Editorial

The scandalous “Panama Papers”, a collection of 2.6 terabytes of secret data from Panamanian law firm Mossack Fonseca, reveal shockingly widespread corruption and tax evasion among the global elite.  The Panama Papers have implicated many politically powerful people in shadowy financial dealings, including the Prime Minister of Iceland, Russian President Vladimir Putin’s inner circle and numerous upper echelon Chinese Communist Party family members, among others.  Complicated trusts, shady offshore companies and hidden foreign real estate and share holdings are apparently as common among the global elite as grains of sand on the beach.

In light of the Panama Papers, you could be forgiven for thinking that the entire international establishment is corrupt.  You wouldn’t be wrong, either.  The political system really is biased toward the super-rich and politically powerful while the working man gets no relief from unyielding regulations and onerous taxes.  And yet discreetly building wealth is a goal that many of us common folk still secretly hope to pursue.

Most of us, understandably, have no chance of replicating the complex trust funds and offshore holdings detailed in the Panamanian Papers.  It is simply a non-starter, at least if your net worth is below about 10 million dollars.  However, there are certain overlooked assets available to ordinary people who value anonymity and discretion: cash, crypto-currencies, bullion and fine art and antiques.

Cold, hard cash is the first option.  While hoarding a stack of hundred dollar bills is not viable over the course of decades due to the corrosive effects of inflation, it is certainly feasible for a few years or potentially longer.  Cash is anonymous, discreet and, best of all, accepted absolutely everywhere!

Cash’s biggest problem is that once you withdraw it from the bank, you bear the risk of it being stolen or accidentally destroyed.  Also, the U.S. federal government likes to track large (typically $10,000 or greater) cash transactions.  Even so, a few hundred or even a few thousand dollars quietly secreted in a safe or other well-chosen hiding spot in your house could potentially be very useful.

A second possibility is the rapidly emerging field of crypto-currencies.  A crypto-currency is virtual money that is “mined” via computers that perform extremely intensive calculations.  Bitcoin is the most widely known example of a crypto-currency.  The major advantage of storing a small portion of your wealth in crypto-currencies is that they are totally anonymous – even more so than cash.

And this desirable anonymity extends to any online transactions involving crypto-currencies as well.  It is possible to purchase almost anything your heart desires online with the right crypto-currency – computers (Dell), tools (Sears), jewelry (Reeds Jewelers), a hotel room (Expedia) or even drugs (the dark net).  Even Amazon.com accepts Bitcoin as payment!

As interesting as crypto-currencies are, they do have significant drawbacks.  Most notably, they lack any intrinsic value. The calculations performed during the “mining” process, while consuming real resources in the form of electricity, don’t have any useful societal value, other than to confirm a crypto-currency’s block chain.

A block chain is a shared public ledger than keeps track of all transactions – and, by extension, all current balances – of a virtual currency.  However, block chain calculations are entirely self-referential, with no value outside that particular crypto-currency’s ecosystem.

Another issue with crypto-currencies is deciding which one to choose.  It can feel a lot like gambling on a horse race; you never know if you’ve picked the next Triple Crown winner or just another of the many, many losers.

The obvious leader in crypto-currencies today is Bitcoin.  It is the first and most well known virtual money.  Litecoin is also a rather well-established crypto-currency.  Etherium is another up and coming option that is rapidly gaining exposure.  Primecoin is notable because the intensive computer calculations used to “mine” the currency also serve to uncover new prime numbers – a feature that potentially makes the currency’s block chain “mining” calculations valuable to higher mathematics and, indirectly, humanity as a whole.

No discussion of off-the-radar ways to store wealth would be complete without mentioning precious metals.  Gold and silver bullion have been perennial favorites for decades among prudent wealth builders.  Compact, intrinsically valuable and widely recognized and accepted, bullion is one of the most perfect ways to quietly and discreetly stockpile wealth.

For as many benefits as precious metals have, however, there are still some drawbacks.  Much like cash, they must be safely stored, either in a safe or other good hiding spot.  Space constraints can also become an issue under some circumstances.  While gold, platinum and palladium have excellent value density, large dollar amounts of silver can be somewhat bulky.  In addition, transporting significant quantities of bullion can present certain distinct challenges, especially across international borders.

Bullion, however, is more of a wealth preserver than a true wealth builder.  Over long periods of time (several decades or longer) gold and silver tend to keep pace with the rate of inflation.  This is fine if your goal is to stockpile existing capital.  But if you’re looking to actively build wealth, bullion should be a modest part of your overall portfolio rather than the majority.

This leads us to our final, and possibly best, discreet asset: fine art and antiques.  Unlike bullion, high quality art and antiques have the potential to generate future returns well in excess of the rate of inflation.  They are not merely stores of wealth.  Instead, these luxury assets are really a claim on future GDP, independent of how that GDP is eventually produced.

This is one reason they are so powerful as investments.  You don’t have to speculate in today’s stock market casino, trying to guess which company or sector is going to create the next iPhone or Facebook.  Instead, you can just dedicate a reasonable portion of your net worth to investment grade art and antiques and then relax, confident in the knowledge that you have chosen wisely.

Art and antiques also compare favorably with cash, crypto-currencies and bullion in the important dimension of anonymity.  A fine collection of antique, solid gold pocket watches or ancient Greek electrum staters, for example, can easily fit into a small box, yet may be worth many thousands, if not tens of thousands of dollars.  Your nosy neighbors or coworkers won’t ever find out that your collection is worth a small fortune – or even that you have a collection – unless you tell them.

Unlike cash, there are few to no laws that require the tracking and recording of transactions involving fine art and antiques.  And if need be, some antiques – like jewelry – can be easily slipped around a neck or onto a finger and casually carried across international borders – a feat that is difficult with bullion or cash.

The Panama Papers have laid bare the deplorable corruption rampant among the global elite.  But as a wise man once said, “Why get angry when you can get even?”  A little bit of cash, crypto-currency, bullion or fine art and antiques could help you build wealth while giving you peace of mind in these turbulent times.  Although these four assets have their individual strengths and weaknesses, they are all intriguing alternatives that the average person could potentially use to escape the tyranny of the modern financial markets.

One mistake that a lot of well intentioned people make when first investing in alternative assets is confusing fine art and antiques with pedestrian collectibles.  Differentiating between the genuine asset class of art and antiques on the one hand and knick-knacks and collectibles on the other is vital considering that failing to do so can be a potentially very expensive error.

Art and antiques have a proven track record as investments, sometimes spanning not merely decades, but centuries.  Collectibles, in contrast, usually quickly burst into the public consciousness and then flair out of existence just as quickly.

So what makes something a collectible instead of a legitimate antique?  First, collectibles tend to be created solely, or primarily for the purpose of being sold directly to naive collectors.

Think of your Uncle Ned’s “Champions of NASCAR” plates from the Franklin Mint.  You may love your Uncle Ned dearly, but the sad fact is that his limited production-run plate “collection” has no real value, besides its vanishingly small utilitarian value as dinner plates.  They were produced by the thousand and hold no allure for most NASCAR fans, much less the average person.

Compare this to something like the Hope Diamond.  Many people may not know a lot about diamonds, but almost everybody has heard of the famous blue stone and the exciting lore surrounding it.  And a lot of wealthy people – even those that don’t normally spend much time thinking about diamonds – wouldn’t mind owning such a renowned and beautiful gem.

Collectibles also have a tendency to be faddish.  A great example of this is Beanie Babies.  Do you remember those small, cute plush animals that everyone was stockpiling at the turn of the millennia?  It doesn’t make a whole lot of sense now, but everyone was absolutely convinced that these tiny lumps of brightly-colored fabric and synthetic beans were going to allow them to retire on the French Riviera.  Once the insanity receded, the Beanie Baby fad dissipated with incredible speed, leaving tens of thousands of bitter “investors” with nothing but junk stuffed animals and regrets.

True antiques are real items that were created to be used by real people in real situations.  Life isn’t easy and that rule applies doubly to antiques.  Actual antiques have been worn smooth, accidentally dropped, forgotten in basements and attics for years and generally abused in almost any way imaginable.  As a result, it isn’t surprising that relatively few survive today.

In contrast, it is a safe bet that almost every mass-produced collectible ever made is immediately squirreled away into a dresser drawer, display cabinet or hope chest.  This ensures that, regardless of the size of a collectible’s initial production run, the exact same number is still available today – and invariably in excellent condition too.

Collectibles are often made to commemorate well-known people or events.  Why is this so?  Because the marketing team behind the collectible knows these famous individuals and occurrences are a hook.  They play upon the emotions of ignorant suckers who want to “own a piece of history”.  The only problem is that the collectible commemorating the event has no real connection to that history whatsoever.

Let’s look at an example.  What do you think most civil war buffs would rather own – a recent, mass-manufactured bronze medallion commemorating Confederate general Robert E. Lee, or his personal 1860s era officer’s side-arm, complete with provenance?  One of the items has a true, personal link to the famous man while the other is the mass-produced vision of a marketing maven with dollar signs in his eyes.  Is it any surprise that the real antique is destined to appreciate far into the future, while the collectible will eventually find its way into the trash heap where it belongs?