Having been a longtime listener of Tom Woods’ superb podcast, The Tom Woods Show, I was delighted when he asked me to be a guest.
We had an in-depth discussion on international diversification and why it isn’t just for investments or for the rich, including:
- What happened to the world-famous Swiss banks?
- How can someone go about pursuing these strategies?
- What’s the tax secret about living in Puerto Rico?
- Should you have a second passport, a foreign bank account, etc.?
- What is a corporate inversion, and why is the left up in arms about it?
I think you’ll find our conversation below informative and entertaining.
Until next time,
Tom Woods: There are a lot of topics that come to mind when a guy like you is here. There are people whom I sometimes hear about who want to leave the United States and go somewhere else, and people want to know: where is the best place to go?
But a better question is not where should I go, but staying here in the US, where should my investments go? Where should my assets go? Where should my income streams come from? Where should I look for opportunities? Those are the questions that I want to talk to you about.
What would be the reason that the average person, though, should care about this? Why isn’t this an issue that only a multimillionaire should be concerned with?
Nick Giambruno: You hit the nail right on the head in that you don’t necessarily need to leave your home country to achieve diversification. You can do a lot of things from your living room, in fact. But the reason why the average person—and not just Americans: anybody in the world—would want to be internationally diversified is that it frees you from the total control and total dependency on any particular government or nation-state. And in that sense, it’s two things. First, it’s an insurance policy against an out-of-control government; and second, it opens up a whole new world of investment opportunities, opportunities to work, and opportunities to live. So it’s both a defensive and offensive strategy at the same time.
Tom: It seems that this would require a lot of knowledge on the part of the individual. Any investment requires some knowledge; you can’t just outsource this to people. You really have to do your due diligence. But I would think even more so when you’re talking about getting involved in other countries. It seems like an overwhelming learning curve. How do you get started?
Nick: Well, to get started, you have to separate the different components of your life and understand that it’s possible to take these different components and put them in jurisdictions that are optimal.
One of the biggest components you have is your savings, your assets. There are ways that you can open a bank account in a different country without having to leave your living room, and there are certain jurisdictions where the banking systems and the banks are generally much, much sounder and much more conservatively run. They don’t gamble with their customers’ deposits on mortgage-backed securities, and they aren’t leveraged to the hilt. Hong Kong and Singapore, for example, come to mind as some of the best offshore banking jurisdictions. Switzerland is of course a good one too, but it’s largely off limits to Americans who have fewer assets to invest.
Your citizenship is another component. Your income stream and your business are others. Your digital presence—your email, your business website server, and so forth—is another component. There are a number of countries that have real privacy laws and are not very litigious societies. Switzerland, Iceland, and Norway, for example, are excellent locations to put the different pieces of your digital presence. And if you use these things in conjunction with encryption, you can really achieve the most privacy that is possible in this day and age.
By taking these different components and putting them in jurisdictions where it makes the most sense to put them in, you can really reduce your political risk, which is to say the risk that comes from whatever crazy things the bureaucrats in your home country do.
Tom: What about this whole issue of tax havens? Wasn’t there something recently about the Swiss banks? Everybody knows the Swiss bank is where you go to put stuff, and then recently didn’t Switzerland cave in some way on all that in terms of what other governments could demand of it?
Nick: It’s kind of a sad story in a sense that Switzerland had its back broken in terms of its banking privacy, which, you know, shouldn’t be a bad thing. It’s only the big-government advocates that really look at financial privacy as a bad thing. The Swiss view financial privacy as a fundamental human right to preserve dignity, akin to medical privacy. How would you feel if the government snooped into your medical records and automatically shared those records with foreign governments? Like many other things, I agree with the Swiss on this one.
Just because financial privacy is dead, that doesn’t mean there aren’t sound reasons to put your savings in foreign banks. For example, you can take your savings and put it into a—like I mentioned before, in Singapore and Hong Kong where their banking systems are much more sound, more conservatively run, and you also take your savings, and you put it out of the direct reach of your home government. That’s a very important thing to do because it puts a significant hurdle in the way of accessing those funds.
In Cyprus, they had their bail-in where people woke up to a surprise on an ordinary Saturday morning to find it was essentially a banking holiday, and they were going to have a bail-in, which is a euphemism for a deposit tax. Many Cypriots were pretty much screwed. Doug Casey and I actually went to Cyprus after their financial crisis, and we met with a bunch of savvy Cypriots who saw what direction their country was going in and decided maybe Cyprus isn’t the best place to keep their money, so they had moved their savings abroad and were thus spared the effects of the bail-in and the capital controls that followed. So those reasons are some, but certainly not all, why you’d want to consider banking outside of your home country, despite the fact that there’s no financial privacy.
Tom: Now, banking is one thing; investing is another. When I had Doug Casey on this show I guess about a year ago now, he was saying that if you want real opportunities for substantial returns, then you don’t look to the United States in terms of where you want to put your money. He’s saying that in some of these developing countries, there are huge profit opportunities, but yet you’d have to be a Doug Casey—a world traveler—to be able to be on top of that. It seems so remote from the typical investor; but on the other hand, maybe that’s why the typical investor is lucky just to keep his head above water and Doug Casey is Doug Casey.
Nick: Yeah, well, there’s certainly an element of truth to that, and one of the things that Doug and I do is we go around the world looking for opportunities just as you described. We look at countries where there’s blood in the streets and that nobody else wants to invest because that is really the optimal time to buy—the point of maximum pessimism. So we look at countries all around the world and look for crisis-driven bargains for our Crisis Speculator publication. We’ve looked at Russia lately. We’ve been looking at Iran. Iran actually has a very interesting stock market, a dynamic stock market. Of course, it’s off limits to American investors right now because of sanctions, but should there be some of sort of agreement in the future, that would open it up, it would be a very interesting investment opportunity. So we look at markets that really no other investor wants to look at, and that’s where you can sometimes find huge potential for returns.
Tom: Now, you, as we said from the beginning, aren’t primarily talking about expatriation, although there are people who do that, but you are talking about diversification. At the same time, would that involve getting citizenship in another country, or do you want to go short of having citizenship in another country?
Nick: No, certainly it involves that. You definitely want to have as many passports as you can get your hands on; however, it’s not easy to get a citizenship or second passport in another country. The reason you want to do that is because significantly dilutes the power your home government wields over you; it gives you options.
Tom: I think the general consensus—if there is one in the US about people who follow the kinds of strategies that you’re recommending—is that, well, this is pleasantly eccentric but basically harmless. But if a business firm tries to do it, if a business firm tries to limit the taxation it’s exposed to by trying to diversify itself internationally, well, then we never hear the end of how terrible that is.
Tell us about what a corporate inversion is and what all the griping is about it.
Nick: The whole situation is simply ridiculous. If you look past the demagoguery, it’s quite clear all of this noise is just propaganda coming from proponents of big government. The US has one of the most uncompetitive tax systems—on a personal and corporate level—in the entire world. Specifically for corporations there are two unique burdens to being American: 1) The US has the highest corporate tax rate in the developed world; and 2) they also tax the foreign earnings of subsidiaries when it’s repatriated to the US. No other country really does this.
This is driving US companies to find ways to diversify and become more globally competitive. So what they’ll do is they’ll typically merge with the foreign company, and they will become re-domiciled in that foreign country, and what’s going to happen is that they’re still going to get taxed on all of the activities they have in the United States. That’s not going to change, but they aren’t going to get that double-taxation burden that’s exclusive to the United States for their foreign subsidiaries.
Tom: Well, Nick, it’s been fun talking to you. Given the way the world is, it seems like there would always be something to talk to you about. So I hope you will consent to be in my regular roster. We’ll come back to you from time to time, and thanks for being here today.
Nick: I’d be happy to, Tom. Thanks for having me on your show.