Robert Kiyosaki Blog

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Simon Black – 078: Eating used coffee grounds for breakfast and black-market cash deals with taxi drivers

Podcast Episode #78 Eating used coffee grounds for breakfast and black-market cash deals with taxi drivers Today’s Notes is a bit different… I recorded a conversation I had with my colleague Sean Goldsmith about my recent travels to Venezuela. I explain how I exchanged my US dollars on the black market for Bolivar (with a taxi driver I’d never met before)… and how the situation in Venezuela will get worse before it gets better. Plus, I share observations and stories of things I saw on the ground in one of the world’s poorest and most dangerous countries. Then we discuss the tragedy in Puerto Rico… and why I think Puerto Rico is still one of the greatest opportunities in the world today. They’ve run the numbers, and their tax incentives like Act 20 and Act 22 are helping the island. I expect the amazing incentives will stay in place. And, although the hurricane was devastating, the financial aid that comes along with the storm is a catalyst to get Puerto Rico back on its feet. You can listen to our conversation below. Podcast Episode #78 Eating used coffee grounds for breakfast and black-market cash deals with taxi drivers About the Author Simon Black is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments. 078: Eating used coffee grounds for breakfast and black-market cash deals with taxi drivers Share and...

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Simon Black – Cyprus STILL has “an emergency situation”. And capital controls

April 9, 2014 Santiago, Chile Imagine that your country and banking system are so broke that you have to receive approval from a special committee just to send your own money to your kids who are away at university… Crazy, right? But that’s exactly what’s going on in Cyprus. And it all happened overnight. Just over a year ago, people across Cyprus went to bed thinking everything was just fine. They woke up the next morning to a brand new reality: their government AND their banking system were flat broke. In collusion with other European powers, the Cypriot government FROZE bank accounts across the country. Suddenly an entire nation had no access to their savings. The government spent weeks bickering about whose funds they were going to confiscate in order to bail out the banks… all the while maintaining the freeze. Finally they made a decision: wealthy people would have their funds seized. But this wasn’t a victory for everyone else… because simultaneously the government announced a flurry of severe financial restrictions. Sure, people could log on to a bank website and see an account balance. But it was nothing more than a number on a screen. It didn’t mean the banks actually had the money. Nor did it mean they were free to access their own funds. Cash withdrawal limits were imposed. Funds transfers were curtailed. Cypriots were even forbidden from doing something as simple as cashing a check. Peoples’ savings were essentially trapped inside of a highly insolvent financial system. These destructive tactics are called capital controls. And one year later they’re still in place. Some are being relaxed. Others are being maintained. But by its own admission, the Ministry of Finance still believes there is a “lack of substantial liquidity and risk of deposits outflow. . . that could lead to instability of the financial system and have destabilizing consequences on the economy and society of the country as a whole.” Naturally, since this is an “emergency situation” in their view, they have to impose these “restrictive measures” in order to safeguard “public order and public security”. In other words, capital controls are for your own good. This is exactly the sort of thing that happens when governments and banking systems go bankrupt. And every shred of objective evidence suggests that many of the ‘rich’ nations of the West are in a similar position. Some of the largest banks in the US (like Citigroup) have failed their stress tests; this means they are inadequately capitalized to withstand any major financial shock. Then there’s the FDIC, which is supposed to insure deposits in the Land of the...

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Simon Black – I’m amazed more people aren’t doing this. But soon, they will be.

April 11, 2014 En Route to Buenos Aires Every now and again, the universe presents us with opportunities that are so obvious we have to wonder why everyone else isn’t doing it too. This is how I felt yesterday while attending an invitation-only “Demo Day” for startup companies based in Chile. As we’ve discussed before, Chile is a top-20 Startup ecosystem worldwide. Entrepreneurs from all over the planet come to Chile to start their businesses, grow, and thrive. And there are a lot of reasons for this. First, the Startup Chile program provides $ 40,000 in equity-free seed capital to roughly 300 select entrepreneurs each year who make the cut. Plus Chile’s incredibly flexible immigration laws make it possible for business owners to import talent from just about anywhere in the world. This is an incredibly unique aspect of doing business in Chile that you’ll hardly find anywhere else. There’s no H-1B visa hassle here, no xenophobia accusing foreigners of stealing jobs. In Chile, small businesses are able to hire the right person for the job, no matter where he or she comes from. Just to give you an example, one of the companies I run here employs people from the US, Canada, Argentina, Slovenia, Lithuania, Ukraine, New Zealand, and Thailand. And obtaining residency for them was a very straightforward process. Not to mention, there’s quite a bit of wealth in Chile, especially in Santiago. So the potential in the consumer market is vast. Yet at the same time, there’s very little competition in the marketplace. This makes Chile ideal for startups, especially for disruptive businesses looking for a great test market. There are so many companies here doing some really, really exciting things. This became completely obvious watching presentation after presentation. I’m embarrassed to say that before I showed up, I had set my expectations very low. I was expecting a bunch of kids designing apps which make fart sounds. But I was blown away by the quality. These weren’t kids. Most were seasoned entrepreneurs in their 30s and 40s who were working on cutting edge stuff. One group was revolutionizing the already revolutionary 3D printing space. Another group had a medical device so advanced I joked with some friends later that it would replace the tricorder. Another group had developed software which I have no doubt will be acquired by Google at a hefty premium. Another by Microsoft or Apple. Cleantech. Robotics. Sustainable energy. There were so many great businesses there. Moreover, these weren’t just crazy dreamers with no hope of ever generating a profit. Many of them were already quite profitable; one entrepreneur told me they...

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Simon Black – The one investment you want to avoid at all costs

February 20, 2014 Sovereign Valley Farm, Chile 4.1%. I read it twice to make sure my brain had processed the number correctly. Yep, 4.1%. This was the annual yield promised on a new 5-year bond investment that a private banker colleague had sent to me. I couldn’t believe it. The bond issuance was by a state-owned company in India. And despite the Indian government having a -very- recent history of capital controls, price fixing, and asset confiscation, and despite the company being rated near JUNK status, the bond only carried a yield of 4.1%. This is really amazing when you think about it. Central bankers have destroyed money and interest rates to the point that near-bankrupt companies in shaky jurisdictions can borrow money for practically nothing. It’s an utter farce. The rate of inflation is -at least- 3% in many developed countries. Central bankers will even say they are targeting 3% inflation. This means that if investors simply want to generate enough income so that their after-tax yield keeps pace with inflation, they have to assume a ridiculous amount of risk. This is a really important point to understand given that the global bond market is so massive– roughly $ 100 trillion, with nearly $ 1 trillion traded each day in the US alone. This is almost twice the size of the global stock market. And even if people never invest in a bond themselves, they’re directly connected to the bond market. Your pension fund owns bonds. The bank that is holding on to your money owns bonds. The companies listed on the stock market that you invest in own bonds. Yet bonds are some of the worst investments out there right now. And that’s saying a lot given how overvalued stock markets are. Here’s the bottom line: adjusting for both taxes and inflation, bondholders are losing money, even on risky issuances. Think about it– if you make a 4% return and pay 25% in taxes, your net yield is 3%. If inflation is 3%, your entire gain is wiped out… so you have taken that risk for nothing. If inflation rises just a bit then you are in negative territory. There are those who suggest that deflation is a much greater risk right now than inflation… and that bonds are great investments to own in the event of deflation. But here’s the thing– even if deflation takes hold and prices fall, anyone who is deeply in debt is going to feel LOTS of pain. Instead of their debt burden inflating away, now they’ll be scrambling to make interest payments. So while bonds are a sensible deflationary investment in...

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Simon Black – The easiest place in the world to establish second residency

Recently, we’ve discussed several different economic citizenship programs around the world. And while these programs are not for everyone due to their higher costs, they have all surfaced at the same time, and I would be derelict in my duties to not to inform you about these options. Bottom line—it’s all good news. The supply of potential second citizenships is increasing. And I’m certain it’s going to continue to in crease, even despite the occasional grumblings and misgivings. Malta is an interesting example; after passing their new economic citizenship program, the European parliament is scheduled to have a ‘debate’ in January to discuss the program. It clearly makes a lot of politicians uncomfortable. I shared the stage with a minister from the Maltese government at a citizenship conference in Miami a few weeks ago. It was nice to be around someone who actually ‘gets it’. We discussed how economic citizenship can be a huge benefit to the country. And in times when so many nations are broke, it’s quickly becoming a necessity. Rather than treat people like milk cows, nations are going to have to compete with one another for the most productive citizens and residents. That includes rolling out attractive economic citizenship programs like Malta has done. As one would expect, as the supply of these citizenship programs increases, the prices will fall… so they’ll become more affordable to the average guy. But that’s down the road. What we’re talking about today is something that just about everyone can do and afford today. We’ve discussed this several times before over the last year, but on the heels of so many alerts about economic citizenship opportunities, this one bears repeating. Since last year, Panama has become the easiest and cheapest option to establish second residency. And in a thriving economy to boot. The new residency visa category is called Permanent Residents Visa for Citizens of Friendly Nations. 45 countries are currently on the list of eligible nationalities for this program, from Australia to the United States. This immigration program is unique in the world. It was established by presidential decree, essentially because the Panamanian economy is growing so quickly and the labor pool began to dry up. There are simply not enough people in Panama for the number of jobs that the economy is creating. And they are in need of attracting foreign talent. This program definitely won’t be around forever. As soon as the economy cools off, the government will most likely do away with this incredible immigration opportunity. It’s also possible that the next President of Panama (the current President Martinelli leaves office next summer) will close the window for new enrollment....

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Simon Black – This pretty much tells you everything you need to know about money and banking

December 31, 2013 Sovereign Valley Farm, Chile The other night I played my first game of Monopoly in probably 20 years. One of my friends gave me the infamous board game for Christmas, and as I’ve had a lot of guests down here over the last few days, we all thought we’d give it a go. Guess who won? Nope. Not me. And not any of my friends either. The bank won. The bank actually wins every game of Monopoly. Think about it. All of the properties are initially purchased from the bank. You mortgage them back at half the market value. Plus the bank has its own Monopoly on lending… the official rules state that only the bank can loan money to players. Most importantly, though, the bank never goes bankrupt. Ever. If the bank runs out of that Monopoly funny money, the bank can merely create more money using anything (other paper) it sees fit. Just like real life. And this tells you pretty much everything you need to know about money and banking. This pretty much tells you everything you need to know about money and banking Share and...

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Simon Black – The amazing disappearance of GOLD from the American psyche

November 22, 2013 Dallas, Texas In George Orwell’s seminal work 1984, there’s a really great scene early in the book between Winston (the main character) and Syme, a low-level functionary at the Ministry of Truth. Syme is working on the 11th Edition of the Newspeak Dictionary, and he explains to Winston how the Ministry of Truth is actually removing words from the English vocabulary. In Newspeak, words like -freedom- have been struck from the dictionary altogether, to the point that the mere concept of liberty would be incommunicable in the future. I thought about this scene recently as I was testing out Google’s new Ngram Viewer tool. If you haven’t seen it yet, Google has digitized over a million books that were printed as far back as 1500, and they’ve made the contents searchable within their own database. The Ngram Viewer allows you to search for particular keywords. And you can see over time how prevalent the search terms were for particular years. Out of curiosity, I searched for the term “gold” in English language books starting in 1776. As one would expect back in the 18th and 19th centuries when gold was actually considered money, the instances of the word ‘gold’ favored prevalently in English language books at the time. The trend continued into the early part of the 20th century. But then something interesting happened in the mid-1930s. The use of the word ‘gold’ in English language books reached its peak… and began a steep, multi-decade decline. Further investigation shows that the peak actually occurred in 1933. And as any student of gold in modern history knows, 1933 was the same year that the President of the United States (FDR) criminalized the private ownership of gold. It remained this way for four decades. And by the time Gerald Ford repealed the prohibition on gold ownership, the concept of gold being money had been permanently struck from the American psyche, just as the Orwellian Newspeak dictionary had done. By the mid-1970s (and through today), people have become readily accepting of the idea that money was nothing more than pieces of paper conjured at will by central bankers. The good news is that, according to Google’s data, there seems to be slight uptick in the number of instances of the word ‘gold’ in English language books over the last 10-years or so. No doubt, this probably has a lot to do with gold’s seemingly interminable rise relative to paper currency. One can hope that the trend will hold… that more people will wake up to the reality that the central-bank controlled fiat currency system is a total fraud. The...

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Simon Black – This one chart shows you who’s really in control

November 7, 2013 Bangkok, Thailand Check out this chart below. It’s a graph of total US tax revenue as a percentage of the money supply, since 1900. For example, in 1928, at the peak of the Roaring 20s, US money supply (M2) was $ 46.4 billion. That same year, the US government took in $ 3.9 billion in tax revenue. So in 1928, tax revenue was 8.4% of the money supply. In contrast, at the height of World War II in 1944, US tax revenue had increased to $ 42.4 billion. But money supply had also grown substantially, to $ 106.8 billion. So in 1944, tax revenue was 39.74% of money supply. You can see from this chart that over the last 113 years, tax revenue as a percentage of the nation’s money supply has swung wildly, from as little as 3.65% to over 40%. But something interesting happened in the 1970s. 1971 was a bifurcation point, and this model went from chaotic to stable. Since 1971, in fact, US tax revenue as a percentage of money supply has been almost a constant, steady 20%. You can see this graphically below as we zoom in on the period from 1971 through 2013– the trend line is very flat. What does this mean? Remember– 1971 was the year that Richard Nixon severed the dollar’s convertibility to gold once and for all. And in doing so, he handed unchecked, unrestrained, total control of the money supply to the Federal Reserve. That’s what makes this data so interesting. Prior to 1971, there was ZERO correlation between US tax revenue and money supply. Yet almost immediately after they handed the last bit of monetary control to the Federal Reserve, suddenly a very tight correlation emerged. Furthermore, since 1971, marginal tax rates and tax brackets have been all over the board. In the 70s, for example, the highest marginal tax was a whopping 70%. In the 80s it dropped to 28%. And yet, the entire time, total US tax revenue has remained very tightly correlated to the money supply. The conclusion is simple: People think they’re living in some kind of democratic republic. But the politicians they elect have zero control. It doesn’t matter who you elect, what the politicians do, or how high/low they set tax rates. They could tax the rich. They could destroy the middle class. It doesn’t matter. The fiscal revenues in the Land of the Free rest exclusively in the hands of a tiny banking elite. Everything else is just an illusion to conceal the truth… and make people think that they’re in control. This one chart shows you...

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Simon Black – Is this the best safe haven for you and your family?

[Editor’s note: Darren Kaiser, author of Sovereign Man’s Chile Property Investment Black Paper, is filling in for Simon today from Santiago, Chile.] Chile has been a pretty nice place to be over the last few years, not just to live but also as an investment destination. Anyone involved in startup businesses or real estate just about anywhere in the country over the last 3, 5, 10, even 20 years, has done quite well. But as the country becomes an increasingly popular with expats, it’s worth asking the question– is Chile’s growth and success sustainable? Or even more importantly, what happens to Chile in the event of a global economic turndown? Or a big drop in copper prices? Remember, Chile’s economy is largely resource dependent and copper is its primary export. So if there were a great economic unraveling in China (as well as in other parts of the world), it’s true that copper exports would decrease. And this would adversely affect Chile. But, unlike most other countries around the world, Chile has actually been preparing for a global economic turndown. Many years ago, the Chilean government started the Copper Stabilization Fund (now the Economic and Social Stabilization Fund) which sets aside a portion of government revenue every year when there’s a surplus and holds it as a reserve in case of a future slowdown. What a concept—saving for a rainy day. Today this fund is currently valued at $ 21.7 billion USD, about 8% of the country’s GDP. And in the case of future calamity, this cash reserve will go a long way to keep things afloat in Chile while other countries might be experiencing desperate conditions. It’s also important to point out that a large-scale global crisis would spur investors and professionals to seek international safe havens. This is where Chile shines. If major calamity strikes, Chinese, Americans, Europeans, etc. would be more motivated than ever to move their capital to a stable place where— foreigners are given the same property rights as locals property rights and the rule of law are actually well respected; and there is a surplus of fresh food and water All of this can be found here in Chile. And even with the global economy limping along as it has been, this is already starting to happen. Just a couple of weeks ago, Chile’s government announced the largest amount of Chinese investment capital ever in the country, roughly $ 1.2 billion. That’s a prodigious sum of money here, and a big indication of things to come. Every place has its issues, and Chile is far from perfect. But it definitely has a brighter...

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Simon Black – Gold, and the four words that define western economic policy

[Editor’s note: Tim Price, frequent Sovereign Man contributor and Director of Investment at PFP Wealth Management in the UK is filling in for Simon today.] Despite nearly $ 17 trillion reasons, there are investors stupid enough to believe that debt issued by the world’s largest debtor country (i.e. US Treasuries) should be treated as a risk-free asset. This is even more astounding given that the possibility of formal default is only a matter of days away. Treasury bond defenders will no doubt point out that in a fiat currency world where the central bank has the freedom to print ex nihilo money to its heart’s content, the very idea of default is absurd. But that is to confuse nominal returns with real ones. Yes, the Fed can expand its balance sheet indefinitely beyond the $ 3 trillion they have already conjured out of nowhere. The world need not fear a shortage of dollars. But in real terms, that’s precisely the point. The Fed can control the supply of dollars, but it cannot control their value on the foreign exchanges. The only reason that US QE hasn’t led to a dramatic erosion in the value of the dollar is that every other major economic bloc is up to the same tricks. This makes the rational analysis of international investments virtually impossible. It is also why we own gold – because it is a currency that cannot be printed by the Fed or anybody else. On the topic of gold, the indefatigable Ronni Stoeferle of Incrementum in Liechtenstein has published his latest magisterial gold chartbook. Set against the correction in the gold price 1974-1976, the current sell-off (September 2011 – TBD) is nothing new. The question is really whether financial and debt circumstances today are better than they were in the 1970s. We would suggest that debt fundamentals are objectively worse. Trying to establish a fair price for gold is obviously difficult, but treating it as a commodity like any other suggests that the current sell-off is not markedly different from any previous correction during its bull run: To cut to the chase, it makes sense to own gold because currencies are being printed to destruction; the long-term downtrend in paper money (as expressed in terms of gold) remains absolutely intact: And we cannot discuss the merits of gold as money insurance over the medium term without acknowledging the scale of the problem in (US) government debt, now closing in on $ 17 trillion. Whatever happens in the absurd and increasingly dangerous debate over raising the US debt ceiling, the fundamental problem remains throughout the western economic system. The piper must,...

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