Welcome Letter
Welcome back and a belated happy winter solstice. We are publishing a bit later than normal partly because of my travels away from modern communications and partly because we were waiting to see the results of the Japanese elections. If you are reading this, the Mayan prophesy failed to materialize.
Congratulations on surviving the end of the world. The number of seemingly sane and well-adjusted people I meet in my travels who buy into such irrational theories continually shocks me. I like to think that Without Borders subscribers are the rational wing of the lunatic fringe, yet I am often amazed where the line between contrarian and independent thinking sometimes overlaps with the fanatical and irrational conspiracy theorist. It is like a perverse Venn diagram where the rational and bonkers overlap. Unfortunately, it is the portion that overlaps that is very detrimental to our cause because it makes it so easy to dismiss rational critics of the current economic and political system as escapees from the island of misfit toys. The establishment politicians and economists can waive their hands and say, ¨Those are the same clowns who thought the world was going to end in2012 and that the Bilderbergers and Council of Foreign Relations are plotting to take over the world.¨
Unfortunately for us, where the circles overlap is where the conspiracies dwell. Somehow, because Libertarian and Free Market beliefs both adhere to the idea that the central bankers are causing distortions in the market and that political elite have fostered cronyism and corporate welfare, we are lumped in with those that believe the Rockefellers and the Rothschilds are holding secret meetings in the basement of Dick Cheney’s mountain lair.
My message to you, fellow intellectual adventurers, is stick to the arguments that are winnable and credible. Don’t get sucked into the farcical and outrageous. In today’s precarious world we should be making credible arguments to friends, families and if you must, politicians. Individual freedom, both economic and social, has rarely been so vulnerable as it is today. If you stick with principled arguments founded on freedom and supported by Austrian economic theory you will not only be proven correct, you will be able to protect yourself and those you care about. However, if you squirm down the conspiratorial rabbit hole you will find yourself marginalized, vulnerable and summarily dismissed.
Next time the holidays roll around, if you gather with friends and family and you are able to raise the level of discourse above the pop culture chatter tread carefully when politics and economics are discussed. If you feel compelled to question what will most likely be the rhetoric of either the right or the left, I beseech you to focus on the positive elements of a free society rather than attacking long held conventional beliefs. Over the years, I have developed a pretty good track record of exposing people to a freedom-based philosophy. There are many out there that are naturally Libertarian yet have never been exposed to market based ideas in a rational and measured way. It took me the better part of a decade to find the tone that does not alienate and infuriate. My natural tendency is to aggressively (read rudely) question the premises of long held political beliefs, which while great fun at parties is actually counterproductive. While entertaining this is not productive.
A friend or family member may come around if you lead them down the path at their own pace. Here are my five rules of thumb for family gatherings:
- Focus on freedom. Almost everyone can agree to this ideal, at least as they understand it. If we focus on freedom, we can walk the conversation towards liberty and natural rights without nasty glares from the socialist uncle. Don’t despair when some at the table interpret freedom as the right for food stamp recipients to purchase lotto tickets with your tax dollars.
- Avoid the words Capitalist, Libertarian, Socialist, Fascist, Conservative, Democrat or Republican. And while it is often great fun, don’t admit you’re an anarchist. Everyone at the table or in the den will have a preconceived notion about each of these terms and most will range from misunderstood to wrong.
- Be quick to point out that society and government are not one and the same. Almost everyone will feel that the government did not represent his or her views for at least four of the last eight years. For many it has been much longer. This distinction is a very important first step for many and I am often surprised how few people have ever thought of separating the two.
- Focus on those who seem receptive to learning more. Don’t fight with the socialist uncle or your nephew’s cute new girlfriend. He is not going to give up a lifetime of core beliefs and she is a sophomore at Dartmouth. Ask him about how he likes his new hybrid and admire her…. eh fashion sense. Don’t pick a fight because you will lose the good will of those who might otherwise want to learn more. Ask me how long it took me to learn this one. After a bottle of wine, two scotches and a fine cigar, it is awfully tempting to make my Uncle look silly. Picking on sophomores just seems mean. Don’t be like either Will or Ponytail guy in Goodwill Hunting.
- Don’t mention Hayek, Von Mises, or Ron Paul unless someone else raises the question. Only the fellow converted will be impressed by how much you have read.
- If you can be principled but not partisan, one or two people will ask questions inviting you to introduce more ideas. You will find future discussions with these open-minded people far more gratifying than ¨winning¨ an argument. Over the years I have learned that a surprising large number of people are predisposed to Libertarian and Free Market ideas but they need to internalize these ideas at their own pace as it is almost uniformly not what they were raised to believe.
As I mentioned earlier, it took me years to mature to the point at which I didn’t instantly challenge orthodoxy and thus alienate the assembled revelers. I’m still not completely reformed but with the global ship of State listing heavily towards totalitarianism and taking on water fast, it is now more important than ever that we make the most of every opportunity to forward freedom’s cause.
In This Issue
During 2012, I spent significant time in Asia, Africa, Europe, the Middle East as well as South and North America. As always, I was on the hunt for opportunity and patches of freedom. Other criteria are a stable investment climate, the respect of property rights, attractive living costs and undervalued assets. While I am naturally disposed to emerging and frontier markets and can normally find a pocket of opportunity screaming for fresh capital, this year, like the last two, I came up with absolutely nothing to be excited about. Unprecedented government intervention in the global economy has created such significant distortions that we see little more than inflated asset prices and currency regimes on the verge of imploding. Add in an equally unprecedented wave of political and social unrest in regions critical for global resources and chaos is baked in the cake and the oven is on. Once again we must remain defensive and patient. We urge you to be wary of those promoters selling dreams, nirvana and opportunity abroad. The days of the Euro, Pound and US dollar going a long way abroad are over for now, yet many still sell the dream of white sandy beaches, household staff, cheap food and drink for less than your social security check. It is simply not true.
This does not mean we cannot find ways to profit and an international lifestyle does not pay wonderful dividends in terms of lifestyle and education. Quite the opposite. International travel and living abroad remain the best education. Starting a business in a foreign country remains a fantastic opportunity. A good education and a fresh perspective can often result in a very successful venture and even if it fails the education would be cheap at twice the price. I certainly learned more from failed business ventures than I ever learned at either West Point or Oxford.
If you are more focused on passive international investments for both diversification and to capitalize on the seismic shifts in the global economy, this is still a sound strategy but it takes time. We must patiently position our portfolios to profit from collapse. While it is frustrating to wait, multigenerational wealth is created in short bursts when you profit from falling markets, and then purchase cheap productive assets in the aftermath. We believe 2013 could be the year when the next leg of the crisis unfolds in earnest. It has taken a long time but monetary policy can only postpone the inevitable. It cannot prevent it.
We remain heavily invested in precious metals, select shares and cash. These have performed well for us with very little risk. As the year opens, we will start to diversify our holdings by purchasing or selling short securities best positioned to profit as the stimulus effects dissipate. In this issue, we will set the stage for 2013 with an around the world tour. In each stop, we will introduce the themes we expect to unfold and our initial ideas on how to profit. Over the next year, we will expand and refine the recommendations. In our years as professional investors, we have never seen such a confluence of events that will result in economic strife and social unrest. For the last five years, we cautioned against picking up dimes in front of a steamroller, now we are making the big call. Our long held expectations are finally ready to unfold. Tighten your chin strap… we are headed overt he top and into the breach.
Yours in exploration,
If you would like to read the rest of this double-issue, please CLICK HERE.