International Investment Predictions

by | Jan 2, 2007 | Archives

International investments in multi currency portfolios and other international equities and bonds can create profits and safety for your investments. Multi currency portfolio investments add investment protection and increase opportunity in your international investments. International investments make sense because global investing and business are part of a natural economic evolution. International investments have outperformed US investments for years.

Yet which international investments should one choose?

The New Year is a time when economic writers, investment advisors and such make predictions. They stick their necks out using their brooms of experience to try and sweep away the mists that fog the future.

Yet that’s a heavy fog! Often these predictions get compared to stock picks made by throwing darts or matched against choices made by monkeys. The animals of the lower kingdom win more than half the time.

Nevertheless we have to try. Yet I must admit, this year I am puzzled because history suggests that we should be seeing a bear market on Wall Street about now.

One of my favorite charts explains why. Since 1890 The Dow Jones has seen Bull and Bear cycles that run about 16 years. Thus the last run up from about 1983 to 1999 looked right. Then the market dropped as history suggested it would. Then if history was to maintain its position as our guide, we should have seen a mini bull (as we did) but by now history suggests the market should have dropped again…which it has not.

This either means that the market is about to crash hard or that Wall Street is breaking new ground after a 100 year plus tradition.

There may be one more reason for this.

When the US market was super heated some years ago, the Fed began raising interest rates. This usually drives share prices down. The rising rates are generally accompanied by decreased liquidity.

I am not sure this happened.

Access to money remained very easy. This resulted in a fascinating phenomenon because rising real estate prices created added demand that mopped up this easy supply of cash. In a way it is quite a con. The rising real estate prices made everyone look richer. Yet all they really did was make everything more expensive.

Real wealth comes from increased productivity or increased capital. In this case the higher numbers only meant added cost of owning property. This resulted in inflation. The increased wealth did not increase purchasing power nor standards of living.

I am not investing in US shares anyway because they offer low value compared to many other markets. Yet this puzzle which hangs there keeps haunting me.

So I asked Thomas Fischer at Jyske Bank what he thinks (talk about passing the buck!) The bank and Thomas have helped us enormously in formulating the Borrow Low – Deposit High strategies we track in our educational service. It is hard to argue with the success of the portfolios they helped develop. The returns have been outstanding…but how much of this is just because of an upswing in the markets? Bull markets can make everyone look smart.

Thomas also questions the market when he begins his predictions by asking:

Could 2007 be the 5th consecutive positive year? Markets worldwide have seen some impressive returns since February 2003 when markets bottomed-out after a 3 year bear market. The S&P 500 has risen from 920 to 1427 a rise of 55%, the Eurostoxx 50 has risen from 2500 to 4130 a rise of 65% and the Danish index (OMXC) has risen from 210 to 437 or an impressive rise of 108% and the important $64,000 question is of course will this continue in 2007?

This is an enormously important question that Thomas has asked. Thomas made some comments on what the Fed is doing as well by saying:

In the US The Federal Reserve Bank may have finished raising interest rates for now. The bank has clearly stated that it believes the US economy will be slowing in 2007. This lower growth, however, should not have a negative impact on the equity market (unless it becomes a hard landing).

This comment is really interesting. What happens now if US interest rates fall, real estate prices drop and easy money continues to be available? This is my burning question. The answer could be that Wall Street will continue to rise. After all where else (besides real estate) can investors put excess cash? Gold is another answer so we could expect it to rise…but we have to pay to speculate in gold…stock markets are traditionally a better hedge for inflation (except during rampant inflation).

It could be that despite 100 + years of history US shares may rise in 2007.

Despite what markets do overall, there are likely to be some segments that are the strongest. These areas of growth will come from special demand. One huge demand that has been overlooked but is now coming of age is the market for environmental protection. Thomas Fischer agrees and says:

Green investments could be big. We have seen some impressive returns lately. I expect much as the world views environmental threats more seriously. Many governments now believe that immediate action on climate change has to be taken. Reducing greenhouse gas through the use of renewable energy and low-carbon energy sources has been targeted as an urgent need. The EU, California and China have implemented ambitious policies. Denmark now produces more than 20% of its electricity with windmills.

Bull markets tend to have four phases. The first phase comes from solid value created by a preceding bear market. The second phase begins when the rising shares begin to spin off dividends and share buy-back schemes start to unfold. In phase #3, companies experience increased turnover and profits and investors begin to take on more risk. The companies themselves also increase investments including mergers and acquisitions. Finally phase #4 throws caution to the wind and there is a build up of investments and new money into new exciting companies and projects through IPOs. In the final bubble of phase #4 investors become more aggressive, lose fear and eventually buy in a frenzy. This theme may be developing in the Green sector as it shifts from phase #4 into phase #3..

Thomas also prefers Europe to the US and adds:

European return on equity historically high but an improving European economy and high activity in Mergers & Acquisitions could keep European equity markets form in 2007. Denmark has seen much higher equity returns over the last 4 years but the economy is still red hot and mergers and acquisitions may continue at a high level.

Europe is in phase #4 as evidenced by the wave of IPO’s and M&A`s. The big question is how far into phase #4 is Europe ? If you compare equities to bonds however equities do not seem that expensive. 10 year European Government bonds trade at 27 times yearly return and European equities trade at a Price earning (P/E) at around 14.

Based on this thinking Thomas has picked four equities he likes for 2007:

EDF Energies Nouvelles S.A. (ISIN code FR0010400143) produces green electricity. The company uses wind power, hydro power, solar power and biomass (plant material) to produce energy. The company was floated (IPO) on the French Stock Exchange on the 29th of November 2006 at Euro 33 and currently (December 19th) trades at Euro 39,35 an increase of almost 20% The market Cap of the company is Euro 2,4 billion.

Vestas Wind Systems (ISIN DK0010268606) is a Denmark based company active within the wind power industry and it is the world’s biggest manufacturer of windmills. The share has already seen an impressive return in 2006 with a gain of 135% since January 1st. but I still see plenty of potential and relative to other listed wind-turbine companies it trades at a discount of 11% in terms of PE. I also see Vestas as an increasingly obvious acquisition candidate as earnings are raised over the coming years.

Genmab (ISIN DK0010272202) is a Denmark based biotechnology company that develops human antibodies for the treatment of life-threatening and debilitating diseases. The company signed a partnership agreement on the 18th of December with GlaxoSmithKline on HuMax-CD20 (Phase III for two cancer indications and phase II for active rheumatoid arthritis). Genmab will receive license payments of DKK 582 million (approx USD 100 million) and GSK will invest DKK 2.033 (approx USD 350 million) in the acquisition of 4,4471,202 shares in Genmab. The share jumped almost 20% on the 19th of December and is currently trading at DKK 395 but I believe that the potential is huge and should all 3 indications become approved it will, all things being equal, increase the value of the company significantly.

Sumitomo Mitsui Financial Group Inc (ISIS code JP3890350006) is one of Japan’s three leading financial groups with consolidated total assets of YEN 107 trillion (approx USD 100 billion). The Japanese economic expansion would benefit SMFG since it is one of the leading Japanese banks with the majority of its income from the domestic market. Increasing interest rates in Japan should also contribute to earning growths of banks. The share is currently trading at YEN 1,220.000 (approx USD 1,070).

He ends his predictions with a warning.

Equities appear to have continued growth potential now. Some have more potential than others such as the green segment. The major risk that would cause them to fall, however, is if the US economy slows too fast and turns a soft landing hard.

Ecuador New Year Shots

What a great time. On New Year’s Eve the village turned into a number of 24 hour street parties. Loud speakers were up, flags were waving and a party had begun when we took Ma for a walk at 6 am New Year’s Eve morn. These parties were still going the next morning when we took Ma out again.

We began our celebration at 3pm visiting the nearby town of Atuntaqui where they have a wonderful parade. The center of the event was a huge effigy that was burned at midnight. Everyone puts all their worries and troubles on a piece of Palo Santo wood and throws them in the fire! The men dress up as women, the kids as fairy prince and princesses, butterflies and there are lots of dress up cowboys and action that would be politically incorrect up north. But its all gaiety and you can tell that everyone is having fun.

Then we headed back to El Meson. The evening was perfect, starry skied, nearly full moon and we dined Al Fresco in the court yard.

The food was outstanding with everyone sending compliments to our chef, Santiago, for the festival food.

Santiago is becoming quite famous for the quinoa dishes we have added to the menu. He has been on Ecuadorian national TV twice now featuring these dishes.

The musicians added a magical touch. After dinner the tables was clear and the courtyard was filled with dancing until a near midnight Champagne toast after which most of our guests slipped the half block down to the village square where they had a fireworks tower and burning of the effigy. A few of us passed this last event and Merri and I maintained a 20 + year tradition of being cozy in bed when the New Year came round. However there apparently are no laws about the size of firecrackers here and some real window shakers woke us for a moment. “Welcome 2007, we mumbled and then slipped back into a deep sleep so we could non groggily welcome the 6am New Year.

Our village is becoming quite famous. Tom orrow’s message tells about it. Ecuador ’s new President Rafael Correrea has been with us here at El Meson and now six US senators (and the President of the Senate) and famous actor were in the village. Read about it in tomorrow’s message. I’ll tell you about the chocolate massage then as well. I just finished this and as the headlines says planned to write about it today. This treatment is so relaxing I’m headed for our pillow top bed and a very soft landing instead.

Until then, may all your landings be soft!


P.S. Get out of the cold, ice and snow. Join us in the Ecuador sun this winter. Here is a schedule of the courses Merri and I will sponsor and or conduct.

Jan. 22 – 26, Mon.- Fri. Self-Fulfilled: How to Be a Writer & Publisher.

Feb. 20 – 25, Tues.-Sun. Import-Export Course.

Mar. 9 – 15, Fri.-Thurs. Expanded Super Thinking + Spanish.

Mar. 16 -18, Fri.-Sun. International Business and Investing Made EZ.

Mar. 19 – 21, Mon.-Wed. Andes Extension & Real Estate Tour.