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Our December 31, 2011 Newsletter
Edition
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ASCOT ADVISORY SERVICES ARTICLE:
TRADING PLACES RE-LOADED 2012
By John Schroder – December 31, 2011
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A few years back we wrote an article titled TRADING PLACES, whereby we
discussed the idea of people who were living in the so-called wealthy,
modern industrialized nations high-tailing it out of there for
relocation to many of the (what was previously considered) developing
or emerging market countries. At the time we wrote the article,
the trend was already under way for people close to retirement age
looking for a more affordable (and less taxing) lifestyle
elsewhere. However, we have already noticed a dramatic change
withing with the last 5 years or so (of the 15 years we have been
assisting clients) regarding the demographics of exactly whom it now
leaving.
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To explain more clearly, while we used to see a large number of people
close to retirement age 15 years ago, the recent trend has been younger
professionals or business owners between the ages of 25 and 45.
Of course a good portion of those people clearly foresaw the coming
economic problems (and resulting social problems as well) and were
pro-actively trying to prepare themselves for other options. Now that
those problems have manifested, what you are seeing today in 2011 (and
going into 2012) are those younger people desperately trying to escape
high unemployment, bankrupt social welfare state governments and of
course bleak opportunities overall (higher taxation, lower social
welfare benefits, etc.). Unfortunately, the current crop of these
fairly young economic refugees from North America and Western Europe
really are not prepared financially and instead are simply trying to
find employment for themselves (whereas previously it was the
baby-boomers looking for retirement destinations).
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This issue of course has a double edged sword kind of twist to it, in
terms of the new countries where they are headed. Meaning, on the
one hand it can be argued that the new host country might be gaining
new well educated young people that they probably would not have
attracted otherwise. On the same token, such young people are
literally arriving with the clothes on their back (and university
degree in hand) and not much else (no money, no assets). So, the
issue for the new recipient host country is going to be a choice
between restricting such foreign job competition in the local market
versus perhaps allowing such people to fill a void (if there is any) in
terms of skills or education. And just as some additional
interesting demographic information, most of these young unemployed
refugees are coming from Spain and Portugal, with the Spanish heading
for any Latin American country they can get into and of course the
Portuguese heading for Brazil and former Portuguese colonies in
Africa. Trading Places indeed – young university educated people
heading for the Third World to find
work.
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However, as we hinted at previously, because of this new migration
wave, you are also starting to see a backlash both from the countries
losing these people and from those countries where they are trying to
relocate to as well. With regards to the countries they are
escaping from, while such governments might see a benefit from highly
educated but unemployed young people off the unemployment rolls (and
off the unemployment social welfare insurance), the result is both a
brain drain AND a reduction of people available to continue payment
into the government pension scheme programs that need an ever
increasing crop of new workers paying into the system to keep it going
(otherwise know as a Ponzi Scheme). And if those young educated
new workers are leaving, the game is up - as there remains no one left
to collect taxes from to support everyone else on welfare or the
government pension. Plus of course those older more solvent
people who are leaving as well are certainly taking their money the
heck out of the former country also, draining savings and investment
capital in the process. So again, a double sided dynamic at work in
terms of the movement of both people and capital. For this very
reason, do not be surprised to see currency controls or some form of
restriction to pull your wealth out. Which is to say, while they
might not care to see you go, they may certainly try and stop you from
taking your money with you (assuming you have any).
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On the other front, or better stated with regards to the small emerging
markets receiving these younger people coming in from abroad, we are
already seeing new restrictions and more burdensome requirements for
immigration. This was to be expected. While such developing
or emerging markets want to see new investment come into the country
(and or solvent retirees as well), they do NOT want foreigners coming
in to take away jobs from locals. And as a result, we are seeing new
rules, requirements and additional bureaucracy in such recipient
destinations as a check against this trend. In other words, with
respect to immigration trends, truly the previously so-called wealthy
developed nations of Western Europe and North America are indeed
TRADING PLACES with the developing or emerging market countries.
And while the former (countries such as the US, Canada and the EU
member nations) foolishly let everyone and anyone come on in to jump
onto the social welfare rolls, the up and coming developing market
countries are attempting to now restrict the broke and unemployed from
entering (and they are doing so via stricter solvency and other kinds
of requirements). We touched upon this in a previous article
titled Revenge of the Third World (which is not so Third World anymore)
whereby we asked if these new up and coming countries will be foolish
enough to repeat the policies of the former wealthy industrialized
nations. From what we have seen so far, with one or two
exceptions (Argentina comes to mind), the answer would appear to be NO
– they are not repeating the idiotic policies of the former.
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On the economic side of things, some clients have noted that we have
not made any additional comments regarding the current global
recession, depression or whatever you want to call it. However,
after talking about a coming economic storm for some time, it seems to
be a mute point to highlight the obvious – that the storm is already in
progress. Of course it is probably more accurate to say the game
has more room to run in terms of extra innings, so to speak.
Since NOTHING has been fixed or solved, the only thing the national
governments and central banks of the US and the EU are doing is
printing paper. Running of the monetary presses, in other words,
which only delays the inevitable and does not address the true problem
of too much debt and deflating economic activity. As a side note,
if you want to look at the poster child of what should be done, Iceland
is a good example: Bite the bullet, let the banks (and speculators)
fail, suffer some temporary pain and build from a new and better
foundation thereafter.
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In terms of things to come for 2012, there is no shortage of different
opinions by economists and financial writers. Some claim 2012 it
will be the year the Euro breaks up, and when we will see some severe
currency devaluations and even more failed bond auctions. While
it can be difficult to pick an exact date, we can certainly suggest
that currency devaluations of those countries with debt to GDP ratios
close or, or in excess of, 100 percent are in the cards. The
historical narrative of nations in this predicament has almost always
been to try and inflate their way out of trouble. However, while
inflating the money supply (devaluation) has always been a boon for
those in debt (with the idea of paying off debt with cheap funny
money), it certainly destroys the savings and capital of those who were
more prudent. In other words, such policy rewards the spend
thrifts and hurts the savers. Of course the problem there is, we
must specify it helps those who get their hands on the funny money
first, which is the government and banks. The average Joe deep in debt,
will not see his salary double overnight, thus allowing him to pay off
all his debts with new found monopoly money (only the government and
banks get to do that).
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On the this theme of debtors versus savers, it is interesting to note
on a global scale and in terms of governments, whom fits into which
category. Meaning, while many of the Western European
nations, Japan and the US squarely sit in the excess debt corner, other
countries with positive balances of trade do not. And so, we may
see some pushing back by China, Brazil, India, and those countries
selling oil or other commodities for export. Why should they
agree to a mutual devaluation, or at least on the terms of the broke
and indebted? Why should their own countries and their own
citizens have to suffer higher prices due to inflation? Indeed
the US has been acting unilaterally already in terms of printing money
like a madman, albeit punishing the rest of the world with higher
commodity prices as a result (other factors come into play, but a
devaluation of the one currency used for trade and pricing of
world-wide commodities has taken it's toll). We are reminded of
the words uttered by former US President Nixon's US Treasury Secretary:
The US Dollar may be our currency, but it is YOUR problem.
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And this brings us back around to immigration trends once again.
Who is going where and why? Is it true that countries such as the
Dominican Republic, Brazil, Chile, Malaysia, Singapore, etcetera,
etcetera will be better bets as a place to live or invest over the next
15 or 20 years? Will there be more economic stability and civil
freedom in some countries versus others? Are these other growing
or developing nations really willing to let a devalued US Dollar or
Euro become their problem? And what is going to happen in these
insolvent nations socially when the gig is finally up? Are we
going to eventually see marshal law and other tactics to subdue the
masses?
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Certainly many of our clients have some of these questions in mind, and
many more as well. For example, many people are concerned about
the possible forced confiscation of private retirement accounts by
government and such and idea is not far fetched. It has already
been discussed behind closed doors in the US, and it already has been
done in Argentina and Hungary. So, what do you do when the
government decides to take your savings from you (and give you supposed
annuity guarantees or nice looking bond documents in return)? Do
you file a complaint with the better business bureau? What do you
do?
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In many of these countries with economic problems (Spain, Greece, the
United States) we have already seen protest movements albeit they
seemed to be more, shall we say, spirited in Europe (rock throwing and
so on) than what we have seen on the North American continent, but to
what end? Are these movements a true solution or simply a way for
some people to vet what frustrations they may have, without providing
any real change? Indeed the current US President was asked about
his campaign slogan: Change You Can Believe In. His reply was: I
Am the Change. So there you go.
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In any event, we certainly live in a period of unresolved economic
issues, which of course always end up manifesting in eventual social
problems as a result. The good news is that even though we do live in a
more interconnected world, it is also true that not all countries are
going to, or need to, go along with everything lock, stock and
barrel. To be sure, those that argue the world is a different
place than it was 50 years ago fail to highlight ALL of the ways the
world is different. Yes, economic problems in the US or Europe
will result in fallout for Asia, Africa and Latin America – but to what
extent? Will the degree of heat be the same in say Santo Domingo
as it is in San Diego, metaphorically speaking? Will the possible
draconian measures enacted in Boston also be applied in Buenos
Aires? Will there be civil unrest in Montevideo as it is in
Madrid? To offer the comment that the whole world is going to heck in a
hand basket simply because that is the case in one or even a few other
places over simplifies things, and ignores the differences (no real
estate problems or insolvent banks) as much as the point is attempted
to be made for similarities or interconnectivity. The point to be
made is, it is a diverse world out there and with regards to your own
economic survival, having your eggs (and yourself) located in more than
one basket may offer more security than you realize.
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To read some very recent news articles regarding these themes or topic,
please feel free to follow the links below:
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ECONOMIC STANDSTILL
SETS ITALIANS ON THE MOVE
By John Hooper – December 21, 2011
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http://www.guardian.co.uk/
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FLEEING GREEKS BANK
ON NEW AUSTRALIAN GOLD RUSH
By Helena Smith – December 21, 2011
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http://www.guardian.co.uk/
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EUROPEANS MIGRATE
SOUTH AS CONTINENT DRIFTS DEEPER INTO CRISIS
By Helen Pidd – December 21, 2011
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http://www.guardian.co.uk/
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YOUNG EUROPEANS
FLOCK TO ARGENTINA FOR JOB OPPORTUNITIES: Thousands have
left Europe this year in search of employment and a more relaxed
lifestyle in Buenos Aires.
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http://www.guardian.co.uk/world/2011/dec/22/young-europeans-emigrate-argentina-jobs
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ARGENTINA OPENS
DOORS TO MIGRANTS, BUT SETTLING ELSEWHERE IS HARDER: As growing
numbers of Europeans leave the continent and its economic woes, how
easy is it to go and live in a new country?
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http://www.guardian.co.uk/world/2011/dec/22/argentina-open-doors-migrants-settle?intcmp=239
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PORTUGALS'S MIGRANTS
HOPE FOR NEW LIFE IN OLD AFRICAN COLONY: Increasing
numbers of Europeans are going to Mozambique in search of work, but
many have unrealistic expectations
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http://www.guardian.co.uk/world/2011/dec/22/mozambique-portuguese-migrants
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PORTUGUESE MIGRANTS
SEEK A SLICE OF BRAZIL'S ECONOMIC BOOM: A strong currency
and good job prospects are drawing in the country's former colonizers
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http://www.guardian.co.uk/world/2011/dec/22/portuguese-migrants-brazil-economic-boom
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