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Dominican Republic
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Our December 1, 2007 Newsletter
Edition
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.
DOMINICAN REPUBLIC
REAL ESTATE:
.
The following is a list of some recent properties currently available,
starting off with Beach-Front Condominiums in Juan Dolio.
.
New Construction - Third Floor Condo directly with a sea view (and
overlooking the pool and gardens facing the ocean), 1100 square feet,
two bedrooms, balcony, off the street reserved parking.
US$195,000. One other condo without a sea view also available for
US$175,000. The complex consists of four buildings, each 4 floors
with 8 condos in each. Forward buildings (those closest to the
beach) all have ocean views from balcony, kitchen area and living
room. All the other condos have been sold, and these are the only
two remaining. The project will be completed for owners to move
in about May 2008.
.
Why Juan Dolio?
For those clients that want to own beach front, but also want to be
close enough to private golf courses, shopping, theater, etc., then
Juan Dolio is the answer for the best of both worlds. Located 45
minutes from Santo Domingo, you are close enough to major shopping in
the city (high end modern shopping malls, ballet and national theater,
modern clinics and hospitals, computer stores, radio shack, The
Limited, Wal-Mart / La Sirena, etc.) yet far enough away from the
congestion of the city.
.
Bargain Properties
in Barahona:
.
Two story home on one-half acre directly on fresh water river with sea
view and private access - frontage (a number of rivers flow into the
sea in Barahona, and many properties have access to both). The
views are incredible, owner is asking US$141,500 and the property is
TAX-FREE (free from annual real estate taxes when the value is less
than US$150K, unbelievable, but true).
.
New Luxury
Apartments in Santo Domingo:
.
New 2,000 square foot condominium apartments in Evaristo Morales (close
to new high-end shopping areas) with balcony. 3 bedrooms, each with
walk in closet, 2 bathrooms. Off the street parking for 2
vehicles, luxury lobby with reception area and 24 hour security, 2
elevators, central gas (for cooking), two emergency generators for
building, top of the line termination, cable ready for DSL or cable
modems. Prices Start at US$220,000.
.
.
For more information
and to see photos for these or other properties,
please visit the website: www.dominican-republic-info.com
or
contact
.
Licda. Carolina
Maldonado - Discovery Realty
Services
Santo Domingo (and the Greater Metropolitan Area) including, Juan
Dolio, Barahona.
Email: realestate@dominican-republic.info.com
.
.
IN THE NEWS:
.
.
U.S. HOUSING PRICES
TAKE RECORD DIVE
By J.W. Elphinstone, Associated Press, November 27, 2007
.
U.S. home prices fell 4.5 per cent in the third quarter from a year
earlier, the sharpest drop since Standard & Poor's began its
nationwide housing index in 1987 and another sign that the housing
slump is far from over, the research group said Tuesday. The
index also showed that prices fell 1.7 per cent from the previous
three-month period, the largest quarter-to-quarter decline in the
index's history. Tampa and Miami led the index with the lowest
year-over-year declines at 11.1 per cent and 10 per cent, respectively.
It also showed drops in San Diego of 9.6 per cent; Detroit, 9.6 per
cent; Las Vegas, 9 per cent; Phoenix, 8.8 per cent; and Los Angeles, 7
per cent.
.
http://www.thestar.com/Business/article/280220
.
.
STUNNING BEACHES,
CHEAP PRICES TRIGGER CARIBBEAN LAND GRAB
By Mike Williams - The Providence Journal - November 11, 2007
.
Cabarete, Dominican Republic: Fifteen years ago this beachfront
village was a bohemian paradise where windsurfers and backpackers could
buy a week of sun and sand for what they might pay per day at pricier
Caribbean resorts. Cheap deals are still available, but now a
higher class of tourists is flocking here, many coming with their
checkbooks open and their eyes peeled for beachfront investment
property.
.
With U.S. real estate prices in a swoon and Florida stung by steep tax
hikes and runaway insurance premiums, Americans in growing numbers are
shifting their search for sunny second homes overseas, overcoming
long-standing fears about investing in foreign countries. Prices
are rising about 20 percent a year, said Joanne Hammond, a Canadian who
traded snowy Toronto for a house overlooking the beach and a REMAX real
estate franchise in nearby Puerto Plata. Two years ago most of
our customers were Brits and Canadians but now it's probably 50 percent
Americans.
.
With competition for foreign investors increasing, the Dominican
Republic enjoys two advantages: low prices and large tracts of
undeveloped land, something its smaller Caribbean neighbors typically
lack.
.
http://www.projo.com/travel/
.
EDITORS NOTES:
The Global Property Guide says that prime
beachside property in the Dominican Republic sells at an average of
US$2,000 a square meter, compared with US$10,400 in Barbados (although
these figure do seem to be out of whack with reality). And
Property prices at Cap Cana and on the North Coast have risen 20 per
cent in a year. But that does not mean the Dominican Republic has
become an enclave for the rich and famous necessarily - if you know
where to look. There still are plenty of affordable properties
for middle class North-American or European buyers, at still favorable
exchange rates in terms of value for USD and especially the Euro.
.
But here is the real bottom line. While you might consider
converting USD or Euros to gold as an inflation hedge, to some extent
already, that train has left the station. But, buying reasonably
priced real estate for US dollars, in a market where the purchasing
power still is favorable and the property prices fair (certainly in
comparison to elsewhere in the Caribbean) allows for a direct swap out
of fiat paper money (dollars) into another asset in a fair value
exchange. In other words, exchange the paper for dirt (or
concrete as the case may be) in a country not USD based.
.
Mr. Duncan Cameron writes in an article dated November 27, 2007 and
titled: World Spooked By Declining
U.S. Dollar - - - - Investors are
buying art, and real property
outside the U.S., which have become more
attractive investments than dollar denominated assets. The U.S.
authorities have no back up plan to stop the U.S. dollar from shrinking
in value even more (end of quote).
.
Mr. Gwynne Dyer wrote an article dated November
27, 2007 and
titled: The US Dollar: The Long
Farewell? It is a good
article and you can read it via the following link:
.
http://www.trinidadexpress.com/index.pl/article_opinion?id=161241598
.
Also, remember that the run up in the US and UK housing markets were
the result of borrowed money and cheap money at that (artificially low
interest rates created by the central bank in those countries).
In markets such as the Dominican Republic, real estate is either
purchased for cash, or for very substantial down payments (40, 50 or 60
percent for many new construction projects). So, while the market
may have gone up by 20 percent already for some properties in the
Dominican Republic, it has been the result of cash or buyers with
equity and not debt. As a result, certainly a different animal,
as they say, than what you are seeing taking place right now inside the
US (and the UK as well).
.
Regardless, they still accept US Dollars in the Dominican Republic and
it still buys you something for your money - but that is not the case
elsewhere. According to Ashling O'Connor in Bombay, reporting for
the UK London Times in a November 20, 2007 articled
titled: Friendless Dollar Is
Turned Away At The Gates Of The Taj Mahal, he says
that The Taj Mahal and other top tourist sites in India are refusing to
accept dollars to pay for admission, dealing another blow to the
prestige of the weakened American currency.
.
Entry tickets to the world famous Mughal tomb in Agra and about 120
sites run by the Archaeological Survey of India will be available only
at a fixed rupee rate after the dollar lost more than 12 per cent of
its value against the local currency this year. Tourists had been
encouraged to pay in dollars where possible, a legacy of the time when
foreign currency was difficult to come by because of India's cash
inflow restrictions. However, with the fall of the dollar against most
other leading currencies and the surge of the rupee on the back of
India's booming and liberalized economy, the greenback will no longer
be welcome at the door. As a result, tourists will pay nearly a
third more to enter India's top tourist attractions by paying in rupees
than the previous fixed dollar rate.
.
http://business.timesonline.co.uk/tol/business/economics/article2903375.ece
.
EDITORS NOTES:
When a supposedly third world developing country
no longer wants to accept US Dollars because they feel it is now, shall
we say - funny money, that tells you something. Some Americans
have told me in the past that the US Dollar is the best money in the
world. Maybe, assuming everyone else in the world believes it
too. The moment the rest of the world stops believing it - that
is when the trouble begins.
.
.
THE ECONOMY'S $2
TRILLION WORRY
By Steve Rosenbush - November 19, 2007
.
Just a few months ago, analysts believed the collapse of sub-prime
mortgage securities and related investments would lead to losses of $50
billion to $100 billion, a large but manageable number. Now, a new
report from Goldman Sachs says losses from sub-prime exposure could be
much larger than recently assumed, hitting as much as $400 billion. But
that's not the extent of the financial carnage: Goldman said the full
impact on the economy could be even more substantial, because the
losses could compel banks and other lenders to curtail lending by as
much as $2 trillion.
.
If banks trim their lending by that amount, consumers and businesses
won't be able to borrow the money they need to maintain strong economic
expansion. This is a large shock. It corresponds to 7% of the
total debt owed by U.S. non-financial sectors, wrote Goldman Senior
Economist Jan Hatzius, the author of the report. The drag on
economic activity could be substantial. How does a $400 billion
loss in the credit markets translate into $2 trillion of economic
damage? The answer is debt, or leverage.
.
http://www.businessweek.com/bwdaily/dnflash/content/nov2007/
.
EDITORS NOTES:
Leverage and Debt will do you in every time. Which
is to say, while you can possibly multiply your upside using leverage,
on the same token, it can certainly multiply and exacerbate your loses
as well. This is really what has to get shaken out of the psyche
of both the American consumer and government as well. Which is to
say, to stop trying to live a lifestyle (or spend, in terms of
government) one cannot afford on borrowed money. Unless this becomes
the profound change in terms of the culture, the prognosis is not
positive, and no amount of interest rate cuts will resolve it.
.
Mr. Nouriel Roubini writes on November 16, 2007 in his economic
commentary:
.
It is increasingly clear by now that a severe U.S. recession is
inevitable in next few months. Those of us who warned for the last 12
months about a combination of a worsening housing recession, a severe
credit crunch and financial meltdown, high oil prices and a saving-less
and debt-burdened consumers being on the ropes causing an economy-wide
recession were repeatedly rebuffed the consensus view about a soft
landing given the presumed resilience of the US consumer.
.
But the evidence is now building that an ugly recession is inevitable.
Thus, the repeated statements by Fed officials that they may be done
with cutting the Fed Funds rate are both hollow and utterly
disingenuous. The Fed Funds rate will be down to 4% by January and
below 3% by the end of 2008.
.
http://www.rgemonitor.com/blog/roubini/227330/
.
.
CAPITAL FLIGHT AND
OTHER POLICY RISKS
By Ethan Penner - November 17, 2007
.
In this fiscal year alone, many of our major financial institutions
have suffered billions of dollars of losses, shaking their foundations
to the core. We've seen high-level management changes and business
plans left in tatters. To make matters worse, the entire
securitization-based finance system -- which along with music, movies
and burgers has been among America's biggest gifts to the world --
seems to have real cracks and has come to a near standstill. We're
suffering through all of this with oil at near $100 per barrel, and a
dollar that is at historical lows.
.
Not surprisingly, calls for government to do something are either
self-serving or short-sighted, and would do more harm than good.
Many in the political and business communities are calling for the Fed
to reduce rates to extremely low levels in order to bail out struggling
lenders. This, of course, is meant to stimulate lending activity -- and
thus growth.
.
When Japan tried the same thing in response to the 1990 bursting of its
bubble economy, the result was a 15-year economic malaise. Rates as low
as zero still did not lead to economic growth. Why? Because in the
period immediately prior to the rate reduction Japanese borrowers had
feasted on easy credit, leveraging themselves to the hilt, and were
thus unable to react to this beneficence. Sound familiar?
.
Furthermore, while we have become dependent upon foreign oil, our real
and primary dependency has always been on foreign investment. This
foreign money has been leaking its way out of our country, and is
reflected in the dollar's value. A further decline in rates, which
would surely be viewed at home and abroad as a bailout of our weak
financial institutions as well as dangerously inflationary, would
further encourage the flight of foreign capital. Put simply,
foreign investment in the U.S. is far more important to our nation than
any of our own large institutions. Our policy decisions must be
calculated to ensure that this investment is once again directed to our
country in substantial amounts.
.
Increasing government involvement in our home mortgage market -- with
aid from Fannie Mae and Freddie Mac -- is another bad idea. Why do such
a thing?
.
http://online.wsj.com/
.
EDITORS NOTES:
Why do such a thing, indeed. Freddie Mac
just lost US$2 Billion Dollars. They are more in the need of help
themselves, rather than being in any position to help another bank or
financial institution (see below). In fact, one analysis is that
both Freddie Mac and Fannie Mae are now technically bankrupt.
.
.
FREDDIE POSTS LOSS,
MAY CUT DIVIDEND; SHARES PLUNGE
By James Tyson - November 20, 2007
.
Freddie Mac fell as much as 35 percent, the biggest decline since it
went public in 1988, as the second- largest U.S. mortgage company
posted a record loss and warned of a possible cut in the dividend and
the need for additional capital. The worst housing slump in 16
years caused significant deterioration in the third quarter that will
continue through year-end, Freddie Mac said in a statement after
reporting a net loss of $2.02 billion, or $3.29 a share, three times
what some analysts estimated.
.
It's as bad as it possibly could be, said Howard Shapiro, an analyst at
Fox-Pitt Kelton in New York. Shapiro today downgraded Freddie Mac
shares to sell from overweight. McLean, Virginia-based Freddie
Mac and the larger Washington-based Fannie Mae, two institutions
created by Congress to foster American home ownership, lost $41 billion
in market value this year. The
companies, which own or guarantee 40
percent of the $11.5 trillion U.S. home loan market, will have
less
money available for new mortgages.
.
http://www.bloomberg.com/
.
EDITORS NOTES:
In a recent article, dated November 27, 2007,
titled: Once, The World Had a
Love Affair With Dollar, Mr. John
Lee writes:
.
The index shows, collectively, that mortgages guaranteed by the GSE's,
meaning Fannie Mae and Freddie Mac, are selling at just 70 cents on the
dollar. Freddie's $120 billion and Fannie's $42 billion of exposure to
GSE-qualified mortgages means a write-down of over $30 billion and $10
billion respectively. Given that both outfits have about $1
billion in excess capital, they are now technically INSOLVENT -
no sane
institution will lend money to Freddie. If left to their own
devises by the government, Fannie and Freddie are doomed.
.
http://www.commodityonline.com/news/topstory/newsdetails.php?id=3862
.
.
NO SNIFFLES AS
AUSTRALIA AND US GO THEIR OWN WAYS
By Don Stammer - November 21, 2007
.
AUSTRALIANS of my generation grew up with the belief that if the US
sneezes, we'll catch the flu. At times, some commentators went a
step further, arguing that if the US sneezes, we'll catch
pneumonia. It was true, a long time ago, that turning points in
our economy and share market slavishly followed those in the US and our
cycles were proportionately larger. But that relationship began
to change in 1980, and for the next 20 years our economic cycles were
remarkably similar to, and no longer wider than, those in the US.
Even that economic relationship has now broken down.
.
Twice since 2000, Australia's economic growth has speeded up at a time
when the US economy was slowing: early this decade during the US
recession that followed the dot-com collapse; and now, during the
fallout from the sub-prime mess. Welcome to the new world in
which our economy is decoupling from the US economic cycle. Through to
the mid-1990s, cycles in our share market generally shared the timing
of cycles in the US -- also with swings up and down that were wider
than the US experienced. But since the late 1990s, our share market has
gained a good deal of independence.
.
It, too, has begun the process of decoupling. As a result, anyone
believing that the sneezes (and lately the rasping coughs) in the US
housing sector and among some US banks will produce great pain for the
Australian economy and share market next year is underplaying the
importance of the new-found separation.
.
In my view, further decoupling of the two economic cycles is likely
over 2008, with the US economy slowing markedly while Australia
continues above-trend growth. In the US, housing construction is
at its weakest since the early 1990s and stocks of unsold housing are
high. As well, consumer confidence is likely to be dented by a
further fall in house prices as interest rate resets produce another
round of mortgage defaults. By contrast, Australian growth is
above trend and showing no signs of slowing. Commodity prices and
capital spending are buoyant. The average house price has risen 10.6
per cent over the last year.
.
http://www.theaustralian.news.com.au/story/0,25197,22770415-5001942,00.html
.
EDITORS NOTES:
Long-term readers of our newsletter know that we
certainly have talked about this before. While it is true that
globalization has opened up a new chapter regarding movements of goods,
capital and people, another aspect has also been the displacement of
the US economy in terms of its weighted importance to the world or
global economy. And so, this should alert you to investing
opportunities as well, as there may be other markets treading along
quite nicely regardless of what goes on in the US (Brazil, India,
Vietnam, etc. comes to mind). Whereas 70 percent of the US
economy is driven by domestic consumer spending (and why politicians
and central bankers at the Federal Reserve are nervous about dispelling
any negative economic commentary, with the exception of Al Greenspan,
who is now retired and seemingly ready to come clean with the truth),
the Australian economy is driven by commodity exports. These are
the kinds of markets you should be looking at going forward. With
soft commodities poised to run up in price, such as wheat, corn, cattle
and so on - countries with self sufficient agriculture industries (for
export) and other commodities are worth a look as well.
.
.
HOW LATIN AMERICA
SUBSIDIZES THE U.S.
By John Price - November 12, 2007
.
The growing populist sentiment in the United States against illegal
immigration likes to point out that not only do these migrants steal
U.S. jobs, they also send $50 billion back to Latin America each year
instead of spending it in the United States. In fact, the approximately
$2,000 per year sent home by the average working illegal migrant is
less than 15 percent of what he earns in the United States and far less
than what he contributes to the U.S. economy. A lesser known fact is
that wealthy Latin Americans hold $1.9 trillion in U.S. assets and
inject more than $100 billion in new investment each year into the U.S.
market, more than all remittances, direct foreign investment and aid
combined that flows from the United States to Latin America.
.
The notion that the U.S. government or the American consumer is
subsidizing Latin America is
factually wrong. The truth
is the reverse - Latin America and its migrants are subsidizing the
American way of life, not to mention the U.S. federal government
deficit. Latin America may be poor but it is simultaneously the
source of great, albeit concentrated, wealth. Incredibly, Latin
America supplies one-fourth of that international financial lifeline to
the U.S. economy. That portion may grow over the next two years given
that high net worth individuals from Latin America are expanding their
wealth at a faster pace (26 percent in 2006) than any region in the
world.
.
http://www.latinbusinesschronicle.com/app/article.aspx?id=1786
.
EDITORS NOTES:
The above article says: Individuals from
Latin America are expanding their wealth at a faster pace (26 percent
in 2006) than any region in the world. No kidding? If you
recall, we mentioned in the past that Trumps Punta Cana Real Estate
Project sold out in one day, but that is not what was impressive.
Instead, the real story is that roughly 25 percent of the high priced
properties (and we are talking about astronomical prices just for
building lots) were purchased by Dominicans themselves. Assuming
the above article is correct, in the sense that Latin Americans account
for 25 percent of all financial investment in the US, and considering
the US Dollar has been sinking lately, imagine if all that investment
money was pulled out or stayed home in the first place (in Latin
America). What would that do to the local economies in the
Dominican Republic, Brazil, Chile, and so on if all that money was
reinvested locally? What would that tell you about the future of
the real estate markets in such countries? What does that tell
you about the liquid wealth that exists outside the US, in regards to
the so-called poor or developing countries versus what you might be
lead to believe?
.
.
CHAVEZ, AHMADINEJAD
ASK OPEC TO ABANDON WORTHLESS DOLLARS
By Ravi Copra - November 19, 2007
.
At the third summit of the Organization of the Petroleum Exporting
Countries (OPEC), Venezuelan President Hugo Chavez urged the biggest
oil exporting nations to fight against imperialism. His Iranian
counterpart Mahmoud Ahmadinejad endorsed this view and called upon OPEC
leaders to stop pricing oil in US dollars, which he claimed were
worthless. The weakening US dollar has affected the purchasing
power of the OPEC nations in recent times and has pushed the price of
oil above $100 per barrel. The two-day OPEC summit ended in Saudi
Arabia with no consensus on whether the dollar should be bypassed for
pricing and selling oil.
.
EDITORS NOTES:
You may think the two gentleman mentioned in the
above headline are, shall we say, a few sandwiches short of a picnic,
as it pertains to their politics and other things. However, the
fact that US induced inflation (or devaluation of the dollar) is now
wrecking some havoc on the economies of the oil exporting nations is no
joke.
.
Even President Rafael Vicente Correa of Ecuador seems to
agree, and that guy is extremely well educated and considered to be a
moderate, rather than an extremist (as the other two certainly
are). In any event, keep an eye on this topic because if
petroleum is no longer traded in USD, it could mean the equivalent of
an IAD in terms of the dollar. Warren Buffett was quoted last
month saying he was still negative on the dollar relative to most major
currencies (and it should be noted he got out of the dollar in a big
way back in 2003, waiting for the correction. Many said he was a
fool at the time, but he does not look like a fool now). Jim
Rogers, is reportedly selling his house and all his possessions in the
US ahead of moving himself to Asia. Certainly hedging ones assets
into other currencies and other markets is a prudent idea, just in
case. The problem of course for Americans is, the ability to do
so, and why many people considering seeking out a second residency and
citizenship for this reason alone.
.
As a follow up to a news item from out last newsletter regarding
middle-eastern oil exporting countries looking to de-link their own
currencies from the USD, Peter Stiff writes an article dated November
21, 2007 in the Times (UK) with the title: Saudi Arabia Ready To
Ditch The Dollar To Protect Value Of Riyal. As we predicted
previously in prior newsletters, friendship only goes so far where
money is concerned. If Saudi Arabia, America's so-called
unflappable friend and ally in the middle-east, now thinks the US
Dollar to be the monetary equivalent of camel dung, that should catch
your attention.
.
http://business.timesonline.co.uk/tol/business/markets/the_gulf/article2910189.ece
.
.
THREE PATHWAYS TO
GLOBAL PROFITS DEPSITE OUR WORHTLESS PIECES OF
(GREEN) PAPER - By Martin Hutchinson - November 21, 2007
.
Mahmoud Ahmadinejad, president of Iran, announced at an Organization of
Petroleum Exporting Countries (OPEC) conference over the weekend that
dollar-based oil sales were a bad idea since they get our oil and give
us a worthless piece of paper. Although I'm a patriotic American
investor, that immediately causes me to wonder: Suppose he's right:
What on earth should I do with my money?
.
At first glance, Ahmadinejad appears to have a point. Our worthless
pieces of paper (more widely known as U.S. dollars), buys a fifth as
much of his oil as they did five years ago and there seems no immediate
prospect of this trend reversing itself. What's more, our worthless
pieces of paper buy less in terms of British pounds Sterling, European
euros, Australian dollars, Chinese renminbi (Yuan), Indian rupees and
even Canadian loonies than they did five years ago. Only the Japanese
yen has remained more or less stable against the dollar, having been
held down by the mighty, under-rewarded efforts of our noble and
gallant U.S. hedge funds.
.
If current trends continue as they are, Ahmadinejad may become even
more correct in the very near future. Every time Wall Street sneezes,
U.S. Federal Reserve Chairman Ben S. Bernanke lowers interest rates, to
prevent Wall Street bonuses from catching a cold.
.
http://www.moneymorning.com/
.
EDITORS NOTES:
Indeed this is the problem and concern.
However, you do not need to passively sit back and allow yourself to
become a victim of dopey politicians or injurious central bank policies
either. You can bank where you want (in other currencies), invest
where you want, and own real estate or other investments as well to
protect yourself from the devaluation. Where is it carved in
stone that you must go down with the ship?
.
.
COULD YUAN SPELL
RELIEF FOR SKY-HIGH (CANADIAN) DOLLAR?
By Shawn McCarthy - November 19, 2007
.
China's growing inflation problem may represent one of the best hopes
that Canadian manufacturers and other exporters have for some relief
from a sky-high loonie. While the Bank of Canada grapples with
inflationary pressures that could preclude a significant cut in
interest rates - which would take pressure off the dollar - China may
be forced to increase the value of its currency to combat
inflation. At a meeting in South Africa this weekend, finance
ministers and central bankers from 20 leading nations expressed concern
about a slowdown in global economic growth even as food and energy
prices rise sharply around the world.
.
The financial leaders warned that turbulence in currency and financial
markets will continue over the medium term as the global economy copes
with near-record oil prices, rapid Asian growth and a slowdown in the
United States, and a global credit crunch sparked by the crisis in the
U.S. sub-prime mortgage market.
.
http://www.theglobeandmail.com/
.
.
UK HOUSING MARKET
WILL GRIND TO A HALT NEXT YEAR
By Serena Cowdy - November 16, 2007
.
UK house price growth will sink to zero in 2008 in the face of a
significant economic slowdown, according to Nationwide. As we
revealed in The Future Of House Prices, the building society predicts
that economic tailwinds are turning into headwinds and that by this
time next year, the property market will have ground to a halt.
Nationwide cites general economic slowdown, tighter lending conditions,
poor affordability and lower buy-to-let demand as the driving forces
behind the predicted downturn.
.
If it turns out to be true, it will be a hefty drop from the current
rate of 9.7 per cent growth, and the weakest year for the sector in
over a decade. In its November Inflation Report, the Bank of
England warned of a number of risks to the UK economy and signaled that
it may soon reduce interest rates from their current level of 5.75 per
cent. Such cuts would obviously come as a relief to overstretched
mortgage borrowers. While Nationwide acknowledges that a move of this
sort could provide "some support" to price growth, it maintains it is
unlikely to prevent a significant slowdown.
.
http://www.fool.co.uk/news/property-home/2007/11/16/
.
EDITORS NOTES:
Alistair Maclean Darling, current Chancellor of
the Exchequer in the UK, basically is under fire as the interpretation
of his comments are that British tax-payers can possibly kiss 25
Billion Pounds (that comes out to US $50 Billion Dollars for our
American readers) of the government's financial institution bail-out
money good bye. Of course, when we use the term government, in
this case, we are talking about tax-payer money, as those are the poor
sods who will have to pay for it at the end of the day. As we
have mentioned previously, the UK has some of the very same problems
that the US has economically speaking. In addition, note that the
propensity to cut interest rates by the central banks (in the US and
the UK) to offer relief to over-strapped homeowners with adjustable
rate mortgages, and to possibly assuage the current recession.
However, what kind of new havoc will that bring and will it really
solve anything? The real problem when all is said and done, is
the DEBT, which no one seems to be willing to pay down. In terms
of government: spend, spend, borrow, borrow seems to be the
favorite song (with money they do not have from tax revenues, printing
it out of thin air not withstanding). Once again, we highlight
Warren Buffet who switched a substantial part of the Berkshire Hathaway
portfolio out of US Dollars in 2003, long before the sub-prime crisis
and housing issues came to light. His thinking or reason for
doing so? The debt and various deficits, he said. It can't
go on forever and something has to give. Sure enough, we
concur.
.
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READERS WRITE IN:
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I recently received my new passport that contains the chip, however, I
also noticed something different as I read through it. In my old
passport it says you may loose your citizen if you do any of the
following like being naturalized in a foreign state or taken an oath or
making a declaration. In my new passport it says the same thing
but it has the words added and was your intention. My question
would be how in the world does anyone prove intention. I found
this to be a noticeable different shift beside the shear size. I
thought maybe you could explain this shift and difference in the
wording in my new passport versus old.
.
EDITORS REPLY:
There are an incredibly large number of US
citizens that are confused about this issue, meaning dual citizenship,
what it means, etc. The US State Department says (from their own
website, visit the link below to see for yourself):
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The concept of dual nationality means that a person is a citizen of two
countries at the same time. Each country has its own citizenship laws
based on its own policy. Persons may have dual nationality by automatic
operation of different laws rather than by choice. For example, a child
born in a foreign country to U.S. citizen parents may be both a U.S.
citizen and a citizen of the country of birth.
.
A U.S. citizen may acquire foreign citizenship by marriage, or a person
naturalized as a U.S. citizen may not lose the citizenship of the
country of birth. U.S. law does not mention dual nationality or
require a person to choose one citizenship or another. Also, a person
who is automatically granted another citizenship does not risk losing
U.S. citizenship. However, a person who acquires a foreign citizenship
by applying for it may lose U.S. citizenship. In order to lose U.S.
citizenship, the law requires that the person must apply for the
foreign citizenship voluntarily, by free choice, and with the INTENTION
to give up U.S. citizenship. Intent can be shown by the person's
statements or conduct. The U.S. Government recognizes that dual
nationality exists but does not encourage it as a matter of policy
because of the problems it may cause.
.
Most U.S. citizens, including dual nationals, must use a U.S. passport
to enter and leave the United States. Dual nationals may also be
required by the foreign country to use its passport to enter and leave
that country. Use of the foreign passport does not endanger U.S.
citizenship.
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http://travel.state.gov/travel/cis_pa_tw/cis/cis_1753.html
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Mr. Richard B. Wales has some very interesting information on-line as
well (see link below) whereby he states: There is no suggestion
that the US has any objections if someone really wants to keep both US
and foreign citizenship. Notice the emphasis on KEEPING US
citizenship following foreign naturalization or the taking of a
foreign
oath of allegiance. This represents a near-total reversal of earlier
policies which assumed such actions were strongly indicative of a
desire to give up US citizenship.
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http://www.richw.org/dualcit/policies.html#losscit
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http://www.richw.org/dualcit/faq.html
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Looking at the matter from the angle of economics, I wish to highlight
Mr. Dennis Cauchon, who wrote an article in the May 29, 2007 edition of
USA TODAY
newspaper, whereby he says:
.
Taxpayers are now on the hook for a record $59.1 trillion in
liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every
U.S. household. By comparison, U.S. households owe
an average of $112,043 for mortgages, car loans, credit cards and all
other debt combined. Un-funded promises made for Medicare, Social
Security and federal retirement programs account for 85% of taxpayer
liabilities. State and local government retirement plans account for
much of the rest. This hidden debt is the amount taxpayers would
have to pay immediately to cover government's financial obligations.
Like a mortgage, it will cost more to repay the debt over time. Every
U.S. household would have to pay about $31,000 a year to do so in 75
years.
.
http://www.usatoday.com/printedition/news/20070529/
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In other words, you as a US citizen, are a guarantor (and financial
backer in theory) to all that debt they have piled on (indirectly in
your name, without your express permission), to the tune of over
US$500,000 per household, according to the above mentioned
article. Why would they want to let you go so easily? Let
us say for arguments sake, that you get thrown out of the Knights of
Columbus, your trade union, or even your health club (for whatever
reason). Legally, would you still be liable to pay the monthly
dues or membership fee? Heck no, they took you off the membership
rolls, they discharged you from all privileges and OBLIGATIONS of
membership. And so, if your citizenship is taken away, presumably
because you obtained another, they are doing you a favor, by perhaps
taking away privileges but ALSO discharging your obligations as
well. Stated more clearly, they are discharging you from a
half-million dollar liability. This is a bad thing? Is this
truly a threat? The above State Department information says you MAY loose US
citizenship by voluntarily acquiring another, although as
Mr. Wales would seem to indicate, the recent policies and vagueness of
it all indicate probably not. It seems they need you, or more
correctly your money, more than you need them (which is another
problem).
.
The truth of the matter is, many people are worried about getting that
US$1,000 monthly Social Security check in the future. What are we
talking about in such a case? Perhaps twenty years of collecting,
which comes out to about US$12,000 per year or a grand total of about
US$240,000 (not calculating cost of living increases, which are always
low balled and never reflect the true inflation rate). On the
other hand, assuming Mr. Cauchon is correct when he claims that the
average household needs to ante up an additional US$31,000 per year for
75 YEARS to pay off all these financial obligations (over and above
taxes already being paid) - then who gets the net benefit if you are
discharged, or stripped of citizenship, as they say? It certainly
would seem to me, you are currently on the hook to them for a much
larger amount as guarantor (31,000 annually) of debt than they are to
you as recipient of any promised social welfare benefits (12,000
annually).
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Some additional information worth reading, regarding the debt, can be
found here:
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http://home.att.net/~mwhodges/debt_a.htm
.
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ANOTHER READER
WRITES:
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Hi John: See The Following Link.
.
http://finance.yahoo.com/currency/convert?from=USD&to=DOP&amt=1&t=5y
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That's a 5 year chart of the dollar/DR peso relationship. The US
dollar is going down. The DR has been pegging it, keeping it roughly
equal to, the US dollar for the last, about, 2 years. Thus partly the
increase in prices for ordinary stuff in the DR. In some ways, the DR
is as expensive as the US now. The US dollar is going down more
and the DR is devaluing the peso to keep pace, currently. I don't know
how long this will last. China has the same problem. The
BIS has the total of notional value of OTC derivatives at a bit over $5
trillion. It seems like yesterday when it was approaching $2 trillion.
There is no ready market for this stuff. The most amazing thing. Brand
new in history. Just bought some silver liberties from that place
for $20. My offer of $18 didn't do it. $20 is still dirt, dirt, dirt
cheap.
.
EDITORS REPLY:
I think a number of things are happening, rather
than necessarily a concerted or proactive effort to devalue the Peso in
tandem with the USD, as was the case in the past with Saudi Arabia, for
example. Which is to say, you have to take out the economy under
the previous administration (the period 2000-2004) because these
figures skew the historical averages. In other words, under the
previous government, inflation in the DR was running at about 60
percent, and the Peso went from an exchange rate of 20 something all
the way up to about 52 (the Pesos lost half its value). Prior to
taking office, the PLD party (the party currently in power, of which
President Fernandez is a member) had a few main priorities if they won
the election. First, cut the inflation rate to zero, second, do
something about the debt that was piled up under the previous
administration, third, stabilize the exchange rates and fourth, turn
the ship around to produce a positive GDP economic growth.
.
Incredibly enough, after coming into office, they did get the exchanges
rates back down to 28 (and then they have drifted up to where they are
right now, at about 33), which means the currency regained it's lost
value, going from 52 down to 28 - and they also got the inflation rate
down to zero as well. The inflation rate is now about somewhere
near 4 or 5 percent or so, primarily due to the price of oil, which is
a problem for all oil importing countries and will surely add to
inflation as well by itself, everywhere and not just in the DR.
Also, I would expect to see price inflation going higher in tandem with
the increase in oil as well, but again, this is a global problem.
.
Based upon these previous economic issues, I would tend to say that the
current leadership in the Dominican Government (and Central Bank) have
inflation on their minds as the number one priority. Not too long
ago, they announced a shift of Central Bank foreign currency reserves
into Pound Sterling, a very smart move that has already paid off.
This alone tells me the lights are on, and indeed someone IS home in
the government finance department. However, a devaluing dollar
means that they have some room to play with in terms of trying to
maintain a stable exchange rate. Which is to say, historically
the Peso has devalued by about 5 percent annually versus the dollar (if
you go back to the period 1990 - 2000). The current environment
provides room to allow for more liquidity while at the same time
keeping the exchange rates stable, which I would say is the paramount
priority (as opposed to an out and out expansion to keep pace at the
same level the US Federal Reserve has been expanding the money supply,
which is at a rate of 15 percent if some of analysis yielding this
figure are correct). However, if price inflation indeed becomes a
problem, my bet would be on seeing higher interest rates for the
Dominican Peso in 2008 rather than an effort by the Dominican
Government for any efforts to devalue the currency. Interest
rates are already at a 10-year low, and the reason rates were brought
down in 2006 was to stimulate the housing market as the banks were
flush with deposits and no one was buying real estate (why would you,
if you were getting 25 percent tax-free interest in a bank deposit?).
.
Now of course, you have seen a new construction boom for luxury
apartments, homes and so on (and I do mean to say the properties being
marketed to tourists either, but rather the local domestic
market). Where did that money come from? Cash, from bank
savings accounts, as opposed to no money down, interest only mortgages
as was the case behind the US real estate run up. This is why I
think the Dominican real estate market is on firmer ground, despite the
fact that some areas have seen gains of twenty percent or more in terms
of price appreciation in real estate. In other words, the
economic story in the Dominican Republic is a very different one than
what has gone on in the US (the fundamentals involve cash, as opposed
to debt). Will the Dominican real estate market continue to
appreciate at twenty percent annually? No market returns double
digits indefinitely - but real estate prices are less likely to fall
down a sink hole either, and you are more inclined to see properties
holding value even if there is an economic slowdown in 2008 (because of
the lack of debt). Also, Dominican Real Estate is especially well
valued for Europeans or anyone paying with Euros. US real estate
has become cheap for Europeans also, but why would anyone want to
invest in a declining market?
.
Considering 80 percent of the tourism and other kinds of investment in
the Dominican Republic are non US based (European, Canadian) my
prognosis is more positive for the Dominican Republic than another
country completely intertwined with the US economy. Now, with
that said, any major drop in US consumer spending in 2008 will have
some impact on the Dominican Republic, as the US is certainly the
largest major market in the neighborhood. But, considering that
the latest statistics suggest the Dominican economy has been growing
this year at around 7 to 8 percent, what might we be talking about for
2008? Just as the case with China and India as well, seeing a
possible 4 percent reduction in current GDP in a country growing at 7,
10 or whatever amount - still results in a positive number. A
country with an anemic 1 or 2 percent current growth, certainly will be
in recession territory when a 4 percent cutback is factored in.
.
One major economic trend or observation we see is a de-coupling or
distancing from the US market and the US dollar. Meaning, the US
is the second largest consumer market of all the major industrialized
nations (the European Union is actually the largest) and not to be
discounted completely. But, what we have noticed is more direct
investment and integration between countries such as the Dominican
Republic and Brazil, China and India, India and the Dominican Republic,
and a number of other such relationships. In terms of oil,
whatever cut back there might be in US consumption (due to a recession)
could be conceivably be picked up by China and India, considering their
annual exponential growth in oil consumption. Indeed, just as the
news article we highlighted regarding Australia seemed to point out, it
is not necessarily the case that if the US catches influenza, that the
rest of the world will get that sick. Also, there is less concern
about the US dollar in the sense that the world is already flooded with
dollars (in part thanks to our friends at the US Fed running the
presses) and rates of investment return certainly higher outside the US
right now as well. And so, to use the US Dollar as a economic
benchmark, one is doing so more out of habit than looking at the
reality on the ground. Which is to say, one should be looking at
Peso exchange rates versus the Euro and other currencies, not to
mention the other factors driving trade and the economy. |
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