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Sacrificing Your Dollars for the Housing Market
Thursday, December 14, 2006
Vol. 8 No. 248 |
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In Today's Letter:
Comment: Sacrificing the Dollar for the Housing Market
Offshore: Thatcher Trades Taxes for Offshore Penthouse
Wealth: What Makes Some Funds Better Than Others
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The Fed Will Sacrifice the Dollar to Save the Real Estate Market
Today's comment is by Ron Holland, a member of our Council of Experts and a former stockbroker and retirement consultant. He developed the first gold IRA in the 1970's, the first Swiss franc IRA in the 80's. He wrote "Get Ready For the Greenspan Crash" in 1999. He's now a real estate agent helping clients find undervalued mountain property so he has seen all of this before.
Dear A-Letter Reader,
I've lived and worked through several investment manias during my lifetime. I've lived through the gold boom of the 70's, the hard currency/dollar collapse of the 80's, the tech bubble of the 90's, and the real estate boom in this decade. Although most people initially make money on the way up, few get out in out in time. Most ride their investment down only liquidating at the bottom of the cycle.
America has been in a real estate boom in prices and demand but this is over in many over valued markets due to the rise in interest rates. Quoting the National Association of Realtors from USA Today, 11/29/2006, "Prices of existing homes - which fell a record 3.5% last month - will likely drop further through year's end, delivering the bitter medicine needed to restore the health of the housing market."
Now the Fed has stabilized rates and the real estate price downtrend is slowing. But the dollar is falling quite dramatically in value. This week, Treasury Secretary Henry Paulson and Fed Chairman Bernanke are heading to China for some "strategic economic dialogue" because China holds $1 trillion in dollar reserves. I believe they are going "hat in hand" to get China's cooperation in preventing a dollar collapse.
Economist, John Williams agrees with me. He recently stated, "The central bankers around the world know they are going to take a hit on their dollar holdings. None of the central bankers want to start a dollar panic, but none ....want to be the last out of the dollar, either."
Most Americans could care less about the value of the dollar. But with the 2008 Presidential Election coming up, the public will be closely following their real estate values, so you can expect the Fed to hold or lower rates. This almost guarantees a far weaker dollar. But when the other central bankers really switch more of their dollar holdings to the other major currencies, expect a major collapse in the dollar.
Recommendation: get ahead of the investment crowd, before the public realizes we're on the cusp of a major dollar crisis. Take some of your real estate profits and invest in European currencies. Second, look for undervalued real estate bargains adjacent to the high priced stuff the salesmen are pushing in this kind of market so you don't buy at the top here in the United States. Or buy European real estate denominated in the Euro.
Understand that both professional and amateur investors get caught up in investment manias at the peaks of the market. I've watched successful entrepreneurs buy gold, tech stocks, and recently large real estate transactions at the very top of the market. So don't follow the herd. Take action now to protect yourself from this dollar crisis, before it gets any worse.
RON HOLLAND
http://www.wolflaurelnews.net/
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Thatcher Trades Taxes in UK for Penthouse on the Rock
GIBRALTAR - Sir Mark Thatcher, son of the former British Prime Minister, Baroness Margaret Thatcher, will soon become a tax exile in Gibraltar. And once he moves to the Rock, he may only pay £20,000 (US$39,000) a year on his £64m (US$125m) fortune.
Unlike Americans, UK citizens still have the luxury of avoiding most income taxes if they move away and establish a foreign residence. According to The Times, Thatcher has consulted tax experts and is now house hunting for a £1m (US$1.9 m) penthouse on the Rock. Brits can apply under a new Gibraltar status designed to attract the super-rich and help the dependency compete with places like Monaco, traditionally the preferred location for UK tax exiles.
Meanwhile, voters in Gibraltar have accepted a new constitution which the government says will give it more autonomy from the United Kingdom over its own internal affairs. In a referendum held in early December, 60.24% of those who turned out voted 'yes' to the new constitution, while 37.75% voted to reject it. An impressive 60.4% of Gibraltar's 20,061 registered voters voted. Chief Minister Peter Caruana said: "The new constitution gives us what we want, namely, a British Gibraltar in which our right to self determination is recognized and which is governed by us. That is dignity. That is real democracy. That is a non-colonial relationship with Britain."
BOB BAUMAN, Editor
EDITOR'S NOTE: Envious of Sir Mark? Want to become a tax exile yourself? In the U.S., the only way to legally become a "tax exile" is to expatriate. This is a bold move, but it can eventually save you thousands in taxes.
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Why Some Funds Are Better Than Others
The majority of mutual funds have trailed their benchmark indexes over the last 20 years. So it's always an eye-opener when a manager actually tops his index.
And when I say "topped his index," I don't mean the fund simply lost less than its index. I mean the manager made money when the mutual fund's particular index declined. Only a handful of mutual funds earned a profit from 2000 to 2002, the worst three-year bear market since the 1930s.
In 1997, the United States Securities and Exchange Commission (SEC) introduced new rules allowing mutual funds to short sell. ("Short selling" is when you borrow shares and sell them, in the anticipation of buying them back later at a lower price, so you can pocket the difference.) Short selling is an enormously difficult strategy, not only for conventional mutual fund managers, but equally hard even for hedge funds. Despite the new rules on portfolio management and hedging introduced almost ten years ago, the majority of the 10,000-plus U.S.-based mutual funds do not engage in any short selling at all.
Another interesting observation is that the majority of hedge funds today (over 5,000 worldwide) are not even hedge funds by definition. Most products coined "hedge" funds don't even hedge. Or if they do hedge their market exposure, they are rarely net short. When a hedge fund is "net short" that implies it's holding more short positions than longs, a bearish stance. Most equity long/short hedge funds are net long, which means they are exposed to the market. When stocks fall, these funds fall just as hard or even harder than their respective equity benchmarks.
So what's the point buying a hedge fund if the manager, well, doesn't hedge?
In an upcoming issue of The Sovereign Individual, I'm going to recommend one of America's best-performing long/short equity managers since 1997. And the results are truly market-beating. Even in the last bear market, when the S&P 500 Index plunged a cumulative 41% in three years, these guys made money. And I'm talking double-digits here. And all you need is just $2,500 through a discount broker. Stay tuned...
ERIC ROSEMAN, Investment Director
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Join The New American Tax RevoltThere's only one way to get out from under the thumb of the U.S. taxman.
It takes some planning. It takes some know-how.
It takes some courage and guts, even.
But if our Founding Fathers were brave enough to challenge Mother England for their tax freedom, surely such freedom is worth exploring again today...
LINK: http://www.isecureonline.com/reports/190STUEP/E190GC28
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