International Investments – Time to Recalibrate
* Natural Health Tip – Freedom of Food
* Ecuador Real Estate - Freedom of Longevity
July 4th is a day when the US celebrates its independence….a
day to celebrate freedom. Then I began to wonder. What the
heck…really…is freedom? I could not honestly
give an answer to that question. So I looked for a definition.
Wikipedia says: “Freedom is the absence of restraints
upon our ability to think and act (except those restraints
that are of natural cause).”
I won’t get into how that state rarely exists anywhere
I have lived. Instead I settled on a simpler meaning. “Freedom
is the ability to change.”
This is an important celebration. A recent note from a reader
in England reminded me of a how very important. He wrote:
“I think I need to recalibrate my expectations and
understanding of certain financial rules of thumb, as they
may be working against me. For example, I understand that
you should never pay more than one quarter of your income
for rent and or a mortgage on your residence. However, this
seems virtually impossible now. The Daily Mail headline yesterday
was 'Mortgage Soaks up 42% of Salaries' as UK mortgage debt
nears £1 trillion.’
“They point out that in 1986 the average mortgage
was £25,000. Today it is £115,000 and much higher
in areas like London, the Cotswolds and the SW. The average
take home pay of Brits is £20,500. The average cost
of a home is £170,000 - £200,000 (the equivalent
“Typical homeowners are borrowing three to five times
their salary to put a roof over their head. They also point
out that nearly 90% of people under the age of 30 cannot
afford to get on the property ladder. I'm currently happy
with my monthly accommodation expenditure but it buys me
a single room to rent in a shared house. To buy my own property
would be a major challenge and given the prospect of rising
interest rates I don't want to become one of the 68,000 people
a year in the UK who become insolvent because of housing
costs! So given that lot, might it be wise to look away from
seeing personal housing as the traditional mainstay of building
personal financial security and look in a new direction?
“In addition, my grasp of the virtues and vices of
credit and debt is not good. I have a visceral dislike of
credit and loans but it now seems this may be counterproductive.
In general, are there any rules of thumb to personal financial
security that worked when you were my age but simply don't
apply any more? What then are the new rules?”
This is why it is so great to live in a free country like
England or the US. This reader is free to change how, where
and when they live.
The Western world may be free but economically (as we can
see in this note above), more and more people are being robbed
by inflation of what we think of as a pretty simple freedom,
to have a home. My reply to that reader may help deal with
Inflation is a huge problem in the West. The US, Europe
and Japan have aging populations with bubbles of population
heading toward retirement A recent USA Today article entitled “Retiree
benefits grow into a monster” outlines how taxpayers
owe more than half a million dollars per household for financial
promises made by government mostly to cover the cost of retirement
benefits for baby boomers.
The shows that US retirement costs will soar starting in
2008, and Medicaid costs will really skyrocket beginning
2011. The problem is growing as well since Federal state
and local governments have added nearly $10 trillion (the
Federal debt right now created over this nation’s entire
history is a bit over $8 trillion) in just the past two years.
This vicious cycle is almost certain to cause inflation
in this great nation and cause the US dollar to fall. England,
Japan and most of Europe are even more expensive and have
even greater problems.
Those who understand the principles of everlasting wealth
will not suffer if we have accurately spotted this trend.
You are free to change. There are specific steps one can
take to ride through and even gain during this downwards
cycle. Here are a few inflation fighting ideas.
First, consider where you want to live. An average house
in England costs $400,000. You can still buy a pretty nice
place in the US for much, much less.
Look for example at these current two listings in Ashe County.
See why I like Ashe County at garyascott.com/lostprovince/203/index.html
Perfect 2 bed, 1 bath home for weekend getaway or
1st time home buyer! This cozy cottage features new carpet & stainless
steel appliances. Re-plumbed, new heating system & roof
in 1996. Rewired in 2004. Relax in hot tub on large covered
deck and enjoy great long-range view! $119,900
1Bed 1Bath rustic 104 year old cabin right on 1 acre with
stocked trout stream in the front yard. $109,900.
Get more details from Trey Morrison at firstname.lastname@example.org
For Americans who even find the cost of living too high
in the US, they are free to move elsewhere. For example you
can still but a wonderful two bedroom, two bathroom house
in Ecuador for $60,000.
Invest in this real estate with fixed interest debt. Inflation
is the one time when debt is good. Borrow for as long term
as possible with fixed interest even if the interest rate
is higher now.
Second, invest in shares and avoid investing in bonds. Most
businesses do not suffer during inflation. They simply raise
their price. Bonds as investments tend do lose value during
inflation. Keep in mind you want to be a long term fixed
rate borrow during inflation. Holding bonds makes you a long
term fixed rate lender, exactly the opposite of what you
want to be.
Third, invest in some non dollar – non euro assets.
When US debt causes the dollar to fall, it has to fall against
something. Keep in mind that the third world nations are
the young energetic places as America and other developed
nations were centuries ago. Perhaps the Chinese yuan, Brazilian
real or Turkish lira.
For example when I first began working and investing abroad
(in 1968) a US dollar bought 400 Japanese yen. Today it buys
about 115 yen. If you had invested $10,000 in yen then, it
is now worth about $35,000 just from the forex rise alone.
Foreign currency investments are difficult because there
is so little information about them. However there are a
growing number of financial planners who at least know about
US mutual funds that invest in overseas markets. In addition
you can learn more at a free course I provide at my website
Is Turkey a Turkey?
Investing in stocks or currencies is not without risks.
Take for example an investment I recently made in a Turkish
Lira bond. The interest is great but the lira has devalued
a lot. I invested $100,000 two months ago and now the bond
is worth about $83,000 in dollar terms.
This does not look good, but a sensible way to correct this
is to invest in Turkish stocks! I have followed this market
and observed that as the Turkish currency drops (because
of inflation), the stock market rises even more.
We can get a feel for this by looking at the annual performance
of the Turkish Investment Fund. This fund is a closed end
mutual fund managed by Morgan Stanley that started in 1989
and is traded on the New York Stock Exchange. The fund invests
in Turkish equities.
Its net asset value over the past ten years in US dollar
terms is up 17.41% per annum. So although the Turkish currency
has dropped through the floorboards in this decade, the stock
market has risen far more than the currency drop. Although
the fund’s NAV is up 32% in the last 12 months, it
is currently down. The net asset value peaked in the $24
per share range this February 2006 and has plummeted to $15.
I suspect that this is a very good time to buy this fund.
However this market is a roller coaster sort of like gold
but with shorter cycles. The price drops and drops, then
rushes up in spurts. Take a look at the annual performance
of the share’s trading price in New York and its net
asset value. If you do as I do and invest in this market
and it has a -33.32% year as in 1998, you may regret doing
as I have done…unless it’s followed by a year
like 1999 when the NAV rocket up 274.05%.
||Net Asset Value
|| - 2.43%
Here is one more quick note. Observe in the numbers above
how when the net asset value of the fund is down that the
share price almost always drops even more. This is because
investors hate loss. Yet note that when the NAV is up (especially
way up), the share price is up even more. This is because
most investors are greedy. They jump on the band wagon late.
So the best way to cash in on an investment like this is
to get in when it’s on its way down. You can learn
more about this fund at etfconnect.com/select/fundPages/global.asp?MFID=3857
Jyske Bank by the way has an open end fund that invests
in Turkish equities which is where my money will go. You
can get details from Thomas Fischer at email@example.com
Or go to jyskeinvest.com/3.0_products/default.asp?sPageID=3.1&sLangID=uk
Select JI Turkish Equity Fund in the Jyske Invest Int. Equity
Fund drop down box.
So should you invest in Turkey or not? I will but let’s
celebrate your freedom to choose!
Tomorrow we continue this message with a look at the importance
of our freedom to eat what we want! THREE
SUMMER HEALTH TIPS
Until then, enjoy your freedom!
P.S. Join us in Ashe County. Learn
more about investing in overseas markets. Join Merri, Thomas
Fischer from Jyske Bank Copenhagen and Steve Marchant from
Ecuador and me at our September 15-16-17, 2006 International
Business and Investing Made EZ course in North Carolina.
Our free accommodations here on the farm are reserved on
a first come first served basis so do not delay! Go to
Learn more about Ecuador
real estate in our last message