Free Newsletter Signup:

About our newsletter ...
  Submit

Already a Subscriber?
To manage your current subscription settings, enter your email address.

  Go
Recent Articles

Life Member: The Top
Trial Lawyers in America

Past Articles

WARNING SIGNALS & PROTECTING ASSETS

While the economy and markets are trying to figure out their next direction, there are much bigger influences at work that will impact your assets.

Whether at home or abroad, we continue to look at how international trusts with domestic and offshore components are important safety measures against potential asset threats, and an excellent strategy to help protect assets worldwide.

Warning Signs & Your Money

The worldwide movement of commodities, goods and people are reflections of global economic activity. During the GFC, the economy froze up and cargo ships stayed anchored. Would you be importing or exporting millions of dollars of cargo goods if you knew there was a serious question over the economy or payment? Not likely.

Transportation makes the world go round. And the health of the transport sector is a time honored indicator of what’s happening in the real world.

Following the onset of the GFC in 2008 and 2009, I authored several newsletters warning that the US and other major countries had initiated currency wars to devalue their currency, and began implementing protectionism measures at home. I warned how these steps would ultimately have negative outcomes. And it came as no surprise that while governments worldwide issued warnings that other governments should avoid protectionism because they are harmful in the long run, at the same time they were taking steps locally contrary to their public warnings.

A few examples of protectionism include the interference with the free movement of people and money, financial controls at the border, heavy-handed offshore tax compliance, and restrictions on sovereign nations looking to do business with Americans. Visit Past Articles here to view.

Notwithstanding the G20 harsh words to avoid protectionism, I recorded the ongoing protectionism measures major countries were already undertaking. While claiming to save jobs at home and growing their local economy, I opined that the eventual result would be that jobs and business at home and elsewhere would eventually suffer.

Similar measures occurred in the early 1930s as the US government initiated protectionism measures at home as we see today. Other countries followed then, as now. Most economists today acknowledge that similar steps taken then deepened all economies into a great depression. And worse yet, the painfully economic results helped give rise to the authoritarian governments of the day, and eventually the devastation and 30 million deaths in World War II through the 1940s.

So what do we see occurring today?

Today, we can already see the negative consequences to global trade as a result of the GFC and following years of protectionism measures. The global warning signals mean more than lost jobs and poor economic situations somewhere else. These warnings mean greater pain and suffering at home until global markets are once again freely reopened and protectionism measures are reversed.

And if not corrected quickly, then we may be revisiting the 1930s and 1940s.

Warning signals today are everywhere if you look around and observe. The latest report from the New York Federal Reserve Bank shows that manufacturing activity has dropped to the lowest level since 2009. In the case of New Orders, it was the worst reading since November 2010. And for Shipments, it was the largest one-month decline since June 2011, and the lowest reading since March 2009.

The Institute for Supply Management’s Purchasing Managers Index (PMI) dropped again, clear evidence that US exports are in deep trouble. More proof of export woes for American companies are in the Trade Stats Express, that US exports are down 4.16% in the first six months of 2015, and continue to slow to a snail’s pace.

Perhaps the most telling is the capacity utilization rate, which is more or less the “unemployment” of American factories. This is often considered one of the most reliable recession indicators. It won’t tell you when the stock market has topped, but it is a very reliable gauge of overall economic health.

But importantly, the US isn’t the only place where factories are dangerously slowing down. Despite the Chinese government’s best efforts to reinvigorate its slowing economy, their latest PMI readings dropped to a 77-month low.

Royal Dutch Shell, an international giant, slashed its 2015 capital expenditure budget by 20% and is laying off 6,500 high-paying, executive positions this year.

And, UPS, a good barometer of the consumer side of the domestic and international economy, isn’t very confident about the economy either. CEO David Abney said in a recent conference call with analysts that he has significantly downgraded GDP forecasts after UPS revenues fell during the past 12 months and continue to decline.

Rolls Royce offers another warning signal that international trade is slacking. Rolls is known for their luxury cars, but the heart of their business is making engines for jet airplanes. And business isn’t good at Rolls, as demonstrated by their fourth profit warning in a row this year. Rolls is now shutting down its $1.56 billion share buyback to conserve cash. The reason Rolls Royce is suffering is that the airborne freight market is shrinking. While passenger cabins may be full, the the cargo freight that sits in the plane’s belly is growing increasingly empty. The International Air Transport Association (IATA) reported that air freight load factors have dropped to lows not seen since 2009.

What’s more, the trans-ocean freight business isn’t doing any better as the number of idle container ships has increased two months in a row. The number of idle large cargo ships has jumped 131%. Business is so bad that the owners of 108 ships don’t have any business whatsoever and have left them parked empty.

And the reason why all these transportation companies are struggling is that global trade is shrinking. Individual state sponsored protectionism measures have simply caught up with the global economy, and it's weakening.

What’s worse, world trade is falling at the fastest pace we’ve seen since the onset of the financial crisis of 2008 / 2009. Global trade shrank again last month from the previous month, and the little-followed World Trade index (which tracks import and export volume) continues to fall.

Transportation companies prosper when the global economy is allowed to perform without government protectionism measures. However, they are among the first to feel protectionism measures as local governments and businesses turn downward.

Other signals come from the European countries, who are struggling with the economics of a defective plan for a broader union. Conceived from the historical record of constant wars and bloodshed spilled between the countries fighting, the goal was that outward looking economics would bind their souls. As the EU struggles to avoid the disintegration of the union, migration, and more, the individual countries look inward to justify more protectionism models.

China too, stuck by its pledge to allow the markets to have more say in its currency, recently resulted in a 4.6% currency devaluation in just three overnight sessions. This was partly in retaliation against the US, the IMF major voting member, after China was denied SDR status as a reserve currency. It was also likely motivated by the slowing down of their economy that hasn't responded to the stimulus that China has attempted to apply from the $4 Trillion treasure chest of reserves. While the Chinese have attempted to diversify their economy, they still depend heavily on exports to foreigners to fuel their economy, and global exports have dropped heavily in recent months.

And Currency Wars continue.

Countries that debase their currencies do so to promote economic growth at home through exports. However, each country's leaders eventually learn that when everyone else is doing the same thing, there's no benefit received to anyone. It’s a zero sum game.

When the rest of the world is wallowing in the economic mud, it doesn't matter how cheaply the goods are that come into each respective country. If the businesses and individuals have hunkered down to ride out a weak economy, they simply aren't buying! And then what good is a country’s debased currency?

When every country is doing the same thing, no one wins.

US 10-year US Treasury Notes are flat, indicating no growth and no inflation for the next 10 years. The world is awash with cheap oil today which reflects not only greater supplies, but low business and domestic demand and projections of slow growth. And copper - an excellent forward looking economic barometer - is used extensively in production sources, and is off 40% from three year highs reflecting low demand and slow growth.

What does all the above tell you about the strength of the major economies around the world going forward? And what does it signal to you about the need to protect your assets going forward?

Whether you take signals from global economic forces, market prices, corporate confidence, or reading the tea leaves, there’s plenty of convincing signals that indicate the economy is terribly uncertain at best, and likely to go through some real pain going forward.

What contingency plans do you have in place to protect your business, professional or personal assets when the going gets tough? If history is a guide – and it usually is – those that have planning in place to protect against the tough times generally fare much better than those that don’t.

Many individuals have already taken steps to protect their assets from whatever the threat. What have you done?

Whether you think domestically or internationally, there are steps that work particularly well to break free to a better, safer way of individual sovereignty; and planning for individuals who just seek to enjoy international living and a traveling lifestyle.

For those with assets to protect, there are great opportunities for asset protection, and even nil or minimal taxation through new citizenship. And even individuals on a budget with limited assets can learn how to benefit too.

How to Get Started

There are numerous complimentary past newsletters and articles on our website at DavidTanzer.com, which is a good place to learn more about asset protection, offshore planning, and more.

To learn more about the legitimate use of international trusts for integrated estate planning and asset protection, start with How to Legally Protect Your Assets, 2nd edition. And to learn more about the correct way to go offshore, read Offshore Living & Investing, 2nd edition.

And if you wish to start now and learn how to proceed with a confidential consultation to review your personal situation to accomplish your objectives, then contact me here.

Until next time……

David