Praetorian Trust

“Banking secrecy, ladies and gentlemen, remains intact,” President Hans-Rudolf Merz of Switzerland told reporters yesterday even as UBS turned over its treasured confidential bank accounts of US citizens to the American government. As if scripted from a Hollywood crime thriller, the transfer of the secret accounts took place in the middle of the night just ahead of a U.S. deadline for Swiss cooperation.

“This so-called agreement is a brutal demonstration for why banking secrecy should be guaranteed in the Swiss constitution,” said Hans Geiger, emeritus professor of banking at the University of Zurich.

The President of Switzerland is now forced to defend Switzerlands sovereignty, and the one thing that has made the country so wealthy, specifically Swiss Banking secrecy, on a very thin legal reed. Swiss banking secrecy can only be lifted when individuals are deemed to have deliberately defrauded tax authorities as opposed to failing to declare all assets, a distinction only Switzerland and other tax havens make.

Rainer Schweizer, professor of public law at the University of St. Gallen, said the foundations of Switzerland’s legal system have been shaken. Undeclared money was no longer safe in Switzerland, said Susan Emmenegger, professor of banking at the University of Bern. 

Switzerland approve the transfer of the files follows intense pressure from Washington according to President.Merz who said U.S. indictments of the UBS’s most senior staff, along with a wider investigation into its business practices in the United States, would have threatened the Swiss economy as a whole during a serious economic downtown. 

In the end it is clear that Switzerland capitulated because The United States “blackmailed” the country and the pressure is now on the Swiss to stand up for the 75 year law protecting individual over state rights.

We found these little gems that make life just that much more first class for the busy business traveller.

Club Airport Premier: Now this little gem, not only is it free, but you get vip service throughout, all you have to do is leave from Nice airport 10 x times pr year or more, and have free vip parking at regular rates and vip security check in line (and believe me this is worth its weight in Gold, especially in the summer months or on Monday mornings or Friday evenings).

Easy Parking.com: Is a brilliant concept that I am trying out just now, and it seems well worth the extra euro pr day that it costs.

 - book online a day in advance and a ‘valet’ will pick up your car at the airport, and do any number of services for your car while you are on a trip from just parking it, to a full wash, service, paint job or change winter tires.

If you’re a self-professed “Goldbug,” feel free to read no further. Or at least spare me your hate mail. Because no matter what I say today, I know you’ll cry foul… or something much more colorful.

But for those of you with an open mind - especially after my last three contrarian predictions proved dead accurate - read on.

Because it’s time to start shorting gold!

You won’t find many, if anyone else, making this case. But as the first reason of 12 below reveals, that’s precisely why you should give it more credence.

12 Reasons To Start Shorting Gold

1. It’s decidedly contrarian. If a contrarian investor is someone who deliberately decides to go against the prevailing wisdom of other investors, shorting gold certainly fits the bill. Right now, everyone else is buying gold, or at least recommending it. If you have any doubt we’ve reached such fever pitch levels, consider No. 2. 
2. The infomercial factor. The best indicator of a turning point for any investment, in my experience, is infomercials. If an investment gets so popular it invades the pre-dawn hours with non-stop but-wait-there’s-more offers, it’s time to get out. And that’s exactly what’s happening now. So much so companies like Cash4Gold.com are invading primetime television. They even splurged for a Super Bowl ad spot. And they recruited washed-up celebrities Ed McMahon and M.C. Hammer to boot. In case you forgot, the Hammer filed bankruptcy in 1996. And Eddie boy almost lost his 7,000 square-foot, $6.5 million Beverly Hills pad to foreclosure. No offense, if you take investment cues from these two, you deserve to lose money. 
3. There is always some truth in a rumor. Recent news reports suggested Germany, the world’s second-largest holder of gold, was selling some from its vaults to trim its deficit. It turned out to be a rumor. But you gotta wonder if there’s some truth behind it. After all, high gold prices would be an easy way to raise cash. In other words, the scenario is completely plausible. And if Germany’s considering it, even remotely, so, too, are plenty of other deficit-ridden governments. It goes without saying that a government dumping supply on the market will send prices lower, quickly. 
4. The gold-to-oil ratio is out of whack. Historically, an ounce of gold will buy you about 14 barrels of oil. But with oil around $40 per barrel, an ounce of gold gets you almost 23 barrels - a whopping 64% above the historical mean. If you believe in statistics, a reversion to the mean is imminent! 
5. So is the gold-to-silver ratio. Historically, an ounce of gold will buy you 31 ounces of silver. But now the ratio stands at 73 - an unbelievable 134% above the historical mean. Here, too, a reversion to the mean is imminent. And I’d rather place my bets on a 57% decrease in the price of gold, than silver more than doubling to make it happen. 
6. The HGNSI index is too high at 60.9%. For the past 25 years, Hulbert Financial Digest has tracked the average recommended gold market exposure among a subset of gold-timing newsletters. It usually fleshes out around 32.6%. But now it rests at 60.9%, a level it’s only exceeded 13% of the time. The key - Hulbert found an inverse correlation exists between his proprietary index and the short-term market direction of gold. In other words, if the index is high, like now, gold is headed lower. 
7. Trinkets drive demand, not governments or speculators. Nearly 75% of gold demand comes from the jewelry market. And if Indian brides balk at buying above $750 per ounce as the Bombay Bullion Association reports - India’s gold imports cratered 81% in December - look out below. And don’t be fooled into thinking investors (governments or speculators) will pick up the slack. As HSBC reports, rising demand from investors, particularly from ETFs, only offset half of the 33% decline in jewelry market demand since 2001. 
8. What makes now “different?” If the global economic crisis keeps getting worse, as goldbugs like to point out, why hasn’t gold tested last March’s high of $1,030.80 per ounce? Or blown right by it? After all, gold is supposed to increase in value as economic conditions worsen. But it hasn’t lived up to expectations, not one bit. And I don’t think it ever will. Ultimately, when you factor in the massive amounts of stimulus being injected into the markets, on a global level, we’re close to the worst of times… and the peak for gold. 
9. Analysts love it. According to Bloomberg, 16 of 24 analysts surveyed by the London Bullion Market Association believe gold will reach a minimum of $1,032 per ounce this year. As we all know, analysts’ track records are deplorable. Instead of just ignoring them, why not bet against them? The odds are definitely in our favor. 
10. Hedge fund buying dried up. Institutional speculators (hedge funds) played a large part in gold’s run-up. But 920 of them went Kaplooey last year, according to Hedge Fund Research, Inc. Not to mention, hundreds of others hemorrhaged capital as investors demanded their money back, while those left standing ratcheted down borrowing to close to nothing, according to Rasini & C., a London-based investment adviser. In the end, gold prices will eventually reflect the absence of these former heavyweights. 
11. Gold is schizophrenic and the wrong personality is in control. Multiple motivations exist to buy gold including the desire for a safe haven, currency, adornment, raw material, or inflation hedge. But much like Treasuries, the bulk of buyers come from the safe haven camp today. And once the economy shows any signs of perking up, we can expect these same investors to flee for more risky assets. And don’t be so quick to rule out a second half recovery… 
12. The Fed, the President, history and the Baltic Dry Index concur - the economy’s on the mend. Despite dismal data, both the Fed and President Obama point to the current recession ending by the second half of 2009. Moreover, the average recession only lasts 14.4 months. So even if this one is longer than usual, we’re still near the tail end of it - a fact underscored by the recent 61.4% rally in the Baltic Dry Index from its early December low. As I wrote in November 2008, the index is the first pure indicator of an uptick in global activity. And once the economy gets back into gear, the Fed will act quickly to rein in the money supply and curb inflation. 

Clearly the gold rush is on. But that’s all the more reason to move in the opposite direction, against the herd. I realize this might be the most unpopular recommendation right now, but that means it could also be the most profitable.

And before you brand me a fool for recommending shorting Treasuries and gold in the span of two months, here’s the intersection. The driving force behind both assets in recent months has been safe haven buying. And it will remain the dominant variable in determining price in the months ahead. So when investors go back on the attack for more risky assets, prices for both assets will fall.

It’s already happening for Treasuries. And I’m convinced gold is next.

Investment U Editor’s Note: In the past year, Lou’s been dead on with his predictions. He called the U.S. dollar bottom versus the euro within 26 days… oil’s peak within 24 days… and the top in U.S. Treasuries within two days. So when he makes a big call like this, we listen. 

We recommend holding 5% of your portfolio in precious metals as part of our Asset Allocation strategy. Asset allocation refers to spreading your investments among different asset classes, not just different securities or market sectors. Doing this has allowed us to survive, prosper and build our wealth during the longest bear market since The Great Depression.

We’ve had money invested over the last five years in foreign stocks. While the stock market has gone down, these have gone up. We’ve also had money invested in six other asset classes. And over that five-year time period we’ve beaten the S&P’s return.

Now there are a couple of ways to limit your losses and lock in profits. If you’re heavily invested in gold you should definitely be using trailing stops. And if you are, you might want to consider lowering your stop percentage.

The other thing you should be thinking about is the balance of your portfolio’s allocation. If you’ve experienced gains in gold, or any other asset class, you should look at portfolio rebalancing. It’s a simple approach to guarantee you’re selling high and buying low. Lou explains more on how to put “Rebalancing in Action.”

While the current global economic problems continue to wreak havoc, and particularly amongst businesses that are primarily export oriented, it is prudent for executives facing difficult decisions and to be aware of their responsibilities when faced with tough decisions of shutting down or full liquidation in many jurisdictions today. 

Not only in Europe where problems of laying off or firing employees is legend, but also in many emerging markets that have prospered in the past decades because of strong export orientation. One example is in China where huge foreign direct investments in the manufacturing by foreign companies who utilized the low wage and export oriented policies implemented in China and prospered over the past decade. 

The Chinese government has already stated that it intends to seek prosecution for foreign executives and legally responsible persons for not properly meeting statutory obligations when closing a business in China. Just walking away is an option that now carries the risk of being permanently barred from entry to China, possible apprehension at immigration in the future, heavy fines, and jail sentences. The government has also raised the possibility of seeking prosecutions overseas in the executives own domicile. 

Praetorian Trust are experts in protecting assets and in providing the type of advisory services for the restructuring of your business which is critical and essential in this economic downturn.

Give us a call and come visit our offices in Zurich to discuss ways that we may be of assistance to you.

Although highly anticipated the EU, in policy shift has for the first time specifically targeted bank secrecy in member states. Luxembourg has agreed to discuss this directly with the EU but other member state remained opposed to letting go of banck secrecy.

 Luxembourg’s Prime Minister has stated he is prepared to discuss the abolition of banking secrecy with the European Commission. However, even given the country’s desire to make it a two way dialogue the fact that the discussions are taking place indicates that the days of banking secrecy in the EU  are numbered.

If bank secrecy is adopted, Luxembourg, Austria and Belgium – three European member states which still preserve traditional banking secrecy – will no longer be able to cite banking secrecy as a reason to refuse information exchange with another European country. 

For EU citizens that have not adequate asset protection structures in place, this will ultimately pose problems given the fact that the EU  will also use these talks to pressure both Switzerland and Liechtenstein to adhere to similar policies as EU member states.

Austria is very much opposed to the new EU directive to target banking secrecy and has  vowed to fight and attempt to veto any measures against it’s banking system. Attacking banking secrecy will make Austrian, and other European banks less competitive against rivals in Switzerland and Liechtenstein, but this is exactly why the EU is driving this wedge now.

A spokesman from the Austrian Ministry of Finance Harald Waiglein has warned that a unilateral solution, detrimental to Austria, would not be approved.