Category: simonblack

I’ve been talking a lot about economic and market risks in Notes lately.

But there’s a potentially even larger risk that you’re completely ignoring today.

If you live, work, invest, own a business, bank or hold assets in a single country, you’re putting all of your eggs in one basket.

You’re making a very large bet that everything will be alright in that one country – forever.

It would only take one bout of political turmoil, a natural disaster or a tanking economy for you to potentially lose your money and your assets… maybe even your freedom.

And that’s why I regularly discuss the benefits of having a solid Plan B.

A Plan B is simply a personalized insurance policy that increases your freedom, protects your hard-won assets, helps you make money and ensures that you are in a position of strength no matter what happens (or doesn’t happen) next.

And having a second residency or, preferably, citizenship is a cornerstone of any successful Plan B.

There are a number of ways to get a second citizenship.

If you have ancestors from countries like Ireland or Italy, you potentially get a second passport for free. Or you can pay to get an economic passport from countries like St. Kitts of Malta. There are also countries where you can naturalize over a certain number of years and earn a passport.

But, today I want to share another way to get a second passport…

In Sovereign Man: Confidential, our premium intelligence, we recently interviewed a young Pakistani couple who obtained Brazilian citizenship and passports for their entire family. They did so by having a baby in beautiful Florianópolis, on the country’s southeast coast.

Right on the Atlantic Ocean, tourism is a huge industry for Florianópolis and greater Santa Catarina state. Government officials have an economic incentive to keep the region safe.

Brazil’s violent crime is largely concentrated in Rio de Janeiro and other cities. With a homicide rate of 12.9 per 100,000 people – about half of Rio’s rate – Santa Catarina state is one of the safest areas of Brazil, comparable to the island of Bermuda.

So, with less anxiety for your family’s safety, you can focus on Brazil’s great benefits.

When your child is born in Brazil, there are benefits for your newborn, all your older children and you and your spouse.

First, your child automatically gets Brazilian citizenship.

Second, your other children are immediately eligible for “residency of indefinite term” (i.e. permanent residency), which grants them the right to stay within Brazil indefinitely.

Once your older child has his or her residency card, those 10 years of age or younger at the time of receipt are eligible for provisional naturalization. Within six to nine months of applying for provisional naturalization, your child will receive Brazilian citizenship.

If your child is older than 10 when they receive their residency card, you can submit your child’s citizenship application after you become a Brazilian citizen.

(For comparison, in my adopted country of Chile, children not born there must wait until they are 14 years old to apply for Chilean citizenship… even if their parents gained residency when the child was one-year-old.)

And finally, immediately after your newborn’s birth, you and your spouse have the right to apply for a “residency of indefinite term,” which grants you both the right to stay, live and work within Brazil.

After securing residency, one year later you can apply for citizenship. You’ll need to pass a Portuguese language test, and then wait for a few months for the Brazilian government to process your citizenship application.

So, within two years of having a baby in Brazil, your entire family can have second passports in hand. Certain economic programs would charge hundreds of thousands of dollars for the same result.

Plus, a Brazilian passport is a solid travel document.

Brazilian citizens enjoy visa-free travel to 147 countries, including Europe’s Schengen area – the 26-country free trading and passport-free bloc – and the United Kingdom. This earned Brazil a solid “B+” grade in our 2018 passport ranking. In fact, among South American countries, only Chile and Argentina rank higher on our list.

Brazilian citizenship comes with another benefit: membership in Mercosur – a free trading union of countries, which includes Argentina, Brazil, Paraguay and Uruguay.

Passport holders in these countries can also easily obtain residency and work permits in the other member countries.

Mercosur is not exactly the Schengen area of South America. Schengen is truly borderless. Mercosur’s walls are half way down, but not entirely. You still must apply for residency, work permits, etc. in the other countries. But, the processes are much easier for fellow Mercosur members than for the rest of the world.

Also, easy residency benefits apply to Associate members of Mercosur (Bolivia, Chile, Colombia, Ecuador, Guyana, Peru and Suriname).

At Sovereign Man, we often hesitate to issue superlatives.

But from our research, Brazil is THE BEST country to secure permanent residency and a second citizenship by having a baby.

Again, your citizenship isn’t instant. But, you won’t have to pay $140,000 or more for a second passport (the cost of Antigua & Barbuda’s citizenship by investment program for a couple and two children under 12; the cheapest in the Caribbean).

In my opinion, a second passport is one of the best, lifelong gifts you can give to your children. And they can then pass on this gift to their children and so on… all because of your planning and decisive action.

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Sometimes I feel like I’m living in an alternate universe… it’s like the financial version of the ‘upside down’ from Stranger Things.

Case in point: last night the infamously loss-making electric car maker Tesla announced its quarterly earnings.

As usual, the numbers were gruesome. Tesla’s net loss was TWICE AS BAD as the previous quarter, a record NEGATIVE $717 million. That’s a LOT WORSE than analysts were expecting.

After adjusting for various capital investments, Tesla’s total cash burn for the quarter was MINUS $740 million… which is a bit better than what analysts were expecting. Congratulations.

Oh yeah, and Tesla cult leader CEO Elon Musk mustered an apology to all the analysts he insulted on the previous quarter’s earnings call (where he derided them for asking “boring” and “bonehead” questions).

And now the stock has soared 12%.

Is this really what capitalism has come to?

Companies are richly rewarded for posting record losses that are worse than anyone expected because the grown men who pilot them can refrain from publicly hurling childish insults at financial analysts while managing to ‘only’ burn $740 million of shareholder capital?

Give me a break.

In total, Tesla has burned through $5 billion of its investors’ cash.

And nearly half of the money it has left in the bank is in the form of customer deposits, which are often refundable. So that money’s not even safe.

Most likely Tesla will have to raise billions of dollars over the next few years just to stay afloat.

And yet, despite these losses, and despite the fact that their CEO is sidetracked making flamethrowers, limited-edition Tesla surfboards and promising to solve Flint, Michigan’s water crisis. . .

. . . and despite the fact that he seems more concerned with Twitter spats than running the business (the Wall Street Journal ranked Musk as the second-most active tech CEO on Twitter behind Salesforce.com’s Marc Benioff, with 1,256 tweets this year through mid-July) . . .

. . . shareholders still granted their CEO the largest executive compensation package in the history of the world earlier this year (worth a potential $50 billion). . .

. . . and have now doubled down on their investment, sending the stock price up 12%.

As W.C. Fields once said, “If you can’t dazzle them with brilliance, baffle them with bullshit.”

No doubt Musk is full of both.

(If you want to dispute the latter, please refer to Musk’s tweet in which he called the British cave diver who helped rescue the trapped boys in Thailand a pedophile.)

Now, it may surprise you to hear me say that I appreciate what Musk has done for consumers.

This guy gave a swift kick in the gonads to the entire auto industry, forcing them to reinvent themselves and create more innovative products.

So now all the big manufacturers are getting in on driverless car technology, AI and electric vehicles.

And the cars they produce are more advanced than ever before. This is great for consumers, and most of the credit goes to Elon Musk.

Plus, to be fair, Tesla makes great cars. (Unfortunately they lose money on every single one that they sell…)

I certainly hope the company is able to pull it off. I sincerely do.

I also hope the Dallas Cowboys win the Super Bowl this year. But the odds are slim.

The odds are also stacked heavily against Tesla. They’re rapidly running out of cash at a time when interest rates are rising and competition is stiffening.

They’re no longer the only game in town when it comes to luxury electric vehicles, so they’ll have to contend with Mercedes, BMW, Audi, etc. going forward.

And, let’s be honest, Tesla isn’t exactly the most prudently-managed company in the world.

You can say a lot about Elon Musk’s vision and tenacity. But often the greatest visionaries don’t make the best business executives.

Business is… well, serious business.

Recruiting, training, managing thousands of employees and dealing with intricate details in a complex manufacturing business… these skills don’t always go hand-in-hand with creative genius.

Clearly Elon Musk doesn’t work alone. But there’s been an alarming exodus of top executives who have departed Tesla over the past few years.

(Check out this list compiled by Bloomberg of the dozens of senior execs who have left Tesla since 2016, including Chief Accounting Officer, Chief Financial Officer, President of Global Sales, Director of HR, etc.)

But Musk is undeterred… he’s staying the course.

It reminds me of something Barack Obama once said– “If you’re walking down the right path and you’re willing to keep walking, eventually you’ll make progress.” #DidIjustquoteObama??

Unless, of course, you’re on the wrong path. In which case you’ll eventually lose everything.

Elon seems content to remain on his loss-making, cash-burning path.

Regardless of the consequences, regardless of the feedback that the market is providing.

But we’ll see. Anything’s possible.

In light of such obvious risks, however, it still seems like a sign of pure lunacy.

To wit:

Tesla manufactures electric cars. BMW also manufactures electric cars.

Tesla loses money on every sale and posts record losses. BMW is profitable.

Tesla burns through billions in cash. BMW pays its shareholders a 5% dividend.

Yet with a $50 billion market cap, Tesla is now worth exactly the same as BMW.

Something is wrong with this picture.

But perhaps Elon can convince us otherwise on Twitter.

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In a world full of reckless and extreme monetary policy, Japan no doubt takes the cake.

The country has total debt of more than ONE QUADRILLION YEN (around $10 trillion) pushing its debt-to-GDP ratio to a whopping 224% – that puts it ahead of financial basket case Greece, whose debt-to-GDP is around 180%.

Japan spent 24.1% of its total revenue (appx. 23.5 trillion yen) last year servicing its debt – both paying down principal and interest. And that percentage has no doubt moved even higher this year.

And, keep in mind, this isn’t some banana republic. It’s the world’s third-largest economy.

The country’s economy is so screwed up that the Bank of Japan (BOJ), the central bank, has been conjuring trillions of yen out of thin air to buy government debt.

The BOJ printed yen to buy basically all of the $9.5 trillion of government debt outstanding. When it ran out of bonds to buy, BOJ started buying stocks. Now it’s a top 10 shareholder in 40% of Japanese listed companies.

Most recently, the central bank has started “yield-curve control,” which basically means they’ll do whatever it takes to make sure the government doesn’t have to pay more than 0.1% interest.

But something interesting has happened over the past few weeks…

Despite the BOJ’s promise to hold rates and bond yields down, the other owners of Japanese government bonds (JGBs) have been getting nervous. And they’ve been selling.

The selling pressure pushed bond prices down (and, inversely, yields and rates up)… In just under two weeks, yields on 10-year JGBs soared from 0.03% to 0.11% – an 18-month high.

If you own an asset and you don’t think it will perform well, you sell it. And clearly that’s how people feel about Japanese debt. The bonds pay close to zero, after all.

Japan has been fighting deflation for a long time. And with deflation, when the purchasing power of your money increases every year, you may consider holding a bond that pays close to zero… because you’re still maintaining your purchasing power.

But for the past decade or more, Japan has been committed to producing inflation. And now it’s getting inflation of around 1% a year (with a target of 2% annual inflation).

Now, anyone holding JGBs is guaranteed to lose money. And who in their right mind is going to hold an asset that guarantees you’ll lose money?

So people are selling those bonds. And yields are going up as a result.

Yields increasing from 0.03% to 0.11% may not sound like a big deal to you. But think about what it means for Japan…

The country already spends a quarter of its tax revenue just to service the debt. They cannot afford even the tiniest increase in interest rates.

And because bondholders are selling, and rates have been rising, the BOJ has intervened three times in a single week… buying up all the bonds people are selling in a desperate attempt to hold interest rates down.

This is a clear-cut case of BLATANT financial desperation.

And, to be honest, it’s a bit scary.

Japan is already in debt up to its eyeballs… but the BOJ is telling the world that they’re just getting started buying more bonds, no matter what the cost.

It’s crazy when you hear the most powerful economic policy makers in the world’s third-largest economy say that they’re going to hold interest rates down with ZERO consideration for the consequences.

It means they don’t care about fiscal responsibility, they don’t care how much they will plunder the power of people’s savings through inflation, or about their underfunded pensions struggling to generate returns. None of that matters.

The government’s only focus is to hold down interest rates… which they have to do to make sure Japan doesn’t go bankrupt.

If interest rates in Japan went to, say, just 1%, the nation’s annual debt service would literally exceed all of government tax revenue.

Here’s why this is a really big deal…

Remember how crazy things got in June, when some Italian finance minister didn’t get the job?

Markets around the world completely freaked out.

The potential downfall from what’s currently happening in Japan would be 1,000x worse. Remember, this is the third-largest economy in the world.

The Japanese government is fighting for its life right now (with absolutely ZERO concern for its other financial obligations). And it’s clear that they will spend whatever it takes to combat a rise in interest rates.

This won’t end well.

And it’s time to start loading up on the safest assets you can find.

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It’s been a busy week for the Bank of Japan…

The market believed Japan’s central bank would back off its massive bond-buying program and negative interest-rate policy with yesterday’s policy decision (it didn’t), so investors were dumping bonds in advance of the meeting. That sent yields on 10-year Japanese government bonds (JGBs) soaring from 0.03% to 0.11% in just under two weeks.

So the BOJ stepped in, for the third time in one week, saying it would buy unlimited government bonds to keep yields down. That’s the strategy behind Japan’s latest form of quantitative easing called “yield-curve control.” Essentially, it’s stepping in to buy bonds any time yields rise above 0.1%.

So, when yields hit 0.11%, an 18-month high, the bank bought another $14.4 billion in bonds.

But this is just the latest iteration of Japan’s aggressive and unprecedented QE. Since 2012, Japan has been hell bent on keeping its interest rates near zero.

The BOJ printed yen to buy basically all of the $9.5 trillion of JGBs outstanding. When it ran out of bonds, BOJ started buying stocks. Now it’s a top 10 shareholder in 40% of Japanese listed companies. And today, it’s vowed to spend unlimited money to keep yields below 0.1%.

Never mind what the planned exit strategy is (which will no doubt be catastrophic), let’s take a quick look at Japan’s debt situation – which is growing by the day.

Japan, the world’s third-largest economy, has total debt of more than ONE QUADRILLION YEN. And government debt currently sits at a whopping 224% of GDP, making it more leveraged than even Greece, whose debt-to-GDP is around 180%.

Japan spent 24.1% of TOTAL REVENUE (appx. 23.5 trillion yen) last year on servicing its debt – that includes interest and paying down principal. Those figures are right off the government’s website. And that percentage has no doubt gone higher this year.

Think about that…

Japan’s debt service eats up one-quarter of the entire budget with interest rates around 0.1%.

They cannot afford higher interest rates by even a fraction of a percent.

If interest rates in Japan went to just, say, 1%, debt service would literally exceed all of government tax revenue.

For the longest time, Japan has experienced deflation. So ultra-low rates have been palatable… if the purchasing power of your money increases every year, you’re probably willing to buy an investment that only returns 0.05% – you’re still maintaining purchasing power.

But Japan is currently seeing inflation of around 1% a year, and the BOJ’s target is 2% – given their complete commitment to the program, I’d say they achieve it eventually.

If inflation is running at 2% a year, who wants to own something paying out less than 0.1%? No rational person would take that trade because you’re guaranteed to lose money.

So you sell those bonds. Then interest rates rise (which Japan absolutely cannot afford). So the BOJ intervenes. That stokes inflation.

I think you see the cycle here…

Now the BOJ has waged war against rising interest rates three times in the past week. That’s a HUGE deal. Remember, the government already owns the majority of JGBs and TONS of Japanese equities.

But it continues to prop up the market by conjuring money out of thin air.

This is the third-largest economy in the world… and it is a complete disaster in the making.

The BOJ’s latest actions give you a sense of how close to the end we may be.

But what is the end game if Japan goes bust?

In June, I wrote about the mini-meltdown we experienced after the President of Italy opposed the nomination of a finance minister named Paolo Savona.

If that sounds boring and worthless, that’s because it is.

Still, the market freaked out because a tiny, economically inconsequential country had a small blip in its electoral process.

What do you think would happen if the world’s third-largest economy collapsed under the weight of its own debt?

Imagine the chaos and panic that would ensue.

The Japanese government is fighting for its life right now (with absolutely ZERO concern for its other financial obligations). And it’s continuing to add unlimited debt into the future.

This won’t end well.

And it’s time to start loading up on the safest assets you can find.

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In a major victory for common sense, a group of cosmetologists defeated an insanely stupid regulation passed down by the state of Louisiana.

Louisiana, just like the other 49 states in the Land of the Free, governs licensing requirements for dozens… hundreds of professions… ranging from athletic trainers to tour guides to barbers and cosmetologists.

And most of the time the licensing requirements are just plain idiotic.

In Louisiana, for example, the State Board of Cosmetology had formerly required an unbelievable 750 hours of training (which costs thousands of dollars) simply to be able to thread eyebrows.

(If you’re like me and totally unfamiliar with eyebrow threading, check out this video. You’ll probably agree that 750 hours of training is totally ridiculous.)

And so, in conjunction with the Institute for Justice, several Louisiana-based cosmetologists filed a lawsuit against the Board.

The Board backed down… passing a new regulation exempting eyebrow threaders from such pointless licensing requirements.

One down. 2,214 to go.

That’s right. According to the Institute of Justice’s study License to Work, there are over two thousand licensing requirements across the Land of the Free… and that’s just for low income jobs like manicurists or floor sanders. We’re not even talking about doctors and dentists here.

Another study from the Brookings Institute shows that nearly 30% of US workers require some sort of state license. That’s up from just 5% in the 1950s.

Many of the licenses truly defy any logic whatsoever.

The State of Michigan, for example, sees fit to require 467 days of education and training to receive a barber’s license, but only 26 days to be a licensed Emergency Medical Technician.

The State of California requires aspiring tree trimmers to have 1,460 days of education and training. But pre-school teachers only require 365 days.

The District of Columbia requires 2,190 days of education and training to be an Interior Designer, but ZERO days to be a school bus driver.

The State of Iowa requires 1,460 days for athletic trainers, but just 370 for dental assistants.

What exactly are these people trying to tell us about their priorities? Trees and furniture are more important than children? Hair is more important than health? Abs are more important than teeth?

It’s all quite bizarre.

But there is one occupation I noticed that is conspicuously absent from this list.

And it’s a big one.

Not a single state in the union has a licensing requirement for this profession.

And that’s an incredible irony given that this occupation gets to tell the rest of the occupations how much training they require.

Did you figure it out?

It’s politicians.

Just think about it: Barbers and manicurists require hundreds of hours of training.

But the people who have the power to pass idiotic legislation, waste taxpayer funds, declare war, tell us what we can/cannot put in our own bodies, and regulate every aspect of our lives, don’t even have to be literate.

(And judging by some of the laws they pass, that may very well be the case.)

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Like a lot of major cities in the United States, the city of Philadelphia is in pretty rough financial condition.

One of the city’s biggest problems is its woefully underfunded public pension, which has a multi-billion dollar funding gap.

In 2001, Philadelphia’s pension fund was still in decent shape with a funding level of 77%, meaning that it had sufficient assets to meet 77% of its long-term obligations.

By 2017 the funding level had dropped to less than 50%.

Part of this is just blatant mismanagement; while most of the market soared in 2016, for example, Philadelphia’s pension fund lost about $150 million on its investments, roughly 3.17% of its capital.

It’s interesting that, along the way, the city has actually tried to fix the problem. Between 2001 and 2017, the amount of money that the city contributed to the pension fund actually increased by 230%.

Yet despite increasing contributions to the fund, the fund’s solvency level keeps shrinking.

Mayor Jim Kenny summed it up the grim situation in his budget address last year:

The City’s annual pension contribution has grown by over 230 percent since fiscal year 2001. . . These increasing pension costs have caused us to cut important public services while the pension fund’s health has grown weaker. In fact, our pension fund has actually dropped from 77 percent funded to less than 50 percent funded during the same time our contributions were so rapidly increasing.

So, desperate for revenue, the local government has been relying on an old tactic to get their hands on every spare penny they can.

The city of Philadelphia owns the local gas company– Philadelphia Gas Works (PGW). It’s essentially a local government monopoly.

And over the last few years, PGW developed an automated system to comb its billing records, find delinquent accounts, and file a lien on those properties.

If you’re not familiar with real estate law, a ‘lien’ is a formally-registered security interest in which your property serves as collateral for a debt.

When you borrow money from the bank to buy a home, for example, the bank registers a lien over your home for the value of the mortgage.

The lien prevents you from selling the home until you satisfy the debt. It also means that if you don’t pay the debt, the lienholder (the bank, or the gas company) can seize the property.

In PGW’s case, the gas company is filing liens over people’s properties due to unpaid gas bills as little as $300.

There is essentially zero due process here. It’s not like the gas company has to go in front a jury and prove that there’s an unsatisfied debt.

They just have their automated system file some papers, and, poof, the lien is registered.

So someone could have their home encumbered for a $300 late bill that ended up being an administrative error.

More importantly, it’s curious why the gas company is filing a lien against the property… because it’s entirely possible that the delinquent customer isn’t even the property owner.

Let’s say you’re a landlord and renting out your investment property to a tenant… and the tenant doesn’t pay his gas bill: PGW will put a lien on your property, even though it’s not your bill.

Even worse, you wouldn’t even know about it, because PGW would be sending the late notices to the tenant… not to you.

At that point it turns into a total bureaucratic nightmare.

If you’re lucky enough to even find out about it, you call PGW to try and get the lien removed.

But (according to court documents), PGW tells angry landlords that they have no control over the lien process, and tell people to file a complaint with the Pennsylvania Public Utility Commission.

But then the Pennsylvania Public Utility Commission tells you that they have no jurisdiction over liens in Philadelphia, and that you should talk to the utility company.

Classic government bureaucracy. You just get bounced around between various departments and nothing ever gets resolved from a problem that you didn’t even create.

Well, a bunch of landlords finally had enough of this nonsense, so they got together and sued the city in federal court.

It seemed like a slam dunk case. Why should property owners be held liable for the actions of their tenants?

If tenants don’t pay for their own gas, the tenants should be held responsible… not the property owners.

Common sense, right?

Wrong. The landlords lost the case.

Two weeks ago the US District Court for the Eastern District of Pennsylvania ruled that the City of Philadelphia was well within its rights to hold property owners responsible… and to file a lien on the property without even notifying the owner to begin with.

This is a pretty strong reminder of how low governments will sink when they become financially desperate.

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As you you’ve no doubt seen by now, shares of Facebook plunged around 19% this morning.

In fact it was down as much as 25% in after-hours trading, wiping out $120 billion of wealth in a matter of minutes.

To be clear, that is the largest single-day loss of value ever seen in the history of the world.

(And Mark Zuckerberg’s net worth fell by $17 billion as a result… though I doubt he’s going to be missing too many meals anytime soon.)

The company announced disappointing earnings and slowing growth, which spooked investors.

And while most of the mainstream media is focused on what this means for Facebook and other tech stocks, I’m much more concerned about what this means for -all- assets.

In fact, I think today marks a MAJOR turning point for the “everything bull market” that’s been going on for ten years.

Stocks in particular have been rising for years, led primarily by the most popular “FAANG” tech companies– Facebook, Apple, Amazon, Netflix, and Google.

These companies have been pushed to absurd limits.

Netflix is always a great example: the company loses billions of dollars each year and burns through shareholders’ money, yet the market has constantly pushed its stock to new heights.

Then one day Netflix reported less-than-stellar growth, and the stock tanked. Poof. Billions of dollars of shareholder wealth vanished in an instant.

Now it’s happened to Facebook.

This is an important lesson: when a bubble bursts, there can be a lot of pain… very quickly.

By the way, it’s useful to point out that the FAANG companies have essentially been propping up the entire stock market.

Other sectors, like banking, pharmaceuticals, transportation, homebuilders, etc. have all been struggling.

But because these FAANG companies comprise such a disproportionately large share of a stock index like the S&P 500, the strong performance of just those five companies has lifted the rest of the market.

Now, the invincibility of at least 2 out of those 5 high-flying tech companies has been pierced.

Think about that: investors have lost confidence in 2 out of the 5 companies that have almost single-handedly been propping up the rest of the market.

That’s a pretty compelling sign that the top may be behind us.

It’s not just stocks either: take a look at real estate, which has also been in a bull market for most of the last decade.

Just recently the US Census Bureau and Department of Housing and Urban Development announced that new home prices in the United States continued to slide for the third straight month, to a level not seen since February 2017.

Sales of new homes have dropped to an 8-month low.

Now real estate is extremely local; the market in San Francisco is entirely different than in Tulsa.

But, nationwide, there’s strong evidence to suggest that real estate is either in decline… or grinding to a halt.

This makes sense when you step back and look at the big picture. Nothing goes up in a straight line forever. Not stocks. Not real estate. Not anything.

There always have to be periods of corrections… booms followed by busts.

And when you see so much compelling evidence that a bust is coming, it makes sense to find intelligent ways to sit on the sidelines… because there will be phenomenal buying opportunities to come.

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I have to chuckle a bit…

The mainstream media is now picking up on the idea of a second passport; and even adopting the Sovereign Man ethos of having a “Plan B.”

Bloomberg published a widely-distributed article with the headline:

Where the Super-Rich Go to Buy Their Second Passport

The article begins…

Cheaper than a Gulfstream, nimbler than a superyacht, a second passport—or a third or fourth—has become another trophy for the ultra-wealthy.

The article even quoted a lawyer specializing in second citizenships as saying:

If you have a yacht and two airplanes, the next thing to get is a Maltese passport… It’s the latest status symbol. We’ve had clients who simply like to collect a few.

There’s even an accompanying video that shows beautiful people drinking cocktails in exotic locations and doing backflips off a cliff into Caribbean-blue water.

Finally, there’s a table of the 10 “CIP” – citizenship by investment – programs available around the world. These are countries that will grant you citizenship (which comes with a passport) for cash, an investment in a local business or real estate or some combination of the three.

Austria tops the list with a total cost of nearly $24 million for a passport. Cyprus is next at $2.375 million.

And the article was picked up by news outlets all over the US, India, China and the UK. It’s no surprise… it’s sexy to think of international playboys yachting around the Caribbean to collect citizenships.

But, if you haven’t already guessed, the idea of the super wealthy collecting passports as a status symbol is laughable to me. I know it happens. If you’re a billionaire, dropping $26 million for an Austrian and Cypriot passport is nothing.

But the idea that a second passport is only for billionaires is absurd. I believe having a second passport is important for everyone, because it grants you more freedom.

I got my first, second passport from Italy over 17 years ago… and, by the way, it was completely free.

I was able to get an Italian passport, one of the most valuable in the world, because I have Italian ancestors (more on this in a moment).

And I didn’t do it as a status symbol. I did it because having a second passport is the ultimate insurance policy.

It ensures that no matter what, you always have a place to go. To live. To work. To do business. To retire. And in some cases, even seek refuge.

It also allows you more banking options, so you can move money out of your home jurisdiction (protecting your friends from frivolous lawsuits and overreaching governments).

And even if you never end up needing or using your second passport, you will never be worse off for acquiring one.

That’s the whole idea about what I (and now Bloomberg) call a Plan B… there are simple steps you can take to put yourself in a position of strength, no matter what is happening in the world. And you won’t be worse off for taking these actions.

It’s been the core principle behind Sovereign Man since we began over nine years ago.

But back to second passports…

Buying a citizenship is only one way to obtain your second passport. By the way, I struck a deal with a Caribbean nation, making Sovereign Man the lowest cost provider of a second passport anywhere in the world. It’s a service we only offer to our Total Access members – our highest level of membership.

Like me, you can also get citizenship through ancestry. If you have ancestors from England, Italy, Ireland, Hungary and a host of other nations… you could get a valuable, second passport for free.

You can also move to certain countries, apply for residency, then earn a citizenship through naturalization – like Chile (where I currently live), or in Panama.

So don’t let Bloomberg’s portrayal of a second passport as only for the mega wealthy discourage you. It’s a perfectly reasonable, and often very affordable, thing to do. And very few things in this world offer you more freedom or protection.

If you want more information on second passports and the different ways you can obtain them, you can use this free resource on the Sovereign Man website.

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I’ve been talking a lot about the looming pension crisis…

My short thesis is, if you’re depending on a pension for your retirement, it’s time to start looking elsewhere.

Pensions are simply giant funds responsible to paying out retirement benefits to workers.

And today, the nation’s 1,400 corporate pension plans are facing a $553 billion shortfall. And, according to Boston College, about 25% will likely go broke in the next decade.

Think about that… A full one-quarter of US, non-government employees expecting a pension to fund their retirement will likely get zilch.

And it’s even worse for the government…

According to credit-rating agency Moody’s, state, federal and local government pension plans are $7 trillion short in funding.

The reason for this crisis is simple – investment returns are too low.

Pensions invest in stocks, bonds, real estate, private equity and a host of other assets, hoping to generate a safe return.

But with interest rates near their lowest levels in human history, it’s been difficult for these pensions to generate a suitable return without taking on more and more risk.

And that’s another big problem with pensions – their investment returns are totally unrealistic.

Most pension funds require a minimum annual return of about 8% a year to cover their future liabilities.

But that 8% is really difficult to generate today, especially if you’re buying bonds (which is the largest asset for most pensions). So pensions are allocating more capital to riskier assets like stocks and private equity.

And so far it’s working.

The California State Teachers’ Retirement System (CalSTRS) and California Public Employees’ Retirement System (CalPERS) both earned more than 8% for the second fiscal year in a row. CalPERS is the largest public pension in the US. And, together, the two funds manage $575 billion for 2.8 million public workers and retirees.

Two 8%+ years isn’t the norm. Over the past 10 years ending June 30, CalSTRS returned an annualized 6.3% a year – well below its target. And CalPERS has returned a dismal 5.1% over the same period.

And that’s been with the tailwind of one of the longest equity and fixed-income bull markets in history.

It’s clear these inflated gains can’t last.

And the two California pension giants are even admitting the game is up.

No, no more 8% target return, as we teeter on the edge of what could be the largest market correction of our lifetime.

CalSTRS is making the bold move to drop its future goal to… 7%.

And CalPERS is ratcheting down its return goals in steps to… wait for it, 7% by 2021.

Listen, it’s a nice gesture for these big funds to lower their expected returns and admit things are tough out there.

But 7% is still totally unrealistic. And that’s not even taking into account the tough times I see ahead for markets. Pensions haven’t been able to hit a 7% in the best of times.

As of June 2017, the 10-year annualized median return for all public pensions tracked by the Wilshire Trust Universal Comparison Service was 5.57%,

That’s nearly 250 basis points below the 8% target.

But there’s another way pensions make money… they collect funds from active workers and taxpayers.

When these funds drop their return expectations, it has real life implications. With a lower, projected return, a pension fund needs more cash to pay out its future liabilities.

For example, CalPERS, which is dropping its expected return to 7% by 2021, said the state and school districts paying into the pension will have to pay at least $15 billion more over the next 20 years once the 7% target kicks in.

So, people depending on a pension not only likely won’t get the money owed to them in the future… but they’ll also get stuck paying more into the system today. It’s a true lose/lose.

Our goal at Sovereign Man is to put our readers in a position of strength.

And if you’re expecting a pension to pay for your retirement, you need a contingency plan today.

Last month, I outlined a series of steps you can take, right now, to improve your financial situation – like improving investment returns and alternative retirement account structures.

Personally, I’ve been selling assets to raise cash. In fact, I’m sitting on more cash than at any other point in my life.

I’m sitting in cash because I’m worried we could see another recession very soon.

And being liquid at a market bottom is one of the best ways to get really rich – you can buy the world’s best assets for pennies on the dollar.

But here’s the best part… I’ve structured my cash holdings so I’m still earning a solid return – better than a lot of these pension funds. But I’m remaining liquid and taking on very little risk.

If you want to know more about what I’m doing with my own money, and why I’m sitting on so much cash, just click here…

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One of the biggest banks in the world – a name you would certainly know – just pitched its top clients on a major investment.

The deal was only offered to its private clients (with at least $50 million in net assets); and as I started reading through the opportunity, I started to understand why…

We talked about this in a recent podcast: this particular deal was a $500 million real estate investment.

Essentially the deal was to buy and renovate a building in New York City. And when I dove into the numbers, I could see they were paying a record high price for the property, and over $1,000 per square foot to renovate it.

None of this made any sense to me.

It often costs less than $100 per square foot– ten times less– to BUILD a place from scratch.

They were spending $1,000 per square foot just on renovations. That’s insane.

And it comes at a time when the price of real estate in Manhattan has never been more expensive.

And here’s the best part…

The bank expects this to be a five-year project. So, even if we’re not currently at THE top of the market, reaching the top within the next five years is almost a certainty.

Real estate, like all assets, moves in cycles. Properties go through boom and bust periods, ups and downs. They typically last 7-10 years, though sometimes shorter or longer.

We’ve been in an up-cycle for 10 years. This means that, when the building is complete in five years, they’re probably going to be selling into the bottom of the market.

I’m scratching my head because these aren’t stupid people. The bankers aren’t stupid. The investors aren’t stupid.

And yet, this entire deal is just crazy.

What’s really crazy is that they’ll succeed in raising the fund. This deal is going forward.

It’s a sign of the top, to me, that a deal like this even exists. The fact that it’s probably going to get funded makes it even worse. This is one of those anecdotes that shrieks an extreme top of the cycle.

And this is just one example. Signs of the top are everywhere you look…

Just open the pages of the Wall Street Journal and you’ll see plenty of headlines that make you wince, like this one:

Perks for Plumbers: Hawaiian Vacations, Craft Beer and ‘a lot of Zen’

The demand for construction is so high (and you can’t build a building without plumbers) that companies are offering plumbers expensive beer and Hawaiian vacations to come to work.

Oil workers in the Permian Basin are getting 100% pay raises. The percentage of the population getting elective, cosmetic surgery is at an all-time high. People are buying pleasure boats and yachts at a record clip.

These are the things people buy when they are feeling really confident and rich.

And of course, there’s the $500 million deal to buy an obscenely expensive NYC skyscraper, renovate it and sell it into a declining market.

I think it’s time to be cautious. Excessive boom cycles are invariably followed by busts, and it’s foolish to think that this time is any different.

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