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Our February 15, 2008 Newsletter
Edition
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DOMINICAN REPUBLIC
REAL ESTATE:
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In the help-I-cannot-find-any-affordable-beach-front-real-estate
corner: Mr. Raul Martinez, an expatriate who relocated to the Punta
Cana area a few years ago, and who is an independent builder still hard
at work (in contrast to construction sites in the US that are currently
being abandoned by the dozens) tells us that he just finished some
villas in the Playa Bavaro area (Punta Cana). In fact, Raul says
the selling price for these two bedroom, two bath, Spanish tiled homes
located a few steps from the beach is US$145,000. He sells the
pre-constructed units for even less, for those people willing to
wait. In any event, if you think something like this is what you
are looking for, contact Raul via telephone: 809-427-5951 or email: ramholdings@hotmail.com and of
course tell him that John sent you (Raul is a very honest guy and he
treats all our clients with extra special courtesy).
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IN THE NEWS:
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FOREIGN INVESTMENT
IN DOMINICAN REPUBLIC TO RISE AGAIN IN 2008
January 18, 2008
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The Dominican Republic will continue to experience an increase in
foreign investment in 2008 due to the country's improved business
climate, a rise in exports, regulations favorable to foreign companies
and the free-trade agreement (DR-CAFTA) with the United States, the
director of the Dominican Republic's Export and Investment Center
(CEI-RD), Eddy Martinez, said. According to the most recent
statistics from the Economic Commission for Latin America and the
Caribbean (ECLAC), foreign direct investment in the Dominican Republic
has increased steadily. Over the past three years, it rose from $1.023
billion in 2005 to $1.183 billion in 2006 and to $1.393 billion in
2007, according to preliminary figures for 2007 released by that
international organization.
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http://www.caribbeannetnews.com/news-5529--18-18--.html
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CHILE CENTRAL
BANKERS UNANIMOUSLY APPROVED RATE RISE
By Sebastian Boyd - January 31, 2008
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Chilean central bank policy makers voted unanimously to raise the
benchmark lending rate Jan. 10 in a bid to curb the fastest inflation
in more than a decade. The central bank lifted its target rate a
quarter point for the second consecutive month to 6.25 percent after
annual inflation climbed to 7.8 percent in December. The bank's
economists cut their expectations for economic growth and said consumer
prices would rise on average 7.1 percent this year, in a monetary
policy report published Jan. 16. It was thought that an increase
of 25 basis points was probably suitable to face the higher inflation
scenario contained in the report, the bank said today.
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http://www.bloomberg.com/
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BRAZIL'S REAL RISES
ON SPECULATION CENTRAL BANK MAY RAISE RATES
By Adriana Brasileiro - January 31, 2008
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Brazil's real rose after the central bank indicated it's considering
raising interest rates, a move that would buoy the allure of local
fixed-income assets. The real rose 0.9 percent to 1.7636 per
dollar at 10:37 a.m. New York time, from 1.7797 yesterday. The currency
has appreciated 20.4 percent over the past 12 months, making it the
best performer among the 16 most actively traded currencies against the
dollar.
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http://www.bloomberg.com/
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EDITORS NOTES:
The point is, as the US Central Bank (The Federal Reserve) continues to
cut interest rates (supposedly to address a sagging economy), Central
Banks in other countries are staying the course of fighting inflation
(inflation which was born in the USA, just like Bruce Springsteen) by
increasing interest rates. In other words, Ben Bernanke has made
up his mind he will allow inflation to run wild in the US, with the
hope he can assuage a recession (which he cannot). Other
countries are of a different mindset, which means, watch for the
currencies of these other countries to increase in value (again) versus
the US Dollar if interest rates go up accordingly in these other
markets.
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Looking at specific countries, such as Brazil, The Economist reports in
a January 18, 2008 article titled with the by-line: Why Brazil is
Better Placed Than it Used to be to Cope With a World Slowdown, it is
written that:
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Brazil has never been so well placed to face a downturn, says Mailson
da Nobrega, finance minister from 1988 to 1990, a period that coincided
with an inflation crisis. What changed? First, domestic demand is
strong. Brazil's headline real interest rate is just below 7% which, as
Alexandre Bassoli of HSBC bank points out, would tip most countries
into recession, but is low by Brazilian standards. The result has been
a flowering of credit, which helped domestic demand grow by an
annualized rate of almost 7% in the third quarter. It would take a
sharp rise in rates to kill this off, and that looks unlikely.
Second, Brazil is fairly well integrated into world markets. It is not
overly dependent on America, which accounts for less than a fifth of
exports. The remaining four-fifths are reasonably well spread between
Europe, Asia and the rest of Latin America. Admittedly, most of what
Brazil produces for foreign consumption is in the form of primary goods
(from orange juice to footballers), which means that export growth
correlates strongly with commodity prices. But exports are not made up
of any single commodity (unlike oil-rich Venezuela's, for
example). Even if China buys less Brazilian iron ore, the hope is
that Chinese people will keep eating Brazilian protein, says Jose
Mendonca de Barros of MB Associados.
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http://www.economist.com/world/la/
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EDITORS NOTES:
I highlight the comment for you that says: Brazil is fairly well
integrated into world markets. It is not overly dependent on America,
which accounts for less than a fifth of exports. This is a clear
example of trade or commerce decoupling we have been talking about in
recent months.
.
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ASIAN MARKETS EASE
HIGHER AFTER RATE CUT
By Heather Timmons - January 23, 2008
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The United States Federal Reserve's surprise rate cut stemmed
bloodletting on the Asian stock markets on Wednesday, but heightened
fears that a painful recession is imminent for the world's largest
economy. The gains that most markets enjoyed did not erase the losses
they have suffered in recent days as panic over the impact of a
possible recession in the United States swept the globe. Many investors
and strategists said Wednesday they saw the Federal Reserve chairman
Ben Bernanke's bold move as a sign that the economic outlook for the
United States may be even worse than anticipated.
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Other central banks in Asia may be considering rate cuts. You
have to stay in tune with the developments with the rest of the world,
the Asian Development Bank managing director General Rajat Nag told
Reuters Wednesday. However I think central banks in the region have to
keep an eye on the inflation front as well, he added. Australia's
treasurer Wayne Swan said he welcomed the Federal Reserve move, while
predicting that the domestic economy would remain strong despite any
United States slowdown. It is pretty fair to say that Australians can
be confident that the prospects for growth in Asia and developing
regions will help us withstand the fallout from the events in the
United States and elsewhere, he said.
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http://www.nytimes.com/2008/01/23/business/worldbusiness/
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EDITORS NOTES:
Just a few comments here to highlight. First off, investors
outside of the US are smart enough to ask: Just how bad is the US
economy really? After an emergency 75 basis point rate cut, and
then another 50 basis point cut on January 30 (which brought the rate
from 4.24 down to 3.00 in the course of one week), AND after an initial
very short-lived up-tick on the NYSE, a few weeks later the markets do
not seem to be fully convinced this will solve the problem.
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Take note that central bankers elsewhere are more concerned about
inflation AND also take note that the consensus is Asia will not
necessarily be dragged down, or at least not to the same extent (which
is a point we have been highlighting for some time). Any negative
economic situations in the US will certainly have an affect on other
markets to some degree, there is no doubt. But what are we
talking about really? China's annual GDP growth goes from 11
percent down to 6 percent, India goes from 9 percent down to 4 or 5
percent, Dominican Republic goes from a current annual GDP growth of 6
or 7 down to 2 or 3, and so on. Regardless, when the dust
settles, the bottom line is, it is highly likely that exports and
sales from these other countries to the US will slow greatly, but
these other economies will still be in positive territory even as the
US goes negative (which is really the point to grasp, and what perhaps
has yet to be realized fully by some investors in these other
markets). According to another related news article by Mr. Landon
Thomas, dated January 22, 2008:
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Christopher Wood, a strategist based in Asia who publishes a widely
read newsletter called Greed & Fear, says that: The international
selling has also stoked a long-held fear that flush Asian and Middle
Eastern central banks and government-backed investment funds will cut
back on their dollar-based investments like Treasury bills and stakes
in troubled investment banks in the face of another round of interest
rate cuts and continued weakness in the dollar. These flows have
represented a crucial font of liquidity for an economy that produces
little of its own domestic savings, and they have been lifelines for
capital-starved banks. But no money manager, regardless of the time
frame, likes to invest in a falling market, and analysts fear that a
spate of additional write-downs and market turmoil will signal to
foreigners that the markets here have not yet found their bottom (end
of quote).
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No kidding. Who in their right mind wants to throw good money
after bad? In addition, with domestic interest rates now even
lower in the US, is it really attractive to put money into the US
capital markets? It is yet to be seen how willing Asian and
Middle Eastern entities flush with cash may be, in terms of a desire to
continue propping up the US market.
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BANKERS BELIEVE
MARKET TURMOIL NOT OVER
By Thomas Atkins and Clara Ferreira-Marques - January 28, 2008
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World business leaders say the worst might yet be to come in a
financial crisis driven by continuing fears of bank losses and
uncertainty over US emergency stimulus measures. It's going to
take some time for these things to work their way through the system,
Citibank's chairman, William Rhodes, said on Saturday. In a
nine-innings ballgame, I think we're in the fifth inning. It will be a
while before you see a return of normalcy in banking and markets,
Merrill Lynch's chief executive, John Thain, said. Troubles in
the US housing market were likely to worsen this year, with interest
rate cuts and a hefty fiscal stimulus package UNLIKELY TO OFFSET
pressures, he said.
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http://business.smh.com.au/bankers-believe-market-turmoil-not-over/
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EDITORS NOTES:
Note the comments by Merrill Lynch CEO John Thain who basically is
telling you in plain English that the interest rate cuts and so-called
government stimulus will not fix the problem. Our contention is
that it will of course contribute to the already existing problem of
double-digit inflation and devaluation of the US Dollar, although many
would argue that the immediate future short-term devaluations of the
USD will be less dramatic. However, in regards to inflation
inside the US, you should note that the new problem in the US is theft
of corn, almonds, copper, and so on as inflation has pushed commodities
prices through the roof (if you recall, we highlighted this problem for
you in a very recent previous newsletter whereby American farmers were
reporting thefts of irrigation equipment, made out of copper).
One would expect such things in a poor, third world country but it
tells you something when citizens in the so-called wealthiest nation on
earth are motivated to steal corn or almonds. It used to be that
the crooks stole tractor trailer loads of television sets or
Nintendo's, and now they are stealing food. Go figure. I guess
American farmers will soon be erecting electrified chain link fencing
and letting loose the pit bulls in the corn fields.
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COMMODITIES CRIME
WAVE SWEEPS RURAL US
Associated press - January 26, 2008
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A wave of crime is sweeping rural America, with organized gangs and
petty thieves heisting commodities ranging from wheat to almonds,
copper wires to hardwood trees. Attracted by the prospect of
making easy money, criminals steal onto private and state-owned forests
to illegally fell timber, carry off entire shipping containers of
almonds, and risk their lives to strip electricity transmitters of
their copper wiring. As the price of a particular commodity
increases, it becomes the target of crooks because they're opportunists
who are looking to make money, said Bill Yoshimoto of the Agricultural
Crime Task Force in California's rural Tulare County, where nearly
two-thirds of its 311,000 residents live from farming.
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When fuel prices went up, we saw a spike in gasoline thefts. Right now
we're seeing an epidemic of metal theft, he said. There is so
much copper wire coming in that we know a lot of it isn't scrap metal
that someone's discarded -- they're pulling down transmission wires to
get it, Yoshimoto added. With California almond prices tripling
between 2001 and 2005, when they went from 91 cents a pound to 2.81
dollars, thieves have also turned to wholesale almond theft, Yoshimoto
said. They didn't go to the trees or fields to take the almonds;
they waited until they were processed and in containers for shipment,
and stole the whole container off the truck, he said. Wheat,
which has doubled in price since January 2007, is being stolen by the
elevator-full in the Great Plains, said Dusty Fritz, spokeswoman for
the Kansas Association of Wheat.
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Agricultural theft cost US farmers an estimated five billion dollars in
2006-7, according to a report by the Urban Institute in Washington,
while metal theft alone cost California farmers 10 million dollars in
the same period. That's the official figure; Yoshimoto said as
many farmers do not report thefts the Urban Institute estimates that
the actual farm loss is nine-10 times greater than what's being
reported. Many of the stolen commodities are off-loaded to a
buyer who is several hundred miles if not an ocean away from the scene
of the original crime, said Yoshimoto.
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The almond thefts took place up to 200 miles (320 kilometers) away from
Sacramento but wound up in a warehouse in Sacramento to be distributed
around the US and, we think, in Europe, he said. A big market for
metals stolen on the West Coast of the United States is China, he
said. China's economy grew at an 11 percent clip last year, so
they have a voracious appetite for raw materials right now. The
cost of agricultural crime goes beyond the dollars and cents figures on
a police blotter. It is passed on to the consumer in the form of
higher food prices or to the farmer in the form of lower profits.
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http://afp.google.com/article/
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WORRIES THAT THE
GOOD TIMES WERE A MIRAGE
By David Leonhardt - January 23, 2008
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So, how bad could this get? Until a few months ago, it was
accepted wisdom that the American economy functioned far more smoothly
than in the past. Economic expansions lasted longer, and recessions
were both shorter and milder. Inflation had been tamed. The spreading
of financial risk, across institutions and around the world, had
reduced the odds of a crisis. Back in 2004, Ben Bernanke, then a
Federal Reserve governor, borrowed a phrase from an academic research
paper to give these happy developments a name: the great moderation.
These days, though, the great moderation is not looking quite so great
or so moderate.
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The recent financial turmoil has many causes, but they are tied to a
basic fear that some of the economic successes of the last generation
may yet turn out to be a mirage. That helps explain why problems in the
American sub-prime mortgage market could have spread so quickly through
the world's financial system. On Tuesday, Mr. Bernanke, who is now the
Fed chairman, presided over the steepest one-day interest rate cut in
the central banks history.
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The great moderation now seems to have depended in part on a huge
speculative bubble, first in stocks and then real estate, that hid the
economy's rough edges. Everyone from first-time home buyers to Wall
Street chief executives made bets they did not fully understand, and
then spent money as if those bets could not go bad. For the past 16
years, American consumers have increased their overall spending every
single quarter, which is almost twice as long as any previous
streak. Now, some worry, comes the payback.
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http://www.nytimes.com/2008/01/23/business/
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EDITORS NOTES:
If you have been reading this newsletter for the past two years, all of
this is old news to you. On the bright side, at least the lawyers
will do well (see below).
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IF EVERYONE IS
FINGER-POINTING, WHO IS TO BLAME?
By Vikas Bajaj - January 22, 2008
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Everyone wants to know who is to blame for the losses paining Wall
Street and homeowners. The answer, it seems, is someone
else. A wave of lawsuits is beginning to wash over the troubled
mortgage market and the rest of the financial world. Homeowners are
suing mortgage lenders. Mortgage lenders are suing Wall Street banks.
Wall Street banks are suing loan specialists. And investors are suing
everyone.
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http://www.nytimes.com/2008/01/22/business/
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EDITORS NOTES:
Winning a lawsuit is one thing, and actually collecting the money is
something else (hard to collect from someone that is broke or bankrupt).
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OHIO PENSION FUNDS
GETTING A TASTE OF LUCRATIVE OVERSEAS INVESTMENTS
By Adrian Burns - January 18, 2008
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When it comes to equity investments, America is falling out of
fashion. In an effort to reap bigger returns, more institutional
investors are scrapping their traditional heavy weighting in U.S.
equities in favor of larger investment allocations in the securities of
companies based in fast-growing foreign markets. The Ohio Public
Employees Retirement System joined the trend Jan. 1, when it launched a
plan to allocate 24.5 percent of its health-care fund assets in
international equities by mid year, up from 15 percent in 2007.
What we do is gravitate toward the markets that have the most
opportunities, and in the past that has been us, said OPERS Director of
Investments Jennifer Hom. Now the equity opportunities are outside the
U.S.
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http://www.bizjournals.com/columbus/stories/2008/01/21/story13.html
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CALPERS TOP
INVESTMENT OFFICER EYES MARKETS ABROAD
Reuters, January 23 2008
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The chief investment officer of Calpers, the biggest U.S. pension fund,
said on Wednesday he remains bullish about opportunities abroad, even
as overseas markets reacted nervously to how the U.S. stock market has
weakened on recession fears.
Russell Read, chief investment officer of the $238.8 billion fund best
known as Calpers, said at a meeting in Petaluma, California, that it is
internationalizing its investment portfolio and will continue that
strategy because of the growth potential of emerging markets.
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You have to capture the big investment themes, Read said, noting he was
looking past short-term anxiety in markets abroad. Overseas
markets are to a certain degree decoupling from the U.S. economy,
providing investment opportunities in such areas as commodities that
fuel growth when the U.S. economy slows, Read said. Nevertheless, he
said the United States remains a critical market.
.
Calpers, the California Public Employees Retirement System, invests on
behalf of state employees. Its investment decisions are closely watched
by other large institutional investors, who may want to keep an eye on
Calpers' commodity focus, Read told Reuters.
He said he expects the fund to expand its role as a direct buyer of
commodities and as an investor in commodity production and distribution
companies. It's all of the above, Read said in an interview. We
generally foresee continued strong commodity prices.
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http://www.guardian.co.uk/feedarticle?id=7250067
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EDITORS NOTES:
Who is Calpers and who cares what they do? Good question, but it
does happen to be one of the largest domestic US pension funds, and it
is interesting to see they are bullish on overseas markets (where the
growth will be going forward) and commodities (as an inflation
hedge). Indeed, Russell Read (chief investment officer of the
$238.8 billion fund) says what we have been saying already:
Overseas markets are to a certain degree decoupling from the U.S.
economy. Yes they certainly are. One example is UPS (the
nice folks that deliver the stuff you buy on-line from Amazon) whereby
Bloomberg reports on January 30, 2008: Atlanta-based UPS expanded
operations overseas, where sales are growing faster than the U.S. UPS
gets about one-fifth of its revenue from international markets,
including China, Russia and Germany.
.
Indeed we already asked the question: Will foreigners want to
continue loaning money or investing inside the US? The flip side
of this is, US institutional investors moving their money post haste
outside of the US because they believe investments are more attractive
elsewhere. And so here is the question: Why would foreigner
investors want to invest in the US when they see US institutional
investors (US based pension funds) going in the opposite direction?
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HOW RISKY ARE
UNINSURED BANK DEPOSITS?
By Gail Liberman and Alan Lavine - February 4, 2008
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The Federal Deposit Insurance Corp. is gearing up for the prospect of a
large bank failure. So double-check that all your deposits, including
interest, are well within FDIC insurance limits. The agency seeks
comment by April 14 on a proposed rule designed to help it make a quick
insurance determination amid an increasingly complex quagmire of FDIC
rules and tough-to-figure-out bank accounts. One section would
place a provisional hold on a fraction - say, 10% or so -- of certain
account balances at some 159 of the nation's largest banks. The hold
could affect some accounts with balances under $100,000.
.
If you have uninsured deposits at a bank, should you worry? Possibly.
Depositors without FDIC coverage lost money in at least two recent
failures -- NetBank, Alpharetta, Ga., and Miami Valley Bank, Lakeview,
Ohio. Of $109 million in uninsured deposits at NetBank, nearly
30% has not yet been reimbursed. Of $14 million in uninsured funds at
Miami Valley, only 5.9% of uninsured funds, so far, has been
reimbursed. But the tide on FDIC reimbursement of uninsured
depositors may have changed in 1991 for the worse. Congress sharply
curtailed the FDIC's discretion to extend protection beyond insured
deposits. Now the FDIC must enter into the least costly transaction
when dealing with a troubled bank. So the FDIC won't reimburse
uninsured depositors if it means increasing the loss to the deposit
insurance fund.
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http://www.marketwatch.com/news/story/how-risky-uninsured-bank-deposits/
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EDITORS NOTES:
Say it isn't so. US bank account holders may find themselves
uninsured from a bank failure by the nation's bank insurance
fund? FDIC data indicate that as of Sept. 30, 2007 there were 65
institutions with assets of $18.5 billion on its list of problem
institutions.
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EUROS ACCEPTED SIGNS
POP UP IN NEW YORK CITY
February 6, 2006
.
In the latest example that the U.S. dollar just ain't what it used to
be, some shops in New York City have begun accepting euros and other
foreign currency as payment for merchandise. We had decided that
money is money and we'll take it and just do the exchange whenever we
can with our bank, Robert Chu, owner of East Village Wines, told
Reuters television. The increasingly weak U.S. dollar, once
considered the king among currencies, has brought waves of European
tourists to New York with money to burn and looking to take advantage
of hugely favorable exchange rates.
.
We didn't realize we would take so much in and there were that many
people traveling or having euros to bring in. But some days, you'd be
surprised at how many euros you get, Chu said. Now we have to get
familiar with other currencies and the (British) pound and the Canadian
dollars we take, he said. While shops in many U.S. towns on the
Canadian border have long accepted Canadian currency and some stores on
the Texas-Mexico border take pesos, the acceptance of foreign money in
Manhattan was unheard of until recently. Not far from Chu's
downtown wine emporium, Billy Leroy of Billy's Antiques & Props
said the vast numbers of Europeans shopping in the neighborhood got him
thinking, My God, I should take euros in at the store. Leroy
doesn't even bother to exchange them. I'm happy if I take in 200
euros, because what I do is keep them, he said.
.
http://www.reuters.com/article/domesticNews/
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EDITORS NOTES:
This item was sent in by one of our readers, and how interesting it is
indeed. Mr. Billy Leroy, the owner of an antiques store in
Manhattan says that: I'm happy if I take in 200 euros, because
what I do is keep them, he said. Of course he keeps them.
Who is their right mind would want a currency, such as the US Dollar,
which is declining in value? How things have changed, and how
telling if merchants in the US would perhaps prefer not to be paid in
US Dollars (if they have the option). Warren Buffet was recently
quoted as saying: the U.S. dollar will continue to slide unless the
country can rein in its yawning trade deficit - the biggest factor
behind the decline. Of course, we recently have seen that George
Bush just unveiled the largest Federal Government Budget in US history,
including a 7 percent increase in military spending, a DECLINE in
social welfare programs funding, namely for Medicare and Medicaid - and
the speculation is that the US debt will be $10 Trillion Dollars by the
time he leaves office. Gold anyone?
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