But while there’s little doubt the politically-well connected stand to make out like bandits (again), the real concern here is how their reckless moves will impact the little guy…the individual investor. Put simply, it won’t be pretty.

The average saver is already getting crushed. The old saying, “A penny saved is a penny earned,” has gone right out the window. “A penny saved is a penny wasted,” has become the lamentable, modern variation. It doesn’t take a mathematician to realize that rising prices — in everything from groceries to gasoline — are destroying hard-earned savings these days.

Right now, the typical 5-year bank CD pays 1.2%. The average savings account, less than 1%. Even the stock market, with all the volatility and myriad risks therein, disappoints on the income side. The S&P 500, for example, pays just 2% in dividends.

As you can see, it takes a truly unique approach to get anything reasonable. More on that in a minute.

Back to the central banks’ all-you-can-spend money buffet…

Just about everyone that has done the “right” thing over the past several decades and saved what they could is taking an enormous hit because of these central banks’ actions… and not just the most recent move.

In 2008, when the world was burning, they all slashed their target rates to practically nothing. When that didn’t work, they started taking bad bets off bad investors’ (banks) plates. When that didn’t work, they announced a plan to force the backend of the yield curve down. You remember “Operation Twist.”

Now, well, let’s just give it to Europe…they sure could use it. We’ll just print more.

Not once has the thought of 70-plus million baby boomers hitting the retirement age, the flat lining of Social Security benefits through canceled COLA increases or the disappearance of billions of dollars’ worth of home equity throughout the country, crossed any central banker’s mind.

Without this equity in homes, without savings rates high enough to keep pace with retirees’ costs and without an entitlement program that could actually keep retirees from falling under the poverty line, where are these 70 million or so people going to go when they reach the end of their work life? Well, probably back to work, which isn’t such an easy task these days.

I’ve been compiling ways to deal with this myself because you sure can’t leave it to anyone making global monetary policies. What I discovered, however, was way bigger than I ever expected. And right now, precisely because of these poor decisions, the individual investor has an incredible opportunity to get into an often-misunderstood type of investment called “Income Safe IOUs”.

I’ll explain what that means in just a moment. But first, just take a look at this chart:

What you’re looking at is a chart comparing the difference in yields between the average Income Safe IOU and a US Treasury note. Buying a government bond will net you practically nothing. But these IOUs still pay significant income — and the difference is still growing.

With inflation running around 3.5% per year, the bare minimum your investments need to yield is 3.5%. But even with that, which is a tall order from the average dividend payer, you’re not actually making any money. You’re just protecting the buying power of the money you’ve already made.

So when you think about it, you would need a near double-digit rate of return just to make a few bucks. The 2% Treasury note yield just won’t cut it. But a 10% Income Safe IOU would.

Sincerely,

Jim Nelson
for The Daily Reckoning

Taking Advantage of the Fed’s All-You-Can-Spend Buffet originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Mutual funds, specifically tax-exempt funds, have long been favorites among near retirees. With the clock ticking, where would you go for an edge on retirement building? And if you could find tax-free, high-yielding, considerably safe income, wouldn’t you take it?

Unfortunately, those who bought into this line of thinking over the past several years have just rudely awoken to a major collapse.

Many municipal bond funds offer investors a tax-exempt source of income that is backed by the full faith and credit of US cities and states. These, in turn, have an implied backing by the federal government. (After all, would Obama really let California break off into the ocean?)

And with a gigantic slew of near-retirement-aged baby boomers, weak interest rates, and 2008’s stock performance stuck in the back of investors’ minds, the municipal market has looked as sexy as ever. Over the past two years, we’ve seen nothing but cash inflows into muni funds. But that trend has reversed with a vengeance.

We’ve noted the recent outflow of bond funds in weeks past. But that was just headline stuff. A mere sampling of the pain funds in general have felt. Here’s what the muni universe has looked like:

Quite a hit. And of course, when a panic like this starts, bottoms can be a tricky subject.

The muni market isn’t a clear one. We’re not saying it has no transparency. We’re saying that often, no one can really make heads or tails out of the figures. But here are the steps, as best as anyone can understand so far, that caused this two and a half month panic.

First, we saw a QE2 build up. We discussed this program before. But quickly, it simply opened up a pile of $600 billion (plus another $300 billion potentially) to buy up medium-term Treasuries. In theory, this should push yields down, spitting more cash into the rest of the economy, nudge the inflation rate higher, stimulate job growth, and save the planet from a flesh-eating super robot. Okay, one of those things wasn’t part of the deal. Nonetheless, what it did was virtually nothing…so far. But the anticipation of the program led investors out of the muni market and into Treasuries.

After QE2, the new threat to city and state debt was the potential end of the Build America Bonds program. Then the actual end of BAB. And it certainly doesn’t look like the new “deficit-conscious Congress” will inspire similar attitudes at the state government level any time soon.

In this time period, we also had a number of rating downgrades and bad press, such as the rating cuts to San Francisco and Philadelphia. We saw threats to California and Illinois as well, even going so far as comparisons to Greece and Ireland.

Sure, all of these factors, combined, led to some of the muni outflows. But all they really did was lightly nudge the giant calamity of muni investor losses down the giant figurative hill.

Once investors started pulling out of muni mutual funds, the funds had to sell some of their muni bonds. That led to a decline in actual muni prices…which led more fund investors to sell. This circular pattern is actually still happening. Take a look at this:

Even if you know nothing about charts, you can tell this ain’t pretty.

This chart represents the past nine months of trading of the iShares municipal ETF. It tracks the most popular municipal bonds on the market. And since the first week in November – which corresponds to the first week of fund outflows – all bets have been off.

All the technicals, all the support, all the buyers have turned away from the municipal market completely. And this pattern may continue for some time. Of course, as we noted above, no one can truly read the muni market 100% of the time… That is especially true now.

So what does this say? We don’t know. There seems to be two drastically different points of view in the press. That much we do know.

Meredith Whitney, the “genius” that called the banking crash of 2008, went on 60 Minutes last month claiming that the muni market will see more defaults than anyone can imagine. She called for “hundreds of billions” in losses.

As widespread as that show is – and her own newly-acquired following – it wouldn’t surprise us if some of the recent selling came from that interview. And we’re even less surprised by the backlash it caused in the rest of the media.

Joe Weisenthal, a largely-followed and highly-syndicated author for Business Insider, struck back at Whitney, claiming the free fall in muni prices is 100% attributable to the downward selling spiral we summed up above, which he called “the feedback loop”… instead of actual risk of defaults.

Charles Gasparino wrote on Huffington Post that Whitney needed to “finally come clean.” He wants her to show her evidence of the “hundreds of billions” in losses prediction.

Celebrity (kind of) economist David Rosenberg went so far as to claim that the muni market fall is “a huge long-term buying opportunity”.

And who knows? Maybe they are all right. We expect muni funds will find a bottom at some point. And then, just as quickly as they stabilize, they’ll fall again on actual news of defaults. It won’t take much in the way of a real scare to truly collapse these investments.

Regardless of their future, the point is: we’re entering into panic mode on some of the best performing and hottest assets for pension plans, 401(k)s and IRAs. Pensioners are no doubt beginning to reel again.

We’re keeping a critical eye on this whole situation. And, of course, we never stop looking for solutions.

Regards,

Jim Nelson
for The Daily Reckoning

Why Retirements Are Going Bust, Again originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

QE2 is a complicated affair, but not that difficult to explain. The Fed plans to print $600 billion from November 2, 2010 to July 1, 2011. They will then use that money to buy long-term Treasury securities – essentially, U.S. government debt. The point of all this is to spur the U.S. economy by manipulating interest rates lower and tempting Americans to spend their savings.

If all goes as planned, that means the purchasing power of the U.S. dollar will go down, as will interest rates on things like loans, bonds, CD’s and savings accounts. If the Fed gets what it wants, you will be coerced into spending your money now or investing it in something riskier, rather than saving it for a rainy day. More spending now equals a stronger economy (so they say), and a more robust recovery.

In the meantime though, your dollars will be reduced in value. Even the Fed will admit: QE2’s purpose is to create inflation. Somehow, reducing consumer purchasing power will save our country… it doesn’t make sense to us, either.

And of course, it could all backfire. Federal Reserve polices were the primary drivers of the last two American asset bubbles – technology and housing. And QE2, which is more aggressive and radical than simulative campaign the Fed has ever undertaken, could very likely fuel an even bigger, economy crushing bubble.

The Good News: You Can Profit

Fortunately for us, the Fed is giving us it’s plan before QE2 is in full effect… like a pitcher telling the hitter exactly where and how fast his pitch will be. Here’s how you should swing the bat:

1)Diversify out of the dollar

Most brokers and financial advisors will insist you diversify the holdings of your portfolio among different sectors and securities. They’ll tell you to buy both stocks and bonds, and to spread those purchases around different sectors, like tech, banks, resources and real estate.

But if all of the assets in your portfolio hare held in U.S. dollars, you’re really not diversified at all. It makes a lot of sense, especially these days, to own the currencies of financially stable countries like Canada, Norway, Australia, China or Brazil.

2) Buy hard assets

If the dollar goes down, commodity prices will go higher. So instead of owning pieces of paper issued by the government, why not own commodities that people use… like oil, cotton, corn or gas? There is one ETF available that allows everyday investors to easily gain this kind of exposure: Look up ticker DBC.

3) Forerun the Fed

The Fed has laid out a plan to move investors out of one market and into another. By buying government bonds, the Fed will push yields down and investors will seek higher returns elsewhere. Thus money will flow out of savings accounts and bond funds and into stocks and riskier investments. Namely, we suspect dividend-paying stocks – like Proctor & Gamble – to get a lot of new investor attention. They are traditionally less risky and, like a savings account, pay an annual interest rate. This class of stocks bares the closest resemblance to bonds and will be the most likely beneficiary of QE2.

Lucky for you, these three themes are part of our beat at the Daily Reckoning. We strive to fill each issue with the valuable investing and economic analysis you’ll need to prepare for Federal Reserve meddling… plus a healthy dose of contrarian thinking and dark humor.

Enjoy it, and good luck,

Jim Nelson
for The Daily Reckoning

Profit From Quantitative Easing originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

“Sinvesting” is a theme that we monitor constantly at The Lifetime Income Report. We have previously explained why tobacco in emerging economies is a steal. Today, we’re raising a glass of hooch to the next-best sin play.

From the very beginning of written history, alcohol has played a significant role. In everything from Homer’s tale of Odysseus tricking the Cyclops with wine to monks brewing beer to expand and build new monasteries, alcohol has played a role in human history.

Booze is one cultural, social and economic staple that will not go away anytime soon. Right now, Europe still has the top drinkers in the world. In the Czech Republic, legal drinkers consume a whopping 157 liters of beer per person each year. Little old Luxembourg consumed the most total alcohol including wine and liquor per person. The rest of the continent is holding its own near the top of every list we can find.

But the real story isn’t Europe. It’s emerging economies. China, for instance, consumes the most beer of any country in the world. But its per capita consumption doesn’t even squeak the Asian giant into the top 20. This number is growing, however. As China’s average median income continues to grow, so does its drinking stats. Already, we’re seeing annual volume consumption rates growing in the low double digits.

South America, however, has the best investment opportunities.

Compania Cervecerias Unidas SA (NYSE:CCU) is the leading beer and soft drink producer in Chile and Argentina. CCU is a fully scaled, vertically integrated mega distributor. Meaning, the company makes and sells its products like no other operator. It contracts, produces, markets and distributes a wide range of products, like soft drinks, wine, bottled water and even snack food. But the real moneymaker for CCU is its beer.

The company owns exclusive rights to a variety of brand names. For instance, Anheuser-Busch agreed to an exclusivity deal with CCU back in 1995. That deal, which guarantees every Budweiser bottle, can or keg that is sold in Argentina will go through CCU, was extended until 2025. Because of the Anheuser-InBev merger, the contract will need to be renegotiated by 2015. But that’s not even a drop in the bucket of what CCU has to offer shareholders.

With its origins dating back to 1850, CCU has the experience and connections in its region to capitalize on the best brands and sales outlets. Like Anheuser does here in the US, CCU controls the marketing scheme of most of its customers. Let us explain…

Take your average supermarket. In the beer aisle, you’ll probably see stacks of Budweiser and Bud Light at eye level…right in the middle of the aisle. You’ll also see Miller and Coors products around there too. Meanwhile, imports and craft beers are subjected to shelf space in the far corners and above or below the customer’s eye level. The reason for this: The big three – Anheuser-Busch, Miller and Molson Coors – are able to set up the display arrangements with retailers in advance. Of course, this is all done through distributors to comply with US law. But the Chilean and Argentinean laws on alcohol sales are even more lax, giving CCU exclusive marketing power no one else has.

On top of its powerhouse marketing efforts, CCU also controls the best brands in the business: Kunstmann, Dorada, Escudo and Cristal – by far, the most popular beers in Chile. On top of these popular domestic brands, CCU also sells through partnerships: Heineken, Paulaner and, of course, Budweiser.

These brands have helped this century-and-a-half-year-old company gain control of roughly 85% of the Chilean beer market, not including its stake in other manufacturers. CCU is working on obtaining a market share like this in Argentina. But the company has operated there since only 1995, so its fast-growing 22% is still pretty respectable.

With this kind of market share, CCU sets the rules. Even though beer is one of the most stable industries in the world, especially throughout recessions, overall consumption is trending down in some major markets. We noted that Western Europe is the most hop-imbibed continent on the plant. But it may not have the top drinkers forever.

The eight largest consuming nations per capita are drinking less and less beer each year – seven of these are European.

South America is taking up the slack. According to a CCU study in 2008, Chilean beer consumption grew more than 30% between 2004-2008. In Argentina, which is already a heavier drinking nation, consumption grew 23% in that period. And as these countries continue to grow their middle classes, we could be looking at massive consumption growth trends.

While we don’t expect either nation to drink as much as Western nations do anytime soon, we can’t help ourselves from comparing them. In the US, we consume about 79 liters of beer per person each year. In Chile, that number is just 36 liters per person. And Argentina comes in at 43 liters per person. Better yet, CCU is expanding to the rest of its continent. It is squirming its way into the lucrative Brazilian and Columbian markets. CCU is also looking at some smaller surrounding markets.

These tremendous trends would be enough to make us think about investing in CCU on their own. But this is only half of the growth potential this play has to offer…

Beer currently makes up a significant portion of the company’s business. But it isn’t the only segment CCU is dominant in. In fact, nearly half of the company’s top line comes from wine, spirits and nonalcoholic beverages.

Chilean wine is already recognized as some of the best in the world. Making up just 16% of CCU’s business, you wouldn’t think it to be too important. But with the world consuming more and more wine from Chile, CCU has been able to grow its wine sales volume a massive 24% in just the last four quarters. On top of solid growth from its wine business, the company’s nonalcoholics segment has an ace up its sleeve. CCU has exclusive rights to Pepsi as well.

All in all, CCU offers a one-stop play on the growth of the South American economy. That’s a play I’m happy to take.

Regards,

Jim Nelson
for The Daily Reckoning

Drink Up: Investing in the Emerging Alcohol Market originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Even with massive increases in education spending over the last several years, comprehension and retention rates are falling flat. According to the Department of Education, reading levels have not improved one iota among 17-year-olds since it started keeping track of them in 1971. Yet we’re paying twice as much on an inflation-adjusted basis.

Meanwhile, education levels in our G-8 colleagues’ countries are at the same levels, and many are even higher. Yet they aren’t spending nearly as much per student as the US.

Of course, just because the stats don’t line up with spending here in the US, it doesn’t mean we’ll see any less spending going forward. In fact, the more involved the federal government gets with education, the more money we’ll see thrown at it.

Local and state governments still make up the majority of education budgets. And they’ve both been uniformly cash tight since the economic collapse started in 2008. But education is the one department they aren’t looking to cut. Instead, they are just moving money around.

One department making out even in this environment is educational technology. Each year, the number of students per computer goes down. Eventually, we could see more classrooms with a one-student-to-one-computer ratio. Meanwhile, the software continues to improve at fascinating rates.

Jim Nelson
for The Daily Reckoning

Government-Backed Income Opportunity originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Kagan has already faced questions on the constitutionality of “Don’t Ask, Don’t Tell” and the classic “Right to Bear Arms.” But the major question that nominees always face during these events is whether the Constitution should be open to interpretation or if it is a literal document. And that got us thinking…

What if some of our current policies weren’t so constitutional after all? After just a little research, we found that one of our most entrenched national institutions barely passed constitutional muster.

In part of FDR’s New Deal, Social Security was dreamed up to protect people against financial devastation in their most dependent times. The concept of Social Security was straightforward; the constitutionality of it was not. In concept, the Social Security system would collect a special tax to fund a special account that provides financial support to the nation’s elderly, disadvantaged and dispossessed.

But in constitutional terms, the Social Security program would collect taxes from the many to distribute funds to the few. Thus, the Social Security Act of 1935 was a truly groundbreaking piece of legislation…and maybe even unconstitutional.

Prior to the New Deal, legal precedent on the Supreme Court had established that any practice the Constitution did not explicitly permit was, by definition, unconstitutional.

Under the 10th Amendment, federal powers are restricted to what the Constitution says. Nevertheless, politicians and jurists throughout history have debated whether the letter or the spirit of the Constitution ought to be the deciding factor in any Supreme Court decision. Alexander Hamilton and James Madison debated this very idea in the early years of the republic. Hamilton argued the federal government could levy new taxes for the general welfare of the country in a broad sense. But Madison countered that the federal government could only levy new taxes specifically granted by the Constitution.

Central to the New Deal decision was whether or not the Social Security tax “provided for the general welfare” of the country. Creating a brand-new agency to collect and distribute a special tax was unheard of and there were no real precedents to fall back on.

Ultimately, the court settled this debate by declaring, “The powers of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution.”

This may have been the most expensive sentence ever issued by the Supreme Court. This one little phrase not only blessed the Social Security concept of taxation and redistribution, but it also created the first legal precedent for levying new taxes to fund specific programs.

The rest is history…and it’s not a very pretty one. The Social Security system is functionally bankrupt…and growing more insolvent by the day. Far from spending “public moneys for public purposes,” the Social Security system borrows foreign money for unsustainable entitlement benefits.

Today, roughly 18 million new or reissued Social Security cards are sent out each year. And more than $600 billion in payments are given to some 50.9 million beneficiaries of the Old-Age and Survivors Insurance and the Disabilities Trust Funds.

For years, we’ve heard that someday the Trust would begin to run deficits – handing out more payments than it receives through taxes. This date has always been in the distant future. But because of the economic meltdown of 2008-09, that day has unexpectedly arrived this year.

For the first time since Social Security was just a twinkle in FDR’s eye, the Trust will lose money. The Congressional Budget Office predicts Social Security outlays to reach $708 billion in FY2010, up from $665 billion last year. Meanwhile, revenues are expected to fall flat near $670 billion.

Without significant changes to the system right now, this arguably unconstitutional program could disappear.

Jim Nelson
for The Daily Reckoning

The Day FDR Tore Up The Constitution originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

In the first half of the past decade, subprime loans were king. They were cheap and easy to get approved. Along with the subprime boom came subprime adjustable-rate mortgages (ARMs), which were equally easy to afford…for a while.

Of course, the “A” and the “R” in ARM meant that the interest rate borrowers pay changes, or resets. The majority of these resets occurred between the summer of 2007 and the summer of 2008.

This period saw a massive amount of mortgage interest rate hikes, which caused millions of foreclosures. Things spiraled down from there, eventually freezing nearly all credit and causing the panic of 2008.

Of course, that’s the 50-cent version of recent history. There were plenty of other financial calamities that went along with this, including the bundling of mortgage-backed securities and risky derivative products.

If you believe the Obama White House and the glass-half-full press corps, you’d think this mess is now behind us. We are, after all, in a recovery…right?

Unfortunately, no one is talking about the second wave of ARM resets and foreclosures…

You see, this second wave will come crashing even harder than the first. It’s made up of a type of mortgage called “Option ARMs.” These give borrowers the option of how much they want to pay during the first five or 10 years of repayment:

1) The full amortized rate, including interest and principal.
2) Interest only, or…
3) A token payment, well below the amount needed to cover the interest on the loan.

This third option causes the mortgage balance to INCREASE instead of decrease. And usually, the borrower can continue to make minimum payments until the mortgage balance increases to 125% of the original amount. That’s when the trouble begins…especially if the interest rate increases at the same time.

This is the exact situation in which many homeowners now find themselves.

Obviously, these option ARMs were supposed to be reserved for customers with better credit than those who took out subprime mortgages. But apparently, they were handed out to almost anyone who wanted them.

According to Whitney Tilson and Glenn Tongue of T2 Partners, who are experts on this subject, about 80% of option ARMs are negatively amortizing. Meaning these so-called top-tier borrowers are heading further into the hole. Once their rates reset, they could be in serious trouble.

And that could be happening very soon:

The chart above shows the two peaks in the mortgage-reset wave. The first peak is comprised of subprime ARM resets. And the second is mostly constructed of option ARM resets. We appear to be in the eye of the storm.

That fact alone shook our nerves when we first discovered it. But it was a different chart in Tilson and Tongue’s most recent presentation that really got us startled… It’s also the reason I’m predicting the dollar spike in 2010.

Instead of resetting as expected after the first five years, many option ARMs are so negatively amortized that they are hitting their automatic reset cap.

That means they are resetting early…like right now.

As you can see from the second chart, the expected reset peak was to occur in 2011. But the real peak is happening now. You can also see that the amount of mortgages resetting is spread over a longer period of time than originally thought, but is peaking much earlier. Unfortunately, it’s not the peaks that matter.

You see, those are just resets. But with unemployment reaching quarter-century highs every month, and the massive number of homeowners about to receive mortgage bills for two to three times what they are used to paying, we find ourselves in an even scarier environment than this time last year.

It takes anywhere between 3-12 months for most homeowners to actually go into foreclosure. Therefore, the wave of Option-ARMs that are now resetting could cause a major wave of foreclosures over the next 6 to 18 months.

It’s tough to say exactly when the storm will come. But my guess is the second half of 2010.

This second wave of foreclosures will not be good news for the economy or the stock market…At least that’s my guess.

Regards,

Jim Nelson,
for The Daily Reckoning

The Second Wave of Mortgage Defaults originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

And that could be happening very soon:

The chart above, which should look familiar, shows the two peaks in this long-term housing conundrum. The first mountain is comprised of subprime ARM resets. And the second is mostly constructed of option ARM resets. We appear to be in the eye of the storm.

That alone shook our nerves when we first discovered it. But it was a different chart in Tilson and Tongue’s most recent presentation that really got us startled… It’s also the reason I’m predicting the dollar spike in 2010.

Instead of resetting as expected after the first five years, many option ARMs are so negatively amortized that they are hitting their automatic reset cap.

That means they are resetting early…like right now — with unemployment reaching quarter-century highs every month, and a massive number of homeowners about to receive mortgage bills for two-three times what they are used to paying.

It takes anywhere between three-12 months for most homes to actually go into foreclosure. It’s tough to say exactly when the storm will come. But my guess is the second half of 2010.

The Second Wave is Already Ashore originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

On top of all his accomplishments, he was also a highly successful investment broker. He became a partner in an investment firm called C. Clothier Jones & Co. in 1929. His business partners in the small $5 million ($61.5 million today) firm were some of the brightest, most successful investors in the world.

Of course, after the stock market hit the skids in 1929, the company took a hit. But thanks to the rally in first half of 1930, C. Clothier Jones & Co. was in better shape than ever. He was on top of the world in the spring of 1930. But just like the year before, market speculators pushed stocks higher than they were worth. By late summer, the rally turned into another massive sell-off.

When October came around, Williams and his partners were doing everything they could to stay in business. Their investments turned to dust, and they were so incredibly overleveraged the only course for them was to fudge some numbers and blatantly lie to shareholders. Williams left the country in mid-October to get married in Europe. By the time he returned, he was a wanted man, for market manipulation. Four of his colleagues and large investors in the company had ended their own lives in that single week…

We’re fortunate to have history lessons when trying to figure out the market. But there are certain aspects of today’s market that just weren’t there in 1930. Some, like emerging economies, give us a serious advantage over our forefathers. Even if the average investor of 1930 were aware of a possible second downturn, his options would be incredibly limited. Only a millionaire in 1930 could invest in other, safer economies.

Today, it’s as effortless as buying an ADR through your online broker. We’ve ramped up our portfolio to reflect our favorites: Asia, Africa and Latin America.

The Ghost of RN Williams originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.

Take Canada, for instance. They have historically presented us with amazing dividend yield opportunities. The country’s vast resources offer plenty of investment potential. Large trusts have been set up to collect royalties as these resources are mined and drilled, and in turn they send them out to shareholders in dividends.

Unfortunately, Canada changed its tax law recently. Now instead of just collecting a straight dividend check, we are charged 15% before we ever see the money. The government of Canada wanted a piece of that lucrative pie. Of course, if the yield is large enough, we should still consider it. Other countries like Switzerland charge even more, upward of a 35% dividend tax.

So which nations have no dividend withholding tax? Brazil tops the list. Rio’s newfound spotlight could help bring more focus to this great dividend-paying nation. We are constantly looking there for more opportunities.

The U.K. is also a notable safe haven. While we aren’t necessarily bullish on the British pound, we do enjoy the tax break on many of our holdings in the Lifetime Income Report portfolio. Some other places with a 0% withholding tax we should note include Hong Kong, India and Mexico. We’ve been scouring these markets to find some income payers for you.

The Stealth Dividend Tax originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas.