United Nations to the Rescue!

Today's comment is by Bob Bauman, Legal Counsel and Senior Writer for The Sovereign Society.

Dear A-Letter Reader,

Since its founding in 1945, the United Nations has gained a certain negative reputation. It's rightfully viewed as a costly, cumbersome debating society that's unable to solve conflicts and discipline its staff.

The UN's first horrendous failure was one of its original projects, the Israeli-Palestinian conflict. Since 1947, the Israeli-Palestinian conflict has raged off and on.

More recently, the UN failed to stop the genocide in Africa. They failed to take quick action in Rwanda and their delay cost tens of thousands of lives. The horrendous death and destruction in Sudan and Darfur has drawn attention from around the world. In response, all the United Nations has done is send fact-finding teams.

Then there was the failed Iraq "Food for Oil" program, under the late Sadaam Hussein. During this program, there were proven cases of millions worth of graft and bribery involving UN staff.

But undaunted, the UN marches on - addressing the "really important issues" of the day.

For example, a special UN committee just released a new report addressing "gender equality" in Lichtenstein. This new report demands that the parliament of the Principality of Liechtenstein does the politically correct thing: grant female children of the ruling house of Liechtenstein the right to inherit the throne now occupied by Prince Hans-Adam II.

Liechtenstein is the only absolute monarchy remaining in Europe, and the ruling Prince has sweepingly broad powers. In fact, the Prince's powers just grew in 2006, when a national referendum adopted Hans-Adam's revision of the constitution.

Men Only

Since 1606, Liechtenstein law has required the first-born male of the family line inherit the throne.

In 2004 Prince Hans-Adam II formally turned the power of the day-to-day government decisions over to his son Prince Alois. It was his way of transitioning power to the next generation. However, formally, Hans-Adam remains Head of State.

The country's constitution stipulates that the succession to the throne is an internal matter of the House of Liechtenstein. Prince Hans-Adam II says the ancient family law that regulates the men-only rule is older than even the actual state of Liechtenstein. He also says it's a family tradition that does not affect the citizens.

The prince also points out that other European monarchies including the United Kingdom, Monaco, Denmark and Spain all follow male-preference primogeniture. (Primogeniture is the legal right of the first born son to inherit the entire estate.)

In spite of the UN's busybody interference in Liechtenstein's internal affairs, there is no local debate over the universal rule that the firstborn inherits the throne. That makes the whole struggle for equality meaningless - except maybe to future generations.

For now, it's a moot point. For the last century, all the firstborns of the house have been male, including the current prince's son and grandson.

Major Tax Haven

Why should you care about this tiny nation sandwiched in between Switzerland and Austria?

Simply because this tiny monarchy that has graced the map of Europe since 1719, skillfully transformed into a world-class tax haven in the last half of the 20th century.

Liechtenstein was one of the first nations in the world to adopt specific offshore asset protection laws, as far back as 1926. Today, Liechtenstein offers some of the world's strongest banking secrecy and financial privacy laws, and unique asset protection entities. Plus Liechtenstein offers direct financial and investment access to its powerhouse neighbor, Switzerland. Liechtenstein also shares Switzerland's currency and customs.

Liechtenstein's unique role in international financial circles is not so much as a banking center, but as a pure tax haven.

The principality's 16 locally owned banks, 60 lawyers and 250 trust companies employ 16% of the total work force. Its licensed fiduciary companies and lawyers serve as nominees for, or manage, more than 75,000 legal entities, most owned and controlled by nonresident foreigners.

The nation acts as a base of operations for foreign holding companies, private and family foundations and a unique entity called the Anstalt (i.e., establishment). The banks and a host of specialized trust companies also provide management services for thousands of such entities.

I have no doubt that Liechtenstein will ignore this latest UN meddling. You can discover the many uses for asset protection and investments available there in my special report on the principality.

BOB BAUMAN, Legal Counsel

P.S. Europe's and America's wealthiest families have used Liechtenstein as their tax and banking haven of choice for over 75 years. Think this tiny principality may be for you? Click here for more comprehensive information on Liechtenstein.

What's in Your Global Equity Fund?

Most global equity funds invest in major industrialized economies around the world. They also have sprinkles of exposure to advanced emerging markets like Brazil, China and Russia.

For the most part, these funds invest according to benchmarks. About half of their assets are in the United States. The rest are spread out across Western Europe and parts of the Far East including Japan, Hong Kong and Australia.

But increasingly, more fund managers are straying from investing in advanced economies to invest in red hot emerging market stocks. The result is greater returns, but additional risks. Most global fund investors don't understand these risks. Or worse, they have no idea their global funds are invested in such risky assets in the first place.

For example, some funds coined "Global Equity Funds" have soared over 30% this year. The benchmark, the MSCI World Index, has only risen 8% in dollars. Obviously, something is wrong with this picture. To their amazement, investors might find their mutual funds stuffed with high-risk stocks like China Mobile, China Life, Baidu.com or Brazil's CVRD.

The Global Equity sector in the United States and offshore is home to the single largest category of traditional mutual fund assets. That's because with one investment, an investor can gain instant global diversification across hundreds of stocks in foreign currency-denominated markets.

Investing in these funds takes the guess work out of global investing. You don't have to time the next big foreign market or sector. Also, the lower portfolio turnover means higher net returns because you're not busy trading all the time. That's the good news.

The problem facing investors ahead of the next bear market is "how much" emerging markets exposure do they really have? People forget that emerging markets investing is a two-way street. Yes, the returns have been truly spectacular this decade. But in the past, when financial "bubbles" burst, investors lost a pile of money in a very short period of time.

If you own global equity funds, make sure you don't have more than 10% in emerging markets, preferably even less. Although the major market economies have inherited all the risk this year, the emerging markets are not immune to a recession in the West. Buyer beware.

ERIC ROSEMAN, Investment Director

P.S. Exchange traded funds are a good alternative if you want to steer clear of global equity funds. Like funds, ETFs take the guesswork out of playing the international markets. They allow you to invest in regions and individual countries all around the world without the risk of trying to pick individual stocks. However, ETFs offer a BIG advantage over funds; they post their holdings every single day on their websites - so you know exactly what you're buying and how much. My colleague, Mike Burnick handpicks global exchange traded funds with the best emerging profit potential for his Global Market Investor subscribers. Click here to find out more about his biggest winners!

Currencies

Tis the Season for Euro!

Over the last 20 years, there’s been a seasonal trend that’s been very strong in EUR/USD. In fact, the euro has appreciated against the dollar in 15 of the past 20 Decembers.

That’s a 75% win-ratio – pretty good odds. Since the euro was launched in 1999, currency traders use the German Deutsche mark as a proxy for the euro in years prior.

In the past 12 years, the euro (and pre-1999 the Deutsche mark) appreciated 10 times in the month of December. Another nice aspect of these numbers is that when the pair gained, it gained on average 3%. When it lost, it lost 1.41% on average.

So even when the U.S. has a strong shopping season in December and the stock market typically rallies, it still hasn’t seemed to help the U.S. dollar. Why is this?

First of all, investors usually don’t know how well retailers did during the holiday shopping season until January. The numbers include a lot of the activity happening around mid December. So that delays the U.S. dollar’s response to this economic condition. Secondly, some foreigners that own U.S. dollars sell them at the end of the year to repatriate their funds back to their home country.

While EUR/USD has the strongest correlation, there are others that have a fairly strong correlation also. For instance, the British pound vs. the U.S. dollar (GBP/USD) and U.S. dollar vs. the Swiss franc (USD/CHF) have fairly strong correlations.

Surprisingly, the USD/JPY doesn't seem to have a strong seasonal tendency. The U.S. dollar only fell against the yen nine out of 26 times in December.

The Great British pound has appreciated against the dollar in the last 14 of 20 years. So that’s still got a 70% correlation. Over the last 10 years it appreciated eight out of 10 times. On average, the pound gained 2.37% during the positive months and only lost 1.15% during the two losing months.

Over the past 20 years, the U.S. dollar also fell against the Swiss franc 14 out of 20 times.

So in December, the dollar tends to fall more years than not against most of the major currencies with the exception of the yen.

Keep that in mind this season as you’re shopping for gifts.

SEAN HYMAN, Currency Director