Some Clear Thinking About Stagflation

Some Clear Thinking About Stagflation

Notes From The Field By Simon Black August 29, 2022

Let’s not mince words: stagflation is here. Let’s also not overreact: the world is not coming to an end. And, like all things, there are both risks and rewards that will arise.

First, what do we know?

Historically high inflation is obvious. Plus many major economies around the world are already sputtering.

Germany’s economy stagnated with 0% growth last quarter. China’s economy practically ground to a halt. Economies in the UK and Hong Kong contracted slightly. And the US economy has already contracted for two consecutive quarters.

Now, in nearly every other country on the planet, when your economy shrinks for two consecutive quarters, they call that a recession.

But not in the Land of the Free.

In America, a recession is defined as whatever a special government committee within the National Bureau of Economic Research wants it to be.

I’m serious. The agency’s own website states that “the designation of a recession is the province of a committee of experts.”

Wonderful. More ‘experts’ who don’t have an iota of common sense among them. And this is why, at least in the United States, the government has thus far refused to call this a recession. In fact they insist we are NOT in a recession.

Definitions and “province” aside, however, a recession is more like what US Supreme Court Justice Potter Stewart said of obscenity in a famous 1964 case: “I know it when I see it.”

And normal people know recession when they see it. Recession is when people and businesses feel less prosperous. We start cutting back and stressing more about money. We dream less about the future and worry more about the present.

But even if the economy isn’t in recession yet, it seems fairly clear that one is coming. There’s already a mountain of evidence from corporate earnings reports showing steep declines in both consumer spending and business investment.

Those wonderfully infallible “experts” have certainly done a bang-up job steering us into this slowdown.

The Federal Reserve in particular slashed interest rates to zero and held them there for most of the last 14 years. They conjured trillions of dollars out of thin air, they grew their own balance sheet by a factor of TEN… and then kept insisting that there would never be any consequences EVER from such an absurd course of action.

Then, when inflation finally did take hold, they denied it at first. Then they called it transitory. Then they finally promised they would ‘do something’ about inflation… eventually.

Later on they even admitted to being totally ignorant, saying “we now understand better how little we understand about inflation.” (It seems like the first nine words should apply to all government experts.)

Now, at last, the Fed gave us the courtesy of speaking plainly and bluntly on Friday morning when the Chairman gave a terse warning about the US economy.

He stated that “the US economy is clearly slowing down” and that fixing inflation would likely “require a sustained period of below-trend growth” and “softening of labor market conditions.”

In other words, that means the economy will be sluggish, and a lot of people will lose their jobs. Sounds like a recession to me, even if the bureaucrats don’t want to admit it.

The real conundrum, however, is that inducing this economic pain won’t necessarily fix the inflation problem.

Any high school economics student knows about the Law of Supply and Demand. And it very easily explains why the world has so much inflation.

Policymakers artificially created soaring demand during the COVID pandemic when they conjured trillions of dollars out of thin air and gave everybody free money.

All the unemployment benefits, being paid to stay home, the PPP ‘loans’, etc. flooded the economy with cash. People have been spending it. And that created a surge in demand for goods and services-- everything from microchips to rentals on Airbnb.

Big increases in demand are fine, and don’t necessarily cause price increases… as long as the supply of goods and services is able to keep up.

But it didn’t. Supply collapsed-- again, primarily because of governments’ COVID response. With everyone being forced to stay at home, there were obviously far fewer goods and services being produced.

And those effects have lingered. Businesses everywhere are struggling to find enough workers. And labor shortages in critical vocations like trade and transportation have caused major supply chain bottlenecks.

(Obviously none of these issues existed prior to the public health dictators’ takeover of the global economy.)

On top of the pandemic-related supply challenges, however, businesses and workers have also had to contend with an avalanche of new rules and regulations that make it more difficult to produce.

Many of these debilitating rules single out oil and gas producers, which contributes to an ongoing energy crisis. And higher energy prices also make it more difficult to produce goods and services. So it’s quite a vicious circle.

All of this is to say that the Federal Reserve can raise interest rates and cause a recession to cool off demand.

But a decrease in demand isn’t enough. Inflation can only be tamed if there is a substantial increase in the supply of goods and services. And the Fed can’t really influence that.

Yet unless this happens, i.e. workers and businesses are once again free to produce, all we’ll be left with is stagflation: a recession combined with stubborn inflation that won’t go back to normal.

Now let’s go back to the beginning: do not overreact. The world is not coming to an end. ‘Stagflation’ doesn’t mean 20% inflation and 20% unemployment.

In fact it’s much more likely that inflation falls to 5%, unemployment rises to 8%… and the Fed will consider that a job well done.

It’s also temporary.

The constraints on supply being caused by political stupidity and geopolitical tension are, to borrow from the Fed, “transitory”.

While I generally place little hope in politicians, historically speaking, opposition candidates tend to win elections during economic stagnation. And that pattern should lead to more responsible, pro-business governments.

Then there’s the matter of our burgeoning energy crisis, which is also holding back supply.

This, too, is temporary. In fact the world is on the cusp on a new energy Renaissance that has the potential to fuel growth and prosperity for decades to come.

This is a really important (and uplifting) trend to understand, and we’ll discuss it very soon.

Last, rising interest rates and stagflation will likely have an adverse impact on both housing and the stock market.

Interest rates are a major factor in these asset prices; and higher rates mean that housing and stock prices will fall.

During the stagflation of the 1970s, home prices were relatively flat after adjusting for inflation. And stocks lost about 50%. But that was the average performance for all assets.

With housing, specific locations did extremely well. Home prices in Houston and California, for example, boomed during the 1970s, vastly outpacing inflation.

There were also plenty of companies that did extremely well. John Deere stock more than doubled in price between 1972 and 1979 after adjusting for inflation, and it paid a solid dividend at the same time.

Commodities performed strongly during the 1970s. Agriculture and farmland did extremely well. Gold was the best performing asset of the decade.

And there were plenty of startups, including Apple and Microsoft, that got their start during the stagflation of the 1970s.

The bottom line here is that there’s no reason to panic, and plenty of reason to be fairly optimistic about the future (once you understand long-term energy trends).

But it’s more important than ever to be extremely rational… even surgical… in your thinking.

To your freedom,  Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/some-clear-thinking-about-stagflation-36940/

Future Historians May Call This The ‘Crisis Of The 21st Century’

Future Historians May Call This The ‘Crisis Of The 21st Century’

Notes From The Field By Simon Black  August 22, 2022

In the year 210 AD, after two decades of constant warfare, Roman Emperor Septimius Severus was finally satisfied: he had conquered nearly the entire known western world.

This was the year that the Roman Empire reached its maximum territory-- approximately 5 million square kilometers, stretching from Morocco to Georgia, from southern Scotland to western Iran.

Plus Rome controlled absolutely everything in and around the Mediterranean. They controlled the Black Sea. They controlled the Nile and Danube Rivers. They controlled the Silk Road.

In short, Rome controlled virtually every known trade route in the world, and this gave them extraordinary economic power.

But it came at great cost: It’s expensive to wage war. It’s even more expensive to maintain a huge empire.

And in order to pay for it all, Septimius Severus resorted to heavily debasing the Roman currency. The purity of the denarius silver coin plunged from 83.5% down to just 55% during his rule.

Severus died the following year in 211, at which point his son Caracalla became emperor after murdering his own brother.

Caracalla was legendary for his cruelty, brutality, and poor decisions. He executed many of Rome’s most productive citizens, doubled tax rates, and debased the currency even further.

Caracalla was eventually slain by one of his own soldiers. But Rome’s string of bloodthirsty, maniacal emperors was just getting started.

By 218 AD, for example, the new Emperor Elagabalus completely ignored the duties of his office because he was so obsessed with his own sexuality.

Elagabalus reportedly offered to give away half of the Roman Empire as payment to any surgeon who could turn him into a woman, and he used to regularly prostitute himself at local brothels around Rome.

He too, was assassinated.

In fact political assassinations were becoming so commonplace in Rome that it was almost remarkable when an emperor died of natural causes.

In 238 AD, for example, Rome had SIX different emperors in a single year, with each plotting the murder of his predecessor.

Throughout the entire third century, in fact, Rome had a total of 35 different emperors. Only one is certain to have died of natural causes. Most were murdered by rivals.

By mid-century, Rome was in full-blown crisis. In fact historians today actually call this period the “Crisis of the Third Century”.

The political turmoil caused deep distrust in institutions; the Emperors themselves were typically corrupt, depraved, incompetent, or all of the above, and Romans lost all confidence in their government.

Moreover, the currency had been debased so severely that inflation was rampant across the empire.

The government was routinely failing to secure its borders, and various foreign tribes began flooding into Roman territory, causing severe disruptions to trade and agricultural production.

Rising powers in the region-- namely the Kingdom of Alemannia-- even began conducting raids in the Empire and directly engaging the Roman military. Rome suffered a number of embarrassing military defeats, shattering its reputation as a strong, invincible superpower.

Oh, and there was also a massive pandemic in the year 249. (Stop me when this all sounds familiar).

It was known as the Plague of Cyprian, and it caused even more widespread economic devastation.

In particular, the pandemic caused major labor shortages, and nearly every industry struggled to find enough workers.

So naturally the imperial government stepped in and started forcing people into government service. They needed more soldiers to enforce their ridiculous edicts, and more tax collectors to steal people’s money. And this made the labor shortages even worse.

Rome was essentially in a period of nasty stagflation. The currency was constantly losing value, prices were rising, and the economy was shrinking.

Trust was at an all-time low, social divisions were extreme, civil war was commonplace, corruption reigned, and people felt like the situation was hopeless.

It was around this time that the Empire literally began to split apart. By 270, in fact, what used to be known as the Roman Empire had actually divided into three distinct regional empires. And it appeared that the once-dominant superpower was no more.

But that’s also when a former soldier named Lucius Domitius Aurelianus became emperor of the new, smaller, regional Roman Empire.

He is known to history as Aurelian, and his top priority upon assuming power was reunifying the Empire.

His military victories were nothing short of astonishing; within just a few years, Aurelian had reconquered nearly all of the Roman territory that had been lost during the Crisis of the Third Century.

He also took steps to reform the currency, heal social divisions, eliminate corruption, and slash the government budget.

Aurelian only ruled for about five years (before he, too, was murdered by rivals). But his actions were so successful in helping to end the crisis that he was given the title Restitutor Orbis-- Restorer of the World.

Rome eventually did fall. But without Aurelian, it would have all probably ended in 270 AD. 

In just five years he managed to implement enough reforms to keep the western empire going for another two centuries.

Centuries from now, future historians may look back on this time as America’s “Crisis of the 21st century”.

When you think about it, so far this century the US has endured the 9/11 attacks, the War on Terror, the Global Financial Crisis, a complete breakdown of trust, extreme social divisions, chaos at the border, cancel culture, Big Tech censorship, the COVID-19 pandemic, the rise of China, humiliation in Afghanistan, war in Europe, record high debts and deficits, inflation, stagflation, and much more.

It looks eerily similar to Rome’s Crisis of the Third Century. And I know for many people it seems hopeless. But it’s not.

The 1970s was another extremely dark period in the United States which included stagflation, crime, political corruption, energy crisis, hostages in Iran, and the constant threat of war with the Soviet Union.

It was a horrible time. But nothing unifies voters and focuses their minds on the right priorities like shared suffering.

And so in 1980, voters threw all the bums out and brought in a new government that, within a few years, tamed inflation, cut taxes, reduced the size of government, strengthened the military, and set much better conditions for economic prosperity.

(I’d actually encourage you to watch Ronald Reagan’s brief remarks during his very first press conference in 1981, summarizing his administration’s mission.)

If we’re being intellectually honest, government bears the bulk of the responsibility for most of the problems we’re facing today. So theoretically, a better, more responsible government has the power to arrest the decline and move things in the right direction once again.

And there is substantial historical precedent for this turnaround thesis; Aurelian is just one example.

But it would be a major affront to our basic human dignity to capitulate all responsibility for our lives to politicians. And frankly I think this is a huge problem.

Too often people believe that they don’t have control over their own lives, and that things will only start to improve once the ‘right’ people have been elected.

Sure, it’s possible that a better, reform-minded government may emerge from this Crisis of the 21st Century.

But the reality is that no one needs to wait for an election, or for some politician to ride to the rescue.

Most of us as individuals lack the authority or resources to fix national problems on a grand scale. But we absolutely have the power, and a multitude of tools at our disposal, to set ourselves up for success.

For example, we know Social Security’s major trust funds will run out of money in about 10 years, causing the program to make drastic cuts to its benefits.

But we also have a number of tools available to fix this problem for ourselves-- like setting up a robust retirement structure and channeling side-income into tax-advantaged investments.

We know taxes are on the rise and likely to rise more. But we also have completely legal ways to reduce them.

We may be facing certain domestic risks at home. But there are nearly 200 other countries in the world where we can set up our own personal safe havens.

We can certainly hope the Crisis of the 21st Century ends with voters coming together and electing a responsible government.

But in the meantime, there are countless steps that anyone can take to improve their own lives which don’t require any politician to save the day. Rather, all that’s needed is a little bit of education, and the will to take action. That’s what a Plan B is all about.

To your freedom, Simon Black,  Founder, SovereignMan.com

https://www.sovereignman.com/trends/future-historians-may-call-this-the-crisis-of-the-21st-century-36233/

The US Is About To Go Full Louis XVI

The US Is About To Go Full Louis XVI

Notes From the Field By Simon Black  August 8, 2022

On September 3, 1783, after nearly a year of excruciating back-and-forth negotiations, all sides had finally gathered together in Paris to sign a historic peace agreement.  It was a pretty important peace deal. Because the Treaty of Paris, as it is now known, is what formally ended the American Revolution, and when Great Britain legally recognized the United States as an independent nation.

The treaty was signed in Paris because France had been a major supporter of the US war effort. And just as soon as the ink was dry, French King Louis XVI ordered his finance minister to prepare an accounting of exactly how much money France had spent on US independence.

The result was nothing short of astonishing—more than 1 billion livres.

To put that number in context, the French Treasury’s entire annual revenue only amounted to around 200 million livres.

So they had basically sunk FIVE YEARS worth of their tax revenue fighting someone else’s war.

Granted, Britain was still one of France’s main rivals. And the French did not care for British King George III.

But the American War was simply too costly, and France had already been on very shaky financial footing well before this point.

Louis XIV had nearly bankrupted the country a century before. His successor, Louis XV, had to drastically slash expenses and could barely hang on financially.

Then, in 1774, just prior to the American Revolution, Louis XVI became king at a time that France was rapidly deteriorating.

You’d think that with so much economic turmoil at home that he would have focused on his own national interests… and, in lieu of money, weapons, and ships, he would have instead sent the royal thoughts and prayers to America.

But no. Lucky for the United States, Louis XVI courageously fought the American Revolution down to the very last French taxpayer.

Only after the war did Louis finally take stock of the situation and realize the truth: America was in a much better position. Britain was bruised but still powerful. Yet his own France was nearly bankrupt and desperately in need of cash. Not exactly a win/win.

Louis XVI was King, but his powers were limited; he was beholden to the legislature, called the Estates-General, and he couldn’t simply decree new taxes without their consent.

The King did, however, control the tax collectors. And Louis made sure they had every authority to coerce, harass, and intimidate money out of French citizens.

French tax collectors had the authority to walk right into people’s homes unannounced, conduct surprise inspections to look for hidden wealth, and walk away with whatever money or property they felt would satisfy the peasant’s tax bill.

This is actually a pretty common theme throughout history: governments that are on the ropes routinely resort to plundering the savings of their citizens.

Several ancient Roman emperors, in fact, from Diocletian to Valentinian III, famously sent ruthless tax collectors to harass their citizens and steal their wealth. Several ancient Chinese dynasties did the same thing. So did the declining Ottoman Empire.

Significantly ramping up tax collection efforts is typically a hallmark of an economy and empire in decline.

So we can’t be too surprised that, in its latest legislative bonanza, the US government is setting aside $80 billion for IRS tax collection efforts.

They’re calling the bill, of course, the Inflation Reduction Act. This is pure comedy—the legislation will do no such thing. Why would inflation, which in part was caused by excessive government spending, magically dissipate because of more government spending? It’s ludicrous.

But inflation aside, front and center in the legislation is $80 billion in funding for the IRS, primarily to step up its tax collection and enforcement efforts.

To put that number in context, the annual budget for the IRS is about $12 billion. So, even though the $80 billion will be leaked out over a period of several years, it constitutes a major increase in the IRS budget.

The entire idea is based on a bizarre notion known as the ‘tax gap’. This is the difference between the amount of tax the government collects, versus the amount the government thinks they should collect.

In other words, the tax gap represents how much they believe people are cheating. And the estimates vary wildly, from $100 billion per year to a whopping $1 trillion per year.

Frankly these numbers have always seemed to me like they were completely made up. No one has explained how they actually come up with such estimates. They just barf up some number and pretend that it’s true.

Obviously there are a whole lot of hardcore tax cheats out there, stealing and defrauding the system. But that’s not why the IRS is receiving an $80 billion boost.

This money will go to hire a small army of tax inspectors who will fan out across the nation on a giant fishing expedition that will ensnare countless middle class Americans and small businesses.

Certainly they’ll catch a few cheats along the way. And they may even find a few bucks to close that mythical ‘tax gap’.

But at what cost?

One of the biggest problems with the US economy right now is that it’s so much more difficult to produce goods and services.

Over the past few years, the people in charge have put up endless road blocks and obstacles for small business.

They vanquished the labor market and made it all but impossible to find workers. They destroyed the supply chain. They engineered historically high inflation. They came up with a myriad of costly new environmental and public health rules.

On top of that they constantly create new rules and regulations, many of which step far beyond the government’s authority.

(Last year, for example, the CDC Director decided in her sole discretion that she controlled the entire $10+ trillion US housing market.)

23% of full-time workers today require a government license to do what they do, according to the US Department of Labor. Even being a hairdresser is full of red tape and costly bureaucracy.

This new threat of widespread tax audits is going to be yet another obstruction to Americans’ productivity…. at a time when the economy desperately needs maximum focus.

Inflation is raging because there is a serious, global imbalance between the supply and demand of goods and services.

Specifically, demand is too strong because they doled out trillions of dollars in free money. And supply is weak because nearly every single government policy makes it harder for people to produce (which is yet another hallmark of empires in decline).

Now, on top of everything else, there is a very high likelihood of being harassed by the tax authorities.

Audits are incredibly unpleasant, costly, and time-consuming. Even if all of your accounts are in order and you’ve done nothing wrong, a tax audit monopolizes a tremendous amount of time and money.

It’s debilitating. Say goodbye to actually running your business, growing sales, or spending time with your family on nights and weekends… and say hello to preparing for your tax audit.

Your time will now be spent digging up receipts, finding old contracts, and trying to recall specific details of trivial decisions you made years ago.

Plus you’ll most likely have to pay outside experts to assist with the process, like CPAs and attorneys. And naturally the government does not reimburse you for such expenses. But at least you’ll get to deduct them… from your taxes.

In the end, after endless financial scrutiny, the government may conclude that you owe them a few bucks because of some undocumented deduction from several years ago. So you write them a check for some trivial sum… after having spent countless hours and effort taken away from your productivity.

The cost/benefit just doesn’t compute. And that’s why healthy, prosperous nations don’t engage in such absurd activities. They don’t need to.

Taxes ultimately represent the government’s ‘slice’ of an economic pie. So when a country is prosperous and an economy is strong, the government’s slice continues to grow because the overall economic pie is constantly getting bigger.

But nations in decline don’t see it this way. For them, the pie is shrinking. So they think the only way to increase their slice is to go after other people’s crumbs.

History shows this is absolutely the wrong move. Raising tax rates, inventing new taxes, and recruiting armies of tax collectors only makes the pie shrink even more.

Their efforts, instead, should be focused on making the pie bigger. But they don’t think that way.

Bear in mind this is all brought to you by the same people who are shoveling your tax dollars out the door to Ukraine $50 billion at a time. It’s very ‘Louis XVI’ of them.

All of these trends—the cannibalistic surge in tax authorities, the anti-productive regulations, the economic scarcity mentality—are all hallmarks of an empire in decline.

The situation is NOT terminal. It is NOT irreversible. But it is reason enough to have a Plan B.

To your freedom,  Simon Black, Founder, SovereignMan.com

P.S. Looking for solutions to safeguard your prosperity and freedom? Our step-by-step Plan B guides and library of actionable strategies are ON SALE - this week only. Click here to learn more.

https://www.sovereignman.com/trends/the-us-is-about-to-go-full-louis-xvi-36091/

The Best Tax Deal in the Eastern Hemisphere

The Best Tax Deal in the Eastern Hemisphere

Notes From the Field By Simon Black  August 3, 2022

One of the most important elements of a Plan B is to legally reduce your tax rate. Depending on where you live, the government routinely confiscates up to half of your hard-earned income.

At best, this money is wasted and squandered— for example, the billions of dollars of military equipment left in Afghanistan, or billions in fraud taken through PPP Covid loans.  At worst, it is actively used against you— for example, the Justice Department targeting parents justifiably angry at their local school board.

By finding legal ways to pay less, you do your part to deprive the beast of its power, which feels good and does make a difference.  More importantly, you reclaim your own money to do with as you please. 

We’ve written extensively about Puerto Rico’s tax incentives offering a 4% corporate tax rate for qualifying businesses, and 0% on investment income. As a US territory free to set its own tax laws, it is the best tax-saving option for Americans, who owe taxes to Uncle Sam no matter where they live or earn income in the world.

However, Puerto Rico is not for everyone. Maybe you are on the other side of the world, and don’t want to relocate to Puerto Rico. Or perhaps you don’t like the tropical climate, or the Caribbean lifestyle.

In that case, you might want to consider the Republic of Georgia— the “Puerto Rico of Europe” when it comes to tax savings.

Georgia is located on the intersection of Europe and Asia, but the former Soviet state considers itself European.

A couple years back, to attract foreign investment, Georgia implemented a tax regime that allows certain people to pay as low as a 1% income tax rate on revenue.

Freelancers and digital nomads can often qualify by registering as an Individual Entrepreneur, and applying for Small Business Status.

For example if you’re a blogger, software developer, e-book author, virtual assistant, or create digital products, you’d likely fit the bill.

But there are restrictions. Consultants of any kind, such as tax advisors, do not qualify. Neither do those in the medical, architectural or legal professions, currency exchange operators, or gambling businesses.

And if you’re an employee of a foreign company, this will not work for you either.

But for those who qualify, it typically only takes a couple days to set up. Plus, Georgia makes it easy for foreigners to obtain a one year residency visa in the country.

Americans can certainly use these tax advantages too. Even though you will still owe US taxes, while living outside the US you can take advantage of the Foreign Earned Income Exemption to earn $112,000 tax free in 2022. Plus, taxes aren’t the only savings Georgia offers. We rate the country as “dirt-cheap” in our cost of living index. https://www.sovereignman.com/cost-of-living-index/

But a lot has changed in the region recently. So last week, I caught up with a friend of Sovereign Man’s named Lucas who had moved to Georgia to benefit from the tax savings.

I wanted to know what had changed since we heard from him in a Sovereign Man: Confidential Case Study last year. Since the Russian invasion of Ukraine in February, Georgia has seen a massive influx of Ukrainians and Russians fleeing the war, and Russia repression.

For Georgia, a country of just six million, the influx of upwards of 100,000 residents in the span of a few months caused quite the shock. Lucas said that the most obvious change was rising housing costs.

Many of the Russian newcomers have considerable means and come from more expensive cities like Moscow or St. Petersburg. Since many are still working remotely, they could afford to bid up rent prices.

Lucas and his partner previously found a good deal on an amazing apartment. They paid the equivalent of about $1,000 per month for a 150 square meter (roughly 1,600 square feet) apartment in a great location in the nation’s capital Tbilisi.

Now he has seen smaller, ground-floor apartments with no view go for $2,000 per month.

When Lucas’ apartment was sold recently, he and his partner decided it was time to move on from Georgia, rather than look for another place in an inflated market.

However that’s not because they soured on Georgia. Lucas says he would still recommend it for the right type of person. But it was never their long-term plan to stay in Georgia.

Contributing to the decision was that Lucas felt they did not have a solid Plan B in the event Russian aggression turns southward. Russia already invaded Georgia in 2008, so it is not outside the realm of possibility.

Lucas also felt that it was hard to find good workers, like repairmen and housekeepers, who paid attention to detail and took pride in their work.

In addition, power and water outages were becoming more frequent, (it really does sound like Puerto Rico) which he never experienced his first year in Georgia.

However Lucas also had plenty of praise.

Even with rising prices, Georgia is still extremely inexpensive by Western standards.

He loved that in Georgia, there seems to be an app for everything— you can easily hire people for all sorts of services, such as food/ goods delivery and odd jobs.

When he first moved to Georgia, the tax program was just being established, and there was a lot of confusion and bad advice.

But now he feels the program is well-established. Expats can find good tax and law firms, along with other groups and service providers dedicated to providing support for foreigners.

Lucas feels like Georgia may be the final stop on many digital nomads’ travels, where they decide to finally settle down and establish some stronger ties. He has seen an influx of families, including new moms and dads who can afford to hire a nanny in Georgia.

For the right person, Georgia’s tax and cost of living savings are worth considering.

If you want more information on how to qualify for the 1% tax rate, Sovereign Man: Confidential members can read our detailed Alert on Georgia’s program here, which also includes information about residency.

And you can check out the Case Study we wrote on Lucas’ experience here.

If you want access to these reports, and our full library of Alerts, Monthly Letters, Case Studies, and Black Papers, join Sovereign Man: Confidential today.

To your freedom,  Simon Black,  Founder, SovereignMan.com

https://www.sovereignman.com/international-diversification-strategies/the-best-tax-deal-in-the-eastern-hemisphere-36077/

The “Experts” Nail It Again!

The “Experts” Nail It Again!

Notes From The Field By Simon Black  August 2, 2022

In March of 421 BC, after years of escalating conflict, Athens and Sparta finally decided to bury the hatchet and coexist peacefully together in the Mediterranean.  The two powers had been at odds for decades. Athens had ballooned into a regional empire, and Sparta itself was a rising power.

The two sides came to blows on multiple occasions. And even when they agreed to keep the peace in 421 BC, tensions were still high. All it took was one idiot to screw it up.

His name was Alcibiades, a Greek politician of noble birth. Alcibiades was pretty infamous in Athens; he was known for being corrupt, deceitful, disloyal, arrogant, and short-tempered.

I’m serious. There are numerous accounts from ancient historians who wrote in excruciating detail about what a terrible person Alcibiades was. Plutarch tells us, for example, about a time that Alcibiades cheated in a wrestling match by biting his opponent (to no one’s surprise) and how he mutilated his own dog.

Even poor Socrates tried, and failed, to teach Alcibiades about ethics and morality.

But despite his horrendous reputation, Alcibiades still managed to catapult himself into positions of high power… and to remain there… primarily due to his political cunning.

In fact Alcibiades was essentially the Speaker of the Athenian Assembly, with the power to dictate the day’s agenda and influence the outcome of votes.

Alcibiades was so powerful that, during the summer of 418 BC, he decided (without any approval from the government) to pay a visit to the Peloponnese in southern Greece-- territory that was claimed by Sparta.

There was absolutely zero upside in Alcibiades doing this. It was just a big circus act for him to show off his power and prestige. He didn’t care if Sparta would be outraged, or if his actions had consequences for Athens. All that mattered to Alcibiades was that people were talking about him.

Naturally his actions did have consequences.

Smaller city-states in the Peloponnese were emboldened by Alcibiades’ trip to the region, so they forged a fledgling alliance and attempted to seize a strategic settlement located at Sparta’s southern border.

With their border security threatened, Sparta sent an army to push away the invaders; the resulting battle was a massive victory for Sparta and a huge embarrassment for Athens. But Alcibiades blamed one of his political opponents for the defeat, so he never took the fall for his own mistake.

The conflict quickly escalated further, and soon Athens and Sparta were once again in a full-blown war with each other-- one that Athens would ultimately lose to its rival.

I’m writing this, of course, at a time when US Speaker Nancy Pelosi has just touched down in Taiwan.

Pelosi is an idiot, but she’s not stupid. She knows there are consequences. The Chinese have made it very clear that they do not want Pelosi going to Taiwan. Tensions are already high between the US and China, and this trip certainly won’t help.

Now, obviously it’s not up to China to dictate US policy or actions. But like Alcibiades’ trip to the Peloponnese in 418 BC, there is absolutely zero benefit in Pelosi going to Taiwan.

The US economy is in a tailspin. Parents can’t find baby formula for their infants. Inflation is raging. People are suffering.

What exactly does this woman hope to achieve? Will her visit to Taiwan somehow make inflation miraculously retreat? Will baby formula suddenly appear on the shelves?

Of course not. So if there’s no benefit for Americans, then why go at all?

On the flip side, the trip does present a number of risks. China doesn’t want to look weak, and whatever retaliatory action they take probably won’t be positive for the US.

China’s initial response has been predictably swift. They’ve already kicked off live-fire military exercises, i.e. real weapons and munitions, and have essentially encircled Taiwan by sea. Apparently these military exercises will include missile tests off Taiwan’s east coast.

The US, meanwhile, has positioned at least two naval vessels and several fighter jets close to Taiwan’s east coast, increasing the potential for conflict, or even just an accident.

Hopefully nothing catastrophic happens. But, again, what exactly is the point of this trip? It’s all risk and no reward… just so that Pelosi can showboat in front of the cameras before her retirement next year.

You’d think that someone with decades of political experience-- an ‘expert’ in international diplomacy-- would understand such a simple reality, and then rationally choose the course of action which will benefit her country the most. But that’s a laughable proposition.

Pelosi has a multi-decade track record of deceit, disloyalty, cowardice, and arrogance. She’s even despised by prominent members of her own party.

Ironically, the only reason Pelosi even has a job is because a mere 73,815 voters in the San Francisco Bay area chose to send her to Congress. That’s a tiny fraction of the US population in a tiny corner of the country.

Seriously, more people voted to elect the mayor of Denver, Colorado than voted for Nancy Pelosi. Yet somehow Pelosi has enormous power and influence in global politics.

Something is clearly wrong with this system that produces such bizarre, lopsided outcomes from serially corrupt and incompetent candidates.

Pelosi is just one of countless examples-- a #mefirst, self-centered hypocrite who has become the modern day Alcibiades. And she’ll most likely go down in history with a similar reputation as he did.

To your freedom,  Simon Black,  Founder, SovereignMan.com

The “experts” nail it again! | Sovereign Man

You’re In Charge Of You.

You’re In Charge Of You. Not Secretary Pete. Not Hunter Biden’s Dad

Notes From the Field By Simon Black  July 11, 2022

Richard of Bordeaux was just a scared, ten year old boy in the summer of 1377 when his grandfather passed away.   This should hardly have been historically relevant. But in Richard’s case, his grandfather was King Edward III who had ruled England for more than 50 years.

Edward III had been highly unpopular and faced steep political opposition towards the end of his reign. And leading up to his death, Edward’s opponents among the nobility sought to consolidate their own power and install a new monarch that they could control.

So they plotted to install young Richard to the throne. Even though Richard would technically be King, the nobles would be calling the shots behind the scenes.

And so, on July 16, 1377, nearly 645 years ago to the day, the boy was whisked away to Westminster Abbey and crowned King Richard II under the watchful eyes of the new Regency Council.

The nobles wasted no time in appointing themselves to positions of high authority. After all, England was in extreme turmoil and in desperate need of their courageous leadership and expertise. They and they alone could save England from the depths of its crises.

And crises there were many.

The English treasury was depleting rapidly, thanks in large part to the endless Hundred Years War that had been raging for decades.

But most notably, recurrent outbreaks of the Bubonic Plague had ravaged the kingdom, with some cities having lost as much as 50% of their populations.

The pandemic (which we now call the Black Death) caused labor shortages and nasty inflation across the country.

So the expert nobles sprang into action with all sorts of idiotic rules and regulations. They raised taxes, they reduced freedom, they tightened feudal restrictions, and they tried to centrally plan economic output.

But none of their expert solutions worked, and by the autumn of 1380, England’s economy was in even worse shape.

International trade had practically collapsed. England was on the verge of defaulting on its debt. And the war was going very poorly for England; it turned out these expert nobles were pitiful military strategists, and France had seized the advantage.

So in November 1380, the experts convinced parliament to pass another tax-- a ‘head’ tax, which essentially meant that everyone in the kingdom had to fork over a fixed sum of money to the government simply for the privilege of being alive.

And this was the second such head tax that the experts had passed in as many years. 

Needless to say it didn’t go over well with the people.

Serfs began to unionize and go on strike. Peasants outright refused to pay the tax. The nobles mobilized to stop them, sending magistrates across the countryside to arrest dissenters.

Within a few months, a full-blown uprising had broken out; it’s now known to history as the Peasant’s Revolt of 1381.

And it spread rapidly. By June 1381, riots were taking place across England. And they were anything but ‘mostly peaceful’.

Thousands of people were killed in the violence, and mobs tore down entire palaces. But in the end, government forces managed to put down the rebellion, and the rebel leaders were quickly executed.

None of the experts, of course, ever faced charges. Their corruption, incompetence, and profligate spending were all overlooked.

We’ve seen this story over and over again throughout history-- horrible leadership engineering major crises.

Quite often we blame the actual ruler in charge. Ancient Rome, for example, is packed with terrible emperors who share responsibility for the demise of the empire.

But it’s rarely just one person who creates all the turmoil. And we often forget key officials within government who drive so much chaos.

Richard II was just a stooge. Sure, he was officially the King. But ‘expert’ ministers were making all the decisions, and they proved to be some of the worst ever assembled in the history of government.

It’s hard to not notice the obvious parallels to our own times, and to see our own government filled with the same idiot savants that plagued the cabinet of Richard II.

Over the weekend I watched a recent interview with US Transportation Secretary Pete Buttigieg, the man who has presided over historic airline chaos, including record flight cancellations, delays, lost baggage, airport wait times, etc.

He’s also played a major role in mucking up the supply chain, given that the nation’s seaports, trucking, etc. fall within his domain.

Secretary Pete, of course, has been out to lunch throughout most of this.

But the interview he gave (which took place in April) gives an extremely revealing view of his mindset.

He explained to his host that his Department was in charge of spending nearly $1.2 trillion that had been authorized by Congress in the 2021 infrastructure bill.

“The main thing I’m thinking about,” said Secretary Pete, “is how do we make sure we take all this money, this $1.2 trillion… and actually deliver $1.2 trillion of value?”

Ummm… shouldn’t spending $1.2 trillion on roads and bridges provide AT LEAST $1.2 trillion worth of roads and bridges?

Seriously, how terrible are these infrastructure projects if he’s worried about not achieving enough value to even justify their costs?

Does Pete also go to the grocery store and worry, “How can I spend $100 in this store and walk out with $100 worth of groceries?”

You’d think he would be striving to achieve a 10x return on that infrastructure money. But no. Pete is trying to figure out how to get 1x.

To these people, it’s a monumental achievement to NOT squander the majority of funds entrusted to them by taxpayers.

And that’s ultimately why we cannot rely on them to fix their own mistakes.

The people in charge have engineered so many problems. They are responsible for everything from inflation and economic malaise, right down to the baby formula shortage.

And it’s not just one person shaking hands with thin air. It’s the clueless, astonishingly incompetent cadre below who consistently make things worse.

The good news is that while you cannot depend on government officials to ride to the rescue, you can rely on yourself.

I don’t mean for that to be a cheesy cliché. Sure, if taking United Airlines from Houston to New York, you still have to deal with Secretary Pete’s incompetence.

But we do have much more control over our lives and livelihoods than they want us to realize.

Even with these lunatics in charge, we have tremendous power over our own prosperity, our health, our children’s education, and more.

There are still oceans of opportunity in the world-- job opportunities, business opportunities, investment opportunities, lifestyle opportunities, etc.

Bottom line: you’re in charge of you. Not Secretary Pete. Not Hunter Biden’s dad. Not anyone else. And you don’t need to allow yourself to become a victim to their ineptitude.

To your freedom,  Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/youre-in-charge-of-you-not-secretary-pete-not-hunter-bidens-dad-35851/

‘Experts’ Broke The World. But They’re Rapidly Losing Power…

‘Experts’ Broke The World. But They’re Rapidly Losing Power…

Notes From the Field By Simon Black   July 15, 2022

It’s rare to find someone, anyone, who has yet to witness, hear about, or directly experience the devastating consequences of the supposed leadership that ‘experts’ have unleashed on us over the past few years. They have engineered and mishandled crisis after crisis after crisis…

The world over, from California to Sri Lanka, people everywhere are suffering from their incompetence.

Western Europe is on the verge of a major energy crisis; the 4th-largest economy in the world (Germany) is dimming its street lights and thinking about firing up its coal power plants (previously considered UNTHINKABLE!) because they're running out of energy.

Even in Texas, which could be considered the world's 10th-largest economy by GDP, the independent energy grid is so fragile that power companies are remotely turning down people’s home thermostats to save on energy supply.

We have also just seen a leaked hour+ video showing the 'authorities' in Uvalde, Texas-- fully armed law enforcement professionals-- ignoring the literal screams of dying children only a few dozen feet away. Instead they texted on their phones and sanitized their hands. You know, because of Covid. I guess that was the priority.

All of this is an utter indictment of how pitifully our experts and authorities have betrayed us. In short, the people in charge broke the world.

But the good news is that their reign of ineptitude is rapidly coming to an end. That much is obvious. And even better, there are a lot of solutions and technologies on the horizon that could make this all go away relatively quickly... just as soon as they get out of the way.

You can listen in to that discussion in today's podcast, which you can access here.

To your freedom, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/podcast/experts-broke-the-world-but-theyre-rapidly-losing-power-35930/

Declaring Intellectual Independence

Declaring Intellectual Independence

Notes From the Field By Simon Black July 1, 2022

Happy Canada Day to our Canadian friends. And Monday, of course, is Independence Day in the United States.

It’ll be an odd one for sure. Many cities are reportedly cutting back on their fireworks displays due to… yes… supply chain shortages. And many people may scale down their traditional backyard grilling due to insanely high food price inflation. There’s undoubtedly a lot of reason for concern right now, and people of all personal philosophies across the political spectrum feel it.

Those on the left are angry about recent Supreme Court decisions and concerned that they may lose other rights. Those on the right fret about cancel culture. Almost everyone is concerned about inflation… and we constantly hear the cry that ‘Democracy is under attack’.

There’s a mountain of problems and no real solutions on the horizon.

More importantly, it seems like intense social factions have developed. Public “debate” and civil discourse is governed by those who feel but don’t think… by people who are professionally outraged but outrageously ignorant.

And it is under these odd circumstances that citizens celebrate the birth of their nations this weekend.

Today I wanted to provide a little bit of historic context. There are problems, yes. But you might have a more hopeful outlook for the future after hearing more about the early days of America.

Click here to listen to today’s conversation… and we wish you a safe and relaxing holiday weekend.

To your freedom, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/podcast/audio-declaring-intellectual-independence-35760/  Episode #2

https://www.sovereignman.com/podcast/is-this-what-they-mean-by-democracy-is-under-attack-35726/  Episode #1

Your Financial Liability To Your Government Is Infinite

Your Financial Liability To Your Government Is Infinite

Notes From the Field By Simon Black   June 27, 2022

In the year 1255 AD, a prominent Italian businessman named Orlando Bonsignori launched a new venture that he boldly called the Gran Tavola, or “Great Table”.  Despite the name, it wasn’t a medieval furniture shop. Bonsignori came from a family of wealthy bankers who had highly influential political connections across Europe. And Bonsignori’s idea was to create the biggest bank on the continent that would cater specifically to kings, popes, and emperors.

In a way, what Bonsignori created was a sort of proto International Monetary Fund; he took deposits from, and made loans to, governments and rulers all over Europe. And Bonsignori’s Gran Tavola had an especially cozy relationship with the Vatican.

Bonsignori raised money for his bank by using a relatively new legal structure called the compagnia, which came from the Latin companio, which referred to the sharing of bread.

The idea behind a compagnia is that individuals could get together and pool their money into a single enterprise (like Bonsignori’s bank), and they would share the profits of the business in accordance with their capital contributions.

This seems like a pretty basic concept for us today. But in the Middle Ages it was quite innovative.

There was just one problem with the compagnia structure: while the partners all shared in the profits of the business, they also shared in the liability.

This meant that, if the venture failed, investors could actually owe MORE than they originally invested. And that’s exactly what happened with the Gran Tavola.

At first the bank was a smashing success; by the mid 1260s, they had become the exclusive financial partner to the Vatican. And that momentum continued for decades.

But by the mid 1290s, long after Bonsignori had passed away, the bank started having serious problems.

King Philip IV of France, angry that the Gran Tavola had backed some of his rivals, confiscated many of the bank’s assets. The bank also lost its Vatican business, which was a huge financial blow.

Within a few years, the bank was insolvent. It was so short of cash, in fact, that there wasn’t enough money to pay depositors.

But since the bank was structured as a compagnia, the bank’s investors were all personally liable for the shortfall.

This was pretty typical back then; the concept of holding shareholders liable to pay the debts of a business goes back thousands of years to Roman law.

But eventually new legal structures were developed. Governments realized that they needed to encourage business investment in order to stimulate commerce and economic growth. And one of the ways they did that was by formalizing the concept of ‘limited liability’.

The Dutch East India Company was one of the most prominent early examples of this structure; it was established in 1602 as a ‘joint-stock company’, whereby investors contributed capital in exchange for shares in the business. But an investor’s financial risk was limited to the amount contributed.

In other words, if the Dutch East India Company succeeded, the investor would receive his share of the profit. But if the company failed, the investor would only lose, at most, his original investment amount. He could not be held personally liable for the company’s debts.

And for the most part, this is still the way business is done today. Shareholders in Apple are not personally liable for the debts and obligations of the business; their total financial risk is limited to the amount of money they’ve invested… but not a penny more.

What’s interesting, however, is that while you cannot generally be held responsible for the debts of any company in which you’ve invested, you WILL ABSOLUTELY be held responsible for the debts of your government.

And local government is a great example.

Over the weekend I was talking with a friend who wanted my opinion about a couple of places she was thinking about moving to in the United States. She has young children and cares deeply about the quality of schools… so we started reviewing the school districts’ financial statements to get a glimpse of the future.

I was pretty surprised at what I saw.

Granted, I only reviewed a small sample of about a dozen school districts in various states. But each of them is heavily in debt-- and these are in generally wealthy suburbs in North Texas, Virginia, Florida, Georgia, etc.

According to their audited financial reports, most of the districts I looked at took on hundreds of millions of dollars in new loans over the past two years because of COVID emergency measures they implemented. And now many districts are under pressure to increase security as well.

This is all financially crippling. Many are losing money or scrambling to come up with new funding sources. Some are considering closing down a few of their schools in order to cut costs. And almost all of them are proposing a tax increase.

This is where the concept of stakeholder liability starts to apply again.

Just like with the Gran Tavola where the shareholders were ultimately responsible for the company’s financial obligations, it’s the local residents who are ultimately on the hook for the school district’s debts.

Sure, a school district’s creditor won’t be able to sue the Jones family on Mulberry Street in order to collect. But citizens are absolutely liable to pay in the form of tax increases and service cuts.

And it’s really the same with all government-- state, local, federal, etc. Whenever your politicians screw up and the government is in financial distress, they pass the buck on to the taxpayers.

But unlike a shareholder in a company who has ‘limited liability’, i.e. your financial exposure is limited to the amount of your investment, citizens have no similar limitation when it comes to government.

 Your financial liability to your government is infinite. They can tax you and deprive you of services forever. As long as you allow them to do so.

This is one of the biggest reasons why it makes sense to have a Plan B.

Without a Plan B, you have no other option, and you’re stuck with a government that will milk you like a dairy cow for the rest of your life.

Part of a Plan B means having another place to go. You might never need to use it. But, like an insurance policy, there’s no downside in having that option identified well in advance.

It doesn’t necessarily need to be a far away place on a distant continent overseas. But at a minimum, at least think about where you might move if you really needed to.

And I would humbly suggest you think about places that are financially solvent, or where you can be disconnected from the local government’s financial liability.

https://www.sovereignman.com/trends/your-financially-liability-to-your-government-is-infinite-35732/

To your freedom,  Simon Black,  Founder, SovereignMan.com

Why One Of The Wealthiest Empires In History Disintegrated In 17 Years

Why One Of The Wealthiest Empires In History Disintegrated In 17 Years

Notes From the Field By Simon Black  June 20, 2022

On June 17, 1631, the 38-year old chief consort of Shah Jahan, head of the Mughal Empire, was giving birth to their 14th child in the central Indian city of Burhanpur.

It had been a long and extremely difficult labor-- more than 30 hours in total. But the consort persisted and gave birth to a healthy baby girl. The consort herself, unfortunately, succumbed to uncontrollable postpartum bleeding, and she passed away that same day.

Her name was Mumtaz Mahal. And her husband the Emperor was so bereaved that, after a year-long period of mourning, he commissioned a palatial mausoleum to house her tomb.

We know this tomb today as the Taj Mahal. And Shah Jahan spared no expense on its grandeur. According to the scrupulously kept financial records of the time, the cost of the Taj Mahal totaled precisely 41,828,426.47 silver Rupees. Based on the today’s gold and silver prices, that works out to be more than $3 billion in today’s money.

Now, I’m sure Shah Jahan loved his wife very much. But that’s a lot of money to spend on a tomb… especially when the money comes from the public treasury.

But this sort of profligate spending was pretty typical of the Mughal Emperors at the time.

The Mughal Empire had only been founded roughly 100 years before, in 1526. And it rose to prominence under the reign of Akbar the Great during the late 1500s.

Akbar tripled the size and wealth of the Mughal Empire until it included virtually all of India, Pakistan, and parts of Bangladesh and Afghanistan.

Akbar also ensured that economic freedom reigned. He cut taxes. The coinage was stable. Infrastructure was highly advanced. People were free to engage in commerce and trade.

Akbar also held government bureaucracy to a minimum, and even kept his personal household spending quite low.

He famously ruled with a staff of just four ministers, and he set an example of routinely hiring people based purely on their talent, irrespective of someone’s religion, nationality, or class.

As a result, the Mughal Empire became a financial powerhouse, responsible for roughly 22% of global GDP. (This is approximately the same as the US is today.)

The empire quickly became known for its unimaginable wealth, and European travelers marveled at the Mughals’ high standard of living.

Naturally, the wealth didn’t last. The emperors who followed Akbar did not continue his policies of freedom, tolerance, and conservative spending.

Akbar’s son Jahangir was a cruel, drunken degenerate who reveled in flaying his political opponents; he also ballooned the expenses of his imperial court by establishing a harem of 6,000 women.

(The harem’s administrator was the emperor’s favorite wife-- a woman he married after brutally murdering her first husband.)

Jahangir’s son, Shah Jehan, was even more intemperate. He came to power by slaughtering his brothers, and then quickly raised government spending to epic levels.

In addition to the Taj Mahal, Shah Jehan built dozens of other lavish palaces, and he spent indiscriminately on other personal luxuries like jewelry.

He raised taxes and poisoned the economy with armies of bureaucrats. Shah Jehan was also highly intolerant of other religions and ideologies, and he imposed a special tax on all individuals who did not convert to his Muslim faith.

Shah Jehan was violently overthrown by his son Aurangzeb, a fanatic who sought to eradicate every other faith except for his own. He tore down monuments, smashed statues, and closed schools which did not conform to his ideology.

As Emperor, Aurangzeb raised taxes and accelerated expansion of regulation and government bureaucracy. He also constantly provoked foreign enemies and sunk a great deal of the Empire’s sagging treasury into a never-ending state of costly warfare.

Ironically, though, due to his personal faith, Aurangzeb was a pacifist at home. He frequently refused to enforce the laws and punish crime. Eventually Aurangzeb became legendary for his clemency and forgiveness, and criminals thrived under his reign.

Aurangzeb died in 1707. And just 17 year after his death, the Mughal Empire had disintegrated into fragments.

The Empire’s rise to wealth and prominence over just a few decades in the 1500s was astonishing. Its rapid decline was even more extraordinary. But it’s not hard to understand.

Between peak and decline, the Empire experienced terrible leadership. Weak and incompetent emperors spent lavishly, expanded the bureaucracy, raised taxes, increased regulation, and waged war. Some of those wars ended with humiliating defeats, resulting in a loss of national prestige.

They trampled on individual and economic liberty. They formalized extreme ideological intolerance and encouraged social divisions. They canceled, sometimes violently, anyone who didn’t espouse their beliefs.

They didn’t bother enforcing their own laws, and they let the lawless reign. They lost the ability to transfer power in an orderly manner between successive rulers.

They failed to protect their borders from foreigner invaders-- most notably the British East India Company. And they absolutely failed to recognize that rival powers around the world were rising and would take their place.

They foolishly and arrogantly assumed that their wealth and power would last forever. It didn’t. It never does.

This theme is as old as human civilization itself, and we can see many of the same extravagances and follies from the Mughal Empire in our world today.

This time is not different, and it’s why diversifying internationally makes so much sense… why having a Plan B makes so much sense.

To your freedom, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/why-one-of-the-wealthiest-empires-in-history-disintegrated-in-17-years-35673/

A Surprising Benefit To Owning Gold-- Especially Now

A Surprising Benefit To Owning Gold-- Especially Now

Notes From the Field By Simon Black  May 23, 2022

By the year 41 BC, just a few years after the assassination of Julius Caesar, Rome was under the strict rule of a three-person dictatorship known as the Tresviri rei publicae constituendae.

Historians today refer to this committee as the Triumvirate, and it included a general named Aemilius Lepidus, as well as Gaius Octavius-- who would eventually become Emperor Augustus.

But the leader of the group, at least at first, was Marcus Antonius, also known as Mark Antony.

Mark Antony was not especially popular. Many Romans rightfully suspected that Mark Antony had been involved in Caesar’s assassination. Plus he was sleeping with Caesar’s widow, Cleopatra.

But Antony’s power through the Triumvirate was absolute. He could raise taxes, establish new social and religious traditions, regulate daily life, seize private property, and even condemn people to death… all without any oversight or due process.

And he wasn’t shy about using this power to squash his opposition.

Antony put several of his political enemies to death-- including the much beloved Cicero, who was trying to escape Rome when Antony’s goons killed him.

Antony also threatened to kill another Senator named Nonius. But unlike Cicero, Nonius managed to escape Rome… bringing with him about $1.5 million worth of gold and jewels.

People in the ancient world knew that precious metals (and precious stones) were pretty much the only portable forms of wealth.

Human civilization at the time was completely agrarian, so most productive assets like land and crops were impossible to move. Gold was almost the singular option to move large sums of wealth, and it remained this way for centuries.

These days there are much better options. Many forms of wealth-- financial securities, intellectual property, bank deposits, and cryptocurrency-- are completely portable. So gold is no longer necessary as a way to move money abroad.

And yet gold still has a number of incredible benefits.

For starters, it’s a great way to hold wealth privately. When you own physical gold and store it in a safe, there’s no ‘counterparty’ like a bank or broker standing between you and your money.

No one is keeping tabs on your gold, your name isn’t in some database. And when you pass away, your heirs can easily take possession of the gold without any bureaucratic hurdles.

Second, over the long-term, gold has proven to be a pretty great investment.

Since August 1971, in fact, when gold formally decoupled from the US dollar, the gold price has increased 42x.

Comparatively, the S&P 500 has grown about 40x over the same period.

This isn’t to say that gold is a better investment. In fact, if you reinvested dividends, stocks outperformed. But history shows that gold is worth consideration.

Another benefit of gold is that it has traditionally hedged against systemic risks. It’s like an insurance policy; in times of real crisis, physical gold has historically been a great asset to own.

Notice that I keep saying “physical gold”, i.e. bars and coins.

A lot of people invest in ‘paper’ gold products, like Exchange Traded Funds (ETFs). And 99.99% of the time, these ETFs perform very similarly to physical gold.

It’s that 0.01% of the time-- the real emergencies-- when the performance of ETFs materially diverges from physical gold.

We saw this quite recently in the early days of the pandemic: in early March 2020, major gold ETFs actually fell by around 10%. But the price of physical gold bars and coins went through the roof.

So, in my opinion, physical is always better than paper.

Now, there are plenty of other reasons to consider owning gold-- but there’s one in particular I want to leave you with today: diversification.

Most people understand the concept of diversification quite well: don’t put all of your eggs in one basket.

We constantly write about international diversification at Sovereign Man, i.e. ensuring that your assets, lifestyle, business, etc. isn’t all tied to the same country.

In financial investment terms, diversification means holding multiple assets that have a low correlation to one another.

To use a simple example, Coca Cola and PepsiCo are technically two different companies. But they share similar risks and rewards.

If Coke does well, chances are Pepsi is also doing well, and vice versa. So if you own stock in both Coke and Pepsi, you’re basically invested in the same thing. Your risks and rewards are not diversified.

Now, many people think they’re diversified because they’ve invested in, say, a bank stock and a tech stock-- JP Morgan, and Amazon.

Sure, those two companies certainly have a lower correlation than Coca Cola and Pepsi. But you’re still invested completely in US stocks. And that’s not very diversified.

This is where gold comes in.

Compared to the general stock market, i.e. the S&P 500, gold has a very LOW correlation. In other words, there are years when gold does well, but the stock market does poorly. There are years where stocks are up but gold is down. There are years where they both do well, and years where they both fall.

So, mathematically speaking, gold represents diversification away from the stock market; their risks and rewards are totally different.

Interestingly, though, gold’s diversification doesn’t stop there.

If you look at the price history of gold (again, going back to 1971), it also shows very low correlation to the US economy, i.e. there are periods where the economy shrinks, but gold goes up. There are also periods where the US economy booms, but gold trades sideways.

There’s even a very low correlation between gold and the Federal Reserve, i.e. the gold price moves independently of whether interest rates rise or fall, or whether the Fed balance sheet rises or falls, or whether the Fed expands the money supply.

This diversification is a really interesting benefit of gold, especially right now in such volatile times.

(You might also be surprised that silver represents significant diversification from gold; but more on this another time.)

To your freedom, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/international-diversification-strategies/a-surprising-benefit-to-owning-gold-especially-now-35455/