On Target Newsletter

In this issue:

  • Safety & privacy
  • Modern warfare
  • Money printing
  • Rules for investment success
  • Vietnam
  • Socialism in America
  • Gold
  • Offshore wind

How to Keep Your Affairs Safe and Private

With criminals and tax collectors increasingly active at trying to get their hands on your hard-won wealth, maintaining security and confidentiality in your personal financial affairs is important.

Here is a check-list for you to consider…

► Avoid using e-mails, e-mail attachments or faxes for conveying sensitive information. They can be hacked, tapped or stolen. Be particularly careful about sending account or tax ID numbers. Where possible, avoid giving specific personal contact information such as residential addresses, phone numbers.

Strangely, it can be safer to communicate via old-fashioned physical mailing with ordinary envelopes, especially to home (not business) addresses. If you need to use electronic communication, consider an encrypted file-sharing service.

► Keep your mouth shut. Say as little as possible about your finances to your spouse, children, other close relatives, friends or acquaintances. Even without having any bad intention, they may let loose to strangers sensitive information about you and your affairs.

It’s better that people think you are poor rather than wealthy. Nobody sues, robs or kidnaps a pauper.

Don’t leave revealing waste. Burn or shred sensitive paper records once you no longer need them.

► Prevent unauthorized access to your laptop, smartphone or PC. It’s safest to have a separate device that you use only for banking business, without any connection to the one you use all the time for phone calls, e-mailing, accessing websites or research.

Make sure you use passwords to bar access to your instruments and individual files. Moneycraft advisers Peggy and Chad Creveling warn that “unfortunately a lot of unauthorized access of financial accounts occurs by those who are closest to us, including friends and family members. That’s why it’s important to secure any digital security devices and not to tell anyone your username and password.

“If possible, memorize your login data and then destroy any written record.” But if you can’t trust your memory – a common problem for those of us who are elderly – then keep a written record hidden in some unlikely place, for example between the leaves of one of the books in your library. Not in a desk drawer.

“When travelling, be careful when logging into your financial account,” say the Crevelings. If possible, use your own computer or device and subscribe to and use a reputable VPN service. Do not log into your accounts using insecure (free or no-password) wireless networks.”

► Protect yourself against cyber criminals. Use two-factor authentication logins for financial accounts, the Crevelings advise. “Most financial institutions offer their account holders additional login security in the form of a temporary code sent separately by phone or digital security card or token.

“If your financial institution doesn’t provide this type of security at a minimum, make sure your financial account logins are completely different from any other login you may use, and make each one unique. Do not use social media logins, as once a social media account is hacked, other accounts with the same login details can also be compromised.”

To avoid becoming a victim of cyber fraud, don’t click on any links from random e-mails or text messages, no matter how legitimate they may look. If in doubt, go directly to the website instead, or first call the business supposedly contacting you. It may be using a replica of a legitimate message.

► Adopt banking security procedures. Use a complicated single-stroke signature that is consistent but unreadable, for greater privacy. If you live in a small town, use a bank elsewhere. It’s much harder to maintain confidentiality in a small community than in a big, anonymous city.

Offshore, your “mother lode” bank, where you keep your major international cash deposit, should be different from the one where you have your current account.

Try to avoid setting trails that lead back to you

► If you don’t want governments nosing into your private affairs, keep the most sensitive information in code that only you know, and preferably in “hard copy” rather than electronic, as government authorities have software available that can circumvent all except the most sophisticated password systems.

Cut down on your use of credit cards. Any information available to a bank or credit card company is available to the authorities. Credit card statements give a complete picture of your whereabouts and your activities. They leave an interesting trail.

Always try to avoid paper or electronic trails that lead straight back to you.

► Distance yourself from your assets. Keep some, perhaps most, of your wealth outside your home country, if only to avoid home-country bias in your investment decisions. You may even be able to register your offshore wealth in a different name, such as that of a close relative living abroad, a trust or a company.

Keep your offshore accounts and assets with people you can trust not to divulge sensitive information to others, preferably based in a tax haven with tough secrecy protection laws and practices. Consider establishing a debit card registered there, with the statements sent to an offshore address and bills paid out of a separate offshore bank account.

► Avoid unnecessary recorded detail. Scrutinize all banking and credit card records and correspondence to ensure that each item sent out or kept in your files doesn’t say more than is absolutely necessary.

Use other names, other addresses. In most places there’s nothing illegal about conducting business or even holding your investments through a company, trust, close corporation or similar entity, or a chosen trading name.

Everyone should have at least two mailing addresses, one of which is kept confidential.

► Pay cash. All monetary instruments leave trails, cash doesn’t. Nor does gold or the new peer-to-peer pseudocurrencies such as Bitcoin. There can be incidental advantages for cash such as getting substantial discounts when buying assets, goods or services.

Of course, there can be some obvious risks such as your being mugged. Depositing large amounts in bank accounts attracts unwelcome attention as officials are watching out for money laundering. Most countries insist that when you cross their borders you declare any large amounts of cash that you’re carrying.

► “Keep your computer safe from hacking,” the Crevelings advise. “Make sure your operating software is up-to-date, enable firewalls, and install and keep up-to-date anti-virus and anti-spy software.”

► Finally, be ready to move at a moment’s notice. It’s a tough, dangerous world where you and your family could be threatened at any time by civil disturbances, warfare, criminals, law suits or other nasty unexpected problems.

So be sure you always have ready the documents, records and resources to move quickly to another country. You may even want to go so far as to have a second citizenship and passport.

Failing to plan is planning to fail.

The Cheap, Easy Way to Win at War

The drone and missile attack on Saudi Arabia’s oil facilities that temporarily cut off 7 per cent of the world’s traded oil supplies was more than a victory for Iran and its allies in the Mideast’s ongoing regional conflict; it marked a radical change in the way that rivals are able to successfully exercise military power.

Anthony Cordesman, an expert at the Center for Strategic Studies in Washington, compares its importance to the attack by British carrier-launched aircraft on the Italian naval base at Taranto in November 1940. They sank or badly damaged three battleships for the loss of only two planes. That marked the end of the era when battleships ruled the sea and replaced it with one in which aircraft carriers using plane-launched torpedoes and bombs were supreme. The British coup at Taranto gave the Japanese the confidence to use the same strategy to attack Pearl Harbor.

The trump card for the US, other NATO powers and Israel has been their overwhelming superiority in air power over any likely enemy. The strikes on Saudi Arabia, Cordesman says, provide a clear strategic warning that the US era of air supremacy in the Persian Gulf, and the US near-monopoly on precision strike capability, is rapidly fading.

Saudi Arabia has become the world’s third-biggest spender on armed forces — $68 billion last year – much of it on vastly expensive aircraft and air defence systems. Yet it didn’t even detect, let alone counter, 18 drones and seven cruise missiles costing peanuts. It’s reported that the drones could have cost as little as $15,000 apiece. The anti-aircraft US-made Patriot system, the main defence system of Saudi Arabia that proved to be useless, employs missiles each costing about $3 million.

The Abqaiq/Khuras attack shows that almost any country can now produce drones and missiles in numbers large enough to overwhelm any defences they are likely to meet. And that hugely expensive armaments – a single F-35 fighter is said to cost $122 million – no longer make much sense.

Another example of how effective simple military technology can be is the Improvised Explosive Device. Usually made out of easily-available fertilizer, these were used in great numbers and devastating effect in Iraq and Afghanistan. To protect its forces against them, the US spent $40 billion for 27,000 heavily armoured vehicles.

The Negative Effects of Massive Money ‘Printing’

For years central banks have been pursuing easy-money policies – interest rates that are ultra-low, or even negative, and buying massive amounts of bonds, even equities. The aim has been to encourage companies to invest in business growth, to promote consumption through making people better off, and to boost exports.

However, argues J P Morgan’s chief global strategist David Kelly, there have been negative effects as well which have “turned to poison” the overall effect of the easy-money “medicine”:

► Lower interest rates reduce savers’ income potentially more than they cut expenses for borrowers;

► Confidence is damaged – consumers and businesses worry when they see central banks forced to cut rates to underpin the economy;

► Would-be borrowers are encouraged to wait to act because they assume rate cuts now mean further ones can be expected.

Lower rates are less effective in stimulating the housing market because they make down-payments and credit scores more important in qualifying for a mortgage.

The wealth effect has become less potent over time because of an increasing concentration of assets among upper-income households who are less likely to spend their stock-market windfalls.

Their rising levels of interest-bearing assets – which, including bonds and savings accounts, are in the US about 50 per cent larger than interest-bearing liabilities – magnify the negative effects of lower rates for savers.

“The psychological effects from monetary easing are also largely negative as consumers take signs of Fed easing as a reason to worry about recession.” This is probably also the case in Japan and the Eurozone.

But if central banks can’t send interest rates much lower or make credit much cheaper, what else can they do, particularly if recession threatens once again? They’re almost out of ammunition with which to fight back.

“The next policy response to a downturn,” says Jean Boivin, global head of the Blackrock Investment Institute, “will probably require an unprecedented venture into ‘going direct’ – finding ways to get money more directly into the hands of entities that can spend it. Including consumers.”

One step could be tax rebates. Another could be greater public spending. But beyond these conventional ideas, “policymakers will need to embrace ideas that are… unconventional.”

How to Be a Successful Investor

There are three simple rules for success when investing, says the well-known British commentator John Kay – minimize costs, diversify, and be contrarian.

In the updated edition of his book The Long and the Short of It, he advises:

► If you have an established investment portfolio, you almost certainly have a substantial portion of your assets in open-ended managed funds that are closet indexers. You’re paying too much. Transfer your money into ETFs (exchange-traded funds), closed-end funds and real estate investment trusts that charge much less.

► Your portfolio is also almost certainly inadequately diversified. If you switch to ETFs, closed-end funds and property trusts, you will gain exposure to a range of countries, types of security and styles of management.

“Such a strategy will give you lower charges and less risk in your overall portfolio.

 ► “An emphasis on market sectors at a discount will automatically imply a contrarian stance.

“The Internet gives cheap and easy access to financial products for everyone and immediate access to information that once required diligent research. Innovations in financial markets — such as the growth of exchange-traded funds and property vehicles – have transformed the opportunities available to retail investors to build for themselves a portfolio that achieves low risk through wide diversification.”

Vietnam: ‘One of Our Favourite Markets’

A record one in five emerging-market equity fund managers now owns stocks in Vietnam, even though the south-east Asian nation is not in MSCI’s emerging-market index, Steve Johnson reports.

“The buying spree is the latest sign of foreign enthusiasm for Vietnam, which has arguably been the biggest winner from the US-China trade war, with a flurry of companies relocating to it to escape the ever-deepening tariffs.”

Its success in attracting large-scale foreign manufacturers such as Samsung has helped Vietnam to build up the fifth largest trade surplus with the US, behind only China, Mexico, Japan and Germany.

Fund managers are buying shares in companies they believe will benefit from the strong consumer spending, investment and economic growth that the export boom should bring.

An early enthusiast, Tim Price of Price Value Partners, says “it’s one of our favourite markets… primarily on valuation grounds.” Many of its companies are highly profitable and growing quickly. Its wage rates are only a third of China’s.

It makes sense to own Vietnam now “before the Big Boys” can invest, because of “a technical wrinkle.” It’s not in the MSCI World Index because it’s not yet a developed economy, nor in the MSCI Emerging Market Index because it’s not yet deemed to be mature enough. This means that institutional funds that track either of those indices aren’t allowed to invest in Vietnam. As a private investor, there’s nothing to stop you investing there.

Leftist Policies Set to Conquer America?

Socialism. It’s coming to the US, whether or not we like it. That’s the “fatalistic narrative about the long-term outlook” that Yardeni Research reports from meetings with clients in California.

“Sooner or later, there will be a wealth tax,” they believe – sooner if Elizabeth Warren becomes president. But the wealthy will willingly pay it for the sake of social stability. In any case they’re getting wealthier because they’re the beneficiaries of technological innovation.

To maintain social stability, the government will provide a Universal Basic Income. To pay for it, as well as taxing the wealthy, income taxes on the rich will be raised.

The Federal Reserve will keep interest rates near zero and buy lots of Treasury bonds (with electronically “printed” money), enabling governments (federal and state) to run larger and larger fiscal deficits to fund their socialist schemes and green new deals.

“None of the above is theoretical. Several of the contenders to be the next Democratic nominee for president are running on… variations of this socialist agenda.” Even conservatives are resigned to it, figuring that after the next financial crisis the way will be clear for socialists to ensure that those who were on the losing side after the last one, won’t lose out. It will be a brave new world of free healthcare, free education.

Latest Interesting Comments About Gold

The current very expansionary monetary policy being pursued by the central banks of the US, Europe and Japan will produce first a “flight to money,” then a flight to real assets such as gold, says the French investment bank Natixis.

If long-term interest rates become very low, zero or negative, investors normally switch into money, as although it offers no return, it is risk-free. If monetary policy continues to be expansionary, there can be a loss of confidence in money because its quantity becomes too abundant.

Since the end of last year the rise in gold prices has been indicating a start in a flight from money.

Wells Fargo, the big American bank, says gold “has a place in a well-diversified portfolio most of the time.” It can offer upside but also reduce downside during time of market volatility. “Predicting these times is next to impossible – so owning some gold can be smart.”

One difference between what seems to be a new bull market in gold and previous ones is that the mining companies aren’t planning new megaprojects and acquisition sprees that eventually landed so many of them in trouble when the last cycle turned against gold. At least for now, they’re focused on paying down debt and returning money to shareholders.

Offshore Wind Costs Are Now Competitive

The optimists about renewables are cheered by the news from Britain that offshore wind, the most expensive form of “new energy”, will soon be able to compete with conventional production without the massive subsidies by taxpayers that are standard worldwide.

The UK government’s energy ministry says the latest wave of offshore wind farms will only require guaranteed prices of between £39.65 and £41.61 per megawatt/hour to get built. As recently as 2014 it had to offer prices as high as £150 to induce companies to invest. The latest prices are below what electricity is expected to cost wholesale by 2023, when the new farms come on line.

However the FT’s Jonathan Ford reminds us that this doesn’t mean that offshore wind has become “subsidy free” in the sense that it will no longer require public assistance.

It will continue to enjoy the benefit of guaranteed prices financed by consumers. And of not having to meet the costs of intermittency due to fluctuating winds, and of building grid and transmission facilities to move power from remote offshore sites where it’s generated to where it’s needed. One study by the OECD suggests those costs could add anything from $7 to $50 per MWh.

Trends That Are Slowing Economic Growth

If globalization has peaked, or at least has slowed down, the other three drivers of the world’s deflation trend are still intact, says investment bank Jefferies’ Christopher Wood. They are debt, technology and demographics.

“That high debt levels are deflationary is well understood… This is the main reason why $14 trillion of [global] bonds are still trading with negative yields.” The reason why high debt levels are deflationary is that they create the risk of creditor defaults.

Technology, although it has been a major positive for the world economy, is also a driver of deflationary pressures. The onset of information technology has clearly boosted productivity, but it has led to falling prices, with “data” in the digitalization era now replacing energy as the key driver of developed economies.

Then there’s demographics. The world is ageing fast. Almost all Asian economies, for example, now have falling birthrates.

The End of an Era When Profits Don’t Matter

For years, mainly in America, we have seen explosive growth in businesses that deliberately ignored the need to make any profit because they have focused all their resources, and seemingly unlimited borrowed money, on capturing, creating and dominating new markets. Investors have loved them, driving valuations into the stratosphere. Shares of Spotify, for example, were recently trading on price/earnings ratios as high as 597 times.

But now, it seems, investors have become wary of the prospect of profitless growth. WeWork, the global pioneer in providing shared work-spaces for new businesses such as technology start-ups, whose market value was forecast to go as high as $47 billion, has suspended its plan to “go public.” Potential investors balked at the prospect of risking their capital in a business that spends two dollars for every one that it earns.

For the past decade, says the FT’s Rana Foroohar, “easy money has dulled investor senses.” But now “they are waking up and want to see results.”

Car Market: More Buyers Are Short of Cash

Latest reports of sharp declines in car sales in the US in September confirm that times are hard in the global automotive business, and getting worse.

Just as it struggles to prepare for the immense costs of a transformation from internal combustion to electric vehicles largely forced on it by politics, it is being hit by collapsing sales. In the US in the third quarter automakers had to spend a record $4,100 in incentives for every vehicle sold, to induce consumers to buy.

Car prices have been rising faster than incomes, driving companies to put much more into financing consumers, and on increasingly generous terms. A decade ago only about 10 per cent of loans with repayments stretched over seven years. Now almost a third of new auto loans are for seven years.

Education: Sliding Standards

Eoin Treacy says in FullerTreacyMoney that “the dumbing down of curricula is a phenomenon linked to the cutting of educational funding, the expanding power of teachers’ unions, the lack of commitment from parents to take responsibility for the education of their own children, and the desire of the politicians to show results against a background of deteriorating fundamentals.

“It’s a secular trend, and shows little sign of changing, because it would require everyone to work harder for a distant benefit – which seems to be beyond the ability of society to collectively deal with right now.”

I see that in Britain fees at private schools have risen 46 per cent over the past decade.

When Times Are Bad, It’s Time to Invest

Despite the current conflict between the US and China, there is now an historic opportunity to buy into China, a country that is opening up its markets to foreign investors, says Ray Dalio, founder of the world’s largest hedge fund.

The two countries are competitors, and their businesses are competitors. It makes sense to be diversified and back both horses in the race. They’re unlikely to go to a “classic war,” but a restructuring of the world order is under way.

Although there are risks in China, so too are there risks elsewhere. In America there are those arising from “the combination of the wealth gap, the political system, the conflict between socialism and capitalism.” Europe is “very risky” because its monetary policy “is almost out of gas,” there’s political fragmentation, and “they’re not participating in the technology revolution.”


Brexit: Once again the experts whose gloomy forecasts, used with glee by those opposed to the idea, are turning out to be ridiculous, undermining the credibility of the anti-Brexit case. Back in 2016 consultants Oliver Wyman predicted that job losses in the City of London could be as many as 75,000. Another expert, Bank of England governor Mark Carney, quoted similar figures. Now, with the “worst case” scenario of a no-deal Brexit only a few weeks away looking very likely, a survey of large financial services firms has shown that so far only 1,000 investment bank jobs have been relocated to the Continent. The total that “could” be lost – only 7,000.

Political correctness: Latest members of the British royal family to attract unwelcome publicity are Prince Harry and his American wife Meghan Morkel. Like so many celebrities, they take any appropriate opportunity to urge us to save the planet. However, their own contribution to the cause, apparently, is to fly everywhere in private aircraft… a well-known source of carbon emissions.

The couple should be careful not to indulge in public posturing on such issues, ones “which make ordinary people feel inferior,” warns British commentator Charles Moore. “It is increasingly well understood by voters that endless lecturing about racism, sexism, diet and the environment is the main modern means by which the elite disdain the commonality.”

Natural gas: Prices have been falling sharply, and there’s probably further downside to come. The US has just brought on line its fifth LNG export plant. Its first one opened in 2016. 7 per cent of America’s natural gas production is now being exported; the proportion is expected to rise to 12 per cent by next summer.

Significant investment in LNG terminals is turning the US, Australia and potentially Canada into gas exporting giants competing with Russia and Qatar. That competition for global markets is expected to keep a lid on prices for the foreseeable future.

Pollution: While climate activists like the angry teenager Greta Thunberg have a lot to say about the sins of America and European countries, they remain silent on those that in fact cause most of the problems.

Scientists at Germany’s Helmholtz Centre for Environmental Research say that about 90 per cent of the plastic waste polluting the oceans comes from Asia and Africa. The ten rivers dumping most contaminants are in those continents, the worst being China’s Yangtze and India’s Ganges.

Living standards: Denmark has the world’s best quality of life, according to a study by the business magazine CEOWorld, based on factors such as house prices relative to income, consumers’ purchasing power, traffic commute time, pollution and climate.

The next best rated are Switzerland, Finland, Australia, Austria, Netherlands, Iceland, Germany, New Zealand and Norway.

Japan: One reason its economy continues to do well is that more women are choosing to work while more of the elderly are opting to stay at work after reaching retirement age. In just six years the female working-age labour participation rate has risen from 63 per cent to 72 per cent, while the participation rate for those aged 65 or older has increased from 20 per cent to 25 per cent.

Inflation: Nobody seems to believe it’s coming after the surprising complete failure to be produced by the avalanche of easy money. But Eoin Treacy of FullerTreacyMoney thinks everyone’s wrong. “The trade war and its tariffs are raising costs for just about everything. Wage demand growth is rising. Companies are increasingly regaining pricing power.”

Oil: China has imposed retaliatory tariffs on American oil (it has been getting 6 per cent of its crude imports from the US). At the same time it’s torpedoing Washington’s sanctions against Iran by buying more of that country’s oil. According to reports, China is planning to invest about $280 billion in Iran’s oil, gas and petrochemical sectors.

Inequality: The bottom half of US households have one-third less wealth, adjusted for inflation, than they had in 2003, while the top 1 per cent have more than twice as much, according to a report in the Wall Street Journal.

BBC: The initials stand for British Broadcasting Corporation but those of us who have noticed its consistent Leftist bias for many years have sympathy with the view of Spectator columnist Taki that the initials really stand for Bolshevik Broadcasting Corporation.

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