The boogeyman is coming for you… no matter where in the world you are

The anti-terrorism unit suited up.

This was an international affair… a deal between the USA and New Zealand, two members of the Five Eyes intelligence alliance.

Helicopters, tactical suits, high caliber firearms—the whole shebang. They busted in the doors and successfully raided the multi-million-dollar compound.

What was this… capturing the next in line after Bin Laden? Busting an international human trafficking ring?

Actually, elite New Zealand law enforcement was acting at the request of the United States to arrest a guy named Kim Dotcom.

Kim Dotcom is a large, jovial man of German-Swedish origins. He founded Megaupload, an online platform that allowed us to basically watch movies online for free.

Unfortunately for Kim, a lot of that content included American movies, with American copyrights.

US artists didn’t get their money, which meant the US government didn’t get its tax dollars.

But Kim Dotcom was a German citizen hanging out in New Zealand. So tough luck for the USA, right?

Wrong. US jurisdiction extends globally… and the government is getting its pound of flesh.

Violate US copyright laws, and get your door kicked in by a SWAT team, even half a world away.

Then there was the Australian, living in London who shared leaked, classified and sensitive documents with the public.

I’m talking about the founder of WikiLeaks, Julian Assange.

He walked into the Ecuadorian embassy in London six years ago, asking for asylum. There was a Swedish warrant out for his arrest, alleging rape charges. He faced extradition to Sweden, and feared he would then be turned over to US authorities… who wanted Assange taken down for exposing the extent of the spying the US government was carrying out on its own citizens.

For years it was suspected that there was a sealed US indictment against Assange. Last month, the proof emerged when the US accidentally revealed the filing, but not the specific charges.

So, we’ve got a Aussie journalist who might get arrested in the UK (which has an extradition agreement with the US) for a crime allegedly committed in Sweden… all because the US government has a hard on for this guy.

But this journalist made the mistake of providing the world with the valuable insight that the authoritarian US government was surveilling its own citizens.

And, again, the US wants its pound of flesh.

Just recently, the US has once again flexed its global might to throw someone in jail.

As you’re likely aware, Trump is in the middle of some tense trade war negotiations with China.

Interesting timing that the Chief Financial Officer of the Chinese tech company Huawei, Meng Wanzhou, was just arrested at the request of US authorities. The company allegedly violated US sanctions against Iran by selling technology to the country.

But here’s the thing… Wanzhou wasn’t on American soil. She was arrested in Canada. The Canadian government is bringing the US case against Meng, who could be extradited to the US to face charges.

So a Chinese citizen, working for a Chinese company, complying with Chinese law, was arrested on Canadian soil… because she allegedly violated US law. (She was recently released on bail – after a 3-day bail hearing, and two weeks in jail).

We know these webs of where the “guilty” is from, where they were living, where they were arrested and on whose behalf is all confusing.

The point is, if you challenge the US government, prepare for your new accommodations in a 6 by 8 foot cage.

It’s crazy. You know I actually had pork the other night, yet somehow Saudi Arabia hasn’t arrested me for violating its laws against non “halal” food.

The US going after Dotcom and Assange is bad enough. But truth be told, these guys poked the bear.

Assange published sensitive, American documents which authorities claim has threatened national security.

Dotcom’s platform made American artists lose out on their royalties.

I still don’t think it’s right to apply American law worldwide… but what do you expect America to do? It’s not surprising.

But the USA’s latest move should disgust anyone with even a distant memory of what freedom was.

If the company did business with Iran, this has nothing to do with the United States. It’s not illegal according to Chinese or Canadian law to do business with Iran. That’s a US law.

If the US wants to escalate trade wars or impose more tariffs to punish the company… fine, whatever.

But to bring criminal charges against company leadership just for doing their job is a terrifying development, even for the brazen US world police.

The USA is the self-declared dictator of the planet. Forget sovereign nations, US law applies worldwide.

And they will kidnap and extradite you from New Zealand, London, Canada, or wherever else they can get their hands on you.

If they want you, they will get you.


from Sovereign Man

Steve Jobs and the secret to investing in public markets

One of the most brilliant businessmen of our time decided to do nothing.

In 1997, after being kicked out of his own company, Steve Jobs took back the reins of Apple.

At the time, Apple had less than 4% of the personal computer market. And the market didn’t think Apple could do anything more than corner its little niche (while Windows/Intel maintained the lion’s share).

Business professor Richard Rumelt spoke to Jobs in the summer of 1998… He parroted the belief of the time…

“Steve, this turnaround at Apple has been impressive. But everything we know about the PC business says that Apple cannot really push beyond a small niche position. The network effects are just too strong to upset the Wintel standard. So what are you trying to do in the longer term? What is the strategy?”

Jobs answer was unexpected, but simple… “I am going to wait for the next big thing.”

Jobs knew there wasn’t anything compelling at the time.

One of the greatest visionaries of our time, didn’t try to force a strategy or BS Rumelt with business school jargon about “sticking to Apple’s core competencies” or “improving margins through synergies”…

He just waited until he spotted the next BIG opportunity.

At the time, in the late 90’s, the PC market was changing rapidly. And Jobs knew there would be major, technological advances that he could capitalize on… he had already successfully done it with the Apple II, the Macintosh and at Pixar.

And only two years after Jobs decided to “wait for the next big thing,” he introduced the iPod, which revolutionized the music industry. Then he did it again with the iPhone. The rest is history…

The result of Jobs’ do-nothing strategy pushed Apple to become the first publicly traded company with a $1 trillion valuation.

I’m telling you this story because, often times, in both business and investing, the best strategy is to simply do nothing.

Warren Buffett, the greatest investor in history, is a strong adherent to that strategy.

Buffett says that if every investor was given a punch card with 20 slots, representing the 20 investments you could make in your lifetime, their results would no doubt improve.

It’s great advice. And we’ve been saying the same thing for awhile now.

We work very hard for our money. And it makes sense to treat it with great care.

If you don’t see a compelling investment, there’s no need to force it. Sometimes the best thing is to do nothing.

The markets are crazy today. Almost every asset is at or near an all-time high (measured by the CAPE ratio, price-to-revenue, total stock market to GDP, you name it…).

It’s pretty clear things are either a top, or they’re forming a top.

Nobody has a crystal ball, but in the absence of any really compelling opportunities, it makes sense to sit on the sidelines.

And it turns out, you may not even be giving up that much return by doing so…

There was a really interesting study published by Arizona State University professor Hendrik Bessembinder.

Bessembinder looked at the performance of publicly traded companies over the past 92 years. There were plenty of ups and downs over that period.

He wanted to see if buying and holding stocks performed any better than owning one-month Treasury bills.

The result is pretty shocking…

He found that only 4% of listed companies were responsible for 100% of the net gain for the entire stock market.

The other 96% performed just as well as one-month Treasury bills.

So over the past 92 years, you could get the same return as you would get from 96% of all listed companies by just holding T-bills.

As much as I begrudge loaning the federal government any money, it’s certainly safe to say that T-bills are one of the most liquid and least volatile assets in the world. It’s a cash equivalent.

I’m not sure if the government has the ability to repay its 30-year bonds. But I’m pretty sure Trump won’t default in the next 28 days.

And, while you’re waiting for the next big thing, you can still earn 2.25% in one of the world’s safest assets.

That makes a lot of sense to me.


from Sovereign Man

What do the Paris riots and Japan’s lack of sex have in common?

The thick black smoke… the smell of burning rubber… overturned smoldering cars.

Looters smashed out shop windows and took whatever they could carry away. Ancient landmarks were desecrated.

Soldiers patrolled the wreckage as tanks are parked on the street corners.

Have aliens attacked? Was a third world dictator deposed? Did the government demand the sacrifice of the first born of each household?

Nope. France increased taxes on gas by a few cents per gallon. That is what sparked the “yellow vest” riots that have burned through Paris.

Here’s the strange part… the same thing made them pop champagne a couple years ago.

People celebrated in the streets when the Paris Climate Accord was ratified, excited that governments were finally doing something to curb climate change.

Two years ago, the Arc de Triomphe was lit up with the message, “Accord DeParis c’es fait!” meaning “Paris agreement is done!”

Now the Arc de Triomphe is graffitied with the message, “We’ve chopped off heads for less than this.”

What changed?

It’s not that I think taxes on gas should be raised. It is just remarkable that such a small tax increase could spark such pandemonium.

Everyone demands the government step in to deter carbon emissions. And when that happens, everyone freaks out.

Inevitably, political solutions to large problems get watered down by politicians, or stopped by mass hysteria.

It’s the same story all over the world. Consider Japan…

Japan has a demographic problem, to put it mildly.

Each Japanese woman is only having about 1.4 babies over the course of her lifetime. Any fertility rate under 2 means the population is dwindling.

1.4 means the population is about to drop off a cliff.

Japan has the largest percentage of over 65 year olds in the world—almost a third of its population. Soon there won’t be nearly enough people paying into the retirement system to take care of the aging population.

Of course it’s not just Japan having pension problems… pensions around the world are woefully underfunded.

But it’s not just pensions in Japan. They don’t even have enough people to fill jobs to care for the elderly.

So Japanese Prime Minister Shinzo Abe introduced a new program to bring foreigners in to fill low skilled jobs.

This is a small step towards easing strict requirements to get residency in Japan. They need to prove they or a relative supporter are worth at least $1,600 per month. And they still have to know how to speak Japanese to qualify for the program.

The culture is very isolationist, even xenophobic. Only about 2% of Japanese residents are foreign born.

If the Prime Minister’s drastic measures are approved later this month, Japan will allow a whopping 345,000 new foreign workers into the country.

That is a 0.27% increase in population… Nice try Japan.

There’s never much political will to solve these problems while you actually can

And when you finally can’t ignore them anymore, it’s way too little and pathetically late.

So unless Prime Minister Abe wants to make the initiative personal, and start impregnating vast swaths of the Japanese population with some version of prima nocta… his solution is a drop in an ocean of problems.

But if a politician does anything that might actually solve the problem, watch their approval ratings plummet.

For years Vladimir Putin has maintained extremely high popularity. He was re-elected with 77% of the vote this past March.

But even shirtless horseback riding can’t save his approval rating after he raised the retirement age for pension benefits by five years (a move that needed to be done in order to save the Russian retirement system).

This is one of those hard truths about pensions and Social Security that we have been talking about… Something has got to give.

That could be raising the retirement age or cutting benefits. But there is no magic spell that will put pensions back on track.

Now Russian men must wait until 65 to retire with benefits, and women 60.

After announcing this change, Putin’s approval rating dropped over 20 points from the election, to 56%. That’s low for a Russian authoritarian like Putin. Those who disapprove almost doubled from 17% to 33%.

So there are your solutions. You get watered-down, ineffective actions from politicians. Or you get pissed-off rioting crowds that stop anything from changing.

The politicians don’t want to rock the boat. And the people don’t want to hear the truth.

So if you want change, you’ve got to form your own solution.

Hopefully it won’t include flipping cars and smashing windows.

It should include becoming a better investor. Save a little more, get a little better return, and end up with hundreds of thousands of dollars extra a few decades later.

Otherwise, you’re leaving your fate up to pension fund directors who are betting your money on risky real estate, like we talked about last week.

You can also take advantage of different structures for retirement savings, like a solo 401(k) or a self directed IRA.

These dramatically increase your contribution limits and expand your investment options.

The politicians will always chicken out, or water down any real change when it’s crunch time.

And the people will absolutely lose their minds when a real solution is implemented, or when the day of reckoning comes.

Don’t be part of that crowd.


from Sovereign Man

This beautiful country is in crisis again, offering CHEAP living + a FAST passport

Last year, when Argentina offered a 100-year bond, I argued it was plain insanity.

Argentina sold $2.75 billion of the debt… but the issue was nearly four times oversubscribed.

How could investors place so much faith in a country that spent most of its post-independence history defaulting on its debts. Plagued by a series of populist governments since the mid-20th century, Argentina defaulted twice in the last twenty years, and eight times since its independence in 1816.

And guess what… It’s crisis time in Argentina. Again.

Since the beginning of 2018, the Argentine economy has been in a tailspin, with inflation running at a whopping 30%. Interest rates in the country are currently 60% (the government is hoping high interest rates will tame inflation and stabilize the Argentine peso).

But despite these efforts, the peso has fallen by 50% versus the US dollar and the euro this year.

And the International Monetary Fund (IMF) recently upped its rescue loan to Argentina to  $57 billion – the biggest rescue package the organization has ever provided.

So, one year into owning Argentina’s 100 year bonds, investors are already questioning the country’s solvency.

If you ask me, anyone buying that debt deserves whatever punishment they get. You can basically set a clock to Argentina’s defaults.

But crisis brings opportunity, and Argentina is no exception.

If you hold dollars or euros, Argentina is on sale today. And you can have a fantastic lifestyle there for very little money.

This most romanticized South American country comes at about half the price when compared to its neighbors, Uruguay and Chile. And today, it is even cheaper than much-less-developed Paraguay.

To get the real feel on the ground I sent one of my analysts on a trip across Argentina.

He confirmed that Argentina offers a lifestyle comparable to what you’d find in the in Southern Europe… but for a fraction of the cost.

In Buenos Aires – probably the best-known South American city – today you will pay:

  • $5 or less for an Uber to go anywhere in the city
  • $30-$35 for a great steak dinner for two with a bottle of wine
  • $5.50 for a big breakfast in a cozy café

Of course, you don’t have to spend money so “lavishly.” A simple lunch in Buenos Aires’s business district costs less than $4 today, and a subway ride is a whopping 35 cents.

One negative is that it’s not cheap to buy properties in Buenos Aires. Argentines don’t trust their currency (with good reason) and are pricing properties in the best neighborhoods in dollars, not pesos. And since the beginning of the year, those dollar prices barely moved.

Although I’m sure if you were serious about buying a property, you could still pick something up for well below the advertised price.

If you want a great deal in Buenos Aires today, you need to rent. Unlike prices for buying a home, prices to rent are always priced in pesos. That means, in dollars, rents plummeted about 50% since the beginning of the year.

You can get a lovely Airbnb flat for $35 a night, and a very nice two-bedroom apartment for under $1,000 a month – both in the best part of the city.

And the cost of living outside of Buenos Aires plummeted even further.

Sure, some countries in Asia are similarly low-cost, but literally no other country in the Western Hemisphere can hold a candle to the lifestyle-vs-cost equation, especially after you account for how nice and developed Argentina is.

Unlike many countries in Asia, Argentina has style.

Two-thirds of all Argentineans trace their origins to Italy. Like Italians, Argentines look good, dress well, love everything beautiful, and are proud of their European culture… to the point of snobbery, in fact. They often turn their nose up at other South Americans.

And just like Italians, Argentines tend to be warm, welcoming, and easy to connect with.

If you can work remotely – it’s hard to land a decent-paying job in Argentina – and dreamed about living in Southern Europe but didn’t like the price tag of Rome or Barcelona, then Buenos Aires (and the rest of Argentina) could be your perfect alternative today.

Your money will go much further in Argentina than in Italy or Spain.

And I didn’t even mention the best part yet – If you spend a little over two years in the country, you can qualify for a passport there. Argentina remains one of the most liberal places in the world when it comes to citizenship, allowing naturalization after just two years of residency.

And according to our recent research, an Argentinean passport is the second best in Latin America only after Chile.

Argentina has long been favorited by digital nomads escaping Northern hemisphere’s winters.

I recommend you take it a step further and actually move there for a couple of years to qualify for a passport.

Combine price, quality of lifestyle and speed of citizenship, and Argentina is one of the best choices for your Plan B today.


from Sovereign Man

I thought this deal was ABSURD, but pensions are piling in…

We have been talking about the pension crisis for years now. It’s without a doubt one of the biggest, financial disasters.

These pools of capital, responsible for paying out retirement benefits, are terribly underfunded. So anyone depending on a pension in their retirement years should seriously consider a Plan B – and sooner rather than later.

We aren’t alone in sounding the alarm on pensions.

The World Economic Forum reported that in 2015, worldwide pensions were underfunded by $70 TRILLION. That is larger than the top 20 economies in the world, combined.

In the US alone, federal, state, and local government pensions are $7 trillion short on the funding they need to pay what they have promised.

And none of this includes Social Security’s almost $50 trillion of unfunded obligations.

Even the private sector isn’t in great shape. US corporate pensions are a combined $553 billion in the hole. And one quarter of those funds are expected to go broke within a decade.

Most pensions require about an 8% annual return to break even (and make all the payments they’ve promised)… historically, these funds could achieve decent returns with a mix of conservative, fixed-income investments. But after a decade of ultra-low interest rates, achieving an 8% return in bonds would be a dream.

So these pensions are forced to take on more and more risk just to break even (oh, and deal with corrupt government officials)…

They’re essentially taking the teachers’ and firemen’s retirement money and betting it on black… hoping to dig themselves out of the enormous hole they’re in.

That means buying more stocks (at what may be the top of the market)… and investing in global real estate (another hugely inflated asset)…

Remember, pension funds are supposed to be some of the most conservative investors on the planet. Millions of people rely on them to make prudent investments to provide them with a decent income in retirement, not to make large, risky bets hoping for outsized returns.

But pensions are desperate. And they’re swinging for the fences just to make ends meet.

Pensions have nearly doubled their allocation to real estate since 2006 (investing an extra $120 billion into the sector).

But a certain type of real estate investment called “opportunistic investments” has grown sixfold over the same period.

“Opportunistic investments” is just a fancy term for being a real estate developer. In other words, pension funds are basically building spec properties now.

At least with a normal real estate investment, the funds can buy an asset and earn a reliable income stream. But now they’re buying speculative land, developing it (often taking on debt to do so) and hoping to flip it to someone at a higher price somewhere down the line.

This is wrong for so many reasons.

Remember that outrageous real estate deal I was offered back in July?

A big bank was raising $500 million to buy a building in midtown Manhattan… then they wanted to spend another $1,000 per square foot on renovations.

I immediately passed. Why would I buy a building in one of the most expensive cities in the world, at a market high… then spend a fortune (and several years) renovating the property… then pray we don’t have a market downturn so I can sell the property to a higher bidder.

Well, now we know who likely took the $500 million allocation – pension funds.

Calstrs, one of the largest pension funds in the US, has allocated $5.7 billion to opportunistic real estate. And they think they’re going to make 13% to 30% on these investments (compared to 6% to 9% with traditional real estate).

What could possibly go wrong here?

Ten years into a raging bull market, pension funds aren’t just buying expensive real estate… They are buying expensive real estate and taking on debt to develop it. And they are hoping that years from now when the property is finished, the market will still be in a position to buy what they have built at a higher price.

Everything needs to go right for pensions to make money on these investments. But I see a lot more that can go wrong.

I was able to pass on this deal. But the millions of Americans depending on a pension for retirement don’t have that luxury… they’re at the mercy of the pension managers to make decisions for them.

And they are not making sound decisions today.


from Sovereign Man

This banking scandal is awful… even for Wells Fargo

I guess none of this should surprise me anymore.

Our old friends at Wells Fargo are involved in yet another banking scandal. And this one is really bad… people wrongfully lost their homes and ended up on the street.

But before I get into the details of this particularly atrocious mishap, let’s have a quick recap of Wells’ “greatest hits.”

Back in April, Wells was hit with a $1 billion fine for selling 570,000 clients auto insurance they didn’t need and also charging mortgage borrowers erroneous fees.

By the bank’s own estimates, as many as 20,000 of those clients may have had their cars repossessed as a result of their inability to pay for the insurance Wells Fargo illegally stuck them with.

On the topic of repossessing vehicles, last November, the bank came under fire for illegally repossessing vehicles owned by members of the military.

Then in October, Wells Fargo got grilled by federal regulators after recommending investment products that were “highly likely to lose value.” The bank also pushed tons of customers into higher-fee retirement accounts that were bad for customers but more lucrative for the bank.

That same month, the bank fessed up to “erroneously” charging late fees to more than 100,000 borrowers, even though the delays were the bank’s fault.

In 2016, employees at some of Wells Fargo’s California branches got busted for selling sensitive customer info, like Social Security numbers, to identity thieves.

And in late 2016 and throughout 2017, Wells Fargo had its notorious “fake account” scandal, where its employees opened extra accounts for millions of customers so they could hit their sales goals and earn a bonus.

And then there’s the time Wells Fargo froze my account for sending a simple wire transfer.

I don’t know what else to say about Wells Fargo (and basically every other big bank) anymore… other than I’m outraged with their behavior.

Consider Wells Fargo’s latest scandal…

This week, the bank said a “computer glitch” caused 545 of its customers to lose their homes.

The “glitch,” according to papers the bank filed with the Securities and Exchange Commission, caused the bank to incorrectly deny 870 loan modifications (around 60% of which went into foreclosure).

Basically, people asked the bank to change their mortgage to make it more affordable, and requests that should have been approved weren’t… with the process taking months before the borrower got the final “no.”


“Oh… sorry about that. Sorry you lost your house, your family and your job. Our bad… computer glitch, you know how it goes. Real sorry.”

CBS interviewed one of the victims, a guy named Jose Aguilar.

Jose fell behind on his payments after trying to fix a black mold problem in his home. He asked Wells to change the mortgage to lower his payments. While waiting for Wells to process his request, he fell further behind until the house ultimately went into foreclosure.

He and his wife split up. He had to move into a friend’s basement with his son.

Then, three years later, he got a letter from Wells Fargo saying, wait for it:

“Dear Jose Aguilar, we made a mistake… we’re sorry.”

I’m sure Jose was relieved Wells Fargo was sorry after literally ruining his life (they did give him a $25,000 check… which obviously doesn’t come close to making up for the mistake).

Once again I’ll ask… how does anyone actually do business with Wells Fargo anymore? These people are outright criminals (if you or I committed any of the acts above, we’d be behind bars).

And it’s not just Wells Fargo. Pretty much every major bank in the world has been found guilty at some point of some type of fraud.

But people still trust these criminals with their money.

The public has been institutionalized to believe you have to hold your money with a big bank.

But in reality, you have so many other choices.

Instead of holding money in a bank account, you can earn 100x more interest buying short-term Treasury Bills. You can hold physical cash or gold.

There are options to crowdfund loans of every type.

You also don’t have to trust these banks with your retirement (in fact, I hope you don’t). They limit your investment options and saddle you with erroneous, high fees for nothing.

With a little effort, you can take control of your retirement and take your money out of the hands of the major financial institutions.

If you qualify, you can open a solo 401(k) – it’s a cheap and flexible structure that allows you contribute tens of thousands of dollars each year and invest in all kinds of assets (even real estate and private equity).

You can also borrow money from your retirement account under certain circumstances.

Self-directed IRAs are also a great option (though they’re a bit costlier and less flexible).

It’s important to understand, as always, you have options… you just have to do a little more work in order to stop the abuse from Wells Fargo and the like.


from Sovereign Man

Why buy gold now? Because I don’t know

From 2000 through 2012, the price of gold increased every year, rising from around $280 an ounce to nearly $1,700. It was an unprecedented run.

Then, in 2013, gold took a nose dive, losing over 27% of its value.

It was widely reported that the Swiss National Bank, the former bastion of monetary conservatism, lost $10 billion that year just on its gold holdings.

As you probably know, central banks hold a portion of their reserves in gold. The practice goes back to when central banks actually had to have gold on hand to trade in and out of paper money (or even trade for goods and services).

And central banks still hold reserves in gold today, even though they don’t need it to transact like they used to.

So that begs the question, did the Swiss National Bank actually lose $10 billion? It still had every ounce of gold in its vaults. And gold, after all, is money.

Plus, the SNB wasn’t holding gold to speculate…

Today, central banks hold gold as a hedge against fiat money. These are the guys with their fingers on the printing press… so they know exactly the effect they have on money.

And right now, banks are buying up gold hand over fist. Central banks currently hold 20% of all the gold ever mined—33,000 metric tons.

And JPMorgan Chase says they’ll buy another 650 tons this year and next.


Gold is for the I don’t knows.

And right now, there are a LOT of I don’t knows.

Markets have been going crazy over the past few months.

After a record bull run for stocks, we are now seeing massive volatility with the Dow regularly jumping 500+ points in a single day. Just yesterday, the Dow fell a whopping 800 points.

And there’s plenty of reasons for market to be worried today. For one, we’re 10 years in to a raging bull market… and it’ getting long in the tooth.

Plus, the Fed is raising interest rates. And when the price of money gets more expensive, people get a little tighter with it. That means it’s tougher for businesses and individuals to borrow. All things equal, higher rates mean lower prices.

Before last week, Fed Chairman Powell said rates were “well below” where they should be. And the markets reacted negatively.

Then, last week, after seeing how fragile markets were, Powell said rates are “just below” where they should be.

Just that one word difference sent markets soaring. But the joy was short lived.

There’s also the trade war with China, intensified by the Trump administration tariffs.

And then at the summit in Buenos Aries last week, China and the USA suddenly came to an agreement. They will halt the tariffs for 90 days for a three-month truce in the trade war. That sent markets soaring.

Then people read some tweet from Trump and worried the tariffs might be back on… markets dumped.

If there is one thing markets hate, it is uncertainty. And there’s plenty of uncertainty to go around today.

And while we’re seeing these late-cycle swings in the market, gold is as steady as ever…

While the DOW dips and climbs by hundreds of points, gold is still hanging out just below $1,250 an ounce. And it really hasn’t made any major moves up or down since 2013.

Yet today, an ounce of gold has about the same purchasing power as it had 1,100 years ago… talk about steady.

So while every other asset is still at or near all time highs, gold is relatively cheap.

Gold has held its ground during all this market volatility.

That is exactly how you want insurance to act. It holds steady in the face of craziness, even selling for a discount when everything else is as expensive as it ever has been.

It makes more sense to buy something cheap, that no one is excited about, while people clamber for exciting but massively overvalued stocks like Tesla and Netflix.

Since 2008 this massive monetary experiment of quantitative easing has sent stocks and assets to dizzying, unsustainable highs.

We think this experiment is coming to an end. The day of reckoning is close.

Stocks are up and down, trade wars are on and off, interest rates could keep soaring, or level off…

What do you do for the I don’t knows?

You get some cheap gold while you still can.

And by the way, while gold is on sale, silver is an even better deal.

In ancient times, the price ratio between gold and silver was about 15:1, meaning an ounce of gold was worth about 15 ounces of silver.

But over the past decades, this ratio has been closer to 50:1—an ounce of gold sold for 50 times what an ounce of silver sold for.

Today, that ratio is about 85:1.

To be fair, this could mean gold is overvalued, not that silver in undervalued.

But when gold has the same purchasing power as a millennium ago… when it has stayed steady the past seven years and grew every year of the decade before that…

It’s a safe bet that gold goes up, and silver does too, possibly even more than gold.


from Sovereign Man

Lenin would be so proud

Several years ago back in 2004-2006, if you had a pulse, you could borrow money from a bank to buy a house.

In fact, bank lending standards were so loose back then that there were some infamous cases of people who DIDN’T have a pulse who were still able to borrow money.

That’s right. Some banks were so irresponsible that they actually loaned money to dead people.

Of course, it turned out that lending money to dead people… or people with terrible credit who had a history of default, was a bad idea.

And the entire financial system almost blew up as a result of this reckless stupidity.

But then something even crazier happened: the Federal Reserve came in and bailed out all the banks with trillions of dollars of free money.

That was utterly nuts. Instead of being wiped out by their idiotic mistakes, the banks learned that they would always be bailed out no matter how stupid or greedy they acted.

The key lesson was that there would be zero consequences for bad behavior.

So if the Fed is going step in with a bailout every time banks screw up, why bother being conservative and responsible?

That’s why we’re seeking the same mistakes over and over again.

Instead of loaning money to dead people, banks and funds are loaning money to dead companies who perennially lose money and go deeper into debt each year.

We talk about some of the most notorious cases like WeWork and Netflix regularly in this letter… but there are countless other examples.

Even worse, banks and other financial institutions even loaned money to Argentina (a country that has defaulted EIGHT TIMES on its debt), buying government bonds that have a maturity of 100 years!

Hey, if they screw up and the investment goes bad, they’re going to be bailed out anyhow.

That’s not the way capitalism is supposed to work. Stupid decisions are supposed to be punished.

Market crashes, recessions, and economic downturns are nature’s mechanism to wipe out all the unproductive, useless businesses… and the investors who funded them… making way for new, better businesses to flourish.

But there are always bureaucrats and politicians who feel that no one should ever lose. It’s like the economic equivalent of a participation trophy… no one should go home empty handed.

And if we print enough money and put enough safety nets in place, everyone will win, nobody will lose, and we’ll all link arms and sing kumbaya.

Economist Roger E.A. Farmer, for one, doesn’t think the Fed did enough after the financial crisis 10 years ago by dropping interest rates to zero and printing trillions of dollars to bail out the economy.

Moreover, he thinks the Fed should step in and start buying stocks to prop up the stock market.

Farmer’s idea isn’t new. Several governments around the world have already started buying stocks to maintain asset prices and keep the economy going.

Japan is a notable example.

The Bank of Japan, the biggest offender to date, is a top-10 shareholder in nearly half of the companies that trade in that country’s stock market.

It hasn’t really worked. Japan can’t seem to get out of its low-growth economic morass.

But according to Farmer, this failure is because Japanese authorities haven’t bought ENOUGH stock.

Apparently he won’t be satisfied until the Japanese government owns 100% of ALL the companies in Japan.

And he wants to apply that same strategy to the US economy.

Farmer also thinks that the US government should ban investors from trading US stocks, essentially creating a government monopoly of the stock market.

What a great idea.

While we’re at it, in fact, we should also have the government start buying  houses in order to prop up the real estate market.

The government could also bail out every small business that fails to make sure no one ever loses a job. It could buy up all the automobiles and hand them out to people who need cars to get to work.

It’s genius!

In all seriousness, this lunacy is all based on the premise that recessions and corrections are bad (and should be avoided).

That’s just plain wrong.

Recessions, corrections, depressions… they’re all critical phases in the market. The whole purpose is to wash out all the excess and punish people that have been stupid.

If you don’t have consequences for stupid actions, you erase good judgment.

And that’s the greatest hazard of all… to think that you can do whatever you want and there will always be someone to bail you out if things go bad.

Not to mention, this whole idea of the government owning all the businesses and assets has already been tried before.

It was called the Soviet Union.

Lenin would be so proud.


from Sovereign Man

Government now wants to seize your car for going 5 MPH over the limit

[Editor’s note: While Simon is traveling today, other members of the Sovereign Man team penned today’s missive.]

We’ve discussed this on and off for several years now. Civil asset forfeiture is a legal process that allows the government to seize assets and cash from citizens without any due process or judicial oversight.

You don’t even have to be charged with a crime. You are assumed guilty unless you can somehow prove your innocence.

Of course, not everyone has this ability… if you aren’t local, state, or federal law enforcement, this is called stealing, and you go to prison.

But the government is actually a bigger problem than common thieves.

A 2015 report showed that law enforcement used civil asset forfeiture to steal more from US residents than every thief, robber, and burglar in America combined.

About $4.5 BILLION worth of cash, cars, homes, and other property is taken by civil asset forfeiture each year — hundreds of millions more than common criminals steal.

And it happens at every level. Your local cop can use civil asset forfeiture just like your state trooper. And then any one of the armed agents of the US government—from the FBI to the Fish and Wildlife Service—can rob you for whatever reason they want.

This travesty continues to grow because the cops who take your stuff get to keep it. Police departments and government agencies around the country depend on civil asset forfeiture to boost their budgets.

Cops will literally keep some of the cars they take as squad cars. And they make a fortune auctioning off the houses, boats, and anything else they confiscate.

Obviously this gives cops an incentive to steal, whether or not they actually think the property was used in a crime, or acquired illegally. Remember, civil asset forfeiture adds billions every year to their bottom line.

On Wednesday, the Supreme Court heard arguments in a case of civil asset forfeiture.

Tyson Timbs was convicted of selling a small amount of drugs to an undercover police officer. He was sentenced to house arrest, and paid about $1,200 in fines.

But then police used civil asset forfeiture to take his $42,000 Land Rover which Timbs purchased with money from a life insurance policy after his father died. The money did not come from selling drugs, or any other illegal activity.

Timbs sued, and the case made its way to the Supreme Court, because every lower court in Indiana said the forfeiture was perfectly legit.

The case revolves around whether or not the seizure of the Land Rover was an excessive fine under the 8th amendment, and whether or not this protection against excessive fines applies to state governments.

And the public got some crazy insight into the government’s position.

The Indiana Solicitor General was arguing in favor of civil asset forfeiture when Justice Stephen Breyer asked him a hypothetical.

Breyer asked, if a state needs revenue, could it force someone to forfeit their Bugatti, Mercedes, or Ferrari for speeding? Even if they were going just 5 miles per hour over the speed limit?

And the utterly appalling answer from the Indiana Solicitor General was, yes.

That’s right… the official government position is that they can steal any amount of your property in “connection” with any crime whatsoever, no matter how trivial the crime may be… even exceeding the speed limit by 5 miles per hour.

This is how overbearing and authoritarian the government has become in the land of the free.

This is how much power your local cop has… and the power only grows as you go to state, and federal officials.

If there is any solace in any of this, it is that the other Supreme Court Justices were reportedly laughing at this exchange.

The justices seemed incredulous that Indiana’s top lawyer was using such absurd assertions and flimsy reasoning in his arguments.

So, for now, we can keep our cars if we get pulled over for speeding. But that may not always be the case…

Depending on how this is ruled, it could pave the way for even more egregious abuses of power… or it could curb the practice, and reign in these thieves in uniforms.

Just understand where the government is coming from. These politicians, bureaucrats and officers think they can do whatever they want. Absolutely anything goes, with no limitation whatsoever.

And that makes it a little tough to feel like you really live in the land of the free.


from Sovereign Man

Three strikes against Social Security’s already dismal batting average

[Editor’s note: While Simon is traveling today, other members of the Sovereign Man team penned today’s missive.]

This doesn’t make front page news… But it should.

Every year, cost of living adjustments increase Social Security benefits.

Over the past decade, payouts have increased by an average of 1.66% per year, according to the Social Security Administration (SSA).

But for 2019, the increase will be 2.8% to keep pace with inflation.

Seems like a trivial difference until you realize that’s 69% higher than expected.

That amounts to about $39 extra per check for the average retiree, according to the SSA.

And with about 62 million Americans receiving Social Security, that’s an extra $2.4 billion per month… $29 billion per year.

Social Security is underfunded by $50 TRILLION. By the government’s own estimates, the Social Security fund will run out of money in 2034.

But those calculations used previous cost of living adjustments.

Keep in mind that all future cost of living adjustments will compound on top of 2019’s increase.

So even if they get back to the 1.66% average adjustments, the extra $29 billion is included in the base for future calculations.

Will Social Security really last until 2034?

Last year, they said it would last until 2035… Wrong. One year passed and insolvency came two years closer…

Before that, the Social Security Administration estimated that the funds would last until 2040… wrong again!

After Congress passed some Social Security reforms in 1983, the SSA expected the system to remain financially sound for 75 years, until 2058.

Say it with me… they were wrong.

The goal posts keep moving.

That’s strike one…

In 2006, the SSA expected the US birthrate—the number of babies each woman is expected to have in her lifetime—to be 2.01 by 2020.

Well guess what… they were WRONG. Take a sip if your playing along at home to the Social-Security-Administration-is-wrong drinking game.

The 2017 birthrate already fell to 1.8, the lowest in decades.

So just when Social Security is expected to run out of money, the fewest number of workers in decades will be entering the workforce.

Social Security depends on a ratio of 3 workers to support each retiree.

Today, there are only 2.8 workers paying into Social Security for every beneficiary collecting.

The Social Security Administration estimates that this will fall to 2 workers per retiree by 2030… surely this time their estimate is accurate…

That’s strike two.

And the economy is currently about as good as it gets.

October unemployment was 3.7% according to the Bureau of Labor Statistics. It hasn’t been this low since 1969…

There are record numbers of people in the workforce… paying into Social Security.

Yet Social Security still looks dismal, during the best economic times in decades.

What happens when a recession hits?

Or forget a recession, what happens at normal unemployment levels?

And that’s the third strike.

The Social Security Administration has been wrong on just about every projection and estimate it has made.

I’m not trying to be alarmist, but it is rather shocking that people shrug off the reality.

This data isn’t coming from me, it isn’t some wild conspiracy theory. It’s the most optimistic outlook from the Board of Trustees for Social Security.

Unfortunately, many people will do absolutely nothing with this information. It’s easier to just Instagram your way to retirement.

And these people will have their lives turned upside down—benefits cut, retirement age increased, pushed out of the system… Something has to give.

But when you see it coming, there is so much you can do.

You can take legal steps to reduce your taxes, and funnel the savings into your retirement.

Putting away an extra $1,000 per year can result in a difference of more than $100,000 when compounded over 30 years.

Or, you could establish certain self-directed IRA structures or a solo 401(k).

These dramatically increase your contribution limits and vastly expand your investment options–real estate, cryptocurrency, private equity, etc.

Or, learn how to be a better investor…

Saving an extra $2,000 per year and generating, on average, 2% more per year (i.e. 10% versus 8%), will make you an additional $610,000 over 30-years.

Just don’t let the government plan for you. They’ll give you great estimates… and as always, they will be wrong.


from Sovereign Man