Photo: Courtesy of 20th Century Fox
February 24, 2012
Santiago, ChileI want to start off today’s letter by thanking the 120+ folks who’ve made the journey down to Chile over the past two weekends to break bread on the farm. Last weekend’s event was a real delight, and I’m looking forward to tonight’s festivities with the new group.
It’s a pleasure to spend time around people with a similar world view, and it was amazing to see dozens of complete strangers forming fast friendships in such a pleasant setting.
On to this week’s questions.
First, Frank asks, “Simon, year in, year out, I seem to be in trouble with the IRS. Last year I took the step of obtaining a second passport from St. Kitts, and I’m seriously considering walking away from my US citizenship in the hopes that they’ll leave me alone. Is this a reasonable supposition?”
Yes and no. The day you renounce (or relinquish) your US citizenship, your future obligations to Uncle Sam are gone for good. You can open up any bank or brokerage account you want without worrying about filing an FBAR, and you can earn as much non-US income as you like without ever filing a 1040 ever again.
This does not, however, get you out of existing obligations. If they’re coming after you for unpaid taxes from two years ago, you’re still on the hook, even if you manage to renounce your citizenship.
Renunciation is a move you make with an eye to the future. It will not fix the past.
Next, Barry asks, “Simon- I read your note about Singapore citizenship; isn’t it true that the government of Singapore does not allow dual nationality?”
That’s correct; individuals who become naturalized Singaporeans are technically obliged to relinquish their other passports. However, there is no real enforcement mechanism for this… and I have several naturalized Singaporean friends who simply forgot and/or haven’t gotten around to relinquishing yet.
Next, Jeff C. asks, “Simon, when I read stuff like this, I have a hard time thinking I won’t be targeted by the US government for having a foreign bank account, etc. I’d love to get your thoughts on that potential risk.”
History shows us that when governments decline and fail, they cannibalise the citizenry and shake every last nickel they can from the sheeple. It doesn’t matter who you are– a retired school teacher, a small business owner, a struggling single mother– everyone becomes a target.
Everyone ultimately has a choice. We can either choose to be a target and be safely diversified abroad, or we can choose to be a target and have all of our assets in one basket for easy pickings. We’ll all be targets regardless.
Last, Art asks, “Simon, we know the index fund ‘buy and hold’ strategy of most financial advisers is for the birds. What kind of investment(s) would you recommend for someone without much time to manage their portfolio, but wants good long-term investments through an easily accessible brokerage account?”
The traditional mantra of ‘buy and hold US blue chip stocks’ is absolutely for the birds. Turkeys, to be exact. Adjusted for inflation, the S&P 500 is down 2.41% in the 10 years since February 24, 2002. Throwing in the average index fund’s fees would have soured that loss even more. Pitiful.
[Editor’s note: for maths wonks, the St. Louis fed has tracked the compounded inflation rate since February 2002 at 27.48%; the S&P 500 closed at 1090 on Friday, February 22, 2002.]
The fact is that right now, markets are completely fractured. The price discovery mechanism has been buried under bailout rumours and policy innuendo. Fundamentals really don’t matter anymore, it’s just a question of politics and money supply.
To make things worse, we live in a zero-yield world where risk quantification is deeply flawed. The largest debtor in the history of the world, which is on a one-way road to going debt supernova, is considered ‘risk free’. This is completely idiotic, and it has created severe structural issues in the market.
In my mind, nothing beats investing in private businesses that provide honest, tangible value to the market. Such deals are much more exciting and easier to understand than divining what toxic assets Citigroup has on its books. Plus, as a director of an operating business, you can generally influence many risks yourself.
Managed trading accounts and trading services may also be reasonable options. Our partner Tim Staermose’s now sold-out Fourth Pillar strategy is one example; it uses takeover arbitrage in Australia to generate consistent double digit returns devoid of the volatility that typifies capital markets.
Well-managed productive land in investment-grade scale also strikes me as a very sound option, especially in an environment of continued monetary debasement. This is what we’ve done in Chile– we’re growing a LOT of food… and if the investment thesis isn’t 100% correct, there’s still a lot of personal benefit.
There’s also the option of applying the ‘buy and hold’ strategy to certain frontier markets– accumulating a basket of select, high quality equities in a place like Mongolia where you can walk away for five to 10 years while the economy grows like a weed.
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