Global Investing
Bureaucrats in Washington, D.C., in cahoots with Wall Street, in an effort to "protect you", have cleverly orchestrated a greedy system designed to keep you trapped in ailing U.S. markets and prevent you for investing in international markets. By placing advertising sanctions and prohibitive registration and disclosure restrictions on far superior foreign investments, the government essentially locked you out of many of this decade’s most powerful global investing opportunities. In fact, eight of the top performing mutual funds in the world were prohibited from directly communicating with you last year…unless you were already a shareholder or unless you contacted them first. Some of the best performing funds in the world this year are in the same boat.
To put this into perspective, at last count, there are more than 8,500 funds registered with the SEC. Only the top 15%-or about 1,275-have been truly worthwhile for investors. The other 85% have underperformed their benchmarks in the last 20 years. Yet there are an additional 47,000 funds offshore … and the best of these have not only outperformed their benchmarks, but they’ve beaten the top-performing U.S. funds and have generated signicantly better returns than the S&P and other major indices in recent years.
But the fact remains that quality information on many foreign funds-even the best performers-is growing increasingly difficult to come by. In addition to the SEC’s blanket of silence, much of the information about these funds - and other global investments - is being locked up by proprietary services. And even if you try to get fund information directly online, you may be prevented from getting it. That’s because many fund sites automatically block requests from American servers…it’s one less “liability” for fund companies to worry about if the SEC gets involved.
Savvy global investors are finding the top-performing investments - cutting through the censorship, the red tape, and the overwhelming number of available investments - and opening the door to the world’s easiest and safest generators of automatic wealth. See what some of our experts have written about offshore investing opportunities below. You can learn more about global investing, tax havens and offshore banking in The Sovereign Individual each month by becoming a member of The Sovereign Society. Click here for details on membership.
More About Global Investing
Asian Currencies: Tap In to Booming Trade Surpluses and Massive Foreign Exchange Reserves
By Eric Roseman
From 1973 to 1995, the German deutschmark, Swiss franc, Dutch guilder, and Austrian schilling posted huge gains versus the plunging dollar. The Swiss franc, for example, started 1971 valued at 4.31 to the U.S. dollar. Since then, the franc has soared 70% against the dollar to 1.30.
The U.S. dollar, of course, is still the world’s reserve currency. But its reign as king of the currency markets has long passed. Since President Nixon ended the ability of foreign central banks to exchange dollars for gold in 1972, effectively ending the “gold standard,” the greenback has posted a decline versus the world’s hardest currencies in every 10-year period. The only major rally for the dollar since 1985 was a secular bull market that began in 1995, driven by massive capital inflows in the 1990s coupled with impressive budget surpluses in the Clinton-Rubin years. That rally, which ended in January 2002, was the single largest percentage gain for the dollar versus the world’s hardest currencies since 1972.
Euro-Phobia
European hard currencies ran circles around the declining U.S. dollar in the 20-year period after President Nixon took the U.S. off the gold standard. But, Europe isn’t where you should look for currency gains today. True, the euro (which absorbed the deutschmark, the guilder, the schilling, and nine other European currencies) is the single most liquid currency in the world after the dollar. And, as the U.S. dollar continues to depreciate over the long-term, the euro will naturally rally as an alternative to the dollar. But unfortunately, the euro isn’t supported by sound economic policies that lead to economic growth.
Indeed, the largest of the euro’s constituent economies have breached pre-set deficit limits over the last two years. Germany, France and Italy all suffer from budget deficits exceeding 3% of their gross domestic product. That’s a fundamental violation of the treaty that created the euro, but no one’s seriously proposed enforcing these provisions. Moreover, although still harboring a positive trade balance, Europe is clearly witnessing a deterioration of its balance of payments position, with both Germany and Italy in and out of recession twice since 2001.
Europe has another emerging crisis to deal with: the 2004 eastward enlargement of the European Union (EU) to encompass 10 nations that until 1989 were part of the Soviet Union. These countries, the largest of which are Hungary and Poland, are eager to catch up with Western Europe. And they’re doing it by attacking its western members with two powerful forces: cheap labor and low tax rates. This tug-of-war between Europe’s new manufacturing centers east of the Rhine and the older, stagnating richer countries to the west will continue to undermine the euro over time.
The euro is unlikely to collapse as a legal tender monetary unit, but its purchasing power will decline versus other stronger currencies and gold bullion in the face of massive budget deficits, trade deficits, soaring pension burdens, and structural labor problems.
Look East for 21st Century Currency Profits
As an alternative to euros, several Asian currencies will provide a solid hedge against the decline of the U.S. dollar. Gold should remain the cornerstone of every portfolio as the best inflation hedge and ultimate currency. But over the next few years, the new currency kids on the block will add spice to a non-dollar portfolio. That’s because these units represent the largest concentration of trade surpluses and U.S. dollar-denominated foreign exchange reserves. In other words, follow the money!
The economies of Southeast and Northeast Asia are now home to the world’s largest percentage of dollar-based foreign exchange reserves. Greater China alone, which includes China, Hong Kong and Taiwan, has a combined US$1.2 trillion dollars in foreign exchange reserves. Other regional economies like Japan (US$847 billion), South Korea (US$220 billion), Singapore (US$123.5 billion), and Thailand (US$52.1 billion) also hold hefty reserves. These numbers blow away foreign exchange totals in Europe; e.g., Germany (US$97 billion) and Switzerland (US$77 billion).
As countries like China, South Korea and Japan continue to grow and dominate Pan-Pacific trade, the dollar will increasingly find itself cornered as regional central banks accelerate the liquidation of their dollar-based holdings.
It’s a trend already in place in China, which in July 2005 finally revalued its yuan (renminbi) currency versus the dollar by 2.1%. That’s a miniscule amount, but only a few weeks later, China’s central bank announced plans to reduce its dollar-based reserves and add Japanese yen, South Korean won and the euro.
As Asia continues to record bulging trade surpluses with the U.S. and the EU, pressure will only grow more intense to force some nations, especially China, to accelerate currency revaluation and convertibility plans. As China ultimately becomes the world’s largest economy over the next 25 years, if not sooner, its currency will probably rival the dollar and the euro. The yuan will likely also represent the world’s highest percentage of gold-backed currency in circulation should China continue to accumulate gold reserves, a role Switzerland played until eight years ago when it began dumping her reserves.
Asia, of course, will continue to experience the tribulations of rapid industrialization. This includes rising unemployment, greater pollution and increasingly, mass wealth accumulation and economic disparity. But this region already experienced a serious economic crisis in 1997-1998 that forced it to “clean house,” eradicate bad loans and introduce a host of new measures to grow and stabilize capital markets.
In some ways, the rest of the world has yet to clean house, especially the United States, awash in monster deficits, and to a lesser extent, the EU. In the absence of serious deficit reduction plans, which the late 1990s economic crisis forced in Asia, Western economies will eventually face their day of reckoning as markets demand a higher risk premium to service bloated government deficits.
Buy Currencies with Booming Trade Surpluses, Foreign Reserves
Over the next several years, speculators and investors alike will start to aggressively accumulate Asian currencies. This progression will take time because most currencies in this region suffer from poor liquidity. But as the demand for Asian currencies accelerates, combined with this region’s growing economic clout, I fully expect these undervalued units to post big gains against the dollar and possibly, versus the euro.
The problem for most individual investors is the lack of opportunities in this asset class. Most European private banks only offer Japanese yen or Hong Kong dollar accounts, along with Australian and New Zealand dollars. The latter are not Asian currencies, but regional units on Asia’s periphery, with trade ties to Asia. And thanks to rising trade deficits in both countries, both the Aussie and the kiwi dollars have been in a downtrend for almost a year versus the U.S. dollar.
In North America, virtually no one offers foreign currency deposit or savings accounts, except one bank—Everbank www.everbank.com/allweather.
At Everbank, you can invest in several Asian currencies. Historically, interest rates are very low on Asian currencies, and at Everbank, the World Currency Access Deposit Accounts pay interest only for accounts of US$50,000 or more, or the foreign currency equivalent. But the primary purpose of owning selected Asian currencies is to provide a long-term hedge against the U.S. dollar and accrue capital gains. At Everbank, there are no commissions to pay or hidden annual fees; the only expense is the spread of 0.75% you pay to purchase foreign currencies.
Backed by the Federal Deposit Insurance Commission (FDIC), Everbank offers a measure of safety compared to very little or zero deposit protection offshore. The bank has a long history in the currency markets and offers a wide number of currencies to choose from
Management for his contribution to this article.
Eric Roseman is the Investment Director for The Sovereign Society as well as founder and editor of Global Mutual Fund Investor (GMFI), a monthly newsletter that highlights the world’s best managed offshore funds. Visit www.globalmutualfundinvestor.com. Eric Roseman also founded The Sovereign Society’s investment research service, Commodity Trend Alert in 2001. Eric’s weekly newsletter, Commodity Trend Alert focuses on the best global commodity plays worldwide. For more information, visit http://www.commoditytrendalert.com.
The “Decade for Commodities” Continues... Making Silver a Steal
By Michael Checkan
In 1999, I predicted the decade of intangible assets was over and that the New Millennium would bring about the decade of tangible assets…the “Decade for Commodities.”
In June 1999, I suggested Sovereign Society members buy gold at US$260 per ounce, and we restated our opinion in October 2001 at US$280. In December 2003, I suggested Sovereign Society members buy gold for a third time. Today, I still suggest to members to buy gold at US$658 per ounce.
But, just don’t look at the “barbaric metal.” In fact, some of the other precious metals and other commodities have outperformed gold. However, we’re five years into the “Decade for Commodities.” Will tangible assets continue to be strong performers? And, will it continue beyond 2010?
Commodities Bull Market Won’t Disappear Anytime Soon
The Reuters Jeffries Commodity Index, which measures the price of a broad basket of commodities, has almost doubled over the past four years. The largest gains have come from precious metals, base metals, foreign currencies, and energy. Other commodities are beginning to chase these front runners. I believe this bull market will continue throughout this decade and into the next. It’s reminiscent of the volatile markets after President Nixon closed the gold window in August 1971.
There are at least five reasons why commodity markets will continue to post large gains.
- There has been increasing demand for physical commodities. The rapid growth of Asian economies has created tremendous demand for basic resources. The Chinese economy has been expanding at a rate of approximately 10% per year for the last three years and its demand for natural resources has been soaring. The Indian economy grew by over 8% last year and Korea by 5%. China bought about 22% of the global output in base metals in 2005, compared with 5% in 1980.
- The supply of commodities has been constrained in recent years and is not likely to expand quickly. We experienced a severe bear market in commodities from 1980-2000, with real raw industrial commodity prices dropping during the period from 1998 to 2001 to their lowest level since 1800. With commodity prices at historic lows, few commodity producers were able to turn a profit. The whole sector suffered from massive under investment. This has led to supply shortages, which are not likely to be corrected quickly.
According to Jim Rogers, “there has been a massive under investment in things like mining, oil, exploration, and agricultural development. Agricultural land is left fallow. Plantations gave way to real estate development. Renewing commodity infrastructure, finding new sources of commodities, new oil fields, developing plantations takes lots of time…years in many cases. Only one new lead mine opened in the world in twenty five years! Technological changes are coming, of course. But it just takes a long, long time. We don’t reverse these things quickly.”
- The United States’ huge fiscal and foreign trade deficits will put pressure on the U.S. dollar. Since most commodities are traded in dollars, a falling U.S. currency is likely to help boost commodity prices. As Stephen Roach has observed, “America’s long standing answer to imbalances is currency manipulation, specifically, the devaluation of its currency relative to its trading partners.” Ultimately, U.S. officials may decide to just let the dollar fall. Although a weak dollar does not necessarily lead to higher commodity prices, it can be a contributing factor.
Again, according to Jim Rogers, the falling dollar is merely “the icing on the cake.” You can have a decline in the dollar and you wouldn’t necessarily have a bull market in commodities. Supply and demand are still the most important factors. We now have supply and demand completely out of whack.
- Persistent low and/or negative real interest rates have sparked a movement out of paper assets and into “things.” With fixed income yields barely keeping pace with inflation, investors have flocked into markets with more return potential. Real estate has been the main beneficiary of these flows in recent years, leading to price increases of epic proportions. Rising interest, however, has slowed down the housing market considerably and some capital is undoubtedly getting redirected into the commodity sector, where the bullish fundamentals lead to higher potential returns.
- Cyclical factors may be favorable to the commodity markets in the coming years. Over the past several decades, stocks and bonds enjoyed a secular bull market while commodity prices experienced one of the worst bear markets in the history of capitalism. Although they have corrected some of their excesses, stocks and, particularly, bonds are still arguably overvalued while commodity prices still offer attractive values. Thus, we should continue to see flows into commodities in the coming months and years while stocks and bonds continue to work off their excess.
Historically, it has taken about 14 years on average for equities to bottom after reaching extremes in overvaluation. Commodity bull markets, on the other hand, tend to last 20 to 30 years. Thus, we may well be at the beginning stages of a massive, multi-year bull market in tangible assets.
If this is the “Decade for Commodities” and if tangible assets are in fact in the early stages of a multi-year commodities bull market, similar to the 1970s, how can you best position yourself?
High Ho Silver—Away
I have said this in the past and will say it again. In my opinion, out of all the possible plays in the commodities markets, silver is the one that holds the best opportunities for reward.
The price of silver in this “New” millennium has increased from US$5.40 per ounce in January 2000 to US$14.28 per ounce at the time in May 2006. This is about a 175% increase in the last 5 years. Meanwhile, the silver price enjoyed the biggest gain in a single day in 11 years this spring. This “poor man’s gold” is up more than 50% in this year alone.
The silver story remains compelling even after these dramatic increases.
Gold vs. Silver…Gold has doubled and a bit more since 2000 (US$290.00 vs. US$700.00) while silver has almost tripled during the same period (US$5.40 vs. US$14.28). Gold’s all-time high was US$850.00 per ounce while silver’s all-time high was US$50.00 per ounce. The all-time high for gold could come while the all-time high for silver would need multiples to be reached. Bottom line, silver is still cheap at US$14.28 per ounce.
The SEC approved rule changes to allow the American Stock Exchange to list shares in the Barclays Global Investors iShares Silver Trust (ETF), the first silver linked exchange-traded security. According to a regulatory filing, Barclays has deposited 1.5 million ounces of silver with JPMorgan Chase Bank in London to back 150,000 shares of its ETF with each representing 10 ounces of silver. The significance of this development if that the ETF shares are likely to cause serious liquidity problems in the silver markets.
The Safest Way to Play Silver This Decade
If you’re interested in adding silver to your portfolio, there are safe ways to invest in physical silver. For most investors, wherever you may live in the world, one product clearly stands out from the pack…the Perth Mint Certificate Program (PMCP).
The PMCP is a precious metals storage program established in 1996 by the Perth Mint in Australia with the assistance of my company, Asset Strategies International. Precious metals purchased from and stored with the Perth Mint are fully guaranteed by the government of the State of Western Australia.
Western Australia is a politically and economically stable government that boasts an AAA rating from Standard and Poor’s. Silver ownership under the PMCP is an attractive alternative for any investor. Consider the following:
- Costs less than fabricated bars and coins;
- Involves an easy-to-keep certificate, which neatly fits into a safety deposit box, as opposed to purchasing and keeping the metal itself;
- You don’t have to pay for the silver to be shipped from a dealer when you buy, and pay to have the metal shipped back to the dealer upon liquidation;
- No storage fees whatsoever; and
- You get peace of mind knowing your silver is backed by a government guarantee from Standard & Poor’s AAA-rated government, and further backed by private insurance.
In summary, this is the “Decade for Commodities”... all commodities but especially silver. As the commodity bull market continues to run its course into the next decade, silver will climb higher and higher. If you’re considering playing this metal, now is the time to consider purchasing a silver Perth Mint Certificate.
Editor’s Note: Michael would like to thank Donald J. Van Deventer, President of Berkeley Asset Management for his contribution to this article.
Michael Checkan is a member of The Sovereign Society Council of Experts and President of Asset Strategies International, Inc., a specialist in the areas of foreign exchange and precious metals, who can assist with the purchase of a Perth Mint Certificate.
A Rock-Solid Opportunity to Make Profits of 100% or more in the Next 18-36 Months By Steven Hershoff
Colored diamonds are the world’s most concentrated form of wealth. A colored diamond portfolio worth millions of dollars fits inside an envelope and can easily be transported in your coat pocket. They can be transported quietly and legally, and sold globally in most major cities.
These facts alone make colored diamonds worthy of consideration by sovereign individuals seeking discreet investment opportunities. But colored diamonds are also hot investments.
Since formal records were first kept at the beginning of the 1970s, prices for the highest grades of colored diamonds have increased in value by an average of between 10%-15% per year, with rarer colors and higher grades enjoying the greatest appreciation. In addition, this appreciation has statistically been non-correlated to the stock and bond markets, an important consideration for investors seeking a diversified portfolio.
And, price appreciation is increasing. “The market for natural colored diamonds is very strong at the moment and prices have risen by 25% within the last year,” says Andrew Coxon, vice president of De Beers in London. If that pace continues, an investment in natural colored diamonds today could double in value in the next 36 months. In addition, because of a major development in the colored diamond industry I’ll describe momentarily, that pace could pick up considerably.
A Major Development
All diamonds are relatively rare. But colored diamonds are far scarcer than white diamonds. Indeed, for every 10,000 carats of diamonds mined, only one carat will be a fancy colored diamond. That rarity has appealed to persons of wealth and discretion for centuries. Indeed, many of history’s really famous diamonds, including the Hope Diamond and the Tiffany Diamond, are colored diamonds.
Some of today’s most popular colored diamonds are the purplish pink and pink diamonds from the Argyle mine in Australia. Until the mine opened in 1985, pink diamonds were almost unknown, and today, this mine accounts for over 90% of the worlds pink diamond supply. However, less than 0.1% of the mine’s output are rare pink diamonds. Indeed, one year’s Argyle production fills a small truck, but the pink diamonds fills only half of an ashtray!
The best pink diamonds came from the alluvial deposits; the watery areas surrounding the Argyle mine. However, Argyle’s owner, Rio Tinto, shut down alluvial diamond recovery in 2003. As a result, the quality of the pink diamonds coming out of the mine since then has gradually and consistently gone down.
Recently, Rio Tinto announced that it will shut down all open-pit operations at Argyle in 2008 and convert the facility into an underground mine.
Experts agree that with underground mining, there will be fewer quality stones, average sizes will continue to decrease and the supply will drop by at least 40%. All of these factors are likely to lead to a substantial increase in pink diamond prices.
Real world auction results support this conclusion. Pink diamond prices continue to achieve record prices at the world’s auction houses with prices consistently above US$100,000/carat for high-quality stones.
- April 1998 New York Christie’s 539 Oval 1.02 Intense purplish Pink, US$58,529/carat
- December 2004 New York Sotheby’s 351 round 1.23 Intense purplish Pink, US$143,089/carat
Fierce Competition
Since the end of 2004, momentum has continued to build in the pink diamond market. Each year, Argyle sells its production of pink diamonds via a sealed bid process. At its 2005 sale, 60 Argyle pink diamonds were on offer. While the quality of some of the stones was lower than in previous offerings, competition was fierce, with minimum bids starting at US$100,000 per carat. Every stone sold.
With demand for colored diamonds continuing to grow and pink diamonds becoming very scarce, experts predict pink diamond prices will significantly outperform the historical averages over the next five years. According to colored diamond expert Stephen Hofer, author of Collecting & Classifying Coloured Diamonds, “Supply is down and will decrease further, demand is up significantly and as a result prices are going to continue to go up, especially for the highest graded stones, such as the intense and deep pinks.”
The Safest Way to Buy
What’s the safest way to participate in this lucrative market? Colored diamond expert Stephen Hershoff, of Pastor-Genève bvba, has three suggestions to improve your chances for profits:
- Purchase colored diamonds from a specialist dealer. White diamonds are much more common, and most diamond dealers only occasionally handle colored diamond transactions. When they do, they purchase or sell the stones to or from a colored diamond specialist, resulting in needless additional costs.
- Buy only certified diamonds. This protects you against purchasing counterfeit diamonds or stones that have been artificially colored. Certificates issued by the Gemological Institute of America (GIA) and the High Diamond Council (HRD) in Antwerp, Belgium or a Stephen Hofer Report should accompany any purchase.
- View colored diamonds as a mid-to-long-term investment. For best profits, hold them for at least five years
