family office strategic review...these disasters are more like natural phenomena than normal human...

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.


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



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



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


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



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.



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 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



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

http://sprottgroup.com/subscribe/?ref=bonnerfamilyoffice

Legal Matters | Obama’s New Budget Means You Must Set Up Your Dynasty Trust Now


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


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.


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.

http://www.bonnerfamilyoffice.com

Guest Essay | The Role of the Matriarch in Strengthening Family Bonds


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


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


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


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?


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.


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


http://www.bonnerfamilyoffice.com/?topic=chile-farmland

http://www.bonnerfamilyoffice.com/?topic=silver-bullion-singapore

http://www.bonnerfamilyoffice.com/?topic=physical-gold

http://www.bonnerfamilyoffice.com/?topic=private-lending-to-small-businesses


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].

mailto:ewalsh%40bonnerfamilyoffice.com?subject=BFO%20Event%20Registration


mailto:ewalsh%40bonnerfamilyoffice.com?subject=Family%20Wealth%20Investment%20Forum


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



family office strategic review...these disasters are more like natural phenomena than normal human...

Documents