This is an interview that the Mountain Vision team conducted with Mr. Frank Suess, CEO and Chairman of BFI Capital Group.
Over the last couple of years, we have seen extraordinary policies take effect, low-to-negative rates, more QE, resulting in significant distortions in the global economic landscape and financial asset valuations. What is your assessment of the monetary direction so far adopted by the Central Banks and their impact on the markets and the wider economy?
We actually discussed the ECB’s extreme monetary experiments in a recent Mountain Vision article. The ECB is truly taking QE to the next level, yet again. And they are doing this even though their actions so far have had little to no positive impact on economic growth.
Arguably, these monetary games were able to buy some time, postponing the next financial crisis. Unfortunately, the time was not used for proper fiscal and structural reforms. Look at where we are: today, most economies around the world, and certainly the largest international economies, have higher debt levels and deficits than they did in 2008. We have some 12 Trillion of negative yielding government bonds worldwide. And, money velocity is at an historic low. That is why central bankers, with all their money printing, are pushing on a string.
In the end, the result of all this cheap money will be disastrous. Even if the hazards were not apparent from the beginning, they are certainly undeniable now. The consequences are real, tangible and wide-reaching.
Negative interest rates in Europe have crippled the banking sector, squeezed the profits and have already forced many banks to pass on the costs of the ECB’s policy to their clients. Some of the largest German banks, like DB and Commerzbank, explore the possibility of withdrawing their deposits from the ECB and storing them in physical cash, in their own vaults, while the world’s biggest reinsurer, Munich Re, has turned to gold, to avoid paying fees on their deposits. QE, a policy meant to stimulate economic growth, has backfired by crushing pension schemes and thereby arguably hurting the weakest the most.
In the US, we see the Fed walking a difficult tightrope, trying to balance the need of raising rates against economic realities and the expectations of Wall Street. As the promised rate hike is postponed from month to month, the institution’s credibility suffers from its procrastination and hesitation. As for the markets, they are so addicted to loose money, that we see absurd reactions to fundamentally bad news, like weak job reports, as these are taken as signs that fiscal tightening by the Fed would be once again put off.
It is clear that our financial and monetary system, supported and propped up by unprecedented money-printing and governmental promises, is beginning to crack at its foundations and the central banks are losing control.
On a political level, what are the major challenges that you believe could pose potential threats to investors in coming months?
There is much political and economic uncertainty ahead. One thing that does seem certain is that, with all the central bank tinkering and growing debt, Americans and Europeans can expect to see more taxes, more financial repression and more market volatility going forward. It is therefore important to manage the risks and build a good portion of legal and financial protection into your wealth plan.
Europe for one thing has been dangerously close to its boiling point for months and after Brexit, the dynamics within the Union have become much more complex, making it even harder to predict what this new day for the EU will look like. One can only hope that the leadership in Brussels come to accept that a de-centralized, confederate system would work much better for member-states and for their citizens and relax its grip on central planning and bureaucratic disincentives. Unfortunately, given the EU’s track record, this does appear to be an unlikely scenario, but still, it remains to be seen. Political risks are also emerging from the grassroots, with anti-EU movements and parties gaining traction and support throughout the continent, and the possibility of further “exit” referenda becoming stronger.
Whichever way Europe decides to take, it will have an impact on the economy and on the markets, both in the short and the long term, and it is important to keep a close eye on the relevant developments.
As for the US, the country is experiencing an election season like no other in recent memory. The US has serious fiscal and structural problems. We all know that. Change is needed. Polls show Hillary Clinton in the lead and so-called smart money is betting on her winning the race. In my view, her presidency is certain to result in no change, no improvement, more debt, continued decay. Wall Street and so-called smart money seem fine with that. However, Brexit made smart money look pretty stupid.
The forecasts on Donald Trump’s candidacy have been off-target all along. So, I would not rule out a Trump presidency quite yet. He might still have something up his sleeve. Will he be a good president? Is real change and betterment regarding America’s foreign policies, fiscal sanity and its taxation system possible under Trump? Who knows. American voters are stuck with choosing the devil they know or taking a chance on the newcomer they don’t know.
In reality, I believe the challenges will persist, and likely worsen, even after November’s vote, irrespectively of the outcome of the election.
How about Switzerland? Is the country still the “exception to the rule” and does it still provide the traditionally unique opportunities for investors who seek stability and reliability?
In short, yes, it is. Switzerland, while not an EU member, is right at the center of Europe and exposed to the health issues of the EU for sure, and of course it is not immune to the changes in the global financial environment, but it is better insulated and better equipped than most other countries, to respond and to tackle the challenges in time.
In Switzerland, we still believe that the state is a servant to the people and that a state can only be trusted as long as the state trusts its people. There is no realistic way or mechanism for the state to transgress or to overreach. Our confederate system and direct democracy, calling Swiss citizens to vote on legislative and constitutional decisions every three to four months, limits central government power and reigns in actions that go against our constitutional rights.
This is a major advantage and guarantor of future stability, both political and economic, as Swiss citizens vote directly on government decisions via initiatives and referenda. Thus, we actually have the right to accept or reject specific ideas and laws proposed, instead of relying on representatives, and that translates to a whole different level of control and accountability.
Finally, we must remember that Switzerland has a long tradition of respecting and protecting individual property rights. Our values, both in theory and in practice, are focused on personal responsibility and individual and financial sovereignty. The country, and most importantly its voting citizens, still remain loyal to those principles, as demonstrated by its legal system, its foreign relations and its taxation practices, that set it apart from other Western democracies.
How does your firm, BFI Capital Group, resist the pressures and overcome the challenges of our current financial system? Tell us a bit more about your strategic approach and the wealth management tools and products you have at your clients’ disposal?
At BFI, our focus has always been on providing our clients with investment strategies and structures that will afford them the benefits of privacy, asset protection and security, as well as tax efficiency, while still remaining compliant with the rules of their home country. Our strategy, activities and services, are largely driven by big-picture thinking and our somewhat conservative viewpoints; we put great emphasis on stability and wealth preservation. Our aim is to protect our clients from the consequences of decades of loose money policies, growing regulatory complexities and the resulting financial repression.
To do that, our group offers a collection of wealth preservation oriented services and solutions, ranging from asset protection planning and portfolio management services to adequate, physically allocated, precious metals storage solutions
Given the increased restrictions and the legal and regulatory obstacles that Americans face in their financial planning decisions, do you think Switzerland can provide a real solution to these challenges? What are your observations and advice, given BFI’s long experience with working with US clients?
Indeed Switzerland offers unique opportunities, particularly for American investors. A spike in regulatory restrictions and scrutiny in recent years has somewhat discouraged many potential investors from exploring this option, as well as some international banks or asset management firms from working with Americans. We at BFI decided to stay our course and keep going into the opposite direction: We’ve stayed dedicated to our US clients and offer an array of specialized, tailored products to serve the individual needs of our US clients.
Apart from the stability that Switzerland offers, it is always important to keep part of your wealth outside of the jurisdiction you live in, particularly if that jurisdiction has too much debt and shows manifold signs of increasing financial repression, which is clearly the case in the US. Jurisdictional diversification is one of the main planning pillars we help our clients achieve, and it’s also the basis for a new solution called ONE Trust that we have specifically designed with our US clients’ needs in mind.
ONE Trust is a global asset protection and investment structure, which provides a straight-forward solution for American investors and savers alike, by demystifying and simplifying the jurisdictional diversification of their wealth offshore, without the usual complexities and costs. It is completely compliant with the relevant US laws, while it also offers the benefit of tax deferral and access to international investments that Americans would find hard to achieve without the proper setup.
In closing, what would be your advice for a sustainable investment strategy in the current financial climate?
In these times of monetary excess, distorted incentives in the market and unsustainable state interventionism in the economy, prudent strategies, focused on wealth preservation and asset protection, have the best chances of success.
Currently, our investment strategies concentrate on the integration of capital protection and risk management elements, while still staying invested in the markets. While we expect this financial system on life support to come down, we don’t know when. I’m surprised at how long this monetary inflation game has been sustained. And, frankly, there are some initiatives – for instance central bankers have now suddenly joined the bandwagon of digital currency supporters (!) – that could extend it further. So, you have to stay invested.
But, our plans focus on a diversified set of investments. They include equities, real estate and, since the low-yield environment has rendered bonds more and more unattractive and risky, we have carefully chosen to invest in actively managed hedge funds, with a strategy that is not correlated to the stock market.
Apart from our other investments, we also place emphasis on precious metals, and in particular, gold, as a store of value and as a strong protection from market fluctuations and governmental excesses. Unlike fiat currencies, gold is a limited resource that cannot be created out of thin air or manipulated at will. Gold has passed the test of time as a reliable store of value and I believe that it will fulfill that role once again in the period ahead. Through our subsidiary, Global Gold, we secure the physical ownership of precious metals, in private, high security storage facilities, outside of the traditional banking system.
In the uncertain times that lie ahead, planning for the best case scenario is as important as being adequately prepared for the worst case. This is what drove us to organize the BFI Plan B Briefing, that will be held in Austin, Texas on September 21st and 22nd. There, Claudio Grass, Managing Director of Global Gold, and myself will take the opportunity to discuss in depth the current challenges that investors face, especially in the US, and to offer our own insights and practical solutions. I believe we still have some open spots. I suggest those interested get in touch with us for details.