Having held the Series 3 license, my expertise is in helping companies and individual clients develop strategies to hedge against economic uncertainty. I’ve done original work explaining how inflation drives up prices while driving down rates of return (in both nominal and real terms), how inflation undermines earnings and engenders capital outflow, as capital naturally gravitates to cheaper, higher-yield economies through arbitrage. This means the earnings – and consequently the returns – are overseas. I present just two charts to illustrate why it makes no economic sense to invest one dime in U.S. real estate: http://www.imf.org/external/research/housing/images/pricetorent_lg.jpg and http://www.imf.org/external/research/housing/images/pricetoincome_lg.jpg
I start with the axiom that there’s a difference between trading and investing. A trader buys and sells assets based on nominal price movements (e.g. housing or equity prices). An investor buys and holds an asset for the returns the asset generates (e.g. rents or earnings–>dividends). My strategy is to generate income (i.e. invest), not speculate on asset prices (i.e. trade). Albeit, having held the Series 3 license, I’m able to assist clients with hedging through the futures market, especially by means of using options as “insurance policies”.
The biggest risk comes from currency depreciation pursuant to FOMC policy. Miniscule rate hikes in juxtaposition with loose monetary policy doesn’t prompt bullishness on the dollar. At 0% nominal rates, the Fed had but one tool to manipulate real rates downwards in favor of the biggest sub-prime borrower of all, i.e. the government in Washington: balloon its balance sheet.
The miniscule rate hikes are most likely calculated to give the Fed room to lower rates the moment the market correction begins. This is why no matter how bearish I am on the U.S. economy, I do not advocate shorting the U.S. market. While capital gains are preferable to capital losses, it’s paramount to not conflate rising prices with rising earnings and rising rates of return (i.e. economic growth). This is why I do not advocate long or short positions in the U.S. market. (Update: I wrote this in 2018. I was predicting what has since came to pass, while pundits and “experts” were dismissing this possibility. It required only only my common sense to understand that policy makers who refuse to relinquish power will not permit the prevailing rate of just, say, 1997 with a $22 trillion national debt. Do the math.)
The Fed either stays loose, which will drive up prices and drive down rates of return, creating insolvency in real terms by bankrupting the currency, or the Fed does the right thing by tightening, which will expose insolvency in nominal terms and expose a regime of synthetic prices. The market will not move sideways in perpetuity. This is why there is no right way to invest in the U.S. economy. Is it possible to be on the winning end of a trade and/or investment? Sure. You could be part of the 5% that enjoys long term success. If your risk tolerance level is high, then perhaps you can forget everything I write.
Loose monetary policy has made almost the entire U.S. economy a negative real rate of return economy. Pursuant to the CPI’s method, inflation is grossly underestimated. Inflation engenders pseudo rates of return and causes firms to overestimate profits, precipitating malinvestment. The problem we face is political, as neither major party seeks to relinquish power. Monetary policy has been subjugated to political pressure. The future of the U.S. market is rising prices in juxtaposition with diminishing returns. Circumstances could quickly change, prompting voters to replace inflate and spend Republicans with inflate, spend, and tax Democrats, precipitating currency depreciation in juxtaposition with crippling nominal tax rates. For the aforementioned reasons, the only safe investments are offshore investments. Divestment from – not diversification within – the U.S. is the only safe strategy.
The only safe store of value are precious metals (i.e. gold and silver bullion). Precious metals are valuable and durable (i.e. they don’t spoil). I’m a strong believer in the acquisition of precious metals as a hedge against currency depreciation, but at the same time I do not conflate owning precious metals with investing, as I have seen many proponents of precious metals do. Do precious metals generate a return? No. Therefore, precious metals should only be a portion of any portfolio. I believe every portfolio should have exposure to precious metals, foreign equities, and foreign real estate.
While I’m a U.S. citizen, I also possess a second legal residency in the Dominican Republic, which will eventually become dual citizenship. This means I can legally work overseas, and I can assist clients in establishing offshore portfolios consisting of hard assets. That said, I believe in allocating assets pursuant to a global strategy which may or may not be in the Dominican Republic.
I believe in taking a holistic approach to valuing assets to discover worldwide arbitrage opportunities. I believe arbitrage encompasses much more economic activity than many traders even realize. It’s about more than exploiting exchange rate differences. If one market is comparatively cheaper, and delivers higher rates of return, in the abstract, it would make sense to buy in the cheaper market rather than the more expensive market.
I’ve been predicting for quite some time that, unless fundamental changes are made to the economic system, the future will bring makeshift efforts to mitigate capital outflow through tighter and tighter capital controls. The electorate lacks sufficient understanding of the underlying problem, instead clamoring for an economic “iron curtain” under the guise of patriotism. Trade controls are objectively capital controls. This is why it’s paramount to allocate assets pursuant to a global strategy sooner rather than later.
It’s my understanding of how capital flows and the failing political system in the U.S. that precipitated my decision to pursue a second legal residency outside of the U.S. I pursued legal residency outside of the U.S. precisely to protect my future by giving me options and to assist others in hedging through international asset acquisition.
If you are looking for somebody to help your company and its clients maximize returns while minimizing risk with a global investment strategy, then look no further. Presently, I hold a real estate license as well as an insurance license that contains all major lines of authority: property, casualty, life, and health.