Wisdom of the Masses Q & A – Sept. 25


We can see the wisdom of the masses everywhere so we devote our Saturday message to comments and questions from our readers. With over 21,000 of you, we together know a lot!

Ecuador-beach

Ecuador beach north of Manta during Carnival.

Sometimes though some of us we prefer to do the opposite of the masses.

Ecuador-beach

This is how this beach normally looks.  Merri and I are walking the same beach with Ma and our friend, Steve Hankins.

See more on this and the following questions below:

#1: How Brazil can help you be wealthier in the US or in Ecuador.

#2: An Ecuador Visa Question.

#3: Questions about Pot in Ecuador.

Plus comments on the Ecuador coast.

Ecuador-Beach-condo

Question: Hi Gary,  I am an American who has lived in Australia for over twenty years.  In December, my husband and I will be moving to Cuenca.

I have been communicating with Merri over the last couple of months and have really enjoyed learning about your work.  You are an amazing couple!

I have a question about investing in Brazilian Government Bonds.  I read an article you wrote in 2008 encouraging this purchase. I wonder if you feel that today they would still be a good purchase.

We have been in touch with Jyske Bank and Jyske Bank can obtain the Brazilian government bonds for us.

We would not be borrowing money to buy them and we would buying them with Australian dollars.

If you have the time to comment, my husband and I I would be grateful. Thank you.

Reply: Last Thursday’s message looked at the fact that there is a bond boom which means opportunity in bonds are not as good as they were. However the high yield corporate and emerging market sector are still the best.

I personally still hold the Brazilian bonds I purchased some time ago. When I bought them they were yielding 10% to 12%.  Now Brazilian government bonds yield in the 8% range.

There are numerous aspects to consider.  The first is the yield which as mentioned is between 8% and 8.5%.

Next consider quality and maturity.  For example the Brazilian government issue  12.5% BRAZIL REP OF 05-01-2016 matures in 2016.  This bond which paid 12.5% interest when purchased now sells for in the 116 range (a $10,000 bond costs $11,600) so the annual yield is 8.49%. The Brazilian government is rated at BBB-.  This is the lowest investment grade rating.

On the other hand other 9.25% European Bank of Reconstruction and development issue 10-09-2012 sells in the 102 range so the yield is around 8.03%.  This issue is rated at AAA the strongest rating of all.

Do you want to get 8% for sure through 2010 or lock in 8.49% though 2016?  Right now my thinking is short term, but your financial needs should dictate what you do.

Finally consider the currency. Both the issues above are denominated in Brazilian real.

The US dollar recently saw a sharp depreciation of the dollar.   It dropped from 130.65 per euro to  133.90 in two days.

This drop caused dollar-related emerging-market currencies to drop strongly against the euro as well.

The worst-performing currencies were the Argentine peso (down 2.5%), the Russian rouble (down 2.6%), the Colombian peso (down 2.6%), the Egyptian pound (down 2.5%) and the Brazilian real (down 2.6%).

However long term the real has been strong versus the euro and more importantly for you in Ecuador, the real is appreciating versus the US dollar.

These charts below show first how the real has been strong long term versus the dollar.

brazilian real chart

In 2002 a dollar bought almost 4 real. Today it buys only 1.75 real.

brazilian real chart

The trend for the last month has shown a great strengthening of the Brazilian real as well.

So why invest in US dollar bonds that pay less than 3% when you can earn 8% in a currency that continues to appreciate versus the dollar?

Regarding borrowing Australian dollars to invest in Brazilian bonds, the chart below shows that the real had a big appreciation again the A$ in 2004-2005.

Since 2006 the A$-real rate has been quite stable so the questions should be how much will the bank charge you to borrow the Australian dollars.  Look much more at the positive carry than the forex position.

australian-brazil chart

If you can borrow the Australian dollar for 4% and earn 8% this may be a good investment.  For example if you borrow A$100,000 at $4,000 a year and earn $8,000…. you make $4,000 a year extra for taking the forex risk… but also have a potential forex profit.

I suggest you read our report “Borrow Low-Deposit High”which shows how to calculate the potential gin and or loss and to carefully review the risks with your investment adviser.  You can order the report here.

We will review Brazilian and many other currencies and bonds… especially Eastern European currencies and Italian bank  shares that profit from them, plus…  54 high yielding equities that can earn income and protect against inflation now at our October 7 to 10 International Investing and Business course.

Join Merri and me with Thomas Fischer, Jean Marie Butterlin at Team Ecuador, David Cross…my webmaster, Bob Shane and Ann Russell Roberts for our October seminar…coming up in the Blue Ridge with all its autumnal glory!

Enroll here. $749 Reserve here –  $999  Reserve for two

Reader Question: Hi Gary, A friend of mine, in his 50’s, asked me if I knew of the laws in Ecuador regarding the growing and cultivation of medical cannibus in Ecuador. His interest is not only growing but also processing into tinctures, etc.

With the ambiguity of the laws in various states here, I’m wondering if you have any insight into the view of it in Ecuador and if this would be a viable venture down there?  Thanks Gary.

Reply: Anti drug laws are strict.  It is highly recommended never to violate any of these laws.  I have never heard of medical canibus in Ecuador so I asked my friend and Ecuador attorney, Andres Cordova who replied:  Good question!  I’ve been checking but we don’t have a law that admits the cultivation of cannabis for medicinal or other purposes. It’s unlawful therefore to cultivate the plant.

On a light note, you can get high on life down here. I am sending you a pic I took a few weeks ago in Punta Carnero.  Cheers, Andres

ecuador-beaches

Question: Hello,  I just ordered my Ecuador Living subscription yesterday and have a question. I am coming to Ecuador in January. I heard horror stories about the Visa process. I am a retired Real Estate Broker and maybe I can be active in Real Estate in Ecuador. With the Pensioners Visa I was told you cannot work.  A lawyer suggested a Corporation Visa, which he could have ready for me when I arrive in January. I need an Ecuadorian Corporation with 1% of the shares owned by an Ecuadorian. The lawyer has one for sale at $2,800.- U.S, dollars. This seem very expensive to me. Are there other Corporations for sale at a better price? How much does it cost to form a Corporation in Ecuador?

If I come with a Visitors Visa which is only good for 3 months, do I have to leave the country for the rest of the year and am I not allowed back for the rest of that year? If I apply for another Visa do I have to stay until I get the other Visa?

Is it true that with a retirement Visa I can not be involved with a business, for example Real Estate?

I don’t know yet where I am going to live when I move to Ecuador, but  in January I will travel to the most interesting places and then decide. I am a Canadian citizen and live in Toronto now, and have a Canadian Pension.  Thank you for your help.

Reply.  Ecuador corporations are expensive to set up and maintain. Usually a Panama company works better.  Please read the password protected  “Ecuador Visa Update” of  Jan 27th, 2010 that is available to Ecuador Living subscribers.

This report begins:  Ecuador tourist visa enforcement has changed.

Ecuador is a beautiful country that offers many benefits…such as excellent low cost housing.

Ecuador offers so many delights that one can be tempted to stay and stay… without remembering visa regulations.

Do not make that mistake because Ecuador visa enforcement has been increased.  In the past, visitors could stay for 90 days on a tourist visa and then expect to stay on 90 days more if they left Ecuador for one day.

The immigration authorities were very lax about this visa and the normal procedure if you wanted to stay longer was to give another 90 days.  This meant you could use a tourist visa to stay in Ecuador up to 180 days a year.

Or you could do as Merri and I did for years… come in for five or six weeks… leave… come back for five or six weeks etc. Each time they gave 90 more days.

NO MORE!

A new type visa has been made easier to stay 180 days BUT the relaxation over the tourist visa has been withdrawn.

One reader discovered this in a very harsh way when leaving Ecuador after spending the Christmas holiday at their condo in Cuenca. This reader had been in and out of Ecuador three previous times in 2009 attending to renovations and furnishing the condo.  No one stay was longer than 30 days.  The between times on visits was a matter of months.  On the fourth trip the total time for 2009 was 104 days.

None of those stays was for more then 30 days.

At Quito airport the reader was prevented from leaving the country and was told by the Immigration official at the exit booth, that the maximum annual stay could be no more than 90 days.

The reader had to pay a fine of $200.

Even worse was told not to return to Ecuador for nine months and that to be allowed back would require a special visa from a Ecuadorian Consulate in the US.

If you want to read our entire report, see below.

If you are a paid  Ecuador Living subscriber read this entire Password protected report here.

Learn how to obtain an Ecuador Living password here.

Comments to our recent message Ecuador Beach Condo Update: Gary, Vistazul is where I am staying.   What it doesn’t say, is that this is the “dry” season which means cloudy and not much sun!!    Really hot sun when it does come out, but you have to wait for it.

The town is dead because this is not the top season.  They don’t even open the dusty little shops.

They  do have a smattering of development here.   Not for me.

Reply: This is of course what Merri and I love… the quiet… the little town and not many people.

We have written often that Ecuador coastal weather has two seasons. It is dry and cool in the summer, often requiring a sweater and blankets at night. The winter is warmer and wetter… almost perfect. This makes Ecuador’s coast a great winter location!

Regarding the crowds, it sounds like Manta, Bahia or Salinas would be better for you.

Ecuador-Beach-condo

Manta is a busy port with…

Ecuador-beach

plenty of crowds….  shopping centers… restuarants but here is the Manta beach.

Bahia is another choice…. a town with plenty of development but…

Ecuador-beach

on the water also. Here is Bahia’s beach.

Merri and I have a really remote hacienda in Ecuador. Our house is at the end of this bluff and 45 inutes off a paved highway.

ecuador-hacienda

Even for civilization we selected a quiet village (Cotacachi).  Our home in North Carolina is on a dirt road about as far as you can get from civilization in the US Southeast.   Even our Florida home is in a tiny farm community.  So we favor being way away from the crowds and I tend to write about what I do and love.

However there are three other reasons why I have invested in, monitored and recommended the Vistazul project.

First, this area from Crucita to Bahaia is one of the two areas on Ecuador’s coast that I believe has the best growth potential.  This is the beach where I expect huge growth.

Ecuador-Beach-condo

See why at Manta Real Estate

Second, from the beginning… the club house was complete.

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The pool, the tennis courts, the spa… restaurant were completed fact… not a distant promise.

Third I have known the people involved for more than a decade…. dependable and honest and I know the prices.  There is  nowhere that you can find so much condo on with all these facilities… this…

Ecuador-Beach-condo

near such an excellent beach for such a reasonable price.

As mentioned the other factor Merri and I love is the sleepiness of the area.  But other prefer a more urban environment.

This is why we always recommend visit first. If you like what you see, rent second and stay to make sure you really like the place year round. Then buy third. You’ll not only be more sure…. but are more likely to spot bargains this way.

For more information on the Vistazul condos contact the developer Kjetil Haugan at kjetil@haugancruises.com

Gary

Learn about shares in an Italian Bank that will profit from the fact that Central and Eastern European currencies have performed quite well during the recent dollar and emerging currency fall.


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