While the economy and markets try to sort 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 goods, people and money 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.
Leading into 2020, there have been ten consecutive months of year-on-year decline in freight cargo volumes, the longest period since the global financial crisis in 2008, says the International Air Transport Association (ATA).
Trades generates prosperity. Trades wars don't. Transportation makes the world of trade happen. And the health of the transport sector is a time-honored indicator of what’s happening in the real world.
Important trends to watch going forward provide dire warning. The peak cargo load season, generally kicking off annually in August, was very weak and remains flat. Trade wars have - and will continue - to impact the market. A 'hard Brexit' will create new challenges. Companies exiting China to avoid trade war impacts by relocating operations to more favorable venues (e.g. Vietnam, Thailand, Singapore, etc.) will create bottlenecks in the supply chains. These are just a few trends to watch.
But more systemically, these are all cautious warnings even if trade wars somehow get settled soon into the new year.
In 2008 after the onset of the GFC, 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 then how these steps would ultimately have negative outcomes. It came as no surprise that while governments worldwide issued warnings that other governments should avoid protectionism measures 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 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 opined in 2008 that the eventual result would be that jobs and businesses at home and elsewhere would suffer.
Similar measures occurred in the early 1930s as the US government-initiated protectionism measures at home as we witness today. Other countries followed then, as now. Good students of history understand that these steps eventually deepen economies into a recession, or depression. And worse yet, the painfully economic results of the 1930s gave rise to 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, a clear reversal in globalization is readily acknowledged. We already see the negative consequences to global trade as a result of protectionism measures. What follows at home and abroad could be lower business investments, lower productivity and jobs growth, lost jobs, lost wealth, or worse. Hopefully not, but hope is not a plan.
These warnings mean greater pain and suffering until global markets are once again freely reopened and protectionism measures reversed. And if not corrected quickly, we may be revisiting the 1930s and 1940s, which could make the 2008/2009 GFC look pale by comparison.
My crystal ball is cloudy. But 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.
Short term, some believe the economy and markets don't look too bad. But don't be fooled.
Currency Wars continue.
During the past year or two, there has been an interest rate race to the bottom. In August 2019, globally, there was US$17 Trillion in negative interest investment grade bonds. This means receiving no interest on bonds or deposits and receiving less money back at maturity. While the amount has eased-off slightly in December to "only" US$11 Trillion, this is still an enormous amount of smart-money betting short on the economy and markets that things will get worse very quickly. Shorting bonds to negative rates means the smart-money investors are not looking for returns "on" their money, and instead simply a return "of" their money. In the meantime, they pay the banks to hold their money until the dust settles.
Countries that debase their currencies to low or negative rates do so to promote economic growth at home through exports. While the currency war may have short-term benefits for the first and fastest to the bottom, leaders eventually learn that when everyone else is doing the same thing there's no benefit to anyone. It’s a zero-sum game.
And when the rest of the world is wallowing in the economic mud, it doesn't matter how cheap the goods are that come into a respective country. If businesses and individuals have hunkered down to ride out a weak economy, they simply aren't investing, employing, or buying goods! Then what good is the country’s debased currency?
When every country is doing the same thing, no one wins.
Next?
What does 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.
And all of the above is before you consider litigation risks and threats to your personal, business and professional assets. Or government or social interference. Or countless other forms of frivolous lawsuits.
What contingency plans do you have in place today to protect your business, profession, or personal assets when the going gets tough? If history is a guide – and it usually is – those that have planning in place in advance to protect assets 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. Protecting assets of all levels against known, and unknown, risks, is essential. What have you done?
Whether you think domestically or internationally, there are steps at all asset levels that work particularly well to break free to a better, safer way of individual sovereignty.
For those with significant assets to protect, there are superior opportunities for asset protection, and more reasonable taxation. 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 atDavidTanzer.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