In my travels over the years, I’ve often marveled at the business practices of certain societies, especially in Africa and South Asia.
Chronic instability leads to a short-term business attitude — grab as much as you can while you can. That in turn undermines sustainable investment and growth, feeding instability. If you don’t think there’s going to be a long-term, you don’t invest that way. It’s a self-reinforcing cycle.
In the poorer economies of the “third world,” this short-term preference for profits over investment is easy to see. Owners of dilapidated sweatshop factories paying poverty wages drive the most expensive cars imaginable, and live in armed enclaves to protect themselves from their own employees and customers.
Based on some fascinating stats I’ve recently seen, that world could be coming to the U.S. soon. And I for one am already planning my asset protection…
Third World on the Hudson (and Potomac)
My colleague Jeff Opdyke is a classic contrarian. He’s constantly telling people to buck the trend and to look over the horizon at the things you can’t see, but are inevitably coming. Burmese smartphones. Kazakhstani grocery stores.
And, of course, using gold as a form of asset protection. When he talks about that, listen especially carefully.
Jeff’s been telling people recently that the hoopla over the “rebound” of the U.S. economy is just that — cheerleading fluff designed to tempt people into “safe” U.S. equities and bonds. And I couldn’t agree more.
That’s because the U.S. economy isn’t fundamentally different from the stagnant and unstable economies of the “third world.” Since the 1980s, U.S. capitalists have adopted a short-term, value-extracting attitude, with little faith in the future … just like their third world brethren.
The proof can be found in stock buybacks. Corporations do this to reduce the number of shares outstanding, which inflates earnings per share. This is especially attractive when senior executives are paid via stock options. It also makes investors feel good, at least for a little while. Consider these facts:
- Stock buybacks have totaled more than $6.9 trillion since 2004.
- Over the past decade, the companies that make up the S&P 500 have spent 54% of profits on stock buybacks.
- In 2014, U.S. corporations spent about $700 billion, or roughly 4% of U.S. GDP, to prop up their share prices by repurchasing their own stock.
But the massive diversion of U.S. corporate cash flow to stock buybacks has resulted in lower rates of productive investment. In the past, that investment flowed through the economy in the form of higher wages and spending on equipment.
Today, buybacks drain trillions of dollars out of the real economy and into a paper-asset bubble, inflating share prices and individual fortunes while producing nothing of tangible value. Indeed, since the Securities and Exchange Commission loosened regulations that define stock manipulation in 1982, U.S. public corporations have bought back more equity than they’ve issued, representing a net negative equity flow. Shareholders aren’t providing capital to the corporate sector, they’re extracting it.
Just like in the third world.
‘n Bietjie Bietjie Maak Meer
So what can you do about it? Two things: First, don’t fall for the hype around U.S. market valuations. They’re just numbers on paper. Most of the U.S. is a chronic bubble economy with little substance. Second, plan your asset protection strategy. Put your wealth into something that will hold its value … real value. That means gold and other precious metals.
But, you say, not everyone is in a position to buy up a container load of the stuff and ship it off to Singapore. That’s where a little piece of South African wisdom comes into play.
For most of its history South Africa has been a hardscrabble economy, and most people could only acquire wealth over time. That’s why it developed one of the most advanced private pension-fund systems in the world. People there have a saying: ‘n bietjie bietjie maak meer — a little at a time will grow into something big.
When it comes to precious metals as asset protection, there’s a way you can put this wise adage into play. The Hard Assets Alliance SmartMetals account allows you to invest as little as $250 a month into directly-owned gold or silver, stored in private non-bank vaults in the U.S. or in places such as Zurich, Singapore or Sydney. Because it’s considered a U.S. domestic financial account when you’re accumulating funds toward physical gold, it’s not reportable under IRS or Treasury offshore reporting rules. Once money is converted into metal, it’s not reportable because it’s held in a secure private vault, not a bank.
So let the captains of industry eat their capital via hollow stock manipulation. If you want a real financial future, start socking away your gold today.
Offshore and Asset Protection Editor