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International Investments

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International Investments - Global Economic Connections

By Gary Scott

International investments in our global economy connects everything. Yesterday’s message saw how a series of unfortunate events led to the point where a downturn in tiny Iceland led to panic that pushed emerging markets down around the globe. See yesterday’s message.

One of the biggest connections that pushed prices down in Iceland and abroad started right here in the US. Lower US interest rates allowed lower euro and yen rates as well. These rates that made it possible for investors to borrow low and deposit into emerging markets for much higher returns. When investors perceived higher rates, they panicked and fled the emerging markets.

These lower interest rates also allowed real estate prices in numerous countries to rocket sky high.

British real estate prices seem unreal, especially in London. Parts of the US have had really high real estate price appreciation as well..such as Merri’s and my old home town, Naples Florida.

A Barron’s May 29, 2006 article looks at this in detail and begins:

“What a difference a year makes. People aren't laughing anymore when you bring up concerns about the housing market.

“IT WOULD SEEM TO HAVE IT ALL: four bedrooms, a guest house, a pool and a rock waterfall. But the vacation home in Naples, Fla., hasn't been drawing much interest from buyers, so the seller recently threw in that most modern of amenities: the $1 million price cut. That's brought the asking price down a full 25%. ‘If you want to sell, you've got to go back to '04 prices,’ says Chip Harris of Coldwell Banker Previews International, which is handling the property.

“The market for second homes could use a second wind. After a long string of double-digit annual price increases, a number of second-home meccas across the country are suddenly suffering from plunging sales volume and burgeoning inventories of unsold homes. Result: Naples-style discounting is starting to spread. It hit the town of Pocasset, on Massachusetts' Cape Cod, just as retired executive Jack Reen was trying to sell his four-acre, six-bedroom beachfront home. He cut the price several times, for a total of 42% off the listing price, before striking a deal at $3.95 million. Reen takes a philosophical view of the experience, noting that the original price was set at the top of the market. "Calling the tops and bottoms is impossible," he says.

Though the official figures on sales prices have yet to reflect the current round of cuts, interviews with real estate pros and others strongly suggest that the averages are deteriorating in a number of key markets. Just look at green and hilly Litchfield, Conn., about a two-hour drive from New York City. It was a magnet for Wall Streeters during the past five years, and prices climbed accordingly. But in the past 10 months, prices in the lower end of Litchfield's market -- homes of $300,000 to $600,000 -- are down 12%-14%, and volume is falling at the next level up, says Stephen Drezen of the local Portfolio Properties Group. With mortgage rates rising and home-price appreciation slowing or vanishing, buyers in Naples have pulled back in a big way. The area's sales of homes costing less than $1 million declined 45% in unit volume in the first four months of this year. The Naples experience is being repeated, to one degree or another, in a variety of other vacation hot spots -- from Palm Desert, Calif., to Phoenix, Ariz., to Ocean City, N.J. Phoenix in recent years has been overrun by property flippers from California, says Mike Messenger, president of Russ Lyon Realty in Scottsdale. But unit sales now are down by 40%-42%, and the city's inventory of unsold homes has shot up more than five-fold, to 39,000.” You can read the entire article

The article points out that this is not all bad news and says: “All the same, many experts are cheering the current shifts in the markets. They call it an essential correction, a step that must be taken before the second-home market resumes its ascent. ‘In general this is a very good thing, because it got too far on the speculative side,’ says broker Ashby in Naples. ‘It needs to correct. If it didn't, it would burst.’ There's certainly hope for the long term. The baby- boom generation continues to amass both inherited and earned wealth.

And many a boomer will buy a second home with an eye to eventually retiring to it. With any luck, they will see some nice financial returns. ‘Vacation homes have turned out to be one of the best housing investments, particularly on the coasts,’ says McIlwain.”

Remember though that every action creates opportunity! First, realize that in this connected global marketplace falling US real estate prices and a crashing US dollar will create a new wave of buyer, the overseas investor. US property especially on the east and west coast will suddenly seem cheap in foreign currencies. This is a built-in buffer. Second, real estate sales in Florida are causing real estate prices in North Carolina to boom! Some of the money seems to be coming north. Third, real estate remains the ultimate inflation hedge.

Emerging equity markets crashed mainly because investors were fearful that rising US inflation would push US Japanese and European interest rates up. If this is true, well chosen real estate, purchased with fixed mortgages will be one of the best investments around.

If you want to stay on top of Naples, Florida real estate prices contact our friend, Micky Enright. She’s a great friend and client…a Naples broker at ( website is

Our friend Trey Morrison ( is a North Carolina broker and he sends us frequent listings so we can stay in touch with the market. Values here are still very good. Take for example this condo listed in Jefferson Landing (the premier resort in the area). This is a ground floor property surrounded by golf course and is in walking distance of the pool and tennis courts. The patio faces the #2 fairway and ponds. This condo has an open floor plan, with great windows to enjoy views. Features include living room with gas fireplace and vaulted ceilings, a spacious kitchen, roomy counter space and oak cabinets, and large walk-in closets. Furnished and ready to move-in including a spacious 26’ by 12’ garage at an asking price of $252,500.

Learn about investing in emerging currencies, gold, silver, Ecuador, import-export, overseas markets and more. Join Merri and me at our September 15-16-17, 2006 International Business and Investing Made EZ course in North Carolina. Review where to invest and do business now and learn which markets and currencies may be strong in the year ahead. Our May course was overbooked and the September session is already filling up fast. Our free accommodations are reserved on a first come first served basis so do not delay! DETAILS

Here is what a departing delegate just wrote about the May course: “Gary, You and Merri did a wonderful job with that seminar. I got some really useful information out of that which will help my investing perspective for the long term... The people were great too... I was really sad to leave the place and the people behind and come back to my regular life.”


May, 2006


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