Yesterday’s political turmoil is the most serious we have seen in our fifteen years there. This may enhance opportunity in Ecuador long term… but also reminds us of the need to diversify.
There are causes of concern beyond the political unrest. The first being…
the fall of the greenback… Ecuador’s as well as the USA’s currency.
This chart from finance.yahoo.com shows that as of yesterday the dollar had fallen from about $1.20 to buy one euro to $1.37 to buy the same euro. Since the dollar is the currency of the USA and Ecuador… residents in both countries need to spread their savings and investments into other currencies.
Welcome to October. Our message last week, October Investment Risk warned about the Ides of October and how this can be a bewitching month.
Already on the first day of October we can see several events that could create havoc in global stock markets.
First, the falling US dollar as shown above. Risk adverse investors have been fleeing to dollar bonds. Now where will they go? The ensuing confusion will not be good.
Strikes in Europe. One of our readers who is headed to Ecuador shared this note: Hello from rainy Brussels where I am stuck for an extra two days because of air traffic control strikes which shut down Belgian airspace until tonight. I am so glad to be away from Europe. The Spanish and French Air Traffic Controllers have also been on strike for the last few days so traveling by air in Europe is really challenging. Plus a French railway strike started last Thursday.
Strikes in Ecuador. Latin America has been one of the strong performing market segments so instability in this region could be a spark for an October run as well.
Add them together and…. who knows, but you have been warned.
There are great opportunities created by potential problems. In fact these difficulties are currently creating profit for me.
Take for example the opportunity in the falling US dollar.
In a message Portfoilo Allocations 1-2010 January 14, 2010, I wrote how I had borrowed the equivalent of 9% of my portfolio in US dollars to invest in Mexican peso, New Zealand and Australian dollars.
In another message Global Multi Currency Economic Update July 1, 2010, I wrote: The biggest of the seven trends I have cashed in on over the past 42 years has been the declining US dollar.
There are several ways to speculate against the greenback. Personally I use the multi currency sandwich. I borrow dollars at low interest rates and invest the funds on dollar related currencies…. currently the New Zealand, Canadian, Australian dollars and Mexican peso.
This is a slow, partly hedged speculation versus the dollar… but forex profits are not my main goal. The interest differential is what assures my profit… if I can wait for the dollar to drop. My loan cost on dollar loans is currently below 3%. My average yield is 6.31% so I am paid about 3.31% to borrow the dollar.
MXN BONOS 10% Due 2024 117 = 8%
EUR INVT BNK AUD 6.0 2013 101.49 5.56%
EUR INVT BNK NZD 6.5 2014 104.77 5.38%
Average 6.31% + $18,930
Loan cost $ 9,000
Return $ 9,930
Plus I have Forex profit potential.
So far the year, this loan has been paying me $9,930, plus as the dollar falls I have a chance of a nice extra forex profit over the year. As another chart (of the Mexican peso to the US dollar) from finance.yahoo.com shows, there have been ups and downs all year, but I have made a nice forex profit on the peso I made the loan in 2009.
Plus there could be more forex profit if the September 30, 2010 Bloomberg article entitled “Mexico Peso Set for Biggest Gain in 19 Months on U.S. Housing, Employment” by Jonathan J. Levin is correct. This article says: Mexico’s peso is headed to its biggest monthly gain since February 2009 after U.S. housing and employment data limited speculation that the country’s biggest export market may return to recession.
The peso rose 5.2 percent to 12.5511 per dollar at 9:58 a.m. New York time, from 13.2046 on Aug. 31, the best- performing major Latin American currency tracked by Bloomberg. It gained 2.5 percent during the third quarter. The U.S. buys 80 percent of Mexico’s exports.
“All the fears of a double-dip recession in the U.S. are dissipating,” said Ramon Cordova, a currency strategist at Base Internacional Casa de Bolsa SA in Monterrey, Mexico. “I see a positive outlook for the rest of the year.”
U.S. initial jobless claims decreased more than forecast, by 16,000 to 453,000 in the week ended Sept. 25, Labor Department figures showed today in Washington. Claims were projected to fall to 460,000, according to the median forecast of 47 economists surveyed by Bloomberg News.
Builders broke ground on 598,000 homes at an annual rate in August, up 10.5 percent and the most since April, the Commerce Department said Sept. 21. The yield on Mexico’s 10 percent bond due in 2024 rose four basis points, or 0.04 percentage point, to 6.48 percent, according to Banco Santander SA. The price of the security fell 0.5 centavo to 132.58 centavos per peso.
Plus my bonds in Australian and New Zealand dollars have brought a forex profit as well as the finance.yahoo.com charts show.
Here is the Aussie and…
The Kiwi forex profit is not much… but keep in mind my loan has cost 3% the Kiwi dollar bond has paid me 5.38%.
This does not mean you should run out and invest in Mexican, Australian and New Zealand dollar bonds.
This was the ripe investment a year ago.
Now with investors rushing into bonds… prices are not as attractive. They may fit as part of one’s portfolio, but we have been looking more at high yield equities.
We’ll review 54 such equities in dollars, Singapore dollars, euro and other currencies at our October seminar.
Plus there is opportunity in real estate… almost everywhere.
Plunging real estate prices…. low interest rates and future inflation are three ingredients for explosive profits.
One of the high yielding shares shares I like philosophically is the Suntec REIT in Singapore.
Real estate makes a lot of sense to me now. Real estate prices have been crashing and creating some great values. Asian real estate makes a lot of sense and Singapore is one of the most trustworthy places to invest in Asia.
Suntec Real Estate Investment Trust (SUN SP) is one of two Singapore-traded REITs controlled by Hong Kong billionaire Li Ka-shing. Li used to be a neighbor long ago when I lived in Hong Kong and is very shrewd, needless to say.
New Singapore Casino.
Singapore has allowed two casinos to open. I am sad to see this as Singapore used to have strict attitudes about gambling and casinos. Lee Kuan Yew once said there would never be a casino in Singapore but these are two lavish locations opened in 2010, that will attract tourists and gamblers. Suntec’s main property is next door.
With just two casinos Singapore has already become a rival to Las Vegas.
Second quarter 2010 winnings put Singapore on track to have a $4 billion casino market on an annualized basis according to the Wall Street Journal. That’s just 20% below what Las Vegas is expected to do this year.
Suntec REIT’s has office and retail property next to the new casinos. Suntecs office portfolio has 97.6% occupancy while the retail portfolio has 98.7% occupancy.
Asia has great potential and the Singapore dollar has excellent underpinnings.
Phillip Securities Research meanwhile is holding its forecasts and projections and maintains the Hold recommendation with fair value of $1.34. “We think management has done a good job in maintaining occupancy for the retail portfolio and improving the occupancy for the office portfolio. Note that office portfolio occupancy improved from 94.8% in 2Q09. Although reversionary rents probably softened in the wake of this, nonetheless leases were secured and mitigated the risk of tenants migration.”
The good thing about REITs is their stable dividends,” this time when bank deposits have very low interest. Individual investors pay zero tax on the distributions, regardless of their nationality.
Singapore-listed REITs are required to distribute at least 90% of their taxable income to unitholders, which makes them more attractive to those seeking dividends.
Suntec REIT ticker symbol of (SUN.Singapore), owns premium retail and office properties in Singapore next to new casinos. The company has paid uninterrupted dividends every quarter since it went public in 2007.
The shares are also traded on the Frankfurt exchange with the symbol (Frankfurt: P3G.F)
Smaller investors can participate in this trend also as there are numerous US mutual funds that invest in these type of shares.
A September 20, 2010 Morningstar article “Yield to Yield – Some dividend funds offer more, or less, than investors bargain for” by Katie Rushkewicz says: Income-seeking investors have been in a tough spot lately. Bond, CD, and money market yields are paltry. Pitiful fixed-income yields might make stock dividend yields look attractive by comparison, but they come with extra company-specific and market risk. The 15% tax rate that most stock dividends have enjoyed for the past seven years could expire at the end of the 2010.
However, more companies seem well-situated to reinstate or increase their payouts after using the aftermath of the financial crisis to pay down debt, bolster balance sheets, and amass cash. Some high-quality companies, like Johnson & Johnson JNJ, even offer dividend yields higher than the yields on their 10-year corporate bonds. This rare phenomenon makes dividend-paying stocks more appealing to income-seeking investors. So does market volatility, because dividend-paying companies tend to be defensive.
Funds That Do It Well
Dividend funds can assume many identities, so it’s important to know what you’re getting into before buying. Some fund shops and managers have built long, successful track records using dividend-focused strategies.
Funds mentioned favorably include:
* Legg Mason ClearBridge Equity Income Builder (SOPAX) – Minimum investment $1,000.
* Vanguard Dividend Growth (VDIGX) – Minimum investment $3,000.
* American Funds Washington Mutual (AWSHX) – Minimum investment $250.
Join us next week at our North Carolina Conference, Autumn in the Blue Ridge. Learn about real estate in the USA, Ecuador and Singapore as well as see a review of 54 high yielding shares.
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