Category: simonblack

Howard Marks is one of the greatest investors in history.

Marks is the founder of the credit investment firm Oaktree Capital Management. And he’s been sharing his insights with the public in his Chairman memos since 1990 (which you can read for free on his website).

Even Warren Buffett stops what he’s doing when Marks releases a new memo… Buffett says it’s “the first thing I open and read.”

Marks’ latest memo, titled The Seven Worst Words in the World, came out last week. And those seven words are – “too much money chasing too few deals.”

As you probably guessed, Marks is talking about how overheated the market is today and the end of the economic cycle.

He starts the memo by recounting the days leading up to the Gobal Financial Crisis, when Oaktree started turning cautious…

“The economy was doing quite well. Stocks weren’t particularly overpriced. And I can assure you we had no idea that sub-prime mortgages and sub-prime mortgage backed securities would go bad in huge numbers, bringing on the Global Financial Crisis…

[A]lmost every day we saw deals being done that we felt wouldn’t be doable in a market marked by appropriate levels of caution, discipline, skepticism and risk aversion. As Warren Buffett says, “the less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.” Thus the imprudent deals that were getting done in 2005-06 were enough reason for us to increase our caution.”

Sound familiar?

Today, like in the days leading up to the Global Financial Crisis we’re seeing lots of inconsistencies in the market…

Two stocks, Apple and Amazon, are responsible for nearly 30% of the S&P 500’s gain so far this year.

And investors are willing to lend US companies (which are already sitting on a record $6.3 trillion of debt) more money with less protection.

As our friend Jim Grant mentioned in our podcast, today we have boom era stock prices coupled with depression era interest rates – two things that are completely incongruent with one another.

In his memo, Marks lists a number of other things that just don’t make sense today…

– At the beginning of this year, private equity firms looked to raise $744 billion for funds, more money than at any other time in history

– Japanese conglomerate SoftBank is organizing a $100 billion fund for tech investment (and has raised $93 billion as of June)

– One of the fastest-growing areas of the credit markets are leveraged loans (lending money to already highly indebted firms), which have grown from $500 billion in 2008 to $1.1 trillion

Marks also lists a number of specific deals his team has seen, and highlights a conversation a colleague had with a banker which particularly highlights the folly in most investors’ thinking today…

A banker recently told me that for the first time since 2007, he has been in a credit review and heard the credit deputy rationalize approving a risky deal because it is a small part of a larger portfolio so they can afford for it to go wrong, and if they pass on the deal, they will lose market share to their competitors.

I could go on, but you get the idea. Things are crazy today. I’d encourage you to read Marks’ memo to see even more egregious examples.

But it’s not just Marks that is urging caution today. Ray Dalio, founder of Bridgewater, the world’s largest hedge fund, says we’ll see a recession by 2020. He even wrote a book called A Template for Understanding BIG DEBT CRISES, which he’s giving away for free.

Ken Griffin from Citadel says we have 18-24 months before a correction. And in a recent interview, billionaire hedge fund manager Stan Druckenmiller said “we’re kind of at that stage in the cycle where bombs are going off.”

I’m not saying the market can’t keep going up from here, because it can (and every guru I mention above agrees).

The point is, it’s time to be cautious. And it’s time to start preparing for the inevitable downturn, whenever it hits.

But you don’t have to invest in overpriced stocks or risky corporate bonds today. You have more options.

Yes, you can always sell out of everything and wait on the sidelines. That’s perfectly fine (and we’ve shared some ideas on how you can raise cash today), but you might miss out on future gains.

Smaller investors have a major advantage over Buffett and Marks today.

Even if you have $10 or $20 million to invest, you have lots of options for solid, risk-adjusted returns today.

Buffett and Marks don’t. Buffett is literally sitting on the sidelines with $112 billion because he can’t find anything to invest in. For something to move Buffett’s needle, he has to put at least a couple billion dollars to work.

To give you an example of what I’m talking about, we’re currently evaluating a deal for our Total Access members (our highest level of membership)… It’s a secured loan that will pay us 10-15% a year, with collateral worth 3-4x our investment. Plus, we actually have legal and administrative custody of the asset.

These opportunities are out there. No, they’re not as easy as buying Apple stock… you’ve got to put the work in.

But on a risk-adjusted basis, you have a lot of advantages today as a smaller, individual investor… namely access to certain opportunities the big guys don’t have. It just takes a bit of education, the willingness to think different and take action.

As Marks said, there’s too much money chasing too few deals. So we’ve got to look where the big guys aren’t.

I’ll be in touch soon with details on another idea that offers the potential for huge gains on an incredibly tax-advantaged basis. It’s one of the most exciting opportunities I’ve seen in awhile.

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In 279 BC, the vast army of King Pyrrhus of Epirus was met by Roman forces at the Battle of Asculum in southern Italy, in what would be one of the costliest military engagements of ancient history.

Pyrrhus fancied himself the second coming of Alexander the Great and believed that he was a descendant of Achilles.

Many of his peers and contemporaries believed Pyrrhus to be the greatest military commander of all time.

His exploits were legendary. And when he set sail for Italy in 280 BC, the Romans did not underestimate him.

The Battle of Asculum was decisive. Pyrrhus actually won the battle; but in defeating the Romans, he lost so many of his men that his army was practically broken.

Pyrrhus purportedly said of his victory, “If we are victorious in one more battle with the Romans, we shall be utterly ruined. . .”

This gave rise to the term “Pyrrhic victory,” which refers to a win that’s incredibly costly.

Pyrrhus also tried his hand at diplomacy with Rome, sending one of his ablest statesmen to the capital to negotiate peace with the Roman Senate.

The emissary was not successful. But he reported back to Pyrrhus that Rome’s Senate was incredibly impressive– “an assembly of kings” comprised of its noblest citizens.

And he was right. In the early days when Rome was still a republic, its Senate was a highly revered institution that stood for wisdom, dignity, and virtue.

They were far from perfect. But the men who served in the Senate during the early republic were heavily responsible for building the most advanced civilization the world had ever seen up to that point.

Needless to say, times changed. Within a few hundred years, the Senate had become a corrupt joke, filled with venal criminals, weak sycophants, and mediocre minds.

I couldn’t help but think of this analogy yesterday watching the Inquisition of Brett Kavanaugh.

If you’re living under a rock (or reading this letter many years from now), Brett Kavanaugh has been nominated to serve as a Justice of the United States Supreme Court. This requires that he be confirmed by the Senate.

Recently a woman emerged who accused Kavanaugh of sexually assaulting her when they were all teenagers, several decades ago.

This is tantamount to accusing the man of a crime.

But rather than treat this as any other criminal matter in which the authorities would investigate the evidence to determine if charges are warranted… or the case is put to a court and jury to decide… the once-hallowed halls of the US Senate have been turned into an embarrassing circus that shines a giant spotlight on the deep social divides in the Land of the Free.

The whole charade is a horrible offense to the basic principles of justice in which a person is presumed to be innocent until proven guilty.

When it comes to claims of sexual assault, however, the man is automatically deemed guilty … and the accuser praised for her courage and bravery before the veracity of the assertion is ever deliberated.

Senator Maize Hirono of Hawaii recently stated, “Not only do women like [Kavanaugh’s accuser], who bravely come forward, need to be heard, but they need to be believed.”

By definition this is neither fair nor impartial, and turns the entire process into a Kangaroo Court… which is what the Senate has become.

At a certain point yesterday, one Senator introduced multiple pieces of evidence on behalf of the accuser, including ‘expert reports’ that justify her inability to remember details from the assault.

This is truly bizarre.

These Senators are playing the role of judge in this matter. It seems impossible to do this while simultaneously acting as advocate for the accuser.

Another Senator sat smugly and sanctimoniously, leering down at Brett Kavanaugh and demanding explanations about code words for beer and flatulence that date back to Kavanaugh’s high school days.

The fact that a United States Senator would actually consider this important evidence is an utter embarrassment.

Another disgusting perversion of justice is that the United States Senate actually felt compelled to negotiate with the accuser about when/how she would testify.

For example, the accuser wanted to prohibit certain questions, control who could/could not ask questions, determine the order of witness testimony, etc.

This is simply NOT how the justice system is supposed to work.

Accusers must face the accused in a court of law and submit to cross-examination, following the same rules that everyone else has to follow.

No one is supposed to get special treatment. That’s the point. And it is through this process that the truth is eventually discovered.

It’s not that I don’t believe the accuser. It’s entirely possible that she’s telling the truth.

But as this case has not been deliberated objectively through the normal due process that is guaranteed by the Constitution, no one can reach a valid conclusion.

Yet there are countless legions of people, including United States Senators, who have already made up their minds, like the Inquisition demanding, “Do you confess?”

And that’s the saddest part– this manner of Inquisition… trial by social media… has now been condoned and advanced by the United States Senate, an institution whose members have ALL taken a solemn oath to support and defend the Constitution which they are now violating in the worst way.

Clearly the Senate is no longer an assembly of kings… but a brood of bickering, immature weaklings.

(The only resilience displayed has been from the accused and accuser, both of whom have had to endure insane public scrutiny.)

There’s obviously an agenda here.

Perhaps some Senators are trying to win points with the #metoo movement for the upcoming elections.

Or they’re intentionally blocking Kavanaugh simply because he is a Trump nominee.

Whatever their reasons, they may be victorious in achieving their desired outcome.

But it will be a Pyrrhic victory… for it will come at the expense of establishing a dangerous new standard that destroys the most important principles of Justice.

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On October 12, 929, roughly 1100 years ago, Abd-er Rahman III of the Umayyad Dynasty was proclaimed ruler of Cordova– the Islamic kingdom that comprised most of Spain at the time.

Rahman was just 21 when he ascended to power, and he remained there for nearly 50 years as one of the wealthiest and most powerful monarchs in Europe.

Historians Denis Cardonne and Edward Gibbon calculate his annual tax  revenue at approximately 12 million gold dinars… which was a LOT.

The dinar contained 4.25 grams of gold, so 12 million of them would be worth about $2 billion today.

With Cordova’s population estimated at around 500,000 people back in the early 10th century, that works out to be the modern day equivalent of $4,000 in tax per person.

That’s an eerily similar number to modern day tax figures.

The most recent data from the Internal Revenue Service, for example, shows  that the average individual income tax is just over $4,000 for every man, woman, and child in the Land of the Free.

(Most of the country, of course, pays nothing.)

It’s an interesting data point that shows just how well gold retains its value over long periods of time.

Records from the same period in Islamic history show that the homes of wealthy individuals were worth between 10,000 and 30,000 dinars, and much higher among the ultra-rich.

That’s roughly $1.7 million to $5 million in today’s money– again, eerily similar to what high-end homes cost today.

Day-to-day, month-to-month, and year-to-year, the price of gold can fluctuate inexplicably.

But over the long term, whether you’re comparing loaves of bread, home prices, or government tax revenue, it REALLY holds its value.

This is one of the things that makes gold such an excellent hedge against political uncertainty, macroeconomic challenges, financial crises, inflation, etc.

Said another way, gold is great insurance policy for all the “I don’t knows.”

Global debt, for example, recently hit an unfathomable level at nearly $250 TRILLION.

Total US national debt is $21.5 trillion; that exceeds 100% of US GDP, and it’s growing rapidly.

Uncle Sam is burning through cash so quickly that even the Treasury Department expects trillion+ dollar annual budget deficits from now on.

Literally just THREE major line items from the federal budget– Social Security / Medicare, Defense spending, and interest payments on the debt– cost more than ALL the tax revenue that the government collects.

They have to go deeper and deeper into debt to fund EVERYTHING ELSE in the federal government– from Homeland Security to national parks to the light bill at the White House.

That’s not good, considering these ballooning deficits are coming at a time when interest rates are RISING.

So the more debt the government accumulates, their interest payments are growing even more rapidly.

Debt is rising so fast that the Congressional Budget Office estimates interest payments will exceed DEFENSE spending within a few years.

Historically speaking, that’s usually the kiss of death for any empire… when it costs more to service the debt than to defend the nation.

And, not to be a downer, but most of these problems are getting much worse.

10,000 Baby Boomers are retiring every day. And that means ballooning Medicare and Social Security payments.

Meanwhile, there are fewer and fewer young people entering the work force to pay into America’s broken pension system.

In 1960, for example, there was an average of 5.1 workers in the US paying tax into the Social Security system to support every single retiree drawing benefits.

By 2000 that ratio had fallen to 3.4 workers per retiree. Today it’s just 2.6.

Pension funds rely on a steady, growing population and work force to remain stable. So this is pretty much a disaster for Social Security.

The US fertility rate, by the way, is at a record low. So this problem is worsening by the year.

(And the pension / demographic fundamentals in Europe and Japan are even WORSE than they are in the US. . .)

And, remember, all of this is happening at a time when the economy is doing well.

What happens when there’s a major market correction (and people’s retirement savings get wiped out again)? Or there’s a major recession?

Across the water, Europe is drowning in debt with radical political parties taking hold.

Japan, the world’s third-largest economy, has a debt-to-GDP ratio of 236% – more than double that in the US.

Japan’s debt is so huge that the government has to spend nearly 25% of tax revenue just to pay INTEREST!

So let’s just take a step back and summarize–

The world’s largest economy (the US) has a ballooning debt and an unsolvable pension problem, yet is starting a trade war with the world’s second largest economy (China).

Meanwhile the third largest economy in the world (Japan) has to spend nearly one quarter of its tax revenue just to pay interest…

And most of the other top economies in the world (Italy, France, etc.) are drowning in debt and economic stagnation.

It’s impossible to predict EXACTLY how this is going to play out. Or when.

But it certainly seems sensible to have some insurance.

Gold has been around for thousands of years. And, as we discussed earlier, it has a great track record of maintaining value.

But with nearly every other asset in the world trading at / near record high prices today, gold is on sale.

You can buy an ounce of gold today for less than $1,200– 38% below its 2011 high.

(In addition to a low price, there are supply constraints in the gold sector, which could be a major catalyst for higher prices.)

The time to buy insurance is when it’s cheap. . . and when you don’t need it. Because when your house is on fire, it’s already too late.

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It was February 15, 1898. The American Civil War was a distant memory, and the United States had become the largest economy in the world.

Still, something was missing in the Land of the Free: colonies.

More than 100 years before, other leading powers like Spain and Britain had established colonies all over the world back when the US was just an infant.

By the time the US became wealthy and powerful, the Age of Imperialism was over– all the exotic foreign lands had already been claimed.

So, in 1898, the US decided if it couldn’t establish its own colonies, it would take them from somebody else…

Cue the Spanish American War.

A US naval ship called the Maine was miraculously sunk off the coast of Cuba on February 15, 1898. The US immediately blamed Spain, and declared war two months later on April 25th.

Spain had no desire to go to war… and was flummoxed at the accusation. They claimed they had nothing to do with the Maine’s sinking and had no possible reason to attack.

More importantly, by the late 1800s, Spain was broke and losing control of its colonies– an empire in decline. That made Spain the perfect target.

The US, on the other hand, was so prosperous and flush with cash, it simply wrote a check to fund the war (oh how times have changed).

And in less than three years, the remains of the Spanish Empire were virtually disassembled, and the US took possession of several colonies including the Philippines… and Puerto Rico.

Puerto Rico has remained a US territory ever since… going on 120 years.

Now, there a few differences between a US territory and a state.

First of all, Puerto Ricans are US citizens with US passports. And they use the US dollar as currency.

Traveling to/from Puerto Rico from the US mainland is no different than traveling from Texas to Oklahoma.

(My lawyer is down here visiting me today from New York, in fact– it’s just a domestic flight from JFK on Jet Blue.)

But, in other way, Puerto Rico is separate from the United States. Taxes are a great example– Puerto Rico has a completely different tax system that is disconnected from the IRS.

So if you’re a Puerto Rican resident earning your income in Puerto Rico, you no longer have to pay US state or federal tax.

Puerto Rico is also different because residents of the territory can’t vote in the US general presidential election.

So, essentially, Puerto Ricans are subject to US federal laws without participating in the election process.

This bugs a lot of locals… and over the past several decades there have been a number of movements to try to make Puerto Rico the 51^st state.

The most recent of these movements was launched again last week by Puerto Rico’s governor, who used the one-year anniversary of Hurricane Maria destroying the island to demand that Congress consider statehood for Puerto Rico.

The governor says Puerto Ricans have been treated like “second-class citizens,” and he’s questioning how the US can preach democracy and freedom around the world with this two-tier citizenship structure.

Now let’s be honest– there’s practically zero chance of Puerto Rico becoming the 51^st state.

If that happened, then the US federal government would have to do the same with its other territories– Guam, Northern Mariana Islands, US Virgin Islands, American Samoa… so there would end up being FIVE new states.

Adding five new states to the US would be so painfully time consuming and suck up so many government resources, it would make the UK’s “brexit” departure from the European Union look like a cakewalk.

And the federal government definitely doesn’t want this.

My guess is that the local government here is just trying to kick up a bunch of noise and threats, hoping to get Congress to cough up billions of dollars in economic aid for last year’s hurricane relief (in the same way that other states would receive disaster relief).

I can’t imagine anyone would really want statehood for the sole benefit of being able to vote for President.

If so, they really haven’t thought it through.

Puerto Ricans currently pay tax as high as 33% (though they’re looking to cut this). But if they became a state, they’d have to add another 37% in US federal income tax.

Imagine– paying SEVENTY PERCENT TAX just to be able to choose between a buffoon and a sociopath in an election where your vote doesn’t even really count.

Hardly seems worth the price of admission.

The island has definitely had its share of problems – a huge natural disaster, a financial crisis and a long-term economic depression that’s lasted for a decade.

And undoubtedly there are people here who think that statehood will solve all of those problems.

Not likely. It’s not like becoming a state will cause the skies to open and money to come pouring out like a summer rain.

They’ll just end up paying more taxes to fund the federal government.

The real growth potential here is in what the government has already been doing for the past few years– creating incredibly compelling incentives to attract talented people to the island.

The two most famous of those, Act 20 and Act 22, provide a tax rate as low as ZERO percent for investment income, and just FOUR percent for business income.

It’s one of the best deals in the world.

And in my travels here over the past few years, it’s becoming clear that those programs are working.

Foreigners are moving here. They’re starting businesses, spending money, and injecting much needed capital and talent into the economy.

Progress is still nascent, so there’s a lot more room to grow. But that also means there are still a ton of interesting opportunities that have yet to be explored.

As an example, I’m looking at a number of distressed real estate opportunities here, some of which are truly unbelievable. In some instances even the Catholic Church itself is being forced to auction off property.

Most of the time when countries end up in dire economic straits like Puerto Rico is in, governments simply resort to the old playbook of plundering the wealth of its citizens.

Here they went with the opposite approach– slashing taxes (initially for foreigners, and now they’re working on the same for local residents), and cutting regulation.

So for people with talent and vision (and you don’t even have to be a US citizen to benefit) this place definitely has a lot to offer.

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On June 8, 2006, more than a decade ago, armed agents from the Internal Revenue Service arrived at the home of Michael and Shelly Ioane of Atwater, California.

Michael Ioane was suspected of tax fraud, and the IRS agents were there to conduct a search of the premises and look for evidence.

About thirty minutes into the search, Shelly Ioane (the wife, who was not suspected of any crime whatsoever) told the agents who were ransacking her bedroom that she needed to use the bathroom.

According to court documents, one of the IRS agents escorted Shelly to the bathroom… then came inside with her.

Shelly protested and asked the agent to wait outside. The agent refused, stating that she needed to make sure Shelly was not hiding any evidence.

Bear in mind, Shelly wasn’t suspected of a crime. But an agent from the Internal Revenue Service stood there and watched this innocent woman urinate and defecate in her own toilet in her own home… without so much as turning her head slightly or even pretending to avert her eyes.

This is truly disgusting on so many different levels.

In most civilized countries, tax problems aren’t even a criminal matter. They’re civil… sorted out administratively, rather than at gunpoint.

And armed government thugs certainly aren’t able to abuse power to this extreme– indulging in their weird fetishes to watch innocent women defecate in their own homes.

But what’s probably the craziest part about this entire story is that when Shelly Ioane sued (for obvious reasons), the federal government mounted an aggressive and spirited defense of its actions.

It’s appalling. They literally tried to justify this ritualistic degradation of an innocent human being’s most basic dignity by calling it ‘standard procedure’.

Really? It’s standard procedure for agents of the Internal Revenue Service to watch people crap in their own toilets? Do you get extra benefits for that?

(Another interesting fact here is that when Michael Ioane requested to use the restroom– i.e. the guy who was actually suspected of a tax crime– no IRS agent accompanied him.)

Bear in mind we’re talking about the Internal Revenue Service. This isn’t Jack Bauer saving the world from nuclear-armed terrorists.

No. This level of abuse and brutality is justified because of a dispute over taxes.

That’s how desperate the government wants its money.

Now, as you can imagine, the wheels of justice grind very, very slowly. Especially when it’s the government (or an agent of the government) being sued.

Shelly Ioane was violated back in 2006. But the case was only recently settled LAST WEEK!

Seriously! How pathetic. It took more than a DECADE to get this far… because the government kept fighting.

When the Ioanes filed suit, the government fought tooth and nail to keep it out of court, and to throw out most of the charges.

Then the government claimed that IRS agents couldn’t be sued due to ‘qualified immunity’, which protects federal employees from lawsuits that may arise from the performance of their duties.

In 2016 it finally went to court. And a US federal judge ruled that the IRS agents could not be protected by qualified immunity since they were clearly violating basic standards of decency.

But the government refused to accept that outcome and appealed the decision.

Finally, just last week, a federal appeals court affirmed the original court’s ruling, concluding that the IRS agents completely violated Shelly’s “clearly established right to bodily privacy” and were hence not entitled to qualified immunity.

That’s a major blow to the IRS. But this issue is STILL not resolved.

The only thing that’s been settled is that the agents aren’t entitled to qualified immunity. So now Shelly has to sue AGAIN on the original charge of being violated twelve years ago.

Sadly it will probably take a few more years for this case to ultimately be resolved, if ever.

And it shows the lengths to which the government will protect its own, regardless of how egregious and vile the behavior of its agents.

 

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This month, college freshmen across the US are settling into their new lives.

For the next four (or five… or maybe even six) years, they’ll be immersed in safe spaces and bombarded with repugnant, hyper-socialist groupthink.

Then, at the end, they’ll walk away with a degree of questionable use… but they’ll also walk away with TONS OF DEBT.

Consumers are on pace to end 2018 with over $4 trillion of debt. And $1.5 trillion of that is student debt (more than credit cards and auto loans).

According to the latest stats, the average student loan debt in the US is nearly $40,000.

But that’s just average…

There are more than two million former students in the Land of the Free with more than $100,000 of debt… around 415,000 people have more than $200,000 of student debt.

Yet while the cost of a college education and student debt loads are soaring, wages are stagnant.

So you’re paying more and more for something that delivers stagnant value.

It’s the definition of a bad deal.

Still, every year, hordes of young people line up for this punishment. Then they graduate, indebted to the state, with no clear path forward.

Luckily, students have options.

You don’t have to be a debt serf for the rest of your life to receive an excellent education.

Going abroad is one option.

Enrolling in a foreign university will definitely spice up your resume. But it also gives you a global network, exposure to new cultures and it vastly expands your job search.

But one of the biggest benefits of international study is the low cost.

There are plenty of countries where you can study at a top-tier university for a fraction of the cost back home.

And, as an added bonus, studying abroad is a great way to obtain foreign residency and perhaps even a second passport.

A foreign residency and a second passport are components of what I call a Plan B.

Foreign residency ensures that, no matter what happens (or doesn’t happen) next in your home country, there will always be somewhere else where you and your family are welcome to live, study, work, invest and do business.

Plus, most countries have rules that allow legal residents to apply for citizenship and a passport after a certain number of years.

And if you choose the right country, on top of a low-cost (but still high quality) education, foreign residency, you’ll also have tremendous business and entrepreneurial opportunities after graduation… all in one place.

Estonia, in Europe’s far north, is one country that offers huge opportunities for a young person.

First, the University of Tartu (in Tartu) is a world-class research university – among the top 1% of the world’s best universities, in fact. It offers 23 programs taught in English, including computer science, robotics and computer engineering, software engineering and others… for only €2,000 ($2,325) per semester.

And when you graduate, you can stay and work for an Estonian startup, or start your own business. Both Skype and Transferwise were started in Estonia.

If you complete university in Estonia and remain in the country after graduation, you could be eligible for permanent residency three years later.

(That would mean you can come and go as you please and travel/live freely across Europe, from Ireland to Switzerland to Croatia.)

That’s a world-class education for a fraction of the cost and a clear path toward residency in another country. And you’ve expanded your job prospects across another continent.

But Estonia isn’t the only country where you can receive an excellent university education on the cheap.

Average annual tuition in Germany is less than $1,000. And Germany grants non-European Union (EU) graduates an 18-month residence permit to find a job. (The clock starts ticking when you receive your final exam results.)

When you find a job, you can apply for either a German residence permit or an EU Blue Card that allows residency in all of the EU. After two years, you’re eligible for permanent residency in Germany.

Before you take on a huge amount of debt for a degree of questionable value, remember that there are ALWAYS other choices.

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Last week I wrote about farmland in South Africa…

And how it’s taken a pounding thanks to a radical politician who is threatening to take farmland from white farmers without compensation.

While I don’t think it’s time to buy South African farmland yet – that situation can get MUCH worse before bottoming – it’s always smart to keep an eye on a country in crisis.

And today, there’s an ongoing tragedy in Nicaragua – a beautiful Central American country just above Costa Rica.

Nicaragua has emerged as the next, Central American tourism success story (after Panama and Costa Rica’s rise to prominence)…

The country made headlines in the Wall Street Journal, New York Times, etc. as the next hip spot – popular for eco-tourism, including world-class surfing.

Auberge, an ultra-luxury hotel group, even took over management of a coastal resort there called Mukul.

San Juan Del Sur – a sleepy fishing village in the 90s – is now a mecca for surfers.

And Costa Esmeralda (Emerald Coast) just north of San Juan, attracts wealthier travelers with luxury properties that are 50% cheaper than Costa Rica.

But everything changed in April.

Daniel Ortega, Nicaragua’s president, has ruled since 2007. He also previously led Nicaragua from 1979-1990 – after his Sandanista party overthrew the Somoza dictatorship in a violent coup.

Since re-entering the presidency, Ortega (and his Vice President wife) have gained dictatorial power… and lost tremendous popularity with Nicaraguans.

Then, in April, Ortega announced pension reform, both raising taxes and slashing benefits. As an aside, this is a topic we regularly discuss in Notes.

Nicaraguans protested in the streets, demanding Ortega’s resignation.

Ortega answered with violence. More than 300 protesters have died since April.

It’s a scary situation. And five months later, it’s not settled. Ortega still has troops patrolling the country in search of protesters.

As a result of the violence, tourism in Nicaragua has been crushed.

Thousands of Nicaraguans have lost their jobs in tourism. Many hotels and tour operators have closed.

Bryan McMandon – a good friend of Sovereign Man and a successful realtor in Nicaragua – tells that the past few months have been brutal for his business.

When I shop for real estate deals around the world, I usually start with luxury real estate.

In Nicaragua, many property owners aren’t willing to significantly drop their asking prices yet.

However, a beachfront property in a premier development on the Emerald Coast recently went under contract for $400,000 – almost 50% off the $750k asking price.

And more deals like this are happening each week.

While we’re not seeing tremendous value in sales right now, you can absolutely steal a luxury rental…

Many property owners in Nica rely on supplemental rental income to maintain their vacation homes. And with no income coming, many are getting desperate.

All of Bryan’s rental listings are offering 20% discounts from the list price.

And I searched through AirBnB, asking the owners in San Juan Del Sur for a 50% discount for a weeklong stay this month.

I found lots of great deals, including a boutique loft next to the beach with a private swimming pool. The asking price for seven nights was $605. The owner accepted $420 (a 30% discount).

I also looked at a spectacular 2,800 sq. ft. ocean-view villa just outside San Juan with an initial ask of $1,450. The owner initially agreed to a 50% discount, then one hour later offered me the property for $630 (a 56% discount).

So if you’re an experienced traveler, it may be worth a trip to Nicaragua for a discount vacation. You can definitely get great deals on gorgeous rental properties.

As for buying in Nicaragua…

I don’t know if 40%+ discounts are quite cheap enough.

But if you’ve been looking to buy in Nicaragua, now is a great time. And, to be honest, Nicaragua is a great option for a lot of people.

If you’re from North America, it’s close and you can get nonstop flights.

China is also throwing tons of money at the country.

And the infrastructure is improving dramatically. The Emerald Coast just got its own airport… so you can fly there from Managua, the capital city – before, it was a two-hour drive.

Mukul, the resort I mentioned earlier, was built by Nicaragua’s richest man, Carlos Pellas. So the country went out of its way to help match his investment in the area, including paving the roads from the highway to the beach.

Nica offers a lot of the benefits of Costa Rica at a much lower price. There are beautiful communities, great beaches, friendly locals, plenty of cheap help.

But that obviously comes at a certain cost – mainly the political risk.

If you’re just looking for cheap, beachfront property, there are still lots of other places in the world – Thailand for example.

I also think Chile still offers some of the best deals on beachfront property in the world, especially if you’re into surfing. Ecuador is also pretty cheap.

But if Nicaragua has been on your radar, it may be worth a trip today.

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We poke a lot of fun at the MANY absurdities we see in this current bubble.

As we’ve discussed countless times over the past few years, there are consequences from the fact that central bankers have conjured trillions of dollars out of thin air and pushed down interest rates to zero.

Stock, bonds and real estate are at or near record highs. Bankrupt countries are issuing trillions of dollars of debt with negative yields (not to mention, serial defaulter Argentina was able to issue 100-year bonds…).

Netflix is one of the most expensive and popular companies in the world even though it burns through billions and billions of dollars with no end in sight.

And, of course there’s Tesla, which we won’t get into here.

But perhaps nothing better captures the absurdity of the times more than WeWork.

I’ve talked a bit about WeWork in Notes, but not nearly as much as some of the other offending companies.

The company is the poster boy for the hot co-working trend. And it’s worth around $40 billion today. Of course, it’s also losing billions of dollars.

Of course, WeWork’s value is far more than any other company of its size because WeWork is a “cool, tech” company. But, at its core, it’s just another real estate play…

WeWork signs long-term leases for office space around the world, then turns around and provides very short-term leases to companies.

The companies pay more for the space, but they have more flexibility because they’re not locked into a traditional, long-term lease.

And this business model exposes WeWork to a HUGE amount of risk.

It’s great for the customers though. WeWork loses tons of money providing this service, which means investors are ultimately footing the bill.

If there’s an economic downturn (and there is a 100% chance of that happening), WeWork is stock with huge obligations and no way to generate revenue on its office space.

When the downturn comes, not only will WeWork’s tenants leave… the company will also be cut off from funding as investors tighten their purse strings.

And to give you an idea of the size of the obligations we’re talking about…

According to the Wall Street Journal, WeWork just surpassed JPMorgan Chase to become the largest leaser of office space in New York City with 5.3 million square feet.

But you don’t have to take my word on how risky this business model is.

The WSJ article also mentions a company called Regus, a European company that did the exact same thing as WeWork during the dot-com boom. It was growing as fast as it could in the late 90s, snatching up office leases all over the place.

And guess what happened…

When the bust hit, occupancy levels plummeted. And the company went bankrupt.

No, Regus wasn’t as cool as WeWork. They didn’t have fair-trade, organic coffee and kombucha on tap. And they didn’t give away free tequila.

But Regus was in the EXACT same business.

And the company still operates today, after it was purchased out of bankruptcy. But it’s been growing at a much slower pace after the lessons it learned in the 2000s.

To give you an idea of the value the market places on conservative growth today…

IWG, Regus’ parent company, manages five-times the square footage of WeWork. But it has about one-eighth the market value.

History has shown this business model is not only excessively risky, but it ultimately failed.

This might be the biggest example of how unbelievably absurd the markets have gotten today.

WeWork is losing money leasing office space and hoping to make it up on volume. Basically, every lease WeWork signs adds more risk and more losses.

It’s the SAME thing that happened to Regus 20 years ago. But people are crazy enough to think this time is different because there’s free tequila…

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It was mid-September in 1683, almost 335 years ago to the day. Turkish forces of the Ottoman Empire surrounded Vienna, one of the most strategic cities in Europe at the time.

Controlling Vienna meant controlling the Danube River, which flows from Western Germany to the Black Sea, providing critical access for the Ottomans to invade the rest of Europe.

So if Vienna fell, Europe would soon follow.

The Holy Roman Emperor, Leopold I seemed to abandon Vienna with the bulk of his forces as the Ottoman Turks advanced. He left only a vastly outnumbered garrison to protect the walled city.

The Ottoman’s laid siege to Vienna. Though the inhabitants were hungry and short on supplies, they continued to hold out, repelling every Ottoman assault.

Finally the Ottomans mined under the city walls to place explosives. The outer wall was breached, and all seemed hopeless for Vienna.

But Leopold I had not really abandoned the city. He had been rallying troops in Poland, Germany, and Lithuania, convincing tens of thousands of soldiers to defend the city.

They all understood that it would mean doom for the rest of Europe if the Ottoman Turks took Vienna. It was a war for their very way of life.

The combined European armies arrived just in time, and the decisive battle began at 4am on September 12, 1683.

It lasted the entire day until, just before sundown, Polish King Jan III Sobieski led nearly 20,000 cavalrymen to attack the remaining Ottoman lines in what would become the largest known cavalry charge in human history.

The cavalry charge was successful, and European forces vanquished the Ottoman invaders.

Just imagine how different life would be if they hadn’t–

Ottoman rulers had long closed their empire off to intellectual, scientific, and technological advancement. Corruption and ignorance were rampant.

In 1515 Ottoman Sultan Selim I threatened the death penalty to anyone caught using a printing press.

For hundreds of years, in fact, the only western book on science that was allowed into the Ottoman Empire was a medical text on the treatment of syphilis.

If the Ottoman Empire had taken Vienna, it’s hard to imagine that there would have been a Renaissance or Age of Enlightenment. Human civilization could have been set back for centuries.

The differences are as stark as they would likely had been if the Nazis had won World War II.

Fortunately that didn’t happen. Europe won the decisive battle, and reason and prosperity flourished.

Sadly this is no longer the case. Prosperity is in short supply in Europe these days, where countries like Italy and Greece are in a tailspin due to massive government debt (despite some of the highest taxes in the world).

Unemployment rates across much of the continent are appalling. Failing banks need constant bailouts. The disastrously low fertility rate has created a time bomb for most national pension funds.

Reason and common sense are also in short supply.

Case in point: a few weeks ago the government of the Netherlands charged and prosecuted one of its own citizens, a 64-year old Dutchman from the town of Sittard near the German border, for sending angry emails to the President of Turkey.

You read that correctly. The Dutch government prosecuted a Dutch citizen living on Dutch soil because he insulted a foreign government official.

Bear in mind, that foreign government official is Recep Erdogan, who has basically been dictator of Turkey since the early 2000s.

When it comes to ruling with an iron fist, Erdogan makes Vladimir Putin look like a pathetic amateur.

Erdogan has crushed his opposition, imprisoning 160,000 political opponents. He’s tightened controls over the Internet, heavily censored the media, corrupted the judiciary, suspended many individual freedoms, brutally squashed protests, and gradually taken more and more power for himself.

So this Dutchman sent Erdogan several angry emails, comparing him to Hitler and calling him a “goat fucker”.

This isn’t the first time something like this has happened either. Two years ago, a German comedian read an offensive poem on German television about Erdogan, calling the dictator a goat fucker. I’m sensing a theme here. . .

Charges were eventually dropped, but portions of the German poem remain banned.

Now something similar is happening in the Netherlands.

You’d think these governments would be a little bit more preoccupied with the looming social and economic disasters they’re facing.

But no. Europe is so concerned about the delicate sensibilities of Recep Erdogan that they throw away the most basic freedoms of their own citizens.

To appease a dictator, politicians trample freedom of expression… something that is supposed to be the hallmark of Western civilization.

It’s incredible when you compare this to what happened more than three centuries ago when a union of European nations held off the Ottoman Turkish invasion in 1683.

Now European Union nations have laid themselves down at the foot of the Turkish president. And I don’t see the cavalry riding in to save them this time around.

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“Holy Crap– turn on your TV! This is crazy!”

It was Sunday, September 14, 2008. Exactly 10 years ago to the day.

My friend Jeff called me and told me to turn on the television—where I saw dozens of people on the streets of Manhattan filing out of a skyscraper carrying boxes full of their office junk.

They were all employees of Lehman Brothers, one of the largest investment banks in the world.

Lehman was hours away from filing bankruptcy in what would go down as THE biggest bankruptcy in US history.

The next day the US stock market tanked. And for most of the next several weeks, all global financial markets were a roller coaster of surreal panic and chaos.

I don’t know if you can remember the general mood back then. I can. It was fear.

People were terrified of what was happening in the economy. The real estate market had dried up. The stock market had crashed. Some of the most hallowed financial institutions in the world went bust in the blink of an eye.

It’s now officially been a decade since the collapse.

And the typical sentiment among economists, politicians, and central bankers is that the economy has come roaring back.

There’s certainly a lot of evidence to support this assertion—

Several financial markets around the world have hit all-time highs. Stocks. Real estate. Bonds. They’re all generally selling for record high prices.

Earlier this week the US Census Bureau announced that median household income in the Land of the Free had increased by 1.8% between 2016 and 2017.

(That’s hardly a life-changing pay raise for workers… but it’s better than nothing.)

Governments around the world, from the US to Western Europe, are seeing strong tax revenue.

And the global economy is certainly growing.

In the US, for example, GDP has increased from $14.8 trillion just prior to Lehman’s collapse ten years ago, to $20.4 trillion today, an increase of 38%.

These are all good signs. And if that’s all you look at, it certainly seems like everything’s all good.

But remember that great F. Scott Fitzgerald quote: “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.”

So let’s look at the other side of things.

Sure, financial markets have increased. Wages have (barely) increased. Economic output has increased.

But what’s really increased?

DEBT.

Look at the Land of the Free as a classic example: US GDP is up 38% over the past decade. Great.

But over the same period, the US national debt has increased 122%!

In other words, in the last ten years, the US national debt increased by more than $3 for every $1 increase in GDP. It’s brilliant!

And it’s not just Uncle Sam. Overall government debt across the world has TRIPLED since Lehman’s collapse to $63 trillion…

… and that doesn’t count their unfunded liabilities (like pension obligations, or the $40+ trillion that the US government owes its taxpayers for future Social Security benefits).

Individuals are also loaded up with debt. Student debt. Consumer debt. Auto debt. They’re all at record levels. So is corporate debt.

And a lot of that new debt, by the way, is total garbage.

As we’ve discussed before, there are insolvent, money-losing companies that have NO hope of paying back their debts that are able to borrow money at super-low interest rates.

Plus there’s nearly $10 trillion of debt issued by insolvent governments at NEGATIVE rates. It’s absurd.

So what else has increased a LOT in the past 10 years?

Money. Literally, the amount of money in the financial system is near an all-time high.

Following Lehman’s collapse, the Federal Reserve and other central banks around the world created trillions of dollars out of thin air.

And in the process they slashed interest rates to historically low levels.

US interest rates were basically at zero for nearly a decade. In Europe and Japan, rates even turned NEGATIVE.

This is the really interesting part… because… these are precisely the factors that heavily contributed to the Lehman collapse:

In 2000 there was a big recession. The stock market plunged and unemployment jumped. Then 9/11 happened, and the economy sank even more.

So central banks started printing tons of money and slashing interest rates in the early 2000s.

And as a result, housing prices went through the roof. Stock markets soared. Money was cheap and plentiful… so EVERYONE started borrowing.

A mountain of debt soon followed. Mortgage debt. Corporate debt. Credit card debt. They even created new types of debt which quickly became some of the most popular investments among financial institutions (like Lehman Brothers).

And a lot of this debt was total garbage. Worthless.

People with no hope of paying their loans were able to borrow money for nothing.

There’s a famous story of a homeless guy named Johnny Moon who was able to borrow hundreds of thousands of dollars back in the early 2000s to ‘invest in real estate’.

It was totally ridiculous. Yet almost everyone was convinced that the economy was strong and the boom would last.

It didn’t. And ten years ago the collapse took all the ‘experts’ by surprise.

Now, a decade later, the experts once again agree that it’s all rainbows and buttercups.

They believe they fixed a problem caused by too much bad debt by facilitating record levels of even worse debt.

They believe they fixed a problem caused by too much money in the system by injecting trillions of dollars of new money into the system.

They believe they fixed a problem caused by artificially low interest rates by slashing interest rates to the lowest levels we’ve ever seen in all of human history.

They also seem to believe that this time will somehow be different.

Frankly it seems a bit… oh, what’s the word… INSANE… to try the same thing over and over and expect different results.

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