Adventures in the "Only Major Asset Class"

With stocks taking investors on one heck of a bear market roller coaster ride and gold frustrating even the most diehard of bugs…Lief Simon suggests taking a "time machine" approach to what may be the only major asset worth parking your money in right now.

"Global real estate will be the only major asset class that could deliver double-digit returns over the next five years."

Barton Biggs,
Morgan Stanley’s most famous bear

Certainly, no one knows for sure. But Barton Biggs may be on to something. In fact, I’ve come to the same conclusion he has regarding global real estate…and I’m banking my future on it.

Why should international real estate beat other investments in the coming years? To help answer that question, I’m going to borrow an idea I picked up at an investment conference I attended recently in Managua. At the conference one of the speakers suggested taking a "Time Machine" approach to investing.

The concept is simple: What if you could go back in time to consider an investment opportunity at the beginning of its life – knowing everything you know today? In other words, if you could go back and invest in Microsoft before it went public, knowing what we know now, would you do it? I’ll answer only for myself – yes, indeed, I would.

What if you could go back to 1979 and buy a few acres of Pacific beachfront in Costa Rica? Would you do it? Again, yes, I would, knowing what I know today. Any piece of Costa Rica’s Pacific coast purchased 20 or more years ago is worth many multiples of the investment price today.

But buyers in Costa Rica in 1979 and 1980 didn’t know then how things would turn out. At the time, they were making a speculative investment.

What if the time machine could take you back only as far as 1985? Would you buy land on Costa Rica’s western coast? Yes, of course, knowing what we know today. Although prices had gone up (in some cases double or more) since ’79 and ’80…there was still considerable appreciation ahead.

A friend reminded me of this point the other day. She was telling me about her recent visit to Mexico, where she had been looking at property on the Costa Maya. Everyone she met, she explained, commented wistfully that he wished he’d invested in the region two years ago.

Funny, I thought. All the people I met here two years ago were saying the same thing – that they wished they’d invested two years earlier. I think a lot of people miss out on a lot of great opportunities this way.

Take a look at recent history. You could have bought a quarter-acre lot in Ambergis Cay, Belize 10 years ago for $15,000. Today, it would sell for 10 times that. In the 80’s when Mexico decided to develop Acapulco, you could buy a quarter-acre for a $1,000. Nowhere but in the global real estate markets are there returns like this available.


With scandal in the air on Wall Street these days, risk seems like a pretty relative term. Now that $1000 lot in Acapulco would change hands for $100,000. The potential 10,000% return seems well worth the modest investment.

Here’s the kicker. There are opportunities just like these all over the world today.

Just a few years ago I purchased a small cottage on a few acres in the lush green countryside of Ireland. Not only do I love living there, but it’s appreciated significantly – better than doubling in value – in the short time that I’ve owned it.

Positive changes in the tax code and investment friendly government policies in Ireland have drawn business from around the world to the Land of Leprechauns. While business has been booming, property values have soared. My only regret is that I didn’t buy sooner. If I had, I could have done two or three times as well…

Still, Irish growth and development is nowhere near its peak. I intend to ride this wave for years to come.

In fact, there are at least three good reasons that you can count on global real estate – the "only major asset class" – not simply to hold its value…but to help you grow your wealth in tough times.

First of all, certain foreign markets are much cheaper than the U.S. The U.S. has experienced a huge real estate boom. Some might call it a bubble. Prices are high – just about anywhere you look. But will they stay high if the equities market continues to fall…or stagnates for years in a Japanese-style recession?

Who knows? Some analysts are predicting a real estate bust similar to the 80s. But why guess? Buy low, sell high. Unlike equities…property can never go to zero.

One thing is certain; if you restrict yourself to US real estate, you’ll miss out on the fastest growing economies in the world. U.S. real estate markets are highly developed and efficient. It’s not easy to find a real steal. This is not the case in foreign markets.

There are no multi-list real estate agents in most countries. There are plenty of market inefficiencies to exploit. And if you buy cheap in the right location, at least you shouldn’t lose money. Plus, there are some foreign markets that are extremely undervalued and poised to boom right now.

On top of that, global real estate can be a great hedge against the falling dollar. In the last few months, the euro has risen against the dollar from 82 cents to over a dollar and back again. [Today it rests at $.98]

That means an investment like one I made in Spain has not only gone up 35% in the last several months – not including currency advantages – but it has also fully protected me from a precarious, and in my opinion still- overvalued, US dollar.

The Argentine currency has been severely beaten down… and a property that would have cost you $40,000 last year can be had for as little as $10,000 US. These are the benefits savvy global real estate investors take full advantage of today. These are properties that would be going for at least $500,000 in California or Florida.

I believe that Brazil and Argentina offer the same kind of opportunity today that Ambergris Cay or Acapulco did several years back.

And as I write to you today, I’m staying at Rancho Santana on the Pacific coast of Nicaragua. At this gorgeous private development, quarter-acre lots that were selling for $35,000 a couple of years ago are priced today at $55,000. That’s a pretty nice return already. But if they appreciate only half as much as neighboring Costa Rican beachfront lots have in the last ten years, you’ll have a hard time getting one of these for less than $500,000 by 2011.

Similar lots in southern California (if even available) couldn’t be bought for a million dollars today. Not too far from this coastal paradise, totally undeveloped land on the beach can be had for as little as $800 to $1,800 an acre. Yes, it may take some work to improve it, but they simply aren’t making any more Pacific beachfront and it will never be cheaper than it is right now.


Leif Simon,
for The Daily Reckoning
July 30, 2002

P.S. Spain, Nicaragua, Ireland and South America are only the beginning of the opportunities I’m finding out here today. Panama is another…it has the most developed infrastructure of any country in Central America. Property values are incredibly low. But dynamic growth is imminent.

Because of capital friendly banking and tax laws that are far superior to better known tax havens, major international corporations are already taking full advantage of Panama’s investment climate.

And it appears that trend will continue for the foreseeable future. If you’re interested in joining me as I investigate these types of opportunities further.

Global Real Estate Investor

Editor’s Note : Lief Simon lives and works in Ireland and the United States. He has a Masters degree in International Management from Thunderbird, and has worked for an international oil company, and as the CFO for a hospitality design and consulting firm that renovates hotels around the world. He’s owned real estate in Europe, Central America, and North America, and he’s lived on five continents. Lief is still involved on a day-to-day basis with projects in both Panama and Nicaragua, and is the office manager for International Living.

Tom Calandra quotes an investor: "My $7,000 investment in Enron(100 shares) went to $48. My $4,000 investment in Finova went to $42. ‘Business is great!’ declared the CEO one morning. My $3,000 investment in JDSU is worth maybe $100 (recommended by Money Magazine). My mutual funds have lost 50 percent. That’s what I got from following the advice of financial magazines, TV programs, books and my financial adviser."

Who could afford to sell with those losses? It would be "suicide" to sell out at the bottom, wouldn’t it?

Yes, that’s what investors still think. They’re holding…hoping…and waiting for the big rally that will get them their money back – so they can get out.

Yesterday, for the 5th time since this bear market began, it looked like the big rally had finally begun. Stocks shot up more than 400 points, as investors held their breath, crossed their fingers and touched wood…At last…a chance to get even!

If only the world worked that way!

But how does the world work? Nobody really knows. We open our eyes every day…and every day we are amazed by what we see.

But let’s ask Eric what he sees on Wall Street:


Eric Fry, our guy in Manhattan:

– Another spectacular "melt-up" on the New York Stock Exchange yesterday. The Dow Jones Industrial Average rocketed 447 points higher to 8,712. The Nasdaq put on a dazzling performance of its own by gaining 5.8% to 1,335, while the S&P 550 jumped 5.4% to 899.

– For the moment, at least, it’s fun to own stocks again. Fear has not disappeared completely from Wall Street, however; it has simply taken on a new form. The fear of capital loss has yielded to the fear of missing out on a huge rally. And this latest rally has been a very easy one to miss. In less than four trading days the Dow has soared an astounding 1,178 points.

– Yesterday, Bill explained that "most of us will have to work well into our 70s" because the great bear market of 2000-2002 has eviscerated our national savings. We may be stuck in jobs we love – like pounding out the Daily Reckoning every day – or we may be stuck in jobs we hate – like pounding out the Daily Reckoning every day. (Get it?…It’s a love-hate thing.) But either way, we will be stuck, because our nest eggs aren’t as hefty as they used to be.

– But maybe Bill’s forecast is a little too dire. You see, I’ve done some math and – by my calculations – the entire country could be retiring by the end of the year. Here’s why: During the last week, the Dow has advanced 11.9% (I included last Tuesday’s 180-point decline, just to be conservative). So the way I figure it, if the Dow simply gains 11.9% per week for each of the 22 weeks remaining in 2002, the Dow will hit 103,355 by New Year’s Day!

– And voila…a spontaneous national retirement would ensue. But that would trigger a whole new set of problems. Who then would drive our buses? Who would staff our airport security checkpoints? Who would prepare our $5 cappuccinos? Or more worrisome still, who would prepare our personal injury lawsuits when we spilled coffee on ourselves? And who would inject botox into our foreheads to eradicate our wrinkles?

– Come to think of it, a super bull market could create more problems than it would solve. It would be a mess.

– On the other hand, a mega-bull market would elevate mega-bull Ralph Acampora’s place in history from that of Wall Street clown to prophetic genius. Acampora, as you may recall, co-authored the book, "Dow 100,000: Fact or Fiction," in which he predicted that the Dow would hit 100,000 by 2020. Acampora released his bullish opus in September of 1999 – just in time to kick off the greatest bear market since the 1930s.

– Okay…so maybe 100,000 is a little too optimistic by year-end. What about Dow 36,000? That’s the price target envisioned by James B. Glassman and Kevin A. Hasslett in their classic, "Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market." If the Dow merely gained 6.67% per week between now and the end of the year, Dow 36,000 would be ours! At that price level, MOST Americans could retire and Glassman’s place in history would be elevated from pied-piper of lunacy to prophetic genius.

– Of course, there’s always the remote possibility that the Dow WON’T gain 11.9% per week for the rest of the year, or even 6.67% per week. In fact, it may even lose ground. The good news is that we would suffer none of the labor-shortage trauma I’ve described. The other good news is that neither Acampora nor Glassman would be rewarded for their irresponsible and moronic predictions.

– The bad news is that the stock market might continue to reflect our struggling economy…and therein lies the real problem. The prospects aren’t terrific.

– "On April 1, earnings growth in the third quarter was projected to reach 20.7%," Barron’s reports. "By July 1 that had slid to 16.6%, and by Friday third-quarter profit improvement was forecast at 13.5%…Among tech companies, the dissipation of analyst euphoria has been more dramatic, with projected tech earnings growth tumbling from 96% in April to 81% July 1, to 66% now."

– 66% growth wouldn’t be too shabby, except that – at 20-plus times projected earnings – stocks aren’t cheap.

– "There’s been a growing recognition that the proposed, or hoped-for, fixes for the current corporate- credibility crisis will have the effect of reducing reported earnings for years to come," Barron’s correctly observes. "Expensing stock options against earnings, eliminating earnings-management abuses and forcing CEOs to personally vouch for the veracity of results likely will all act as a drag on stated earnings growth. Another possible hit to earnings may come from companies reducing the assumed rates of return on their pension- fund assets."

– All in all, corporate profits face a severe headwind. Ditto, the stock market. Trading rally? Yes. New bull market? Doubtful.


Back in Paris…

*** What went wrong with the Information Age, anyway?

*** With the worldwide web on their desks, people have access to almost any fact or datum that they want. But who knows anything more than they knew before? In fact, people seem to know less than they used to.

*** Who knows what a corporation’s real earnings are…or what its balance sheet really looks like? Everybody wonders. Who knows whether the economy is recovering…or sinking into a ‘double deep’ recession…?

*** Newsday reports: "While business executives and analysts see signs the economy is improving, and while some companies are reporting better financial results than they did last year or the year before, businesses are not taking on many new people – and aren’t sure when they might."

*** Even in matters of foreign policy, we seem to be dumber than ever…for, according to the papers, the U.S. is at war. Against whom? Why? No one seems to know…

*** Six years after the Information Age began, people are more ignorant than ever.

*** But ignorance is our secret weapon here at the Daily Reckoning. There is so much we don’t know – we scarcely know where to begin.