Special Guest: Mark Nestmann – Lawyer, International Taxation Law

After establishing a noted career in international investment, Mark Nestmann left the US for three years to study for his “Master of Law” (LL.M.) degree in international tax law at the Vienna University School of Economics and Business Administration in Vienna, Austria. This is an indication of the seriousness and rigor with which Mark tackles issues in International Taxation for his high net worth clients. He shared his views with the FINANCIAL REPRESSION AUTHORITY in this exclusive interview.

FOREIGN ACCOUNT TAX COMPLIANCE ACT – FATCA

Passed in 2010 and hidden as part of a “Military Pensions Act”, no one fully understood what it meant or paid much attention to it.

“The Foreign Account Tax Compliance Act, is one of the most arrogant and one-sided laws ever passed by Congress. The idea behind FATCA, which Congress enacted in 2010, is simple: Demand that other countries enforce America’s imperialistic tax laws. And do so by the confiscation of foreign assets, if necessary.” – Why FATCA Is a Train Wreck Waiting to Happen – Mark Nestmann

“What is happening is foreign financial institutions (which is defined very broadly in the act) under the law are required to identify their US clients and force their US clients to self identify and turn over information to the IRS.”

“If the banks or countries don’t comply then 30% of their US source income (and in some case 30% of source gross sales revenues) of things like stocks, bonds, CDs etc are withheld – this is a pretty big number! The only way banks can avoid the 30% withholding tax is to essentially act as unpaid IRS informants.”

“Not surprisingly, FATCA and numerous other laws that require FFIs to enforce US money laundering, anti-terrorism, and securities regulations have led most of these institutions to fire their US clients. Perhaps one in 10 – and possibly fewer – non-US banks still permit US citizens or permanent residents to open accounts. That leaves little choice for Americans but to deal only with banks that have agreed to toe the IRS line.” – Why FATCA Is a Train Wreck Waiting to Happen – Mark Nestmann

“Non US persons investing in the US are also effected by FATCA. If their foreign bank don’t comply their US investment is whacked 30% as well – It isn’t just Americas who should care about this but basically everyone in the world!”

This is not a good time to have unreported financial accounts in countries that have already signed FATCA agreements with the US, or are about to. If you’re in this situation, you might want to seriously consider retaining a tax attorney to enroll you in the IRS’s latest Offshore Voluntary Disclosure Program.

PASSIVE FOREIGN INVESTMENT COMPANY – PFIC

“PFIC is another aspect of Financial Repression and aspect of regulatory restrictions on investment choices.”

“If you have an investment vehicle registered outside the US the IRS will consider it a PFIC. As an example of the way this tax is very unfavorable is that unless an offshore Mutual Fund qualifies as a US Mutual Fund when you sell it (or deemed to sell it) you have to file not only a return on the income by also a “throwback” interest charge for EVERY YEAR you held the fund. Additionally the tax rate is computed at the highest marginal rate in that year!”

“What happens is that people who held offshore mutual funds for a long period of time windup losing every penny of income in that fund because it is paid out in taxes and interest penalties.”

… there is much, much more in this 26 minute video interview covering:

• CITIZENSHIP TAXATION (including the absurdity of 1986 Tax Legislation for “Mars”??)
• UNOFFICIAL CAPITAL CONTROLS NOW IN PLACE,
• US 2008 “EXIT TAX” (for citizens and Green Card holders on unrealized gains),
• INHERITANCE IRS TAX GRABS,
• THE NEW EX-PATRIOT ACT,
• INVESTING ABROAD,
• THE RATE OF ACCELERATION OF RESTRICTIVE FOREIGN CHOICES FOR AMERICANS,
• THE GROWING MOVEMENT TOWARDS SECOND CITIZENSHIP PROTECTION,
• WHY THE LEGAL ABOLISHMENT OF CASH IS COMING.

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: John Mauldin – Financial Author, Writer & Publisher

FINANCIAL REPRESSION

“My recent book ‘Code Red’ was really all about Financial Repression. We were talking then about Currency Wars which has come to be played out. We were talking then about Central Banks driving down interest rates on savings to force retirees and savers into other types of investment and take more risk. They want them to move more out onto the risk curve which the central bankers believe will stimulate the economy. What they don’t understand is that taking it from savers, it takes it from their consumption behavior patterns.”

They are robbing from Peter to pay Paul, but in this case Paul is the banks and Wall Street Interests. It is not for the guy on main street.

“When the central banks start messing around with the markets they change the price of money and it has all sorts of unintended consequences!”

SEVENTH ANNIVERSARY OF ZERO INTEREST RATES

“This period of zero interest has created an extraordinary set of malinvestments as a result of unintended consequences. One example is they have money real cheap for Texas oil men. When you make money cheap for Texas oil men they punch holes in the ground. They moved out ‘onto the edge’. It created employment and drove rig prices up.” … “It changed behaviors, it changed how we think the world works – we will see how it works out!

BOND LIQUIDITY CRISIS

“Investors have been moving into high yield (HY) bonds. We are issuing risky HY bonds that are much more risky than 2007 with less covenants. Its like we didn’t learn anything! People feel they have to have more yield and can’t survive without it. We have bond funds where people are chasing longer duration bond funds. If interest rates on the long end of the curve grows by 1%, these longer duration bond funds (2 of the largest funds in the world) could lose 20%. Investors in 401K’s who see 20% losses will panic and hit the sell button. Because we wrote a bill called Dodd-Frank, which basically says you banks can’t get involved in providing liquidity to this market because we don’t want you to take the risk – they have shoved the risk to investors who will all try and get out the door at the same time!”

“It would not surprise me in the next crisis (and it will happen) to see the Federal Reserve step in and start directly funding Mutual Funds and ETFs trying to provide liquidity into a panicking market!”

A ‘SKYROCKETING’ DOLLAR

As John wrote in “code red” he sees a continuing strengthening in the US$.

“The dollar is going to get stronger than any of us can even imagine!”

“The BIS cites that emerging markets have borrowed some $9T in US$ terms.” As emerging markets weaken they must pay their loans in appreciating dollars. There is presently a mad scramble ensuing to cover this carry trade. Mauldin believes it will get even worse because of Japan.

“Japan is just continuing to print money. They are just going to print more money! When that doesn’t work they will print even more money. They have a sovereign debt crisis that the only way they can solve it to trash their currency and to move the debt they have generated from banks and pension funds unto the balance sheet of the central bank. That is their only solution. Today the 10 Year JGB market (it used to be one of the most liquid in the world) if the BOJ is not buying there are no trades! That is just shocking and is going to put pressures on currencies all over the world!”

“This is movie we just don’t believe will end well!”

LIKELY SCENARIO

1. A couple of countries have a major crisis,
2. It may possibly roll from country to country,
3. The Federal Reserve will supply SWAP lines to central banks around the world,

“Investors at this stage should start to consider what is their exit strategy!”

… and much more in the video discussion…. John gives his advise on what things investors must now be concerned with and how they should be preparing.

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: John Richardson – Lawyer, FATCA & Citizenship Counselling

FINANCIAL REPRESSION, FATCA & US TAXATION

JOHN RICHARDSON, is Canadian based lawyer with a specialized practice of US Taxation abroad for US Citizens. He is the publisher of the web site:citizenship solutions.ca. He tackles the following head-on with “no holds barred”!

You will never view US Taxation the same after listening to this 38 minute podcast.

– How citizenship taxation has made U.S. citizenship a disability in the modern world

– Why renouncing U.S. citizenship is an excellent investment for “U.S. citizens” not living in the U.S.

– How the U.S. “Exit Tax” triggered by renouncing U.S. citizenship operates to confiscate non-U.S. assets outside the U.S.

– How citizenship taxation imposes a “capital tax” on any country that has U.S. citizens resident in it

– How FATCA allows the U.S. to increase its tax based by expanding the definition of citizenship

– How FATCA lowers the international standard of human rights in the world

– How FATCA compliance costs will keep the poor countries poor

– The FATCA Sanction and the “Weaponization of Finance”

– FATCA English and FATCA Forms

– Why the U.S. will always prefer FATCA to GATCA

– FATCA and the future of the dollar as the major world reserve currency

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Ellen Brown – Founder of the Public Banking Institute, Author and Lawyer

Ellen Brown has written to popular books on banking, is the founder of the Public Banking Institute and ran for California State Treasurer in the last election. She knows a thing or two about banking. What she has to say is no pretty.

BANKING IS IN WORSE SHAPE

1. Loans for small business is harder to get,
2. Big Banks are lending less,
3. Big Banks have more derivatives than ever with 98% controlled by the big 4,
4. Small to Medium size banks are having more difficulties making loans because of Dodd-Frank and Basel III. (Rules which favor big banks).

The rules are effectively competitively disadvantaging the small to medium sized banks in favor of the banks who got us into the financial crisis in the first place and have the lobbyists to secure favorable advantages. It is the smaller to medium sized banks that have traditionally funded small business growth and innovation in America.

STEALTH BAIL-IN VERSUS BAIL-OUT PROVISIONS

In 2010 the congress moved to stop future bailouts but brought in “bailins”. In the future if the big banks fail due to risky loans they will be forced to recapitalize themselves but with unsecured creditor funds. This means using depositor funds who are the largest unsecured creditor class of the banks. The public is generally unaware of this shift.

“Cyprus-style confiscation of depositor funds has been called the “new normal.” Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk. Derivatives have “super-priority” status in bankruptcy, and Dodd-Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line. 

WHY NEGATIVE NOMINAL BOND YIELDS?

Ellen suggests that the reason we are seeing $5T in Sovereign Bonds now trading with negative nominal yields is because the larger banks need them for collateral in the Repo market. The Fed has reduced the availability of bonds and the banks need the bonds for leverage. They simply don’t mind paying a small price to obtain the lending leverage.

PROFITS IN DERIVATIVES

As Citigroup CEO Chuck Prince so infamously cited prior to the 2008 Financial Crisis, “you have to get up and dance while the music is playing!” Today Ellen believes the pursuit of yields and use of derivatives is about short term profits with little regard to the longer term issues where depositors will be on the financial hook. The banks senior secured debt holders now receiving large interest fees will once again be protected. Shareholders, depositors and those lower on the capital structure will be the losers.

OTHER SUBJECTS

• The secretive issues with the stealth TPP (Trans-Pacific Partnership),
• Campaign finance, big money and running for public office,
• A public bank solutions and the North Dakota model,
• Coming Infrastructure spending,

…. and much more in this 32 minute video.

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Mark Thornton PhD – Senior Fellow Mises Institute

ACCUMULATION OF DEBT

Debt levels are now at critical levels:

• Excess accumulation of debt has become a critical burden to the productive capacity of the global economy,
• Significant levels of global investment is presently malinvestment,
• Excess global capacity has been used to produce none-productive assets,
• Lack of Price Discovery and Mispricing of Risk are distorting economies and investment behavior,
• Many parts of the economy are fragile and a recssion is now knocking on the door of the US,
• …. and more

AUSTRIAN PRESCRIPTION

• The Federal Reserve needs to get out of the interest rate markets and allow the markets to work properly,
• The Federal Government needs to balance budgets and cut back spending tremendously,
• The Government needs to signal to markets particpants that they are not going to see their taxes increased significantly,
• The Government needs to demonstrate they are going to do something about the national debt and unfunded liabilities.

These policy positions would begin to incent investment very quickly.

The Central Problem is Unsound Money

FINANCIAL REPRESSION

“A financial scam of the government over the private economy … It is aimed at taking advantage of their citizens, savers and investors.“

Government authorities are:

• Printing money,
• Issuing enormous amounts of debt,
• Suppressing interest rates,

.. all with the intention of exploiting the worker and inflating the value of the goods they buy, as wages fail to keep up. Savers are now receiving negative real rates of returns which is the government extracting resources for themselves at the expense of the common man.

WAGING WAR ON SAVERS

WINNERS: The policies of Financial Repression help:

• Banks
• Large Corporations,
• Government,
• Large Borrowers,

LOSERS: The losers are:

• Savers,
• Consumers,
• Producers,
• Laborers,
• Entrepreneurs

POLICIES: The world wide economy is suffering as a result of the policies which include:

• Inflation,
• Zero Interest Rates
• Quantitative Easing,
• Heavy Regulation (Healthcare and Banks)

This is an enormous problem in the modern context.

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Jim Puplava – Founder, President & CEO, PFS Group

SPECIAL GUEST: JIM PUPLAVA is the Founder, President & CEO of PFS Group. He is also the chief author and host for the Financial Sense Newshour. Puplava’s website at financialsense.com was named a “supersite for alternative investing” by The Globe and Mail, Canada’s largest-circulation national newspaper.

Jim Puplava was one of the first researchers to go public with the concept of Financial Repression and the Financial Repression Authority wants to recognize him for this. After studying the writings of Rogoff & Reinhart, Jim Puplava identified shortly after the Financial Crisis the fact that policies of Financial Repression had been used after WWII with success and began writing and talking about them. He was a long voice on the subject.

The difference today and the previous situation after WWII is:

The US is n o longer on Gold Standard (we now have a Global Fiat based currency system),

1. Most developed economies have record Debt-to-GDP levels,
2. We now have record levels of Derivative and Securitization which didn’t exist after WWII,
3. Globalization has changed the level of financial interconnections and dependency.

FINANCIAL REPRESSION

Jim Puplava suggests:

“Financial Repression in essence is a tax on savers! Savers are getting real negative interest rates (before taxes). The work of Keynes advocated robbing savers to the advantage of the government. The losers are savers while the winners are debtors and the government”

PUBLIC IS UNKNOWINGLY CONTRIBUTING TO FINANCIAL REPRESSION

The stock market has seen a net $60-$80B go into the stock market since the rally began after the financial crisis. “The vast majority of individuals have been going into bond funds which by the way is part of the plan of Financial Suppression”.

“Most investors have gone through two bear markets in the last decade where stocks lost 45%. They are now closer to retirement than they used to be and don’t want to go through that again!”

As such they missed out on a historic market rally. “If they had held the course they would be ahead. The vast majority of people kept their money in savings because the headlines were scary.”

“The media did an exceptionally poor job of explaining what was going on in the financial markets. Instead of telling people they needed to capture or take advantage of what Financial Repression was putting into place. Financial Repression supports growth type assets like stocks and commodities (initially coming out of 2009). This is how you re-capture (the prior market draw-downs). That is not what happened.”

A BROAD RANGING DISCUSSION

The broad ranging discussion in the 35 minute interview include:

• Market drivers of Corporate Buybacks and broad Central Bank buying,
• Outlook for bond rates,
• Why Warren Buffet has 90% of his investments in equities,
• The scope of taxation on savings and what it means to future retirement planning,
• Economic growth and top line growth is not there so corporations are doing “rational allocation of capital”. This is presently driving corporate policy.
• Fiscal Policy is missing from the governments economic agenda,
• Critically important is the impact of demographics and changing Millennial buying patterns,
• Financial Repression will likely go on for a couple more years before it inevitably breaks.
• …. and more

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Richard Duncan – Macro Watch

FINANCIAL REPRESSION

“The Polices that come under the heading of Financial Repression I look at s policies that were necessary once the global bubble began to implode in 2008. The policies the Government, the Fed, the US Treasury, and Central Banks around the world have been putting in place are emergency measures just to try and prevent the next Great Depression from occurring. When you add all these measures together it has become to be known as what is called Financial Repression. I don’t think the policy makers consider don’t review it as repressing anything. They view it as measures that are absolutely crucial to keep the global economy from absolutely imploding. While there are some unpleasant side effects, (like savers not earnings enough money to retire), they view the alternatives as complete economic breakdown which would be far, far worse!”

“Policy makers consider these policies as the bare minimum to prevent the global crisis from becoming the Great Depression – Part II!”

A GLOBAL BUBBLE

“We have a global bubble which started to pop in 2008, but the policy response of trillions of dollars of budget deficit, financed with trillions of dollars of new fiat money creation has succeeded in keeping the global bubble inflated. We still have a massive bubble who’s natural tendency is to deflate. In order to keep it from deflating into the Great Depression policy makers have continued to inject more credit! This is what Quantitative Easing is all about.”

GOVERNMENT NOW “MANAGES THE ECONOMY”

Richard Duncan’s basic premise is that the government has been managing the economy since at least WWII and to make money investors must anticipate what the government is going to do next. As such he uses a framework to monitor liquidity and credit growth to see how they will impact the economy and force the government into what must be done to continue to manage the growth of the economy.

The broad ranging discussion includes:

• Developed Economies Stealth Strategy of Government “Debt Cancellation”
• The Potential of a Recession in 2015 /2016,
• Expectations of a QE4
• Reasons for $5T of Global Bonds trading at Negative Nominal Rates,
• Global Deflation as a result of Globalization and the resulting Global Over-Production,
• …. and more

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Egon von Greyerz – Founder & Chairman

RISK & WEALTH PRESERVATION

UNDERSTANDING RISK & WEALTH PRESERVATION

“Wealth Preservation is absolutely critical for the coming years, or even decades and was we set up a special division within Matterhorn Asset Management called GoldSwitzerland to assist investors. We store primarily Gold and Silver outside the banking system in ultra secure vaults in Zurich and the Swiss Alps (which is both the largest and most secure gold vault in the world) along with Singapore and Hong Kong with clients in over 40 countries which includes individuals, family offices as well as institutional clients.”

“We intentionally remove ourselves from counter-party risk. We facilitate the investment in precious metals for investors but the metals are held in the name of the investors and therefore they can go to any of the vaults directly (even without our assistance). GoldSwitzerland is the only company in the world that offers this facility where clients have numbered bars in their own name where they can go directly to the vault to inspect them or withdraw them directly.”

UNPRECEDENTED GLOBAL RISK

“I believe the world is in a bigger mess than I have seen going back in history! The risks are absolutely unprecedented with virtually every major economy now bankrupt. Japan in my view will not survive as an economy and will ‘sink down into the Pacific Ocean’. They are living on borrowed time and sadly at some point in time the Japanese economy will implode. Additionally we have massive problems in China where borrowing has been increased by $20T in the last few years. Europe has no solution to Greece and the Euro is the biggest problem to the world. You add to these Economic risks those of Geo-Political risk and risk is immense!”

“The Black Swans are everywhere and at some point one of them will land somewhere.”

WHY GOLD AS INSURANCE?

“Throughout history gold is the only money that has actually survived. No other form of currency has survived.

VOLTAIRE: “Paper money eventually returns to it’s intrinsic value of zero!”

MARK TWAIN: “Investors should worry about the return of their investment and not on the return on their investment!”

“I am not a gold bug. It is just that we decided in 2002 the world was in a mess and it was going to be in a bigger mess. Therefore people needed to invest directly in gold outside the banking system and preferably outside their own country of residence.”

THIS COMPREHENSIVE 35 MINUTE VIDEO COVERS MANY ASPECTS OF PRECIOUS METALS INVESTING

…. WHICH ONLY ONE OF THE WORLD’S LEADING EXPERTS CAN OFFER

• Paper markets are manipulated,
• Central Banks do not have the gold they say they have because of leasing contracts,
• Produced and refiners are at maximum production based on demand,
• Meanwhile, Gold is trading at or near its cash cost,
• The more government mis-manage the economy, the more important gold becomes,
• … and much more

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Graham Summers – Chief Market Strategist, Phoenix Capital Investment Research

FINANCIAL REPRESSION

“When I think of repression I think of the Psychological concept that repression is the suppression (or pushing back) of something that is too painful to deal with in sort of a conscious way. That is exactly what the central banks of the world have been doing essentially since 2008. What we had in 2008 was the beginning of a debt deleveraging cycle o the dreaded debt deflation. The economists often like to argue that deflation is terrible but they are being overly general because deflation is actually a wonderful thing (we all want to have things we want to buy be cheaper) but the issue for the economists or Keynesian’s is ‘debt deflation'”.

When debt begins to deflate you run the risk of becoming insolvent particularly in the bond market.

“Because we have been in this debt leveraging cycle for over 30 years ( a bond bubble would be the simplest way of putting it) the central banks are all terrified of a bond bear market because that means that almost instantly all developed nations are bankrupt because the way they have papered over the decline in living standard is by issuing more debt. It has gotten to the point now where because we don’t have the money to pay the debt back we are issuing new debt to roll over the old debt (or pay back the old debt).”

“It sounds like a Ponzi scheme and it actually is! It works relatively well while the bond or underlying asset is rising in value because the debt is getting cheaper and the yield is falling

“When it reverses if you don’t have the money to pay back the bond so you start to enter a deflationary cycle which is what we had in 2008.

WATCH WHAT THE FED DOES – NOT WHAT IT SAYS

“Most of what the central banks talk about is nonsense. If you watch their actions it is about how do we stop the bond bubble from blowing up? They have done that by three ways:

1. They cut interest rates down to zero. By doing this they made it much easier to finance debt.
2. They began engaging in Quantitative Easing (QE). They essentially print money and buy large assets from the banks. It started out as Mortgaged Backed Securities (MBS) because they were the assets devaluing fastest. The second and third rounds were just attempts to keep the whole thing afloat. By Buying bonds you are basically broadcasting to the world I am going to be buying this asset in the near future. The most obviously trade is then for you to buy the bond before you and then turn around and sell it to you for a profit. Globally investors have essentially been front running the central banks.
3. They suspended accounting standard. This was so banks weren’t forced to sell devaluing products but could maintain using them as collateral at higher required values.

“Essentially Repression was the Central Banks trying to repress the terror of debt deflation!”

“All of this has manifested a sort of financial perversion where you seeing capital doing all sorts of crazy things and flowing into areas it would have never gone to before because risk has been so mis-priced by the market.”

Troubling Issues

• $555T INTEREST SWAPS
  • All Interest Swaps are trading “hinged” on Bond Collateral which is in a massive bubble,
  • Something may be up when the Plunge Protection Team takes up increasing residence in Chicago where Bernanke is now consulting to Citadel (the largest High Frequency Trading player in America) also in Chicago.
• $72T SHADOW BANKING
  • The source of the 2008 Financial Crisis has mutated to new instruments to borrow short to finance Student Loans and Car Loans. The Shadow Banking Systems now “hinges” on Repos, Collateral Transformations and Rehypothecation.
• USD CARRY BLOWING UP
  • The $9T US$ carry Trade is hinging on ~$5T in merging Markets which ar now on the wrong side of the trade as the US dollar spikes,

“When it gets serious you can expect the central bankers to lie!“

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: John Browne – Senior Market Strategist, Euro Pacific Capital

FINANCIAL REPRESSION

“It is the financial repression of the ordinary individual in America. It is happening through three main avenues or arteries.

1. POLITICALLY – The government is increasing its power almost everyday and repressing the public individual and particularly the rights of the individual. Always under the guise that it to help you! Published statistics are highly questionable; growth rates, inflation rates, unemployment rates. They are confusing people and today I read how they are forcing people out of using cash!
2. ECONOMICALLY – We have had an enormous, unprecedented injection of cash into the economy with a $3.8T QE program. Its an experiment! It was initiated in Japan where two decades ago the BOJ said it wouldn’t work but the politicians insisted they do it. After two decades it still hasn’t worked. We are now doing it on a grand scheme without a pilot program. It is creating a (liquidity) trap. It is a major distortion and is crushing savers.
3. FINANCIALLY – ZIRP is (also) crushing savers! It is savings which forms investment for the future. 62% of employment comes from small businesses where formation must be incented. That needs capital from savings. This along with increasing regulation is not only killing the consumer but the incentive to start a small business which is the key to the creation of jobs, which is key to the creation of income which is then key to savings and growth in the economy. It has all been killed by these policies.

“I don’t believe the central bank is necessarily evil, just unbelievably Irresponsible!

LIQUIDITY TRAP

“I think we are now seeing a situation which you could call a liquidity trap. There is so much money around that if they start to raise interest rates they are going to discourage people even more from spending. Ordinary individuals have low wages (wages have been flat for six years at least) yet taxes are going up (the number of taxes) as well as charges (licenses and fees)”

“They are pushing on a string. It isn’t liquidity that matters but wages and income!”

“How does the Fed create income without just giving us cash in the post (mail) by just sending us checks?

BY DESIGN

“I’m afraid I believe at the very top it is devious! If I connect all the dots together I cannot feel it is by accident – it by design. I think the president wants to distribute American wealth around America, but even worse is to distribute American wealth around the world. Its killing the economy and its kiliing America.”

“It means (eventually) everyone is going to look towards the government for solutions – that is when totalitarian governments come in (to existence)”

“The only solution is single term politicians – Turkey’s don’t vote for an early Thanksgiving!”

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Leo Kolivakis – Pension Analyst & Publisher, PensionPulse.blogspot.com

Leo Kolivakis brings a unique perspective to Pensions having worked on both the Buy & Sell side as a Pension Plan analyst.

TITANIC GLOBAL BATTLE

Kolivakis sees a titanic battle going on around the world between Inflation & Deflation with the world shifting due to demographics, private / public debt problems and a global jobs crisis. As a result he sees bond yields falling because it is resulting in no inflation. “The bond market is rightly concerned about tight fiscal policy and austerity in a world of low growth, low inflation (possibly deflation) for a prolonged period of time”. “I am more worried about what is going on in China .. if you have a boom-bust scenario in China, the potential to import deflation (ie through lower goods prices, currency devaluation etc) is a significant concern”.

PENSIONS IN PERIL

“I believe there is a Private and Public Pension Crisis in America that needs to be openly discussed by US citizens & politicians. The private savings crisis in America shows the median 401K balance is under $20,000 and somewhere around $76,000 for people 60-65 years of age. That is definitely not enough money to retire comfortably for the rest of your life!”

“In the private sector where corporations are cutting defined benefit programs and going to low cost defined contribution plans, there is another crisis happening.” People are being forced to take on the responsibility of pension investment management decisions.

“Individuals are now caring the risk of their retirement!”

“What people don’t realize is the shift to Defined Contributions is very deflationary. People simply don’t spend as much as they do on Defined Benefits when they have known fixed incomes.”

PENSION POVERTY

1. DEFINED BENEFITS – A massive underfunding problem between $7 – $10T
2. CONTRIBUTORY BENEFITS – Median 401K Levels of $18,400 are ‘orders of magnitude’ short,
3. SELF FUNDING – IRA and Roth Plans are not earning the levels of income required for retirement. Market draw-downs have seriously impaired long term growth,
4. SAVINGS RATES – Falling Real Disposable Income is increasingly limiting already extremely low personal savings rates.

GOVERNANCE PROBLEMS

“There is a huge problem with the Public Pension Funds in the United States. The problem focuses around the governance model. It is all wrong! They have way too much political interference. They don’t have proper pension fund plan managers that can take internal actions, lower the costs of the funds and … match assets with liabilities”

“The US needs to consider privatizing Social Security and creating independent investment boards.”

“What is going on in the US right now is you have a lot of investment consulting shops that are typically forcing these public pension funds to invest in very high fee, high risk private equity / hedge funds. That is fine for the Private Equity Funds and Hedge Funds but it is not in the best interest of these public pension funds. I don’t think it is. As a matter of fact I know it is not!”

“The US really needs to reform its Public Pension Plans. To introduce shared risk models so that the risk of the plan is shared between the stakeholders (i.e. the employees), the government and the pension. They need to reform the governance so they start to pay the pension plan managers properly to manage more and more of the assets internally”.

“Pension Investments Are Fueling Inequality! The migration of Pension Plans to Alternative Investments such as Private Equity / Hedge Funds are contributing to the growth in Inequality”

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Professor Guido Hulsmann – Professor of Economics, University of Angers, France

FINANCIAL REPRESSION

“Financial Repression is the name we give to all the different government interventions in which governments seek to improve their own bargaining position with financial markets.”

“As a consequence of Financial Repression (that is of government intervention) people use their savings differently than they would otherwise have used. Therefore different people benefit from those savings (most probably the government itself) to a greater extent than otherwise would have been the case.”

FINANCIAL REGULATION

“The most surprising developments have been regulation, like the Dodd-Frank Act, Basel III, FATCA. They are pretty intrusive. These regulations have been sold to the public as necessary to control the financial markets, which is certainly the case but this is one side, the other is precisely the cause. Governments control the markets and can force Insurance Companies, Banks, Investment Trusts to use their funds in a certain way that governments are then ready to benefit from. This is very often at the expense of the savers.”

EXPECTED TRENDS

INCREASED REGULATIONS

The amount of paperwork and red tape that will be required to comply with expanding regulations is already growing dramatically. “We already require by law in Europe, for example, for an Investment Fund to have a Risk Officer who reports directly to the Ministry of Finance. It is absolutely mind boggling and it makes it very difficult for people to continue doing business profitably – it makes it quite miserable unless you are a big firm!” “These rules boil down to squeezing all small and even medium sized businesses out of business!”

‘FORCED LENDING TO THE STATE OF FORCED SAVINGS‘

“I expect a trend that will become much larger and more important in the future is what I call “Forced Lending to the State of Forced Savings!” Professor Hulsmann sees Pensions as being a particularly attractive target for this sort of trend.

PRICE RIGGING

We have already seen this most evidently in the area of Precious Metals price rigging. “This is because they are the natural alternative to hold savings outside of Financial Markets and Real Estate Markets! Both are artificially bloated thanks to central bank policy.”… “it is natural that people turn to Precious Metals because there is no counterparty risk”.

LEGAL PRIVILEGE

“Under a fiat money standard, governments (or their central banks) may obligate themselves to bail out, with increased issues of standard money, any bank or any major bank in distress. In the late nineteenth century, the principle became accepted that the central bank must act as the “lender of last resort”, which will lend money freely to banks threatened with failure. Another recent American device to abolish the confidence limitation on bank credit is “deposit insurance”, whereby the government guar­antees to furnish paper money to redeem the banks’ demand li­abilities. These and similar devices remove the market brakes on rampant credit expansion.

According to Hülsmann, there are four groups of legal privileges granted by the state (usually more than one is granted):

• Legalized Counterfeiting – the promises of banks are allowed to be more “elastic”. For example, a coin marked “an ounce of gold” will be allowed to have any amount of gold or none, and can have any meaning. Banknotes were named “promises to pay”, but were obscure on the details.
• Monopoly – only some monetary products may be produced by law, like a specific metal; or only the banknotes or coins of a certain bank. This limits the freedom of choice of users of money and benefits the producers and first recipients at the detriment of others.
• Legal Tender is a money, that must be accepted in exchanges under a predefined price. Some monies may be driven out of the market due to Gresham’s Law.
• Legalized Suspension of Payments allows banks to avoid paying their obligations, while receiving payments from their debtors. If a bank is freed from contractual obligations to redeem its money and it is also legal tender, its banknotes become genuine paper money.

With legal privileges the banks are allowed to behave more irresponsibly, which increases moral hazard.

PERMANENT POSITIVE PRICE INFLATION RATE

“Without a Fiat Currency system it is impossible to create a permanent positive price inflation rate. With the gold standard the tendency for the price level was generally deflationary… a constantly declining price levels.”

“If you have declining prices then there is a very strong incentive for savers to not worry about any financial investments at all, but to just save in the form of cash … when you have constantly increasing prices… holding cash becomes suicidal for savers. You then have only two choices. Buy Real Estate or Financial Titles. You get promises of remuneration for your savings so you are partially compensated for the lose of purchasing power.”

“Deflationary Recessions are a healing process – it is what precisely gets the economy back in touch with the real world and allow you to move forward event more forcibly!

Please link to the page of our Austrian research seminar:

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Kristina Hooper – Managing Director, US Investment Strategist, Allianz Global Investors

FINANCIAL REPRESSION

What is financial repression?

Government actions (lower interest rates, increased regulations, etc.) to reduce debt while maintaining inflation

Goal: Create negative real (after-inflation) returns and inflate away public debt by forcing real rates below GDP growth

Why does it matter to investors?

It’s a “stealth tax” that systematically strips wealth; “safe” investments no longer generate enough income

It rewards debtors and punishes savers—especially retirees

Financial repression: It’s happening now around the globe

A Financial Repression checklist:

• Extremely low key interest rates and bond yields
• Central bank purchases of government bonds
• Political pressure on banks to purchase government bonds
• Nationalization of select banks
• Repression-friendly regulatory measures
• Restrictions on foreign capital movements
• Pension asset transfers to government

HOW TO ADJUST:

Cash alone may not cut it. Consider whether you are properly diversified to generate the income you need,

Add risk-mitigating strategies to provide downside protection and total return,

Consider moving a portion of your fixed income portfolio out of traditional instruments for income,

Look beyond traditional bonds for alternative sources of income,

Have adequate exposure to equities,

Use an actively managed multi-asset solution

Post-QE, Active Management will be key to uncovering growth opportunities.

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Peter Poockvar – Managing Director, Chief Market Analyst, The Lindsey Group

FINANCIAL REPRESSION

“Financial Repression is the artificial suppression of interest rates well below the rate of inflation and well below what they would be otherwise if set by the supply and demand for money. That is what should determine what the cost of money is!”

SUPPLY & DEMAND CONSEQUENCES

“The central banks are pressuring you to act today in some activity that you would otherwise have done tomorrow. They want you to buy a car today, they want you to buy a house today, they want you to buy that stock today – not tomorrow. It just pulls demand activity forward! When this begins activity in the short term accelerates both in terms of both economic activity and higher asset prices. At some point you reach a wall where you have pulled forward so much activity that you have reached the law of diminishing returns!”

“All of this has pulled forward future returns on asset prices, but that doesn’t stop asset prices from going higher! … “You get short term benefits but at the expense of long term costs. You pay for it over the long term.”… “What the central bankers actually end up creating is Deflation because of the excess capacity build-up to match the artificially created demand!”

We have Deflation presently in Commodity prices but in the US we have Inflation in Professional Services.

“Central Bankers have ‘mucked’ up the entire concept of Supply & Demand and price discovery. All the various inputs are ‘out of whack relative to where they would be historically!”

AT SOME POINT THE FED WILL LOSE CONTROL

“We know the Fed lost control of commodity prices. The Fed is trying to generate inflation and commodity prices have gone the exact opposite way! At some point they are also going to lose control of stock prices.”

“ECB QE was the final act of Central Bank Largesse!”

“There is literally Monetary Madness Going On!”

POTENTIAL FED RATE INCREASES

“This ends when Inflation actually starts to increase! When Interest Rates do start to rise and in affect take away the printing press of the central bankers. Right now Central Bankers have given themselves license to do what they want because at these low levels of inflation, but at some point the bond market is not going to be so accommodating!”

The Central Bankers are trapped in a policy they can’t get out of. It is ridiculous that after 6 years of ZIRP everyone is ‘freaking out’ over a mere 25 basis point increase.

The Fed’s academic econometric models are flashing red over labor market metrics. Therefore they will increase rates in June irrelevant of whether that is actually the right thing to do (assuming you believe the Labor numbers) . That is what guides them.

“The issue is not whether the Fed raises rates but rather the turbulence it causes and what it means to potential future rate hikes.”

A MAJOR CORRECTION IS POTENTIALLY JUST BEGINNING

The combined Fed tightening and a changed earnings picture suggest the basis for rising equity markets is no longer there. The Multiple expansion game is not there.

“How far we decline I am not sure. I am not sure where the Yellen ‘Put’ is. It is an ‘out of the money’ Put but I am not sure what the strike price is! I don’t know if it is 15% or 25% lower. I am pretty sure if we are down 20-25% Yellen will cut rates below where she has them after raising them in June. I would then not be surprised to see another round of QE.”

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Doug Noland – Credit Analyst

FINANCIAL REPRESSION

“Financial Repression is fundamental to current policy to try and sustain a global credit bubble… Policies have become ever more desperate as the credit bubble has gone global! It is a matter of policy makers distorting the incentives, especially the financial incentives. It is particularly painful for savers. Policy makers want to drive money out of savers into risk markets by creating incentives for speculation and leveraging to reflate the system and generate significant credit growth.“

“It is flawed economic doctrine, flawed policy making and goes back a long way.”

• After the 1987 Stock Market Crash the Greenspan Fed flooded the market with liquidity,
• We then had the late 80’s excesses and that bubble burst,
• In the early 90;s the Greenspan Fed came in and aggressively slashed interest rates and created a steep yield curve so the banks could borrow cheap and lend dear,
• It created leveraged speculation,
• We have been in serial bubbles ever since then. Each gets bigger and each post reflationary effort is even more extraordinary.
• The ‘Once in 100 Year Flood’ was not the 2008 Crisis. We are in an even bigger bubble now. It is a Global Bubble. It is at the heart of money and credit. When the next crisis occurs the policies of Financial Repression won’t have much of an impact unfortunately.

THE MARKET BASED CREDIT SYSTEM

“Back in the 1990’s I was obsessed with trying to understand how an impaired banking system from the early 1990’s morphed into this new age financial system that was fueling historic prosperity and a bull market. By the late 1990’s I was convinced we had fundamentally changed finance. That uniquely for the first time in history we had global credit that was unconstrained. The quality and quantity of credit was unrestrained. There was no gold standard, there was no Bretton Woods Monetary regime, there was not even any ad hoc. dollar reserve system to restrain credit. Unlike historically when credit was dominated by bank lending, this new credit that developed in the 1990’s was market based – securitization, Fannie Mae, Freddie Mac, Derivatives, Wall Street Finance. I was convinced that credit which is unstable would see this new credit highly unstable.”

“I believed the government would reign this credit in. I had no inkling that the government would accommodate this type of credit and use this type of credit for reflationary policy. That is really how it got away from them! Accommodating financial leveraging and speculation etc.”

WE HAVE DISREGARDED THE VULNERABILITIES OF CAPITALISM

“I am very much a free market person. I want the market to dictate price. As much as possible I want the government out of it. I look at the Financial Sphere and Economic Sphere. The Financial Sphere needs to be carefully regulated. You cannot have unconstrained credit! You cannot have a Financial Sphere that inflates at a whim because that distorts the pricing mechanism.”

“I fear that when the crisis collapses the system it is going to be folks like us and our listeners who will have defend Capitalism by saying:

“Capitalism wasn’t to blame. It was a run away Financial Sphere and poor Policy making in managing money & credit that was the culprit!”

Capitalism is not flawed but instead has vulnerabilities. We cannot disregard these vulnerabilities. These vulnerabilities are in Credit. We have disregarded the vulnerabilities within Capitalism. We have not separated the real economy pricing mechanism which operates very differently in the Financial Sphere.

This extensive discussion covers a wide range of subjects including:

• THE BUILD-UP OF SYSTEMIC RISK
• A CRISIS OF CONFIDENCE IS AHEAD
• WHY WE HAVE RECORD ARTIFICIAL HOUSEHOLD WEALTH
• FINANCIAL FRAGILITY – As long as Credit is expanding things looks good. But it camouflages the underlying financial fragility.
• 2008 WAS ABOUT PRIVATE CREDIT – THE NEXT CRISIS WILL BE ABOUT PUBLIC CREDIT
• THE GLOBAL BUBBLE HAS NOW BEEN PIERCED

“You can now expect the unexpected from Policy Makers”

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Marshall Auerback – Institute for New Economic Thinking (INET)

FINANCIAL REPRESSION

“Financial Repression can be a fairly loaded word. I think you can say that anytime you have a central bank which is a monopoly of anything, which can establish a price, you can have repression. I am less concerned with the labels and more concerned with the fact that we have been in response to this unprecedented crisis, been increasingly undertaking exotic experiments on behalf of the central banks. Most notably Quantitative Easing. It has had the effect of repressing interest rates or keeping them low. This of course is great for borrowers, but has the unintended by-product of depriving people of income.”

A FLAWED SYSTEM

Financial Repression is an experiment that ” is flawed in terms of the economics behind it. I don’t think it does much to help elevate aggregate demand (spending power) and it turns out to be a large implicit subsidy for the financial sector.”

“As far as I am concerned we are already over-financed as an economy and do too much for the banks anyway. It is really a fundamentally mistaken policy approach!”

TRENDS SINCE THE FINANCIAL CRISIS

“We have had three rounds of Quantitative Easing by the Fed, we have undertaken similar policies in Japan and more recently in Europe. If you look at the impact it has been rather minimal! The Japanese economy is still pretty stagnant. The US is growing but I believe that has less to do with QE and more to do with the fact that we had a fairly robust fiscal policy response after the crisis in 2009. Likewise in Europe we have been mired in depression like numbers which is worse than anything we had in the 1930s. It hasn’t worked but we keep trying it.”

“The economics behind it are flawed. it is based on the notion that if a bank buys a bond and puts reserves into the banking system that somehow it can encourage the banker to lend. We actually don’t lend out reserves and are only used for interbank lending amongst banks. Also lending is a two way process. You have to have a credit worthy borrower and a credit worthy lender. If you have individuals or business that are piled down with debt they may not be very credit worthy or they may be less inclined to take on more debt”

“You want to engender rising employment, rising income so people aren’t as reliant on credit. I think that is the problem our system has had over the last 30 years. We have become Credit centric versus Income centric!”

“We have been conducting this ‘pulmonary resuscitation’ to a fundamentally dead financial system rather than use the money to revive the economy and transition it into more productive economic activity.”

CONTROL FRAUD

“When you have an economy that is over financialized and banks account for a disproportionate amounts of activity, and you have a compensation incentive system that is highly dependent on share price appreciation, then you provide a very perverse incentive for business not to invest in productive business affairs but to use excessive cash to buyback shares.”

“What is worse is you begin to use all sorts of accounting tricks. This is what Professor Bill Black calls ‘Control Fraud’ . You get a form of casino capitalism. Actually, the casinos in Las Vegas are regulated more favorably than the banks are.”

PRIVATE DEBT BUILD-UP

Marshall Auerback believes we have had excessive build-up in Corporate and Household debt. “When you have a demand shock, then servicing that debt becomes a problem. You end up with a large build-up of public debt in response.” Unfortunately those who benefited now want cuts to things like Medicare that were not the cause of the problem. “Its a pretty perverse example of the wrong headed people running our system.”

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Rick Rule – Chairman and Chief Executive Officers of Sprott US Holdings

FINANCIAL REPRESSION

“Financial controls or ‘trickery’ imposed on the public by the state.”

“There is certainly financial ‘trickery’ imposed on us by large financial institutions but they do that utilizing the state or in conjunction with the state. The practical manifestation of Financial Repression are all around us. I would suggest that a large part of the manadate of the Securites and Exchange Commission as an example is to effect barriers to entry to smaller participants in the securities business.

The most egregious forms of Financial Repression are in the first instance:

• Tax (which many regard as slavery – I don’t but regard it as extortion!)
• The Manipulation of Interest Rates and
• The Manipulation of the Currency.”

“The interest rates payable to savers relative to the real rate of depreciation of the purchasing power of – pick one: the dollar, the euro, the yen – are despicable!”

ALAN GREENSPAN

“As recently as October last year I had the pleasure of listening to Alan Greenspan who ironically (despite the fact he is a vowed libertarian and architect of a lot of this Financial Repression) and he said something very stark too the audience! He said that a sound currency is not consistent with a representative democracy. A sound currency benefits the productive class and savers. In a representative democracy most of the people are spenders. Low interest rates and a depreciating currency aids the spenders and borrowers. It doesn’t aid the savers. In that context Financial Repression is understandable and I’m afraid inevitable.”

INVESTMENT IN LONG TERM PRODUCTIVE ASSETS

Rick Rule feels that the perverse incentives from manipulated data has resulted in a lack of investment within the US in Productive Assets that would allow the employment of technology and the real wages of workers to rise.

The reason is:

1- If you aren’t seeing underlining demand and top line sales growth in your business, why would invest in productive capacity?

2- The US Tax Code is anti-growth. Depreciation schedules are much more investor friendly even in socialist countries today that in the US.

EXTRAORDINARY FAITH & “RETURN FREE RISK”

“We appear to be in a place in history and the economy where there is extraordianary faith in the big thinkers in the world – the Merkels, the Obamas, the Greenspans, the Yellens. It is partly this faith that is allowing them to keep these interest rates this low. It is a belief that the big thinkers of the world “stick handled” societies global financial crisis of 2008 and by managing the levers of the economy, managed to save us from ourselves. I would of course disagree with that diagnosis (but no one cares much what I think). I certainly believe that savers will tire of buying financial instruments that have no real yield. If you think about the value proposition as an example offered up by the bellwether savings instrument world wide (the US 10 Year Treasury) yielding 1.8%. What that means is the Fed absolutely, positively guarantees you 1.8% per year for 10 years. The difficulty I have with that is that even at their ascribed CPI inflation rate, what they are promising you is 20 basis points a year in real yield. Jim Grant famously described that as “Return Free Risk”.

GOLD

“I don’t know what is going to happen with gold short term”. “What will move Gold, Silver, Platinum and Palladium are first and foremost is a reduction in confidence in the US dollar and the US 10 Year Treasury. It important to understand that gold doesn’t need to win the war. It just needs to lose the war less badly!”

“Gold has performed admirably outside the US over the last year.”

Gold can be seen to be already in a Bull Market globally – except in the US, as a result of a 25% rise in the US dollar.

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Amin Rajan – CEO, CREATE Research

FINANCIAL REPRESSION

“Financial Repression is a device used by governments to liquidate their debt.”

Financial Repression uses low interest rates (which reduces their financing costs) and inflation (which vaporizes its debt). The Negative Real Interest Rates which the two in combination create, has in the modern era been the way governments reduced their debt burdens.

“Financial Repression brings about an arbitrary redistribution of wealth.”

Today it is the governments only politically realistic option.

The critical problem is holders of fixed income debt get hurt where there is a redistribution of wealth:

Historically we should expect Financial Repression to last anywhere from 15 to 50 Years. We are now into only the seventh year! In Prof Rajan’s opinion “this show has a long shelf life and likely to run another 5 – 10 years”

PENSION PLANS – Entering “De-Accumulation Stage”

Aging demographics in the debt burdened developed economies is exaggerating the effects of Financial Repression because of the need for Investment Income products by retirees.

Pension Plans are now going into the “De-Accumulation Stage” where there is more money going out of the plan than is going in. Pension plans face problems of both under contribution levels and De-accumulation resulting in serious underfunding positions.

THE RETIREMENT TSUNAMI

The “Baby Boomer’ Generation is in the process of retiring. There will be 78 Million in the US and 84 Million. Europe which accounts for 8% of the global population and 25% of global output accounts for a massive 48% of global welfare budgets.

The shift from Defined Benefits (DB) to Defined Contributions (DC) is about the “Personalization of Risk” so we are told, “so people can be ’empowered’ and will be less dependent on their employers plans”. Instead Prof Rajan argues we have “Personalization of risk has a big downside. It transfers risk from those who couldn’t manage it to those who don’t understand it!”

LIQUIDITY CRISIS – Volcker Rule Has it ‘Preordained‘

When the next market correction occurs “liquidity is going to dry up in no time at all because of the Volcker Rule. The inventories of Bonds which the Investment Banks are caring are now one-eight of what they were pre-2008. Any mass exit and there will be no liquidity and prices will drop like a stone!”

OBSERVATION

Prof. Amin Rajan observes that two paradigm changes have occurred in capitalism:

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Mebane Faber – CIO Cambria Investment Management

FINANCIAL REPRESSION

“An environment where interest rates are lower than inflation and you have a low or even negative interest rate environment which helps someone and hurts someone else. It hurts savers but is good for borrowers and people who have a lot of debt. The inflation eats away at that debt. It helps someone like the US government”

“Stocks and bonds like high real interest rates. They typically don’t like low or negative real interest rates”. Other asset classes like gold like negative real rates and have over the last decade, but not so much over the last couple of years.”

VALUE & MOMENTUM

Faber likes both value and momentum and believes they can work together as part of a global portfolio, particularly where they intersect. Cambria uses Shiller’s 10 Year CAPE benchmark to look at equities. It is typically around 17 and is now around 27 in the US. It presently shows a lot of great valuations around the world however momentum has been in US stocks, bonds and real estate. “Right now we see a lot of opportunity, but particularly abroad”.

THE “HOME COUNTRY” BIAS

The US is only about 50% of global market cap but most US investors have a ‘hometown bias” of having 70% of their portfolio in US securities. Faber has found that it consistently ranges from as low as 65 to as high as 85%. Meanwhile, when considered on a GDP basis the US is only about a fifth to 25% and on a valuation basis is the third most expensive. This would suggest the US has a headwind, especially after a six year run. An exposure of at least half to foreign investment seems more reasonable to Meb Faber.

DEVELOPED AND EMERGING COUNTRIES

We start with a universe of about 45 countries with reasonable liquidity. One of Cambria’s funds buys the eleven cheapest countries in the world. Faber’s analysis suggests avoiding countries that create large bubbles can be a critically important when viewed over the longer term because of the size of the inevitable corrections.”

“One of the emotional challenges and why value works is because it is hard to do.”

CLASSIC MISTAKES

1. “Not Getting Out of Your Own Way!”
   • Getting Caught Up In Performance,
   • Not Having a Plan,
   • Trying to Time Your Investments,
   • Realistic Expectations.
2. “Not Paying Attention to Fees”
3. “Too Wedded to An Investment Style”
   • Need to be Asset Class Agnostic

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

Special Guest: Paul Craig Roberts PhD – Chairman of the Institute for Political Economy

Dr. Paul Craig Roberts is extremely meticulous in examining the central problems facing America and the developed economies today. You may not like nor agree with what he says but there is little double as a former high level Treasury official, academic professor and Wall Street Journal editor, that he knows what he is talking about.

FINANCIAL REPRESSION

“It is going on on several fronts conducted by different people for their own agendas, though they all seem to be mutually supporting.

COLLUSION BETWEEN PARTICIPANTS

“I think there is a lot of collusion. For example the government colluded with the banking system in financial deregulation. For example they repealed Glass-Steagall. They expressed this absurd claim that financial markets are self regulating.”

“They turned the financial system into a gambling casino where the bets are covered by the tax payer and central bank.”

The cancer which started in the US Financial System has spread globally. The carriers of the cancer has been the International Banks.

WASHINGTON ANSWERS TO WALL STREET

“Some of the Financial Repression is collusion of government serving the financial interests because Wall Street is a huge supplier of political campaign funds which you are highly dependent on to get re-elected. So you answer to the donors. You don’t answer to the public interest. It doesn’t give you any money.”

“You answer to:

• Wall Street,
• The Military-Security Complex,
• The Agri Business like Monsanto,
• The extractive Industries (Oil, Timber, Mining)

These are the powerful interest groups that use the government to serve their interests.”

THERE ARE NO LONGER COUNTERVAILING POWERS IN WASHINGTON

With the destruction of the manufacturing jobs in America through off-shoring, it has reduced the power of the unions and destroyed the Democrats independent source of campaign funds.

“You now have two parties with the same head and reporting to the same masters. There is no longer any countervailing power”

You no longer have the Democrats supporting workers against the Republicans supporting business. Both parties represent them.

“This is the reason you can’t do anything about Financial Repression!”

NEO-CONSERVATIVE CONTROL OF FOREIGN POLICY – $6T TRILLION IN WAR DEBT

We have been in 14 years of wars and added $6T of national debt to finance these wars “without adding five cents of investment for the country having taken place.”

“We now have the Neo-Conservatives driving the conflict with Russia (which is insane), with China (which is insane). The United States doesn’t have the power to try and dominate Russia / China. Especially now that the two countries have a strategic alliance”

“You have much of the world turning away from the United States because of Washington’s

• Abuse of the Dollar as the World’s Reserve Currency,
• Abuse of the dollar based payment system,
• Imposing unilateral sanctions which are acts of war,
• Threatening people with expulsion from the clearance mechanism and people saying we won’t have any part of this,
• The BRIICS establishing their own version of the IMF,
• The Impact of the Spy Scandals and people saying they will build their own internet,

All of this is not only going to effect business it is going to effect American power. It is going to start shriveling!”

“If you have these crazed Neo-Conservatives demanding control of the world, faced with declining power, you don’t know what they will do! It is a very, very dangerous situation. I’m surprised it has taken the world so long to realize the threat the US poses to the rest of the world.”

“The US Dollar payment system is essentially a system for looting. This, Globalization and Neo-liberal economics are tools of American economic imperialism. Countries are beginning to realize this. The looting of countries by American imperialism has now reached the point where it is turning on itself – Greece for example.”

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.