Wednesday, October 16, 2013

The Biggest Ponzi Scheme in the World

You’ve probably already heard about this, as it’s all over the news – the World’s largest Ponzi Scheme is in trouble, and there’s a chance it could collapse later this week.

Admittedly it’s a relatively small chance, according to many – but it’s starting to worry investors who didn’t pay enough attention the last time a big Ponzi Scheme collapsed – Bernie Madoff’s one.

Unfortunately, the biggest lesson in that case was “it doesn’t matter how important, powerful, experienced, or celebrated the person running it is; if the maths doesn’t add up, people will lose their money eventually”.

As a reminder, here’s what the US Securities and Exchange Commission (SEC) says about them:

What is a Ponzi scheme?
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.

Why do Ponzi schemes collapse?
Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.

So who is running this latest Ponzi scheme, and why is it in danger of collapse?

I am of course referring to the US Government… and I’m not being completely sarcastic.

For years, the US has been living outside of its means – borrowing money to fund things such as the war on terror, the war on drugs, the war(s) on various countries around the world – all whilst maintaining relatively low taxation levels. And, in most cases, without achieving the desired result… but that’s another story.

And despite the advice the US Government frequently gives to others – whether the term “others” applies to other countries, companies, or individuals – the US Government sees only one option: Borrow more money, to pay the interest on the money that it’s already borrowed.

Which, of course, makes the US Government a Ponzi scheme - by the US Government’s own definition.

From a debt of around $1trillion (that’s $1,000,000,000,000) in 1980, it has been steadily increasing with an exponential growth rate. By 1990 it was over $3trillion, by 2000 it was nearly at $6trillion, and in 2010 it stood at $13.5trillion. We’re already at $17trillion today.

Part of the reason it is growing so quickly, is because the USA can’t even afford to pay the interest on the debt – even with a ridiculously low interest rate. So it borrows more money, to pay the interest. To put it another way, it needs money from new investors, to pay the returns to the older investors.

Most of the media reports don’t put it this way – they see it as a huge problem if the US Government isn’t allowed to borrow more money before the end of this week. Why weren’t they calling for more people to invest in Bernie Madoff’s scheme, to prevent that from collapsing?

Whichever way you try to calculate it, there is pretty much zero chance that the USA could repay its debts without causing a disaster just as big as it would be if they defaulted.

If the US Dollar decreased in value by the amount needed to repay it from foreign currency reserves, the world economy (and the US domestic economy) would collapse.

If US Dollar inflation went up to the levels it would need to go to inflate the debt away, the world economy (and the US domestic economy) would collapse.

If the US decided to go on an imperialistic pillaging spree, to help pay down the debt, the world would be ravaged by war (which would collapse the world economy).

If the US decided to shrink its biggest expense – the Armed Forces - down to the level they could actually afford (a couple of sword-wielding soldiers and a horse), some less-than-benevolent countries would be encouraged to scale up their imperialistic ambitions, and the world would be ravaged by war (which would collapse the world economy).

So in many ways it is prudent, relatively speaking, to simply borrow more money – because it averts a crisis right now.

However, it doesn’t avoid it completely – it just postpones it. And the longer it’s postponed, the bigger the crisis will be.

So what will happen in the US Congress this week? Many people find it simply impossible to believe that the US would ever default on its debt, and expect a solution to be found – even if it’s found at the last minute.

However, the problem with this belief is that it’s not based on anything other than misguided wishful thinking. The US Government WILL default on its financial obligations at some point – just as every Ponzi scheme will, eventually. The question is when.

“Tea Party” members of congress, many of them new to national politics, know that their best chance of achieving governmental power is in a crisis (historically, right-wing parties always do better than normal in times of crisis, in almost every country). And they know that if they decide not to cooperate, America will be facing its biggest crisis since the Civil War. Will they budge this time? Probably – but only to allow a temporary, short term increase to the borrowing limit.

Then you can expect them to spend the next couple of months doing what almost every politician does – trying to figure out which course of action would result in the best outcome for them personally.


Hardly the stuff of a Triple-A rating, is it?


Monday, August 19, 2013

Solving the Energy problem

A bit of an argument is going on in the UK at the moment, about “fracking” – the process of extracting gas from underground shale rock by injecting pressurised liquid.

Supporters of the process say it’s a relatively clean and cheap way of producing energy; those in opposition to it say it is potentially hazardous and bad for the environment.

Also coming in to the debate are arguments about the wisdom of general reliance on fossil fuels (both in terms of their environmental impact and the fact that they are a finite resource), and of course no debate would be complete without some mention of “national security” – in this case, proponents say it would be more secure for the UK to be reliant on its own shale gas resources that to rely on Norway (from where the UK currently imports a large amount of gas).

So at least in part, the argument has degenerated into a rather silly squabble about global warming and the potential for Norway to turn hostile, both sides of which seem to be missing the point – we, as a race, need energy, somehow.

So what’s the solution?

France thinks it has the answer – nuclear fusion. Unlike nuclear fission, which splits the atom to generate power (used in atomic bombs, and nuclear power stations such as Fukushima and Chernobyl), nuclear fusion is the process of atomic nuclei joining (fusing) together to form a new type of atom.

Supporters of nuclear fusion say it’s cleaner, safer, and cheaper – and France is hosting a $20billion project (named Iter), funded by 34 different nations, to develop the technology, produce the energy, and harness it for our use. The project is decades away from completion, and will cost $billions more, but could this be the solution to our energy problem?

Maybe. The problem is, we already have a huge nuclear fusion power plant. It’s already built, it already works, it’s already clean, safe, and free – for everyone. It’s in the sky, and we call it “The Sun”.

The even better news, is that we already have the technology to harness the energy emitted by the sun, to convert it to power we can use for all sorts of things, such as a toaster, or an Xbox. We call this technology “solar panels”.

If only everyone could afford solar panels! Then all our energy problems would be solved – all with no threat to national security. Or so you may think.

The European Union (EU) has just brokered a deal with China, whereby China guarantees to artificially inflate the cost of solar power – and if they don’t stick to it, the EU will artificially inflate the cost of it.

Why? Because according to EU officials, Chinese manufacturers were “damaging” the European economy by selling solar technology at “unsustainable prices” – they were just too cheap. So cheap, that everyone could afford one. Terrible, isn’t it?

Of course there’s other aspects to this debate – our savings and pensions are invested into shares in big companies, the biggest companies are the oil companies, we can’t have them suddenly collapse otherwise we’d all lose our money, etc etc.

(When I say “our”, and “we”, I am of course referring to the 25% of the global population that is fortunate enough to have savings, not the 25% who don’t have access to a reliable energy source, or the other 50% who aren’t wealthy enough to have investments and have to pay relatively high prices for their energy usage).


So what to do? It’s a tough one to solve, it’ll probably need a lot of people working together to make it work. Maybe we should all sleep on it. Perhaps, with a bit of luck, when we wake up in the morning and look out of the window, the answer will be “blindingly” obvious…

Wednesday, May 29, 2013

How to reduce your tax bill

There’s been mild uproar in Europe and North America recently, about the amount of tax (or lack of it) paid by major multinational companies. At the front of the firing line are Google, Apple, Starbucks, and Amazon – all huge multinational companies who operate in numerous countries, with numerous revenue streams, from numerous business lines.

In a country where sales tax is applicable to good or services sold, it’s relatively straightforward – they pay the relevant tax on sales. But for corporation tax, which taxes the profit made by corporations, it’s not quite so clear.

Consider Apple – a huge corporation with literally hundreds of subsidiary companies. It may hire an employee in America, who designs a product to be made in China, which is distributed by a company based in the Netherlands, who pass it to a retailer in Dubai, to sell to people who have seen an advertising campaign created in the UK.

All of those stages, based in different countries, add value – and give Apple the ability to make a phone for $100, package/promote/distribute it for another $100, and sell it for $500. There’s a $300 profit that’s been made by the combination of all those stages – but how do you define a true monetary value to each of the independent business units? It’s very difficult.

For non-connected companies, it’s very easy – a free market economy will set the price, and each company will pay corporation tax on its profits. But for connected companies, it’s different – it doesn’t really matter whether the designer charges $1 or $10million for her services on paper.

Another way of looking at it is this: If the China-based company buys the parts to build a phone for $50, and the Dubai-based company buys the completed phone for $350, it doesn’t really make any difference to Apple as a company whether the Netherlands-based distributor buys it for $50 and sells it for $350, or whether it buys it for $350 and sells it for $350. It’s simply a matter of choosing whether you want the profit, on paper, to be made in China or the Netherlands.

Of course it’s not exactly this simple – there are plenty of opportunities for companies to route their business activities through other jurisdictions – jurisdictions which charge little or no corporation tax – so that the profit, on paper, is made by a sub-distribution company which in practice does little more than push a bit of paper around.

The slightly bizarre nature of the present discussion between government and business leaders is seeing politicians lobbying the corporations to change their tax practices, and the corporations explaining the law – which is a little surreal, as it would normally be the other way around.

Nonetheless, the discussion always stops at a very obvious point – these corporations are doing nothing illegal, and are simply maximising shareholder value. They see the legal minimising of tax expenditure as being as obvious as not overpaying for any other type of expense.

The ethical argument is that the current tax regimes unfairly benefit the larger companies – for example, a small bakery in a little village is unlikely to have the knowledge, or economies of scale, to route its purchase of flour through several random little countries in order to reduce its tax bill – and therefore will end up paying a much higher rate of tax, in percentage terms, than the large corporations generating $billions each year.

Fair? No.

Reality? Yes.

And an extension of that reality is that this doesn’t just apply to companies – it also applies to individuals. It’s not at all rare for an individual earning $100,000 to be paying more tax, in percentage terms, than someone earning $1,000,000 – partly because the more wealthy people have more to gain (or lose, depending on which way you look at it) and therefore put more effort into it, and partly because the cost of arranging an effective tax-minimising set up is smaller for them (as a percentage of their overall wealth).

But there are some really basic things which any individual can do to reduce their tax bill – legally. For some people, the favoured way in times past was simply to stash it in an “offshore” bank account – such as Switzerland or the Cayman Islands – and not declare it. Many people are now finding out that this wasn’t too smart – as they’re now being discovered, and being charged back-tax plus penalties.

The best thing to do is set it up in a way that’s legally sound, conforming to all relevant tax laws, but making sure that you’re utilising all of the ways possible to reduce it.

In particular, expatriates have a wide range of options available to them while they are living abroad – options which in many cases will cease if they ever return to their country of nationality. Some options are available to people living in their home country too.

The difference between the right structure (which doesn’t mean simply investing into any product classified as “offshore”) and the wrong structure (or no structure at all) can be huge – as you could save a reasonable amount by not paying tax on the growth of your investments, a large amount by not paying tax when you cash in or take an income from them, and a huge amount in a lot of cases when that money is passed on to your family when you pass away.

And the right structure doesn’t have to cost a lot either – in fact for a lot of our clients we can set this up for free, in return for the small 1% management fee we charge to manage their investments – which in itself generates a profit for the client through reducing risk and increasing returns, compared to people making guesses of what to invest in after reading a couple of news articles.

So – if you’d like to have a preliminary chat to find out more about how to legally avoid taxes, please get in touch and I’ll be more than happy to go through it with you. It might save you a small fortune…

Monday, April 15, 2013

All-time high


It’s been a while since a new blog was posted (sorry), and during that time some of the world’s stock markets have hit a series of all-time highs.

The one to get the biggest headlines is the most well-know one: the Dow Jones Industrial Average, or DJIA. It’s been consistently used as a benchmark for how stock markets are performing generally, and as its components (the companies whose stock prices are followed by it) are all large multinationals, it’s also seen as a barometer for the health (or perceived health) of the global economy.

So why the big fuss? Well, the last all-time high was 9th October 2007 – with a value of just over 14,000 - after which it dropped 25% in the following year BEFORE Lehman Brothers collapsed, then continued falling to a low of around 6,650 – a loss of about 52% in about a year and a half.

Scary stuff, particularly as investing in this index would be considered as a “medium-risk” (more risky than government bonds or corporate bonds, but not as risky as shares in smaller companies or emerging market companies).

Of course the flip-side of this is that those who invested just after the crash would have seen a return on investment of over 100% - their investment is worth more than double what they put in – in just 4 years. Very good indeed, for what is still considered a “medium-risk” investment.

Unfortunately, for most ordinary people, it didn’t work out that way. A lot of people got scared after the crash, and either cashed in their investments or stopped paying into their regular savings investments. This is a very silly thing to do, because you lose out from the crash, but don’t benefit from the bounce back – which invariably occurs.

Inevitably, just as many people cashed in their investments after the crash (when their value was low), there will be many people who now choose to invest, now that the price is at an all-time high. People will think that it is now less risky, because things are “back to normal”.

But buying at a high price, on its own, is just as silly as selling at a low price. As a general rule, it is the incompetence (and easily predictable illogicality) of amateur investors which make it possible for professional investors to make large profits.

There are precious few people (including professionals) who are able to tell you when the best time to buy investments is – because nobody knows exactly what’s going to happen tomorrow. You never know when the price is at the lowest point, just like you never know when it’s at its highest point.

But there’s one group of people who have definitely made money over the last few years, through its highs, lows, and highs again. They’re the people who planned ahead, made a plan based on what they wanted and needed rather than what they thought the markets would do, and stuck to it.

Every month they put a little bit aside, as per their plan. Sometimes they were buying at an equivalent price of 14,000. Sometimes at an equivalent price of 6,650. Most of the time, it was at an equivalent price of somewhere in between, and it changed every month – sometimes higher than the month before, sometimes lower.

The end result is that after a few years, they’ve paid high prices and low prices and everywhere in between, but all that matters is the average price. And whether you look back 5 years, or 10 years, or 30 years: If you make a good plan, stick to it, and carry on regardless of what all the amateurs are doing, you’ll make money if you give yourself enough time.

Don’t try and pick a starting point – start as soon as you can, regardless of market prices, and put just a little bit away each month. That’s the most important bit. The second most important bit is making sure that in the final few years of your plan, you’re not risking the potential of another 50% drop in value – timing is very important on the way out.

So if there’s one key message from this post – don’t think that now is a good time to invest all your money, just because the markets are at an all-time high! Similarly, don’t think it’s a bad time either – you just don’t know.

One thing is for certain – now is definitely a good time to start saving regularly, because it’s always a good time to start saving regularly, as long as you’ve got a few years ahead of you.

It may not sound particularly exciting (because it isn’t really that exciting), but basic long-term financial planning is just as important as regularly checking the battery in your smoke alarm and remembering to wear a seatbelt (two other slightly monotonous and repetitive tasks which I find rather boring, but can have serious implications if you don’t do them).

If you’d like to look at your investment options please just get in touch, and together we’ll ensure that your wealth is at its all-time high when you need it to be, rather than at some arbitrary point in time along the way.

Tuesday, February 26, 2013

Free money from AXA!!


It’s true – AXA are giving away free money. Yes, of course there’s a catch – but for most readers, it’ll be a “catch” that that they already have – and in most cases a “catch” that is very good for them.

Everybody needs to save money – even billionaires. Spending it all would be most unwise. For most people, money comes in monthly, which means saving monthly is the most sensible thing to do – a little bit put aside from your salary as soon as you get it won’t be noticed or missed too badly by most people.

And AXA (just like every other company that offers these types of products & services) would like you to save with them.

There are plenty of reasons to like AXA – they’ve been around for nearly 300 years, have over 95million clients around the world, and are the world’s 25th largest company based on revenues. We’ll forgive them for being French.

The really great news is that they’re so keen on growing their client base in Asia, they’re giving away free money to attract your business. Here’s how it works:

1. You decide how much money you want to save each month
2. You decide how long you want to save for
3. You decide what currency you want to save in
4. AXA pay you up to 125% of what you pay in during your first year as a bonus

That’s 125% on top of what you’re paying in – so if you’re saving $5,000 per month ($60,000 per year), they’ll add $75,000 to your account with them – which means that your account will have $135,000 in it after one year. And you not only get that money, you get the growth on that money too.

Does that sound too good to be true?

It’s not. We’re just very good at sourcing exceptional deals for clients. Of course there’s more terms and conditions involved, but they’re available by clicking the “AXA” link on the left, which takes you to their offer document.

This offer was launched yesterday (26th Feb 2013) and closes on the 25th of March 2013, so if you want your free money, you’ll have to act relatively quickly.

Please note that this product is from AXA International, not AXA Indonesia, whose products are structured significantly differently. You also won’t find this offer (or indeed this product) available from any other companies in Indonesia, as it is a Hong Kong regulated product, and AXA will only accept applications placed through companies who are licensed to provide financial advice in Hong Kong.

This offer is open to people of any nationality, and you can choose to save annually or quarterly rather than monthly if you prefer.

If it sounds good, get in touch to discuss it further.

Finally, on the subject of great investment opportunities, the absolute final day for investing into the Pilot Asia Capital bridging loan product is tomorrow (Thursday 28th February). It’s not far off being fully subscribed, and there’s a little bit available for anybody who wants to participate at the last minutes. Full details on this are contained within previous blog entries.

Have a great week!

Tuesday, February 19, 2013

Is Private Equity for you?


Welcome back to the blog, hope you’re having a great lunar new year if you’re celebrating it…

It’s less of a blog and more of a notice this week – actually there are a couple of notices.

Firstly, the investment banking transaction referred to in the last blog post has crossed the $5million threshold, which means that:

a) It will be going ahead as planned, the minimum funding requirement of $3million has already been reached; and,
b) The bonus “early investor” rates are fully subscribed; the returns available are now 17.5% for those who invest $250,000 or more and 15% for those who invest less than $250,000.

The capital raising period will end on the 28th February, so anyone who wants to invest needs to complete their application form and send the funds before this date. At the time of writing, the remaining availability is just under $4,000,000, and the minimum investment is still $10,000.

The expected redemption date is still between 6-9 months from the closing date, and the returns stated are a total return, not annualised – if redeemed in 6 months’ time, you’ll get the full 15% return on your money, not just half of it.

Secondly, we’re now regularly being approached by various companies and projects regarding their financing requirements, which are generating a lot of opportunities for investors interested in private equity and/or private debt placements.

They’re coming in all sorts of shapes and sizes, various different business sectors, with varying levels of risk and security – so if there’s something in particular that you’re interested in, or looking for, just let me know – I can either try and source a specific opportunity for you, or simply let you know personally and quickly when an opportunity comes up.

Generally speaking most of these opportunities are only available for those who have at least $500,000 to invest in a project – and often only those who have several $million - but I’m happy to keep you informed even if you’re not at that level.

So – if you’d like to invest in the aforementioned transaction, send me an email – you’ll have to move quickly. And if you’d like to know about private opportunities or have something else finance-related you’d like to know more about, just get in touch.

Have a great week!

Monday, January 14, 2013

Something for the New Year


Hello again, welcome back to the blog… I hope you had a great Christmas and New Year and are looking forward to an exciting year ahead.

We’re already excited in our office – we’re very pleased to be able to offer old and new clients the chance to participate in a one-off investment banking transaction which comes with a minimum return of 15% in less than a year. Not the sort of thing that comes along every day…

How is this possible? Well, the full details are available online (also downloadable in PDF format) by clicking the link on the left which says “minimum 15% return within one year”, but I’ll summarise them here to give you a flavour.

Investment banking transactions take a variety of forms, and in this case it relates to a financial restructure at a large Indonesian corporation, which is being handled by Pilot Asia Capital. As part of the deal, Pilot Asia Capital has the option to acquire a large plot of land (19,683,860 square metres) in West Java (Indonesia), and is seeking to raise $10,000,000 to complete the purchase.

The land is valued at $18,000,000, and negotiations with two separate interested buyers have already started – and there’s a good profit to be made from completing the purchase and selling it on, even at a heavy discount to get a quick sale.

The great thing for potential investors is that in return for providing the bridging finance for this transaction, they’ll be rewarded with a fixed return of at least 15% (higher fixed returns are available to those who get in quickly and/or invest larger amounts – the highest return is 20%), plus they’ll have the full plot of land held as security on their behalf.

So basically investors in this transaction become short term mortgage lenders, secured on property with just a 55% loan-to-value ratio.

The minimum investment amount is just $10,000, and the offer will close on the 28th February 2013 – or before if the full amount is raised before then, which I think is quite likely in this instance.

If you happen to have a transferred UK pension (known as a QROPS or a QNUPS), you can take advantage of this offer using some of your pension fund as it’s been approved as a qualifying investment.

So what are you waiting for? Click the link on the left to read the full details, and of course get in touch if you have any further questions or would like to discuss it in more detail.

Finally, I wish you a happy, healthy, fun and wealthy 2013 J