Perhaps a Warning

 People who do not trust their government to refrain from confiscating their wealth often want to keep some of their money in a foreign country where it would be impossible or at least more difficult for their home country’s larcenous officials to get ahold of it. People who only fear their government might react to its future economic difficulties by blocking its residents from or limiting their ability to move or spend money outside of the country often want to do the same thing. Most financial experts and people in  the financial media have dismissed such worries  by people in the United States and most of the rest of the world’s “developed economies” as misplaced or even paranoid. They have argued that democratic governments can be trusted since they do not expropriate, and it has been a long time since the postwar currency controls in western  Europe ended with no one planning to bring them back. The skeptics among them – some cryptocurrency enthusiasts, some gold bugs, and  a few libertarian financial writers here and there -  are a small minority arguing that expropriation or currency controls are possibilities to take seriously enough to justify precautions, because politicians and bureaucrats just about everywhere are vicious, avaricious, and untrustworthy. At least they have been a small minority.

 Justin Trudeau may be changing that, both for some experts and writers and for some ordinary investors. According to reports in the news, his government in Canada is blocking activity on bank and other financial accounts of protesters and people who donated money to support  the protesters and perhaps expropriating the money in those accounts.  (He is also stealing people’s trucks, threatening to murder their dogs, holding protesters without bail, and sending in thuggish cops to beat up peaceful protesters and their supporters, including women. Fidel would be proud of the boy.) Now people not only have arguments for the untrustworthiness  of even democratic govenrments, but also an important example of it to consider.

After considering that example many people may decide they would like to have some of their assets in places where it would be harder for their civil masters to steal or interfere with them. They may find such places hard to find. Americans with investment income have to report their foreign bank accounts, brokerage accounts,  and trusts to the IRS on their income tax returns.  The difficulty  in  American officials  getting their hands on those accounts would vary from place to place, but I would guess  the feds usually could do it if they really wanted to. They have certainly been able to bully the Swiss into abandoning their principles in regard to privacy.

Some people think cryptocurrencies are a solution to the problem. Cryptocurrency balances probably are harder  to find and grab than bank accounts, and transactions are more nearly private.  However,  people should note that every American who files an income tax return has to tell the feds under penalty of perjury whether he uses cryptocurrencies, and flocks of potential regulators are circling.  Cash is hard to trace and easy to hide, but it is not always easy to store safely. There are limits on how much cash an American can take out of the country at one time without telling the feds, and a person moving cash out of the country might have trouble finding a safe place to keep it if he did not want to use a foreign bank or brokerage house. Jewels and precious metals have the same drawbacks for storage as cash. Some people have suggested buying real estate in a foreign country. As far as I know, foreign property that does not generate income does not have to be reported to the IRS. However real estate is usually expensive and sometimes illiquid, and rules for foreigners owning real property vary by country.

If the remarkable events in Canada lead to many more  people in North America making  financial privacy and keeping some assets out of officials’ reach an important goal, it will be interesting to see what they can work out to accomplish it, if anything. The deck is stacked against them, and the house rules change in the middle of the game whenever the house decides to change them.

Morningstar

 A few years ago Morningstar had a fine web site. It was designed for investors to give them useful information and interesting opinions about investing. Some of their stuff was behind a pay wall, but a large amount of it was free to anyone who signed up with his email address.  A reader could look up information about stocks and funds and track prices of investments easily. The usually well written articles were focused on investing rather than politics. They were followed by often lively and informative sections of comments by readers.  It was a good place to do some basic research, get some new ideas, and share thoughts with others with similar interests.

A pessimist would have said it was too good to last, and in this case he would have been right. Things began to change noticeably when Morningstar brought on a climate change and ESG guru to deliver repeating homilies and exhortations on the green religion. Many readers found his stuff annoying, irrelevant, and an inappropriate deviation from Morningstar’s former practice of staying out of the game of political advocacy and said so in comments after his articles. At least they did until Morningstar decided to stop printing comments from readers. From there things have gone downhill. These days the site has gone whole hog on the faith and features multiple ESG puff pieces, sales talks, and infomercials just about every day.  In the last year or so it has begun regularly publishing articles pushing various sorts of  “diversity”, race and sex quotas in businesses, and the supposed need to treat investors in different ways based on their sex or  race. (A recent article pondered what “Latinix” investors might want from a financial advisor. I would think they might want competent help in investing successfully, but that’s just a guess.)

Some of the good writers are still there, and one can still get useful information on stocks and funds, but  the emphasis has changed. That may have created an opportunity for a competitor to come along and do what Morningstar used to do. I’d be a customer, and I think there would be many others.

CIty Risk

In investing country risk is the general risk from the political conditions of a country as distinct from the particular risk of a specific investment. It can come from present or expected internal conditions such as the rise of a maximum leader or generalissimo for life who might decide to expropriate foreign owned property or default on government bonds.  It can be part of the cultural background of a place such as a general lack of respect for property rights or the rule of law. It can be the result of an external threat such as the one now faced by Hong Kong.  Whatever the causes, country risk is something for prudent investors to consider in deciding whether to invest in a place and, if they decide to, what extra return or opportunity they would want to justify the risk.

The United States is usually considered to be one of the places with the lowest country risk, and is a place where foreign investors seeking safety often put their money.  However this country is not homogenous in terms of its government. Local governments have a lot of authority, and their polices and behavior vary significantly.  I think careful investors may  start considering city risk, particularly with regard to real estate.  In Minneapolis for example members of the city council have announced plans to abolish the city’s police department. Whether they go through with it or not, that is the political environment of the place. It is hard to see how a prudent person would want to build, invest in, or accept as collateral a building in that town, or how a corporate officer could do so without failing in his fiduciary duty to shareholders.  There are other cities where  leftist politicians, capricious regulation, corruption, and failure to maintain public safety and civil order create risk.  The greens have their ESG funds which brag self-righteously about not investing in energy, tobacco, defense, and other frowned on things (and presumably not going out with girls who do).  If there is not one already, someone probably could make some money creating a REIT that invested in real estate only in places with low city risk.   

Of course the considerations about investing in a place apply also to the question of whether one would want to move to it or to stay if he were already there.

Loathing gold and silver

 Generally when a person sees an investment as  a bad one,  he just avoids it. He does not get agitated over the fact that others who disagree with him are putting money into it. Similarly if a writer or commentator on investing thinks an investment is a poor one, he just presents his reasons and tells people to put their money somewhere else. He does not  obsess on the  topic or attack anyone who disagrees with him as a fanatic or lunatic.

Yet that is just what one does see when various flacks of the political/financial establishment  get going on the subject of precious metals. They do not stop at calling metals a bad play and suggesting investing elsewhere. Rather they seem to take offense at the  notion that people would invest in gold or silver.  The hostility seems to go well beyond any pragmatic concern over the pros and cons of investing in metals.  It is worth considering why.

My guess is that it is because investing in metals often indicates skepticism about the political and financial establishments in general and the present administration in particular.  Such skepticism is both offensive and frightening to those in power and to those who defend them in the media. In fact it seems to scare and annoy the hell out of them. Rulers and their sycophants never like it when the proles get restless, and there is a lot of that going on.

Gleeful over Gold

Observant people could have found reason for suspecting something was going wrong in real estate during the time from 2005 to 2007 without being aware of the extremely loose or even nonexistent underwriting standards being used by many lenders or noticing  the bubbles in home prices in many markets around the country simply by surfing through late night cable TV channels and counting the number of programs on getting rich flipping real estate.  In a similar way the recent years’ abundance of TV advertisements for getting rich by buying gold and silver could have functioned as a warning of trouble coming in the precious metals markets.

Now that gold and silver have fallen a good bit from their recent highs,  many in the financial media, particularly those with ties to and affinities for the financial and political establishments, have been fairly joyfully proclaiming the death of gold and depicting the so-called gold bugs as fools and paranoiacs who do not know what they are doing.  On the surface this is an odd phenomenon. Prices of assets fluctuate with different things being attractively or unattractively priced at different times. There have been bear markets and bubbles in various  classes of assets. Precious metals do not differ from stocks, bonds, or real estate in that respect. Yet most of these people did not write or talk about foolish stock bugs when the indexes had huge declines in price twice in the last dozen years. Nor do they usually talk about foolish bond bugs of the present day piling into assets with little or no upside potential, prices artificially propped up by government actions,  and an almost guaranteed negative after-inflation return.  

It is worth thinking about why the general tone is so different with respect to the precious metals.  My guess is that it is in large part because purchasing precious metals,  at least by implication and often by explicit conclusion, shows a lack of trust in the government, its currency, and its partners in the financial establishment. It is natural for many in Washington and Manhattan to find such mistrust both déclassé and threatening, and perhaps even infuriating.