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Sovereign Man Notes from the Field Date: July 14, 2011

In Business, Business/Political Trends Worldwide, Jobs in Cape Coral, Opportunity, Personal, Political, Political parties, Renmimbi currency, renminbi currency on July 14, 2011 at 7:49 pm

Sovereign Man

Notes from the Field

Date: July 14, 2011
Reporting From: Thessaloniki, Greece

Last night I had quite an unexpected surprise.

You see, at my hotel here in Thessaloniki, there’s a delegation from some group of the European Parliament called the Committee on Regional Development. They’re here to help… Hey, isn’t that what they always say? The Committee wants to supervise Greece working its way out of the debt crisis and make sure that Greece’s poor are getting the support they need.

The hotel’s restaurant was filled with these sycophantic parasites last night– an entire room full of people with a superiority complex who think that they are entitled to make decisions about other people’s lives and money.

They sat at dinner drinking fine wine and polishing up steak tartare making proud, bombastic proclamations about the virtues of foreign aid, the democratic process, and the great progress of Greece’s austerity measures.

Coincidentally, not 300 meters down the road, a campsite has been gathering for economic refugees, Thessaloniki’s former middle class that has been vanquished by the crisis. Some of the children swung by the restaurant’s outdoor terrace begging for change, only to be waved off by one of the delegate’s extended pinkie fingers as he sipped his wine.

It couldn’t have been more ironic… the perfect image of what passes for democracy today, right here in the country that invented it.

Today’s democracy is nothing more that pseudo-authoritarian rule by an elite few, executed by legions of self-deluding freeloaders who have convinced themselves that their current bureaucratic roles are both necessary and honorable… as well as a stepping stone into the next job which will be even more necessary and honorable.

With each successive position up the bureaucratic ladder comes more power, more privilege… until they actually expect to be called “The Honorable…” so and so, or “His Excellency” so and so, etc.

My dictionary suggests a few definitions for ‘honor’. One of them refers to a person’s chastity… and I doubt it applies in this case given the political establishment’s Twitter record. The other definition says, “conferred as a distinction, especially an official award for bravery or achievement.”

In the United States, they must be confusing the term ‘achievement’ with ‘destroying the economy and culture of the formerly most powerful nation on earth.’  President Obama is apparently so honorable that he can’t even be bothered to hold negotiations anymore about debt compromise, arguing that Ronald Reagan wouldn’t be doing that…

He seems more concerned about his esteem and rank being respected than facing the grim facts of economic reality.

Simultaneous on Capitol Hill, Comrade Bernanke sent the dollar plummeting once again. Just to put things in perspective, the entire eurozone is on the precipice of a meltdown, and the euro had been falling for days. The second this man opened his mouth, the dollar plunged… indicating that investors would rather take a chance on European insolvency than Bernanke.

It was truly pathetic… and yet another example of what passes for democracy today: One man who has never been elected is essentially given control of the money supply to do with it as he deems best in his sole discretion.

All in all, as usual, it’s going to come down to the taxpayers. The bureaucrats will go on enjoying their steak tartare and ignoring the huddled masses. The politicians will go on posturing over title. The central bankers will keep making interest free loans to their friends and destroying their currencies.  We get stuck with the fallout.

In the end, the governments will make it a matter of national security and patriotism, ensuring that we ‘do our duty to the nation’ by coughing up more of our livelihood. I stumbled across this WW2 propaganda video a few days ago in which Daffy Duck tells us all that it’s our patriotic duty to give as much as possible to the government.

Should we expect a new video soon suggesting that it’s our patriotic duty to buy Treasury bonds…? In what passes for democracy today, you can bet on it.


Until tomorrow,

Simon Black
Senior Editor, SovereignMan.com 

This article appears courtesy of SovereignMan.com: Notes From The
Field
, a free newsletter dedicated to individual freedom,
internationalization, asset protection and global finance. For a
complimentary subscription, visit http://www.SovereignMan.com

Sovereign Man Notes from the Field Date: July 7, 2011 Reporting From: Wuhan, China [Editor’s note: Tim Staermose is filling in for Simon Black today]

In Business, Business/Political Trends Worldwide, Continental Travel, currency, Government, History, Jobs, Personal, Political, renminbi currency, Travel on July 7, 2011 at 6:33 pm

Sovereign Man

Notes from the Field

Date: July 7, 2011
Reporting From: Wuhan, China

[Editor’s note: Tim Staermose is filling in for Simon Black today]
 
When I left my hotel bound for the new Guangzhou South Station the other day , I didn’t know much about the station– where it was, how far from the hotel, etc. After about 25 or 30 minutes in the cab, I still hadn’t seen any signs for the station and grew concerned that the cabbie was just taking me for a ride.As we eventually approached the station, I began to understand why it was so far out of town.  Clearly, the only way they could find enough contiguous land to build this monstrosity was to go WAY into to the outskirts of the city.In the end, it was a 27.82 kilometer (17.39 miles) cab ride from my downtown hotel, and took 49 minutes to get there.  I know this because Chinese taxis are very efficient and give you a highly detailed receipt.

Guangzhou South Station is absolutely COLOSSAL.  By comparison, it is much bigger than any of the 3 international airport terminals in Manila where I live… and I’d say it’s over 8 times larger than theCentral Airport Express Station in Hong Kong.

For a start, the Guangzhou South Station is built on THREE levels.  I was dropped off at level 2.  When I entered there was an “Information” booth straight ahead.  It was unstaffed.  In fact, the entire second level was completely deserted.  Very spooky. It was something out of a low-budget zombie movie.

I went downstairs to the ticketing area where there were a few signs of life. Of the forty or so ticket windows, well over half were closed, and there were only a few dozen people mulling about. To give you an idea of density, imagine the largest football stadium you can think of with only a few hundred people inside. Ghost town.

With ticket in hand, I went up to the departures area… it defies logic that you have to go upstairs to departures even though the trains are at the ground level, but my guess is that the Party really wanted to build a third level just to heighten the grandeur of the train station.

Now, you’d think that if they spent so much money building a station this large, they would be expecting hundreds of trains steaming in and out at all hours of the day. Not by long shot. There was only one train at the platforms. Mine.

It was the same zombie movie theme– areas the size of multiple football fields with hardly any passengers standing around.  And yet, throughout the entire station over all three levels was expensive, high quality marble tiles and artistic finishings, all polished to a mirrored shine.

Guangzhou South Station is truly a monument to excess, exemplifying China’s ruinous “build it and they will come” attitude.

When I arrived to Wuhan about 4-hours later (going 300 km per hour on the high speed bullet train), it was the same theme: acres of empty space, hardly a soul in sight, yet all very modern and marbled with dozens of elevators and abandoned information booths. When my train pulled in, it was the only one at the platforms.

Frankly, the whole episode reminded me of Bangkok and Hong Kong airports during the SARS epidemic back in 2003.  I observed this firsthand– passenger traffic cratered because most people were scared silly of catching the deadly virus, and major airports were practically empty.

Similarly, this is what you would expect at New York’s Grand Central Station after a flesh-eating virus outbreak.

It’s interesting to note that China’s National Audit Office (NAO) recently published a report which says the country’s outstanding local government debt is now equivalent to $1.7 TRILLION. That’s a huge figure — about 27% of China’s GDP in 2010.Because the NAO’s figure was based only on a sampling of 6,500 local government-backed financial vehicles (out of more than 10,000 such vehicles nationwide), the actual magnitude of local government indebtedness is likely to be much greater.  China’s own Central Bank estimates the number to be 30% higher than the NAO figure.All of this certainly begs the question– how many more empty buildings and unused train stations can they possibly build?  More importantly, what happens to China’s economy when all this fixed asset spending starts to subside?  I’ll explore these questions more in the coming days… but in the meantime, I’d like to hear what you think about it.


Until tomorrow,

Tim Staermose
Editor, SovereignMan.com 

This article appears courtesy of <a href="http://www.sovereignman.com">SovereignMan.com: Notes From The
Field</a>, a free newsletter dedicated to individual freedom,
internationalization, asset protection and global finance. For a
complimentary subscription, visit <a href="http://www.sovereignman.com">http://www.SovereignMan.com</a>


Sovereign Man Notes from the Field Date: April 25, 2011 Reporting From: En route from Santa Cruz, Bolivia

In Banking, Business, Business/Political Trends Worldwide, Continental Travel, Jobs, Medical treatment, personal and business, renminbi currency, Sovereign Man on April 25, 2011 at 4:15 pm

Sovereign Man
Notes from the Field

Date: April 25, 2011
Reporting From: En route from Santa Cruz, Bolivia

[Editor’s note: Simon put an unusual amount of photos in today’s letter, you can see all of them online.]

Anyone who has any doubt that central planning and corruption destroys an economy should head to Bolivia. The country is a classic example of a resource-rich nation whose economic potential has been squandered by socialism.

It wasn’t always this way. Bolivia has had several periods of prosperity in its relatively brief history; in the late 1800s, for example, the price of gold began to rise dramatically against silver which was backing many currencies at the time such as the US dollar. (see chart).

Bolivia’s mining industry dates back to the 16th century, and as the country was rich with gold, its economy prospered. The good times lasted until the global depression in the 1930s when Bolivia and Paraguay went to war over the Chaco, each side thinking there was oil underneath the ground.

Following a terrible defeat and a resurgence of tough times, a number of revolutionary movements sprouted around the country. These took hold for several decades, eventually leading to a series of failed military dictatorships that were finally abandoned in the 1980s.

With an inflation rate of roughly 25,000%, Bolivia’s new market-oriented government took immediate steps to liberalize the economy, reduce capital and trade barriers, privatize state-owned companies, and attract foreign investment.

By 1985, the economy was heading back on track, and the prosperity lasted through the early 2000s when nationwide turmoil broke out over the fate of Bolivia’s massive natural gas reserves.

In light of new gas discoveries near Santa Cruz, the government provided concessions to a group of foreign companies who were willing to invest the necessary intellectual and financial capital to exploit the reserves. This move was widely opposed by many Bolivians and resulted in violent protests.

Ultimately, socialist presidential candidate Evo Morales was elected in 2006 and began his tradition of May Day nationalization decrees, starting with the natural gas reserves.

Morales considers himself a champion of the poor, and his stated aim is to distribute the profit from Bolivia’s resources among the people. Certainly, there is a large contingent of the population within Bolivia that lives in abject poverty, and their prospects have changed little over the years.

Socialists like Morales think that you can cure poverty by throwing money at the problem. They believe that by confiscating profits from evil capitalists and sprinkling them among the poor, they can lift people out of poverty.

This is a logical failure. Poverty isn’t caused by a lack of money… it’s caused by the lack of ability or opportunity to create value. Showering poor people with money does not address this problem, just ask any millionaire lottery winner who’s ended up back in the trailer park.

Like an incompetent physician who routinely misdiagnoses an ailment, socialism tries to treat the symptoms of poverty rather than address its root cause. Consequently, these measures ultimately end up as catastrophic failures.

The most common play is to vastly expand the size of government and hire legions of new workers. To give you an example, there is a network of toll roads outside of Santa Cruz. You pay the toll, not for the upkeep of the roads (which are in terrible condition), but to pay the salary of the guy who collects the toll.

Army bases are everywhere in Bolivia. You can’t drive 30 kilometers without passing some sort of military installation where a bunch of jackbooted monkeys are parading around waiting for the Brazilians to invade.

Perhaps the best example is at the airport.

When you want to leave Bolivia, there is first a three-step check-in procedure. Following that, you have to stand in another line to pay the airport departure tax. Needless to say, this revenue doesn’t go to improve the airport, but to pay the salaries of the people who collect the tax.

Following that is the passport border control, another line. Following that is an INTERPOL check, yet another line. Following that is narco-trafficking checkpoint, where they go through your carry-on baggage looking for drugs.

In my case, the inspecting officer actually sniffed my iPad, leading me to believe he was either heeding
New York Fed President Bill Dudley’s culinary advice, or honestly thought that I could manage to pack the circuitry full of cocaine without damaging the touch screen functionality.

After that is yet another line for final customs clearing. The whole process takes 2-hours on a good day.

Each of these people along the way has a job… yet not a single one of them is adding any value or gaining any valuable experience. The net effect of such policies cascading across the entire economy has been unmitigated wealth destruction.

Deep down, Bolivia is a nice country. It’s incredibly cheap, the people are friendly, the women are attractive, and the weather is quite nice. But it truly takes a special person to be able to deal with the constant misgivings and inefficiencies in this centrally planned state.

When I compare Bolivia to it’s southern neighbor Chile– clean, modern, developed, civilized, market-oriented– it’s a night and day difference.

Fundamentally, these are the same people who have taken two completely different paths. One leads to wealth and is a great example of how a pro-market, limited government can benefit society. The other leads to poverty, and is the clearest example of what happens when politicians drive an economy.

Where do you stand– is it possible to eradicate poverty by giving out money for free? Let me know what you think.

Until tomorrow,

Simon Black
Senior Editor, SovereignMan.com

This article appears courtesy of SovereignMan.com: Notes From The
Field
, a free newsletter dedicated to individual freedom,
internationalization, asset protection and global finance. For a
complimentary subscription, visit http://www.SovereignMan.com

Sovereign Man Notes from the Field Date: April 4, 2011 Reporting From: Santiago, Chile

In Business, Expatriation, Government, History, Interesting places, Opportunity, renminbi currency, Travel on April 4, 2011 at 7:30 pm

Sovereign Man
Notes from the Field
Date: April 4, 2011
Reporting From: Santiago, Chile

I have a little secret that I’m going to let you in on, it’s one of the ways that I meet people and get networked while traveling internationally. Over time, I’ve found that, if you want to connect with influential insiders, you have to go where influential insiders are.

Country clubs are not my scene… they’re stuffy, formal, and usually take too much time to acquire a membership. Health clubs, on the other hand, are a great place to make contacts. Gyms are partly social by design, a place where people naturally gather and shoot the breeze in between sets, or before/after demonic spinning classes.

It’s also a place where you can interact with people out of their element– the big powerful CEO is just another sweaty fat guy in tight shorts, and it’s much easier to approach and strike up a conversation with him at the gym’s water cooler than trying to work your way onto his office calendar.

Exactly for this reason, I tend to seek out the most expensive gyms in town when I travel… it’s not because I have particularly fancy tastes (I don’t), but because I go where they go.

Here in Santiago, it’s a place called O2 in Las Condes. I get a twofer because it’s part of the W Hotel complex, so I end up mingling with the well-to-do foreigners who come into town.

Yesterday that happened to be members of several of the bands who appeared at this weekend’s Lollapalooza music festival– Flaming Lips, Killers, Jane’s Addiction, etc. You may recall this networking concept of ‘the open door’ from our Network Infiltration Report.**

What I’ve noticed over the last few months, though, is that there is an emerging trend of wealthy foreigners coming to Chile from Asia, specifically mainland China. The two obvious reasons they’re here are copper and lithium, of which Chile has the largest reserves in the world.

Both of these metals are critical for continued production, and companies from China are sending over their purchasing managers to lock up supply.

(I suspect that, in time, the two countries will begin settling their cross-border trade in pesos and renminbi instead of increasingly worthless dollars. In fact, QE3 may be the catalyst which ends the US dollar’s reign as the prime currency for cross-border trade settlement.)

The other reason there are so many Chinese here is that they’re looking for property, specifically farmland. Topsoil is being destroyed at an alarming rate in China, whether due to environmental and weather factors, rapid urban development, or soil depletion.

The agrarian lands in northern and western China are engulfed in a dust bowl that dwarfs the 1930s dust bowl in the United States… and compounding the problem is the country’s growing water crisis.

It’s been no secret that the Chinese have been scooping up cheap resource-rich property and assets across Africa’s corrupt nations. On a risk-adjusted basis, however, Latin America is a much better investment, and the number of boots on the ground here shows that they’re starting to realize that.

Comparatively speaking, Latin America lacks the political risk of Africa. Sure, there are a few left-leaning big mouths down here… but this is a negligible risk for people coming from Beijing. And in terms of price, Latin American property is some of the cheapest in the world.

I’ve written before about property that sells for as little as $25/acre. Certainly, the titles aren’t as crystal clear as what westerners are used to in North America and Europe where records can date back to the 1600s. But for Chinese investors who are used to dealing with gun-toting 13-year olds in Africa, such deals are a sound investment.

Best of all, many countries in Latin America like Uruguay and Argentina still transact property deals in US dollars, so Chinese investors who are sitting on a pile of hot potatoes have a willing seller who will accept their worthless paper for something of value. Bonus.

Here in Chile, I’ve seen land in the remote south of the country for $200 to $2,000 per acre, depending on the size, distance to infrastructure, and carrying capacity. It’s more expensive than in places like Ecuador or Paraguay, but the rule of law is stronger in Chile, and I suspect that the Chinese are willing to pay a bit more for extra protection.

As I am looking for property myself down here, I expect to find out more about what they’re buying, and where… and I’ll report back what I learn.

** Speaking of ‘open doors’ don’t forget about our Atlas 400 information teleconference, tomorrow, Tuesday April 5th at 3:00pm Eastern Time. You can sign up to receive the call-in instructions here.

Until tomorrow,

Simon Black
Senior Editor, SovereignMan.com

This article appears courtesy of SovereignMan.com: Notes From The
Field
, a free newsletter dedicated to individual freedom,
internationalization, asset protection and global finance. For a
complimentary subscription, visit http://www.SovereignMan.com

Sovereign Man Notes from the Field Date: February 28, 2011 Reporting From: Tulum, Mexico

In Business/Political Trends Worldwide, Continental Travel, Government, History, Money and Finances, Offshore accounts, Political, renminbi currency, Taxes on February 28, 2011 at 5:36 pm

Sovereign Man
Notes from the Field

Date: February 28, 2011
Reporting From: Tulum, Mexico

There’s major shift occurring right now in financial markets.

Sure, the food and freedom riots that are spreading across the globe are a major indicator that civil unrest follows very closely behind resource shortages and economic turmoil… but there’s something else that I’ve noticed recently– it’s a sea change in the financial system.

In the past, major crises normally caused investors to seek safe haven assets, and everything else equal, the dollar would rise. They call it a ‘flight to safety’, and investors would flock towards the perceived stability of US Treasury securities.

In 2008, for example, the Lehman collapse spurred the market to go rushing into the dollar. The pound, euro, S&P, oil, and gold all went into freefall, and the dollar surged. Anyone holding cash felt pretty smart, and the market paid tribute to the US dollar as the world’s safe haven currency.

There were a lot of reasons for why this happened. The US government likes to claim that it has never failed to pay on its debts. Of course, even the most cursory analysis would lead one to conclude that they trade debt for inflation… and more debt.

Regardless, when financial markets were collapsing in 2008, investors made a rational decision to accept negative real rates in the dollar (effectively paying a fee to hold short-term treasuries) over other currencies and asset classes.

It was the lesser of all evils at that particular moment and should not be conflated with ‘confidence’.

The other big reason for the dollar’s 2008 surge was that many of the world’s financial markets were leveraged to the hilt… in dollars. When Greenspan started slashing rates in 2001, investors around the world had been able to borrow cheap US dollars and park them in higher yielding assets abroad.

This global carry trade helped produce huge returns in emerging financial markets as investors borrowed four to six times their dollar equity at 2% to 8% and invested in China at 20%+.

When those markets began to melt down, however, the dollar loans needed to be repaid, and investors went rushing back into the dollar.

The dollar sat atop its altar for about six-months from September 2008 through March 2009, at which point risk tolerance reversed and the dollar began steadily losing ground again.

When European sovereign debt woes surfaced later that year (and in earnest in early 2010), the dollar surged once again… but that time it was a little different.

Sure, the dollar rallied against the euro and other European currencies… but gold rose as well. I remember writing about this last year, suggesting that the simultaneous rise in both the dollar and gold indicated the market’s changing attitude towards what it considered a ‘safe haven.’

Clearly the dollar was beginning to fall out of favor.

Fast forward to today. Mubarak. Gaddafi. Khalifa. Al Said. Ben Ali. Etc. There is no shortage of turmoil right now… yet we are seeing the dollar get clobbered while gold, silver, and smaller currencies like the Swiss franc rise. This represents a major shift in the way that the market views risk.

It’s true that nothing goes up or down in a straight line… but long term, the market is telling us that investors are washing their hands of the dollar as a safe haven asset.

So what happens from here?

In the long run, the law of one price will prevail; the US dollar cannot become so cheap relative to other currencies that a multimillion dollar home in Malibu only costs the equivalent of six month’s wages in Switzerland… or that a new Corvette equals the price of an electric bicycle in Singapore.

Foreigners will swoop in and mop up US inventory long before that happens, not to mention foreign governments will manipulate their own currencies in order to avoid missing out on a 300 million-strong consumer market.

We’re already seeing this now as the ridiculous game of international capital controls tries to masquerade as a free market. I suspect the regulatory environment will only worsen as the political lemmings follow one another off the cliffside.

(yes I know it’s a myth, but so is the notion of fiat currency as sound money…)

What about commodities? Investors looking for safe haven assets may opt for things like oil and wheat which have functional value… but I suspect that governments will step in long before we see $200 oil to set a ceiling price, or begin attacking speculators once again.

Ironically, this makes precious metals among the most attractive safe haven alternatives– the fact that they have no real functional value is a net positive.

As a caveat, I am not a gold bug, but the regular lamentations by the PM bears (gold is just a paper weight that has no function, you cannot eat gold, you cannot fill your gas tank with gold, there is no way to value gold, etc.) may turn out to be beneficial.

It is simply BECAUSE you cannot eat gold, cannot fill your gas tank with gold, etc. that governments will be more concerned about regulating high oil, wheat, and soy prices. If gold has no real benefit to the masses, the political consequences of high gold prices are less significant.

In other words, $20 wheat means blood in the streets. $2,000 gold only makes for pithy headlines, and its significance is easily dismissed when highly regarded sages like Warren Buffet dispute the notion of holding precious metals (nevermind he bought oodles of silver in the late 90s).

We’ll talk about this much more on this later, especially why the euro will likely fall first, and how the renimbi will continue to rise as an alternative reserve currency.

As an admin note, SMC subscribers are reminded of our monthly teleconference this evening at 6pm eastern time in which Matt and I will be addressing some of the more visible issues from the premium site’s forum discussions.

Also, inaugural ‘Fourth Pillar’ subscribers will receive their first issue tomorrow, so watch out for that.

Until tomorrow,

Simon Black
Senior Editor, SovereignMan.com

This article appears courtesy of SovereignMan.com: Notes From The
Field
, a free newsletter dedicated to individual freedom,
internationalization, asset protection and global finance. For a
complimentary subscription, visit http://www.SovereignMan.com

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