I recently spoke with radio host Andy Duncan. We discussed how leaving all of your savings under the control of a bankrupt government is like giving a thief the key to your home, and how international diversification is the solution.
You won’t want to miss this exciting and in-depth conversation below.
Until next time,
Andy Duncan: Today my guest is Nick Giambruno, Senior Editor at Doug Casey’s InternationalMan.com site. We’ll be talking about international diversification, crisis investing, and how to internationalize your health care.
What’s the basic process for how people should do that, and why should they do that?
Nick Giambruno: In short, internationalization is prudent because it frees you from absolute dependence on any one country, and when you achieve that freedom, it becomes very difficult for any particular government to control you. It’s all about making the most of your personal freedom and financial opportunity in the world.
You should think of international diversification in two ways.
- It unlocks investment and speculative opportunities that are only available outside of your own country.
- As an insurance policy. You have health insurance, fire insurance, and so forth. Internationalization is insurance against an out-of-control government, against the political risk that comes from your home government.
Many people know of the general investment benefits of not having your whole portfolio in one asset class. This diversification concept also applies to political risk, and it’s this risk that few people think about diversifying. And it’s a risk that’s unfortunately growing these days, especially in Western countries with deteriorating fiscal situations. It’s these countries that have debt loads and future spending commitments that all but guarantee that they will eventually try to grab as much purchasing power or wealth as they can get away with. This risk is particularly acute in the US due to the obscene spending on welfare and warfare with money the government doesn’t have.
We just have to take a look at history to see what kind of actions governments which get into these precarious situations might take—capital controls, wealth confiscations, currency devaluations, one-off emergency taxes, bail-ins, nationalization of retirement accounts, and other measures. Historically, these things are the norm when a government gets desperate enough.
It’s exactly for this reason why spreading your political risk beyond a single jurisdiction is the single most important thing you can do. If you leave all of your savings under a bankrupt government’s control, it’s like giving a thief the key to your home.
It’s also important to emphasize that in order to be effective, the destructive measures desperate government take have to be sudden and come as a surprise attack. Just like what we saw in Cyprus in early 2013, where, on a seemingly ordinary Saturday morning, Cypriots awoke to a new reality and found that their banks had been indefinitely closed. They couldn’t access their accounts online, capital controls had been put into place, and their savings were no longer safe, and it came as a total surprise to most people—it had to in order to be effective, and that’s the whole point.
The critical lesson here is that it’s much better to be a year early in your preparation than even a minute too late. When you start to see the writing on the wall, you know it’s time to start putting some of these international diversification strategies into practice.
To me the financial direction of the US government and most Western governments is crystal clear—the window of opportunity to protect yourself from the inevitable destructive measures is still open, but it does appear to get smaller with each passing week.
One last point I’d like to emphasize here is that there’s a misperception that international diversification—like getting an offshore bank account or storing some gold abroad—is illegal or somehow not allowed, but that’s not true at all. There are many things that you can do to protect yourself that are legal and often can be done without having to even leave your own home.
Andy: We had the Polish government take the people’s pensions, and various other governments have done similar things. I think people get the idea of storing their gold in Singapore or somewhere. Do you think people should also consider diversifying their citizenship, getting foreign residency and a second passport too?
Nick: Absolutely. But first, let’s just talk about what Poland did. Poland was a recent country to nationalize their citizens’ retirement savings. And this is a particularly scary thing. How it usually happens is that a government will forcibly convert the assets held in retirement accounts into “safer assets” such as government bonds. And naturally the politicians will sell this as something that’s for the people’s own good, but really it’s a way for bankrupt governments to finance themselves by dumping their unwanted debt onto seniors and savers. But fortunately, if you act before this happens, there are ways you can structure your IRA and your retirement savings to hold assets that aren’t easily confiscated, like physical gold held in foreign storage locations, foreign real estate, and so forth. So internationalizing your retirement savings is definitely an important component of international diversification.
The other point you touched on is second passports, and that’s another critical component as well. Unfortunately, there are no solutions to a second passport that are at the same time easy, fast, legitimate, and cheap, but it certainly doesn’t lessen the need to have one.
Andy: If US citizens were thinking of maybe going for their residency rather than their second passport, where is a good place for them at the moment to get their residency?
Nick: Generally speaking, it’s not ideal to get residency in another country unless you are eyeing eventual naturalization and to get a citizenship. This is because when you get residency in another country, you typically get sucked into their tax system. So it’s usually much better to be treated as a tourist rather than a cow to be milked when you become a tax resident.
That said, if you intend to get a second passport, one of the ways you can do that is to become naturalized in another country after spending a certain amount of years as a permanent resident of that country. So that’s one reason to get residency in a foreign country.
One country that is particular attractive for this purpose right now is Panama. Panama is the easiest country in the world for Americans and most Europeans to obtain permanent residency with an eye toward eventual naturalization and a second passport.
Andy: We’ve heard from people like Dr. Elizabeth Vliet and Dennis Miller that Obamacare could make future health choices very difficult for Americans. Can you outline for us how people might want to protect their future health through the process of international diversification?
Nick: International diversification can help you diversify your medical care choices. One thing that is particularly helpful is to have some capital or some savings located outside of the United States should you need to pay for medical services in different countries. So that’s another important reason why you should internationalize some of your savings or get a foreign bank account is so that you can pay for medical care abroad should you need to do that should options be restricted or otherwise unavailable in the US.
Andy: Moving on to international investment opportunities, Baron Rothschild once said that when there’s blood in the street there’s money to be made. You mentioned Cyprus. How can people make money out of Cyprus at the moment?
Nick: Cyprus is a place where there was a blood-in-the-streets type situation with their financial crisis, bank deposit bail-in, and capital controls. But this isn’t necessarily a bad thing from the perspective of someone looking for crisis investments.
Baron Rothschild might have been an unsavory character in a number of ways, but he was absolutely correct when he said the time to buy is when the blood is in the streets—and this statement perfectly captures the essence of crisis investing. With Cyprus, Doug Casey and I were there scoping out opportunities on the Cyprus Stock Exchange, which is remarkably cheap. There are still companies that are producing earnings, paying dividends, have very low debt, lots of cash—cash not held in Cyprus, by the way—but that are trading for remarkable discounts, and these crisis-driven bargains are exactly why Doug and I went there.
Doug and I have always have our eyes open for other crisis markets around the world, so we recommend people save some of their speculative capital because there are going to be more crisis opportunities that he and I will uncover in our Crisis Speculator publication.