Off The Grid News Better Ideas For Off The Grid Living
One of today’s guests on Off The Grid Radio is Bobby Casey, managing director of Global Wealth Protection which provides asset protection planning for entrepreneurs and investors around the world. He and Bill are in Ambergris Caye, Belize at a conference discussing how to protect and put a hedge around your assets to keep it from the greedy hands of the politicians.
There are many countries that have asset protection laws that you can take advantage of to keep what you’ve made with your hard work and sweat equity. When it comes to estate planning, you need to invest and devise ways to keep as much as you legitimately can from the reach of government without employing questionable practices that can get you into trouble. Bill characterizes this as the “show and tell” strategy of asset management.
Today’s lineup of guests are all involved with financial planning, and it doesn’t matter if you have a huge portfolio or one IRA that you’re trying to protect, there’s information on today’s show for everyone. Please join Bill Heid and his guests for a slate of helpful information for keeping more of your hard-earned dollars for yourself and your family.
Off The Grid Radio
Ep 149
Release Date March 22, 2013
Brian: Ladies and gentlemen, welcome to Off The Grid News—the radio version of OffTheGridNews.com. I’m Brian Brawdy, kind of like here as always with Mr. Bill Heid but before I toss it to Bill, Jeramy, in case there is any clue who the boss is—in case there is any question—and listeners and home going, “Well, I always hear about Bill and Brian… Or is it Brian and Bill? How does it go?” One of us is broadcasting today from a facility where it’s windy and 18 degrees. The other one is broadcasting from a facility where it’s probably sunny, warm, tropical breeze and 80. So for our listeners, let’s take a guess where Brian is as opposed to where the boss is. Ladies and gentlemen, Mr. Bill Heid, today from Ambergris Caye in Belize, a part of Presidents’ Week, he’s coming to us from the Key Bank facility—the conference room—right there in Ambergris Caye. Bill, how is the weather?
Bill: Brian, the weather couldn’t be any better.
Brian: Yeah, whatever.
Bill: Slightly better than yours. It’s… What would you say, Bobby? It’s probably 83 or 84 degrees right now.
Brian: Sure it is. Why not?
Bobby: Yeah, low to mid 80s. A little depressing here in the conference room with the air condition. It was much nicer about ten minutes ago sitting on the beach.
Bill: Our guest today is Bobby Casey. He’s not wearing any shoes. I’m wearing shoes so I’m sort of the German, everything’s tied up right and get it done right but our guest, Brian, is Bobby and Bobby’s head of the Global Wealth Protection LLC and he’s interested in protecting assets, privacy and freedom, so much so that he moved out of the great American world, didn’t you Bobby? And you moved somewhere else and you do these conferences really all over the world.
Bobby: Yep. Yeah. I moved several years ago to Eastern Europe, actually. I live in Latsia now but I moved several years ago to Estonia.
Bill: So you lived in Estonia so that’s… It’s… I would say Estonia is off the grid in terms of the average…
Bobby: Yep. Well, I lived in Estonia before. I live in Latsia now but yeah—both—both are definitely off the grid, for sure.
Bill: What do you like about Estonia?
Bobby: Well, I like the whole region. I like the Baltic area in general. The east… The former Soviet… Of course the Soviet people, they lived through repression for so many years and here in the past 20 years they’ve completely broken free of that mold and going… They’ve gone almost anti-government for the past 20 years. They basically wanted to do their own thing, own their own property. They don’t want anybody hassling them and so it’s… For me it’s a great environment because you can do whatever you want with very little intrusion into your personal or business life.
Bill: Hey Brian, they don’t want anybody hassling them. What do you think about that concept? Is that novel or what?
Brian: Wow. What a great idea. Hassle-free living.
Bill: Well, and it’s… I think what Bobby finds as he goes around the world and what certainly I find as well is that governments are generally in the hassling business no matter where you go and Belize is no… I mean it’s… It’s a piece of paradise but in the world that we live in we live to say that there are problems, there is sin—whatever nomenclature you like to use—anywhere you go. Some places are better than other places. We like it down here. We can actually even… One of the reasons the conferences are in Belize because you can actually talk about things that you can’t talk about in the United States. And Bobby’s been working on how to teach people how to sort of build a fortress really, to protect their wealth and to protect what they’ve spent a lot of time earning and I should say at the beginning, Brian, and maybe you should deliver what sounds like a warning of sorts. This isn’t investment advice. Always… [Inaudible 0:04:16.6] Always talk to a licensed government… someone who has a government license to tell you what to do.
In all seriousness, any… We’re talking about ideas here and just any investment carries risk. Another novel concept. There is risk in the universe but there’s nothing guaranteed and folks down here at Presidents’ Week. A lot of them are presidents of their company. Everybody knows that they wake up every morning with a world full of risk and investors need to know the same thing. So I do say that sort of as a joke but I also say it as a caveat. If we’re talking to my mom I’d say, “Hey, get some advice from a number of different people.” But Bobby, how do you build a fortress? How do you…? I mean the world, as we said… Governments are running out of money. They want your money. How do you build a fortress up?
Bobby: Okay. Yeah. Good question. This was my presentation topic this week here at Presidents’ Week actually. It’s kind of funny—a little back-story here. I do my own conferences—two a year—two offshore conferences a year and so the guys that run this conference, they convinced me to do my conference here the week before theirs so now I’ve been sitting here on the beach with no shoes on for three weeks in Belize with back to back conferences. So it’s been tough.
Bill: Which we joke, Brian… We joke that that qualifies him for citizenship. Not really but he’s been here for a while and it looks like he’s kind of getting used to it but you’ve got to get on a plane today too.
Bobby: I do. I take off back to Europe today so…
Brian: Well, in that it’s 14 degrees here today with a wind-chill of like 30 below zero, I hope you get sand fleas.
Bill: The first day of spring.
Brian: Yeah, first…
Bobby: Sounds lovely, Brian. Sounds lovely.
Brian: Yeah, first day of spring. So I hope there’s sand fleas there for you guys. I would like someone else to…
Bill: Yeah, they’re biting us now. They’re biting us now in this office. The sand fleas are all over.
Bobby: It’s just awful. It’s really just awful here.
Brian: Good. Good. I hope it stings. I…
Bill: There’s a lot of [inaudible 0:06:15.6] we’re comforting each other. Some just… If you hear some wailing you’ll know that it’s people just in utter misery from the overall conditions that we find ourselves in but I want to get Bobby a few minutes to talk about… And his website, by the way, is GlobalWealthProtection.com so that’s pretty easy—GlobalWealthProtection—if you want to check that out while we’re doing this show, you’re more than welcome.
Brian: Groovy.
Bill: What did you tell…? I missed your presentation because I got in late. What did you tell…?
Bobby: Yeah. So the topic that our… or my presentation is developing your own financial fortress. So we talked about a lot of the old school, like multi flag, [inaudible 0:07:00.7] flag strategy type stuff, getting a second passport, establishing residency in a foreign country, investing in precious metals and real estate offshore, setting up your company offshore, offshore banking—that sort of thing. I mean that’s kind of the crux of our business model. We help people internationalize their financial life. And some strategies we use… I mean I used a particular case study. I guess maybe this is a good way to go into it.
Bill: Sure. Sure.
Bobby: I discussed one case study—one of my clients from last year, we’ll call him Sherald—I had this client that at the end of last year relatively high network guy, between $7-8 million, typical guy. He had… He was mid… lower-mid 50s. He was retired, had about $7 or 8 million bucks so he did not have a business anymore and he was just investing his money in various things and he had a pretty big stock portfolio. The vast majority of it was tied up in the US—about $5 million bucks in brokerage accounts. He had some cash. He did have some precious metals for both in the US and offshore. He had an IRA domestically—in the US. And he did… One great thing he did is he had bought two bed and breakfasts in New Zealand. So he had done some good things. Some positive things he did was buying foreign real estate, which did two things for him—buying that New Zealand real estate—it gave him… He went through the investment program in New Zealand and established permanent residency in New Zealand through the real estate purchase.
Bill: So he made an investment and that sort of qualified him…
Bobby: Correct.
Bill: He’s almost knocked two things down at once.
Bobby: Correct. Exactly. So yeah, he… He made… They had their investor program. I forget the threshold but you invest a certain amount of money, you qualify as a permanent resident through the investor program. So he moved some money offshore through real estate, which is a hard fiscal act that… which is good. He also now has a permanent residency in New Zealand, which also puts him on the path to citizenship, giving him that all elusive second passport. But the thing… His weakness is he still had the vast majority of his money tied up in US dollar denominated assets with his house and his investment portfolios in the US. So what we did is we set up a foundation—a Nevis foundation—for him for estate planning purposes and also asset protection.
Bill: Now what’s Nevis?
Bobby: Nevis is a small, little island country here in the Caribbean. They’ve got great asset protection laws, great privacy laws and so we set up a foundation, which is more or less the equivalent of an offshore trust.
Bill: Okay.
Bobby: Good question. Yeah, I think sometimes I jump through things…
Bill: Well, that’s one little… I mean that’s a little place that not very many people have heard of.
Bobby: It is. You’re right.
Bill: A lot of people… A lot of people we talk to have never even heard of Belize, let alone some of the other…
Bobby: Right. That’s a… That’s a good point. I mean sometimes I’m in this zone of my world and so I just… Sometimes I expect everybody to know what…
Bill: Yeah, because you’re doing these things all the time and it just becomes second nature for you.
Bobby: Right. Yeah. And that’s a fallacy of mine but… We set up a foundation for him in Nevis, this tiny, little Caribbean country—great privacy, great asset protection laws—and then underneath that we did set up a Belize company for him. The Belize company is now managing his financial assets. He moved all of his investment portfolios into a brokerage account in some bank accounts outside of the US. So… And then actually his US real estate we had in a Wyoming LLC. Precious metals were owned by his foundation and then we also helped to… helped him move his IRA offshore. So through a self-directed IRA we changed custodians and moved it into an offshore LLC.
Bill: I don’t think a lot of people, Bobby, know that you can move your IRA offshore. That’s a simple thing. I mean simple… When I say “simple” I don’t mean it’s simple paperwork-wise but it’s simple from the standpoint that a lot of people have IRA but the threshold for an IRA is pretty narrow.
Bobby: Right.
Bill: Every one of our listeners can have an IRA.
Bobby: Right.
Bill: So just give me a little bit of… Throw me a bone here. How do you…? What’s…? How do you take steps towards getting your IRA offshore?
Bobby: Well, I mean you need to find a custodian that will allow you to own a… In our viewpoint anyway, the way… I could tell you the way we do it. Now other people do it different ways. We have a custodian that we use that allows you to own a single foreign asset and we set up a… We get it set up in Nevis, again, a Nevis LLC. So your IRA owns this Nevis LLC so therefore, you now have a single asset offshore and that single asset is the membership interest in the Nevis LLC and so if it’s your IRA you become the manager of that LLC, giving you check writing ability to directly manage your own funds. You basically become your own investment manager through your offshore LLC.
Bill: Now what’s cool about this is I think if someone—whether they’re someone with just an IRA or whether it’s a guy with $7 or 8 million—what happens is if you get into some kind of a fracas with somebody—a lawsuit with the government—if you get into a lawsuit with… in a civil suit with somebody or whatever, maybe it’s a car accident or whatever it is, the opposite side attorneys… Now Joel’s got this great principal. Brian, you know this principal. There are two different ways to do this. There is hide and seek, which is the “How well do you look in orange?” kind of philosophy.
Bobby: And ironically, you’re wearing an orange shirt.
Bill: I’m wearing an orange shirt from Ramon’s down the street but… Yeah, but I’m not wearing orange pants.
Bobby: Right. Okay.
Bill: Just an orange shirt so that’s taking a little bit of a chance. But the bottom line is the opposing attorney—this is for everybody listening—what happens in these situations… I’ve been through these things. The opposing attorney looks at this stuff. So instead of hide and seek and you putting everything where you’re hiding stuff from the government and from other people, you do not—warning—you do not want to do that. Joel Nagel’s philosophy is, as you know Brian and as you know Bobby, is what he calls “show and tell.”
Bobby: Correct.
Bill: So it’s you get into trouble and you say, “Here’s my balance sheet, man” and they see this Nevis stuff and privately, the opposing attorney is going to go to their client and say, “You know, this isn’t going to work out very well for you” because of jurisdiction, right?
Bobby: It’s a jurisdictional issue. Yeah. They’ll… Well, typically what happens is… Let’s say you’re suing me for a million bucks, for example, and you go to an attorney and say, “Okay, I want to sue this guy, Bobby, for a million bucks. The attorney says, “All right. Tell you what. I’ll take this on a 50% contingency basis. Let me give you a call back tomorrow.” Well, for $20 and about an hour on the internet you can find everything out in my own name. It’s not that hard to do. You just pull up Social Security numbers and driver’s license and passport numbers and stuff like that. It’s an easy enough search.
Well, when that claimant’s attorney can’t find anything, normally what he does is he goes back to the… his client and says, “Well, I would love to take your case but we can’t do it on the contingency but we’d be happy to do it with a $20,000 or a $30,000 retainer.” So a lot of times that’s enough of a roadblock. But even if they pursue beyond that and they say, “Okay, fine. I’ll pay the $20,000 or $30,000 retainer,” then you go into the information-gathering phase and then the attorney finds out “Wait a second. All your assets are tied up in a Nevis foundation? Nah, forget it. It’s not worth the hassle now because it’s virtually untouchable.”
Bill: So what it is, listeners, it’s sort of a preemptive strike against that kind of thing and as everyone runs out of money, whether it’s governments, whether it’s individuals—in our country especially everyone is looking to sue everybody else—we are litigious as a people. That’s one thing for sure, probably one of the reasons you moved to Estonia. And more and more people are moving out. What made you move out? Where were you born?
Bobby: I was born in North Carolina. Let me make a quick note about litigation.
Bill: Sure.
Bobby: In the United States—we’re the most litigious country in the world—there is a new lawsuit filed in the US every 17 seconds. I mean there are 1.25 million practicing attorneys in the US. They’re suing somebody and they’re not suing the guy that makes $11 an hour stocking shelves at Home Depot. The more wealth you have the bigger the bull’s eye is on your back. And so you made a good point. It’s a preemptive strike, kind of like health insurance. You don’t buy health insurance after you get cancer, right?
Bill: Exactly.
Bobby: Nobody… Conversely also—nobody buys health insurance and thinks, “Yeah, if I could only break my spine and make this thing pay off,” right? It’s a preemptive strike. You know what I’m saying? You don’t buy… You don’t pay your $500 or $1,000 a month in health insurance premiums and think, “God, if I could just break my back and make this investment pay off that would be fantastic.”
Bill: Sure.
Bobby: Nobody does that. So it’s a preemptive strike like insurance.
Bill: So just as we sort of… We’ve got a couple minutes. You’ve got some upcoming things. I wanted just to get your story really quickly. You were born in the states.
Bobby: Born in North Carolina.
Bill: And you… At some point you reached a place where you said, “This isn’t working out for me”? What was the tipping point for you?
Bobby: Well, I ran a company that I sold a few years ago. I got a little burnt out on the company. I… What burnt me out probably more than anything is that I was spending more than 30% of my time dealing with compliance issues—tax preparation, OSHA, all these different government agencies to make sure my business was compliant, state tax filing issues, withholding tax, insurance requirements—all this stuff. It was just… And I started thinking like, “God, if I could get into an environment where I don’t have to spend this much energy, time and money complying with everything, I could actually maybe use that time and energy and money to provide more value to my client base.”
Bill: And it seems like we have freedom in this country and we do. There is a sense of freedom in our country. But at the same time this compliance thing sort of is a burden that people think because we don’t have a monarch ruling over us or a dictator ruling over us, we think we’re free but are…? The question I think you and I and people at this conference would always say, “How true is that?” Because there is this incremental idea of just… It’s layer upon layer upon layer of slavery and there is small layers but if you add 300 small layers, it’s a pretty thick layer. It’s a pretty heavy burden to carry.
Bobby: Right. I mean it’s… It’s like throwing sand into the gear wheels of a machine, right? It just… It slows things down, it grinds it down, it makes it inefficient and it breaks things, right? I mean that’s… And it feels like every year the grains of sand keep getting bigger and more destructive. It just… At some point that sand is going to break the whole machine. We… I’m absolutely convinced that the machine will break at some point in the future. Now I’m not a… I don’t predict the future. Will that be six months, a year, three, five, 20? I mean who knows? But for me, people come… People talk to me and say, “Hey, how can you leave this country when it’s in such bad shape?” and “We need people like you—leaders—to be out there trying to effect change” and my response is I’m selfish. I’m a self-interested human being. I have a wife and kids. I don’t want to spend the next 10, 20, 30 years fighting a battle when I could live in peace and have a great life somewhere else. Why would I…?
Bill: And let’s be honest about it. Our country was formed… One of the first sort of records that we have—the Pilgrims came to our country—they left the country that was in bad shape.
Bobby: Right.
Bill: We wouldn’t have a country if it weren’t for people that left a different country. So there’s people coming into our country through the southern borders and through other ways and there’s also people leaving our country and you’re one of those guys that chose to take another… Now did you hand your passport in or are you still a citizen?
Bobby: I’m still a US citizen. I will have citizenship in another EU country here within the year. I’m in process there and I’m in process in one other place as well.
Bill: Do you ever see a point in your life where you just hand your passport back in? Or do you think you’ll reach that? It’s still… America is still the land of the weird.
Bobby: Yeah. You know that’s an… That’s a tough, emotional decision. I have toyed with it. At this point I don’t have that second passport so I can’t say yes or no whether I would do it or… But once I get that second passport…
Bill: Puts you in a better spot to make a decision, wouldn’t it?
Bobby: Of course. Yeah. I mean… And most people don’t know—you actually can be stateless. Most people think you can’t renounce your US citizenship without having another citizenship but you actually can. I have a client—another client, not the one I mentioned before—who lives in New Zealand and he moved there, also using the investor program in New Zealand, and became a permanent resident and he renounced his US citizenship last year.
Bill: Just based on his residency alone.
Bobby: Just based on his residency but he can’t leave New Zealand.
Bill: I see.
Bobby: He can’t leave. He has no ability to travel but he doesn’t care. I mean he lives… He bought a 50-acre farm in New Zealand and he doesn’t even like going into town, much less travel.
Bill: He considers what he’s done good and he doesn’t really need to…
Bobby: He is definitely off the grid. I mean he grows his own food. He has a small winery at his house.
Bill: Oh wow.
Bobby: He has his own power, his own water. Yeah, he’s definitely off the grid.
Bill: All right. We’re running out of time, Bobby. What’s next for you? What have you got? Do you have a conference coming up? I mean people can go on to your site—GlobalWealthProtection.com—and look for upcoming events. Anything else you want to say?
Bobby: Well, our next… Our website for conference business is GlobalEscapeHatch.com so www.GlobalEscapeHatch.com. We do two conferences a year. Our next one will be in Panama in probably… We haven’t picked a date yet but it’ll be mid or late September in Panama. I will also be speaking at Freedom Fest in July so I’ll be there… I think I’m doing a panel with a couple of other guys, talking about escaping from America.
Bill: You’re going to do the panel with another Casey—Doug Casey—aren’t you going to be on that panel with him?
Bobby: It looks like it. Mark Skousen that runs Freedom Fest sent us an email and said it looks like he wants us to do a panel. Now I don’t think that’s finalized but it looks like me and Doug Casey and Jeff Berwick were going to do a panel.
Bill: That’d be cool.
Bobby: If that’s the way Mark wants to go with it, we’ll see.
Bill: Yeah. Brian, you’ve been to Freedom Fest a few times too so…
Brian: I have.
Bill: [inaudible 0:21:59.6] as well.
Brian: I have. Ladies and gentlemen, here’s what we’re going to do. Bill—only because I want to keep time with the rest of the guests you’ve got coming—if it’s cool with you, we’re going to run to a quick commercial break after we say goodbye to Mr. Bobby Casey. Bobby, thank you so much for your time and your insight. Ladies and gentlemen, quick commercial break and then right back to Off The Grid News. Mr. Heid has the next guest queued up.
[End of Segment One]
[Beginning of Segment Two]
Brian: Ladies and gentlemen, welcome back to Off The Grid News—the radio version of OffTheGridNews.com. As you know, I’m Brian Brawdy, here with Mr. Bill Heid, who thanks to satellite and the way science and technology work today, is coming to us from the Presidents’ Week at Ambergris Caye in beautiful Belize and Mr. Heid has with us now Tres Knippa. Bill, how is everything going?
Bill: It’s going well and I just should let our listeners know that one of the… Mike Cobb and Joel Nagel that run this conference… Mike pulled me aside and said, “You really need to listen… If there’s one guy you should pay attention to here, you really ought to pay attention to Tres” and I think the reason he said that… Tres is a trader—an American—so he’s used to a high paced, fast paced, crazy world, making decisions quickly and so… I did listen to his presentation and I thought it was really fascinating. I’ve come to similar conclusions—not as exhaustively or comprehensively—but just about… What we’re going to discuss today with Tres is what’s the situation look like in Japan? And Japan’s going to… Tres, Japan—that situation’s going to affect America at some point and you’ve thought of a way to kind of give a little bit of a hedge against this cataclysm. Why don’t you give our listeners a little bit of foundational things? Talk a little bit about the Japanese economy and what’s going on there. And I think this is a story because of the control grid and the media that you just don’t hear. You have to go way off grid to hear the true story about what’s going on. So Tres, tell us what’s going on in Japan.
Tres: You bet. Well, the Japanese story ought to sound very familiar because it is also… It’s basically a decree cursor to the US story. In 1992 the Japanese had a real estate bubble that popped. Those banks were [inaudible 0:24:42.6] all those real estate assets and they had all those loans outstanding and rather than take losses… I mean the commercial real estate market in Japan is 85% off of the ties. The stock market was 75% off the ties. We’ve rallied recently, which I’ll discuss in a second but all those losses had to go somewhere. So what did they do? They bailed the banks out. They came in with more capital. Bank of Japan lowered interest rates to zero. Then after lowering interest rates to zero, that didn’t kind of kick the economy off so then they started a whole series of fiscal stimulus programs. Does this sound familiar?
Bill: It sounds very familiar.
Tres: This is the US playbook. Well, actually it’s the Japan playbook [inaudible 0:25:22.0]…
Bill: …got a hold of John Maynard Keynes’ world and that’s what they’re doing.
Tres: You bet. And all that spending and all that debt, now Japan has a debt to GDP ratio of 240%. You’ve got… I actually like looking at central government tax revenue and then see how that multiplies out to their debt. And you’ve got a situation where it’s something in the neighborhood of 26 times… Their outstanding debt is 26 times central government revenue. Those debts are not going to be paid off.
Bill: Ever.
Tres: Ever. Japan is going to… My thesis is that Japan is going to have a debt crisis. Now when I first joined you, you asked me “Why should this matter?” and there’s a whole lot of structural things that we could talk about Japan of why I think it’s going to happen…
Bill: And it’s not just a function of “Well, it’s those people. It’s someone in a different country” because you’re talking about a situation in the world, Tres, that if it happens the way you and… both you and I think it’s going to happen, it’s going to drag down most of the civilized world.
Tres: When Greece had its debt crisis and Greece… You had 10-year rates in Greece spike up to 40, 50-some-odd% and then they had a restructuring. When all that was going on you put an enormous amount of pressure on the US stock market. Greece has the same GDP as the state of Indiana. Greece does not matter. Japan has the third largest economy in the world. When there is a debt crisis in Greece it will absolutely affect markets all across the globe. Now some of the things, as I kind of play this out and look at the chess board—more than likely I would expect US treasuries to rally on that news because people are going to be looking for the big, dark whole that they think is safe. But that…
Bill: Whoever has the most aircraft carriers gets…
Tres: Precisely. [Inaudible 0:27:10.3]
Bill: You get those treasuries hit.
Tres: So when this happens I think that you’ll see that “flight to quality” even though obviously we could argue on whether or not a US treasury is even quality either but you see my point here is the US treasury market will probably benefit but I think US equities could really come under serious pressure and this… This will absolutely send ripples throughout the global economy. Like I said, Greece doesn’t matter. Japan does matter. That’s a massive, massive financial center, big banking center and I think they have real problems coming their way sooner rather than later—banks too—and the electorate voted for it. They elected a new prime minister who I think has set the fuse on their debt bomb.
Bill: And this guy’s name is…?
Tres: Shinzo Abe. The new prime minister.
Bill: Shinzo Abe. And you had mentioned it being sort of a Christmas gift to you in terms of what you’re doing because we talked about these lines of convergence. Let’s talk about—before we go into what now—what are some of the lines of convergence that exist in the Japanese economy? You and I talked about Fukushima last night a little bit and how that affected just their net imports of petroleum.
Tres: Sure. And so one of the ways that the Japanese have been able to finance this debt… When you look at… When you look at their financial statement, right now Japan borrows half of what they spend every single year and currently the market is so saturated with bonds that the Bank of Japan is buying 64% of all new issuance of Japanese debt. That is blatant monetization of their debt. That just is. What one of the… One of the reasons they’re having to monetize coming from Bank of Japan is that they no longer have a current account surplus. One of the reasons their current account deficit is accelerating is because the nuclear reactors got turned off. They do not have a domestic supply of energy so they have to import it.
Bill: And there [inaudible 0:29:10.5] importers. I mean they’re always… They don’t… Japan doesn’t produce any petroleum.
Tres: No.
Bill: That’s why they built all these nuclear plants.
Tres: Precisely, because they don’t have a lot of these raw materials. Now when the… with the Fukushima story, obviously that was the tsunami, the earthquake but not only did that affect their energy market but it also affected something very important, which is their supply chain. Japan suddenly realized how vulnerable they were in a situation like that where they couldn’t necessarily get supplies locally and so they… A lot of their companies have outsources a lot of their supply chain. That’s structural. That’s not going to come back. So as Shinzo Abe tries to weaken the yen—he said flat-out “I want to weaken the yen and generate inflation”—he is creating… All those imports now cost more, most notably energy. Why would you do that if you have a current account deficit? This makes absolutely no sense to me.
Bill: To further exacerbate, we all know… I mean it hasn’t been that long ago that Japan’s supply chains have been cut off before and “Torah! Torah! Torah!” Right? I mean we know what happens when you cut someone’s supply chain off. There are a couple different ways you can cut it off. You can just… You can use naval blockades but you can also use financial tools.
Tres: Well, you know what I find interesting is… So the new prime minister—his theory is “Let’s weaken the yen and then we’ll start exporting a lot more and that’s what’ll turn our economy around.” So let me get this straight. He wants to export more but then he goes and picks a fight with his largest export partner—the Chinese? Why would you do that? And you cannot underscore the bitterness… I’ve got friends in China who’ve sent me pictures of car dealerships where they have to have night security watchmen because they are Japanese companies—Nissan, Honda, things like that—because people are so angry at the Japanese they’re throwing rocks at the cars and trying to break the windows and things like that. The export market to Japan… The export market to China is in real problems [inaudible 0:31:14.6]
Bill: Well, it took a long time to try to heal that up from World War II…
Tres: Sure.
Bill: The Japanese were not friendly towards the Chinese. It was quite a story about what really happened in China with the Japanese when the Americans helped the Chinese sort of push out of China. But it took a long time to forget that. Now it didn’t take very long to sort of trip that trigger to bring all of those emotions highly charged coming right back in with this fight over these islands that they picked.
Tres: And let’s analyze why he’s doing this. The new prime minister is doing this as a misdirection play. If I… Even though their politicians and their policy makers have made so many bad decisions over and over and over again, you know a way to kind of misdirect that is pick a fight with somebody else and “Oh no, we need to band together as Japanese. We need some nationalism” and that’s what their new prime minister has done. He’s trying to set up this defensive posture. He wants to expand the military. He’s talking about these islands in the East China Sea—all those things. That is a misdirection play to misdirect the populous into “Oh, we’ve made really bad decisions financially but we really need to band together because China is a threat.”
Bill: Which is another common political tool that people use. I remember Clinton was having some internal troubles—internal, probably being marital—but internal troubles. We bombed some aspirin factory in Africa and that was his way of stirring up something outside his issues and I think that they’ve got big issues, Tres. But go down the line. I mean what happened to the Japanese sort of replacing themselves? What’s their birthrate?
Tres: Oh, the… Now here is… Here is the basis for…
Bill: You can have all these lines of convergence that are coming together and there’s probably nothing more profound in this geopolitical system today than these lines in Japan. Listeners, we’re just trying to tell you there is stuff that’s up and these things are cultural. They’re baked into the cake, as it were. And it’s going to… It would take a lot for these things to undo themselves. Talk about their birthrate.
Tres: These are significant structural problems that are not going to change. What is the longest life expectancy of anyone in the modern world? Its’ the Japanese—82 years is their average life expectancy. That puts a burden on Social Security. Guess what—Social Security is the single largest line item on the expense side of their financial statement. And guess what—that’s going to just keep getting bigger.
Bill: And they’re borrowing money to finance that.
Tres: And they’re borrowing money to finance it—you bet. You have more people exiting the workforce than entering the workforce because their population peaked three years ago. You can’t just change that. You could change it with some immigration but you want to see the toughest immigration laws in the world? Look at Japan. You’re talking about a population that has less than 1% non-Japanese population. You’re not going to see a big increase in population from immigration. It’s just not going to happen.
Bill: Can you imagine the president saying, “I think what we need is a whole bunch of people from another country—from some third world country—and that would save us”? Could he possibly get elected?
Tres: Not a chance. Not a chance.
Bill: [inaudible 0:34:24.7]
Tres: Just borrow more money. Borrow more and everything will be fine. That’s what their thesis is. And in the meantime convince everybody that we’re having troubles with China. What is it—you can park a battle carrier behind one hand…? Or you can hide a whole bunch of debt in one hand if you’ve got people talking about battle carriers in the other side? So same idea.
Bill: So other sort of trends that affect… that are affecting them. You’ve got the fact that they’re borrowing an inordinate amount of money and they’re monetizing. Is there any bright spots…? I mean the Japanese are productive people but what’s their productivity like? Didn’t their economy, after…? Let me rephrase it. After all this Keynesianism. After all this pushing on a string, after all this stuff, what’s it been—20 years now? What’s their economy like today compared to what it was like…?
Tres: This is a statistic that should make listeners completely just fall out of their chair. The Japanese economy, even with 240% debt to GDP, the Japanese economy today is the exact same size that it was in 1992. Why is this not a complete repudiation of the entire Keynesian theory? It just isn’t working. Now you know what Paul Krugman says is…? It’s… This is the classic Krugman line. He says, “Well, can you imagine how bad Japan would be if they didn’t do all this fiscal stimulus?”
Bill: Oh really?
Tres: So they do something that doesn’t work and clearly the answer was “Well, it would have been a lot worse if they hadn’t done it.”
Bill: Well, that was the answer that the… that literally Keynes himself gave during our Great Depression. I mean that was the answer that the American Keynesians gave. It took how many years? Years and years and years to get out of that and they would have said, “Well, think how bad it would have been if we didn’t do that.”
Tres: Precisely.
Bill: [inaudible 0:36:12.9] Other guys like you and I would say—and sort of maybe more Austrian economists—would say, “Hey look, a business cycle… People file bankruptcy and we go through hard times. We all cry together and then there’s a sort of a release from debt.” In other words, bankruptcy as part of a cyclical thing is not a bad thing in and of itself. There is overproduction. Economies get out of scale and just leave them the heck alone…
Tres: Capitalism without bankruptcy is like Christianity without hell. It just doesn’t… It doesn’t work. There needs to be…
Bill: How could it prove that capitalism without bankruptcy? And now we want… What we want to do in our world… You just run a good push. Everything needs to be riskless. Our kids are riding… I never wore a helmet. And I’m not suggesting people not wear helmets. I’m saying everything is so managed in our culture. One of the things I like about Belize—you go up on the street and there are people riding bikes with no helmets. I know I’ll get some emails on that but I’m just saying if you want to wear a helmet, God bless you and if your kids want to wear a helmet, good for you. But it’s almost sort of a sacrosanct thing where if you were riding a bike on a bike trail, even around where I live—not very far from you, if you took 88 West across, all the way to Iowa, right before you get to Iowa that’s where we live—and everyone wants to control risk and no one wants anybody… anything bad.
Tres: What you’re talking about is—and you’re kind of chiseling around the edges here—but isn’t this the whole thesis of Nassim Taleb in The Black Swan? When you repress volatility… Oh no—it was Greenspan, I think, that really kind of drove this idea home. If you get the slightest bit of negative economic numbers—“Oh, oh, the Fed needs to do something. The Fed needs to act. The Fed needs to step in” and this, that and the other. Well, by suppressing all this volatility, at some point that’s when… And I think Japan is a perfect example. You’ve got so much suppressed volatility. Do you know…? On the options that I’m buying, I’m buying [inaudible 0:38:07.8] on the Japanese government bond on the ten-year futures. You know who’s selling me this stuff? It’s the banks in Japan. Does that sound familiar?
That’s like AIG. AIG was out there… They owned mortgage-backed securities. Then Goldman-Sachs comes along and these hedge fund managers—John Paulson being one of them—comes in and they buy insurance against those mortgaged backed securities and who sold it to them? It was AIG. AIG is selling the very insurance that they are the ones who should be buying because they own the underlying assets. So then they lose double quick when the market starts down. That’s who’s taking the other side of my trades in Japan. That is very, very dangerous but they’re sitting back saying, “Hey, we’ve always been right.” You’ve got the suppression of volatility. Implied volatility—I don’t know—is the option-speak or is insanely low. I can buy options. I don’t know why in the world somebody would take the other side of my options trade. It makes absolutely no sense whatsoever.
Bill: So let’s talk a little about that in the time that we have. You… In other words, what Tres is saying, guys is that our… that what’s going to happen in Japan… There is an ominous thing that’s going to make Greece and Cypress and other places look like a pimple on a pickle and it’s going to affect the entire world when it goes down and there is a way to sort of hedge against it and even make some money in the process of this just by looking at “What are these factors?” and is this something…? Are these true things that have been true in history? Can you spend more money historically? Has there been any individual or any nation or any company, any marriage, any situation where you can spend more money than you take in as a long-term proposition? I don’t think in the history of mankind… What do we have? 10,000 years of recorded history if we include the Chinese texts? It just never happened. So you’re trying to take an action on the other side of that and say, “Look, I’m going to short this thing” and you’re in effect shorting the yen by using options? Or how do you…? How are you pulling this off?
Tres: I think the convexity in this trade lies in the bond market. I think when they start… When you [inaudible 0:40:14.9]
Bill: What’s “convexity” mean—for the listeners sake?
Tres: What I mean is that’s where I think that there’s better optionality. There is more… I think there’s better ways… that you’ll get a better return. Now do I like the idea of being short the yen? And clear… Let’s just take my strategy and let’s divide it up into two different types of investors. The small retail investor, in my opinion, one of the best trades they should be doing is shorting the yen in long something. I own some real estate in Texas and I have the note financed in yen.
Bill: That’s right. That’s right. Yeah.
Tres: You know? So that kind of trade. You could also buy gold—be long gold—in yen terms. I’ve heard a couple of guys, including John Mauldin, talked about that—being short the yen and then…
Bill: [inaudible 0:40:55.1] Tell people why that works.
Tres: Because I think that the yen is only… Now the yen has had a move here and a lot of people are saying, “Wow. I need a bounce in the yen. I don’t want to sell it now.” The yen has gone from 75 to 95 on the exchange rate versus the US dollar. I think there are miles to go in that trade. I think the yen boils out to 300 or 400 to the dollar. When you get any pressure on the bond market at all, the Bank of Japan is going to go into hyper drive printing yen to support the bond market and the yen falls apart. And I think that’s… I think the yen seriously could go to 300 or 400 before it’s all said and done.
Bill: By the time… The problem with this kind of thing is by the time taxi drivers in the United States are talking about this kind of thing, it’s too late. By the time you’re talking about this with somebody in a bowling alley, it’s way too late. So again, we’re talking about risk. So people need to understand there is risk in everything. You wake up in the morning and you could get hit by a truck. Just so we… And there’s risk in this concept but you kind of figured out a way to manage that risk a little bit, Tres, in terms of how you do it.
Tres: Sure. Like I said, I’m talking to two classes of investors here. The smaller investor, I think, be short the… be long gold, be short the yen. I like that trade for individual investors. For the larger investor—somebody who’s got a lot more money in the market, a higher net worth—I like the idea of being in the bond market because I think there is an awful lot more upside being short the bond. Now I don’t want to be short the bond yet. I want to be long option. So in my fund, the strategy… And by the way, my fund came about through my own failures. I tried one strategy, got my ears torn off, tried another strategy—it didn’t work. The risk of this trade is timing. I, as a fiduciary, I have to figure out a way to give my clients exposure and wait for a move in the bond market because when a move happens, then I don’t think you’ll be able to get in and I think… It happens very quick. Bond markets, basing systems and currencies require one thing and that one thing is confidence. Now what is going to crack the confidence of the owners of these bonds or the owners of the yen? I don’t know. I’m not quite that bright.
Bill: It happens in the [inaudible 0:42:59.0] oftentimes.
Tres: It just happens.
Bill: Historically.
Tres: Yep. I think the way it happens is is you only have ten primary owners of JGBs—institutional owners. Imagine they’re sitting around the dinner table and one of them turns to the other one and tries to sell some of his bonds and then the next guy says, “Why is he selling?” and then the next thing you know you get this massive shift and they all try to sell at once because… This is going to sound like trader-speak but longs make markets go down, okay? The people who own things are what drive prices lower. It’s not shorts. Shorts don’t drive… Shorts make markets go up—not down. So it will be the people who own these bonds. It’ll be those institutional traders, when they turn to dump their bonds and there won’t be anybody there. The yield on the ten-year treasury in Japan is .60. Why in the world is anybody going to want to sit there and earn .60 on an investment for ten years?
Bill: So who are the owners of that now?
Tres: Institutions. These are the life insurance companies, pension funds…
Bill: Part of their portfolio. The part of their portfolio that…
Tres: Well, as I’ve mentioned, who is going to turn and sell this stuff? I’ve already got one. The largest pension fund in the world is the Japanese government pension fund for the government employees. This pension fund has more assets in it than the GDP of Mexico. It’s big.
Bill: Now, did you…? Wait. Did you hear what he just said? Say that again because that went by pretty quick but this pension fund in Japan is bigger than…?
Tres: It has more assets in it than the entire GDP of Mexico. It’s massive. And there was an interview with the manager of that. He’s got an asset allocation of 65% in Japanese government bonds. Well, guess what—Shinzo Abe and the new head of the Bank of Japan has set an inflation target of 2%. Why would I hold a bond that yields .60 if you’ve got 2% inflation? Also why would I own a security and lend you money and let you pay me back in the very currency that you’ve set out to devalue? So the owners of these securities are saying, “Why would I hold this to maturity?” That makes no sense. They’re going to lose on the currency side of the trade and never mind that if they do get what they want, never mind that whoever put it into their head that inflation was a good idea when you’ve got 240% debt to GDP… Whoever put that idea in their head is beyond me.
Bill: Yeah, because there’s two sides of every transaction.
Tres: Sure. Why would you want that? Why would you want 2% inflation? So the point of all that is that there is [inaudible 0:45:26.5] right there. That pension fund is a net seller of these bonds. So I think the tide has turned.
Bill: Let’s just give you this opportunity to… How can people learn more about what you’re doing? Because it’s… I think it’s a fascinating concept. Again, it’s full of risks. There is that… There is a caveat to any investment but not doing something is full of risk too. That’s the thing that I think a lot of these holders of this… Not doing anything carries a tremendous… maybe more risk than taking proactive action. So what do you got? What have you got as your hedge? Tell people about it.
Tres: When this happens it will make Lehman Brothers seem like child’s play. When the Japanese government bond market moves, the events in ’08 will pale in comparison. I have a website—ShortJapanDebt.com—there is a free newsletter on there. So some people, this… my investment might be appropriate for them. Some of them it’s not. Some people just want to learn more and get more information. Go to the website—ShortJapanDebt.com. There is a registration page on there. “Send me the newsletter.” Maybe they want to talk to me directly and I can explain the strategy. It’s kind of complicated but now I’ve explained it so many times even my mom understands it. So I can get it down pretty simple.
Bill: Speaking of your mom, the email address for Tres that’s on the webpage is the same email address that his mom has.
Tres: Right. So you’re going to get me directly.
Bill: You’re going to get him direct and he’s a busy guy but he’ll respond to our listeners. So I think it’s a really interesting opportunity. I really want to say thanks for what you’re doing. Thanks for giving people that option and thanks for being on the show.
Tres: You bet. Thank you very, very much for having me.
Brian: Ladies and gentlemen, we’re going to run to a quick commercial break and then when we come back, a quick recap from Bill on some of the comments of the guests that we’ve had here in our first two segments and then also kind of a thumbnail about what’s going on in Belize. Come on back in the break. You’re not going to want to miss the Rosetta Stone that is Mr. Bill Heid.
[End of Segment Two]
[Beginning of Segment Three]
Brian: Ladies and gentlemen, welcome back. Brian Brawdy here with Mr. Bill Heid, reporting live today from beautiful Belize in Ambergris Caye. Bill, I’ve got to tell you I called you the “Rosetta Stone,” as I’m sure you heard, as we went into just this past, short commercial break. I called you the Rosetta Stone because when I listen to these financial guys… And I know what they’re talking about. But sometimes I’ll listen to these financial guys and I’ll go… I feel like the Aflac duck when Yogi Bear speaks in the commercial, where the Aflac duck just kind of goes… “Uh, what?”
So in the time that we have left together, I love… Of both of our interviews this morning—of course with Mr. Bobby Casey and also with Tres Knippa in the second segment—what I really liked was your line that not doing anything is in fact really doing something. With all the tea leaves, with everything going on in the world today… And I know, Bill, you’ve been busy producing the show from there so you may not have seen what’s being reported, that with everything going on in Cypress, well, yesterday morning there is a huge thing—everyone that has a Chase Bank account wakes up and their accounts… Computer glitch, right? Pudgy digits. Computer glitch—their accounts are all zeroed.
Bill: Yeah, warning—this could happen to you. But tell me, Brian, I think that’s… That really is the message and from my view… Of course you know my views always sort of… I’m trying to stay in the lens of what sort of the Bible says in some sense and so I’m always looking at things that way. If you’re going to be a Christian, you might as well use that worldview on things. And I think if you look at the parable of the talents, certainly not doing anything got a pretty stern rebuke from Jesus.
So I think doing something is really pretty important and being proactive and looking at the world, having sense and wisdom and just sort of think, “How do I need to get along in this world?” What are the trends? I think Tres Knippa… Certainly Bobby has got the world pegged from the standpoint of you need to figure out how to diversify and how to build a little bit of a fortress and doing it all legally and doing it “show and tell,” as Joel Nagel would say. And then Tres comes in and says, “Look, here’s some trends in Japan that they’re just irrefutable.” And timing is an issue. That’s one thing economists don’t do well. You can say a trend is in place. You don’t know how long it’s going to take somebody to sort of… before a tipping point finally comes about.
But we know that these things are inevitable. You can’t spend more money than you have and you can’t perpetuate a society without having babies born. Hello? I mean these are simple things that anybody should be able to pick up. You need babies to reproduce. I mean who’s going to pay your Social Security? And you can’t spend more money than you have. I mean what more two operative principles in the universe that really just used to be common sense and now it takes PhDs that come from George Mason or wherever to come up with reports to tell you that these are trends that are dangerous. But it’s just simple, folks. Jethro Bodeen would know these things.
Brian: Absolutely, my friend. And I would say, as you’re talking about the PhDs and the like, and then you do the parable of the talents. What was…? I remember my grandfather used to say to me all the time when I was little that “It’s one thing to get wisdom but with all thy wisdom, get understanding.” Right?
Bill: Yeah, you bet.
Brian: So you have the philosophers…
Bill: [inaudible 0:51:00.7]
Brian: Yeah.
Bill: And then take some action. Once you understand things, then I think the difference that separates people so often is some people are immobilized by fear and here again, I’m not trying to preach but I think if you… If you understand that providence is another workable thing and that God doesn’t ask you to do anything beyond what you’re capable… So you study the issues, you do the best you can—“Duty is ours, consequences are God’s,” as Stonewall Jackson would say—you do the best you can and you pull the trigger and then it’s it. And it’s just to say, “You know what? How it all comes out is in a higher pay grade than mine.”
Brian: Right. Right, right, right. The Dao follows its own path. Right? All you can do is put yourself into the stream and then it is what it is. So Bill, how about what…?
Bill: Except the Dow Jones doesn’t follow its own path.
Brian: Yeah.
Bill: Do a spiraling nosedive like those airplanes that are flying past here in Ambergris Caye.
Brian: Well, I’ve got to tell you I’m looking at this Cypress thing this week that you’re gone and saying, hey, here’s someone in a government that decides, “We’re going to take 10% of your account.” And then lo and behold, within a few days everybody at one of the largest banking structures here… It’s called a “glitch” this morning. But you go in and your bank accounts are reduced to zero, so the report is on the wire now. So I like that the message of today’s show is that it really can happen to us. It’s nice to be optimistic. It’s nice to believe that these types of things could never happen to us. But at some point that optimism… You have to blend in a little realism, don’t you, Bill?
Bill: Right about the time that you’re saying, “This could never happen to me,” I would say that would be the perfect time for something that can happen to you. So never say never. Always be ready. Always be calm, knowing that again, you make your decisions the best you can and then you put it into somebody else’s hands and say, “That’s out of my deal and into somewhere else.”
Brian: Well, you know, my friend, as I’ve said to you a bunch of times and you know personally about me, ever since I was a little boy I’ve digged the concept of “Yea though I walk through the valley of the shadow of death I fear no evil.” Right? Of all the things you’ve ever heard me say, how many times have I repeated that?
Bill: That’s the only way to live, Brian, and that’s what we advocate, whether you’re investing, whether you’re raising your kids, whether you’re living in the world, your business world—that’s the only way to live. And so go… Go thee and do likewise.
Brian: All right, my friend. Well, why don’t we use that as the close unless there is anything else you want to do? I know you’ve got a busy round of meetings this afternoon and the preproduction of what will be a future show here on Off The Grid News. Any final thoughts or do you want to leave it with that one?
Bill: No, I think we can leave it with that one. Just thank for listening, everybody, and thank you, Brian.
Brian: Ladies and gentlemen, on behalf of Mr. Bill Heid, on behalf of our traveling team from Off The Grid News, currently enjoying the tough assignment that is Belize and on behalf of our parent company, Solutions From Science, thank you so very much. It truly is an honor to have spent this last hour with you.
