Category: simonblack

There’s something about being insanely rich that people will believe every word that comes out of your mouth no matter how bizarre.

And no, I’m not talking about Donald Trump. Warren Buffett is an even better example.

As one of the richest men in the world, Buffett’s opinions carry almost Biblical impact, even when they might be completely ridiculous.

Just a few days ago, for instance, he quipped that drinking Coca Cola is better for him than eating broccoli.

He’s also famously expressed contempt for owning gold, suggesting instead that people should simply own a US stock market index fund (like the S&P 500) and hold it for 50 years.

Curiously, though, gold has vastly outperformed both the S&P 500 and Dow Jones Industrial Average over the past half-century.

While the S&P 500 index is up 24.3x in that period and the Dow Jones Industrial Average is up 18.2x, gold has appreciated 36.6x.

Even when taking into account the effects of dividends, fund expenses, cash drag, taxes, etc. the evidence still doesn’t support Buffett’s assertion. Yet people believe him.

But perhaps one of Buffett’s most popular opinions is that America is simply awesome and will only get better.

He’s spoken and written extensively in his annual reports that America is the #1 place to be in the world, that the massive opportunity in the Land of the Free will only get better, and that the United States has “never been greater”.

Buffett is right that the United States is an amazing place.

It was founded as a land of opportunity where hard work, risk taking, and a little bit of luck resulted in incredible prosperity.

And some of those elements do still exist.

But Warren Buffett’s outlook on the United States is underpinned by an assumption that the next 50 years will look like the previous 50 years.

That’s clearly not the case.

When Warren Buffett’s company Berkshire Hathaway was rapidly expanding in the 1960s and 1970s, the US government’s debt level was low and the dollar was strong.

Since then there have been MILLIONS of pages of regulations created in the Land of the Free, trillions of dollars worth of debt accumulated, and countless dollars conjured out of thin air.

Buffett is well known for having a very long-term view on things. For him, the typical holding period for owning stocks is ‘forever’.

And that’s a great outlook to have when the fundamentals are in your favor, i.e. if you own shares of a great company with honest, competent management.

But you can’t hold the view that in the long-run everything will always be better.

15 years ago Yahoo, Motorola, and Nokia were three of the top technology companies in the world.

Apple was still years away from launching the iPhone. Few people had heard of Google. And Mark Zuckerberg was still in high school.

But these circumstances changed. Quickly.

Nations and economies also change. History is very clear on this point: wealth and power shift.

Just because a country might be at the top today doesn’t mean it will be that way forever, especially when the nation’s fundamentals and economic headwinds grow worse each year.

So with due respect to Warren Buffet’s investment acumen, there are decades of economic trends, millions of pages of regulations, and thousands of years of human history proving that his outlook on America is wrong.

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Just after sunrise on April 19, 1775, a large contingent of British military troops arrived to the town of Lexington, Massachusetts.

They were under orders to search for and confiscate all weapons and munitions from the colonials– something the British army had done countless times before.

In many ways it was a routine operation. And yet, that morning, roughly 80 local militiamen stood blocking their path.

Paul Revere had ridden through Lexington only hours before to warn residents of the approaching threat.

There was a lot of yelling and tension between the two sides, and amid all the confusion, someone fired his musket. Then another. Then another.

(Historians are still unclear which side shot first, though much of the evidence points to Han Solo.)

And though few people realized it at the time, those turned out to be the opening shots of the American Revolution.

This is how revolutions often start– people who have reached their breaking points engage in a small acts of defiance that quickly escalate out of control.

We’ve seen this pattern over and over again.

The Arab Spring uprising in 2011 started with a Tunisian fruit cart merchant who lit himself on fire. Revolution ensued.

The 2014 revolution in Ukraine started when police violently clashed with peaceful anti-government demonstrators.

Revolutions, of course, can take many forms. There are social revolutions, political revolutions… and even financial revolutions.

That’s what we’re seeing today: financial revolution.

Now that interest rates are negative in many parts of the world, the financial system has become an incredibly destructive force.

Negative rates adversely impact the livelihoods of just about everyone, from the average guy on the street all the way to the banks themselves.

A few key players have reached their breaking points and are starting to engage in acts of defiance.

I told you recently how the Bavarian Banking Association in Germany advised its member banks to hold physical cash instead of reserve deposits with the European Central Bank (ECB) at negative interest.

Some major insurance funds are also jumping on board, choosing to hold physical cash instead of bank deposits earning negative interest.

In its effort to avoid negative interest rates, the Canton of Zug in Switzerland asked its citizens to delay paying their taxes.

Now even the political and media establishments in Germany are rebelling against the ECB, saying that negative interest rates chip away at the savings of pensioners.

In response, the ECB opted for the ‘blame the victim’ approach, pointing the finger at all of us little people because we’ve been saving too much money.

So according to the unelected bureaucrats who printed all the money to begin with, people have been saving too much.

Consequently, everyone must be punished with negative interest rates. And you’re your fault.

That’s like a rapist saying, “she deserved it.” It was an appalling response, and astonishingly stupid.

You’re supposed to save money. That’s what the Universal Law of Prosperity is based on: produce more than you consume. Save more than you spend.

Penalizing savers is the exact opposite of what bureaucrats should be doing.

But people are starting to figure this out. The resentment is growing, even within the financial system itself.

Remember that modern ‘money’ is backed by nothing but unelected bureaucrats and their insipid economic theories.

The only way this system works is when there’s unquestionable confidence in the people running it, almost to the point of blind obedience and wilful ignorance.

When that confidence wanes, the financial system can spiral out of control very quickly.

We may be reaching that point soon and could look back on this period as the opening shots of the Financial Revolution.

If you recognize that the financial system is destructive and want to make a change, your most powerful option is to stop using it.

Or at least reduce your dependence on it.

Part of being a Sovereign Man is having a strong sense of freedom and independence… and that includes financial independence.

Last week we talked about the importance of holding physical cash.

You won’t be worse off for taking some savings out of the banking system.

And you’ll be protected against problems like negative interest, bank bail-ins, or withdrawal controls.

(All of these, by the way, already exist or have happened recently.)

But cash is not a panacea. Because if there really is a major reset in the financial system, your paper money might lose significant purchasing power.

That’s why it makes sense to hold gold and silver in addition to cash.

If there are greater problems in the monetary system, your precious metals will turn out to be an extraordinary insurance policy.

(Silver is a better bargain right now based on historical ratios, but it’s hard to imagine you can go wrong with either one.)

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

In their efforts to jam the square peg of financial theory into the round hole of human nature, economists have perpetrated some pretty stupid things.

But few of them are dumber than the efficient market hypothesis (EMH).

EMH states that it is impossible to beat the market because the efficiency of the market means that prices always incorporate and reflect all relevant information.

Why was the Dow Jones Industrial Average worth 22.6% less on Tuesday October 20, 1987 than it had been the previous day ?

Why is Warren Buffett worth $67 billion ?

Must be all that efficiency.

Buffett himself claims, “I’d be a bum on the street with a tin cup if the markets were always efficient.”

EMH and its bastard cousin CAPM (the Capital Asset Pricing Model), continue to send students of finance down intellectual blind alleys.

CAPM is a model that describes the relationship between the risk and expected return of an asset in a diversified portfolio.

CAPM requires reality to be bent using what can politely be termed “assumptions”, including the assumptions that:

1)  All investors are of the species homo economicus, i.e. they are seeking to maximise returns

2)  All investors are rational and risk-averse, instead of the emotional creatures we really are.

3)  All investors are well diversified across a broad range of investments

4) All investors have an equal and non-influential relationship with prices

5) All investors can lend and borrow without limit at a risk-free rate

6) Transaction costs and taxes do not exist

7) All assets are liquid and perfectly divisible

8) All investors have identical expectations

9) All investors have access to infinite information simultaneously.

These assumptions are, of course, nonsense. And yet EMH and CAPM continue to be taught.

Perhaps there are business schools out there that still advise their students that the Earth is flat.

CAPM’s silliest assumption is that all investors are the same.

It requires only a superficial acquaintance with the financial markets to know that this can hardly be the case.

The financial markets are where sovereign wealth funds interact with private investors.

The former can often be insensitive to price; the latter, never.

Within the financial markets pension funds, with a theoretical investment horizon of decades, rub up against computer algorithms looking to front-run other investors by fractions of milliseconds.

And clearly, different investment entities have different objectives.

The motivation of a central banker is likely to be distinct from that of a robot (assuming they are not one and the same).

Of course, these motivations can and do change.

There was once a time when central bankers fought inflation like the very devil. Now central bankers are desperate to create it.

When the game changes, we have a choice. Try to adapt, or stop playing.

It’s not just that we’re entering uncharted waters; in a world of negative interest rates and negative bond yields, the entire investment landscape has changed. Investment strategy must reflect that.

Although a “risk-free” rate no longer exists, we should probably still try and steer close to the shore, even if we may not be able to see it.

If the game has changed, learn the new rules.

With the financial weather now a function of economic policy, different laws apply. Old investment models are obsolete.

And within a policy-controlled market, genuine diversification – of risks, as well as anticipated returns – will matter more than adherence to a traditional asset allocation template that is no longer fit for purpose, because it was formulated in a positive carry world.

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[Editor’s note: This letter was penned by Tim Staermose, Sovereign Man’s Chief Investment Strategist and editor of the 4th Pillar Investment Alert.]

If you know me personally, you know I have a lot of hair.

So when I go get a haircut, I always feel bad that the price is the same for me as for people who are almost bald… so I tip accordingly.

Recently when I went for a long-overdue haircut in Bali, I paid about US$1.50, plus a generous 50% tip of roughly 75 cents.

Ahead of me in line was an older European gentleman. He went for the works. Haircut, shave, and scalp massage. His total cost: about US$3.80.

It got me thinking about trading, investing and the relative value of things.

The same service at the barber in Europe, Australia, or North America would undoubtedly have cost 10 to 20 times as much.

So, this was clearly fantastic value – right?

Well, I would argue that it actually depends on your yardstick.

Here in Indonesia an average wage can be as little as $150 to $300 a month. So a $1.50 haircut represents about 0.5% to 1% of the average monthly wage.

In the US, the average monthly wage is about $3,900 according to the Department of Labor. 0.5% to 1% is $19.50 to $39.

That’s more or less what a haircut will cost you in the US, depending on where you live.

So as it turns out, in both the US and Indonesia, a haircut runs 0.5% to 1% of average monthly income.

So, while I’d argue that my haircut in Bali was very good value in ABSOLUTE terms, in RELATIVE terms it wasn’t a screaming bargain after all.

Fortunately (or deliberately arranged that way, actually), my income is earned entirely overseas, at “rich economy” rates.

So for me personally, the cost of living in Indonesia – including haircuts – is an absolute bargain.

That brings me back to investing: professional money managers often seek investments that offer good relative value.

A stock might be cheap relative to its competitors. Or it might be cheap relative to its historical trading range.

Or, it could be cheap relative to alternative investments like government bonds.

But who cares if a stock is ‘relatively’ cheap if everything you compare it to is expensive?

It’s not particularly good value to buy a stock that’s slightly less overpriced than its competitors.

That’s the problem with most mainstream investments nowadays; they’re only being viewed in relative terms.

In absolute terms, stocks in most major markets are incredibly overpriced.

Thankfully, as small individual investors, we can think for ourselves. In seeking independent forms of income, we can look across the world for the best bargains to find absolute value.

In particular, we want to buy shares in companies that are screaming bargains.

One of the most lucrative corner of the market for me has always been companies that are selling for less than their ‘net cash’ in the bank.

(Net cash refers to the company’s bank balance minus any debt.)

I have always found that if you can buy such a company and have a modest degree of patience, almost invariably you can make a very nice profit.

Sometimes this happens quickly.

This was the case with a company called Queste Communications (QUE on the Australian Securities Exchange) that I made a small fortune with back in 2003.

It was just after I’d bought my first house. So I only had about A$14,000 of savings left to my name. I put ALL of it into Queste.

It was a small technology company whose shares had crashed in the dot-com bust.

The crash was so deep that the company’s stock price was about 4 cents; yet the amount of cash it had per share amounted to 14 cents.

So by buying the shares, I was spending 4 cents to purchase 14 cents in cash.

Needless to say I bought as many as I could afford. Within a few months the stock price had more than tripled (and even then was selling below its cash backing).

In all, I got back A$51,723.21 on a A$14,000 investment. Not bad for a small-time investor, as I was back then.

These sorts of deals have been my focus for years and comprise the majority of our recommendations in the 4th Pillar Investment Alert.

Right now I’m finding the Australian market to be fertile hunting grounds.

My methodology is slow and deliberate; my research team and I pour over hundreds of companies’ quarterly reports; you can find these yourself on the ASX website.

It takes a lot of time, but after going through those reports, we uncover all the gems… well-managed companies that are selling for less than their bank balances.

There’s a LOT more analysis that goes in to the decision to find our top recommendations…

… but, broadly, this should give you a basic understanding of our approach and how you might be able to apply it to your own investments to find incredibly lucrative ABSOLUTE value.

PS-

This 4^th Pillar investment strategy is a no-brainer, and the track record is fantastic. We’re having a special sale– take over 40% off the regular price.

This promotion ends tomorrow. Try out the 4^th Pillar Risk Free.

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After a mind-numbing, year-long process, one of the longest business deals I’ve ever been involved with in my entire life finally closed a few days ago.

I couldn’t be more excited.

Through Sovereign Man’s parent company, we purchased a wonderful, Australia-based business that’s been around for over 20 years and is a pretty iconic brand in the country.

Plus, it’s had a long history of profitability and zero debt, so it’s a safe, stable source of cashflow.

And given the price we negotiated, we’ve picked this business up at an extraordinary discount.

Just looking at the net assets of the business—its inventories, receivables, tax credits, property, etc., we paid far less than what the company is actually worth.

Moreover, we expect to make all of our money back in about one year.

These are two of my most important investment criteria: how much am I paying relative to what a company is worth (i.e. price relative to its ‘book value’)?

And how much am I paying relative to its annual profits (i.e. price relative to its ‘earnings’)?

The lower those ‘multiples,’ the better; we paid less than 1x book value, and roughly 1x earnings, so I know there’s a big margin of safety, and that we’ll quickly recoup our investment.

It’s difficult to find deals like this, and most of the time they’re only available with private companies.

In public markets where large companies’ stocks trade, these valuation metrics are just insane.

As I wrote yesterday, shares in Netflix sell for an absurd 18x book value, and 328x annual profits!

This is nuts. Clearly the Australian business we just bought is a much better bargain, and it’s why I prefer to buy private businesses rather than popular Wall Street mega-stocks.

I do recognize that it’s much more convenient for most people to buy stocks; you just click a few buttons and you own shares.

This is a lot easier than spending a year of your life and millions of dollars to acquire a private business.

But investors do pay a steep price for the convenience of buying stocks on major exchanges… namely, dramatically overpaying for the investment.

On rare occasions, however, the stock market does provide some ridiculous anomalies.

We talked about some of these yesterday– like when a high quality, well managed company’s stock trades for less than the amount of cash it has in the bank.

As an example, our Chief Investment Strategist recommended a company to our 4th Pillar subscribers last month that had a market cap of $301 million, yet an incredible $523 million cash in the bank.

In other words, the market was giving us $222 million for free. That’s an amazing deal, even better than the business that I bought…

And go figure, the stock price is already up 20% in just a few weeks.

This kind of anomaly does happen from time to time in the stock market, depending on WHERE you look.

The US market is wildly overvalued. But right now we are finding several of these incredible deals in Australia.

And that’s another major benefit, especially for US-dollar investors.

Right now the Australian dollar has been hovering near a multi-year low against the US dollar.

It’s been as high as USD $1.10 per Aussie dollar over the last few years. Today it’s about 76 cents. The long-term average is between 85 and 90 cents.

So not only can you make money when your investment generates profit and increases in value, but you can also benefit when the foreign currency appreciates.

Clearly this is volatile; currencies can go up or down. But you stand a greater chance of gain when you buy a foreign currency well below its long-term historic average…

… and when your own currency is incredibly overvalued.

That’s what’s happening right now, especially between the Australian dollar and the US dollar.

US dollars have been overvalued against most currencies around the world for more than a year.

And since Australia is a major mining country, the Aussie dollar has been hit particularly hard due to the worldwide slowdown in commodities.

This means that US dollar investors can trade their overvalued currency for cheap Australian dollars, and then buy shares of companies that are selling for less than the amount of cash they have in the bank.

So now you can actually make money in at least two different ways– from the company, AND from the currency.

This has been an incredible investment strategy– it’s a great way to generate independent income, and something that anyone can do.

Many of these undervalued companies’ stock prices are as low as $1. So even with a small portfolio, you can accumulate plenty of shares.

Plus, many of the major online brokerages offer international trading, including TD, Schwab, E*Trade, Fidelity, Interactive Brokers, etc.

(If you’re looking for greater international diversification and asset protection, you could open a brokerage account at Hong Kong-based Boom Securities– more on that another time…)

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My friend Zac’s sprawling penthouse apartment is over 3,500 square feet.

It boasts five bedrooms, a library, game room, office, two large terraces, and exceptional views of the entire city.

Plus it’s located in the nicest part of town, just a short walk from all the best restaurants and nightlife.

The price he paid? Just over $200,000.

You couldn’t even build a place like that for so cheap… so Zac essentially bought his apartment for less than its cost of construction.

That’s an amazing deal.

Now, the one thing I didn’t mention is that his apartment is in the very lovely city of Medellin, Colombia.

This helps explain the cheap price.

While real estate in the developed world goes for nose-bleed valuations, apartment prices in Medellin are heavily discounted thanks to the decades-old ‘Colombia stigma’.

Yet anyone who actually bothers to spend time in the country can see that the worst is clearly over in Colombia, so the cheap prices for real estate just don’t make any sense.

Now, I’m not trying to encourage anyone to buy real estate in Colombia.

The larger theme is that making great investments demands ignoring the popular narrative and thinking both independently and unconventionally.

As we’ve been discussing lately in this letter, this is becoming more and more critical.

Last week I told you how pension funds in most western nations have appalling multi-trillion dollar funding gaps, and are thus unable to meet their obligations to future retirees.

That, of course, is in addition to the US government’s $40+ trillion Social Security shortfall.

You’re basically on your own for retirement.

And yet, as I wrote yesterday, people today have to save three times as much for retirement as their parents did thanks to zero (or negative) interest rates.

That’s pretty much impossible for most people.

Bills, family, education, medical care, taxes, insurance… most people have way too much month at the end of the money to save at all, let alone three times as much savings to stash away.

Plus, for those who can/do save, the conventional options just aren’t producing the results they used to.

The old advice of ‘buy an S&P index fund and hold it for decades’ probably doesn’t make sense anymore.

US stocks, for example, are now in the second longest bull market in modern history.

In other words, it’s extremely rare for US stocks to have risen so far for so many years, and it seems foolish to bet that this rise will continue forever.

Just like seasons of the year, financial markets tend to move in cycles– bull vs. bear, boom vs. bust. It’s been a very loooong summer for US stocks. And winter is coming.

This is a terrible conundrum.

If pension funds aren’t able to meet their financial obligations to future retirees, and conventional investments are unable to produce strong results, how is anyone supposed to adequately save for retirement?

Again, this demands independent and unconventional thinking.

My goal this week is to introduce you to some different ideas that may help.

As an example, look again at Zac’s apartment: he bought a high quality real estate asset for less than its cost of construction.

Understandably, this is not a great fit for most people.

Being an absentee property owner in a country where you’ve never been and don’t speak the language is risky.

But consider the concept for a moment: buying a high quality asset for less than its cost.

Our team has been having a lot of success over the last few years applying this concept to financial markets.

Instead of buying an apartment for less than its cost of construction, we focus on buying shares of profitable companies that are selling for less than the amount of CASH they have in the bank.

That’s not a type-o.

Most stocks these days trade at absurd valuations. Netflix is a Wall Street darling. But its stock trades for an astounding 18x book value, and 328x earnings.

Unbelievable.

However there are corners of the market, particularly with smaller, lesser known companies, where shares sell for well-below book value, and even less than cash.

You can check this for yourself by looking at a company’s balance sheet (all public companies’ balance sheets are available online).

You’ll see the line item “cash and cash equivalents” in the asset column. That’s the amount they have in the bank.

Then subtract any long-term debt they might have indicated in the liabilities column.

Then compare that number to the company’s market capitalization, i.e. the total number of shares (which is also listed in the balance sheet) multiplied by the current share price.

If a company’s market capitalization is less than the amount of cash they have in the bank, you are essentially buying cash at a discount. That’s a no-brainer.

If someone offered you a dollar, would you buy it for 80 cents? Yes please! As many times as possible.

It’s hard to lose money when you’re buying a dollar for 80 cents. And our team has been averaging returns in excess of 50% with this strategy, without having to take on substantial risk.

It seems odd that opportunities like this even exist. I mean, why would a company sell for less than its bank balance?

Clearly, that’s nuts.

Then again, it’s also nuts that the US government is able to rack up a debt level of $19,198,172,774,532.79.

Or that the Japanese government spends 41% of its tax revenue just to service its debt.

Or that banks can hold as little as 1% of your deposits in reserve.

Or that interest rates in many parts of the world are NEGATIVE.

There’s so much in our financial system that’s completely insane. At least you can make money from part of it.

Bear in mind, these deals are rare– but they do exist. We’re finding several of these right now in Australia… and that leads me to another unconventional investment idea.

More on that tomorrow.

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

“So there is another reason why Europe isn’t growing and it’s one the central bank can do nothing about. Namely, the 19 governments of the Eurozone and the super-state in Brussels have essentially outlawed it. If you want to know why growth is so tepid just examine the Eurozone’s massive barriers to enterprise and work in the form of taxes, regulation, welfare state extravagance, crony capitalist subsidies and privileges and labour law protectionism.

In a word, the problem is not that private sector credit is too niggardly; it’s that the leviathan state has crushed the ingredients of supply side enterprise and growth. When the state budget consumes 50% of GDP, and its tentacles of regulation and intrusion penetrate most of the rest, the central bank’s printing press is impotent.”
– David Stockman.

The history of economic central planning is not exactly glorious. The Soviet Union’s economy finally collapsed in the late 1980s, but not before over 20 million of its citizens had been murdered. The People’s Republic of China started implementing meaningful economic reforms in 1978, after having terminated the existence of over 45 million of its own people. Central planning in Nazi Germany was admittedly successful in bringing down the domestic unemployment rate, but the success of its wider economic legacy is debatable. Günter Reiman in ‘The Vampire Economy: doing business under Fascism’ highlights the process involved in, for example, a German carmaker of the regime purchasing 5,000 rubber tyres:

The process culminates in the delivery of 1,000 rubber tyres and 4,000 ersatz tyres, albeit after five months.
Ludwig von Mises, in his magnum opus ‘Human Action’, wrote on ‘The impossibility of economic calculation under socialism’:

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

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

But Marxist economic theory has other strings to its bow. It has not just murdered tens of millions of people, bankrupted entire nations, and provoked international warfare. It has also provided employment for literally dozens of economists at British universities and newspapers.

Mario Draghi, the unelected Goldman Sachs alumnus now attempting to macro-manage the Eurozone economy via the European Central Bank, was engaged in a bitter-sounding spat with German politicians last week. Germany’s finance minister, Wolfgang Schäuble, had made the not unreasonable assertion that

“It is indisputable that the policy of low interest rates is causing extraordinary problems for the banks and the whole financial sector in Germany. That also applies for retirement provisions.”

Draghi’s response was robust, albeit progressively disingenuous:

“We have a mandate to pursue price stability for the whole of the Eurozone, not only for Germany. We obey the law, not the politicians, because we are independent, as stated by the law…”

It also became progressively political:

“With rare exceptions, monetary policy has been the only policy in the last four years to support growth.”

But neither Mario Draghi nor the European Central Bank has a mandate to support growth. That is not his job.

David Stockman again:

But here’s the thing. The world’s greatest monetary charlatan is nearly out of tricks. He pointedly backed off from helicopter money today because the Germans have obviously drawn a line in the sand. And he can’t push NIRP much farther without breaking what remains of Europe’s sclerotic socialist banking system. And if he tries even more negative carry money under TLTRO it will assuage the margin pressure on European banks but not make the Eurozone’s debt besotted households and businesses a wit more credit-worthy or inclined to borrow.

Mario Draghi is not acting in isolation. The world’s major central banks are now acting entirely outside whatever spurious authority they believe they have amassed for themselves – undemocratically – since the Global Financial Crisis first ignited.

The mandate of the US Federal Reserve System, for example, is “to provide the nation with a safer, more flexible, and more stable monetary and financial system”. After over a century of Fed overseen credit cycles and banking crises, it is legitimate to ask: safer and more stable compared to what?

As the American economist Thomas Sowell points out,

Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it.

Someone should tell Mario Draghi, perhaps.

But in the business of fiduciary investing, we are tasked with operating in the financial world as is, not the financial world as we would like it to be. The financial world as is, is a world of negative interest rates, typically overvalued financial assets and increasingly arbitrary monetary policy. Not an easy world in which Mises’ hero, the entrepreneur, can comfortably operate. But try, he must. The entrepreneur might justifiably counter that the future is never certain.

The asset allocator is tasked with a similar problem. How can one sensibly invest when all prices have been distorted and no prices can be taken at face value (assuming they ever could)? The answer, surely, is to focus solely on those areas of the global marketplace which have the characteristics of high quality, matched by the attributes associated with the possession of a ‘margin of safety’. Along with an association with high quality, ‘margin of safety’ in the financial markets of 2016 implies very specifically the absence of conspicuous overvaluation. Bonds no longer qualify in any real sense, but value equities still do. Happily, investible pockets of them still exist, despite the best efforts of the arch-exponents of mission creep to demolish the working economy.

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My grandfather was something of a Renaissance Man.

He was a farmer, schoolteacher, fisherman, collector, real estate investor… and one of those guys who always seemed to know how to do everything.

He could take apart an engine, build a house with his bare hands, tame wild horses, treat life-threatening wounds, play the guitar… and he was extremely well respected in his community.

Plus, like many from his generation who grew up during the Great Depression, he was also a prolific saver.

Being highly mistrustful of banks, my grandparents dealt mostly in physical cash. They used to keep money in old coffee cans stuffed full of coins and bills.

Every now and again when the coffee cans became too numerous, they would buy government savings bonds.

Of course, that was a different world.

When my grandparents were saving, the government was actually solvent, and interest rates were ‘normal’. You could buy government bonds and expect a decent rate of return.

Plus the dollar was still linked to gold back then, so you could have a confident outlook on your currency.

At the same time, Social Security was also in good shape; you didn’t have to worry whether it was still going to exist when it came time for you to retire.

Sadly, it’s no longer the same today.

As we discussed on Friday, Social Security in the Land of the Free has a shortfall exceeding $40+ TRILLION according to its own annual report.

Simply put, this means that Social Security woefully lacks the funding to meet its obligations, particularly those to America’s future retirees.

This isn’t a problem strictly with Social Security either; one of the major Medicare trust funds (Disability Insurance) is literally days away from going completely broke.

And as the Financial Times reported recently, city and state pension funds across the United States have another multi-TRILLION dollar funding gap.

Nor is this problem distinctly American; the same conditions broadly exist across most of the developed world, especially in Europe.

So relying on just about any western government’s retirement program is an absolute sucker’s move.

Yet even if you take matters into your own hands and save for retirement on your own, you’re fighting an uphill battle at best.

Zero (or negative) interest rates around the world have practically destroyed any reasonable expectation of savings.

When my grandfather was saving, for example, he could buy a 1-year US government bond yielding 4% at a time when inflation was 1%.

That’s a 3% return when adjusted for inflation. Not huge, but for him it was risk free.

Today, the latest government report shows the US inflation rate at 0.9%; yet that same 1-year US government bond yields just 0.53%.

In other words, today you lose more money to inflation than you earn in interest.

So saving money guarantees that you will LOSE after adjusting for inflation, at a time when the US government’s finances have never been more precarious. Crazy.

According to Blackrock CEO Larry Fink (the largest money management firm in the world), people today have to set aside THREE TIMES AS MUCH money to save for retirement as their parents and grandparents did because of these low interest rates.

So not only are you facing a no-win situation with government retirement options like pensions and Social Security, but even saving money on your own requires three times as much sacrifice.

How is someone supposed to put their kids through an astonishingly expensive university system, pay for the shocking cost of medical care, AND set aside three times as much for retirement??

It almost sounds impossible.

Now, this isn’t intended to be a downer. What I really hope to point out is that CONVENTIONAL options and strategies just don’t work anymore.

Buying ‘risk free’ bonds, dumping money in a mutual fund, and waiting for the government pension to kick in just won’t produce the results that it used to.

The truth is there are entire asset classes and niche investments out there that can generate vastly superior rates of return without having to take on substantial risk.

And best of all, these niche assets and corners of the market are only available for smaller investors.

If you buy big, conventional blue chip stocks and funds, there are dozens of ways you’re getting fleeced by Wall Street and City of London.

High-frequency traders, re-hypothecation, bank solvency issues, collusive price fixing, etc. Finance is a big insider boy’s club… and we’re not in it.

But niche investments are way too small for these giant sharks.

Goldman Sachs is probably not going to get into the Burmese art market anytime soon. And that’s not even a good example.

This week I’d like to introduce you to some incredibly compelling, unconventional, yet simple ideas and strategies that could put you back in control and achieve real financial independence.

More soon.

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Ever since I was a kid, I always knew that cancer runs deep in my family.

My father died more than a decade ago of a horrible brain tumor. His father had cancer. Both of my mother’s parents died of cancer.

I knew all of this before I even understood what cancer was.

Not willing to leave the issue to genetic luck, though, my mother started educating my sister and I to make healthy decisions even when we were very young.

And I’ve heeded these lessons throughout my life. I almost exclusively eat healthy, vitamin-rich, organic food (most of which I grow myself here in Chile). I don’t smoke. I avoid anything toxic.

Most of all I keep educating myself so I know what the best options are at any given time, including those that fall outside of the mainstream.

I don’t feel like I’m any worse off for taking basic steps to educate myself and make healthy decisions to reduce a fairly obvious risk.

I was thinking about this the other day when I read an article in the Financial Times about the “disastrous” $3.4 trillion funding hole in the United States public pension system.

To be clear, they’re not talking about the Social Security mess. That’s an additional $40+ trillion funding shortfall.

The $3.4 trillion gap is referring primarily to city and state pension funds; these pension funds essentially have way too many liabilities and obligation, with too few assets to support them.

And the problem gets worse each year.

Now, pension funds in the Land of the Free are supposed to be backed up and insured by a federal agency known as the Pension Benefit Guarantee Corporation (PBGC).

The PBGC is sort of like the FDIC for pension funds.

There’s just one small problem: in addition to all of these city and state pension funds that are under water, the PBGC is INSOLVENT.

In its most recent annual report, the PBGC (which ensures the pension funds of more than 40 million Americans), showed net equity of NEGATIVE $76 billion.

So not only do these pension funds need a bailout, but the government organization that is supposed to insure the pension funds needs a bailout…

… and all of that is in addition to the $40+ trillion Social Security shortfall.

By the way, if you’re thinking “whew, I’m glad this only applies to retirees in the US”, think again. MOST western nations are in a similar position.

In the UK, for example, the British pension fund gap is at a record high 367 billion pounds. Across Europe the pension fund gap exceeds 2 trillion euros.

There are only two ways out of this:

1) Your taxes are going to go up. Big time.

Cities and states are going to have to steal more of your money in order to plug these holes.

(And for that matter, the US federal government will have to do the same thing with Social Security.)

2) They’re going to default on their obligations to taxpayers.

It’s also likely that, at a certain point, governments will simply change the rules.

They’ll either cut benefits, cancel them altogether, or change the age of eligibility when you can start receiving benefits.

Needless to say these circumstances present a fairly credible risk to people’s retirements.

Yet while you can’t do anything to fix your bankrupt government or their unfunded pension programs, you can reduce the risks and their impact on your own life.

Finance is a lot like health in that way.

Many people unfortunately ignore obvious financial risks, just like obvious health risks. This is a bad idea.

Clearly there are a LOT of things that we cannot control or predict in both health and finance.

But when faced with such obvious risks, it’s easy to take sensible steps to get them under control.

This includes consistently making financially healthy choices, seeking strong financial education to really learn about investing and retirement planning… and thinking out of the box to consider investment options that aren’t so generic and mainstream.

We’ll talk more about some of these options next week.

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Chances are you’ve never heard of Chuck Feeney. And he’s worked very hard to keep it that way.

Feeney, who will turn 85 on Saturday, had an incredibly successful business career, amassing a multibillion dollar empire based primarily on duty-free retail shopping.

I know what you’re thinking: he already sounds like a bad person… earning a vast fortune by enabling shoppers around the world to avoid paying sales tax and VAT.

This alone constitutes an almost incalculable loss of government tax revenue that could have clearly been much better allocated to more wars and bombs!

But it gets worse: Feeney himself became the poster child of offshore tax avoidance.

According to Forbes, this nefarious tycoon “has aggressively tried to avoid taxes at every stage in his career– from setting up his early business in Liechtenstein, incorporating his holding company in Bermuda. . .”

What a surprise… another rich a-hole abusing offshore tax havens in order to keep all of his wealth for himself.

So on top of helping shoppers around the world avoid paying sales tax and VAT, this guy easily bilked the US federal government out of billions of tax revenue.

It breaks my heart to think about all the government programs that weren’t funded as a result of his selfishness.

Just this morning, for example, I was reading about a bold initiative at the National Institutes of Health (NIH).

There was critical research conducted last year where the NIH studied twelve monkeys running on treadmills inside special exercise balls at the Southwest National Primate Research Center.

Needless to say the results of this study are truly game changing for society. I mean… monkeys on treadmills, guys!

We now know, for example, that one monkey vomited, and three others “defecated in their exercise ball”.

What tremendous courage and vision these bureaucrats must have had in putting such a study together.

Unfortunately the program was only granted a paltry $1 million budget, or roughly $83,000 per monkey.

Just think of how many more monkeys could have been observed vomiting and defecating in their exercise balls had Chuck Feeney not been dodging his taxes! It’s a real travesty.

You’re probably wondering how many Ferraris this depraved billionaire has added to his collection over the years…

Well, none, actually.

He’s flown millions of miles in coach, wears a cheap Casio watch, and crashes at his daughter’s apartment when he visits New York City.

It turns out that Chuck Feeney has spent the last few decades giving away his entire fortune to the point that he makes Bill Gates look like an amateur.

Feeney transferred his business interests to his charitable organization in 1984. And for the last 30+ years he’s given away nearly $8 BILLION through the foundation.

Given that Feeney’s personal net worth is now roughly two million bucks (million with an ‘m’), that means he’s given away 99.98% of his wealth.

While the US government has been using your tax dollars to bomb children’s hospitals by remote control, Feeney has been building them.

He has endowed entire universities, funded cancer research, invested hundreds of millions in AIDS benefit to Africa, built a $300 million medical center in California, and developed a new technology hub on New York City’s Roosevelt Island.

He’s made life-changing donations across the world—Australia, Vietnam, the United States, South Africa, Ireland, etc. that have improved the lives of countless individuals.

These aren’t the actions of a narcissistic robber baron.

And yet much of this was made possible by Feeney’s aggressive tax avoidance. He saved billions of dollars that would have otherwise funded the government’s destructive waste.

The entire concept of taxation is grounded in the idea that some politician knows how to spend money better than you do.

But Feeney opted for a different path: taking completely LEGAL steps to stay in control of his savings and make a huge difference in people’s lives.

As we discussed yesterday, the government and media are force-feeding us a narrative that anyone who tries to take control back is some terrible villain.

It’s as if we’re living in the Dark Ages as feudal serfs obliged to serve the nobility.

What a sad mentality.

The truth is that YOU control your life, your income, your assets… not some politician that’s going to squander it on wars.

You decide how to raise and educate your children, or what you should / should not put in your own body… not some bureaucrat who watches monkeys defecate.

That’s what being a Sovereign Man is all about: control.

And the sooner people start taking it back from their governments-gone-wild, the better, more peaceful, and more prosperous the world will be.

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