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Jeff Clark is Editor of BIG GOLD and Explorers’ League at Casey Research (http://www.caseyresearch.com). Having worked on his family’s gold claims in California and Arizona, as well as a mine in a place to remain nameless, these days Jeff Clark focuses on following some of the most successful... More
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  • 7 Questions Gold Bears Must Answer

    A glance at any gold price chart reveals the severity of the bear mauling it has endured over the last three years.

    More alarming, even for die-hard gold investors, is that some of the fundamental drivers that would normally push gold higher, like a weak US dollar, have reversed.

    Throw in a correction-defying Wall Street stock market and the never-ending rain of disdain for gold from the mainstream and it may seem that there's no reason to buy gold; the bear is here to stay.

    If so, then I have a question. Actually, a whole bunch of questions.

    If we're in a bear market, then…

    Why Is China Accumulating Record Amounts of Gold?

    Mainstream reports will tell you Chinese imports through Hong Kong are down. They are.

    But total gold imports are up. Most journalists continue to overlook the fact that China imports gold directly into Beijing and Shanghai now. And there are at least 12 importing banks-that we know of.

    Counting these "unreported" sources, imports have risen sharply. How do we know? From other countries' export data. Take Switzerland, for example:

    So far in 2014, Switzerland has shipped 153 tonnes (4.9 million ounces) to China directly. This represents over 50% of what they sent through Hong Kong (299 tonnes).

    The UK has also exported £15 billion in gold so far in 2014, according to customs data. In fact, London has shipped so much gold to China (and other parts of Asia) that their domestic market has "tightened significantly" according to bullion analysts there.

    Why Is China Working to Accelerate Its Accumulation?

    This is a growing trend. The People's Bank of China released a plan just last Wednesday to open up gold imports to qualified miners, as well as all banks that are members of the Shanghai Gold Exchange. Even commemorative gold maker China Gold Coin could qualify to import bullion. Not only will this further increase imports, but it will serve to lower premiums for Chinese buyers, making purchases more affordable.

    As evidence of burgeoning demand, gold trading on China's largest physical exchange has already exceeded last year's record volume. YTD volume on the Shanghai Gold Exchange, including the city's free-trade zone, was 12,077 tonnes through October vs. 11,614 tonnes in all of 2013.

    The Chinese wave has reached tidal proportions-and it's still growing.

    Why Are Other Countries Hoarding Gold?

    The World Gold Council (WGC) reports that for the 12 months ending September 2014, gold demand outside of China and India was 1,566 tonnes (50.3 million ounces). The problem is that demand from China and India already equals global production!

    India and China currently account for approximately 3,100 tonnes of gold demand, and the WGC says new mine production was 3,115 tonnes during the same period.

    And in spite of all the government attempts to limit gold imports, India just recorded the highest level of imports in 41 months; the country imported over 39 tonnes in November alone, the most since May 2011.

    Let's not forget Russia. Not only does the Russian central bank continue to buy aggressively on the international market, Moscow now buys directly from Russian miners. This is largely because banks and brokers are blocked from using international markets by US sanctions. Despite this, and the fact that Russia doesn't have to buy gold but keeps doing so anyway.

    Global gold demand now eats up more than miners around the world can produce. Do all these countries see something we don't?

    Why Are Retail Investors NOT Selling SLV?

    SPDR gold ETF (NYSEARCA:GLD) holdings continue to largely track the price of gold-but not the iShares silver ETF (NYSEARCA:SLV). The latter has more retail investors than GLD, and they're not selling. In fact, while GLD holdings continue to decline, SLV holdings have shot higher.

    While the silver price has fallen 16.5% so far this year, SLV holdings have risen 9.5%.

    Why are so many silver investors not only holding on to their ETF shares but buying more?

    Why Are Bullion Sales Setting New Records?

    2013 was a record-setting year for gold and silver purchases from the US Mint. Pretty bullish when you consider the price crashed and headlines were universally negative.

    And yet 2014 is on track to exceed last year's record-setting pace, particularly with silver…

    • November silver Eagle sales from the US Mint totaled 3,426,000 ounces, 49% more than the previous year. If December sales surpass 1.1 million coins-a near certainty at this point-2014 will be another record-breaking year.
    • Silver sales at the Perth Mint last month also hit their highest level since January. Silver coin sales jumped to 851,836 ounces in November. That was also substantially higher than the 655,881 ounces in October.
    • And India's silver imports rose 14% for the first 10 months of the year and set a record for that period. Silver imports totaled a massive 169 million ounces, draining many vaults in the UK, similar to the drain for gold I mentioned above.

    To be fair, the Royal Canadian Mint reported lower gold and silver bullion sales for Q3. But volumes are still historically high.

    Why Are Some Mainstream Investors Buying Gold?

    The negative headlines we all see about gold come from the mainstream. Yet, some in that group are buyers…

    Ray Dalio runs the world's largest hedge fund, with approximately $150 billion in assets under management. As my colleague Marin Katusa puts it, "When Ray talks, you listen."

    And Ray currently allocates 7.5% of his portfolio to gold.

    He's not alone. Joe Wickwire, portfolio manager of Fidelity Investments, said last week, "I believe now is a good time to take advantage of negative short-term trading sentiment in gold."

    Then there are Japanese pension funds, which as recently as 2011 did not invest in gold at all. Today, several hundred Japanese pension funds actively invest in the metal. Consider that Japan is the second-largest pension market in the world. Demand is also reportedly growing from defined benefit and defined contribution plans.

    And just last Friday, Credit Suisse sold $24 million of US notes tied to an index of gold stocks, the largest offering in 14 months, a bet that producers will rebound from near six-year lows.

    These (and other) mainstream investors are clearly not expecting gold and gold stocks to keep declining.

    Why Are Countries Repatriating Gold?

    I mean, it's not as if the New York depository is unsafe. It and Ft. Knox rank as among the most secure storage facilities in the world. That makes the following developments very curious:

    • Netherlands repatriated 122 tonnes (3.9 million ounces) last month.
    • France's National Front leader urged the Bank of France last month to repatriate all its gold from overseas vaults, and to increase its bullion assets by 20%.
    • The Swiss Gold Initiative, which did not pass a popular vote, would've required all overseas gold be repatriated, as well as gold to comprise 20% of Swiss assets.
    • Germany announced a repatriation program last year, though the plan has since fizzled.
    • And this just in: there are reports that the Belgian central bank is investigating repatriation of its gold reserves.

    What's so important about gold right now that's spurned a new trend to store it closer to home and increase reserves?

    These strong signs of demand don't normally correlate with an asset in a bear market. Do you know of any bear market, in any asset, that's seen this kind of demand?

    Neither do I.

    My friends, there's only one explanation: all these parties see the bear soon yielding to the bull. You and I obviously aren't the only ones that see it on the horizon.

    Christmas Wishes Come True…

    One more thing: our founder and chairman, Doug Casey himself, is now willing to go on the record saying that he thinks the bottom is in for gold.

    I say we back up the truck for the bargain of the century. Just like all the others above are doing.

    With gold on sale for the holidays, I arranged for premium discounts on SEVEN different bullion products in the new issue of BIG GOLD. With gold and silver prices at four-year lows and fundamental forces that will someday propel them a lot higher, we have a truly unique buying opportunity. I want to capitalize on today's "most mispriced asset" before sentiment reverses and the next uptrend in precious metals kicks into gear.

    It's our first ever Bullion Buyers Blowout-and I hope you'll take advantage of the can't-beat offers. Someday soon you will pay a lot more for your insurance. Save now with these discounts.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: gold
    Dec 09 11:40 AM | Link | Comment!
  • Top 7 Reasons I'm Buying Silver Now

    I remember my first drug high.

    No, it wasn't from a shady deal made with a seedy character in a bad part of town. I was in the hospital, recovering from surgery, and while I wasn't in a lot of pain, the nurse suggested something to help me sleep better. I didn't really think I needed it-but within seconds of that needle puncturing my skin, I WAS IN HEAVEN.

    The euphoria that struck my brain was indescribable. The fluid coursing through my veins was so powerful I've never forgotten it. I can easily see why people get hooked on drugs.

    And that's why I think silver, purchased at current prices, could be a life-changing investment.

    The connection? Well, it's not the metal's ever-increasing number of industrial uses… or exploding photovoltaic (solar) demand… nor even that the 2014 supply is projected to be stagnant and only reach 2010's level. No, the connection is…

    Financial Heroin

    The drugs of choice for governments-money printing, deficit spending, and nonstop debt increases-have proved too addictive for world leaders to break their habits. At this point, the US and other governments around the world have toked, snorted, and mainlined their way into an addictive corner; they are completely hooked. The Fed and their international central-bank peers are the drug pushers, providing the easy money to keep the high going. And despite the Fed's latest taper of bond purchases, past actions will not be consequence-free.

    At first, drug-induced highs feel euphoric, but eventually the body breaks down from the abuse. Similarly, artificial stimuli and sub-rosa manipulations by central banks have delivered their special effects-but addiction always leads to a systemic breakdown.

    When government financial heroin addicts are finally forced into cold-turkey withdrawal, the ensuing crisis will spark a rush into precious metals. The situation will be exacerbated when assets perceived as "safe" today-like bonds and the almighty greenback-enter bear markets or crash entirely.

    As a result, the rise in silver prices from current levels won't be 10% or 20%-but a double, triple, or more.

    If inflation picks up steam, $100 silver is not a fantasy but a distinct possibility. Gold will benefit, too, of course, but due to silver's higher volatility, we expect it will hand us a higher percentage return, just as it has many times in the past.

    Eventually, all markets correct excesses. The global economy is near a tipping point, and we must prepare our portfolios now, ahead of that chaos, which includes owning a meaningful amount of physical silver along with our gold.

    It's time to build for a big payday.

    Why I'm Excited About Silver

    When considering the catalysts for silver, let's first ignore short-term factors such as net short/long positions, fluctuations in weekly ETF holdings, or the latest open interest. Data like these fluctuate regularly and rarely have long-term bearing on the price of silver.

    I'm more interested in the big-picture forces that could impact silver over the next several years. The most significant force, of course, is what I stated above: governments' abuse of "financial heroin" that will inevitably lead to a currency crisis in many countries around the world, pushing silver and gold to record levels.

    At no time in history have governments printed this much money.

    And not one currency in the world is anchored to gold or any other tangible standard. This unprecedented setup means that whatever fallout results, it will be of historic proportions and affect each of us personally.

    Specific to silver itself, here are the data that tell me "something big this way comes"…

    1. Inflation-Adjusted Price Has a Long Way to Go

    One hint of silver's potential is its inflation-adjusted price. I asked John Williams of Shadow Stats to calculate the silver price in June 2014 dollars (July data is not yet available).

    Shown below is the silver price adjusted for both the CPI-U, as calculated by the Bureau of Labor Statistics, and the price adjusted using ShadowStats data based on the CPI-U formula from 1980 (the formula has since been adjusted multiple times to keep the inflation number as low as possible).

    The $48 peak in April 2011 was less than half the inflation-adjusted price of January 1980, based on the current CPI-U calculation. If we use the 1980 formula to measure inflation, silver would need to top $470 to beat that peak.

    I'm not counting on silver going that high (at least I hope not, because I think there will be literal blood in the streets if it does), but clearly, the odds are skewed to the upside-and there's a lot of room to run.

    2. Silver Price vs. Production Costs

    Producers have been forced to reduce costs in light of last year's crash in the silver price. Some have done a better job at this than others, but check out how margins have narrowed.

    Relative to the cost of production, the silver price is at its lowest level since 2005. Keep in mind that cash costs are only a portion of all-in expenses, and the silver price has historically traded well above this figure (all-in costs are just now being widely reported). That margins have tightened so dramatically is not sustainable on a long-term basis without affecting the industry. It also makes it likely that prices have bottomed, since producers can only cut expenses so much.

    Although roughly 75% of silver is produced as a by-product, prices are determined at the margin; if a mine can't operate profitably or a new project won't earn a profit at low prices, the resulting drop in output would serve as a catalyst for higher prices. Further, much of the current cost-cutting has come from reduced exploration budgets, which will curtail future supply.

    3. Low Inventories

    Various entities hold inventories of silver bullion, and these levels were high when US coinage contained silver. As all US coins intended for circulation have been minted from base metals for decades, the need for high inventories is thus lower today. But this chart shows how little is available.

    You can see how low current inventories are on a historical basis, most of which are held in exchange-traded products. This is important because these investors have been net buyers since 2005 and thus have kept that metal off the market. The remaining amount of inventory is 241 million ounces, only 25% of one year's supply-whereas in 1990 it represented roughly eight times supply. If demand were to suddenly surge, those needs could not be met by existing inventories. In fact, ETP investors would likely take more metal off the market. (The "implied unreported stocks" refers to private and other unreported depositories around the world, another strikingly smaller number.)

    If investment demand were to repeat the surge it saw from 2005 to 2009, this would leave little room for error on the supply side.

    4. Conclusion of the Bear Market

    This updated snapshot of six decades of bear markets signals that ours is near exhaustion. The black line represents silver's decline from April 2011 through August 8, 2014.

    The historical record suggests that buying silver now is a low-risk investment.

    5. Cheap Compared to Other Commodities

    Here's how the silver price compares to other precious metals, along with the most common base metals.

    Percent Change From…
     1 Year Ago5 Years Ago10 Years
    Ago
    All-Time
    High
    Gold-2%38%234%-31%
    Silver-6%35%239%-60%
    Platinum3%20%83%-35%
    Palladium14%252%238%-21%
    Copper-4%37%146%-32%
    Nickel32%26%17%-64%
    Zinc26%49%128%-47%

    Only nickel is further away from its all-time high than silver.

    6. Low Mainstream Participation

    Another indicator of silver's potential is how much it represents of global financial wealth, compared to its percentage when silver hit $50 in 1980.

    In spite of ongoing strong demand for physical metal, silver currently represents only 0.01% of the world's financial wealth. This is one-twenty-fifth its 1980 level. Even that big price spike we saw in 2011 pales in comparison.

    There's an enormous amount of room for silver to become a greater part of mainstream investment portfolios.

    7. Watch Out for China!

    It's not just gold that is moving from West to East…

    Don't look now, but the SHFE has overtaken the Comex and become the world's largest futures silver exchange. In fact, the SHFE accounted for 48.6% of all volume last year. The Comex, meanwhile, is in sharp decline, falling from 93.4% market share as recently as 2001 to less than half that amount today.

    And all that trading has led to a sharp decrease in silver inventories at the exchange. While most silver (and gold) contracts are settled in cash at the COMEX, the majority of contracts on the Shanghai exchanges are settled in physical metal. Which has led to a huge drain of silver stocks…

    Since January 2013, silver inventories at the Shanghai Futures Exchange have fallen a remarkable 84% to a record low 148 tonnes. If this trend continues, the Chinese exchanges will experience a serious supply crunch in the not-too-distant future.

    There's more…

    • Domestic silver supply in China is expected to hit an all-time high and exceed 250 million ounces this year (between mine production, imports, and scrap). By comparison, it was less than 70 million ounces in 2000. However, virtually none of this is exported and is thus unavailable to the world market.
    • Chinese investors are estimated to have purchased 22 million ounces of silver in 2013, the second-largest amount behind India. It was zero in 1999.
    • The biggest percentage growth in silver applications comes from China. Photography, jewelry, silverware, electronics, batteries, solar panels, brazing alloys, and biocides uses are all growing at a faster clip in China than any other country in the world.

    These are my top reasons for buying silver now.

    Based on this review of big-picture data, what conclusion would you draw? If you're like me, you're forced to acknowledge that the next few years could be a very exciting time for silver investors.

    Just like gold, our stash of silver will help us maintain our standard of living-but may be even more practical to use for small purchases. And in a high-inflation/decaying-dollar scenario, the silver price is likely to exceed consumer price inflation, giving us further purchasing power protection.

    The bottom line is that the current silver price should be seen as a long-term buying opportunity. This may or may not be our last chance to buy at these levels for this cycle, but if you like bargains, silver's neon "Sale!" sign is flashing like a disco ball.

    What am I buying? The silver bullion that's offered at a discount in the current issue of BIG GOLD. You can even earn a free ounce of silver at another recommended dealer by signing up for their auto accumulation program, an easy way to build your portfolio while prices are low. Check out the low-cost, no-risk BIG GOLD to capitalize on this opportune time in silver.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: silver, invest
    Aug 11 3:04 PM | Link | Comment!
  • The Single Most Important Strategy Most Investors Ignore

    "If I scare you this morning, and as a result you take action, then I will have accomplished my goal." That's what I told the audience at the Sprott Natural Resource Symposium in Vancouver two weeks ago.

    But the reality is that I didn't need to try to scare anyone. The evidence is overwhelming and has already alarmed most investors; our greatest risk is not a bad investment but our political exposure.

    And yet most of these same investors do not see any need to stash bullion outside their home countries. They view international diversification as an extreme move. Many don't even care if capital controls are instituted.

    I'm convinced that this is the most common-and important-strategic investment error made today. So let me share a few key points from my Sprott presentation and let you decide for yourself if you need to reconsider your own strategy. (Bolding for emphasis is mine.)

    1: IMF Endorses Capital Controls

    Bloomberg reported in December 2012 that the "IMF has endorsed the use of capital controls in certain circumstances."

    This is particularly important because the IMF, arguably an even more prominent institution since the global financial crisis started, has always had an official stance against capital controls. "In a reversal of its historic support for unrestricted flows of money across borders, the IMF said controls can be useful..."

    Will individual governments jump on this bandwagon? "It will be tacitly endorsed by a lot of central banks," says Boston University professor Kevin Gallagher. If so, it could be more than just your home government that will clamp down on storing assets elsewhere.

    2: There Is Academic Support for Capital Controls

    Many mainstream economists support capital controls. For example, famed Harvard Economists Carmen Reinhart and Ken Rogoff wrote the following earlier this year:

    Governments should consider taking a more eclectic range of economic measures than have been the norm over the past generation or two. The policies put in place so far, such as budgetary austerity, are little match for the size of the problem, and may make things worse. Instead, governments should take stronger action, much as rich economies did in past crises.

    Aside from the dangerously foolish idea that reining in excessive government spending is a bad thing, Reinhart and Rogoff are saying that even more massive government intervention should be pursued. This opens the door to all kinds of dubious actions on the part of politicians, including-to my point today-capital controls.

    "Ms. Reinhart and Mr. Rogoff suggest debt write-downs and 'financial repression', meaning the use of a combination of moderate inflation and constraints on the flow of capital to reduce debt burdens."

    The Reinhart and Rogoff report basically signals to politicians that it's not only acceptable but desirable to reduce their debts by restricting the flow of capital across borders. Such action would keep funds locked inside countries where said politicians can plunder them as they see fit.

    3: Confiscation of Savings on the Rise

    "So, what's the big deal?" Some might think. "I live here, work here, shop here, spend here, and invest here. I don't really need funds outside my country anyway!"

    Well, it's self-evident that putting all of one's eggs in any single basket, no matter how safe and sound that basket may seem, is risky-extremely risky in today's financial climate.

    In addition, when it comes to capital controls, storing a little gold outside one's home jurisdiction can help avoid one major calamity, a danger that is growing virtually everywhere in the world: the outright confiscation of people's savings.

    The IMF, in a report entitled "Taxing Times," published in October of 2013, on page 49, states:

    "The sharp deterioration of the public finances in many countries has revived interest in a capital levy-a one-off tax on private wealth-as an exceptional measure to restore debt sustainability."

    The problem is debt. And now countries with higher debt levels are seeking to justify a tax on the wealth of private citizens.

    So, to skeptics regarding the value of international diversification, I would ask: Does the country you live in have a lot of debt? Is it unsustainable?

    If debt levels are dangerously high, the IMF says your politicians could repay it by taking some of your wealth.

    The following quote sent shivers down my spine…

    The appeal is that such a task, if implemented before avoidance is possible and there is a belief that is will never be repeated, does not distort behavior, and may be seen by some as fair. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away.

    The IMF has made it clear that invoking a levy on your assets would have to be done before you have time to make other arrangements. There will be no advance notice. It will be fast, cold, and cruel.

    Notice also that one option is to simply inflate debt away. Given the amount of indebtedness in much of the world, inflation will certainly be part of the "solution," with or without outright confiscation of your savings. (So make sure you own enough gold, and avoid government bonds like the plague.)

    Further, the IMF has already studied how much the tax would have to be:

    The tax rates needed to bring down public debt to pre-crisis levels are sizable: reducing debt ratios to 2007 levels would require, for a sample of 15 euro area countries, a tax rate of about 10% on households with a positive net worth.

    Note that the criterion is not billionaire status, nor millionaire, nor even "comfortably well off." The tax would apply to anyone with a positive net worth. And the 10% wealth-grab would, of course, be on top of regular income taxes, sales taxes, property taxes, etc.

    4: We Like Pension Funds

    Unfortunately, it's not just savings. Carmen Reinhart (again) and M. Belén Sbrancia made the following suggestions in a 2011 paper:

    Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of 'financial repression.' Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.

    Yes, your retirement account is now a "captive domestic audience." Are you ready to "lend" it to the government? "Directed" means "compulsory" in the above statement, and you may not have a choice if "regulation of cross-border capital movements"-capital controls-are instituted.

    5: The Eurozone Sanctions Money-Grabs

    Germany's Bundesbank weighed in on this subject last January:

    "Countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help."

    The context here is that of Germans not wanting to have to pay for the mistakes of Italians, Greeks, Cypriots, or whatnot. Fair enough, but the "capital levy" prescription is still a confiscation of funds from individuals' banks or brokerage accounts.

    Here's another statement that sent shivers down my spine:

    A capital levy corresponds to the principle of national responsibility, according to which tax payers are responsible for their government's obligations before solidarity of other states is required.

    The central bank of the strongest economy in the European Union has explicitly stated that you are responsible for your country's fiscal obligations-and would be even if you voted against them! No matter how financially reckless politicians have been, it is your duty to meet your country's financial needs.

    This view effectively nullifies all objections. It's a clear warning.

    And it's not just the Germans. On February 12, 2014, Reuters reported on an EU commission document that states:

    The savings of the European Union's 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis.

    Reuters reported that the Commission plans to request a draft law, "to mobilize more personal pension savings for long-term financing."

    EU officials are explicitly telling us that the pensions and savings of its citizens are fair game to meet the union's financial needs. If you live in Europe, the writing is on the wall.

    Actually, it's already under wayReuters recently reported that Spain has

    …introduced a blanket taxation rate of .03% on all bank account deposits, in a move aimed at… generating revenues for the country's cash-strapped autonomous communities.

    The regulation, which could bring around 400 million euros ($546 million) to the state coffers based on total deposits worth 1.4 trillion euros, had been tipped as a possible sweetener for the regions days after tough deficit limits for this year and next were set by the central government.

    Some may counter that since Spain has relatively low tax rates and the bail-in rate is small, this development is no big deal. I disagree: it establishes the principle, sets the precedent, and opens the door for other countries to pursue similar policies.

    6: Canada Jumps on the Confiscation Bandwagon

    You may recall this text from last year's budget in Canada:

    "The Government proposes to implement a bail-in regime for systemically important banks."

    A bail-in is what they call it when a government takes depositors' money to plug a bank's financial holes-just as was done in Cyprus last year.

    This regime will be designed to ensure that, in the unlikely event a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.

    What's a "bank liability"? Your deposits. How quickly could they do such a thing? They just told us: fast enough that you won't have time to react.

    By the way, the Canadian bail-in was approved on a national level just one week after the final decision was made for the Cyprus bail-in.

    7: FATCA

    Have you considered why the Foreign Account Tax Compliance Act was passed into law? It was supposed to crack down on tax evaders and collect unpaid tax revenue. However, it's estimated that it will only generate $8.7 billion over 10 years, which equates to 0.18% of the current budget deficit. And that's based on rosy government projections.

    FATCA was snuck into the HIRE Act of 2010, with little notice or discussion. Since the law will raise negligible revenue, I think something else must be going on here. If you ask me, it's about control.

    In my opinion, the goal of FATCA is to keep US savers trapped in US banks and in the US dollar, in case the US wants to implement a Cyprus-like bail-in. Given the debt load in the US and given statements made by government officials, this seems like a reasonable conclusion to draw.

    This is why I think that the institution of capital controls is a "when" question, not an "if" one. The momentum is clearly gaining steam for some form of capital controls being instituted in the near future. If you don't internationalize, you must accept the risk that your assets will be confiscated, taxed, regulated, and/or inflated away.

    What to Expect Going Forward
    • First, any announcement will probably not use the words "capital controls." It will be couched positively, for the "greater good," and words like "patriotic duty" will likely feature prominently in mainstream press and government press releases. If you try to transfer assets outside your country, you could be branded as a traitor or an enemy of the state, even among some in your own social circles.
    • Controls will likely occur suddenly and with no warning. When did Cyprus implement their bail-in scheme? On a Friday night after banks were closed. By the way, prior to the bail-in, citizens were told the Cypriot banks had "government guarantees" and were "well-regulated." Those assurances were nothing but a cruel joke when lightning-fast confiscation was enacted.
    • Restrictions could last a long time. While many capital controls have been lifted in Cyprus, money transfers outside the country still require approval from the Central Bank-over a year after the bail-in.
    • They'll probably be retroactive. Actually, remove the word "probably." Plenty of laws in response to prior financial crises have been enacted retroactively. Any new fiscal or monetary emergency would provide easy justification to do so again. If capital controls or savings confiscations were instituted later this year, for example, they would likely be retroactive to January 1. For those who have not yet taken action, it could already be too late.
    • Social environment will be chaotic. If capital controls are instituted, it will be because we're in some kind of economic crisis, which implies the social atmosphere will be rocky and perhaps even dangerous. We shouldn't be surprised to see riots, as there would be great uncertainty and fear. That's dangerous in its own right, but it's also not the kind of environment in which to begin making arrangements.
    • Ban vs. levy. Imposing capital controls is a risky move for a government to make; even the most reckless politicians understand this. That won't stop them, but it could make them act more subtly. For instance, they might not impose actual bans on moving money across borders, but instead place a levy on doing so. Say, a 50% levy? That would "encourage" funds to remain inside a given country. Why not 100%? You could be permitted to transfer $10,000 outside the country-but if the fee for doing so is $10,000, few will do it. Such verbal games allow politicians to claim they have not enacted capital controls and yet achieve the same effect. There are plenty of historical examples of countries doing this very thing.

    Keep in mind: Who will you complain to? If the government takes a portion of your assets, legally, who will you sue? You will have no recourse. And don't expect anyone below your tax bracket to feel sorry for you.

    No, once the door is closed, your wealth is trapped inside your country. It cannot move, escape, or flee. Capital controls allow politicians to do anything to your wealth they deem necessary.

    Fortunately, you don't have to be a target. Our Going Global report provides all the vital information you need to build a personal financial base outside your home country. It covers gold ownership and storage options, foreign bank accounts, currency diversification, foreign annuities, reporting requirements, and much more. It's a complete A to Z guide on how to diversify internationally.

    Discover what solutions are right for you-whether you're a big investor or small, novice or veteran, many options are available. I encourage you to pursue what steps are most appropriate for you now, before the door is closed. Learn more here…

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Aug 06 6:15 PM | Link | Comment!
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