European Investors Finding Bargains in
U.S. Dollar Assets...Even Real Estate

Today's comment is by Eric Roseman, Investment Director and editor of Commodity Trend Alert.

Dear A-Letter Reader,

It's still a little too early for domestic investors in the United States to buy distressed residential real estate. But that's not necessarily the case for investors in Europe, Russia and Brazil - who have a major advantage over Americans with their stronger currencies.

Since hitting an all-time high against the euro in October 2000, the U.S. dollar has crashed 73% against the euro. The buck has also tanked versus most major foreign currencies. In fact, the buck has only gained against the Zimbabwe dollar. That's hardly an achievement.

Of course, you've heard about the plummeting dollar in the news. The mainstream press has continuously reported on the sharply lower dollar and its ultimate inflation consequences. But there's one thing they forgot to tell you: U.S. assets are dirt cheap!

On all scores, it's impossible and probably reckless to make a bullish long-term U.S. dollar forecast. The nation is suffocating with twin deficits and two Treasury-draining wars in the Middle East. The U.S. will also face a massive entitlement crisis over the next five years as the baby boomers retire. Also, it's virtually guaranteed that foreign central banks will dump more dollars over the long-term as the balance of economic power continues to shift from the United States to China.

But beware of heavily one-sided trades in late 2007. The dollar is already heavily oversold against all the major currencies, especially the euro and the natural resource currencies of Canada and Australia. A dead-cat bounce is coming, and that cyclical rally might act as the catalyst for foreigners to start accumulating distressed U.S. residential real estate in 2008.

Sub-prime Equals Buy-time for Europeans

The euro is breaking records against the dollar almost daily. As the euro approaches the rock bottom of its historical bear-market trading band (previously the German mark prior to 1999), value investors in Europe can find huge bargains in U.S. dollar-denominated assets, including real estate.

The powerful euro and other regional currencies in Europe are mighty strong in the United States. Investors seeking beachfront properties can now find premium real estate at 20-35% discounts with very favorable financing terms, compared to just 18 months ago.

According to the U.S. Bureau of Economic Analysis, foreign businesses purchased US$11.3 billion worth of real estate in 2006. These businesses bought mostly commercial property. But they also bought some residential property - a significant 45% jump from a year earlier.

In residential housing, Florida accounted for 26% of all foreign-based U.S. sales for the year ending April 2007, according to the National Association of Realtors. Over the same period, foreigners were responsible for 4% of all U.S. property sales.

Miami Hit Hard - and More Supply Coming

In the United States, sub-prime mortgages have nearly wrecked the real estate markets in select cities.

Real estate "hotspots" in Miami, Las Vegas and Phoenix have been hit especially hard over the last year. Most are still facing more supply issues in 2008 as developers swallow a glut of unsold homes and condominiums. Miami is particularly distressed with over 70,000 units coming online next year on Biscayne Bay, downtown Miami (mostly on Brickell Avenue), Miami Beach and North Miami Beach.

Cranes still litter the Miami skyline as developers dump even more supply in 2008. Many speculators have literally walked away from their deposits. They're fleeing the scene as prices continue to drop before they've completed construction. Many developers are now running for cover, converting condo sales to rentals as they clamor to salvage income.

In other words, this is a major real estate bear market.

If you're looking for a premium beachfront property, then take a good look at the disasters unfolding on South Beach and North Miami Beach.

Miami's best values lie in Bal Harbour, the crème-a-la-crème of North Miami real estate.

Despite the saturation of Miami condos, Bal Harbour's values have actually held quite firm - for the most part. The "golden mile" is littered with high-end luxurious condominiums, It's a spotless area that's home to a local police force. Although most high-end buildings are still selling at a high premium, prices have declined from their peak last year.

But more importantly, two buildings located right on the beach have significantly reduced their offering prices for more than a dozen units. Both have beachfront and bay views, large balconies, 24-hour security and 10-foot-plus ceilings.

Why Europeans, Russians
and Brazilians Love Miami

Europeans love Miami. The city has become a major international jet-setting destination for not only Europeans and Russians, but Brazilian investors, too.

In fact, the Brazilian real has been a "joke" on foreign exchange markets since the 1970s - until recently. The real has ranked as one of the strongest currencies in the world since 2003. It's gained a cumulative 49% versus the dollar.

Miami's residential property market hasn't bottomed. But for international investors, current prices are extremely attractive, particularly in euro or sterling terms.

And for Brazilians investors, the dollar's big decline presents huge values for distressed property investors.

Now is the time to start bargain-hunting ahead of a bottom in late 2008 or 2009.

ERIC ROSEMAN, Investment Director

Hey You: Leave Switzerland Alone!

Start out with the natural prejudice that the world's elite politicians has against wealth (except their own). Add in the outrage of welfare state tax collectors who hate financial privacy and bank secrecy (which they wrongly equate with tax evasion). Then throw in a large dash of international envy - and you can understand why the media also aims their attacks at Switzerland.

The latest anti-Swiss media campaign started weeks ago with the approach of the Swiss national parliamentary elections to be held on Oct. 21st. The usual suspects are leading this anti-Swiss outcry - including self-appointed representatives of the United Nations, the European Union and Amnesty International.

For more information on Switzerland as an offshore financial haven, click here.

So what upset these do-gooders? It's the campaign theme the Swiss Peoples Party (SPP) is using. The theme addresses a major Swiss domestic concern, which is the huge influx of foreigners into the nation in recent years. The SPP decided to express this theme with a campaign poster that certain critics see as a controversial. The poster shows three white sheep kicking a black sheep off a Swiss flag above the slogan, "For more security."

The anti-immigration SPP created the poster. In the last three decades, the SPP has grown from a small group to an influential political party with the largest number of seats - 55 of the 200 - in parliament's lower house, the National Council. This party has also become a major player in the coalition government. Indeed, opinion polls show the SPP again leading the other parties in the run up to the election.

As if the United States doesn't have any problems with illegal immigration and crimes committed by unlawful immigrants, The Washington Post just won the prize for sensationalized reporting on Switzerland. The Washington Post published a truly horrific story about a 37-year-old black Angolan man living in Zurich who was attacked and seriously injured by chainsaw wielding thugs shouting racial epithets. The article suggests wrongly that many other Swiss people would do the same thing, given the chance.

Last week, counter-demonstrators threw rocks and bottles at Swiss People's Party protesters during a political rally at the national parliament building. Police fired tear gas to break up the melee. A UN "fact-finder" on racial intolerance, accused the SPP and its campaign posters of "advocating racist and xenophobic ideas."

"That's nonsense," says Ulrich Schluer, an SPP legislator, newspaper editor and creator of the sheep campaign. "It's not against race. It's against people who break laws. People are fed up." (Sounds like Bill O'Reilly on the Fox TV network.)

The SPP won national referendums to make it tougher for foreigners to enter Switzerland and obtain citizenship and easier to deport immigrants. Switzerland now has some of the strictest naturalization laws in Europe.

Switzerland's population is now about 7.5 million, up by 750,000 since 1990. It generously has opened its borders to refugees from many nations and now has one of Europe's highest percentages of foreigners living within its borders, many of them workers from Spain, Portugal, Italy, and parts of the former Yugoslavia.

More than 20% (1.4 million) of Swiss inhabitants are foreign nationals. The SPP argues that a disproportionate number are lawbreakers. Many drug dealers are foreign, and according to federal statistics, about 70% of the prison population is non-Swiss.

In recent years, there has been a growing resistance to immigration and granting citizenship. Some cantons (provinces) now require a public referendum on whether to admit applicants and many individuals have been rejected in these votes, as the law permits.

In the best of all worlds, no one should support racism. But Switzerland probably is no better or worse than other European nations (or the United States) when it comes to trying to deal with a massive influx of foreign persons. At the very least, every nation has the right to protect its citizens from criminal activity, regardless of who the culprits may be.

But you can bet that much of the current anti-Swiss media uproar is just another phase in the continuing anti-Swiss campaign. And you can also be certain the very independent Swiss will go their own way - without the need for advice from outsiders.

BOB BAUMAN, Legal Counsel

Wealth & Investments

Anyone Remember Stagflation?

Recent data is delivering mixed signals on the state of the U.S. economy. A slowdown in growth appears to be underway to be sure, and yet headline inflation appears to be picking up at the same time. Sounds like stagflation to me.

Anyone who lived (and invested) through stagflation in the U.S. during the 1970s can recall the term in all too vivid terms. At that time, oil prices rose dramatically, (sound familiar?) first as a result of the Arab oil embargo early in the decade, and a few years later when Iran cut off supplies.

As a result, inflation rose sharply in the U.S accompanied by slower growth and rising unemployment. Oh, and the U.S. stock market, although it appeared to move higher in nominal terms in the late 1970's, actually lost value in real terms, when adjusted for inflation.

Let's see if we are witnessing some of the same signs of stagflation today:

So far this decade we have seen crude oil prices soar from around US$20 a barrel in 2000, to US$80 today. Check. We've also seen uneven rates of economic growth in recent quarters. In fact, the U.S. economy is forecast to grow less than 2% for all of 2007 - well below trend. Check.

The only missing ingredient so far is that job growth appears to be holding up; but even here we are seeing some pretty volatile numbers that may indicate fraying at the edges.

The initial August jobs report issued in early September indicated the first net monthly loss of jobs in four years. But revisions in the September data, reported one month later, miraculously disclosed that payrolls grew instead.

A healthy portion of this "revision" came from government jobs, adding even more suspicion to the validity of any data coming out of Washington. Despite the revised job "gains" the unemployment rate still rose to 4.7%, the highest in a year.

Data on the economy released last week shows discretionary consumer spending was flat for a second straight month in September, amid slowing real retail sales - a sign of more slow growth ahead.

Meanwhile, the September producer price index registered its biggest increase since February, thanks to an 8.4% surge in gasoline prices. The overall rate of producer price inflation doubled to 4.4% last month, up from 2.2% a year ago, the fastest pace since June 2006.

Stagflation anyone?

MIKE BURNICK, Senior Editor & Global Markets

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