World Reports, Autumn 2001

by | Oct 1, 2001 | Archives

  • WHAT TO DO WHEN YOUR PENSION AND DEPOSITS ARE NOT ENOUGH: A morning walk in the North Carolina woods provides you a lesson how to cash in on upcoming trends. See below
  • The BEST VALUE SECTOR AND SHARES IN THE WORLD. How to get the most out of the declining market.
  • EARN 122% NOW AND 26% PER ANNUM FOR 27 YEARS! Look on page six.

Forest's silence cut by sweet songs, a waterfall in the warm mountain air. Blackberries and dew, glistening like purple diamonds set in summer's ripe wardrobe even as it fades in the specter of fall.

Little Horse Creek deep in the woods. The garden bursts with summer crops of corn, tomatoes, squash. A full sun warms the morn but while contemplating the still green leaves, there's a slight curling and the first hints of brown. An inexplicable feeling creeps through the fattened summer haze, some crispness, a mourning in the breeze, extra silence in the air. A heightened sense of excitement. Autumn is near.

Such is life, never ending change! Baby boomers know more about this now! A recent article in USA Today entitled “Maturing Boomers Smack the Silver Ceiling”. Many are hit with pink slips, finding it harder to get jobs, being perceived as too old.

The same USA Today front page declares, “U.S. Taps Social Security Reserves”. Boomers shiver thinking about retirement and social security that might be delayed or not even there. In 1999 many boomers talked early retirement funded by rich Internet and high tech portfolios. Now they are frightened they won't have enough for regular retirement. Boomer demographics and market psychology could hurt the Dow. These millions, in their mid-fifties, are the largest, richest group of humanity ever. If they start dumping their stocks, beware!

The 100-year trend in Wall Street shows U.S. stocks in a consolidation mode (after a market bubble) that happens every 25-30 years. If history is a guide, the market will take years to recover. Plus U.S. (and global) economic cycles are on the down side. This is a cycle in which share prices are soft. Interest rates on CDS are less than 3%. Bonds, with the potential for inflation, are at risk. Where can we invest now?

Confirmation of Risk and Reward

Barron's recently conducted an interview with Jeremy Grantham, a Boston based money manager with whom investors have entrusted $22 billion. He is one of the most respected U.S. fund managers, best known for his acumen in relative values represented by different asset classes in markets worldwide. Learn several ways he plans to make money-next page.

Grantham confirms the current market risks with many negative thoughts about U.S. shares but adds positive ideas about value shares. He feels the market currently offers the greatest value rally in history. At the end of June 2001, 95% of everything he looked at registered a new high in terms of relative performance against its benchmark. This means that value shares had never been cheaper relative to growth shares. He feels value shares are 20% cheaper than normal, especially in the case of small-cap value shares such as the Russell 2000.

Grantham stated that the Internet/telecom/tech bubble was the biggest bubble by far in American history-bigger than the railroads, bigger than anything. To put it in perspective, the S&P peaked at 21 times earnings in 1929. In 1965, in the other great cycle, the post-war cycle, it again peaked at 21 times earnings. Both cycles were built on incredibly strong earnings & productivity gains. In this cycle the Index peaked at 33 times earnings, and even now the S&P's P/E (price/earnings) is still at 26 times earnings. The long-term average is 14 but Grantham believes the P/E will come back to 17 1/2.

His near-term forecast is that the market will rally on an economic recovery. Anytime now, there will be a fairly decent broad pickup, led by the consumer because of the tax cuts and because of the many interest rate cuts. It probably will be a decent recovery. He feels that in this kind of knee-jerk stock market, at the first sign of a healthy economy, the stock market will kick up 10% at minimum, 20% at best. This will create one last great opportunity to lower risk by moving into asset classes with higher implicit returns, of which there are, happily, plenty including real estate, REITs, emerging equity, emerging debt, inflation-protected government bonds, regular bonds, small-cap value around the world and his favorite asset class…timber. I wrote extensively about timber in our last issue and remain positive in this area and am doing continued updates on timber at our website – If you prefer this report in printed form, send $9.95 with your name, address. Ask for the report on TIMBER.

Grantham feels that timber is the only low-risk, high-return asset class in existence because people are not familiar with it. He believes that timber is the only commodity that has had a steadily rising price of 200 years, 100 years, 50 years, and 10 years. And a unit of wood, just the price of a piece of wood (in real terms) beat the S&P over most of the 20th century, from 1910 to 2000. The price of a piece of wood actually outgrew the price of a share of the S&P. The yield from timber averaged about 6.5%. The yield from the S&P averaged 4.5%. The current yield on the S&P is 1.25% and the current yield on timber is 6.5%. In each of the three great past bear markets 1929-1945 and 1965-1982, and a third one that's off everyone's radar screen, which is post World War I 1927-1925, the price of timber went up. It is the only reliably negatively correlated asset class when you really need it to be. One reason for that is you can withhold the forest. If it is found the price of lumber is no good, then just don't cut. Not only is there no cost of storage, the tree continues to grow and it gets more valuable. Grantham feels this is a virtue. I agree and have been looking for value timber plays so I share next page a report listing some hot timber from a friend who has been very successful and is very involved with timber.

“Gary, concerning timber: I have some well defined views. I do not like any of the U.S. timber trusts at this point. Nothing attractive in Norway, Sweden, Finland or South America right now. I find the New Zealand timber funds/trusts somewhat interesting though the three favored are still generally a bit young in their cycles. Perpetual manages two timber funds that trade on the NZSE: Nuhaka Farm Forestry Fund/NUH…trades around NZ$8.40, low debt, good discount to NAV with a little harvesting started in 1999. Perpetual also manages the Opio Forestry Fund/OPI…trades at about NZ$0.52, little debt, nice discount to projected NAV, a young forest with harvesting expected in 2012. You will also want to take a look at Evergreen Forests/EVF…trades at NZ$0.50, some debt plus a convert that works out to be about 7% that trades in NZ…and a US pink sheet ADR/EFVSY. Depending on type of investor involved, all three could work, but be careful as they are very thinly traded because holders are buy and hold long termers. My favorite traded timber investment right now is the TimberWest Forest Corp Unity/TWfu.TO that trades in Toronto about CAN$12.00. They are the largest private forest owner in Western Canada! Well managed, reasonable debt, working sweet cycle of forests, nice cash flow which they share with unitholders providing a decent current yield of around 9%. Take a look, you just might like it”.

I do not have to take a look as I wrote about TimberWest last issue. Here is an excerpt of what I shared then. “Another sustainable investment is to buy Canadian shares of TimberWest Forest Corp. TimberWest, the largest owner of private forest lands in western Canada, owns over 800,000 acres mainly located on Vancouver Island. The company is certified by the American Forest and Paper Association as committed to managing their lands according to sustainable forestry standards. TimberWest was the best performing Canadian forest products equity in 2000, up 14.2%. Contacts

For details on Timberwest, Barrie Martin, NCL Stockbrokers), 9-12 Basinghall Street, London EC2V 5NS, England. Tel: 011-44-207-600-2801. Fax: 011-44-207-726-6201. email:

For details on NZ and US timber including US pink sheets: Larry Grossman, 2706 Alt 19, Suite 114, Palm Harbor, Fl 34683. Tel: 1-888-609-7425, 1-727-784-4841. Fax: 1-727-784-6181. email:

Ecuador Teak

I have finally found an affordable teak investment opportunity in Ecuador. The simple fundamentals have always appealed. Teak is in growing demand. There is diminishing supply, plus a drastic need to stop logging rain forests where old teaks stand. The answer is teak plantations and Ecuador makes a great place to plant with 365 days a year of direct equatorial sunlight, lots of rain and close to the U.S.!

Finding good people and a project are the hard parts. I hope I have as I have known Joe Montgomery and Paul Palacios (both previously of Banco del Pacifico) for over five years. They now have a project called Tall Teaks III LLC. I have a copy of the preliminary information memorandum and though I still have questions, want to share the encouraging news.

The potential is around 20% per annum on a compounded basis for twenty years. That is a lot, about 40 times investment or about $400,000 return on a $10,000 investment! A tax attraction is that the first income does not come in until 2009 when the first thinning begins and though initial capital is expected to be returned within ten years, the big profits are in years 18-through 20 in the first major logging. The project requires $2,122,000 to cover planting and costs in the first eight years, but is then projected to return $1,364,272 for the next six years or about a 400% return on the investment. In year 20 the return is $75,802,154 or about an additional 40 times return!

This is a long term speculation but suits even baby boomers who want to retire eight years from now. An investment today is tax free until 2009 when at retirement age, it provides about a 50% per annum for eight years. The balance can be set aside for old age or passed onto heirs. Younger investors reap the entire investment. Those with young children or grandchildren may use it to fund their college expenses.

The management company (Manhattan Group, Inc.) has two other plantations (Tall Trees I and II) under their belt. Though teak trees often take 60 to 80 years to reach maturity, in the area of Ecuador chosen they reach an attractive selling size in 18 to 20 years. A 60 to 80 year old tree has more valuable heartwood but economics do not justify waiting 40 to 60 years to obtain about 50% additional girth.

The company has learned to plant a density of 2,500 trees per hectare (2.2 acres) which increases thinning revenues and curtails maintenance costs (less weeding). There are two final benefit. New trees sprout from the stumps and provide another cutting in an additional 10 to 15 years later. This and land values in 20 years have not been factored into the estimated returns. For updates, log onto my website, or email Paul Palacios at my website for our upcoming seminars in Ecuador in January, February and March where we'll look at the teak investments then.

Jeremy Grantham is also keen on emerging market stocks. People have lost money and these stocks have crashed. He feels if we look back 10 years emerging equity was not cheap at all. Emerging equity sold at a higher P/E than the S&P 8 years ago. Now his portfolio trades at 6½ times earnings, and he has not seen anything like that since 1974. This is an incredible difference to the S&P at 26 times earnings. Emerging markets have had their bloodbath. The index of the whole emerging equity market trades at a multiple of 8.5 times earnings. It should probably be 15 or 16 like everything else. So sooner or later that is going to be 15 or 16 times earnings, just as sooner or later the U.S. is going to be 17. But which emerging markets are best?

Although we cannot see the whole future, we can compare emerging markets based on value. Michael Keppler of Keppler Asset Management in New York is one of the world's emerging market value experts. State Street Bank and Trust (one of the world's largest fund managers) uses Keppler's guidance to manage their Global Advantage Emerging Market High Value Subfund. This fund has won the Micropal Award as best performing fund in its class in 1994, 1995 and for the three year period 1994 to 1996. Plus the fund won the Capital Fundkompass Award

for performance in 1997 and the Standard & Poor's Investment Funds Award for 2001. This fund is up 32.6% compound annual return since December 1988 compared to 8.5% compound annual return for the S&P/IFCI Index. Looking at the value of emerging markets makes sense!


Keppler Asset Management, 350 West 57th St., NY, NY 10019, Tel: 1-212-245-4304, Fax: 1-212-262-8150.

Jyske Bank has emerging markets, Latin American Far East and Eastern Europe Mutual Funds. Details: Teddy Christiansen, Jyske Bank, PO Box 133, DK 1780, Copenhagen V Denmark, Europe. Tel: 011-45-33-78-7800. Fax: 011-45-33-78-7633. email. Jyske can also buy and hold shares in the top value emerging markets such as: Brazil: Compahnhia de Bebidas das prf., Embratel Particip. ADR, Telesp Cellular Part. Adr, Czech Republic,: Ceske Energeticke Zavody, Ceska Sporteina, Cesky Telecom. Korea; Samsun Electrics, LG Korea Telecom and Venezuela: Anonima Telef. (CANTV) ADR.

26% a Year for 27 Years?

Grantham also likes some of the international bond issues, but what type makes sense? Some emerging markets offer better potential rewards than others. Twenty delegates just completed our Inspired Investing Course with Teddy Christiansen (Jyske Bank) and Steve Rosberg (High Oak Finance) here at Little Horse Creek. One opportunity we reviewed was the potential of Argentina Bonds that now pay up to 26% per annum for as long as 27 years. What's the catch?

Argentina is in its third year of recession and is riddled with international debt. This has so concerned international investors that Argentina's credit appeal has dramatically fallen. So many investors have questioned the Argentine's ability to repay that the price of Sovereign Argentina Bonds have fallen dramatically. Prices are so low these bonds currently yield as much as 26%. Here is an added benefit.

Many of these bonds are denominated in U.S. dollars. U.S. dollar investors can pick up 26% without currency risk! Here is an even more interesting thought for those who feel the US dollar is overvalued.Many of these bonds are denominated in Euros so investors can earn 26% in Euros! (More on the dollar and Euros in a moment.) The longer bonds appear attractive to me for several reasons. First imagine picking up 26% a year guaranteed in dollars or Euros for 27 years!

The risk is that Argentina could default on its debt. This seems unlikely to me. There is however a complete special report on this available right now by Steve Rosberg of Argentina. The report describes the profit potential and risk, plus names the best bonds to buy now. Order it from or fax your credit card to 336-384-1577 or send a check ($29) payable to International Service Center, Inc., 157 Little Horse Path, Lansing, NC 28643.

2 % Loans

For those who want to speculate, Argentina bonds offers an attractive multi-currency sandwich. You can borrow yen at 2% and invest in US dollar or Euro Argentine bonds. This produces over 100% returns.

	Amount         Investment         Yield          Return in  U.S.$	50,000         Argentine bonds     26%             $13,000	40,000         Yen Loan             2%             $   800                                                           $12,200

This is a return of 122% on the $10,000 invested!

You are not making this money for nothing! The high potential is risk premium given for taking a huge risk! This speculation is so risky that Jyske Bank (the lender I often use) will let you take this position unless your financial reliability is well known to them and you have a higher collateral. What follows below is a much safer, more diversified Multi-Currency Sandwich that Jyske would recommend at this time with $50,000 invested and $50,000 borrowed (60% in Japanese yen at 2.125%, and 40% in Singapore dollars at 4.625%). Jyske takes a one time 1% up front loan fee of $500. $99,500 is invested as below:

 5%     Icelandic dollar Save Acct     11%               $  547.5025%     Polish Zloty Savings Acct      14.625%           $3,637.9725%     Hungarian Florin Sv Act         9.759%           $2,425.3110%     Euro Mexican Bonds              7.37%            $  696.50     15%     Australian $ GMAC 6.5% 2005 bd  6.17%            $  925.3510%     Norwegian Kroner Savings Act    6.50%            $  646.7510%     Jyske Bank Emerging Market Fund Growth                -60%     Japanese Yen Loan               2.125%          -$  637.5040%     Singapore Dollar Loan           4.625%          -$  925.00                                             Total return    $7,316.88

This is a 14.6% return. Details from Jyske Bank at their address above.

You can learn all the details of how to use the Multicurrency Tactic with my course “Borrow Low-Deposit High”. Order this extensive course (including tapes) online or send $199 to International Service Center, Inc., 157 Little Horse Path, Lansing, NC 28643.

Currency Risk

These multicurrency portfolios contain several risks, investment, interest rate and most of all currency risk. The yen could rise, the U.S. dollar or the Eastern European, Australian and European currencies could fall. Yet holding too large a share of U.S. dollars is a great risk now. Through 1999 the U.S. dollar was bolstered by the strong U.S. stock market (creating demand for dollars to invest) and by a higher interest rate than in the Euro or Japanese yen. Major fundamental signs of currency weakness were ignored including incredible monetary supply expansion, ever growing record trade deficits (which will eventually create a demand for foreign currencies), plus increased U.S. government spending and serious overhangs building up in some very large semi Federal institutions (Fannie Mae and Freddie Mac). Another big concern has been the U.S. administration's mad rush to

spend a budget surplus it almost certainly did not have. The people in Washington are not fools. They knew the recession would reduce tax revenues, but were caught between political rocks and hard spots.

Momentum and lack of any clear alternative have kept the dollar strong. Now major fundamentals have changed including a much lower U.S. dollar interest rate. Rates are now higher for pounds, Australian dollars and Euros. The federal budget reserves are now shown to be a sham. The dollar is weak and there are many reasons to believe that it will fall.

A portion of portfolios should be in Euros, Australian dollars, silver and gold. Precious metals contain all the fundamental qualities that a commodity needs to be money. Gold and silver are durable, desirable, divisible and rare. The U.S. dollar lacks this last quality.

The book,”The Great Gold Comeback” by James R. Cook explains this in great detail and is available from Investment Rarities, 7850 Metro Parkway, Minn, MN 55425. Tel: 1-899-328-1860, Fax: 1-952-851-8732. email Details along with more information about investing in precious metals are enclosed with this letter.

Best Opportunity Now

Timing has never been better for your own business. Technology makes it easier to get started and the economic slowdown improves factors for small businesses. Pink slips grow, so more good quality people are looking for jobs-which reduces the problem most small businesses have of finding good employees at the right price. As big business tightens their services to ride out the economic storm, windows of opportunity to provide service will rise. For example, my travel agent called me recently and told me she is going out of business as airlines have once again reduced her commission. Such change creates opportunity! As interest rates drop and the government tries to stimulate the economy, it will become easier for small businesses to find avenues of finance.

One way to get started in business is with a special course in how to be a copywriter offered by Bill Bonner. I have worked with Bill for thirty years and if anyone knows this field he is the one. Details are enclosed. In addition I have created a new updated International Business Made EZ course that can help you can turn current negative economic conditions into fun, profit, adventure, more freedom in life and less stress.

This course shows how to develop (or expand) your own business to increase security, independence, freedom, wealth and well being. You can greatly enhance and improve the quality of your life plus reduce the tax you pay and increase your asset protection! You learn how to run your business anywhere you want (we devote an entire section on how to do global business from the Internet), from office or home! The course shows how to develop business in publishing, marketing, seminars, consulting, tourism-seminars, real estate and import-export. Whether you have a successful business, want a part time business for change or as job security, this course can be of enormous value to you. An electronic correspondence course over the net or complete three-day course provides an incredible education for your wealth now.

International Business Made EZ begins with a correspondence course sent to you via email the minute you sign up. Part two is an intensive three day personal course conducted at our training center here in the Blue Ridge mountains or in Orlando, Florida.

The course shows why an international business is the ultimate lawsuit and tax protection and why global businesses are immune to recessions. From Lesson One, the course gives ways to expand your knowledge about having a business plus shows how to use our global Internet network and mailing list (over 23,000 business people and investors in 82 countries) that can help you find partners, sell products and services and raise money abroad! The goal of the course is to give you more than just knowledge. We strive to help you turn your Passion into Profit!

The contacts you gain alone are worth ten times the cost as they offer valuable services to make your global business easier, more effective and profitable. There has never been a time when the risk of higher tax, greater unemployment and investment dangers have been higher in North America, but neither has the opportunity for small businesses abroad been so outstanding. Expand your borders now! Increase your economic security freedom, independence and success. Join us in the beauty of Autumn, the height of the leaf season here in the Blue Ridge in October or join us in delightful Orlando! If you sign up for the course, you receive the correspondence course by email FREE. Save $149!