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The Digger Quarterly

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Brave new world: What the US election means for investors


Nobody expected the 2020 US election to go absolutely smoothly, to quickly result in a clean, confident and universally accepted victory, or to be even remotely reminiscent of any other past election.


And yet, the way it actually played out argu- ably defeated even those very low expectations.


The blue wave that never was


As we highlighted in our blog before the elec- tion, there was always a big risk that the pollsters and forecasters would get it wrong, much like they did in 2016. Of course, most reporters and pundits dismissed these concerns, counter-arguing that the nation’s foremost statistics wizards certainly learned their lessons and adequately updated and modi- fied their models.


This was bombastically disproved almost immediately after the count began and the first results started to come in. The “blue wave” that was so confidently predicted and the landslide victory of the Democratic party that was all but guaranteed never materialized. On the contrary, the race proved to be extraordinarily tight and the suspense has continued to persist for days on end, as the process was slowed down by the new challenges brought about by the pandemic and the record volume of mail-in votes.


Even more spectacular was the failure to predict the election result on a more granular level. The voting patterns of minorities and key voting blocks turned out to be the exact opposite of what most experts and political analysts expected. It was especially striking, given the widespread unrest, protests and riots that gripped the nation over the last few months. Despite all the leftist spin, the incumbent actually managed to secure more votes from minorities compared to 2016, especially from Latinos and Black men and women. In fact, on a national level, Donald Trump garnered the highest percentage of non-white voters of any Republican presidential candidate since 1960, while he also doubled his share of the LGBTQ community votes compared to the last election.


As a result of the many surprises and curveballs of this election, the Biden/Harris ticket secured a weak mandate, with their key losses coming from groups that they, and almost everyone else, assumed would be their strongholds. This could have important implications going forward and potentially impact their much-touted changes, promises and campaign narratives that focused heavily on those groups and what they perceived as their shared interests.


This election also sheds some light on campaign-trail assertions and hypotheses about the nature and political inclinations of various minorities. As it turns out, peo- ple prefer to think for themselves and form their own opinions, based on their individual circumstances, unique motivations and beliefs, rather than be defined by some arbitrary and superficial label that would have them grouped together on the basis of their race, gender or postal code.


Trump cards


Almost all important heads of state, international media, Biden supporters and even some prominent Republicans have already recognized Mr. Biden as the President-elect and most of them warmly welcomed and openly celebrated his victory. In fact, one might conclude that it’s basically old news by now, as mainstream coverage has moved on to focus on the transition plan and to speculate on the new President’s picks for the top jobs. And yet, there’s an entirely different version of reality and set of assump- tions that the incumbent’s team is laboring under.


"These legal challenges should not be tainted by partisan

bias and be sum- marily dismissed as mere symptoms of

“sore loser” syndrome, no more than they should be

accepted as valid from the get-go."


As far as President Trump is concerned, the election is far from over. The result is not only contested, but vehemently decried as the product of pervasive voter fraud, and the very idea of a “traditional” concession is simply out of the question. Trump’s team has already mounted numerous legal challenges and has made clear the President’s intention to take the fight to the courts and to exhaust all options available. Little is known at this stage about the heft and quality of the actual evidence that underlie these legal claims and actions, but the media and Trump’s political opponents have so far appeared totally dis- missive of his chances to achieve anything significant through these efforts, let alone a reversal of the election outcome. No matter how plausible such scenarios might seem from the outside, it is still important to bear in mind that it is up to the courts to resolve the questions and objections raised by the Trump campaign. The judicial branch has the last and only word on such matters, just like it did the last time the US went through a contested election ordeal in Bush v. Gore. What’s also essential to understand is that Trump’s claims over voter fraud and manipulation need not be entirely upheld or fully proven in court in order for them to do considerable damage to the already overstrained social fabric of the country.


The dangerous divisions and the toxic tensions that have plagued the nation for years and seriously escalated after the death of George Floyd could once again boil over if the public’s faith in the democratic process itself be shaken. This would be tragi- cally ironic should it be triggered by the election with the highest participation rate in 120 years, in a coun- try with historically dismal voter turnout, compared to most OECD democracies.


Regardless of this risk, the need to get to the bottom of voter fraud allegations is absolutely necessary. A democratic system can only thrive and sustain the tests of time if the People trust the institutions they have mandated to serve and uphold their constitu- tionally guaranteed and inalienable rights. The moment that trust is broken, the state stands the danger of no longer acting with the consent of the governed. Therefore, assuming the allegations made by the Trump team have sufficient cause to be taken seriously by the courts, one would expect that EVERY American, and EVERY liberty-loving citizen that believes in democracy would support the efforts to uncover the truth.


These legal challenges should not be tainted by partisan bias and be summarily dismissed as mere symptoms of “sore loser” syndrome, no more than they should be accepted as valid from the get-go.


Economic policy U-turn


As on most other key issues, Mr. Biden’s vision and the incumbent’s plans on the economy could not be more at odds. There are many important differences and significant changes that investors and taxpayers can expect under a Biden presidency, if his campaign promises and commitments actually materialize.


Regarding the most urgent question, namely the pandemic and the relevant policies that will affect the economy, Mr. Biden can be expected to take a much harder and clearer stance on various restrictions and nationwide rules to combat spread of the virus. Apart from a national mask mandate and his pledge to “immediately restore” the country’s rela- tionship with the World Health Organization, the Biden covid plan also includes a much broader use of the Defense Production Act, the emergency law that allows the federal government to seize control of private industry. He also plans to empower the CDC to directly guide states on restrictions on gathering sizes and on issuing stay-at-home orders to the public. As for the possibility of a national lockdown, Mr. Biden has vowed to “do whatever it takes to save lives”, including shutting down the US economy.


On the stimulus front, most analysts anticipate the stalemate to be resolved and progress to be made now that the election is over. Mr. Biden has repeat- edly made it clear that he supports a larger stimulus plan, more direct relief and higher spending. A relief package around $3 trillion is what’s expected to be proposed, as part of the wider Biden/Harris $11 trillion spending plan, though its chances of materialization are largely dependent on which party will end up controlling the Senate. When it comes to infrastructure spending, we see the only area of convergence between the two parties, as both want to spend over $2 trillion, but certainly key differences remain there too. The Democrats’ vision includes a plan to move the U.S. to net-zero greenhouse gas emissions and massive budgets for clean energy and climate change.

The other major point of interest in the Biden economic agenda is his commitment to raise taxes on higher incomes. While Donald Trump intended to extend his 2017 tax cuts, his opponent’s plan clearly embraces the exact opposite approach, demanding that “the rich” and corporations pay “their fair share”. He has promised to roll back the previous administration’s cuts and to increase the tax burden on cor- porations and on anyone making over $400,000 by nearly $3.6 trillion over the next ten years, a move that the Manhattan Institute described as “the largest permanent tax increase since WWII”.


According to the Tax Policy Center, overall, those earning between $400,000 and $790,000 would see a tax increase of about 2.4%, while those with an income over $790,000 can expect a much larger hike of 16% that corresponds to an average loss of after-tax income of $265,000. The Biden plan’s implications are even more daunting for those who live in states that already impose a heavy tax burden. For example, high earners in California or New York would see their tax rate explode to a shocking 62% in combined federal and state taxes, a top tax rate that surpasses even most European nations.

“Small print” policies with a huge impact


Joe Biden’s proposed measures about the corona crisis and his striking tax hikes justifiably grabbed a lot of headlines before the election. However, there are many other significant policy changes that went underreported and could potentially have an even wider impact on the nation’s economy, and especially on its entrepreneurs, innovators and job creators. Many of those policy moves are particularly remarkable, given that Mr. Biden positioned himself as a moderate during the primaries and throughout his campaign, taking great pains to distance himself from his party’s extremist and fringe leftist elements.


Riding the wave of identity politics, class warfare, and the “climate emergency”, the Biden/Harris program includes a wide range of government inter- ventions, new regulations and major disincentives for the private sector. The most obvious challenge to small and medium-sized enterprises is the former VP’s pledge to increase the minimum wage to $15 across the country, which the Congressional Budget Office has warned will kill millions of jobs nationwide.


The Biden plan also includes a promise to legally force publicly traded companies to disclose data on the racial and gender composition of their boards, while other policy initiatives go much further in regulating and interfering with private sector contracts and agreements between employees and company owners, such as the postposed ban of non-compete clauses.


However, all this is arguably nothing compared to Mr. Biden’s pledge to empower, subsidize and indulge unions. As his own policy manifesto plainly states, a Biden administration would use “aggressive remedies” to protect and incentivize unionization and collective bargaining. The most striking of those is his plan to ban state laws prohibiting unions from collecting dues from nonmembers. Also known as “right to work” laws, they currently ensure that workers are not forced to join a union or pay union dues as a condition of employment and they essentially outlaw compulsory union membership. Adjacent policies also include legal protections for strikers, a ban on permanent strike replacements, and a move to hold company executives personally liable when they interfere with organizing efforts, basically ensuring that employers can be held hostage at the whim of union organizers and whatever their demands may be at the time.


Of course, the Biden plan wouldn’t be complete without a huge section of it being devoted to climate change. Apart from the extraordinary budget allocations, the myriads of new rules and regulations and the fervor behind largely unrealistic goals, e.g. “complete zero emissions by 2025”, there are some addi- tional policies that failed to garner the attention they arguably deserved. A great example is the establish- ment of an “Environmental and Climate Justice” division within the U.S. Department of Justice, that will “hold corporate executives personally accountable – including jail time where merited.“

Implications for investors


Most of the aforementioned policy shifts, while hugely consequential, are largely dependent on which party will control the Senate. According to the latest updates at the time of writing, it appears that the GOP is more likely to win this battle. A split government would likely spell disaster for many of the Biden/Harris grand designs, at least for those proposals that go through the normal democratic route and are not simply imposed by an executive order. It is thus impossible to make a sound prediction at this point about the precise risk levels connected to those policies, but it is still important for investors and business owners to understand the potential extent and gravity of those risks.

Nevertheless, there are other dangers that are much easier to spot in advance and to adequately prepare for. The clearest example is the monetary outlook and its implications. For all intents and purposes, “lower for longer” interest rates were already the prevalent scenario, no matter who won the election. Under a Biden administration, the probability of even more aggressive monetary expansionism is elevated at near-certainty levels. What is even more worrying though is that the for- mer VP has made no bones about looking at the Fed as merely another political weapon in his arsenal. As is clearly stated in his manifesto, the Federal Reserve will not only be made to “revise its own hiring and employment practices to achieve greater diversity”, but the central bank will also play a much bigger role in the “equality” context. As the plan clarifies, on top of its existing mandates of full employment and inflation control, “the Fed should aggressively enhance its surveillance and targeting of persistent racial gaps in jobs, wages, and wealth.” This will further erode the independent status of the central bank, that’s already been called into question for years, and quicken its demise and degeneration into just another government agency, beholden to and controlled by whomever sits at the Oval Office.

Another bomb that’s been ticking long before November 3rd is the debt crisis. While it can be easily argued than neither candidate would address this issue in any meaningful way, the Biden approach to the budget and to deficits is likely to prove even more disastrous. Spending commitments and campaign promises of free college, more benefits, a "bigger and better" Obamacare, new government jobs, or simply just direct cash payments, all but guarantee that we’ll soon see another explosion in debt levels, causing financing costs to go through the roof.


Of course, all these dangerous trends predated the 2020 elections and would probably persist regardless of its results. There are bigger forces at play, not least among them the demographic developments of last couple of decades. The dismal savings rates of young adults, the steady decline of their household wealth, and the lack of economic opportunities compared to previous generations will continue to fuel their demands for more spending, more support, and ultimately more debt. For a deeper and expertly outlined analysis of this gigantic problem and its implications, we strongly recommend you watch the recording of our Fireside Conversation II, with our special guest, Sune Sorensen.


Ultimately, as we already highlighted in our Special Report, the core challenges facing investors moving forward are inflation and financial repression. There are quite a few tools and considerations that investors can factor into their strategic planning and there are solid solutions to help them protect their savings and family wealth. In these efforts, we see physical precious metals playing an essential role.


Under the present conditions and the clearly discernible risks that lie ahead, the real question now is not whether you should invest in gold or not, but if you own enough for what’s coming.


 

Retirement crisis: Running out of money and time


Ever since the 2008 recession, the retirement plans of many investors and ordinary savers have been repeatedly and consistently thrown into disarray. The monetary policies that were enforced severely punished financial prudence and actively discouraged long-term thinking and planning ahead.


A decade of QE and zero-to-negative interest rates decimated the returns of pension funds and forced fund managers and individual investors alike to abandon traditionally safe options, turning en masse to the stock markets instead, to accept more risk and to gamble with their nest eggs. Even when the US bull market took off in earnest and even as equities valuations began to appear increasingly stretched, public and private pension funds, as well as individual investors, had to keep on buying, as there were no alter- natives to be found.


While this shift toward riskier assets did manage to keep them afloat as the longest bull market in history raged on, the mere thought of a correction or even a mild economic downturn was the stuff of nightmares for fund managers and soon-to-be retirees. And then the pandemic hit.

Off a cliff


In most Western economies, the retirement crisis has been a major theme for over a decade. To a very large extent, it has been created and fueled by long-term trends in demographics, consistently declining birth rates, and shifts in the labor force that are of course not only irreversible, but also slow-moving and very predictable. The mass exodus of baby boomers from the labor force has been a long time coming and noone can or should seriously claim to be surprised by it. There have also been important shifts in employment trends and employee profiles that presented their own sets of challenges. The rise of part-time work and the “gig economy”, the steady and worrying decline in household savings, and the skyrocketing student debt levels have all played key roles in exacerbating the retirement problem.


Added to that is the glaring income disparity between millennials and their boomer peers which has a long-term impact on millennials’ ability to accumulate wealth. According to a 2019 report by nonpartisan think-tank New America, US millennials earn 20% less than baby boomers did at the same stage of life, while they also have “higher debt relative to both their income and their assets than any other previous generation at the same age”. It is worth highlighting that these pre-covid figures are more than likely to be substantially worse today, not to mention in the months and years ahead.


While these long-standing issues have formed the basis for the retirement crisis, it was monetary, economic and regulatory trends and interventions that exacerbated it. Especially over the last decade, we saw unprecedented pressures and new obstacles: rate cuts, union and political influ- ences that placed additional financial burdens on pension funds, the disappearance of safe investment options like bonds, and extremely convoluted and opaque regulations that complicated retirement plans and savings vehicles for individual investors. All these led to a steady deterioration that was dramatically accelerated by the covid crisis.


In the US, both corporate and public pensions have been facing severe and persistent funding challenges for years. Large, century-old American companies like Ford or General Electric, which traditionally paid generous, defined-benefit pensions, were already feeling the pressure of low interest rates even before the pandemic, but this has now been massively amplified by the new, historic rate cuts and the impact of the corona crisis, causing pension obligations to explode and leading to dangerous funding shortfalls. However, the funding challenges faced by the private sector and their potential to wreak widespread havoc are nothing compared to the mayhem seen in public pensions.


Public pensions have been in a terrible state for years and in multiple states. In many cases, the funding gaps were so severe, especially after the 2008 recession, that even the longest economic recovery in history failed to make a difference, as states like Illinois, Kentucky and California continued to make headlines for their spectacular mismanagement of pension funds and record levels of unfunded liabilities.


They were in dire straits during the “good times”. But now, as the country is facing a severe recession, as interest rates are set to stay lower for longer, and as equities are also taking a hit, what’s long been described as a time bomb could very well finally go off.

Everyone’s problem


US public pensions have been chronically under- funded and in recent years, there is no shortage of headlines about various states and cities on the verge of bankruptcy, struggling to meet their obligations. Across the country, state pensions hold 75% of their assets in stocks and alternative investments that are also highly correlated with financial markets. Before the covid crisis, state pension funds across the US were facing a $1.24 trillion funding gap, according to Pew Research. This shortfall was calculated based on extremely optimistic rate of returns assumptions, often as high as 8%, an expectation that looks totally unrealistic in light of the current crisis. With these new conditions and challenges in mind, Pew estimated that overall state pension debt could further increase by $500 billion, reaching an all-time high.

To individual investors or private sector employees, the crisis of severely, desperately underfunded public pensions might sound like someone else’s problem. After all, it’s not their retirement plans that are directly being threatened. They were diligent and responsible; they’ve been saving up consistently and investing prudently and they have adequately planned ahead for their golden years. However, that would be a dangerously naive assumption. As tax-payers, they are expected to fund not just their own retirement, but they are also on the hook for the costly mistakes, chronic excesses, and the decades-long mismanagement of public pensions too. In fact, it can be argued that this crisis is absolutely and exclusively the taxpayers’ problem: legal frameworks, union influence and political pressures all but guarantee that the public pension obligations, no matter how generous and disproportional, will be fulfilled and that the funding gap will be filled with taxpayer money.


In our recently published Special Report, we highlighted some of the most important risks to investors going forward. Among those was the threat of higher and new taxes as governments all over the world grow increasingly desperate to fund their spending promises, to pay for all kinds of crowd-pleasing stimulus programs, and to finance their debt. While this practice of (ab)using taxation to plug financing holes is a big risk that still lies ahead for most Western investors in the post-covid era, it is a practice that has already been rampant and very well documented in many US states with struggling pension schemes. There, new and higher taxes have been used for years to cover obligations and to honor the commitments and promises made to public sector employees.

California is a prime example of this. Public pensions are only about 70% funded, according to pre-covid official data, a figure we can safely assume is by now much lower. The state has been struggling for years to meet its current and future obligations, a task that has been made increasingly difficult by the immense political power of unions and lobby groups. Over the years, these obligations have exploded, as new benefits, bonuses and perks have been added to public employees’ compensation packages. A court case also recently revealed striking evidence of a long- standing practice dubbed “pension spiking”, through which workers use creative ways and game the system in order to increase their pensions by adding extra pay at the end of their careers. It’s also virtually impossible to reduce the burden of future contributions, because of several California Supreme Court decisions. Collectively known as the “California rule”, equivalents of which can also be found in other states, they not only protect the benefits already earned by a public employee, but also legally guar- antee that they will not be reduced for the entirety of their employment.


Such legal roadblocks and abuses have caused public pension commitments to skyrocket and this is by no means unique to California. In most states that are in the same predicament, like Illinois, Kentucky, New Jersey, Connecticut, the impact on the taxpayer has been severe and twofold. For one thing, pen- sions have been steadily taking over the state budget, in a phenomenon known as “crowd-out”.

This means that the tax dollars they already paid are being diverted away from resources and services that they need and use, anything from roads and infrastructure to schools, police and firefighters. Secondly, when budget reallocation and creative accounting aren’t enough to fill the pension gaps, new taxes have been regularly introduced. Naturally, they’re never called “public pension” taxes, but instead they come in more appealing packaging, such as “school facilities tax”, “public safety tax”, “transient occupancy tax”, etc. This insidious practice is not only a cynical political misdirection, but it is also, in effect, shifting the blame to the taxpayer and the voter. If they reject the new “road” tax, the roads will crumble, and it will have been their own choice. Of course, no matter what they vote, they’ll still have roads with potholes, and the new funds will go to public sector retirees.


"The problem with socialism is that eventually you

run out of other people's money"

~Margaret Thatcher


End of the road


Even with all these abuses, budget manipulation and diverted tax dollars, many state pension funds are still on the verge of going bust. Any hopes for meaningful reforms are likely to prove naive, as the political pressures and the legal obstacles, like the California rule, are too formidable. There’s also a very real and very practical challenge that ensures that this strategy of “robbing Peter to pay Paul” will soon hit a wall. High-income earners, business owners, and basically all members of the productive class, are leaving “progressive” states in droves, heading to greener pastures, with lower taxes and greater respect for private property. This exodus, massively accelerated by the covid crisis and the shutdowns, is arguably a very accurate manifestation of Margaret Thatcher’s prediction, that “the problem with socialism is that eventually you run out of other people’s money”.


As a result, local governments are increasingly getting dangerously desperate to find the funds needed to keep their generous promises. As we recently highlighted in our BFI Capital Group blog, we’re already seeing clear signs of this desperation in new policies and laws, like retroactive tax hikes, the introduction of a “wealth tax”, and the power to keep taxing ex-residents for years even after they’ve left their state. These measures justifiably grab media attention and make for great headlines, but there are also other regulatory shifts that are much more insidious and often go underreported. More often than not, these target individual investors and savers, while they are also so convoluted, so deeply buried within the endless tomes of the tax code, and so purposefully complex, that no “civilian” can understand their meaning, let alone their far-reaching implications.


For example, under the Obama administration, there was a sustained campaign to place new restrictions around IRAs and to limit the flexibility of IRA owners in their investments, in their withdrawals and in their inheritance. More recently, the tax reform of 2018 removed a lot of deductions, as well as the ability to undo traditional-to-Roth-IRA conversions. Fears over even more aggressive reforms and withdrawal taxes on Roth IRAs have also been on the rise since the last recession and they’ve been justifiably renewed by the current crisis. Given the government’s dire financial position and the unprecedented spending spree of the covid crisis, one can see how such tax-sheltered retirement plans would look increasingly tempting as funding sources. They might seem like “small potatoes” given their contribution limits, but it is worth remembering that 41% of Americans own a traditional or Roth IRA, according to LIMRA figures, so the amounts do add up.

What can you do about it?


At Global Gold, we often highlight the importance of physical precious metals as a hedge and a stabilizer in any portfolio, but particularly for long-term investors and savers. We also like to remind our readers of the role of jurisdictional diversification and of the dangers of putting all of their eggs in one basket, under the control of a single government, especially during economically and politically turbulent times.


Today, both of these principles are more important than ever and should be at the forefront of investors’ minds as they plan ahead for their retirement and develop their own strategies to protect their wealth. What’s more, these principles can be combined and directly applied in a US investor’s retirement plan.


Over the last few years, and particularly so in the last few months leading up the US elections, we have had lengthy conversations with many of our American clients precisely about these issues, about their retirement strategies, and about the ways in which they can use precious metals to safeguard their savings.


It’s interesting that first, most people think that IRAs are strictly restricted to stocks, mutual funds, bonds, annuities and similar conventional investments. It’s quite understandable that many investors are completely unaware of the full range of their options, as the IRS doesn’t really advertise them in its general guidelines or on their website. If fact, the rules that govern precious metals are buried in an “exception” under the “collectibles” section of the relevant IRA guidelines, as outlined in Publication 590-A. But even though it might be hard to find that short text, it is at least easy to understand: “Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce US gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion".


Taking it a step further, many are sincerely surprised to learn that metals purchased and stored with Global Gold in Switzerland, for example, can in fact, be invested in through their IRAs. In other words, it is possible to invest IRA funds in gold held outside the US, as well as outside the banking system.


How? You can, for instance, move your savings to an offshore IRA LLC, sometimes known as a Checkbook IRA, with an account at an international bank or a multitude of other international investment options outside of the reach of any type of US creditor. Such a structure is compliant with all current US rules and you will maintain the tax-free (Roth) or tax-deferred (traditional IRA, etc.) status of your retirement account. And such a structure would also allow you to purchase and store your physical metals with us at Global Gold. This IRA LLC tool gives investors the option to protect their nest egg with physical precious metals, to effectively hedge against inflation, and to hedge against a multitude of geopolitical and economic risks. What’s more, they can also use additional tools and vehicles that can offer easier and wider access to international investments.


Specific experience, a solid track record and a deep and up-to-date understanding of all the the relevant structural components and legal restrictions are essential requirements in the set-up process. This is why, at Global Gold, in addition to our own experience and expertise in working with US clients, we have also built a network of experienced and specialized planners and IRA administrators over the years, so that we are able to help structure a fully compliant IRA LLC, with IRA-approved metals and formats. We already have clients taking advantage of these options and they have been thus far very happy with the results.


In times like these, it’s important to take stock of all of your investments, and why shouldn’t the same apply to US investors with their IRA/retirement accounts. And now, it should be no surprise at all that, when done correctly, it is possible to invest internationally with your IRA, with Global Gold, and even in other investment options within our BFI Capital Group.


 

The FinCEN hysteria


In late September, Buzzfeed published what seemed like a bombshell of an exposé, based on leaked files and alleging “industrial-scale money laundering” involving $2 trillion in suspicious transactions.


As might have been expected, mainstream media, politicians and corporate figures whipped themselves into a frenzy over these revelations. Online platforms helped spread the hysteria and major bank stocks all took a dive as a result. The story soon spiraled out of control, and certainly out of proportion to the actual, reported and verified facts.

When a news story isn’t new...or a story


The “FinCEN files” are composed of more than 2,600 leaked documents from the US Treasury’s Financial Crimes Enforce- ment Network (FinCEN), the vast majority of which were related to transactions that took place between 2000 and 2017. The trove was obtained by Buzzfeed News and it was shared with the International Consortium of Investigative Jour- nalists (ICIJ) in 2019.


Among the documents were more than 2,100 suspicious activity reports, or “SARs”. These are routine reports that banks and other financial institutions regularly submit to FinCEN, whenever their compliance officers or their automated systems spot transactions that could be suspicious or might suggest money laundering, terror financing, or other illegal activity.


However, the “net” that is cast is really quite wide, as what is deemed reportable in a SAR could be anything from dealings with black- or gray-listed jurisdictions, to any transactions in large, round numbers (typically exceeding $10,000). In some cases, it can even be any activity at all that is seen as “unusual” for that particular client. For these reasons, these reports may be used to support an investigation, but by themselves they do not qualify as evidence of a crime. As for the banks’ duties, while they are required by law to submit the SARs within 30-60 days, it is up to the authorities to follow up on them and investigate further if required.


Given the obvious risks to clients’ reputations, false accusations, and aspersions cast on entirely innocent and fully compliant individuals and companies, SARs are very closely protected. It is illegal to dis- close SARs, banks are prohibited from commenting on them or even acknowl- edging their existence, and they are never made available to the public or the press, not even through Freedom of Information requests or through a subpoena. As Buzzfeed directly acknowledges, “BuzzFeed News is not publishing the SARs in full because they contain information about people or companies that are not under suspicion, but who were swept up in the banks’ searches.”

What was actually revealed


The story came wrapped in all kinds of melodramatic statements and battle cries against the bankers and “the rich”.


The BBC editorialized the findings of the investigation, claiming it showed how “the world's biggest banks have allowed criminals to move dirty money around the world”, while Buzzfeed added its own, almost Dickensian twist: “Some of these people in those crisp white shirts in their sharp suits are feeding off the tragedy of people dying all over the world.”The BBC editorialized the findings of the investigation, claiming it showed how “the world's biggest banks have allowed criminals to move dirty money around the world”, while Buzzfeed added its own, almost Dickensian twist: “Some of these people in those crisp white shirts in their sharp suits are feeding off the tragedy of people dying all over the world.”


"After all, a SAR on its own proves exactly nothing and

given that the banks handed them over to the authorities

themselves robs the story of that 'gotcha' element."


And yet, given how enthusiastically the story was used as an excuse to “eat the rich”, the investigation itself didn’t really provide too much to chew on. For a year, 108 news organizations in 88 countries went through thousands of confidential docu- ments with a fine toothcomb, and what they actually found was surprisingly underwhelming and certainly nowhere near enough to justify their “$2 trillion in dirty money” claim. They did manage to show that HSBC moved $15 million related to a Ponzi scheme, that Russian oligarchs may have used Barclay’s to buy some art and circumvent sanctions, and that Standard Chartered might have been implicated in Taliban financing and Iran sanction bypass- ing. For the latter, an FBI investigation was opened to look into those claims, but it was soon closed as the agency determined that the “documents did not show evidence of new illegal transactions”.

Finally, even the SARs that seemed more “promising” as evidence of illegal activity were still largely “old news”. In most cases, the banks had either already been exposed and paid fines, or the cases had already been dismissed. Nevertheless, it would be a serious mistake to dismiss this story altogether. While it did not prove what its authors hoped it would, it did shine a bright light on a different issue.


The story behind the story


While mainstream media and left-leaning politicians jumped at the opportunity to vilify bankers and millionaires, the lynch mob focused its wrath on the wrong villains.


The US government collects over 2 million SARs every year and most of them are flagged by compliance officers or just automated screening systems. According to a Bank Policy Institute survey, authorities only follow up on about 4% of SARs every year, while only 1% of illicit money is confiscated, according to UN estimates. This discrepancy either demonstrates that the relevant authorities are egregiously incompetent or that the screening parameters are unreasonably wide. In other words, the bar for what is “suspicious" is extremely low and the “filtering” systems catch all kinds of irrelevant and totally legitimate transac- tions. This has far-reaching privacy implications and as Buzzfeed itself laments, "the SAR program became more about mass surveillance than identifying discrete transactions to disrupt money launderers."


Of course, none of this is meant as an endorsement of the ethics standards of the banking system. Long before the leaks were ever made public, almost all major banks had long rap sheets, countless convictions and there was direct evidence proving they knowingly worked with truly terrible criminals, terrorists, murderous regimes, and violent drug cartels. However, none of this justifies the surveillance and monitoring of millions of unwitting, law-abiding citizens.


It is an even flimsier excuse for what comes next, given the demands by politicians for more control and access after the FinCEN story broke. Democratic senators Elisabeth Warren and Bernie Sanders led the charge, demanding greater “transparency of financial networks”. Other reform proposals include the introduction of a beneficial ownership reporting regime and giving law enforcement far greater powers to demand client information from banks.


All in all, most reform ideas seem to revolve around finally extinguishing whatever is left of the concept of banking secrecy. In fact, this is all eerily reminis- cent of the Swiss bank witch hunt that was launched by the US following the 2008 crisis, that was mainly used to tear down banking secrecy laws and to relocate private banking activity (and revenue) from Switzerland to the states.


The current political and social climate is also highly conducive to vilifying "the rich”, so a story like that and all the public outrage it creates presents an ideal segue into new regulations, more access to private data and fresh restrictions on individual financial freedom.


 

"On the Brink of a New Era - Are You Prepared?"


By now, it is undeniable that 2020 is a year like no other in recent memory. A “perfect storm” of a global pandemic, an economic crisis and widespread political unrest, has unleashed a very unique set of challenges upon investors, savers and ordinary citizens.


However, in order to fully understand the many dangers that lie ahead, one has to take a step back and look at the bigger picture. That way, it becomes apparent that the urgent problems and acute risks that we face today are, in fact, the culmination of much wider trends and long- term cycles that have been going on in the background for quite some time. In this light, the covid crisis and all the extreme responses to it are best understood as the fuel that massively accelerated a fire that was already burning across most advanced economies.


This kind of thorough, calm and careful examination is essential in order to adequately prepare for the coming months and years and to develop successful strategies that not only manage risk, but are also primed to take advantage of the opportunities that this “new normal” will have to offer. At BFI Capital Group, we recognized the value that such a in-depth and multifactorial analysis would bring to our clients and readers. This is why we decided to prepare and share with you our Special Report, which is the result of extensive research, vigorous internal discussions and debates, all filtered through our dec- ades-long experience in investing and wealth management.


After the report enjoyed a very warm and enthusiastic reception in the days immediately after its release, we decided to explore further some of its key themes, but also to address some of the very interesting comments and questions we received in a different and more directly engaging format. We therefore launched our “BFI Fireside Conversations”, a series of online events, during which the BFI panel and our Special Guests discuss the main challenges we are facing in these uncertain times and we explore solid solutions and sound strategies to counter them.


We invite you to register and join us in our next Fireside Conversation, while we also look forward to hearing your own thoughts and questions on the topics we’ll discuss. If you already have specific questions you would like to have covered, make sure to send them to info@bficapital.com ahead of each webinar!


 

Send Your Gold on Vacation, To a Safer Location


In my nearly two decades with the BFI Capital Group, the last 3 years with Global Gold, we’ve lived by the mantra, “you can follow your assets, but your assets might not be able follow you”, as reason to consider putting at least some of your hard-earned wealth outside of your home country. In that context, did you know it is possible to send your existing gold to Switzerland, store it, purchase more, sell it, or even arrange for it to be delivered back?


I’m talking about an In-Kind Transfer of your gold to Switzerland...in essence, you can send your gold on a safe vacation. We at Global Gold have been bringing in clients’ existing metals for years, but even more so since the beginning of this year. However, because many firms like ours don’t allow it, few realize it’s even possible. Let’s change that...

Why send your metals offshore?


As some background, in the recent blog post by Mr. Sune Sorensen, Under the “Macroscope”: The Decade Ahead, Sune concluded his piece with the following: “With financial repression set to spread beyond the monetary policy domain, ‘how you own’ will be as important as ‘what you own’”.


In terms of gold, where you own should also be added there. And we clearly aren’t the only ones thinking this way: with problems of social unrest, and in consideration of the contested US election, we’ve been receiving more calls and emails from concerned investors, particularly from the US, worried about another gold confiscation.


They reference the Executive Order 6102 signed by then US President Franklin D. Roosevelt in April of 1933 which forbid the “hoarding of gold coins, gold bullion, and gold certificates within the continental United States”. Behind the Order was the intent to lift constraints the Federal Reserve had which prevented it from increasing the money supply, i.e. printing currency, during the depression. Sound familiar?


This Order was probably defined better as an expropriation rather than a confiscation, but 87 years on, we are getting a similar smell coming out of the kitchen. Today, central bankers and governments are just going to find “smarter” and more roundabout ways to do it. What we are living through today could easily become the worst economic downturn in history, as the probability of a worldwide, sovereign debt crisis grows daily. In our previously mentioned Special Report, we look at five ways excessive debt levels can be reduced, and the main one we are worried about is exactly financial repression.

Sending your gold on vacation – transfer your gold In Kind


We love Switzerland, and thanks to our direct democracy and a strong respect for private property, we feel Switzerland is a great, if not the best, place to send your gold on vacation to weather the storm out. And to do so outside of the banking system.


At Global Gold, we accept the In-Kind Transfer of your existing bullion bars or coins for storage in our secure vault in Zurich. But what we have learned is that many firms offering precious metals storage in Switzerland very rarely allow for it. Why is that?


It mainly has to do with time, and time leads to the issue of “money” for many metal providers. Yes, it takes time to plan for the movement of metals, for receiving them. Obvious care needs to be taken to make sure metals are legitimate, as are the people moving the metals. But ultimately, the biggest problem is that bringing in existing gold doesn’t bring in the profit like being able to purchase gold for a client.


However, we feel so strongly about your right to protect your gold – including the gold you already own – that we would be remiss not to offer the pos- sibility. And if you are going to do it, you need to do it with someone that has experience.

The right steps - with people that have done this before


It certainly isn’t a trivial transaction, which is why we generally require a minimum of at least CHF 250,000 or more in metal value. There are clear steps and costs to be covered. First, we have to make sure the metals are compatible to what we normally work with in our network of refineries, mints, and wholesalers. Under most of our storage options, we are able to buy and sell our clients’ metals for them, so we have to make sure the metals are liquid within our network.


And since we can sell the metals for our clients, those metals coming into our storage will need to be assayed to ensure the metals are true and legitimate. Then, to meet our strict anti-money laundering regulations, we need copies of the original purchase documents, product certificates for bars, detailed information on the owner of the metals (if not already a client with us), and a letter of reference from a bank, accountant, or employer. If it’s a new client, we would require a completed application kit. Once it is clear we can take the gold into our storage, we provide a proposal that includes a cost estimate including our administration and handling, the assaying of the metals, and the cost of transport should you want us to arrange that for you.


As soon as the costs are covered, and we know exactly where the metals are to be picked up from, the ball is set in motion. And once in motion, the transport is done quickly.

Gold’s relaxing destination – and your peace of mind

Once in storage, your gold will be placed in the same high security vaults as those metals purchased through Global Gold. 100% insured, no matter what the value, and no subsequent admin costs for any handling at the vault, for handling during our annual audit, etc.


Those holdings can then be added to, sold to our network, delivered back, or are available for pick-up anytime and whenever our clients need.


This doesn’t only have to apply to gold... Global Gold also works with silver, platinum and palladium as well, so your gold isn’t the only metal than can benefit. While Global Gold only trades in bullion bars and coins, we do offer In-Kind Transfers of numismatics or semi-numismatics as well, as long as our Keybox storage option is used.


So give yourself some peace of mind by sending your gold on a trip to Switzerland, outside of the banking system, putting some physical, geographical distance between your wealth and what will inevitably be your cash-strapped government.


Let it ride out the storm – like many wish they could do in person – with the flexibility to buy more, sell, or simply bring it home once the sun sets on this current crisis.


 

BFI Bullion Digger 2020 Q4
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