Gary Scott – International Investment Value Q&A


Gary Scott – International Investment Value Q&A

Saturday is the day we can express opinions and answer questions to enjoy the wisdom of the masses.  This issue focuses on international investment value.

Each day when I complete my message, I ask myself, “Is there something here that is interesting… and useful that can help make our readers’ lives better?”

We live in a universe of unlimited abundance and wisdom.  Yet that infinite wisdom also uses time to make everything go.

Other times the masses can be impossible and… crazy even in the short term.

In fact short term it is usually best to avoid the masses. See why at “avoid the masses”

A number of readers sent me a question in response to our article “Manta to Bahia Progress” that mentioned a 38 acre beach sit for sale at $15,000. that I wrote about in 2001.

Reader Question: Gary, Thanks for your daily missives, very educational.  The 38 acres you mention, could you please provide me with more info?  I would like to locate this on Google maps. Thank you for expanding on this info, Patrick.

My reply:  Thanks for getting in touch.  Please reread as that quote as it was from an article I wrote in 2001.  In the article I underlined 2001 as I worried readers would miss that fact that the road south is now over a decade old.

However I phrased this badly because a number of readers missed the point and requested the same data you have.

Regretfully you are ten years too late when it comes to looking south but I reviewed that old article to point out what happened back a decade as the new road north can have same impact and I’ll get to toot my horn about this ten years from now (or maybe sooner).

We’ll keep looking for contrast distortions and trends that might help you spot potential now for profits in the years ahead and look forward to sharing 2011 with you. 

Reader’s comment to my message explaining why I paid off my US dollar leverage because I am concerned about currency turmoil in Europe and the US in 2011.  Dear Gary,  I would like to make you aware if you are not to China’s commitment  to protect the Euro. This is new news and they are talking about loaning five billion dollars to Portugal. They have already offered some assistance to Greece.  I do not see the Euro exchange rate dropping very much with that backing. Best regards to you and Merri.

My Reply: Thanks. I hope you are correct. Instability in Europe would not be a good scenario.  However such news does not encourage me. The fact that Europe and China are publishing the fact that China is making these loans probably means that both Europe and China are worried.

Anytime any politician tells me not to worry… I start doing so… hence my added caution.

There is another reason to have concern over dollar euro turmoil.

A recent Economist article entitled “Squaring the triangle” points out the impact that low bond rates have on currencies and the stock market.  Here are excerpts:

Photo from the Economist article “Squaring the Triangle”.

THROUGHOUT 2010 financial markets have reflected a strange confluence of views. Government-bond yields have been low (outside peripheral Europe), indicating that investors are expecting low inflation and slow economic growth. But gold, an inflation hedge, has risen steadily, while American equities, a play on growth, have performed well.

This threefold combination cannot last for ever. That it has persisted for so long is probably down to the Federal Reserve’s quantitative easing (QE), which gave comfort to bulls in all three asset classes. The gold bugs saw QE as inflationary, equity enthusiasts saw the tactic as boosting growth and the bond markets had the comfort that the Fed would be the “buyer of last resort” for Treasuries.

Oddly enough, it was the launch of the Fed’s second round of QE in November that seems to have broken the logjam. The ten-year Treasury bond yield has increased from 2.56% to 3.53% since then, with an extra spurt after the announcement of an agreement to extend America’s Bush-era tax cuts, supplemented by a cut in the payroll tax.

Yet in the long run creating money to prop up asset prices is not a sustainable tactic.

Higher bond yields have other consequences that might not be quite so welcome. Mortgage rates in America have risen, casting a further pall over the subdued housing market. Influenced by the Treasury market, yields in Britain and Germany have risen by a third to a half of a percentage point over the past month, even though both countries are making strenuous efforts to keep their budget deficits under control. Higher yields in Germany, which sets the benchmark for other euro-zone countries, put pressure on peripheral borrowers.

Stockmarket investors should also think carefully before they celebrate too wildly over rising bond yields. After all, bulls were previously arguing that low yields were good news for equities, as they encouraged investors to move out of fixed-income assets in search of higher returns. On the best long-term measure, the cyclically adjusted price-earnings ratio, Wall Street looks overvalued on a multiple of 21.9, some 33% above the historic average. That already seems to price in a significant rebound in corporate profits. (Bolds and underline are mine).

The fundamental problem remains. In a “normal” American economy, with 2% inflation and 3% real GDP growth, government-bond yields ought to be around 5%. But yields at that level would be too high for the health of the housing market, the stockmarket and for other governments worldwide. The markets are no closer to resolving that dilemma than they were at the start of 2010.

Here is why I believe this creates a concern.  Governments have done a lot to stimulate the global economy.  This has created debt and soverign debt instability as it pushed up the stock market, but did not really get the industrialized economies growing.  This leads to inflation and higher interest rates which could slow economies again and cause currency turmoil and stock markets to fall.

We review how to invest in these condtions at our February Investing and Business Semainrs in Mt Dora.  See details below.

Reader’s comments: Ecuador real estate is a bubble in the making. Subject: Manta to Bahia Progress

My reply. The bubble may already be made in many parts of Ecuador. This is great for those of us who began buying 15 years ago but it’s also why we have been urging readers for some time to take advantage of unknown areas and why we warn DO NOT TRY to FLIP real estate in Ecuador.

See my previous articles on why you should not try to flip real estate anywhere at http://www.garyascott.com/2010/12/15/11138.html
and http://www.ecuadorliving.com/2010/12/28/investing-in-ecuador-real-estate.html

Read the messages above to see the importance of always seeking value. This is why we always warn: “Merri and I recommend that you Visit First. Then Rent before you buy. Make sure that Ecuador is the place you love and enjoy.  Then buy when you are sure.”

Some places and investments grow too expensive.  Others become really cheap.  Ecuador has become much more expensive than when Merri and I first started living and investing there 15 years ago.   However there is still good value for those who take the time to learn the real estate market and search for value.

See http://www.garyascott.com/2010/12/01/11066.html

After I announced that all visa applications for Ecuador many readers sent comments.

Reader’s Comments: Sounds like it is more of an internal government problem, rather than an  immigration problem. This might give the government a chance to make the process more straight forward, why wouldn’t Ecuador want retires money and knowledge, those that really want to be apart of the local communities and contribute, not those just trying to make a fast buck. I still plan to move to Cuenca the end of this month, I am just finalizing the details now. Thank you for the information, I really appreciate the information you make available, it really helps to gain a true picture of the country from someone that cares.

My friend from Florida moved to Cuenca three weeks ago and has her two children enrolled in school and is already making friends with the locals, not too many single ladies are capable of that on their own, and she and her children are just now learning the language. Now there is a story very few would have to tell. She had no contacts there before moving and only visited Ecuador briefly before making the decision to move there permanently.

Another reader wrote: I have had lunch with the members of the referred to immigration office before and after the removal of the Director for corruption. He was not well liked by the staff and they are witness against him.

My comment.  What makes Ecuador a great place are the people. This is why a woman with two children could move there alone and gain so much support, not because of a government plan.  The best scenario in my opinion would have been that the government never even became aware of the expats coming in.  Let them do as Ecuador’s constitution is designed…. treat all equally in the eyes of the law.  Ecuador does not need special benefits to attract expats and whatever a government does… they’ll most likely get it wrong.  My belief is the less government the better.

However Pandora is probably out of the box on this issue so remember the key to success is adaptability!

Gary

The most powerful protection in life is to be able to earn income globally… not depend on governments.  Learn how to earn below.



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