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On the Brink of a New Era – Are You Prepared? Big Picture Review September 2020

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On the Brink of a New Era – Are You Prepared? Big Picture Review September 2020 On the Brink of a New Era – Are You Prepared? Big Picture Review September 2020 BFI Big Picture Review, September 2020 | 3 PREFACE Dear Reader, As we stand on the brink of a new decade, we are entering a period of high uncertainty and considerable challenges – economically, politically, technologically, and socially. In view of the current economic crisis and under the assumed power to force an economic recovery with more “cheap money”, central banks and governments around the world have loosened their fiscal and monetary reins most spectacularly. The common consensus appears to be that this can continue indefinitely. We agree insofar as we do indeed expect big government spending and quantitative easing to be anything but a temporary measure. They will be with us for the foreseeable future. However, these policies are NOT sustainable indefinitely. We consider the immense and continuously growing level of public debt as the number one enemy to your freedom, wealth and prosperity. The aftermath of it all will serve to crystallize one thing: it is dangerous to tinker excessively with a complex system such as the economy and financial markets. The increasing interventionism of governments and central banks in a free-market system creates all kinds of moral hazards and imbalances. Well-intentioned policies “in the interest of all” are generally not in the long-term interest of anyone. At most, they may serve the temporary interests of some. With this report, we want to alert you to the fact that we “ I can scarcely contemplate a greater calamity that are coming to the end of a secular business cycle with could befall this country, than be loaded with a impressive global economic growth and even more debt exceeding their ability ever to discharge. If impressive advances in asset prices, all largely fueled by a mix of globalization, continually declining interest rates, this be a just remark, it is unwise and improvident unprecedented central bank induced liquidity and credit, to vest in the general government a power to and with consumer price inflation nowhere in sight. We borrow at discretion, without any limitation or are convinced that this economic model is running its course and we need to buckle up for a very different restriction.” cycle ahead. Most of all, we recognize two risk factors that deserve particular attention: Brutus debt and financial repression, combined with inflation that will ultimately be the main mea- sure to reduce the formidable mountain of debt that the world faces today. Moreover, the crisis appears to have accelerated the rise of increasingly radical ideology and the decay of traditional values and strengths of Western culture. The implications are manifold, and the uncertainties resulting from all of this need to be considered thoroughly. We are very optimistic that in the longer-term, things will rebalance and return to a more positive trajectory overall. Humankind has proven, again and again, that we eventually succeed at improving our lives and we keep progressing over time. However, history also tells us that this progress will not be achieved without periods of pain and suffering. All facets of nature and life are subject to cycles, to ups and downs. Throughout BFI’s history, we have focused our activities on solutions and strategies that afford our clients solid wealth preservation and asset protection. The overall landscape ahead looks somewhat confusing at best and treacherous at worst. In light of this, asset protection and wealth preservation should be at the very top of your investment and wealth planning priorities. It is in this context that we are sharing our thoughts and recommendations, hopeful that it may provide some clarity and guidance, and that you may be able to better formulate and implement your wealth planning and investment strategy as a result. Sincerely, Frank R. Suess Founding Partner and Executive Chairman BFI Big Picture Review, September 2020 | 5 TABLE OF CONTENTS EXECUTIVE SUMMARY 6 A DIFFICULT AND UNCERTAIN RECOVERY 7 NO V-SHAPED ECONOMIC RECOVERY 7 FINANCIAL MARKETS DISCONNECTED 8 PRE-EXISTING TRENDS AND ISSUES 9 Growing recession concerns 9 Markets and politicians were hooked on “cheap money” 10 A world drowning in debt 10 China’s drive to take the throne 12 Geo-political tensions 13 Social unrest and the strange return of marxism 13 Widening economic inequality 14 HEADED FOR THE FOURTH TURNING? 15 FACING THE CONSEQUENCES OF EXCESSIVE DEBT 16 THE CONSENSUS VIEW: DEBT DOESN’T MATTER! 16 OPTIONS TO REDUCE PUBLIC DEBT 18 Growth – improve and grow the economy 18 Fiscal austerity – tighten your belts and live with the consequences 18 Inflation – print the debt out of existence 19 Financial repression – regulate in favor of government finances 20 Default – make others pay, fully or partially 20 WHAT TO REALISTICALLY EXPECT 21 Financial repression – already underway! 21 Inflation may arrive sooner than expected 22 WEALTH MANAGEMENT IMPLICATIONS 24 THE SPECIAL RISK PATTERNS FOR WEALTHY AMERICANS 24 Shifting tax rules and rising rates 24 Litigation 24 Asset seizures and bail-in 25 Dollar depreciation 26 Capital controls 26 Gold confiscation 26 Presidential crossroads 27 A FEW WORDS ON ASSET ALLOCATION 28 The dilemma of investing in a “Titanic” scenario… 28 Our investment approach for the foreseeable future 28 OFFSHORE WEALTH PROTECTION 29 Simple options 29 More sophisticated options 30 Key considerations 30 CONCLUSIONS 32 BIBLIOGRAPHY 33 LEGAL DISCLAIMER 34 IMPRINT 35 6 | BFI Big Picture Review, September 2020 EXECUTIVE SUMMARY The analysis is quite simple: interest rates are at or below Unfortunately, the answers to these questions point zero. We are coming to the end of a “cheap money era”. toward a new era that will be characterized by financial Under America’s leadership, excessive money creation repression and inflation. Clearly, proper risk management has allowed the West to indulge in the many temptations and wealth planning is needed. Adding an international of prosperity. It has resulted in a huge misallocation of component to your wealth plan, properly executed, can capital and excessive debt levels. Quantitative easing is provide considerable benefits in terms of long-term wealth the name of the game. Over time, the measures have protection and growth. become more and more extreme. As the printing goes on, we are moving closer to the end game, step by step. The need to think of globally and jurisdictionally diversify- ing wealth is particularly pertinent to Americans. They The biggest problem and threat in all of this is found in face a unique combination of US-specific risks ranging the mountains of public and private debt that have been from excessive litigation to increasingly extreme policies, growing for many years. The COVID-19 induced crisis is and to big picture tectonic changes in terms of America’s not the cause of the problems we face today. But it did geo-political status and economic strength. certainly accelerate and augment the issues within a very impressively short period. The key elements of a solid wealth management strategy consist of both a strong and safe structure as well as a The signs of the times are found in the political and soci- flexible and profitable investment strategy. Next to safety, etal changes and uncertainties we find in western societ- other benefits need to be secured, such as long-term in- ies. The growing dissatisfaction and “blame culture” we heritance planning, tax efficiency and legal asset protec- are witnessing are partially founded in the fact that, while tion. Setting up and maintaining this kind of strategy is globalization has helped improve key progress statistics precisely what BFI does for its American clients. – child mortality, literacy, poverty, hunger, etc. – around the globe, the gap between rich and poor has been grow- If you have not already started your global strategy for ing in western developed economies. Many feel left out wealth preservation and jurisdictional diversification, you and left behind. The recession now affords the grounds of need to do so now. The urgency is rising, while the options all kinds of battles – on race, gender, demographics, and access to solid solutions are not. We invite you to call wealth, climate change and more. on us and inquire. Even if we cannot help you ourselves, we will generally be able to point you in the right direction. It all does very much remind us of the “fourth turning”, In any case, this is not a time for procrastination. as described by William Strauss and Neil Howe in their 1997 bestseller titled The Fourth Turning: An American Prophecy. To stave off the ultimate fallout of the negative trends and, somehow, somewhen, recover what threat- ens to be lost, central banks and governments appear to know one answer only: monetary and fiscal inflation, or debt and deficits. Unfortunately, dealing with the issues of debt and reduc- ing it is increasingly difficult. Therefore, in planning your wealth management strategy, from both a structural as well an asset allocation point of view, you must first and foremost consider the following questions: 1. What can governments do to reduce public debt levels? 2. How probable is the successful deployment of govern- ment measures? In other words, is a meaningful and sustainable debt reduction possible? 3. What are the critical implications for your wealth plan- ning and asset allocation decisions? How can you best protect your wealth, structurally and internationally? Which investments and asset classes should you have? Which should you avoid? BFI Big Picture Review, September 2020 | 7 A DIFFICULT AND UNCERTAIN RECOVERY As we write this report, we have moved into the fall of ingly positive, the impact on jobs was disastrous. Without 2020. And still, one topic dominates the news: the a doubt, the crisis set off a deep recession.
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