International Investments in Fear

by | Mar 6, 2007 | Archives

International investments can be enhanced by value. Fear creates value.

A sharp reader noted that Merri and I stepped up our international investments in Ecuador real estate investing exactly at the same time a new left sounding President was elected. He sent me a article about Venezuela.

Here are excerpts from this article about international investments entitled “Rich Venezuelans heading to Florida By LAURA WIDES-MUNOZ, AP Hispanic Affairs WriterSat Mar 3, 2007.

International Investments Excerpts

“They call it ‘Plan B’. As Venezuelan President Hugo Chavez further tightens control of the South American country’s economy, wealthy Venezuelans who once thought they could live with his socialist edicts are turning to their backup plan — flight to the United States, particularly Florida.

“First the people who come are the businessmen in the highest circles, then the losing politicians, then the military and then the professionals,” said Miami-based immigration attorney Oscar Levin. “You’re beginning to see the (Venezuelan) professionals.”

“This latest and largest potential group of emigrants say they fear the effect Chavez’s socialist policies will have on the economy and on proposed educational reforms that could mirror the ideologically imbued education of Chavez ally and mentor, Cuba’s Fidel Castro.

“There is so much insecurity, political insecurity, economic insecurity,” said Venezuelan Miguel Medina, a business executive who moved to the Miami in August. “You don’t know if a contract you signed today will be honored by the government in the future….This was definitely my plan B, but it was time to do the plan B.”

“Upper-class Venezuelans and their money flowed out of the country after Chavez was elected in 1998 and again when he quashed an unsuccessful coup against his government in 2002, but many professionals still hoped the climate would remain friendly to business. Then came the latest nationalizations. Chavez still pledges to maintain a business-friendly climate, and analysts say the government has paid fair market prices to nationalize the electric and phone companies.

“Yet, with 17 percent inflation pushing the Bolivar to more than 4,000 per dollar on the black market, compared to the official rate of 2,150 Bolivars per dollar, many Venezuelans are looking to move their businesses to the U.S. or to set up a new one here.”

I share this story about international investments for several reasons.

First, I want anyone considering international investments or residence in Ecuador to understand what could happen if things go wrong.

Second, I want the same readers who are interested in international investments to note what is happening to Chavez and the Venezuelan currency.

Third, I want readers making international investments to understand the value of fear.

To understand this international investments value better remember that my international business career started selling mutual funds and living in places where terror is taken for granted. I quickly learned that fear creates value. This simple fact should seem obvious, but is easy to forget. Arriving in Hong Kong for my first time in 1968 there were communist riots and bombs being set off in the streets. The first day I arrived a motorcycle policeman had his leg blown off by a terrorist bomb. The Chinese army was massed on the border and there were continual talks about an invasion. Hong Kong businessmen were fleeing. Real estate was literally being given away.

Life went on. We all figured out the fastest route to the British and American war ships in the harbor for a quick exit. We watched out for boxes in the street that could be bombs. Then we just got busy with life. I rented a huge apartment on Shouson Hill Road overlooking the ocean and the village of Aberdeen. The owner wanted to sell this block of apartments but I had no money or experience then. He was so desperate that he made a deal. Instead of paying him $250 a month rent I invested $250 into mutual funds for him.

So how much value did that fear create? I decided to look see and checked out equivalent apartments for rent on the same Shouson Hill Road in Hong Kong now. Here is what I found that apartments which ran $250 a month to rent then cost now:

Helene Court

Sea views
Central Air-Conditioning
Size: 3000 – 3600 square feet
Bedrooms: 4
Rental Costs (approx. per month): HK$ 130,000 – 140,000 (US $16,667 – $17,949)

Las Pinadas

Townhouse Complex
Terraces and Gardens
Private Elevator
Central Air Conditioning
Size: 3400 – 4500 square feet
Bedrooms: 4+
Rental Costs (approx. per month): HK$ 100,000 – 130,000 (US $12,821 – $16,667)

Xanadu Court

Central Air-Conditioning
Size: 3000 – 4,200 square feet
Bedrooms: 2 – 4
Rental Costs (approx. per month): HK$ 90,000 – 150,000 (US $11,538 – $19,231)

$250 a month to somewhere between $11,538 and $19,231! That’s a pretty good jump, not all caused by fear. Much of it has though. People who made heavy international investments in Hong Kong during that time of fear made huge fortunes. Had I understood the value of fear in the late 60s and early 70s, I could have made tens, even hundreds of millions of extra dollars form international investments in Hong Kong.

In Hong Kong’s case there was fear that politics would go wrong. They did not and this pushed the value of HK international investments through the roof! Yet even when politics do go wrong investors can do well.

Take international investments in Chile as an example. This country went through one of the worst imaginable political scenarios beginning in 1973 when Pinochet led a coup d’état deposing democracy and using military power declared himself president and remained in power 17 years. The global press did not write as much negative news then because this dictatorship was against communism and this had the support of the United States. Hundreds, maybe thousands of dissidents were killed. Even more tortured. Yet those who invested there made fortunes.

In the early 80s, a really nice house in Santiago’s fashionable suburbs was worth about $25,000. Now the same house will be worth well over $1,000,000. Real estate throughout Chile has appreciated enormously over these years.

No one likes uncertainty in their international investments. But there is uncertainty everywhere. As populations grow, as the rich and the poor become more divided, it becomes impossible to have real control anywhere. My recent message about wind turbines at our farm in North Carolina shows that even the most remote places are at risk.

If we are faced with change everywhere, there is a logic to investing in places where there is enough fear to at least create a nice risk premium.

Ecuador offers special value in my opinion. There is fear internally, but as an outsider I see this as a nation of sweet, pacific people. This country was formed by a combining of many cultures and has always been adept at forming a consensus. Democracy is strong. The military has refused on numerous occasions to become involved in political affairs and the population has shown itself to be adverse to violence.

Chances here are that whatever political change takes place, it will be calm. If I am wrong, that’s why we get extra profit potential to take the risk.

Here are a few of the houses we’ll see in our March real estate tour.

You can have a house like this with this exact view for around $100,000.

We’ll see houses on golf course lots on this lake next to a club house for as little as $59,000.

This Barro Viejo home which delegates visited cost $35 per square foot to build. At 2,000 square feet this represents a construction cost of about $70,000. Add in the architect’s fee, water and electricity hook ups and a half acre lot at $30,000 and the finished product will cost about $104,000.

This house was on the market for $90,000 on our last real estate tour and we’ll see it again as its still for sale. Here is the view!

And we’ll see condos like this that we just sold at $39,000.

Our March 16 -18 International Business and Investing Made EZ Course in Ecuador will include two account executives from Jyske Bank who join with me to update global currency values and economics. THIS WILL BE FOLLOWED BY A THREE DAY ANDEAN REAL ESTATE EXTENSION. See

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Until then may all your international investments be good.