Gary Scott speaking at European seminar on international investing.
Here are the Questions for today:
1: Question about the falling US dollar.
#2: Comments on beating the TSA Xray or pat down.
#3: Questions about the euro.
#4: Comments about government workers.
#5: Question on Ecuador’s offer of residence to the head of Wikileaks.
#1: Question about the falling US dollar. Gary you keep making the statement [as the dollar falls] I keep reading every day about the dollar going up. Just wondering and ‘rwhy not be a little more positive about the U.S. Dollar and truthful, there are some pretty sound minds that believe it may rebound and if you’re that negative about it why all the assets in the U.S.?
that the US dollar has fallen from .85 to .75 euro over the past four years.
It has fallen even more versus the Japanese yen.
The dollar has even collapsed against emerging currencies like the Brazilian real.
Since I began writing about global investing 43 years ago, there have always been some pretty good minds who have argued that the dollar will rise. There have been short term trends (such as 1980 to 1985) but here is the long term reality shown in a chart from Grandfather.com. The dollar has been going… down… down…. down.
In the past dozen years I have posted over 3,000 articles at my website at least a tenth of them about the falling US dollar.
Yet I just finished a report “Investing in Risk”. Risk on what is good about investing the USA and why Merri and I love the USA. However I do not confuse my love for the USA and Ecuador with my investments in currencies. The US dollar is the currency of the USA and Ecuador but not my choice for investing.
My overall investment portfolio is short the US $…the only US $ investments that I have are in US and Ecuador real estate which I view as a separate currency that will rise as the US dollar falls.
If you would like these answers please start reading as you might get a better understanding of why we should expect the US dollar to fall but why investments in the US (especially made with borrowed dollars) offer great potential.
A shortcut to all the searching in my site is to order my report “Borrow Low-Deposit High” . Click here to learn more about the report.
Currently we also include the “Investing in Risk” report (a $49 value) free.
Many investors who love America have been fooled by the “Concept Conversion Trick”. I have warned against this since the 1970s. See why at the “Concept Conversion Trick” page of my International Investing basics.
#2: Comments on beating the TSA Xray or pat down. This comment to last week’s Q & A about TSA came from a reader in Arizona. Hi! I live in Arizona. When I’ve flown to Ecuador, I’ve gone through Los Angeles or Houston. Tijuana has lots of flights to Costa Rica, which is a hub for Central and South America, as Panama is. I can get to San Diego in the same time I can get to L.A. by car. I won’t be going to Ecuador for a while again, but if the situation doesn’t change, I’m thinking about driving to San Diego, crossing the border on foot, and flying from Tijuana. I would go through U.S. Customs at the Tijuana border on foot on the way back. And I wouldn’t have to leave L.A. in the middle of the night. I see an international travel niche for Tijuana!
My comments: One can also travel by boat to the Bahamas or drive to Canada (regretfully Canada has no direct flights to Ecuador) and get a direct flight to Mexico, Costa Rica, Columbia, Panama. Soon I expect we’ll also be able to boat to Cuba and once this happens we might see an increase in Havana-Quito flights! But watch out. Many years ago, we lost a number of our Ecuadorian friends when a Russian built aircraft leaving Quito and bound for Havana crashed on takeoff in Quito, but hopefully a better airline with better planes will be available. Perhaps Quantas will fly some of its Airbus A380s from there.
Another Reader wrote this: For TSA-free travel, a “travel co-op” could purchase ( or lease ) passenger jets and fly out of FBO terminals security-check-free. People who fly in private jets are subject only to US Customs inspections & only on entry to the USA. Private jet passengers are never subjected to security searches. No bureaucrat would be that stupid. Just a thought.
My comments: I love and looked into the ideas of using multiple jet ownership, private jet service offering jet cards or jet taxis.
Flyers can tailor their itinerary and choose nearby airports and enjoy flying from FBOS when they choose to fly not based on the airlines schedule. Merri and I have made a couple of flights like this. What a way to go!
This was a highly touted idea a few years ago when the VLJ (very light jet) was introduced. These smaller jets ring flight costs down… down…. down.
There were two big innovators with a lot of hype. Eclipse Aviation claimed to have 2,500 Eclipse 500 aircraft on order and Adam Aircraft said they had an order backlog of 282 of its Adam A700 VLJ.
Airlines such as Florida-based air taxi company, DayJet, were forming based around using the VLJs and touting a new way to fly.
Regretably all three companies went bust.
Several airlines now produce VLJs such as Cessna’s Mustang and Embraer’s Phenom 100 calling them very light personal jets or introductory class jets. The jets carry four passengers and have a maximum range of about three hours.
Jet taxi services offer improved efficiency. Blink Airlines for example which flies from London claims you arrive 15 minutes before you take off by avoiding check-in, inefficient security procedures, and delays reclaiming baggage. They also offer multiple city visits in a day. Their ads says “Start in London, fly to Paris, travel on to Stuttgart and drop into Antwerp on the way home – such journeys are usually impossible if you travel with commercial airlines. With Blink, the possibilities are endless.”
Plus Blink claims to be competitive with business class travel when four people fly in their VLJs.
However they are still really expensive… about $4,000 an hour for the jet cards and private jet travel and the VLJs do not work for most overseas travel. This is a really nice option but limited and pretty pricey and I suspect most readers feel the same as well.
#3: Questions about the euro. Gary, hope you are well, enjoying the great daily updates as usual. As a resident of Ireland and in this crisis period, how do you see the euro performing? The greatest Euro sceptics are saying the euro would not last 20 years. Should Portugal, Spain follow suit and request help, is the euro doomed? Is it time to move your money and if so where? $ and £ look just as risky.
My reply: This is a million (trillion actually) dollar question. The idea of the euro is rooted in Serajevo when on 28 June 1914, Archduke Franz Ferdinand of Austria, heir apparent to the Austro-Hungarian throne, and his wife, Sophie, Duchess of Hohenberg, were shot dead by Gavrilo Princip, one of a group of six Bosnian Serb assassins who were intent on breaking off Austria-Hungary’s south-Slav provinces so they could be combined into a Greater Serbia or a Yugoslavia.
That event was the spark that caused European tensions to explode into WWI.
You can enjoy a great read and understand the tensions that led to WWI and how WWI led to WWII better reading Ken Follett’s new book Fall of Giants.
After those wars… the world was terrified that WWIII could follow, so the idea of uniting Europe began. The euro and EU traces its origins from the original effort of some unification with the European Coal and Steel Community formed between six countries in 1951 and the Treaty of Rome formed in 1957 by the same states.
When I first started investing in and writing about multi currency investing… the formula was simple. Invest in the currencies where the governments were employing economic sanity… such as Germany and Japan. Bet against the US dollar because the US government continued to spend more than it earned.
Then other politicians learned bad habits from the US. Germany went into debt buying East Germany and partnered up with other insane spenders gave up the DMark and joined the euro. Japan became on the the biggest spenders of all. Yet these governments have not been as bad as Spain, Italy, Ireland and Greece.
Understanding global currency markets is so complex that unless it is one’s daily business the only way to figure out what is what is to employ the most simple, basic equations to these most complex questions.
So here is a simple view that I take.
First, see the tension. If a government has too much debt… it creates money by printing… which is inflationary. Inflation in a currency normally causes the currency to fall versus currencies in countries without so much debt. This makes goods from outside the debt ridden country more expensive.
The euro however allows overspending highly indebted nations in Europe called the PIGS (Portugal, Italy, Greece and Spain – plus we need now to add Ireland) to have a currency (the euro) that is stronger than deserved.
The counterpoint is WWI and WWII. Plus now the difficulty of undoing the euro would be huge (though I do not think it to be as hard as many believe).
One simple measure to watch is budget balance as a percent of GDP. The US is currently -9%, Japan -7.6% and the euro area -6.4%.
This means long term, there is a pressure for the yen to fall versus the euro and the US dollar to fall versus both currencies.
However then look at the budget balance of the nations who use the euro. Germany is -3.7%, France -7%, Belgium, -5.7%, Austria, -5.1%, Netherlands -5.7%, Italy, -5%, Greece, -9.1%, Spain -9.7%. It is predicted that Ireland budget deficit could rise to -24%.
So the tension is internal to the euro and overall… from this comparison the euro is in better shape than the USA and Japan.
Ireland will announce its budget December 7, 2010 and I expect the euro to survive. However during the time it takes for the EU to sort out this mess, I also expect the euro to be volatile. So short term the euro will be bouncy… long term could be stronger than the dollar and yen.
I expect all three currencies to fall versus emerging currencies and personally have a highly diversified portfolio of currencies with an over weight in emerging market currencies.
The WisdomTree Emerging Market Debt Fund is one way to get managed diversification in these currencies.
There are many forces that could cause terror in the market including a potential Korean war, China & Russia abandoning the US dollar, Ireland’s budget falling apart, Spain needing a bailout, inflation hitting the US. Unemployment rising in the US and Western Europe, and who knows what impact the leaks at Wikileaks will create.
Global markets have been weakening throughout November.
The symbol for the Wisdom Tree Emerging Markets Local Debt Fund is ELD. This is an actively managed ETF. See more on this ETF in an upcoming message. The six month chart above from Bloomberg.com shows how this fund reflects volatility in currency markst but despite its fall (the fund quadrupled in price in a short time then corrected) its price has almost doubled in six months.
#4: Comments on government workers. Gary I work for the “gov’ment,” and I do not make the kind of wages you speak of where we make more than the private sector. On the contrary! I live and work in Alaska, for the State of Alaska, and I can PROMISE you that State workers in Alaska do NOT make more than the private sector, overall. I made the trade-off for security, because my background IS from the private sector. I worked for Airline after Airline that went belly up, all because the government decided to remove their control and hand us the airline demise of “DEREGULATION.” With that came the failed airline industry….one after another and people losing their jobs…they should have stayed regulated, the gov’t bailed on us….with their control there would have been more stability… trickle down Reagan-nomics has proved to be a failed policy, where only the RICH GET RICHER and the poor get poorer….as we have proof of this after 8 years of GWBUSH and the evil Cheney…That party clearly caused the great recession….in my humble opinion, they and their stupid wars….. I would venture to say that big oil controls the gov’t not the other way around… …
So when you write your articles, please make it clear that not ALL GOV’T workers make more than the private sector…because there are people out there who will believe anything they read…. And not catch that you even said federal…. you made it sound like ALL gov’t workers make more money….which is so untrue..
We State workers lost all of our sick leave a long time ago, plus, free medical is no longer given out to retirees and neither is a defined retirement….Alaska only gives out what you save after five years commitment along with their match up to a small percentage….plus, because state workers do not pay in to social security but in to a different account, we risk losing it as we did in the downturn….so any money we paid in to social security from all the years before we went to work for the state, guess what, we are penalized and do not get to collect on…. Also, the State of Alaska is second from the bottom in the USA for paying unemployment benefits….you pay in to it, you collect a pittance if out of work..(compared to other States – we compare to Alabama! )
I think you are a very unique individual and I so appreciate your writing, for the most part. You cannot please all of the people all of the time, but you do a pretty good job of it.
My reply: Oops. Just after I wrote this article on how much Federal government workers were paid I read this in the New York Times: President Obama to Announce a Pay Freeze for Most Federal Workers – President Obama plans to announce a pay freeze for most federal workers later Monday morning, according to an administration official, the latest White House move intended to demonstrate concern over deficit spending.
The president’s announcement will effectively wipe out plans for a 1.4 percent across-the-board raise for most of the 2.1 million federal government employees in 2011. The president has frozen the salaries of his own top White House staff members since taking office 22 months ago.
Yikes, I hope my article did not cause this. Seriously… this reader has a point I am all toowell aware of. State, city and county government employees do not have government like deals.
I know this because my dad grew up in the depression and was fanatical about job security. He therefore worked his entire life after WWII for the City of Portland, making less than private sector. That worked for him and when the zoo was turned over the the Zoological society, the city still had a job for him as a parks foreman. He never made a lot of money… but back in those days the insurance… the sick days… the vacation and the steadiness were all good. Today it is different. Dad is gone and my mom is beginning to suffer as the City loses its ability to fill obligations and commitments to its workers. Lucky she has Merri, our daughter, my sister and me to make sure she remains in comfort as she nears 90! (Good goin’ mom!).
Reader’s Question #5: Would you comment on Ecuador’s offer to the head of Wikileaks.
The reader sent me this note: November 29 Associated Press Article entitled “Ecuador offers a home for founder” By GONZALO SOLANO
QUITO, Ecuador (AP) – If WikiLeaks founder Julian Assange needs a home, Ecuador’s deputy foreign minister says this Andean nation is happy to provide one.
The 39-year-old Australian, who has incensed and embarrassed Washington with the release by his online whistle-blowing organization of hundreds of sensitive diplomatic cables, had sought residency and a work permit in Sweden.
But after the release by WikiLeaks beginning in late July of thousands of sensitive documents from the Iraq and Afghan wars, a Swedish court ordered him detained for questioning on sexual assault allegations—claims Assange denies and calls part of a smear campaign.
Assange, who keeps his whereabouts secret and moves around a lot, could also face legal complications at home. Australia’s attorney general said Monday that it was studying whether he’d broken any laws there.
In contrast to the potential hostility from U.S. allies, leftist-run Ecuador provided Assange with an invitation Monday.
Deputy Foreign Minister Kintto Lucas said in audio posted online by the Ecuador Inmediato news site that “We are open to giving him residence in Ecuador, without any kind of trouble and without any kind of conditions.”
“We think it would be important not only to converse with him but to listen to him,” Lucas added, saying Ecuador wanted to invite Assange to “freely expound” and see what it’s like in “friendly countries”.
He praised people like Assange “Who are constantly investigating and trying to get light out of the dark corners of (state) information”.
Lucas said Ecuador’s government was “very concerned” by revelations that U.S. diplomats have been involved in spying in the first of the more than 250,000 U.S. diplomatic cables and directives that WikiLeaks has begun to release.
WikLeaks says it has 1,621 cables that originated in the U.S. Embassy in Quito.
Their contents have not yet been disclosed.
Ecuador expelled two U.S. diplomats in early 2009, accusing one of directing CIA operations in Ecuador and another of interferring in police affairs.
The government continues close counternarcotics cooperation with the United States, but a year ago President Rafael Correa, a U.S.-educated economist, refused to renew the lease on what had been Washington’s only base for counternarcotics flights in South America, the Manta airfield.
He said that if Washington would grant Ecuador an air base in Florida, he’d be happy to host U.S. flight operations.
My reply: I checked on this and learned that Deputy Foreign Minister Kintto Lucas is considered a loose cannon… who is out of favor in the government and may have said this to try and grab attention. I am told that President Correa has a good realtionship with the US Ambassador and also Hilary Clinton so this sounds more like political theatrics than anything substantial.
As to Wikileaks… I have conflicting feelings but do believe this idea will change politics as we know them. Governments have encouraged whistle blowers in private industry so why as voters should we not be entited to them as well? Others who wish to harm us can be secretive but perhaps this will help those of us who believe in open democracy to find a way to defend ourselves and without trampling rights under the guise of “national security”. I hope so.
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