A bubble is primarily a matter of attitude…
You remember in the late 1990s when the Nasdaq soared
because enough people thought the Internet was a game
changer? They believed stocks could no longer be judged by
“old-fashioned” Graham and Dodd analysis. They thought
something new and important was happening. There was a
train leaving the station. And they wanted to be on it.
Then, from about 2003 to 2007, the same people
thought houses would make them rich. The houses were in
the same places they had been before; they were not more
intrinsically profitable. But people came to believe they could
be turned into money machines. They thought house prices
could rise faster than the incomes of the people who lived in
them – indefinitely!
We seem to be in one of those bubble periods again.
Now people think central bank policies have changed the
game completely. And they are once again betting big on
what they think is the latest game changer.
Now enough people believe central banks can successfully set prices and help the economy toward a recovery. As to the first part of that, there is some reason to think they may be right. About the best correlation you can find is between Fed policy and the S&P 500. As David Rosenberg at Gluskin Sheff points out, there is an 87%
correlation between Fed balance sheet expansion and the rise
of the S&P 500.
As to whether central banks can help the economy
recover, there is scant evidence. But people believe what
they want to believe. And right now, they believe the Fed
has avoided another Great Depression. And that it is now
skillfully setting a course for recovery.
No matter that Ben Bernanke completely misunderstood
what was happening in 2007-08. (Bernanke is on record
as saying the housing crisis would be “contained.”) And no
matter that the Fed’s last attempt to inflate asset prices – this
time, houses – to fix the economy went off the rails in a
major way.
Despite these past lapses, we’re supposed to believe that
today the Fed knows precisely what interest rate borrowers
and lenders need… and precisely how much the price of a
gallon of milk or a new car should go up each year!
We have stayed away from the rally in US stocks
because, no matter how hard we try, we just can’t take the
Fed seriously. What it is doing is blowing bubbles. And we’re
aware of what happens to bubbles in the end. They pop.
There are no counterexamples in history.
Inside the Fed’s Doomsday Machine
Family Office Strategic ReviewJuly 2013 | Volume 3 www.bonnerfamilyoffice.com
Chairman’s Letter
In thIs Issue
Chairman’s Letter...........................1The Partner Report........................5Legal Matters..............................10Guest Essay.................................13Family Matters Plus....................15
Family Wealth Portfolio Review...17 Club Room News..........................19 Members-Only Events..................20 Meet the Team.............................21
BIll Bonner, ChaIrman
Chairman’s Letter | Inside the Fed’s Doomsday Machine
2 www.bonnerfamilyoffice.com
A More Muscular Fed
The longer QE and ZIRP go on without a blowup, the
more people come to believe these policies are sustainable.
People begin to think it really is a New Era. And they invent
theories to explain it.
We’re even seeing arguments in favor of a more direct,
more muscular Fed. This idea’s intellectual leader is the chief
economics commentator at the Financial Times, Martin
Wolf. He thinks the Fed’s approach has been too timid.
Too indirect. He’d like to see what he refers to as outright
monetary financing (OMF) – as close as you can get to
dropping money from helicopters.
Asks Wolf, “Why not employ monetary financing to
recapitalize commercial banks, build infrastructure or cut
taxes? The case for letting fiscal deficits facilitate private
deleveraging, without undue expansion in overt public debt,
is surely also strong.”
I suspect this is the direction the Fed will go. Outright
monetary financing will come about because the current
round of monetary financing the Fed is employing isn’t
working.
And because that’s what happens in a real Downside
Disaster. The central planners go all the way.
Get Ready for the Downside
A Downside Disaster is the subject of my new book.
(Working title: Too Much of a Good Thing.) It lays out the
case for what causes the rare, but dramatic, phenomena in
public affairs in which things get really out of hand.
These disasters are more like natural phenomena than
normal human mistakes. They cannot be prevented by clever
people with good intentions. In fact, they are the hell in
which clever people end up, after following the road paved
with good intentions.
These phenomena have four essential conditions:
1. Theymustbegroundedinabadidea.
2. Theideamustbedevelopedandimplementedby
large-scalecentralplanning.
3. Thefeedbackloop,whichnormallycorrectsthese
mistakesbeforetheydotoomuchdamage,istwisted
orbroken.
4. Thepoliciescreategrowingranksofsupporters,
makingitalmostimpossibletostopthem.
I will give you an example. Have you heard of Korekiyo
Takahashi?
No, right?
History has forgotten the man. But he played a pivotal
role in one of the 20th century’s biggest Downside Disasters.
In the late 19th century, during the Meiji Restoration, Japan’s
ruling class came to believe the island nation couldn’t rely on
civilized trade for its rice and rickshaws.
Imperial Japan, they reasoned, needed to secure lines
of supply through a program known as a “Co-Prosperity
Sphere.” Instead of honest trade, they would take what they
needed by armed force.
Gradually, more and more of Japan’s GDP was put to this
use, involving centrally planned price controls applied to all
levels of the Japanese economy.
It was Takahashi who, as minister for finance, used
massive monetary and fiscal expansion to spur Japan’s
extraordinary growth of the economy during the 1930s.
(Takahashi had previously served as governor of Japan’s central
bank and prime minister on separate occasions.) But, as
These disasters … cannot be prevented by clever people with
good intentions.
Chairman’s Letter | Inside the Fed’s Doomsday Machine
www.bonnerfamilyoffice.com 3
more and more of the nation’s economic output was directed
to the military, he grew uncomfortable. Guns and soldiers
can protect a nation, he pointed out. But they can’t make it
prosperous. They are a cost, not a productive investment.
In 1936, rebelling military officers assassinated Takahashi
during a failed coup d’état. Thus was the feedback loop
decisively severed. Then there was no way to correct the
mistake. No one was willing to speak out against it. No
careful cost-benefit analysis was permitted. Jingoism and
warmongering drowned out calm public debate.
As more and more resources were directed to the military
machine, more and more people had an interest in it. A huge
percentage of Japanese industry was directly supported by
military spending. Millions of people were employed in the
war effort. Millions of families were eager to provide their
sons with the arms and equipment they needed.
After the Battle of Midway, it was clear to thoughtful
observers that Japan’s war efforts were headed for disaster.
The home islands would soon be cut off from the supplies
that were the reason for war in the first place. It was just a
matter of time before the war was lost. The original idea –
that sources of raw materials needed to be secured by military
force – was an error. But by 1943, Japan’s military machine
had turned into a doomsday device. It could not be stopped.
Japanese soldiers vowed to fight to the death to protect it.
The Economy Is Not a Machine
In the 20th century, Downside Disasters were
concentrated in politics. In the 21st century, they are
concentrated in the world of finance.
The Fed’s idea is that it can set the price of credit better
than willing savers and lenders. It is based on a misleading
analogy: that an economy is like a machine. Paul Krugman
has recently revived the idea in The New York Times. He
maintains that if an economy isn’t working correctly it’s
because economists haven’t fixed it yet.
In his Daily Market Briefings, Chris has pointed out that
this is silly. He suggests… paraphrasing philosopher of science
Karl Popper… that an economy is more like a cloud than a
clock. That is to say, in a complex adaptive system such as an
economy, X may lead to Y… but then again, it may not.
As the scientific community has been aware for some
time, most systems – like the immune system, the brain,
a flock of birds, a culture, the economy and the financial
markets – are not made up of parts, but of autonomous
agents. Causality is concealed within the system. There is
no linearity between inputs and outputs. Equilibrium is
sustained. Then suddenly you get an “ah-whoom” moment,
when everything changes unpredictably.
Suffice it to say that there is no way of studying an
economy… or the global capital markets… on a scientific
basis. After all, you can’t control something that you can’t
effectively measure. And even the most basic tools for
economic measurement are little more than voodoo.
Let’s say I take a walk this afternoon. Will the economy
be affected in any measurable way? No.
What if, on my walk, I drop dead? Then the GDP gets an
unexpected boost. The ambulance will be on the move. The
mortician will be called into service. Airlines will sell tickets
to family members. Gravediggers will earn more wages.
Is this a good thing or a bad thing? Under these
circumstances, which would I prefer? To give the economy a
boost… or to come back to life?
An economy is a means for people to get what they
want… as best they can. The Fed doesn’t know what people
want. But markets do. They express it in prices. Not only
does controlling prices – as the Fed is attempting to do now
– obscure what people want, it also directs resources in a
different direction entirely.
The idea behind today’s Fed policies is not only a bad
idea. It is a mistake. There is not one instance in all of history
that I am aware of in which centrally set prices did a better
Chairman’s Letter | Inside the Fed’s Doomsday Machine
4 www.bonnerfamilyoffice.com
job of wealth allocation than market-set prices. In every
case where they were used extensively, the damage has been
extensive too.
Growth comes from capital formation – real savings,
which come from real earnings – and putting that capital to
work in profit-seeking businesses. You can borrow that capital
from the future, through the magic of credit, for only so long.
Credit and real capital are not the same thing.
The most recent example of the failure of centrally set
prices comes to us from Venezuela. Hyperinflation is looming
there, reports the Financial Times, after prices suffered their
highest monthly rise on record in May – a year-over-year
increase of 6.1%, compared with a 1.6% rise in the same
period last year. And the country has accumulated inflation
for the first five months of 2013 to 19.4%. At the same time,
economic growth has slowed – to 0.7% growth in the first
quarter of 2013, compared with 6% in the first quarter of
2012.
According to the Financial Times, “At the root of the
OPEC country’s economic woes is a tangled web of price
and currency controls [which] have caused shortages of basic
goods including food, in turn aggravating inflation further.”
The Broken Loop
As to the other features of a Downside Disaster, the Fed’s
intervention is obviously an example of central planning on
the largest scale possible.
And there is no doubt that the usual feedback loop is
broken. Talk back to a TSA agent. Or tell your wife you like
plump women. You will get immediate feedback. You can make
adjustments… or make amends. Not so for central bankers.
Despite missing the biggest housing bubble in history,
the public regards Ben Bernanke as a hero, not a numbskull.
And they regard Paul Krugman as a savant. No matter how
much damage they do, central bankers… and their backers
in academia and the opinion pages of The New York Times…
do not suffer from their mistakes. The feedback loop is
clearly broken.
But surely the Fed can just stop when it chooses, you
might say. The problem is too many people rely on its cheap
money.
Public debt levels are sky high. The collateral damage from
a blowup in the bond market could be huge. Outstanding US
government debt at the end of the Carter administration was
$930 billion. Now it is over $16 trillion. It was only one-third
of GDP in 1979. Today it is more than 100%.
The Fed’s low interest rates help the federal zombie banks
and deadhead businesses borrow money at below the rate of
consumer price inflation. They also help Washington finance
trillions of dollars in spending that go to people who want to
keep seeing the money flowing.
The longer Fed policies continue, the more people
become dependent on them. For example, since 2000, the
number of food stamp recipients more than doubled, from an
average of 17.3 million to 46.6 million last year. And during
that time, the average benefit per person rose from $72.62 to
$133.41 per month.
And disability payments are rising too. After being relatively static during the late 1970s and 1980s, the number
MONTHLY SUPPLEMENTAL NUTRITION ASSISTANCEPROGRAM PARTICIPATION
Average Participation (in thousands)Average Benefit Per Person
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0 $0
$60
$80
$100
$120
$140
$160
$40
$20
1970 1980 1990 2000 2010
SOURCE: USDA
Chairman’s Letter | Inside the Fed’s Doomsday Machine
www.bonnerfamilyoffice.com 5
Why Prices Must Rise for These Key Commodities
of disability dependents jumped 84% from 1990 to 2003. And the annual cost of disability payments climbed from $38 billion to $77 billion.
The last five years have seen even more unsustainable growth in the number of Americans claiming disability benefits. Between the end of December 2007 and February 2013, the number of claimants has risen from 7.1 million to 8.8 million — nearly a 24% increase.
These people all rely on deficit spending to fund their disability checks. An end to the Fed buying US Treasury bonds… or a big spike in bond yields… would put that
in jeopardy.
A Volcker Moment?
The last voluntary unwinding of an inflationary cycle happened when Paul Volcker took over the Fed in 1979. He saw that the Fed’s belief that higher inflation led to a lower unemployment rate was false. And that instead it leads to higher inflation and higher unemployment levels.
Volcker said he would turn the page. And so he did. He pushed up the fed funds rate so high you had to crane your neck to see it. He led the economy into the worst recession since the Great Depression. People didn’t care much for
his policies. They called their congressmen to protest. They even burned an effigy of Volcker on the steps of Capitol Hill.
But Reagan backed Volcker. And the economy took its medicine.
The hero of our Great Correction may have some good qualities. But he’s no Paul Volcker. “Tall Paul” stood up to intense pressure and corrected the mistakes of his predecessors. Not only does Bernanke continue Alan Greenspan’s loose money mistakes, he also multiplies and amplifies them. He has no intention of “pulling a Volcker.” And even if he wanted to, he wouldn’t be able to.
We have reached the point where Fed policies have become a doomsday machine. They cannot be stopped because too many people rely on them.
Bill
If you’re a commodities investor, the last three years have
not been kind to you. Commodity prices are down -20% to
75%. Commodity equities are down -20% to 80%.
Earlier this month, I saw the most interesting equity
sentiment numbers I have ever seen. It was a survey of 2,000
professional investors on their views of the junior natural
resource stocks (small exploration companies that search for new deposits but don’t usually develop them).
The sentiment of the juniors in that poll was zero. I have
never heard of that sentiment number in my life. That isn’t to
say that the junior miners didn’t deserve that sentiment. But
to see sentiment at zero is astonishing.
the partner report
rICk rule, resourCe InvestIng strategIC Partner
Paul Volcker tamed inflation.
The Partner Report | Why Prices Must Rise for These Key Commodities
6 www.bonnerfamilyoffice.com
This month I want to introduce you to three key
commodities whose prices not only must rise, but also can
rise. But first I want to look at what has changed between
2010 and now with regard to the narrative around natural
resources and precious metals. And I want to let you decide
for yourself if current prices in the natural resource markets
make sense. So ask yourself the following questions:
• Arerealinterestratesstillnegative?
• Isliquidityasubstituteforsolvency?Inotherwords,
ifyouhave$1,000inyourpocketandyouowe
$1million,doeshaving$1,000inyourpocket
somehowchangeyourcircumstances?
• Isquantitativeeasingoccurring?
• Iscompetitivecurrencydevaluationstillanissue?
TaketherecentactionsoftheJapanese,forexample.
IsitlikelythattheotherAsiannations,sayKorea
andTaiwan,aregoingtolettheJapanesetakemarket
sharethroughacheaperyen?Orisitlikelythat
they’llstarttodevaluetheircurrenciestoo?
• DoesanyG20countryhaveabalancedbudget?
• Is$17trillionasustainabledebtloadinconstant
dollarsfortheUSfederalgovernment?Or,ifwe
takeoff-balance-sheetliabilitiesintoaccount,is$81
trillionasustainabledebtloadinconstantdollars?
• HowabouttherateofincreaseintheConsumer
PriceIndex,whichhasbeenrisingatanofficialrate
ofjust1.1%overthelast12months?Doyouthink
thiscapturestherealrateofpriceinflation?Orisit
likelythattheWashingtonbureaucratswhocreateit
arekeepingnumbersartificiallylowbyrevisionsto
howtheycalculatetheirfigures?
• IstheEuropeanperipherystillweak?Andisthe
centerreallythatstrong?
• Aretheglobalbankssolventnow?Arethepeople
whorunGoldmanSachsandJPMorganChase
reallysmartenoughtoruntheseenormousbalance
sheetsona4-6%equityslice?Ismarkingbankassets
tomyth–knownas“markingtomodel”–reallya
sensiblethingtodo?
• Isglobalpopulationgrowthstillcontinuing?Do
thosenewpeoplewhoarebornwanttoeat?Dothey
wanttheirmaterialstandardoflivingtoincrease?
• Iseconomicstrengthshiftingfromdevelopednations
tofrontierandemergingmarkets?
Bear Market Merchants
The point of these questions is that the narrative that
accompanied, in 2009 and 2010, a spectacular bull market in
precious metals is unchanged – except for the pricing – and
the pricing has changed dramatically. The pricing in the sector
is off 30%, 40%, 50%, 60%… even 70%. There is no doubt
that we’re in a bear market in the natural resources sector.
To a seasoned natural resource investor, these are
interesting times, in other words. If nothing has changed
except the price, what is a bear market other than a sale of
assets? What’s interesting is how we look at that sale. For some
reason, when physical goods – a suit, for instance – go on sale,
we see that as being a good thing, but we see sales on financial
assets as bad.
Imagine you are walking through a mall. On your left,
there’s a big sign: “Bull Market Merchants. No sales ever.
All items fully priced. No deals. No negotiation. Prices will
be higher next week.” On your right, there’s a different sign:
“Bear Market Merchants. All goods 75% off. No reasonable
offer refused. Everything must go.”
If you were in a shopping mall, and both these stores had
the same goods, which would you go to?
The interesting thing, when it comes to commodity-
related financial assets, is that everyone understood this
narrative in 2009 and 2010, and everyone was driving into
Bull Market Merchants. And they weren’t just buying. They
The Partner Report | Why Prices Must Rise for These Key Commodities
www.bonnerfamilyoffice.com 7
were buying with both hands. In fact, people were buying
assets – rare earths, in particular – they couldn’t even spell,
and they often paid three times what the goods had been
selling for the year before. Three years later – with the market
off up to 80% – nobody wants the same commodities
anymore.
Of course, we have to take what is given to us. So what
I suggest is that, when it comes to financial assets, you start
to think as though you were in a mall shopping for physical
assets. Bill, Rob and Chris harp on this point a lot, but it
bears repetition. A great way to make money in the markets
over time is to buy assets when they are on sale and sell them
when they are fully priced.
Find Markets That Are Broken
One of the things I’ve learned in the natural resources
business – and one of the ways I’ve learned to make truly
spectacular money over time – is to find markets that are
completely broken. Fortunately, the natural resources sector
gives you these conditions fairly frequently. That’s because
natural resource businesses are capital intensive and highly
cyclical.
The closest thing to a failsafe that I’ve ever found in my
career in resource markets is commodities where there is
strong, ongoing demand, and where the price the industry
receives for the commodity is less than the cost of production.
It is only people dumb enough, such as miners and farmers,
who produce a commodity for $20 per pound and sell it for
$10 per pound and try to make it up on volume. But that is
what happens, over time, in extractive industries.
When these conditions occur, one of two things must
happen: We won’t have any of that commodity anymore, or
the price will go up.
I’d like to introduce you to three of those markets now.
I believe you will make substantial money in all three, but
I’m going to talk about each in reverse order in terms of their
attractiveness.
Why $3 Natural Gas Is Not Sustainable
First is North American natural gas…
You’ve heard of the technological innovations in this
market: three-dimensional seismic, horizontal drilling,
fracking. You’re also probably aware of the spectacular
infrastructure North America has for the distribution and
storage of natural gas, and if you’ve been following the
markets, you’ll know that prices have been dropping like a
boulder over a bridge.
The industry says it can make money with $3 gas, but
when you look at the income statements – individually and
collectively – you will see that it’s lying. The industry can’t
do it. That’s because its fully loaded costs exceed the price it’s
selling gas for. So one of two things happens: The price of
North American natural gas goes up, or the tap turns off.
Beyond that, the global price of natural gas is yawning.
Seaborne liquefied natural gas (LNG) is going for about $15
per million BTU (the standard unit of measurement in the
natural gas market), while domestic gas in the US is going
for $3.50 per million BTU. It costs just $2 per million BTU
to liquefy it and get it to Japan. That arbitrage, I believe, will
close over time.
Uranium – Still a Contrarian’s Dream
The second market I want to look at this month is
uranium. I’ve discussed uranium with you before, but it is
What I suggest is that, when it comes to financial assets, you start to think as though you were in a mall shopping for physical assets.
The Partner Report | Why Prices Must Rise for These Key Commodities
8 www.bonnerfamilyoffice.com
truly a contrarian’s dream right now, so I want to talk about it
again this month.
Before the nuclear disaster at Fukushima Daiichi in
Japan in March 2011, the uranium market had entered a
comfortable stasis at about $80 per pound. This is about the
price the industry needs to sustain itself and earn a decent rate
of return. What happened after Fukushima changed that. The
disaster spooked politicians, and Japan shut down its nuclear
power industry.
Two things happened as a result. One, about 9% of
systemic demand came out of the market overnight (and
remember that prices are set on the margin). Two, the Japanese
sold their uranium inventories onto the market (they needed
the cash, and they had no use for the uranium with their
reactors shut down). Due to this, worldwide supply increased
by 5% just as worldwide demand fell by 9%. Unsurprisingly,
the price of uranium fell by 50%, to $40 per pound.
Fast-forward two years, and the Japanese are restarting
their nuclear power programs. And remember that the rest of
the world didn’t stand still after Fukushima. The Chinese are
continuing to build nuclear reactors. The Taiwanese, after a
two-week hiatus, resumed their nuclear power program. The
Koreans resumed their program. The Saudis resumed their
program. The UAE resumed its program.
It still costs $80 per pound to produce uranium. And
the price is still about $40 per pound. That means only two
things can happen going forward: The price of uranium can
go up, or the lights can go out.
In other words, the price has to go up – and the price
can go up. Thanks to its energy density, the cost of uranium
represents just 3% of the fully loaded costs of running a
modern nuclear power plant. In fact, uranium represents a
substantially lower cost for the operators of a nuclear power
plant than the cost of hiring lawyers! This is why I love the
uranium thesis. If the price of a key commodity such as
uranium has to go up – and the price can go up – in my
experience, the price will go up.
A Platinum and Palladium Supply Crunch Is Coming
Finally, I want to look at platinum and palladium.
For my money, the investment case for these two precious
metals is much better than it is right now for gold and
silver. That doesn’t mean I don’t own some gold and silver. I
do. It just means I expect better things from platinum and
palladium, thanks to a unique set of circumstances we’re
seeing in the market right now.
The first is supply. Most of the supply of platinum and
palladium gets used up in industry. Platinum and palladium
go out exhaust pipes and up smokestacks, and, in the case of
platinum, get turned into jewelry. Right now, aboveground,
finished inventories of platinum and palladium are enough to
satisfy about 300 days of fabrication demand. The only supply
we have to concern ourselves with is new mine supply.
The second difference between platinum and palladium,
on the one hand, and gold and silver, on the other, is that
gold and silver are produced in many different countries
around the world and in conjunction with many other metals.
Platinum and palladium, on the other hand, are produced in
significant quantities in only three countries: South Africa,
Zimbabwe and Russia.
These three countries account for 90% of global platinum
and palladium production, and these three countries have
serious supply problems.
I expect better things from platinum and palladium
...the price has to go up – and the price can go up.
The Partner Report | Why Prices Must Rise for These Key Commodities
www.bonnerfamilyoffice.com 9
The country you have to worry about in terms of supply
is South Africa. It produces about 70% of the world’s
platinum and the best 39% of the world’s palladium. And the
South African platinum and palladium mining industry does
not earn its cost of capital. In other words, the South African
platinum and palladium mining business loses money on
every ounce it produces.
This is not a prediction. The South African platinum and
palladium mining industry hasn’t earned its cost of capital in
eight years, and, as a result, production is down -19%. This
presents a range of ugly to very ugly problems in South Africa.
First, the industry has deferred about $6 billion in
sustaining capital investments. That is, there were investments
required to maintain production that platinum and palladium
mining companies couldn’t make because they didn’t have
the money. They have to make them now, but they don’t earn
their cost of capital. So they can’t make them now.
Second, the platinum and palladium mining industry is
labor intensive. That means South African mining companies
can’t substitute capital for labor. For two reasons: They don’t
have any capital, and platinum and palladium mining doesn’t
lend itself to mechanization.
The working conditions in platinum and palladium
mines in South Africa are truly deplorable. This is partly a
result of South African mining companies not sustaining
capital investment.
The working space can be 400-500 meters away from
the access point in the mineshaft. This means that a miner
has to crawl 400-500 meters in 100-degree Fahrenheit heat
and in two or three inches of water across broken rock to
reach the working face. For that, a highly skilled worker gets
$600 per month.
Workers’ wages in South Africa have to go up – but they
can’t, because the industry doesn’t earn its cost of capital.
Third, although South Africa doesn’t agree on much
politically, one thing it does agree on is that social rents from
mining have to go up. Taxes
have to go up; royalties
have to go up, but this can’t
happen either, because the
industry doesn’t earn its cost
of capital.
Again, let me be clear:
This isn’t something that is
going to happen in the future.
South African platinum and palladium production is off 19%
in eight years. Mining companies don’t earn their cost of
capital now, and all their costs are rising.
For example, the so-called moderate union, the NUM,
which is affiliated with the ruling ANC party, is looking for a
60% increase in wages this year. Suffice it to say, the industry’s
costs are going up.
Demand Is Rising Too
The other thing you need to look at, of course, is
demand, and this is an interesting story with regard to
platinum and palladium.
It comes down to a simple political and social trade-
off: on the one hand: platinum and palladium; on the other
hand: smog. Those are the two choices. That’s because what
platinum and palladium are most used for is air-quality
control – either in industrial smokestacks or, predominantly,
in tailpipes.
The air quality we enjoy in the developed world is, to a
large degree, a function of the amount of these metals in the
catalytic converters in our cars – about $200 worth at current
prices in every vehicle.
So think about what would happen if the price of
platinum and palladium were to double. Let’s say the average
sticker price of a car sold in the US went from $27,500 to
$27,700. Do you think that would really matter? Also keep
in mind that there is not a lot of political pressure in the
South Africa platinum and palladium poductioin is off 19% in
eight years
The Partner Report | Why Prices Must Rise for These Key Commodities
10 www.bonnerfamilyoffice.com
developed world to reduce air quality by making cars $200
more affordable.
Another important question: Are emerging market air-
quality standards going to increase or decrease? In China,
platinum and palladium loading standards in cars are 10% of
US standards. As a partial consequence of that, the Chinese
government estimates that 500,000 Chinese die every year
because of cardiopulmonary illness associated with poor air
quality.
I would suggest to you that if the platinum and palladium
prices doubled, and the loadings in a Chinese car went from
$18 to $36 per vehicle, the difference in demand would be
absolutely negligible.
What I would suggest to you is that the prices of
platinum and palladium have to go up – and they can go
up. If the prices of things have to go up and can go up, I will
submit to you that they will go up.
[Ed. note: To avoid any conflicts of interest during his
talk in France, Rick disclosed the names of a number of stocks
he had positions in. If you weren’t able to attend this year’s
event, you will be able to watch a video recording of Rick’s
speech as soon as it is posted on the members-only website.
If you want to hear from Rick and the Sprott Group, you can
sign up for free email alerts on the Sprott Group website.]
Obama’s New Budget Means You Must Set Up Your Dynasty Trust Now
LegaL matters
erIC marshall, tax and legal strategIC Partner
The only difference between death and taxes is that death doesn’t get
worse every time Congress meets. – Will Rogers
President Obama is still trying to “soak the rich.” He
recently released his 2014 budget proposal. Unsurprisingly, it
attacks many of the hard structures we recommended you put
in place… which are essential to all family offices.
Fortunately, Obama’s proposed budget also serves as a
wonderful primer on the best ways for your family office to
reduce its tax burden… at least for now.
For instance, the president wants to limit the duration of
the generation-skipping transfer (GST) tax exemption to 90
years. Currently, distributions from GST tax-exempt dynasty
trusts are exempt from the GST tax forever. Beneficiaries
would never owe GST tax on what they receive from the
trust.
The GST tax works with the estate and gift taxes.
Congress created it in 1986 to ensure no transfer of wealth
from one generation to the next goes untaxed. The GST tax
prevents long-term trusts – such as perpetual dynasty trusts –
from escaping estate taxes.
As it stands now, you are allowed a lifetime GST tax
exemption of $5.25 million. If you apply your exemption
to a gift of $5.25 million to a dynasty trust, none of the
distributions from the “GST exempt” trust will ever be taxed.
Without the exemption, all distributions from the trust would
Legal Matters | Obama’s New Budget Means You Must Set Up Your Dynasty Trust Now
www.bonnerfamilyoffice.com 11
be taxed at 40%. Put simply, if you are a US citizen, the GST
exemption is extremely important to the long-term wealth of
your family office.
If Obama gets his way, dynasty trusts would lose this
exemption after 90 years. After 90 years, the IRS would
collect 40% (the current GST tax rate) of every distribution
from the trust. In other words, your family office would end
after 90 years… unless you act now.
You see, this proposed change would not affect trusts
created and funded before its enactment. That’s why it’s
imperative that you set up your dynasty trust now. We don’t
know if Congress will enact this proposal. But we suggest you
don’t wait to find out.
Taxes Will Increase
Another reason to set up your family office in 2013 is
that the “permanent” estate, gift and GST tax rates passed last
year are under attack. After 10 years of uncertainty, Congress
finally passed “permanent” estate, gift and GST tax rates and
exemption amounts.
But Obama doesn’t like these permanent amounts. He
wants to restore these taxes to the 2009 rates. In 2009, the
top rate was 45%, compared with 40% today. The exemption
for estate and GST taxes was $3.5 million, compared with
today’s $5.25 million. The gift tax exemption was $1 million,
compared with $5.25 million today. There would be no
indexing for inflation.
This change would seriously impact your ability to fund
your dynasty trust. If passed, you would be able to put only
$1 million into your dynasty trust during your life and an
additional $2.5 million at your death.
If you have the means, you should take advantage of the
current exclusion rates and make your gift to your dynasty
trust. Even though the proposed rate changes would not take
effect until 2017, it is better to get compounding interest
working for you now. Increases in the value of the assets in
your dynasty trust will not be included in your estate.
In Obama’s Crosshairs
Grantor retained annuity trusts (GRATs) are also in the
crosshairs. GRATs are used to transfer large amounts out of
your estate tax-free. They work like this…
You make a large gift to a trust. It could be cash,
securities, shares of a business, real estate, etc. The trust will
then pay you an annuity amount for a term of a specified
number of years. After the annuity payments end, what is left
is paid tax-free to your children or to your dynasty trust. The
goal is to zero out the value of the remainder interest so that
no gift tax is due.
GRATs work if you outlive
the annuity term and the
trust’s property generates a
greater return than the annuity
payments. If you don’t outlive
the annuity term, what is left
in the trust is included in your
estate. Thus, you usually want
to have a very short annuity
term. Many GRATs have terms
as short as two years.
Obama does not like this. He wants to set the minimum
term to 10 years. This would not prevent “zeroing out” the
gift tax value of the remainder interest. But it would increase
the risk that you would fail to outlive the annuity term,
resulting in the loss of any transfer tax benefit. He also wants
to require that the remainder interest have a value greater
than zero.
We don’t know if Congress will enact this proposal. But we suggest
you don’t wait to find out.
Obama wants to set the minimum annuity term to
10 years.
Legal Matters | Obama’s New Budget Means You Must Set Up Your Dynasty Trust Now
12 www.bonnerfamilyoffice.com
Another Attack on Wealth
Obama is also targeting a more aggressive hard structure,
the sale to an intentionally defective irrevocable trust (IDIT).
These are more complicated than GRATs but can produce
better results. Here’s how they work…
You set up an irrevocable trust and fund it with cash.
The trust could be your dynasty trust. Some time later, you
sell shares of your business or some real estate to the trust
at fair market value. The trust pays you by making a down
payment of at least 10% with the money you gifted to it.
The trust then gives you a promissory note for the balance
at the lowest interest rate allowed by the IRS. The note
usually requires interest-only annual payments for about 10
years with a balloon payment at the end of the term. The
interest payments are made from the income generated by the
business or other property.
The trust is irrevocable and so is not included in
your estate for estate tax purposes. But the trust is made
“intentionally defective” so that it is treated as a grantor trust.
The income of a grantor trust is taxed as if you owned the
trust assets. So even though the trust assets don’t belong to
you and are outside your estate for estate tax purposes, you
have to pay the income taxes generated by the assets. All
income produced by the trust is included on the grantor’s
income tax return. But this is not a bad deal.
Having a grantor trust has several benefits. First, when
you pay the tax on the income generated by the trust, you are
making an additional tax-free gift to your dynasty trust.
Second, the sale to the grantor trust is disregarded for
income tax purposes and any capital gains are not realized
(and not taxed.)
Since you “sold” your property at fair market value, no
gift taxes are due. The sale “freezes” the value of the assets you
sold to the trust. Future increases in the property’s value are
not included in your estate and escape estate and GST taxes.
But Obama’s proposed budget would eliminate this
technique. He would include the value of the assets “sold” –
and all future increases in value – in your estate.
What to Do
Contact your attorney immediately and ask about setting
up your dynasty trust.
Dynasty trusts take up to three months to set up. There’s
a lot to do. Your lawyer will need to review your current estate
plan, gather information on your assets and set up a family
limited partnership – if you haven’t already.
Although there is no way to predict exactly what
politicians will do next, their attack on the “rich” will
continue. The government’s problems are getting worse. And
there’s no politically acceptable solution in sight.
Eventually, Washington will grow desperate enough for
revenues to enact some or all of Obama’s proposals. Act now
before they take away current tax advantages.
[Ed. note: Next month, Eric will be giving precise details
of how to set up your dynasty trust to our top-tier Bonner &
Partners Family Office members as part of his Family Office
Blueprint.]
Act now before they take away current tax advantages.
www.bonnerfamilyoffice.com 13
I think I’ve been set up…
As the wealth creator, Bill was piling up the family
fortune. I was supposed to be making sure the human side of
things was smooth sailing. But money is the easy part…
Money doesn’t talk back. It is never bitter or resentful. It
doesn’t have a bad attitude. In fact, it has no attitude at all.
And it’s always at room temperature. It doesn’t take drugs,
get drunk, hang around with loose women, stay up all night
gambling… Have I forgotten anything?
Bill and Will dedicated their new book on family wealth,
Family Fortunes, to Anne Bonner, Bill’s mother. She is a dear
little wisp of a lady. She would never poison anyone, even
Livia herself. But she would defend her children like a tigress.
The only difference between this paragon and me? She
didn’t have two pennies to rub together when Bill and his
brothers and sisters were growing up. No wonder she did such
a great job.
At the Global Partners’ Reunion in France this month,
we learned that wealthy families are more subject to personal
problems than the less well-off. The “one percent,” it
seems, gets the lion’s share of everything – even suicide and
alcoholism. Why? Because of the high expectations placed
on children in successful families. They have higher-than-
usual levels of anxiety about their performance, what kinds of
people they are, whether they are truly successful.
And the vast choice children of wealthy families have
about what to do in life contributes to existential doubt –
which is very stressful.
Brave, Self-Reliant and Imaginative
Bill and I didn’t worry too much about raising children to
live with wealth because, at first, we didn’t have it. Instead, we
focused on building a family culture. We wanted our children
to be brave, self-reliant and imaginative.
So we took them to France to live. The challenge of living
in France brought our family together in a way that might
not have been possible in the US. It helped us create bonds
of shared experience. We also developed shared values and
shared memories. We share a common experience that wove
us together as a family. In France, something very important
happened to us as a family. We became our own support system.
Of course, financial wealth is important. We believe – as
you do too, I’m sure – that wealth represents two things:
opportunity and freedom. Precious things. More precious
than houses, cars, sailboats and cellphones. As a family, we
like that 19th-century
idea of living a life in
the pursuit of truth
and beauty. Collecting
butterflies. Exploring
dark continents. Being
an inventor, a poet, a
philanthropist.
As the Bonner family matriarch – officially in charge of
family and feelings – here is the fruit of my experience and
The Role of the Matriarch in Strengthening Family Bonds
guest essay
elIzaBeth Bonner
For a family to survive as a useful unit, it has to be three things: strong, cohesive and flexible.
Opportunity and Freedom: More precious than houses, cars, sailboats and cellphones.
Guest Essay | The Role of the Matriarch in Strengthening Family Bonds
14 www.bonnerfamilyoffice.com
reflection. For a family to survive as a useful unit, it has to be
three things: strong, cohesive and flexible.
For a family to be strong, it has to share a common
culture and common values.
To be cohesive, it has to share things – places, memories,
time together. A common narrative, if you prefer.
It also has to be flexible, because rigid structures break
under pressure. A strong family culture still has to be able
to allow its individual members to exercise free will. And I
mean that in the Augustinian sense, not in the libertine do-
whatever-you-want sense. Free will in the sense of freedom to
choose the good, or the pursuit of a happiness that is based on
the realization of your particular talents and virtues.
But above all, a family has to be a place where feelings
matter. It has to be a place that you and your children,
spouses and grandchildren associate with happiness.
Otherwise, there are just too many internal and external
pressures pulling a family apart.
There are dangers too. I call them the “Three Ds”:
1. Division–Jealousy,siblingrivalry,divorce–weall
knowexamplesinourfamiliesoraroundus.
2. Dissatisfaction–Hurtfeelingsthatgoonfora
lifetime,disappointmentsthatsourrelationsbetween
siblingsortowardparents.
3. Distance–Whetheritbegeographicaloremotional.
Foramatriarch,itcanbeherowncareerinterests,
charitablework…ortheendlessopportunitiesfor
“self-improvement.”
Bringing the Family Together
Counterbalancing the “Three Ds” that pull us apart are
the “Three Cs” that keep us united:
1. Commonvalues–EspeciallytheGoldenRule:Do
untoothersasyouwouldhavethemdountoyou.
2. Connection–Thatsharingofplaces,memories-
timesoimportantforcreatingafamilyculture.It’s
nicethatwenowhaveSkype,emailandthephone
tohelpusbridgegeographicaldistance.Butwedo
havetousethem!
3. Communication–Whattransmitsthoseshared
histories,sharedambitions,sharedperceptionsthat
bindtogetherafamilyinasharedculture.
Communication is the most important of the three.
You have to be able to communicate with your heirs if you
want them to understand and follow your plan to keep the
family wealth together – to accept and even help develop the
institutions and structures that we’ve discussed here.
You have to be able to communicate your values and
family culture to potential spouses and actual spouses. This
is something we have had experience with. It is not always
obvious. Nor does it follow a formula.
You also have to be able to communicate with yourself.
Maybe you and your spouse have been so busy creating
wealth and building a family that you have not had time to
look inside yourselves. Now is the time to understand your
own priorities, so that your message will be clear and easy to
understand.
But in my experience, there are three even more essential
qualities that make possible the kind of solid families we want
to build, the kind of families that can work together to hold
onto and grow wealth over many generations. You might call
these the matriarchal qualities. These are love, clarity and
kindness.
Love is the easy one because it is totally natural. And that’s
You have to be able to communicate your values and
family culture...
Guest Essay | The Role of the Matriarch in Strengthening Family Bonds
www.bonnerfamilyoffice.com 15
lucky, because it is the basis for all enduring relationships, from
a couple to an extended family.
Clarity requires us to think. It is what you need in
order to determine your values and goals and to turn
them into words so you can impart them to your children,
grandchildren, in-laws.
Finally, there is kindness. Love is not always gentle.
Clarity can be harsh – sometimes it has to be. But a word or a
touch of kindness can do so much to take away the sting.
With these qualities present, you will have a family –
one that is capable of holding itself together in a common
purpose. As matriarchs, it’s our role to pass down not just the
material capital, but also the emotional and intellectual capital
that endures over generations in so many successful families.
famiLy matters pLus
WIll Bonner, exeCutIve dIreCtor
We’re in a phony recovery – one engineered by the “mad
scientists” in charge of the world’s central banks. There will
almost certainly be more financial shocks ahead. But we don’t
have a crystal ball. We can’t say when the endgame will finally
play out.
What we do know is that many of the same problems that
caused the crash in 2008 still exist. We also know that most
of those who helped create the biggest financial meltdown in
history are still in their jobs. And that they are still under the
spell of the same dangerous notions as before.
The Fed, for instance, still believes financial nirvana can
be reached through manipulation of credit… something we
discussed in depth at the recent meeting in France.
Thanks to bailouts and central bank backing, banks still
believe they can never have any downside. Politicians still
think only of the short term. Both still prefer the path of least
resistance when it comes to difficult choices. It is a delicate
situation with significant downside potential.
Be Prepared
When a family fortune falls apart, often the family falls
apart first, then they lose their money. In a financial crisis,
money pressures can put stress on your family. And this stress
can start to fray family relationships… and threaten the
survival of your legacy.
Fortunately, there are four concrete steps you can take to
prepare your family for a financial crisis.
• Getyourfamilyofficesetup–Startwithyour
FamilyInvestmentCommittee.
• Don’tpanic–Sticktoyourdiscipline.
• Haveaplan–Notjustaplanofdefense.But
offensetoo.
• Sticktotheplan–Stickwithcollectivedecisions.
Don’tbecometoofearfulorgreedy.Don’tchase
bubbles.
Four Steps to Prepare Your Family for the Next Financial Crisis
Family Matters Plus | Four Steps to Prepare Your Family for the Next Financial Crisis
16 www.bonnerfamilyoffice.com
1. Start Setting Up Your Family Office
Rome wasn’t built in a day. Neither are family offices. But
you need to take concrete steps now.
Start with your Family Investment Committee. This is a
group of family members that makes the family investment
decisions. My family’s Investment Committee meets twice a
year… unless we need to call a special meeting to consider a
particular event or opportunity.
The secret here is for the wealth creator to step back
a little and let other family members make investment
decisions. My dad lets us make the decisions. He might
intervene if he thinks we’re doing something stupid. But he
hasn’t yet…
2. Don’t Panic
One of the big advantages of having a family office is that
you’ll be unlikely to panic when the next crisis strikes. The
biggest mistake your family can make is to invest or make
business decisions under stress or as a result of emotional
thinking.
How your Family Investment Committee approaches the
management of your Family Wealth Portfolio makes a huge
difference. Asking the following questions now will help your
Family Investment Committee make informed, calculated
decisions in times of crisis:
• Doesyourcommitteehavetherightinvestmenttime
horizon?Doesitunderstandthebenefitsofalong-
termhorizon?
• Doesyourcommitteeunderstandthenatureof
marketcycles?Isitpreparedtobeabuyerwhen
othersareindistress?Doesithavethegutstosell
whenothersareeuphoricallybuying?
• Isyourcommitteecognizantofriskandhowto
mitigateagainstit?AttherecentmeetinginFrance,
Chrishighlightedtheimportanceofrisk-sensitive
investment.Makesureyourportfolioisdiversified.
Neverriskmorethan2%ofyourfamily’stotal
wealthonanyoneposition.Buyonlywhenyouhave
alargeenoughmarginofsafety.
3. Have a Plan
Having set up your Family Investment Committee, spend
time discussing your investment discipline and approach. This
could save you from succumbing to stress-induced decision-
making further down the line.
During the financial crisis of 2008, many wealthy families
faced difficult decisions about how to allocate capital to
cover losses or how to fund the family business. According to
Stonehage Group, a multifamily office based in London:
Conflict often arises when the family business looks to fund
itself from other family investments, which were expressly set
aside to diversify the risks and to provide for family members
not involved in the business.
Other family members may well have different priorities
and take a different view on how much capital should be
allocated to support the business, especially when economic
conditions are very uncertain. They may also take a different
view of the relative risks and returns between the business
and the investment portfolio.
In my family’s case, the business distributes funds to
the family trust only when it has a significant capital base
to fund itself for the foreseeable future. In other words, the
family business makes up the largest part of our overall asset
allocation. We follow Rob’s asset allocation model for the rest.
Of course, your family’s situation may be entirely
different. You may be involved in a number of businesses. Or
Come to an agreement before the going gets tough.
Family Matters Plus | Four Steps to Prepare Your Family for the Next Financial Crisis
www.bonnerfamilyoffice.com 17
maybe you sold the family business and are focusing on your
investment portfolio.
Either way, it pays to have a plan in place that deals with
these kinds of pressures. Come to an agreement before the
going gets tough. Before there’s a market crash or some other
event that puts the squeeze on the family wealth, you want to
collectively decide how you’re going to react.
If you want to have a successful multigenerational family,
you want to limit the opportunity for disputes as much as
possible. You also want to limit the element of “surprise.”
Decisions about the overall allocation of the family wealth are
important, and they can be emotionally charged.
You don’t want to make it complicated. Err on the side
of simplicity. But just having the discussion about the overall
asset allocation will be very helpful in raising issues that might
otherwise go unaddressed.
I advise dedicating a one-hour meeting to coming up
with the basic terms of the agreement. Make adjustments
until everyone is comfortable. Then have a family office staff
member or family member draw up the agreement. And have
every family member sign it.
4. Stick to the Plan
The goals of your family office are to institutionalize
family wealth and to develop protocols that help manage your
family legacy.
Those systems are especially valuable during a financial
crash because they force you to slow down and work as
a group, considering financial decisions carefully and
deliberately.
When a crisis hits, stick to your protocols. Maintain your
discipline. Your Family Investment Committee needs to re-
examine and challenge the investment case for each of your
holdings. If the investment case still makes sense, you don’t
want to exit your positions just because the market has taken
a dive.
It’s common for investors to panic in a downturn. This
virtually guarantees that they buy high and sell low. Instead,
we want future generations of our families to tell the story of
the great crash in 2014, when the family wealth multiplied
thanks to some very smart planning and decisions.
[Ed. note: Preparing your Family Investment Committee
for times of crisis is vital. But as our family relationships
strategic partner, Joanne Stern, taught us at her recent
workshop in France, cultivating strong family relationships is
even more critical. We’ll be running more family workshops
with Joanne in the future. We’ll keep you posted on dates and
locations. ]
Are You an Alien or a Dog?famiLy weaLth portfoLio review
roB marstrand, ChIef Investment strategIst
The first question I put to the attendees at the recent
Global Partners’ Reunion in France was “Are you an alien
or a dog?”
By an “alien,” I mean a long-term value investor. Value
investors are naturally alien creatures, since they stand out
from the crowd. Only by being outside of the mainstream
Family Wealth Portfolio Review | Are You an Alien or a Dog?
18 www.bonnerfamilyoffice.com
can value investors find bargains. Value investors, in other
words, seek out new frontiers. Most investors hang out in
familiar territory.
A “dog,” on the other hand, is a trader. Ivan Pavlov,
the Russian scientist, was famous for experiments on
conditioning. They resulted in the idea of “Pavlov’s dog.”
In his experiments, Pavlov rang a bell (a stimulus) to
signal that food (a reward) was on its way. The dogs would
begin salivating in anticipation. Eventually, Pavlov could just
ring the bell and not put out the food, and the dogs would
salivate in the same way. They had become conditioned to
respond to the stimulus of the bell, even though the reward
was absent.
In today’s markets, most traders and investors behave like
Pavlov’s dog. Only Pavlov’s bell has been replaced by QE. The
anticipated reward – attractive future investment profits – is
unlikely to arrive. But the trading pack is still salivating.
As Chris pointed out in his recent Friday Edition, 95%
of the rise in the S&P 500 so far this year is a result of P/E
multiple expansion. Traders and investors are bidding up the
price paid per dollar of underlying earnings. Meanwhile, the
annual S&P 500 earnings growth rate is -0.51% – way below
the average rate of 29%.
For profits to rise, companies must invest in replacing
current fixed assets and also in new projects to drive growth.
Looking at earnings yields, dividend payouts and the high
level of share buybacks, it’s clear that only about 10% of
profits from the S&P 500 are being reinvested. Strong profit
growth is basically impossible as long as this continues.
Our big-picture view remains focused on emerging
market equities. Emerging market equities are in a bear
market right now. But it’s the longer-term view that really
interests us.
In the five-year period from 1982 to 1987, 69% of
world economic growth came from the advanced economies
(developed markets) and 31% from the emerging economies.
By the 2002 to 2007 period, this relationship had completely
reversed, with only 33% coming from advanced economies
and 67% coming from emerging economies. That’s a huge
economic reversal to happen over the space of just two
decades.
Projections for the 2012 to 2017 period tip the balance
even further, with 74% of world economic growth set to
come from emerging economies. That leaves around a quarter
of growth coming from developed economies.
Eventually global stock portfolios will have to reflect
this shift in profit sources to the large, growing economies of
Asia, Latin America, the Middle East, Russia and Africa. We
continue to believe that investors who get in early – and stay
the course – will do well.
Of course, the way to profit is to deploy cash balances
when others around us are panicking and prices are distressed.
Warren Buffett summed this mind-set up well in his latest
letter to shareholders of Berkshire Hathaway:
Charlie [Munger] and I believe in operating with many
redundant layers of liquidity, and we avoid any sort of
obligation that could drain our cash in a material way.
That reduces our returns in 99 years out of 100. But we will
survive in the 100th year while many others fail. And we
will sleep well in all 100.
It can take decades to build wealth. But fortunes can
be lost in just a few years – even months. Like Buffett, we
believe it’s important to maximize returns only insofar as it’s
in keeping with long-term survival in the markets. Cash is
a great way to “insure” our family wealth portfolios against
catastrophic drawdowns.
In today’s markets, most traders and investors behave like Pavlov’s dog.
www.bonnerfamilyoffice.com 19
A Good Contact for Finding Chilean FarmlandA good man for finding good farmland in Chile is Darren Kaiser. He knows Chilean farmland inside and out. He
offers a property investment guide through DarrenKaiser.com. My family picked up a farm in Chile, and we love
spending time there. Respond here.
Silver Bullion Singapore RecommendationI have personally been to Silver Bullion Singapore, met the folks and would recommend them. They are in the Certis
Cisco Center, so there are other storage options available in the same building/complex. Respond here.
The Risk of Gold CoinsI think the risk of gold coins is fairly small. If you already own some coins, you know how they are supposed to look
and feel. I too have bought over the Internet, and there are many reputable dealers, but personally I like the privacy of
a face-to-face transaction. Respond here.
Investing or a Private Business Loan? The difference between investing in a private business or loaning money to it would compare to either buying
shares/preferred shares in a public company or buying its bonds. Only it would be riskier, as you might not have the
transparency of a public company. Respond here.
Club Room News
Beta allocation etF Proxy Percentage change
Gold (20%) SPDR Gold Trust ETF (GLD) +25.5%
Emerging market stocks (20%) iShares Emerging Markets ETF (EEM) -4.5%
Dollar cash (25%) PowerShares DB US Dollar Bullish ETF (UUP) -1.7%
Case-Shiller Composite (20%) Home-Price Index +4.8%
Average Gain +6.0%
ETFsusEdarEroughproxiEsonly.WEhavEusEdThECasE-shillErComposiTEhomEpriCEindExFor20usmETropoliTanarEasToTraCkusrEsidEnTialrEalEsTaTEpriCEs.priCEsFrom9/18/2009To06/25/2013.alloCaTionshavEshiFTEdovErThispEriod.
BroAd FAmily WeAlth PortFolio Asset AllocAtions
20 www.bonnerfamilyoffice.com
event detaiLs
You can email Emma Walsh at [email protected] or call her at 855-849-2885 (or +353-51-309424, if you are calling from outside the US) if you have any questions about Bonner & Partners Family Office events.
Members-Only Events
Please see WWW.BonnerfamIlyoffICe.Com for the latest InformatIon.
Come join us and your fellow members at the Bonner & Partners Family Office 2013 events
When:July 20-22, 2013
Where:The Fairmont Hotel, Vancouver
Getting YourFamily Office Started
• the Family council – Who sits on it... what it does... who makes the decisions... what challenges you can expect along the way... and what NEVER to do.
• the Family investment committee – This is what makes your wealth truly family wealth. It is the cornerstone of everything you do as a family investor. Get this wrong... and you can forget about preserving, let alone growing, your legacy.
• the Family Bank – How to fund it... who acts as “manager”... what NOT to do...
• the Family education Plan – Why it’s important... how
it works... how it helps develop family values... how to plan in the most tax-efficient way for your child’s education...
• the Family Brand – A vital component of the long-term success of your family office. What is your family about, and what will it be remembered for? How will you pass on your values and belief system to your kids and grandkids?
• trusts and “hard structures” – Exactly what hard structures you need in place to get your family office off the ground.
at the meeting, you and your family will learn about:
SOLD OUT
When:November 14-18, 2013
Where:Rancho Santana, Nicaragua
Family WealthInvestment Forum
This is our flagship investment event. It is a great opportunity for you and your family to meet with Bill, Will, Chris, Rob and our strategic partners to discuss the wealth-protection issues your family is facing.
This annual event will be held in the idyllic location of Rancho Santana on Nicaragua’s Pacific coast. And of course, there’ll be plenty of time to relax and soak up the unique beauty and atmosphere of Rancho Santana, where the Bonner family has a second home.
We will be sending you registration details for this event soon. So please keep an eye on your inbox for further details. If you are interested in attending this event with your family, and getting priority notification when registration opens, contact Emma at [email protected].
www.bonnerfamilyoffice.com 21
Publisher:
Will Bonner
editor: Chris Hunter
copy editor: Kat McKerrow
customer care:
Call (855) 849-2885
9 a.m. to 5.30 p.m. GMT
www.bonnerfamilyoffice.com
Familyofficestrategicreview is published by Bonner&partnersFamilyoffice. Registered office: Elysium House, Ballytruckle, Waterford, Ireland.
Postmaster: send address changes to Bonner & Partners,
elysium house, Ballytruckle, Waterford, ireland.
©2013 by Bonner&partnersFamilyoffice, Elysium House, Ballytruckle, Waterford, Ireland. All rights reserved. No part of this report may be reproduced by any means without the express written consent of the publisher. Registered in Ireland No. 285214.
The information contained herein is obtained from sources believed to be reliable. While carefully
screened, the accuracy of this information cannot be guaranteed. Readers should carefully review investment prospectuses, when available, and should consult investment counsel before investing.
NOTE: Bonner&partnersFamilyoffice is strictly a financial publisher and does not provide personalized trading or investment advice. No person mentioned here by our writers should be considered permitted to engage in rendering personalized investment, legal or other professional advice as an agent of Bonner&partnersFamilyoffice. Additionally, any individual services rendered to subscribers of Bonner&partnersFamilyoffice by those mentioned herein are
considered completely separate from and outside the scope of services offered by Bonner&partnersFamilyoffice. Therefore, if you decide to contact any one of our writers or partners, such contact, as well as any resulting relationship, is strictly between you and that service provider.
Bonner&partnersFamilyoffice expressly prohibits its writers from having a financial interest in any securities they recommend to their readers. All employees and agents of Bonner&partnersFamilyoffice must wait 24 hours after an Internet publication and 72 hours after a print publication is mailed prior to following an initial recommendation on a security.
Bill Bonner, Chairman
Bill founded what is now known as Agora Inc. in 1979. Since then he has co-authored three newyorkTimes best-selling books: Financialreckoningday, Empire
ofdebt, and mobs,messiahsandmarkets. In 1999, Bill launched the dailyreckoning, a hugely popular contrarian investing newsletter. He continues to write for
it daily. Today, it has more than 300,000 subscribers. His contrarian and Austrian school economic outlook serves as the basis for the Bonner & Partners investment
strategy. Bill lives in the US. He also spends time in France and Argentina.
Will Bonner, Executive Director
Will is the eldest of Bill’s six children. He has been with the family business for almost all of his working life. In 2007, Will opened Agora’s Argentina office and
launched Agora’s first foray in to the Spanish-speaking investment advisory market. Will is the executive director of Bonner & Partners and writes regularly about
family governance.
Elizabeth Bonner
Elizabeth Philip Bonner is married to Bill Bonner and is the mother and stepmother of their six children. She is a graduate of Harvard University and the Sorbonne
and a founding partner of Agora, Inc.
Rob Marstrand, Chief Investment Strategist
Prior to joining Bonner & Partners, Rob worked for Swiss bank UBS for 15 years before escaping the banking world and moving to South America. His ex-employer is
the largest global wealth manager and the world’s biggest stock trader. At UBS Rob worked mainly in corporate strategy. This involved reviewing the bank’s current
businesses, developing entry strategies for new businesses and countries, and working on acquisitions and joint ventures. Rob lived in Hong Kong and China from
2002-2005, where he negotiated joint ventures and acquisitions in China. He has also worked on projects, acquisitions and joint ventures in Japan, India, Saudi
Arabia, the US, Switzerland, Indonesia and South Korea, among others. He lives in Argentina with his wife and two children.
Eric Marshall, Tax and Legal Strategic Partner
Eric W. Marshall graduated from Washburn Law School, Topeka, Kansas, in 1993. Before entering law school, he served four years on a US Navy destroyer home-
ported in Charleston, South Carolina. He was admitted to the Kansas bar in 1993 and the Texas bar in 2008 and is currently licensed by the Supreme Court of Kansas.
After law school he practiced law for 12 years in Greensburg, Kansas. In 2005, Eric and his family moved to Southern Chile, where they lived for two-and-a-half years.
While in Chile, he became familiar with the Chilean legal system and investment opportunities. Having moved back to the US in 2008, Eric and his family have now
settled in Kansas, where Eric operates his private law practice. Eric focuses on estate planning, succession planning and estate and trust administration.
Rick Rule, Resource Investing Strategic Partner
Rick Rule has been active in natural resource investing for 35 years. He is well-recognized for his knowledge of the mining, energy, water, forest products,
infrastructure and agriculture sectors. He founded Global Resource Investments, which provides investment advice and brokerage services to high net worth
individuals, institutional investors and corporate entities worldwide. A popular public speaker, Mr. Rule is a featured presenter at investment and industry forums and
conferences around the world.
Meet the Team