The Coming Pension Crisis

Posted on 22nd October 2014 by admin in Blog |Finance in Focus

There are very few government exceptions within Western Society that are without serious trouble with their pensions. While politicians conveniently focus on tax compliance and cross border information exchange, and create yet more bureaucracy to shore up tax revenue, they have done an incredible job of distracting from their mismanagement of tax payers’ funds at best, and committing massive fraud at worst. They need to focus on Spending and come to terms with the fact the problem is politicians and government spending. Not a revenue problem like they are trying to tell us. Public unions are simply demanding that governments raise taxes and extort money from other sectors to hand to them.

Government pension funds are a joke. Even in Britain, pensions will run out of cash next year: Amount handed out to future generations will be disastrous. Those under 35 should not expect anything for their taxes.

The 25 largest U.S. public pensions face about $2 trillion in unfunded liabilities, showing that investment returns can’t keep up with ballooning obligations, according to Moody’s Investors Service.

The Times noted that one major pension plan, the Teamsters’ Central States plan, pays out $2.8 billion per year in retirement funds, but only takes in about $700 million from corporations. The plan’s director said he expects the plan to run out of money in 10 to 15 years.

Last year, the Pension Benefit Guaranty Corporation posted a record deficit of $35.7 billion. “Within the next 10 years, more and more plans are going to run out of money,” said Joshua Gotbaum, director of the Pension Benefit Guaranty Corp, in a November report.

On average, the top-20 pension funds in the world invested on average 40.6 percent of their assets in fixed income securities and 42.7 percent in equities.  The average return on Fixed income with the benchmark ten-year Treasury bond paying under 2.9%. The bull run that started in the 1980’s is over, bonds are the bubble and will become toxic.

In New York City, over the past 12 years our pension costs have gone from $1.5 billion to $8.2 billion. That’s almost a 500 percent increase — when inflation totaled only 35 percent. The $7 billion additional that taxpayers are forced to spend on pensions every year is $7 billion more that cannot be invested in our schools and our parks and our social safety net, or our mass transit system, or our climate resiliency work, or our affordable housing efforts, or our tax-relief for working families.

Think about it this way: During our administration’s time in office, we’ve spent $68 billion in taxpayer money on pensions, compared to $5.3 billion on affordable housing. So taxpayers spent about 13 dollars on pensions for every one dollar that they invest in affordable housing.

Pension consultant Girard Miller recently told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities.  When you break that down, it comes to $22,000 for every single working adult in California.

http://video.foxbusiness.com/v/2924368890001/ravitch-pension-crisis-crowding-out-public-services/#sp=show-clips

State pension liabilities

 

 

 

 

 

 

 

 

 

 

 

Despite the UK’s looming pensions crisis, over a third of Britons says they will never save or invest for their retirement.
So how is your planning going?   Do you have a private personal portable pension?

Talk to Banner and we can help you start or review and enhance what you have – get in touch today on the various options. info@bannerjapan.com  03 5724 5100

InterGlobal and Aetna Healthcare Insurance

Posted on 11th September 2014 by admin in Finance in Focus

UK based InterGlobal have over 65,000 medical members worldwide and specialize in international private medical insurance for groups and individuals in Europe, the Middle East, Africa and Asia-Pacific. They insure individuals and families, corporate and affinity groups, diplomatic staff, and teachers of international schools. The company has approx. 300 employees primarily based in its operation centers in the UK, Dubai and Singapore. They also have a support office in Japan, located in Osaka, with many years of experience in assisting Japan and overseas based members in Japanese and English.

In April this year, InterGlobal became part of Aetna. Please find a link to the press release of 23rd April 2014 here:

http://www.interglobalpmi.com/news/aetna-completes-acquisition-interglobal-group/

We believe this acquisition will combine two worlds, i.e. the strength of a US$30bn company with a variety of networks, especially in the US, with the highly personal and flexible approach of an innovative company that tailors its products and services to accommodate clients and their specific geographical and cultural needs wherever they may be.

There are 3 levels of cover for the Teachers School Plans, the Gold plan offering the highest & most comprehensive level of cover. For other professions there are 4 UltraCare plans, the Elite plan offering the highest & most comprehensive level of cover. 

It is noteworthy that all plans offer full cancer care, please find a leaflet for this benefit below. There are also add-on plans available for Maternity, Travel and Personal Accident, plus the exclusive service of red24, a leading specialist provider of international crisis management assistance services.

Group policies are tailor made, they take into consideration the group’s specific requirements. For group quotations InterGlobal require the full member census, including dates of birth, number of employees and dependents to be covered, the level of cover, including any additional requirements, e.g. MHD (Medical History Disregarded), Area of cover, increased dental benefit, optical, etc.

Please don’t hesitate to let us know if you need further details or have any questions, we will be happy to assist and look forward to hearing from you.

InFocus_Cancer care benefit explained 2014

2014 TOB_UltraCare_USD

2014 TOB_International Schools_USD

More details — http://www.bannerjapan.com/insurance/

 

Singapore and the DOW

Posted on 21st May 2014 by admin in Blog |Finance in Focus

Why I believe one should have exposure to these two.

The U.S. monthly international trade deficit decreased in March 2014 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit actually  decreased from $41.9 billion in February (revised) to $40.4 billion in March as exports increased more than imports. This recovery in the US economy is showing signs of shifting trends that are rather significant for the rest of the world. The goods deficit decreased $0.6 billion from February to $60.7 billion in March; the services surplus increased $0.9 billion from February to $20.4 billion in March. This is reflecting the capital shifts on a global basis as services are now rising.    Source; http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

This is the emerging real trend; however, capital is still confused. There is more than $25 trillion globally in bonds (short/long) and that is a huge reservoir of capital to shift. This idea that government debt is “quality” will give way to reality.  The Central banks of the world have tilted reality, for now… That means we will see tangible assets rise precisely as we see during a hyperinflation within a peripheral economy.

The daunting question is formulating when the cycle will fully flip from Public to Private.

We are entering this phase now slowly.

Just as I think the United States will become a magnet for frightened capital coming out of Europe, Japan and Russia.  In Asia the magnet will be Singapore.

Perhaps the strongest economy in Asia right now is Singapore. Year-over-year, its manufacturing sector grew by 8.0 percent, compared to the 7.0 percent expansion in Q4 last year. The construction sector grew by 6.5 percent on a year-on-year basis in the first quarter, an improvement from the 4.8 percent growth recorded in the previous quarter.

The Singapore government reiterated its forecast for the economy to expand 2 percent to 4 percent this year, and for non-oil domestic exports to increase between 1 percent and 3 percent.  The island’s manufacturing grew 11.9 percent in the first quarter from the previous three months, compared with an April estimate of a 4.5 percent expansion. Services rose 0.4 percent in the same period, while construction increased 0.6 percent.

While retails sales and the service sectors show some signs of slowing, Singapore’s economy is a bastion of stability and moderate growth, a stable and strong currency, and an economy that is not overly dependent upon foreign debt.  http://www.bloomberg.com/news/2014-05-20/singapore-gdp-grew-more-than-previously-estimated-last-quarter.html

This ETF offers you exposure to Singapore’s large and mid-sized companies and seeks to cover most of Singapore’s stock market, with holdings such as Singapore Telecommunications, DBS Group, CapitaLand, Jardine Group and more.

I suggest you have some exposure to Singapore and an easy way to do this is with iShares MSCI Singapore (EWS) (I would wait and hopefully buy in on a dip around $13.5)also the DOW using DIA SPDR Dow Jones Industrial Average ETF (I would wait and hopefully buy in on a dip around $155)

Interesting fact

Posted on 26th March 2014 by admin in Finance in Focus

Did you know the total US interest payments in Fiscal Year 2013 were a whopping $415 billion, roughly 17% of total tax revenue.  

Here’s the thing, though– it’s inappropriate to look at total tax revenue when we’re talking about making interest payments.

The IRS collected $2.49 trillion in taxes last year (net of refunds). But of this amount, $891 billion was from payroll tax.

According to FICA and the Social Security Act of 1935, however, this amount is tied directly to funding Social Security and Medicare. It is not to be used for interest payments.

Based on this data, the amount of tax revenue that the US government had available to pay for its operations was $1.599 trillion in FY2013.

This means they actually spent approximately 26% of their available tax revenue just to pay interest last year… a much higher number than 17%.

This is an unbelievable figure. The only thing more unbelievable is how masterfully they understate reality… and the level of deception they employ to conceal the truth.

One should always keep money outside their home country….. and in various currencies

Feb 2014: Finance in Focus

Posted on 7th February 2014 by admin in Finance in Focus

 

Well a lot has happened in the last month.  The Yen stopped depreciating and guess what the Nikkei lost about 2,000 points and it has seen Foreigners selling the most Japanese stocks last week since 2010 and before that since the credit crisis started to implode…

n 225 feb 2014

 

 

 

 

 

 

 

 

So what is next?  As said before whatever happens Japan is unlikely the place to be longer term due to the debt, demographic and political sinkhole that the “powers at be” have placed themselves into. Money invested outside Japan is likely to be more dependable than money invested inside Japan.

General corruption is causing places like Turkey, Thailand and the Ukraine to erupt into protests and riots. It will be interesting to see if these develop in to greater conflicts.  One question concerning the Ukraine is what will Russia do?  As they have been very quiet mainly due to the Sochi winter Olympics, I believe. Once this end (hopefully terror free) will President Putin is more perhaps much more forceful?  Bearing in mind about half of the Ukraine speaks Russian as the Eastern part of Ukraine was historically once Russia. We will have to wait and see what happens here.

Gold; stable but disappointing it has not been able to rise above $1,300 – my worry here is if we do not see a rise above it soon we may very well have to go back and test the lows once again …A month or two will give us the answer here. So far we have a double bottom at 1,140 and wait to see if that holds should gold dip lower.

The Dollar index has been flat but what this is really telling us is  base is being formed and the Dollar is about to show us strength.  The emerging markets are beginning to stress and this could cause more stress on the European banking system as they have over 3 Trillion loaned out to yes you guessed it, Emerging markets….if there is a European liquidity crunch like 2008 that will bring everything down (gold too) in the short term.  Just like in 2008-9 the dollar was the go to place.  One difference this time is the Yen is not so we should see much greater dollar strength going forward.

n dx feb 2014

 

 

 

 

 

 

 

 

 

 

Gold as stated earlier will find its bottom in 2014 and we believe it will rally to $3,000 or more in the next 5 years.

US markets — yes they too are falling but I believe they will stop, just have a look the S&P chart and note the channel it has popped out of unless the S&P falls below 1550 this is just a normal correction. We are watching for a sign to enter back into the Major US markets.

n sp feb 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banner Japan 03 5724 5100

2014 what’s ahead?

Posted on 8th January 2014 by admin in Blog |Finance in Focus

, , , , , , , , , , , ,

Our general view is Japan is likely to go higher as the currency weakens, however without any serious reform Japan will hit the wall and stagnate (unlikely the place to be longer term).  Europe will continue to experience deflation and more social unrest as the policies of government continue to drag the economy to its knees.  Emerging markets with will low debt will perform better than others. The US dollar is very oversold and is due for a rally (the world’s core economy has never seen hyperinflation in any period of history)  As interest rates rise this will bring on more fear of government and their ability to pay interest on Debt.  This is when you will see gold rally to new all time highs in the next 3~5 years.

I believe that gold will bottom in 2014. In a Fed tightening cycle, gold tends to go down. Financial players in this cycle have been impatient to kick gold down as hard as possible. They short gold producers first and then gold. The gold stocks are much bigger in value than gold market per se. Hence, the trading strategy of shorting gold stocks and then gold could be lucrative. As more and more people pursue the same trade, the gold is kicked down way beyond its fundamentals.

Gold demand is from emerging economies. The latter have been experiencing high inflation. The demand for gold has been strong despite the weak gold price in 2013. The current gold price is already below the production cost of some of the biggest mines in the world. I suspect that, in 2014, some mines may be shut. The reduction in supply will become a counterforce against the Fed’s tightening.

I want to repeat my long term bullish call on gold. Its price is likely to top US$ 3,000 in five years. The currency market instability and the likely global stagflation will strengthen gold demand for wealth preservation in emerging economies. As supply is unable to grow, the price has to rise to balance the market.

Overall there will be a move from Public to Private assets and this may very surprise everyone with the short term gains we will see in the USA markets, there will be corrections and one should buy when the markets have a downdraft, perhaps this first quarter.

 

A concise video on the gold price

Posted on 16th December 2013 by admin in Blog |Finance in Focus

http://youtu.be/CM9UUJojzN4

 

Once again we see the Yen bouncing around 100….

Posted on 6th September 2013 by admin in Finance in Focus |Uncategorized

There is still a lot of complacency worldwide. For example, car sales have been outstanding and our guess has been that a surge of better economic reports would be part of the final surge in the stock markets.

In early July, things started to deteriorate as regions from Turkey to Brazil to China and Indonesia were “getting hit by a brutal combination of events, as economies slow, investors pull out cash, commodity prices tumble and protesters take to the streets”. That’s how the Wall Street Journal wrote it up on July 2nd.

The news reminded of early July 1997 when the “Asian Crisis” roiled the Thai baht. It denied establishment boasts that the problem could be “isolated”. After traveling around Asia, eventually it fetched up in New York in that fateful September when the corporate bond market suffered its worst month in a decade.

This time around, the “Asian” problem started in early-July and on August 29th Bloomberg reported “Stocks in Southeast Asia are tumbling at the fastest pace in 12 years relative to global equities”.

A chart of the Indonesian Stock Market

 

This has been accompanied by continued weakness in Emerging Market bonds (EMB), which makes sense. US Munis (MUB) also continue to decline and the Spanish Ten-Year yield is turning up. At the close it was up to 4.62%. Rising above 4.48% is a breakout. Lower-grade corporates (HYG and JNK) became oversold a couple of weeks ago and have rallied to resistance.

In Japan, the government has indebted itself to the tune of 230% of GDP… a total exceeding ONE QUADRILLION yen.

That’s a “1 with 15 zer000000000000000‘s after it.  1,000,000,000,000,000

And according to the Japanese government’s own figures, they spent a mind-boggling 24.3% of their entire national tax revenue just to pay interest on the debt last year!

 

Remember this adds a minimum 25 trillion more debt each year just on interest!  Not to mention the other (again at minimum) 30 trillion in deficit spending to keep the wheels on Japan. The net minimum increase in annual debt is about 55 Trillion! At least!

Slowly, somewhere between this untenable fiscal position and the radiation leak at Fukushima, a few Japanese people realized that their confidence in the system was misguided.

We are helping an increasing number Japanese residents send some funds offshore.

Why? If the government defaults on its debts or ignites a currency crisis (both likely scenarios given the raw numbers), then those folks will at least preserve a portion of their savings intact. But if nothing happens and Japan limps along, they won’t be worse off for having some cash in a strong, stable, well-capitalized offshore banking jurisdiction. Where their funds are allocated and separated from bank assets, with no liens or encumbrances.

For Japan, the smart people who see the writing on the wall just want to be prepared with a sensible solution. They’re taking action before anything financially disastrous happens.

So what can you do?

  • Open accounts in various jurisdictions and currencies.
  • Invest in some physical assets outside your home country.
  • Make sure gold / silver funds are fully backed by allocated bullion with no liens or encumbrances.

Don’t be complacent, be prepared.

US Investing with the World’s Original Hedge Fund

Posted on 31st July 2013 by admin in Blog |Finance in Focus

As an investor, do you worry about the QE-laced stock rally continuing, given the threat of QE withdrawal? And as an expatriate American investor, with restrictions on investing at home, are you wary of investing offshore, particularly with the real prospect of FATCA implementation?

A.W. Jones is a fund that addresses both dilemmas. It’s an onshore US fund with onshore US tax reporting that will accept US nationals who are resident abroad. And it’s equity long/short: positioned to benefit from up moves in the markets but with downside protection of, on average, 50 percent through shorts. The fund has returned close on 2,000 percent since its inception as a fund of funds in June 1984.

Additionally, there’s a non-US version for non-Americans.

The firm was founded by Alfred Winslow Jones in 1949 and is generally regarded as the world’s first hedge fund. It gradually evolved into one of the first fund of funds, which is its structure today. A.W. Jones has remained family controlled since inception (Portfolio Manager Robert L Burch, IV is Alfred Jones’ grandson) and has operated under the same proven long/short equity investment philosophy throughout its history.

Now in its seventh decade, the firm remains focused on achieving superior returns for its investors with the lower market risk inherent in the Jones-model strategy of hedged equity investments.

The fund is currently invested in 20 managers and has more than $330 million under management. It often invests early in new emerging managers and grows with them over time, so that at any point in time the portfolio consists of a mix of smaller, emerging managers and larger, more established ones.

The fund has allocations to Lone Pine, Viking, Pershing Square, Tiger Global, Bridger Capital (Swiftcurrent Fund), Greenlight, Samlyn, Wellington (Bay Pond) and others. With the likes of Lone Pine, Tiger Global, Pershing Square and Samlyn, A.W. Jones was a day-one investor. As a day-one or early investor, the fund often enjoys beneficial fee terms and continued access, even where the funds are closed to new investors.

Here’s a comparison with the S&P 500 index since June 1984, the fund’s inception in its current fund-of-funds structure:

SPX

A.W. Jones

Total performance 1985–2012

652.78%

1,962.72%

Bull performance  1987–1999

406.70%

503.37%

Bear performance 2000–2012

-3.06%

84.77%

 

(Reasons for the choice of bull years: the last bull market started in 1982, agreed, but the number of completed bear years from 2000 on are 13 in total, so for a fair comparison, the last 13 years of the prior bull market have been chosen.)

 

What emerges from these statistics is that the downside protection does not hamper the fund’s capacity to make money. Not only has the fund trounced the indices outright, while offering downside protection and lower volatility, it has also outperformed by far in a decade and counting that has been essentially sideways.

 

Looking at the bad years—those years that can wreck an investor’s portfolio, as well as their nerve—we can see the diminution of risk:

SPX

A.W. Jones

1987

2.03%

5.64%

2002

-23.49%

-4.66%

2008

-38.47%

-22.45%

 

The years 2002 and 2008 were not pleasant, but the damage was greatly ameliorated by the fund. As you can see from the chart, 2008 was not good, but it was considerably better in comparison. The 84.77 percent return between 2000 and 2012 shows a sheer outperformance of flat-lining indices.

An 11.2% compound annual return since inception as a fund of funds puts A.W. Jones among the top performing global long/short equity funds of funds. With its proven defensive capability, it limits your risk, without limiting your returns. And as it’s an onshore US entity, you won’t be stumped on how to file when tax season comes along.

For the non-US clone, of course, non-US investors are not required to file a US tax return on the investment.

 

Summer thoughts on the markets and gold

Posted on 24th July 2013 by admin in Blog |Finance in Focus

We see two possible economic scenarios that could unfold going forward.

Goldilocks Scenario 1: Good economic news continues to come in, the stock markets’ recent rally continues. Talk of a double-dip recession recedes, the U.S. economy begins to recover further. Even Europe starts to look better. Abenomics works and Japan starts to grow.

All looks great. The Federal Reserve’s efforts to save the U.S. economy and financial system succeed.

So what happens next under this, albeit the least likely, scenario? The banks start lending more money … credit flows through the pipelines … and the trillions of paper dollars the Federal Reserve has created begin to work their way through the system.  Normal credit creation fully resumes. So all the money created starts to be lent out and inflation begins to take hold in the USA and the rest of the world . . . Obviously, gold would soon bottom and start moving up again as it would be inflation and interest rate driven.  (Remember gold rose in the 70’s with rising rates)

Now consider …

Scenario 2 (most likely): More bad economic news starts to come in … the U.S. economy goes from OK to so-so and it becomes painfully clear that governments’ and central banks’ rescue efforts have yet to work.

In Europe and Japan economies slump further, and sovereign-debt defaults proceed across the globe.  The interesting thing here is money will very likely flow into the USA markets as fear comes across Europe and Japan.  Giving the illusion that the US is actually doing well — as it must be right, the US markets are going higher! You will see the US$ and gold rise at the same time. The US market will rise higher than many predict as it will be the last game in town.

The Fed and other central banks pump trillions more dollars into their economies. But to no avail, because it also becomes painfully clear to almost everyone that countries are BANKRUPT. And so are their central banks.

What happens under this scenario? All currencies dramatically lose purchasing power and the entire world plunges into a “greater” depression. The world’s monetary system is under huge pressure but, the sun still rises and life carries on.

Physical gold and gold shares will protect those who have them.

FYI another 3+ tonnes was removed Friday (19thJuly) from the Comex “eligible” bin. This time for HSBC’s eligible inventory. Total gold on the Comex is now down to 6.8 million ounces. Note that this is “reported” gold stocks, for which the CME now uses a disclaimer in reporting the numbers. The total amount of gold futures open interest is now 47 times more than the registered gold (available for delivery gold) on the Comex. Those who are savvy are buying a lot of gold and taking possession. You have to buy physical gold and  gold shares  and take possession of it or else you don’t own gold.The Bottom Line

The reason we have seen such a big sell off in gold:

  • that inflation expectations are currently in check due to China’s slowdown
  • at the same time the US’s industrial production is trending lower
  • Governments worldwide still have a massive debt overhang
  • deflationary forces are still acting on us

 

Medium to Long-term, with all the central banks printing full steam, gold will move higher. It is just a matter of time. So short term gold may still move lower, but in the medium to long-term we think you will see gold go a lot higher.  The real bull market in gold will only begin once we have passed the 1980 inflation adjusted high: our guess is this will start to happen in 2015~ 2018.

In either scenario gold will bottom soon (if not already) and head higher, for the simple reason that gold is insurance against a global economy that really has only two future scenarios right now, as laid out above.

Our advice would be to hold and continue buying gold and gold miners, as gold starts a path higher toward a minimum target of $2,300 an ounce, the inflation-adjusted high that would be equivalent to what $850 gold was in February 1980.

Investors all over the world are soon going to start loving gold, all over again. There will be shocks along the way:  we may not have seen the low in this cycle yet but, the downside is now at worst around $1,000 for gold while the upside is beyond $3,000.

Call us to discuss the differences in Gold ETFs and various mining shares and funds.