World Reports Winter 2001


* TWO GOLDEN OPPORTUNITIES: $21,220 ocean front condos-just $35 a month. Plus spot the upcoming explosion in the Lost Province. Page five.

* THE W9 IS HERE. This can bring good news. Secure your wealth with seven steps and get names you can use to beat the W9s in this new privacy era. Page three.

* JOIN ME IN MAY IN BEAUTIFUL BRITISH COLUMBIA. GET A $199 WORKSHOP FREE.

Foot songs crunch in a soft forest snow, muffled steps that echo off white flocked hemlock and maple wearing ermine coats. Nature’s crystal blanket wraps these woods with beauty as they settle into winter’s rest.

Merrily Farms, North Carolina. One day after our first serious snowfall Merri and I walked the woods, breathed the crisp air and listened to our feet squeak as we tramped over the freshly whitened ground. We romped and played longer than usual despite the nip of winter’s cold. We’ve learned some lessons here at the farm. One is that winter is a time for fun and reflection to learn, grow and rest to be even better next season.

Rest is good for investors too, especially now. There are so many serious problems in the market and economy that it’s starting to look like a good time to invest! If things get a little worse, the smart investors will become very alert.

There can be no doubt now that there are serious risks in equity and real estate markets. There is a growing possibility we’ll see a dramatic Wall Street collapse. Markets have turned down (Nasdaq is down 50% from its high). Losses can become much worse and be sustained. This risk is outlined in an excellent book, “Irrational Exuberance,” written by Robert Schiller, Professor of Economics at Yale University. He confirms that U.S. shares are (still) vastly overvalued! The Dow more than tripled from 3,600 in 1994, yet basic economics have not come close to this. U.S. personal income has risen less than 30% (half of this is due to inflation). Corporate profits rose less than 60% (from a recession depressed base). The Standard & Poor’s dividend yield is about 300% above its historical average. All this can be good!

I love living on the farm because the laws of nature are so evident. For example, it’s so easy to see that you can only feed so many cows on a bale of hay. This truth affects stock markets as well, but in the city it’s so much harder to see. Markets don’t crash just because charts suggest it. Solid reasons make markets fall and cattle-like action is one of these reasons that could let blood run in the marketplace now. Herd mentality always overbuys markets when they peak. We have definitely seen this stampede on the way up. Watch out for it on the way down!

This is not bad news. Clever investors and business people do not buy shares or set up businesses because markets are rising or falling. They invest in their own or another’s company (through shares) because they believe that the company can fill some long term, growing need on a profitable basis and that the company is well managed and has a unique competitive advantage. Even then, they only buy when prices are reasonable. Peaks in any market are a form of group insanity that push prices (for even good things) beyond fundamentally sound levels. The top of a market is the equivalent of winter as far as good investors are concerned.

Here’s some more seemingly bad news I picked up in Ecuador that suggest oil problems may be bigger than we like. Recently while researching economics there I learned that Arabs in Ecuador (two of Ecuador’s most recent presidents are of Arab descent) are working to create disturbances in Venezuela and Ecuador (#1 & #2 oil producers in South America) to push oil prices in the West higher. Think how the Arab- Israeli peace suddenly fell apart and how Iraq cut off its oil. Could this be a troublesome connection? High oil prices working in tandem with bad fundamentals on Wall Street could create an 80’s type oil crisis crunch.

What do I think about that? Thank you Mr. Hussein! The last time oil producers tried to blackmail the West, they shot themselves in the foot. We learned to use 30% less oil. We’ll do it again. This is good economically and even better for the environment!

An Economic Puzzle. You may have been reading that the Fed is worried about recession and will lower interest rates soon. You may also hear from some advisors (especially those trying to sell you shares) that this will stimulate the U.S. economy and cause the stock market to once again boom. Perhaps, but before you get too excited think about these economic facts. During the long period of economic growth, inflation seemed in check. When prices started to rise, the Fed raised interest rates to calm down what Greenspan called irrational exuberance. Did this work? Seemingly, but too many people ignored the U.S. trade deficit. The strong U.S. dollar allowed American consumers to buy huge amounts of foreign goods at low prices. This dampened U.S. inflation in the short run. The trade deficit is hidden inflation that now weakens the greenback.

During Wall Street’s boom, the trade deficit did not hurt the dollar because foreign investors plowed bucks back into U.S. stocks. With U.S. shares tumbling now will they feel the same way?

Here is the economic dilemma? If the Fed lowers interest rates to boost the U.S. economy, will this weaken the U.S. dollar? If so, won’t this cause foreign goods to rise in cost and put pressure on inflation? If inflation rises, the dollar is hammered and overseas investors flee the greenback, the Fed, the U.S. administration (ie. George Bush) and the U.S. economy could face deep problems. The U.S. dollar is already tumbling as I write and at least three factors could push it down 10% or more versus the euro over the upcoming months.

The first factor is that U.S. leaders who will lead us now obtained power (or perhaps impotency) on the wrong footed notion that they will spend a huge U.S. surplus improving Social Security, Medicare, Medaid etc. This idea is wrong for several reasons. More Americans may become poorer than anyone realizes. The U.S. savings rate is now below zero. More and more Americans have plowed savings into stocks instead of CDs or bonds. The U.S. market has already wiped out huge amounts of savings so less tax will be collected. Social spending will rise. The second factor is the U.S. population is rapidly becoming less healthy. USA Today (December 15 page 2A) reports on the National Health and Nutrition Survey, which shows 61% of all Americans are now obese (30 pounds or more over healthy weight). The number of adults has nearly doubled since 1970. This fact alone could destroy the federal budget. Third, the dollar has risen steadily versus the euro since the euro’s inception. This trend has now reversed.

There could be a loss of confidence in the greenback. Where to invest if this is true? Precious metals may be one place. A short in the Japanese yen may be another.

There are other negative economic factors; U.S. corporate earnings, retail sales and production are off. This includes the rising problems in U.S. banks and a dangerous house of cards (see my Aug. 2000 WR or go to www.garyascott.com/wr) built by government backed home loan agencies Fannie Mae and Freddie Mac. Now there is more bad news. The Economist’s October 28th article (www.economist.com) page 65 “Banks In Trouble” shows how big banks are messing up. One main problem is the huge lending exposure to telecoms firms. This concentration risk is so grave a special committee has been formed to see how bad it is.

November 2nd USA Today (Money section B, page 1B) wrote “Long Distance Phone Carriers Hanging” states that vicious competition and a tech revolution are pushing traditional firms out of the loop. A revenue drop from 41.2 billion in 1998 to only 40.2 billion in 2,000 is the first tremor in a seismic shift analysts say could end the telecom business as it is known. Is this another troublesome connection?

Loans to telecom companies are only one of the growing problems for big banks. Bridge loans to companies with debt of three and a half times equity or more have grown and deteriorated at the same time. In 1993 7% of new syndicated loans were leveraged. By 2000 this figure rose to 36%. Recently the Fed and FDIC noted a sharp deterioration in these loans. Loans that may be problematic have shot over $100 billion mark and the worst (called classified) total $64 billion. Lead managers for many of these loans are Bank of America (over $50 billion) and Chase/JP Morgan (over $40 billion). A recent report by Keefe, Bruyette & Woods, a firm specializing in banks, found it interesting so many chief credit officers and other senior bankers have decided to retire or resign recently. This has happened while the U.S. economy boomed. What happens when the economy slows down? We have already seen industrial giants (Xerox was downgraded below investment quality December 5) fall. What shock waves will hit Wall Street if a big multinational bank is downgraded?

Such a seismic hit on the market could actually be good. Shakeouts are needed cleansings. Any time any moron can become rich just buying shares because they always rise, a society and its economy are in trouble. I witnessed this in Hong Kong when I lived there in the 70s. The Heng Seng Index was rising like a sky rocket. From 100 it eventually rose to 18,000. In the first heady days, the market never broke so investors did not know that up has an equal (called down). All the local Chinese jumped into equities. Everyone was (or thought they would be) a millionaire. You could not get a taxi. You could not get an Amah (maid). You could not get any kind of service. Everyone was at the stock market.

Everyone was buying from everyone else at higher and higher prices. Everyone thought they were getting rich. Does this really make sense? If you think so, please come and spend a few days on the farm with us.

Wealth must be a reflection of service rendered to society. If this reality is askew, the society (and its economy) are ill. Expect a sneeze called a severe market correction, tightening of the economy and maybe a recession. Plan to hear and see a lot of doom and gloom. Feel glee! This is the time to genuinely become (not just feel) rich.

This does not mean start investing wildly. Only invest in things you understand, good shares at good prices; ever, anytime bad or good. The odds just improve in bad times. If you don’t see bargains now, don’t push. Clean up your act. Get in a liquid position. Be extra careful. Spread money around. Shift accounts so you don’t have much over the FDIC $100,000 guarantee in any one name in any one bank in the U.S. Be more careful about bank quality (bigger is not always better). Hold assets in several stable countries with banks backed by government guarantees.

Keep your eye on gold and silver. Congress is spending money based on a boom as we move towards a bust! A crisis could create dollar problems while the euro and yen are also fundamentally weak. This would create currency instability leaving few stable avenues. Precious metals still retain all the features of real money. History suggests it is time for a rise in gold. When the yellow stuff goes up, silver usually follows.

Look at real estate. Property is a favorite hedge against currency turmoil plus there could be a drop in real estate demand which creates opportunity. However, there may be a spurt in some overseas real estate markets because owning property outside the U.S. could become a private alternative of storing wealth trapped by the W9 problem.

W9s

More about real estate in a minute. First let’s look at W9s. On January 1, 2001 new U.S. withholding tax regulations force banks abroad to disclose the identity of American and non U.S. investors who hold U.S. stocks or bonds. If investors don’t submit a W9, the overseas bank is forced (by their U.S. paying agents) to withhold 30% of income and in some cases 31% of gross sales of any investment. Overseas banks must comply if they deal in U.S. stocks/bonds. There is a great deal of confusion among banks now. Some plan to report all income of Americans. Others will report just U.S. source income and capital gains. Others will report all U.S. source income but still negotiate with the IRS over what U.S. source income really is. This means one thing for sure. Bank secrecy is dead.

This is not all bad. For nearly thirty years I have operated an account at Credit Suisse in Zurich to gain global diversification. They refused to buy mutual funds for me. They refused to give financial advice. They refused to buy first issue bonds. Their fees were tons higher than most banks and the interest rates they paid lower. How could a bank like this stay in business? Because they relied on huge amounts of money being hidden by a veil of Swiss secrecy. Now banks like this will have to compete. Expect a shakeout, but also expect bank services to get better. The majority of international investors (who like myself did not use overseas banks for secrecy) will benefit now.

If you have been reading my reports you know I have warned about using bank secrecy to hide money to avoid tax. I have advocated using overseas banks if they offer better services than U.S. domestic counterparts. Now that service will get even better. This is why I have recommended Jyske Bank in Copenhagen for so many years. Jyske is Denmark’s third largest bank, is super safe and offers better service, lower fees and are multicurrency specialists because Denmark is noted for its international trade rather than bank secrecy. This bank provides all the services that Swiss, Cayman, etc. banks do, but in my experience tries harder without acting as if they are doing you a favor to serve you. They buy, sell, hold shares, mutual funds, bonds, etc. in every major (and many minor) market and offer CDs and checking accounts in most currencies. Some of their fees are a quarter of what you pay in Switzerland or other (previously) big banking centers.

I now recommend Jyske more highly than ever. Banking in a non secret center is more important than ever before. Part of the W9 regulations require overseas banks to have IRS audits. Guess where the service is bound to look first and hardest? High profile centers (Switzerland, Bahamas, Cayman, etc.) are certain to be targeted. For information on good, low cost, private (but certainly not secret) service, contact Teddy Christiansen, Jyske Bank, PO Box 133, DK-1780, Copenhagen V. Denmark. Tel: 011-45-33-78-7800. Fax: 011-45-33-78-7633. email: teddy@jyskebank.dk

Recessions Really Can Help

Bad times are coming and I’m so excited about the opportunities they’ll bring that I have developed a new workshop to help learn seven ways to everlasting wealth impervious to economic cycles. I cover them below. Postage and printing costs prevent a total explanation of these ideas in a letter this size so I have added an online expansion with more details and regular updates. You can get continuous updates and free reports by going to www.garyascott.com and giving us your email address. You can also get a tape free where I update these seven ideas (See below).

* Idea #1: Use a PIEC investing system. Personal Income Earning Corridors (PIEC) are systems that increase profit, freedom, satisfaction, safety & fun by focusing your efforts into three corridors. This focus streamlines your money producing activity and eliminates wasted effort. PIEC shifts your money and energy into areas where your chances of success are highest. None of us are capable of keeping up with everything in this ever faster moving world. Trying just leads to exhaustion and stress and reduces wealth. PIEC tightens your focus to the change that matters for you and protects you from useless economic noise. The first corridor is focused on you and what you do and know best. This individual and unique focus may be on equity markets, (in good times and bad) or not.

For example, over the past three decades I have spotted specific golden opportunities (I’ll give you two new ones in a minute) early on. Three were in real estate and four in equities. I cashed in on the property deals (made millions) but never did much with the shares (many of my readers did better than I). I realized I am always comfortable with real property and currency distortions, rarely with shares. So my first corridor focuses on these two areas. My only equity investments are in my second and third corridors. The second corridor is my reserves and the third my high risk speculation. Statistically this system doubles the chance to become and remain a millionaire. When we pursue what we enjoy, we almost always do it better and longer with less stress, fatigue and risk. Get more about this (www.garyascott.com/piec) or read the book “The Millionaire Mind” by Dr. Thomas Stanley.

* Idea #2: Double your wealth in the Imagination Era with killer apps. Mankind has moved through seven industrial eras fueled first by the stirrup, second, water, then steam, internal combustion engine, electronics and information. Each era has created a new and larger groundswell of productivity (though each was proceeded by a crash). Now we are moving into the seventh and most prosperous of all, the Imagination Era. Place your efforts and investments into businesses that cash in on the new trends this era will bring. For more on this, read the books “Dream Society”, Rolf Jensen, “Killer App”, Larry Downes & Chunka Mut. (www.garyascott.com/dreamers)

* Idea #3: Spot profitable tipping points. There is a natural order to epidemics that controls disease, fashion, equity markets and all trends. Learn this process so you can spot products, companies, shares, real estate areas, etc. that will tip and become the big winners. For more, read “The Tipping Point” by Malcom Gladwell or go to www.garyascott.com/tipping

* Idea #4: Use the Last (fun) Loophole. Owning your own foreign business (even operated from home) makes more sense than ever. This is the ultimate tax shelter. More importantly, it provides freedom to choose where you live, work and earn. This loophole can wipe out taxes forever and won’t change because governments everywhere want local goods sold abroad. Use the Circle of 100 to finance your business abroad-eliminate tax and improve the world. There are many ways to finance your business as you operate in conjunction with private or public charitable foundations to create wealth, eliminate tax and help the poor at the same time. To know more, study “International Business Made EZ”, Oxford Club, 1-800-992- 0205 or go to www.garyascott/ibez or attend my course “Self Fulfilled-How to Have Your Own International Publishing Business” (Orlando Feb 2-4).

* Idea #5: Borrow Low-Deposit High. This is a perfect time to consider multi-currency sandwiches because a full circle has turned. In 1994 I recommended borrowing Japanese yen and investing in Mexican pesos. Investors made fortunes. Since then many such distortions have offered amazing returns (for example the Japanese yen-South Korean won sandwich earned up to 85% in one month in 1998). Now the yen-peso sandwich is attractive once more. Here is how the position currently works. You borrow yen at rates as low as 1.75% to 2.00%. Mexican peso three month government bonds yield 18%. US$100,000 worth of CDs, bonds or shares available for speculation provides collateral sufficient to borrow US$400,000 worth of yen converted to peso bonds. Here are the details:

 

Amount                   Investment                 % Earns       Amount    US$100,000      Original US$ CD Used as Collateral     7.00%      US$7,000    US$400,000      Mexican peso government bonds         18.00%     US$72,000   -US$400,000      Yen loan                               2.00%    -US$ 8,000

 

The projected return on the US$100,000 is 71% or total earnings of US$71,000. Other sandwich speculations now include Swiss franc loans at 4.75% (or euro loans at 6%) invested in Polish Zloty CDs at 18.25%. For details, study “Borrow Low-Deposit High” (see below) or go to www.jbpb.com a website of Jyske Bank. This bank specializes in offering leveraged investments with due regard to the basic principles of diversification.

* Idea #6: Cash in on golden real estate opportunities in Ecuador. I have invested heavily here because Ecuador is less than four hours from the U.S. and a North American presence is growing with the new military base in Manta. Law and order are good. The country has dollarized which will check inflation. Leaving the coast you run into undulating green hills as the ocean view fades into a white haze. Further on, huge green valleys ripe with young bananas flow through craggy mountain scenes. Ecuador has 12 hours of direct sunlight 365 days a year but it is not hot there. Yet prices are so low right now you can buy brand new $21,000 beachfront condos in a coastal village described as being like Puerto Vallarta in the 50s (and just a short distance from the new U.S. military base). You can buy condos in Ecuador’s sophisticated cosmopolitan capital for US$20,000 and even less! Here is an even more interesting twist. You can use multicurrency loans (as mentioned above) and borrow yen to buy the condo! Current interest costs are about $35 per month. I wrote a full article about this in the January 2001 “International Living” (For 20 years IL has been a leading source on retiring, living and purchasing real estate overseas.) Visit IL at www.internationalliving.com. for a free weekly e-letter or call 1-800-643-2479) to subscribe or go to my site at www.garyascott.com/ecuadorproperty

* Idea #7: Invest in the second golden real estate opportunity in North Carolina’s lost province, Ashe County. Prices compared with nearby counties are three, four, even five times less. This land sits in the middle of the wealthiest population in the world. One in six Americans now live in a county that abuts the Atlantic or Gulf of Mexico. This demographic shift has been one of the biggest (and wealthiest) social migrations in history and Ashe County is almost perfectly centered in its midst. Yet the territory has almost been forgotten, until now. I purchased two hundred+ acres two years ago and have seen the price double at least already. Yet profound bargains still exist. Be my neighbor and make a fortune as well. For more go to www.garyascott.com/lostprovince/ or call Tim Parsons, Century 21 Real Estate. Tel: 1-336-246-2664.

New Taped Workshop – FREE

You can learn about and update these seven ideas in a new workshop on cassette tape. Markets change day by day. Laws continually shift so I will record a special workshop and there are two ways to get this free. First, buy three copies of my newest book. I have written the basics of creating wealth in a novel, “The 65th Octave,” so the process of understanding abundance can be even more entertaining and fun! I have threaded years of experience into a fast paced story to help improve your daily business and investment activity. This is my first novel. I need your help to get it launched. To reach as broad an audience as fast as possible I will give anyone who buys just three copies from a bookstore at $17.95 (or from any online bookseller) this one day Inspired Investing workshop on cassette tape FREE.

Join me in Vancouver – You’ll Like the Data Guaranteed

The second way is to sign up for my full, three day International Investment and Business Course in Vancouver, B.C. Canada April 26-29. Reserve now and receive the FREE workshop (on tape) or order the taped course for $199.

For Vancouver, I have asked the finest minds to join me to help understand the best opportunities for 2001 and beyond. We’ll share insights on global economic and banking conditions from international bankers, economists and investment managers. We’ll find out what is happening with the multicurrency sandwiches from one of the leading banks in this field. Tax attorneys and international trust managers will update the rules and opportunities of overseas insurance policies and trusts for U.S., Canadian and investors from other jurisdictions. A leading broker will update the rules on investing IRAs, Keoghs and pensions abroad.

Tax attorney, Joe Cox, will review why overseas life insurance has become more important than ever before. He explains why substantial U.S. and Canadian insurance firms have opened offshore subsidiaries as regulations allow separate accounting status that makes policies fail- safe. See why improved re-insurance with large re-insurance companies make the policies even safer as sales commissions have reduced 90%. Hear data from subsidiaries of U.S. insurers that (due to state insurance regulations) cannot be disseminated in the U.S. Joe also outlines I.R.C. codes, why actuaries can now monitor compliance with these sections plus how U.S. law firms offer legal opinions on overseas policies.

W9s are not required for assets held in correctly constructed overseas life insurance policies. The insurance company (not a U.S. resident) owns the assets. Benefits passing to the policy owner don’t create ownership. The biggest benefit of these policies is they provide asset protection and defer income and capital gains until death or when the policy is cashed in. No reporting is required until withdrawals are made. Joe Cox, Cox & Nici, 1st floor, 3001 Tamiami Trail N., Naples, Fl. 34102. Tel: 941-659-4495 Fax: 941-659-4496 email: jcox@coxnici.com

Bargains Guaranteed: Look below. My other courses cost $2,000 and more. This is the only full International Investment & Business Course I plan this year. Enrollment is an absolute bargain at US$549 for one or $749 for two. The Vancouver course includes a special session conducted by one of the cleverest (and most interesting) futurists I have ever met, Johan Peter Paludan. He is Deputy Director of the Copenhagen Institute of Futures Studies (CIFS) and he first introduced me to the importance of the dream society. Hearing him is worth the cost of the course alone!

This course will also be fun. Our friends at Jyske Bank are providing entertainment and a gala dinner you will never forget. Entertainment includes music by members of the Royal Danish Opera who will be flown from Denmark to embellish these festivities. This is included in the enrollment. Though the schedule is packed with information, there will be optional tours to enjoy Vancouver, one of my favorite cities. The weak Canadian dollar assures that costs of our stay and the five star hotel will be low.

Gary Scott Courses – Winter & Spring 2001.

Feb. 2-4. Orlando, Fl. Self Fulfilled-How to Have Your Own Publishing Business. Publishing is business that makes money providing information in print, on tape and over the net. It has brought me many millions and in this course Merri and I and our webmaster share everything we know on how to start small international businesses or to expand an existing business. US$2,000. (A spouse or business partner attends free.) Fax: 336-384-1577, email: pubcourse@garyascott.com

April 26-29. Vancouver International Investment & Business Course. Join me and a dozen of the keenest investment, legal and business minds to learn how to invest for added prosperity in 2001. $549, $749 for 2. 1-800-926- 6575, fax: 561-278-8765. email: agora@gate.net

May 3-10. Quito-Cuenca, Ecuador Real Estate Tour. Call 1-800-926-6575, fax: 561-278-8765. email: agora@gate.net

Borrow Low-Deposit High. Use this correspondence course to spot and capitalize on currency distortions. Learn how to borrow yen or other currencies at rates as low as 1.75% to invest in Mexican peso three month government bonds at 18%. Gain dozens of valuable names and addresses of banks, advisors, attorneys, etc. that help. $199. Order from www.garyascott.com or fax: 336-384-1577, International Service Center, 157 Little Horse Path, Lansing, N.C. 28643.

Inspired Investing Workshop on tape. $199 or have it free. Purchase 3 of my novels (The 65th Octave) for $17.95 each and I’ll send you this one day cassette course free. Send a receipt from any bookstore (or online). If books are not available, order three books and send me a note with the name and telephone of the store where you have placed the order. Or sign up for my Vancouver International Investment & Business course and get the taped course free. 65@garyascott.com or fax: 336-384-1577, Gary Scott, 157 Little Horse Path, Lansing N.C. 28643.


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