On Target Newsletter

In this issue:

  • Using nuclear weapons in Ukraine,
  • War winners,
  • Setting long-term goals,
  • Reducing risk,
  • Asset class diversification,
  • Global taxes,

Could Putin Use Nuclear Weapons?

Russia, having failed to secure the lightning victory it hoped for when invading Ukraine, has redeployed its armies to achieve more limited aims – conquest of the East beyond the Donbas, control of the Black Sea littoral as far as Odesa. But what will Moscow do if it fails – if it seems to be facing defeat in the Ukraine?

There is a significant risk that it could use its tactical nuclear arms to destroy Ukraine’s armed forces and/or force the Kiev government to surrender.

These short-range “battlefield” weapons vary enormously in size and power. The smallest can be one kiloton or less – equivalent to a thousand tons of the explosive TNT – the larger ones perhaps as big as 100 kilotons. The bomb that destroyed Hiroshima was 15 kilotons. Russia is thought to have about 2,000 tactical nuclear weapons. They can be delivered as bombs, mines, torpedoes, missiles or artillery shells.

America has been emphatic about its determination to avoid direct conflict between its armed forces and Russia’s, but the US is increasingly supplying conventional weapons to the Ukraine to defend itself. Last month President Biden said he would ask Congress to authorize $11 billion for additional aid for artillery and anti-tank weapons. Combined with other emergency measures, the US will be spending $47 billion for the Ukraine war. That’s two-thirds as much as Russia’s entire annual defence budget.

President Vladimir Putin has already announced that his “deterrent forces” – he presumably means nuclear weapons – have been raised to “combat ready” status. However American intelligence sources say they have not yet seen any significant changes in Russian behaviour that suggests tactical nuclear weapons have been moved out of storage, or that launch sites are being prepared.

They say the Russians favour a theory called “escalate to de-escalate” in any conflict with NATO. It involves doing something dramatic, such as using a tactical weapon on a battlefield, or as a demonstration somewhere, or threatening to do so. The idea is to frighten the other side into backing down.

The concern is that if Putin feels cornered, and that his strategy in Ukraine is failing, he could use tactical nuclear weapons as a “game changer” to break a stalemate or avoid defeat.

If desperation drives Putin to do this, what would be the implications?

It’s possible but very unlikely that NATO would deploy its own nuclear arms to retaliate. The US could use conventional weapons to do so. But such direct strikes, if made into Russian territory, would risk a lethal escalation that could spiral out of control.

“Without most people being aware of it, the world is entering the most dangerous period since the 1962 Cuban missile crisis,” says the FT’s Edward Luce. Many American civilian and military officials have taken part in war games exercises where the initial use of low-yielding nuclear weapons could escalate to strategic nuclear exchange… doomsday. The dreaded World War Three could become a reality.

The War: Who Will Emerge the Winners?

A quick ceasefire in the Ukraine is not to be expected, says the respected Swiss commentator Guy Mettan. “The Americans and the Ukrainians have not yet lost enough, and the Russians have not yet won enough, to cease hostilities,” he writes in Swiss Standpoint. “The first contours of a possible solution… are emerging – neutrality and partial demilitarization of the country, handover of the Donbas and Crimea.”

The background to the conflict is beginning to be better understood. Analyses by American experts such as John Mearsheimer, Noam Chomsky, Glenn Greenwald and Max Blumenthal showed that the war was inevitable.

In April last year Ukraine’s president Volodymyr Zelensky announced his intention to re-take Crimea by force. The Ukrainians and Americans “had decided to trigger the war no later than early this year.” The Russians intercepted Ukrainian army traffic from January 22 and found attack plans on a computer left behind by a British officer showing that a war was planned, and inevitable.

Mettan says: “The concentration of Ukrainian troops in the Donbas since last summer, the massive arms deliveries by NATO in recent months, the accelerated combat training of Azov regiments and the army, the intensive shelling of Donetsk and Lugansk by the Ukrainians from February 16 onwards (all of this was ignored by the Western media)… prove that Kiev had planned a large-scale military operation for the end of this winter.” This explains why the Americans had since the autumn repeatedly predicted a Russian attack. They knew that, one way or another, it would come to war.

When the Russians realized that NATO’s diplomatic moves were stalling tactics, they reacted in a “very risky way. They decided to attack first in order to pre-empt the Ukrainians. Instead of attacking the well-equipped and heavily fortified Ukrainian army forces head-on, it was decided to by-pass them with a large-scale encirclement/diversion manoeuvre. The invasion opened on three fronts simultaneously – north, centre and south – to destroy the Ukrainian air force and as much equipment as possible in the first few hours and disorganize the Ukrainian counter-attack.

“The Russians can now concentrate on their main objective — which is to liquidate the ‘pockets’ of Kharkiv and Mariupol… and to reduce the Kramatorsk cauldron where the bulk of the Ukrainian army is entrenched.”

The big winner in this war will be the US, which has closed ranks in NATO, is forcing Europe to buy its gas instead of Russia’s – probably at prices “four or five times higher” — and to rearm with very expensive weaponry such as F-35 fighter-bombers. But Russia will also be a winner, with Ukraine carved up, neutralized and unable to join NATO.

“The big loser will of course be Ukraine, which is being needlessly maimed, dismembered, devastated and massacred,” losing much more than it would if the Minsk agreements had been implemented. Those agreements consisted of a package of measures to end the earlier war in which Russia seized the Crimea, including a ceasefire, withdrawal of heavy weapons from the front line, release of prisoners of war, constitutional reform in Ukraine granting self-government to certain areas of Donbas, and restoration of control of the state border to the Ukrainian government. Both sides (Russia and Ukraine) were accused of violating their commitments.

Mettan says that Moscow will have to bear the stigma of being the warmonger. “The human, cultural, economic and political price will be high… The Russians will have to deal with the consequences of this war for a long time to come.”

Stepping Stones to Achieve Long-Term Goals

By Chad & Peggy Cheveling

If you go to the airport with no tickets and no idea where you want to go, it goes without saying that you probably won’t be going anywhere. This sounds obvious, yet that is exactly what some expats are doing with their finances ― by failing to plan, effectively, they’re planning to fail.

One of the most important steps in getting control of your finances is to draw up an initial financial plan. This includes a financial starting point, a set of long-term financial goals that you’d like to achieve, and short-term “stepping stones” to help you along the way.

What’s Your Starting Point?

For many of us living overseas, knowing the status of our finances may be easier said than done. Accounts may be strewn around the world in different currencies, and many overseas financial institutions don’t issue regular statements.

Yet it’s vitally important to get a solid grasp of your assets, your liabilities, how much income you have, and how much you’re spending. These are the basic financial details that any successful company must have, and this information is similarly essential for you to make good decisions about your finances.

To get a handle on your starting point, get all your financial information together: savings, investments, pensions, credit cards, loans and insurance. Dig out statements for every account you have, including those stray accounts that you may have left open in a country where you used to live. If you don’t have current records, make a note to get hold of up-to-date statements for each account.

Once you have all your records together, choose a base currency that you normally think of as your reference currency, and translate each statement into that currency using current exchange rates. Then construct the following statements using a spreadsheet or personal finance software that has multicurrency capability such as Quicken:

► Net worth: Using the same currency, list and total all your assets and all your liabilities. The difference between the two is your net worth.

► Income statement: Add up all household income, including salary net of tax, dividends, interest, and any other cash inflows such as net rental income.

► Expense statement: Total all expenses, including basic living expenses, children’s education, travel, and discretionary spending such as dining out and gifts. If you aren’t sure on some items, look for clues on credit card statements, checking accounts, and cash withdrawals from bank accounts.

► Net income: The difference between your household income and expenses is your net income. You can calculate this on a monthly basis and sum it up to get your net income for a year. If you’re not yet retired, then hopefully this is a positive number!

This exercise may take some time to complete, but it’s extremely important to do if you’re going to get control of your expat household finances. The result of your efforts will be satisfying — not only will your finances be more organized, but you’ll also have something few expats manage to achieve: an accurate snapshot of your current household financial position.

Where Do You Want to End Up?

This next step is likely to be more fun than the previous one. Now you can start outlining your long-term financial goals — where you want to go with your money. Financial goals should be specific and answer questions like who, what, when, and where. Here are some examples of what long-term financial goals might look like:

By age 65, Eric wants to retire in a tropical location and enjoy a lifestyle with living and travel expenses similar to his current lifestyle. Beth wants to purchase and live in a two-bedroom condo near the beach in Costa Rica. Jack and Diane want to send their two kids to four years of private university education in Boston. Bob wants to buy a sailboat within the next five years.

At this stage, don’t be too concerned about whether all your goals are achievable. Just get some ideas down on paper. Prioritize what’s most important to you or, if you are married, to the two of you. As you begin to solidify your goals, write them down, and plan to review and update them periodically.

Over time, your priorities may change or the goals themselves may change. But you’ll have a chance of getting to your destination only if you agree on where you want to go now and begin organizing your finances so that you can get there.

Draw Up Short-Term Goals to Act as Stepping Stones

Once you have an idea where you’re heading, the next step is to draw up short-term goals that act as stepping stones to help get you there.

One short-term goal that needs to be maintained is an emergency cash reserve. Depending on your situation, your cash reserves should cover, at a minimum, several months of living expenses, possibly more. Besides an emergency reserve, other examples of short-term goals could be:

► Set a monthly savings target of X amount to fund your retirement goal and invest it in an appropriate, low-cost diversified portfolio in a low-cost custodian in an appropriate tax jurisdiction for your situation.

► Track current living expense spending using a spreadsheet or a multicurrency program like Quicken to get a clear idea of how much is being spent and to look for possible areas of additional savings.

► Budget and plan expenses for your next vacation, and try to stick to the budget as much as possible.

► Research how much a potential future home costs today, such as a two-bedroom condo in an appropriate foreign country such as Thailand. Make some assumptions about how much that future home might cost when you retire and how you would finance the purchase.

► Plan a longer vacation in a place you may wish to retire to, to see how much you really like it there.

► Research how much an appropriate university college costs today and what it might cost when the kids are ready to attend. Look into college scholarships for which they might qualify. Make use of tax-advantaged college savings accounts where possible.

If you’ve been able to accomplish the above steps, you’ve made a great start in getting control of your finances. Going forward, it may require some discipline to achieve the nearer-term, stepping-stone goals that you’ve identified, but as you do, you’ll find you’ve made a material difference in your ability to achieve financial security over the long run.

The Crevelings are Thailand-based CFAs who advise expats on personal financial planning. To learn more, visit their website: www.crevelingandcreveling.com.

Spread the Risks to Your Wealth and Lifestyle

A common misconception is that there isn’t really anything you can do about diversifying your affairs internationally. But that isn’t true, Jeff Thomas writes in International Man

Some countries are in decline but others are on the rise. Wealth is not destroyed; it just changes hands, flowing from one country to another.

Choose countries to relocate to, if you can, and in which to hold your assets. Ones that have a history of being welcome to people in your situation; ones that stay out of conflicts and don’t take sides in wars.

Seek minimal economic dependence on declining countries – as measured by their growth… or lack of it. Look for people who welcome foreigners, who share the same core values that you do. For a country that can supply your basic needs – job, schooling, medical facilities, diet and so on. Pick one that you feel would be the happiest place for you and your family, based on needs and personal likes and dislikes.

If you can, it’s very advisable to take on another citizenship or two. Several European countries – Austria, Cyprus, Malta – and Caribbean island-nations, offer investment citizenship. A cheaper route is to acquire citizenship by residence. Many countries offer this after residence as short as two years.

You can protect your savings against confiscation by governments. This can be as simple as opening a bank account in a foreign jurisdiction. Invest in precious metals stored in a jurisdiction safer than your own.

How do you identify a safe and appropriate foreign jurisdiction? You’ve probably already have heard of them – Singapore, Switzerland, the Cayman Islands. In searching for one appropriate for your needs, look for the following:

► No direct taxation. No capital gains or inheritance taxes. None that apply to the purchase, ownership, storage or sales of precious metals.

► A world-class local financial system to provide auxiliary services.

► Stable government, with a consistent history of economic stability, that caters to international investors.

► Minimal wealth legislation and regulation.

Is there a safe way to store wealth outside of financial institutions other than precious metals?

Yes. The safest is in overseas real estate. Choose a jurisdiction meeting the above criteria. Ideally, you’ll want one with little or no property tax. Buy in a country where you wouldn’t mind living, and one that’s likely to grow economically, rather than decline, in a crisis (this ensures that property prices will rise).

Real estate may even be safer than precious metals as a store of wealth. But metals have the advantage of being far more liquid (cashable) and more divisible.

There are no guaranteed safe havens. However, you can make yourself and your wealth difficult to target. Political leaders of a country facing economic collapse will always make a last-ditch effort to grab as much as they can as they go down. You can make it as difficult as possible to be a victim. You may emerge from any period of crisis intact, or possibly in a better position than before.

The key is to choose one or more jurisdictions where the tide isn’t going out, but coming in.

Asset Class Diversification for Power and Safety

Genuine asset class diversification is “the last remaining free lunch in finance” says British investment commentator Tim Price. Trouble is, there are at least two problems with this approach. One is that global stock markets are expensive (especially the American, which accounts for 69 per cent of the MSCI World index). The other is that global bond markets are outrageously expensive. The widely-used and most basic form of asset diversification is one consisting of 60 per cent equities and 40 per cent bonds.

Tim recommends using a more flexible approach with these components:

► Defensive value stocks. “These are typically businesses run by principled, shareholder-friendly management who are also excellent allocators of their firm’s capital.” You should wait until you can pick up their shares at no significant premium to their inherent (or book) value; or better still at a discount to that value. Once you’ve done that, hold on to them. Invest in stocks that have what Benjamin Graham described as having a margin of safety. There is no such margin of safety “in the likes of Amazon or Facebook or Tesla.”

► Systematic trend-following funds. These offer you the benefit of price momentum. They monitor prices across all financial markets – interest rates, equity indices, hard and soft commodities, currencies – identifying those whose prices are trending strongly, higher or lower, and hitch a ride.

They pursue a trading approach that can be summarized as “cut your losses, let your winners run.” Loss-making positions are typically quickly eliminated so that trend-following managers can concentrate on their winners. When markets are falling they’re perfectly happy to go short.

Trend-following funds are excellent asset-class diversifiers are they have perfect negative correlation with equity markets. If you want to know more about them, read Michael Covel’s book Trend Following; how to make a fortune in bull, bear and black swan markets.

► Real assets. These are sensibly-priced, hugely cash-generative listed businesses which derive the bulk of their earnings from commodities – in particular precious metals.

QE (quantitative easing) and ZIRP (zero interest rate policies) are state-sanctioned inflationism that produce erosion in the purchasing power of money. Precious metals are forms of money that cannot be created at will by desperate governments.

At some point it will become clear that the emperor has no clothes, that the international currency system will fail, with the destruction of capital that will entail. Gold and silver are forms of money that will protect you against that threat.

Which Country Has Priority to Claim Your Tax?

Britain’s most senior tax tribunal has determined the legal residence for tax purposes of Jonathon Oppenheimer, scion of South Africa’s best-known wealthy family.

His lifestyle was complex. He and his wife had homes on three continents, friends and family on all three, and family in South Africa. Their maternal grandparents had homes in the US and South Africa. Their children were at school in the UK. Jonathon lived and worked not only in South Africa, the US and UK, but also in countries such as Luxembourg and Ireland. He was permanently on the move. Even though he spent more time in the UK and the US, he returned to South Africa “for important meetings and other matters, including family business, philanthropic, political and social activities.”

Most countries tax individuals on their income and capital gains on a residence basis – where they have permanent homes. Where there is a double taxation treaty between two possible countries of residence, such treaties have a tie-breaker rule determining where they are deemed to be resident – which jurisdiction as priority. Factors taken into account include the extent to which a country is the centre of his/her vital interests, the place of habitual abode, and citizenship.

Oppenheimer’s counsel argued that his connections with South Africa are exceptional. His personal and economic relations and habits are all rooted in South Africa, wherever he may be at any given time. The Oppenheimers retained their possessions, including pets, in South Africa. Their home Isibindi was always available to them, and fully staffed for their arrival.

The tribunal determined that although their stays in the UK and South Africa “were of sufficient frequency, duration and regularity to constitute habitual abodes in both countries,” taking all relevant factors into account, the Oppenheimers were resident in South Africa, not the UK, in terms of the tie-breaker rule in the double taxation treaty between the two countries.

The Impact of War

Investment markets are still “pretty much blind” to the long-term consequences of the Ukraine conflict, says British commentator Bill Blain. They are significantly underestimating “the waves of tectonic economic instability” spreading across the world.

The IMF predicts a fall in global growth from 6.1 per cent last year to 3.6 per cent. Emerging economies are suffering significant pain from higher food and energy costs. Businesses with high cross-border elements are set to contract dramatically. Rising interest rates to combat inflation will trigger an aggressive negative feedback loop across highly-indebted nations and corporations.

China’s pandemic lockdowns, ructions in real estate and rising tensions within the leadership will deliver a growth shock. In Britain the government stumbles from one embarrassment to the next. In Europe the euro is increasingly seen as being at risk from the central bank’s failure to address inflation by stemming monetary stimulus. In Germany dealing with the consequences of years of energy security incompetence will come at enormous economic cost.

“An increasing number of investment banks are predicting recession as central bank tightening and the war unravel plans to smoothly address rising inflation.”

Hard Truths About Covid Vaccines

Heart diseases requiring hospital care are more common among people who have received messenger RNA anti-Covid vaccines than those who did not, according to a new study of tens of millions of Europeans in Scandinavia published in the Journal of the American Medical Association.

“Extra cases among men aged 16 to 24 correspond to a five times increased risk after Comirnaty [the brand name for Pfizer’s vaccine] and 15 times increased risk after Spikevax [Moderna’s jab] compared to unvaccinated,” according to Dr Richard Ljung, one of the principal investigators. “The risks of myocarditis and pericarditis were highest within the first seven days of being vaccinated, were increased for all combinations of mRNA vaccines, and were more pronounced after the second dose,” the study reported.

In another report the controversial American cardiologist Dr Peter McCullough says that a third of airline pilots who have been vaccinated against Covid-19 would fail health screenings due to their vaccinations and have to be grounded. Steve Kirsch of an aviation research foundation says his group has received hundreds of reports about pilots flying planes while suffering from adverse side-effects from the vaccines.

Election Results Favour Centrists

The traditional class divisions that characterized politics in the past have evaporated with decades of prosperity to be replaced by intensifying conflicts between Progressives and Populists. The elites, mobilizing the power of the rich and the intellectuals of academia and the media, usually succeed in enforcing their will on the masses. But not always. In France the progressives secured the re-election of Emmanuel Macron as president, but in Hungary the populists delivered an equally comfortable re-election win for Viktor Orban.

Both are centrists, but represent the rival political camps. Macron is an enthusiastic campaigner for centralized European power, crushing fossil fuels and imposing the values of international elites. Orban champions shared visions that are “Christian democratic, middle-class conservative and patriotic”.

Food Shortages Impact Worldwide

Disruptions stemming from Russia’s invasion are expected to halve the Ukraine’s crop output this year. It is the world’s biggest source of sunflower oil and a major supplier of grains. Research house UkrAgroConsult says the nation’s corn output could be as low as 19 million tons this summer compared to 41 million last year. Farmers are seriously short of seeds, fertilizers and diesel fuel.

China is also threatened by food shortages due to lack of corn needed as livestock feed for pig farms, inadequate supplies of fertilizer from Ukraine and Russia, and a catastrophic fall in distributions by trucks because of Covid clampdowns. A third of farmers in the Jilin, Heilongjiang and Liaoning regions report that they can’t get the inputs they need to start planting this season.


The world economy: It’s “in really bad shape,” says Erik Nielsen, chief economics adviser at UniCredit. The US economy contracted unexpectedly in the first quarter, with gross domestic product falling 1.4 per cent on an annualized basis. Europe’s economy is shrinking under the impact of soaring energy and food prices, worsening supply bottlenecks for manufacturers, and sapping business and consumer confidence. China is paying the price for fierce shutdowns imposed by the zero Covid policy that are having an increasing economic impact.

China: Its economy is now in its worst shape it’s been in 30 years, and popular discontent is at its highest point, says Weijian Shan, the founder and chairman of one of Asia’s biggest private equity investors. He was speaking at a meeting of brokers to launch a $2 billion initial public offering in Hong Kong of his PAG group. He said large parts of the Chinese economy, including its financial centre Shanghai, have been “semi-paralyzed” by “draconian” zero Covid policies. Although he remains confident about the long-term potentials for China’s economic growth and investment markets, he is now “very cautious” about them.”

Russia: Its rouble is now among the strongest currencies in the world, having rallied impressively from its post-invasion lows. At the end of last month its central bank lowered interest rates by 300 basis points – a sign of confidence in the rouble. International demand for Russia’s exports remain robust because they are trading at such attractively low price discounts.

Eoin Treacy says Moscow has the scope to continue pursuing the Ukraine war for a lengthy medium term. The ill effects from cutting off Europe from its natural gas supplies will have a long tail and be particularly worrisome next winter, when cold weather will send demand soaring for gas for heating.

Ramsay Health Care: The buyout offer from KKK of A$88 a share for Australia’s biggest private hospital operator will tempt many shareholders, but they should push for a higher price, the FT advises. It says the company’s earnings “have been left bedridden by the pandemic. They are ripe for recovery as lockdowns ease.”

Group “ebitda” margins are expected to creep up by 150 basis points next year to 16 per cent as volumes improve. If KKK could squeeze them 30 per cent higher and sell the company on an exit multiple of 16 times in five years’ time, that could make an annual average return of 35 per cent… “rich by anyone’s standards.”

Low-cost Living in Europe: You can get permanent residence in Greece immediately, without having to go there, says the Leptos Group. It advertises properties in its Paros Gardens resort from €250,000, in Aegean Blue from €285,000 and in Santorini Villas from €428,000, with 39 per cent rental guarantees. You can invest in a beachfront property and apply for permanent residence via power of attorney, completing procedures without travelling, and have a full year to visit Greece and submit biometrics, keeping Schengen access, transferring your pension to Greece and having to pay only 7 per cent tax on your global income.

If you know someone you’d like to receive ‘On Target’, email your request to me at: afrodyn@gmail.com.

On Target is a free, private newsletter for Martin Spring’s worldwide circle of friends and contacts.