of money.

Its weight, dimensions and purity remained constant until the 10th century when the government began to debase it.

The debasement was gradual at first, then accelerated rapidly.

In a matter of decades its gold content was reduced to almost zero as the Byzantine Empire was scrambling for cash to finance its numerous wars.

Consequently, Emperor Alexios I Komenos drastically overhauled the Byzantine coinage system in 1092 and introduced a new gold coin, the hyperpyron.

It too was soon subject to gradual debasement. And by the mid 1200s the hyperpyron’s gold content fell drastically again.

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

The rest of Europe had seen this movie before. And when they saw the gold content in the hyperpyron fall, they quickly lost confidence.

By that time, the Byzantine Empire was weak—a shadow of its former power.

Meanwhile, several small kingdoms in Italy were rising in prosperity, especially Florence, Genoa, and Venice.

The Florentines and the Genoese took up the task and minted a new gold coin called the florin, which at 3.5 grams of pure gold was the most wildly circulated trade currency in Europe and around the Mediterranean for a while.

The Venetian ducat gained wide international acceptance in the 1400s. The ducat contained 99.47% of fine gold—the highest metallurgical purity possible at the time.

As the Venetian merchants traveled far and wide the ducat became an internationally accepted trade currency throughout the world.

Even though he didn’t live in Venice, for example, Leonardo da Vinci was paid by the King of France in Venetian ducats—exactly 400 ducats per year, which in today’s dollars equals to roughly $56,000 (and he didn’t pay any tax…)

The ducat was ultimately supplanted by the Spanish dollar (real de a ocho, or Pieces of Eight) with the onset of the Age of Exploration.

Pieces of Eight became so widespread in international trade that they were legal tender in the United States until the mid 19th century.

The clear lesson here is that this stuff changes.

It’s common for the world’s most powerful country to issue a currency that becomes adopted around the world as the standard for international trade.

But whenever that country reaches a point of epic, terminal decline, and especially when it rapidly debases its currency, the rest of the world seeks an alternative.

The US has been enjoying this special privilege for decades now.

The US dollar is the most widely used currency in the world for international trade. Central banks and sovereign governments around the world hold trillions of US dollars.

And while these changes never happen overnight, it’s clear that the dollar is quickly losing this status.

The French Finance Minister recently called for a ‘rebalancing’ of currencies in global trade settlement. The British, French, Canadians, and Swiss are all on board with this trend.

As are, clearly, the governments of Russia, China, and India. Nearly the entire world understands this trend. Everyone but the United States government.

They’ll be the last ones left in the room after nearly everyone else has headed for the exit, oblivious to their own destruction.

People who understand this shift and get out in front of it will make fortunes.

Those who play Ostrich, stick their heads in the sand, and keep all of their eggs in one frail basket are taking the gamble of their lifetimes.

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August 12, 2014
Spoleto, Italy

If you’ve been a reader of Sovereign Man for any length of time you’ve probably read about our annual youth camp.

Each summer, we bring students from all over the world to a beautiful lakeside resort in Lithuania where my colleagues and I coach them about liberty, investing, and entrepreneurship.

This year’s camp just ended just yesterday. And I’m proud to say it was the best one we’ve ever had.

These camps always leaves me energized and incredibly optimistic.

Because if there’s one trend that holds true throughout history, it’s that, despite all the challenges and problems in the world, human beings rise.

We overcome adversity. We adapt. We advance. And we eventually turn challenges into opportunities.

And it’s young people like the ones we have at our camps which will inherit the opportunities to solve many of those problems.

I’m convinced, for example, that within two decades, today’s banks will be completely irrelevant. So will our version of ‘money’.

It’s today’s young people who will create the companies, platforms, and technologies that will revolutionize this system.

I have a very long-term view on everything. And one of the reasons why I organize and foot the bill for this event each year is because I want to be involved with bright young minds who will be making a difference in the world.

I want to tell you more about what happened at this year’s camp: about the most important skills to develop, plus what I told them about my vision for the future.

Please click here to listen in.

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August 11, 2014
London, England

[Editor’s note: Tim Price, frequent Sovereign Man contributor and Director of Investment at PFP Wealth Management, is filling in while Simon is teaching at his entrepreneurship camp.]

On September 9th, 1965, US Navy pilot James Stockdale was shot down over North Vietnam and seized by a mob.

He would spend the next seven years in Hoa Lo Prison, the infamous “Hanoi Hilton”.

The physical brutality was unspeakable, and the mental torture never stopped. He would be kept in solitary confinement, in total darkness, for four years.

He would be kept in heavy leg-irons for two years and put on a starvation diet.

When told he would be paraded in front of foreign journalists, he slashed his own scalp with a razor and beat himself in the face with a wooden stool so that he would be unrecognizable and useless to the enemy’s press.

When he discovered that his fellow prisoners were being tortured to death, he slashed his wrists to show his torturers that he would not submit to them.

When his guards finally realized that he would die before cooperating, they relented.
The torture of American prisoners ended, and the treatment of all American prisoners of war improved.

Jim Collins, author of the influential study of US businesses, ‘Good to Great’, interviewed Stockdale during his research for the book. How had he found the courage to survive those long, dark years ?

“I never lost faith in the end of the story,” replied Stockdale.

“I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining moment of my life, which in retrospect, I would not trade.”

Collins was silent for a few minutes. The two men walked along, Stockdale with a heavy limp, swinging a stiff leg that had never properly recovered from repeated torture.

Finally, Collins went on to ask another question. Who didn’t make it out ?

“Oh, that’s easy,” replied Stockdale. “The optimists.”

Collins was confused.

“The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’

And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’

And Easter would come, and Easter would go. And then Thanksgiving. And then it would be Christmas again. And they died of a broken heart.”

As the two men walked slowly onward, Stockdale turned to Collins.

“This is a very important lesson. You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

At the risk of stating the blindingly obvious, this is hardly a ‘good news’ market. Ebola. Ukraine. Iraq. Gaza.

In a more narrowly financial sphere, the euro zone economy looks to be slowing, with Italy flirting with a triple dip recession, Portugal suffering a renewed banking crisis, and the ECB on the brink of rolling out QE.

What are the implications for global stocks?

On any fair analysis, the US market in particular is a fly in search of a windscreen.

Using Professor Robert Shiller’s cyclically adjusted price / earnings ratio for the broad US stock market, US stocks have only been more expensive than they are today on two occasions in the past 130 years: in 1929, and in 2000.

Time will tell just how disappointing (both by scale and by duration) the coming years will be for US equity market bulls.

But we’re not interested in markets. We’re interested in value opportunities incorporating a margin of safety.

If the geographic allocations within Greg Fisher’s Asian Prosperity Fund are any guide, those value opportunities are currently most numerous in Japan and Vietnam.

The Asian Prosperity Fund is practically a poster child for the opportunity inherent in global, unconstrained, Ben Graham-style value investing.

Its average price / earnings ratio stands at 9x (versus 17x for the S&P 500); its price / book ratio stands at just one; average dividend yield stands at 4.2%.

And this from a region where long-term economic growth seems entirely plausible rather than a delusional fantasy.

Vice Admiral Stockdale was unequivocal: while we need to confront the “brutal facts” of the marketplace, we also need to keep faith that we will prevail.

To us, that boils down to avoiding conspicuous overvaluation and embracing equally conspicuous value – where poor sentiment is likely to intensify subsequent returns.

In this uniquely oppressive financial environment where the skies are darkening with the prospect of a turn in the interest rates, optimism could be fatal.

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