Peter Macfarlane comments on Gold Bullion Investing, the Dollar-Euro rate, and Crisis Investing Opportunity in Hungary for The Q Wealth Report

I’m trying to get ahead of myself at the moment in order to take a little time off in August. The result of this is that I’ve got behind on some other things, like keeping up with the news. Besides, I’m a traditionalist who still likes reading magazines in print, and they sometimes take a while to catch up with me on my travels.

Hence, I’m only commenting now on an interesting article in The Economist dated July 10th. They got my attention with the cover headline “Why Gold Has Probably Peaked.” Huh? How could the Economist be saying that? Here’s a quote from the article:

At some point either the worst fears of the gold bugs must be realised – in which case, heaven help us – or the world will become a less nervous place.

The hypothesis of the article is that demand in India and China for gold jewellery is shrinking, that gold is not a great investment because it doesn’t pay interest. As the world economy returns to business as usual, says the Economist, “the gold market may also return to some semblance of normality” – in other words downwards.

Well I can’t disagree that if the global economy really does get better, gold quoted in dollars might fall. But the idea that the global economy is getting better, or that the world is suddenly about to become more tranquil and relaxed, really is a stretch…

Sometimes I think Americans have a hard time understanding Europe, as I have written recently in my comments on the Euro. I said the Euro would recover and now it’s back above 1.30 to the greenback. But the Economist is very European in some ways and it seems they have a hard time understanding Americans. I mean, if they think the world economy is returning to business as usual, what planet are they referring to???

Most of my days at the moment are taken up with Americans who want to get out of the USA. They are looking for offshore investments, foreign residencies and economic citizenships. Of course if we get bogged down in our daily routines we might be able to block out of our minds what is going on – and that is what the majority do, because they don’t want to leave their comfort zones.

However, just think back to two years ago, even a year ago, and see how things have changed – for the worse. Anyone who thinks business is getting back to normal is living in cloud cuckoo land.

Here’s something else I like. The article quotes Willem Buiter, and Anglo-Dutch economist who blogs at the FT under the moniker maverecon as saying he would not invest:

into something without intrinsic value, something whose positive value is based on nothing more than a set of self-confirming beliefs.

Apparently, Buiter was talking about gold when he said this! However I would say it about fiat currencies like the dollar, euro or pound sterling. Is he seriously trying to tell us that say the US dollar has intrinsic value based on anything other than self-confirming beliefs? (In that case, the dollar is backed by the full faith and credit of the Obama government…) Give me my gold bullion I can touch and feel over paper and electrons any day!

On a slightly different but related topic, my fellow traveller Simon Black who blogs as Sovereign Man has written a couple of interesting pieces on fiat money recently. In what I think is an excellent analysis, he explains why trillions of dollars of institutional money are constantly looking for the least worst currency to hang out in, leading to frequent switching between the dollar, the euro and the yen in a race to the bottom. This keeps the three currencies almost even in the race to the bottom, so people don’t really notice the devaluations going on… but like any landing in a storm, there’s a lot of turbulence.

Then yesterday Simon wrote about Hungary, a country I used to live and invest in some years ago and still a pretty good place to live I think. I’ll be watching Hungary closely and Simon correctly points out that what is going on there could well turn out to be more devastating than the Greek sovereign debt crisis. This would definitely lead to a flow of money out of the euro again, and the balancing increase in the dollar as that turbulence continues. As a reader pointed out on Sovereign Man, “The result of a Hungarian default would be very similar to Argentina in 2001 with some very interesting investment implications.” I rather hope Hungary does default… then I will be one of the first in there to buy some tangible real estate with a briefcase full of Federal Reserve promises…

However, one thing Americans never quite understand about Europe is that nothing happens there in August. Hungary is unlikely to default in August as that would interfere with the annual month-long party at Lake Balaton, where Budapest moves to in August. (Like Paris moves to the countryside, or Buenos Aires moves to Punta del Este in December)

It’s always safe to take some time off in August. Come September, your writer and the Q Wealth team will be gathering in Cork, Ireland for Q Wealth Masterclass – a unique opportunity to meet and rub shoulders with a dream team of people who think like us. Read about the speakers here and Five Urgent Reasons why you should attend here. This will be your opportunity not just to protect your assets but put them into long term offshore investments with growth potential. Gold and Offshore Real Estate will be right up there at the top of the investing agenda.

It seems that what the Economist sees as the worst fears of the gold bugs is actually just what the gold bugs are hoping for… Heaven help people who are not gold bugs!

Thoughts for the weekend… by Mountain Vision

As governments are starting to find it more and more difficult to place their debt paper in the market, they have resorted to “monetizing their debt”. Debt monetization in the US has become almost an accepted normalcy. Now, China has proclaimed that it is considering similar measures, while the ECB so far appears to be largely dedicated to resisting the temptation.

Let us be very clear here: Monetizing debt is nothing to take lightly. To most people, the concept of monetizing debt is a sterile term that doesn’t mean much at all. Yet to others, it is possibly perceived as one of the standard tools central banks employ in the process of their job to manage money supply. If you too have that perception, I am unfortunately obliged to destroy your illusions.

Monetizing debt is far from being a normal procedure and it should be. It´s basically equal to a man asking you for a loan. But, since that man is jobless, highly indebted and close to bankruptcy, you decide you’d rather not give him any credit. The man will now have to look elsewhere. And, if there is no credit available to him, he will have to give up on his hope of buying the Porsche that he wanted (but didn’t really need). But if this man was your government, he would simply go into his garage, throw on the printing press and issue himself the credit he needs to buy the Porsche. He already has 10 of them. But heck, if you can print money like that, what is one more Porsche?!?!

Yes, governments are having difficulties to find creditors. It occurs when sovereign debt, i.e. government issued IOUs, are no longer seen as safe and worth the price tag they are being sold at. However, instead of reducing their spending or cutting down on costs, central banks have started to resort to printing yet more money (i.e. MORE DEBT) and then buying their own debt paper FOR THEMSELVES.

How does this affect you? WEALTH PRESERVATION AND ASSET PROTECTION SHOULD BE A THE TOP OF YOUR WISH LIST

“Apart from my love for gambling in Las Vegas and on the Dow, I am an extremely conservative investor and always interested in asset protection and wealth preservation solutions.” This statement by one of our clients portrays very well the two hearts beating inside most investors. Although most do not want to forego the opportunities of investing for growth, it is without a doubt necessary to protect at least part of one’s assets adequately.

A common asset protection solution for many investors in the past has been to set up so-called Asset Protection Trusts (APTs). Several offshore jurisdictions are actively promoting such trusts, which are supposed to protect the APT assets from the settlor´s creditors. The name says it all – this must be the ideal device to protect one’s assets.

However, while offshore trusts used to be attractive devices to achieve better protection from creditors while retaining access to the global investments arena, APT‘s are losing their shine rapidly. Increasingly, jurisdictions around the world are passing laws that create problems with regard to the privacy (a key element of asset protection), safety and flexibility of trust structures.

The laws in countries like Switzerland, Liechtenstein or Luxembourg offer a different method of protecting assets, namely through adequately designed life insurance and annuity contracts. The renowned SWISS ANNUITY, in all of its different formats affords affluent international investors a unique and time-tested wealth planning tool. Properly employed, it offers a wide variety of benefits that range from PRIVACY, TAX DEFERMENT, AND INVESTMENT FREEDOM TO VERY SOLID ASSET PROTECTION.

Further reading: This article appears with kind permission of Mountain Vision, the newsletter of BFI Capital Group in Switzerland. If you would like a free subscription simply go here and say you were sent by the Q Wealth Report. BFI Capital is a leading Swiss investment firm specializing in compliant annuity products for residents of high tax countries and for asset protection services. BFI Capital are also regular contributors to The Q Wealth Report.