Look at last week’s headlines from several leading financial publications.
A New York Times September 17, 2008 article entitled: “Risk aversion sparks mass flight to bonds” by Rachel Morarjee:
“Bonds are more popular with investors than at any time during the last decade amid a huge flight to safety in turbulent markets, Merrill Lynch’s monthly survey of global fund managers has found.”
Financial Times, Friday, September 19, 2008 entitled: “Stocks soar on rescue hopes”:
“The creation of a giant US government-sponsored vehicle to take on toxic assets looked possible as Treasury secretary Hank Paulson, Fed chief Ben Bernanke and top lawmakers convened a dramatic meeting to discuss the financial crisis. The move sparked sharp stock rallies in Europe and Asia. Regulators in the US and UK moved to curb short-selling of stocks.”
Monday, Sept 22, Wall Street Journal entitled “Stocks plunge amid bailout fears”
by Francesco Guerrera, Henny Sender and Michael Mackenzie in New York and Krishna Guha in Washington:
“The US financial system was shaken by fears that a $700bn government rescue plan might not be enough to end the financial crisis on Monday as stock prices and the dollar tumbled, oil soared and once mighty Wall Street names turned to Japan to safeguard their future.”
This up and down motion in markets is what destroys most multi currency investors. Such up and down news can be hard to ignore but this is exactly what smart multi currency investors do….ignore them.
Yesterday’s message (see it at Multi Currency Trust if you missed it) reviewed the asset allocation of my portfolio.
That review showed how I made very little change in the last year except to add cash and real estate..a plan started BEFORE the crash.
Wise multi currency investors act on fundamental economic principles. Wise multi currency investors do not react to short term market fluctuations. Wise multi currency investors have a set of rules that pertain to reality and integrate reality with their individual circumstances.
Unless one is a trader (a very special occupation that should be practiced by very few) these rules should rarely change during fluctuations.
Here are seven simple multi currency rules that I use. I think they are wise…so far they have worked pretty well for me.
#1: There is always opportunity in value. Look for value in good times and bad. The best value and opportunity is normally found in bad times.
#2: Markets are efficient and dependable long term because they are ruled by universal laws.
#3: Markets are never predictable short term because they are ruled by human emotion.
#4: Times of high performance are followed by times of low performance and vice versa. The current downturn has not only been totally predictable but should have been expected by all.
#5: Always live beneath your means.
#6: Never borrow more than you can afford to lose.
#7: Everything is always in perfect order. Wise multi currency investors focus on spotting that order rather than worry about what they think the order should be.
Here is what is happening and what will happen.
Money should represent production or a change in supply and demand. When money represents production, it is money of value. If a person does something productive, creating a product or service, this creates value.
If supply and demand alters…for example if there are more people and no more land, then the land grows in value.
Money should only be created to represent production or such change.
Yet when markets are overheated, prices rise beyond reasonable value. This creates money without production. When people seemingly become rich because the price (not value) of a share they hold or a house they own skyrockets, this is the creation of money…that is without value.
If left alone, markets correct themselves (see rule #2 above). They rise…then become overpriced…then correct. However when governments intervene and do not allow the correction that should take place, to do so, by creating money without value, then the purchasing power of the money without value falls.
Both US equity and real estate markets have been overpriced. People used the imagined (but not real) value as collateral to borrow money. The borrowed money has been spent buying goods from abroad. This seemingly created more money abroad.
All of this money was not supported by value.
Now the markets are correcting and as the equities and properties return to their real value, the collateral has disappeared. The houses and equities appear to be worth less than they were before. Actually they never were really worth more.
Nevertheless the amount borrowed against them is more than the equity or property is worth. This is called negative equity.
This makes it seem as if money is disappearing. Actually the money never existed.
What should happen is that people who previously appeared to be rich just because they help a property or equity should now lose that appearance. However since these people indebted themselves with their previous appearance, they (nor their lenders) want this appearance of wealth to disappear.
Governments create money so the appearance of wealth remains. Yet no real wealth is created. The money without value that is created loses its purchasing power. This is called inflation.
If just one country is creating money without value (such as the US), a simple investing strategy is to invest into other currencies. However when many countries are creating no value money, there are three places left to invest.. products and services (equities or your own business) …raw materials for products and services (commodities)… or real estate which is required for all business.
We are looking at strategies on how to blend these investments in our Multi Currency Course now. You can subscribe here.
Some property becomes more valuable that others for a variety of reasons.
For example changes in the supply demand fundamentals of oil have enhanced demand for ethanol. This has altered the supply and demand fundamentals of land that produces food. My belief (in which I am investing) is that this type of land will grow in value.
This is why I have been adding farm land such as our North Carolina farm (a shot of upper meadow is just below) as one of our biggest asset classes. I believe this land will increase in value because it allows those who live on it to produce their own food.
This is also why I like land such as these condos being built on Ecuador’s coast.
They are very inexpensive (as little as $79,000 for a 1,200 square foot two bedroom, two bathroom unit) and have wonderful sunset views like this.
For details on these condos contact Thor Anderson at firstname.lastname@example.org
Yet I believe that their value will also increase because they are close to the fishermen who still keep their boats on the beach. These boats are right by the condos.
So I can buy fillets from this dorado or other prime fish for $1 a pound!
This is also why like property in the Andes like these 1,200 square foot two and three bedroom and two bathroom condos for as little as $46,000.
They are surrounded by inexpensive, rich farm land, like this, tilled by low cost farmers…so good fresh food is available. I believe this will enhance the property’s value.
We will also review strategies on how to gain extra opportunity in the current turmoil at our October International Business and investing course next weekend October 3-5, 2008.
Change, as we are seeing taking place now, is not something bad, but is part of the eternal flow of commerce, the tensions of supply and demand and the torsions created by frequencies that are life itself. There are always times that destroy some investors and make others rich. The old guard is aways giving as the new begins to emerge. All that may differ now is acceleration. As we saw in yesterday’s message maybe the market will once again bolt upwards. Perhaps the market will slide more. This may even become the perfect economic storm. Whatever happens, it is likely to be choppy and fast…conditions that sink even the best sailors…and investors.
Those who plot a steady course compassed by value and anchored by a recognition of illusion and reality are those who will emerge as the next rich generation of wealth.
Until next message, may every lesson you gain be good.
I’ll review my entire portfolio and all this thinking next weekend. October 3-5 in North Carolina at our International Investing and Business Course. Why don’t you join me.
The course was fully booked but we had many late applications and have have moved to a larger meeting room so still have space.
Join me with Thomas Fischer of Denmark’s Jyske Global Asset Management, who was a currency trader for years to review our multi currency portfolio thinking for the year ahead.
To help our subscribers meet and learn, we are giving all delegates at the North Carolina course a FREE year’s subscription to our online multi currency course. This is a $249 value.
This will not be all work-no play. We selected this particular weekend as the most likely to be beautiful with the autumnal leaf change. The colors are glorious.
Here delegates at a previous course chat during a coffee break.
Join us in North Carolina next week end October 3-5 and save $249. Enroll here.
Or join us in November to inspect Ecuador property for sale
Our September 17-20 Ecuador Coastal Real Estate Tour; Quito Real Estate Tour was sold out as was our September 28-29 Imbabura Real Estate Tour was sold out.
Our Oct 14-18 Ecuador Import Export Course only has a couple of spaces open.
We still have space in November
Join us in Cotacachi at El Meson de las Flores.
Nov 7-9 International Investing and Business Made EZ Ecuador
See these condos at $46,000 in Cotacachi.
Nov 10-11 Imbabura Real Estate tour
Dine with delegates at the Vistazul clubhouse.
November 12-15, 2008 Ecuador Coastal Real Estate Tour; Quito Real Estate Tour