“Only buy something that you´d be perfectly happy to hold if the market shut down for 10 years.”
~ Warren Buffett (taken from a list of ´50 Warren Buffett Quotes to Inspire Your Investing´, Michael Cramton of investinganswers.com, March 15, 2011)
I want to apologize for the last two weeks of silence you undoubtedly noticed from our Mountain Vision team, but there was literally no time for writing. Scott Schamber, Dirk Steinhoff and I just got back from a very interesting and educational trip to the US where we held three of our BFI Inner Circle Briefings. The first stop on the Briefings´ tour took us to Austin, Texas, and then on to two additional stops in California: one in Santa Barbara and another in Berkeley. It was very insightful, a great learning experience, and also a lot of fun – hopefully for the attendees of our Briefings as much as it was for us.
What we tried to do differently this time around with these Briefings was to tailor the program entirely to the immediate interests and concerns of our attendees. With that in mind, we spent a great deal of time more on questions and answers than we have in our past Briefings. I just want briefly share some of the insights and conclusions drawn from the Briefings and personal meetings we had with some roughly 130 clients, contacts, and old friends during these past two weeks.
An excellent gauge of the concerns of all of our readers/clients
Our Briefings were held at an undoubtedly interesting time. We have the upcoming presidential elections in America. Ben Bernanke has followed Draghi´s QE lead and trumped with his promise of ‘QE forever´ (why even number them anymore?). Meanwhile, in Germany, the courts decided that Draghi´s monetary policy, despite a clear contradiction to the EU´s laws and Germany´s own constitution, is still perfectly legal.
Quantitative easing (QE) is today´s central bankers´ panacea for stimulating the economy. While clearly having boosted the stock market, QE has not helped boost employment enough. The model of running inflation higher than interest rates for an extended period, in an effort to reduce government debt loads in real terms, is their primary plan. It helps to paper over the problems in a credit-addicted economy.
In that context, when it came to the Big Picture discussions at our Briefings, a few topics really stood out. Amongst those topics were, (1) the outlook for international currencies: the Euro, the Swiss franc, and of course the US dollar, (2) the prospects of more financial repression and its implications for investors and citizens, and then of course (3) the impact of monetary inflation and global quantitative easing (currently, the most prominent of financial repression measures).
Once we had covered the big picture thoroughly, much of our time was then focused on adequate solutions and strategies. Of the questions our attendees had, many centered around first international asset protection and planning strategies, including legal structures such as offshore LLCs and trusts, as well as international private placement life insurance planning. Secondly, a lot of questions related to recent regulatory changes, in particular US reporting rules (the FBAR and Shadow FBAR), as well as the implications of FATCA. Finally, we spent considerable time discussing asset allocation, including the recent upturn in markets across the board, as well as the proper ownership of gold and silver in light of the current realities.
Many questions, multiple concerns, and a few conclusions
Using a pre-Briefing questionnaire, something we had never done before, the following graph provides a sample and statistical summary of the questions that we received prior to the Santa Barbara Briefing. The concerns expressed by the Santa Barbara group were relatively the same for the other two Briefings, with the weightings to some subjects being the only variation amongst the groups. It certainly set up for a very interesting and interactive dialogue.
Personally, one conclusion that I came away with was that our clients and Mountain Vision readers were already fully alerted and fully aware of the ramifications of current monetary and fiscal imbalances.
They were completely cognizant of the specter of financial repression and it most prominent representative today: quantitative easing. And they understood that a few elements were critical in managing the risks: (1) jurisdictional diversification and the asset protection, safety and flexibility that goes with it, (2) active and smart risk management, at all levels, and (3) gold, physically allocated in particular, should serve as a favored allocation, making up at least 20% to 30% of their investment portfolios. We have some very smart, very wealthy and very successful clients.
May the election games begin!
There was also a high level of anxiety amongst the attendees as to the potential outcome of the November presidential elections. Clearly, many at the Briefings were highly concerned with the somewhat “unsatisfactory choices” the American voters are being served. But at the same time they were also unilaterally opposed to granting President Obama another term. The tenor was very clear: he had his chance and he failed. With Obama, their expectations are dismal: higher taxes, more financial repression, less freedom, and no hope for a stronger economy.
It was widely recognized that, while there is so much at stake, the election appears to have become somewhat of a theatrical farce. Many Americans appear to be disappointed. The media of course is covering it ALL, focusing in on the most critical issues America must consider: from Michelle´s dress to Romney´s stumbles. Quite a few people I talked too appeared resigned to the circus, poking fun at the media show the Presidential election is turning into.
On a more serious note, and at least until the presidential elections, we expect financial markets to perform quite well. There are still quite a few stocks that are undervalued and will outperform in the current mix of reflationary measures worldwide. Mining shares also look interesting. We expect gold and silver to continue their upward trend.
Gold in particular is going to continue to benefit from QE and from the fact that bankers worldwide are suddenly looking more favorably upon the metal. I´ve added a few more comments on the topic further in this Update. Believe it or not, Deutsche Bank has now gone on record predicting $2,000/ozt by the end of the year. That´s new!
As for the US elections, may the best man, and his wife, win!