Market Review: In Due Time…

…all things get "corrected."

"This is the most pessimistic sentiment against the United States that I have ever experienced in my career," said Wolfram Gerdes, chief investment officer for global equities at Dresdner Investment Trust told the NY Times on Thursday. "There is unanimous agreement that the U.S. is not the best place to invest anymore."

No wonder, eh? Just when the decks had been cleared of Global Crossing and Enron wreckage, in comes Worldcom with another spectacular crash landing…bloody carnage all over again. No sooner had the investment world caught its collective breath than – SLAM! – Xerox announced it had apparently misstated "accelerated" forward sales of up to $6 billion.

Oy…where will it end?

For nearly 4 years, from late 1996 through 2000 the world gaped in awe…and wondered "what is it that the Americans have?" Now we know…the Americans had clever accountants. All along the great American business model was bunk.

For the week, the Dow (as you might expect) fell 0.2% – its sixth straight weekly loss. The Nasdaq, however, rose 1.5% and the S&P had a weekly gain of 0.3%.

During the week the dollar fell to its lowest level against the euro in 28 months. Similarly, the precipitous greenback has embarrassed itself against the Japanese yen…heck, even gold has been rising steadily in dollar terms.

"We all know markets go to excess," writes Morgan Stanley’s Stephen Roach "Unfortunately, economies do as well. That’s been precisely my point in underscoring the post-bubble vulnerabilities of the US economy. America’s massive current-account deficit only compounds the problem insofar as the dollar is concerned. In retrospect, it was a classic set-up for the repricing of an over-valued asset. The only thing missing was a loss of confidence in the asset itself.

"That came rather suddenly," continues Roach. "Courtesy of Enron, Tyco, and now WorldCom [and Xerox] – and all too many others in between – the missing piece had fallen into place in the form of a full-blown corporate governance shock. America was tainted and the dollar bore the full wrath of global investors. Hell hath no fury like an asset scorned."

A Gallup/UBS Warburg survey released this week shows that only 32 percent of European investors now rank the United States as the most attractive market in the world.

"The loss of foreign confidence in the United States is important in itself," writes the Times. "…the huge deficit the United States runs in its trade with the world. To cover that deficit, America must attract a net inflow of $1.3 billion in foreign money every day. Even a modest decline in the flow can weaken the dollar and drive up the prices of imported goods."

Even Americans themselves are rating the US lower it seems… voting, as it were, with their feet. As International Living’s Kathie Peddicord points out below, the number of American’s living abroad has risen to 3.3 million…an exodus of more than a million people since 1990 alone.


Addison Wiggin,
The Daily Reckoning
June 29-30, 2002

p.s. Enron, Global Crossing, Tyco Worldcom… and now Xerox. Line ’em up and knock ’em down. The last time a bear market began to swallow up American companies in such a spectacular fashion – the Garbage Market of ’68 – it knocked stocks out cold as an viable investment for nearly a decade. For example, the Dow, which had reached as high as 969 in 1965… didn’t break 1,000 until 1972 and sagged as low as 577 in 1974. If you were a stock investor then… you wasted nine years… biting your nails the whole time, no doubt.

Perhaps, during this bear market, you might want to do something… um, useful with your money. Kathie Peddicord suggests one reasonable alternative in Flotsam @ Jetsam below…

FLOTSAM AND JETSAM : Why global real estate makes so much sense right now

3 Compelling Reasons You Shoulder Consider Foreign Real Estate

– Kathy Peddicord
International Living

"… now is one of the best times to consider a real estate investment overseas. Here’s why:

1) Certain foreign markets will be much more predictable than the United States in the coming years. Yes, the U.S. has seen a great real estate boom over the past few years. The national median price for an existing home at the end of last year was $148,000, up 6.2% from the previous year. And this past January was the biggest January on record for sales of existing single-family homes…following record-setting home sales in 2001.

Will the U.S. real estate markets continue to soar…or will the bubble burst, as it did in the technology markets? No one knows for sure, of course. But instead of trying to guess, we recommend looking at places where the profit potentials are much greater and the move of the markets more predictable.

One thing’s for sure–if you stick to U.S. investments, you will miss out on the fastest-growing economies in the world.

2) Global real estate is an excellent hedge against the dollar, the U.S. economy, and U.S. stock markets. The dollar has been artificially high for almost five years now, which means that you can still buy real estate in many parts of the world for much less in dollar terms than you could only a few years ago. When you transfer some of your assets out of dollars, you lock in this dollar appreciation and protect that profit for the long term.

We could spend hours debating what the future will bring or the U.S. economy and U.S. markets. Stock "experts" like to show that stocks have produced an average annual return of about 10% a year over the past 65 or so years, easily beating most other investments.

But what they don’t mention is the fact that there can be very long periods in which the markets basically do nothing…or slide backward…which means that, when you factor in inflation, you’re actually losing money with most stock investments.

For example, the Dow Jones Industrial Average rose as high as 969 in 1965…but it didn’t break 1,000 until 1972 and sagged as low as 577.60 in 1974. That’s nine wasted years.

This is why diversification is so important. You don’t need me to tell you that it’s not wise to put everything you’ve got into one sector…or one market. I have no idea what’s going to happen in the stock market…I’ll be the first to tell you that. But it doesn’t matter. Regardless, the savvy investor knows he’s better off spreading his risk.

Plus, real estate is also the most effective hedge against inflation.

And real estate, as the investment adage goes, "can’t go to zero." It’s a hard asset. You can visit it…stand on it. You can take enjoyment from it, and use it for vacations. For example, while you’re watching the capital appreciation year after year.

A smart property investment can make you short-term returns in the form of rental income, for example, as we’ve discussed. Long-term, it can make you rich.

3) We want to take advantage of the growing trend taking shape in the United States and in other developed countries–that is, people’s growing desire to invest, live, vacation, or even retire outside their home countries.

People are starting to relocate on a global scale. One article in The International Herald Tribune stated that, in the past 30 years, the number of Americans living abroad has more than quadrupled. In fact, according to the U.S. State Department, the number has risen from 2.3 million to 3.3 million since 1990 alone.

This movement is expected to increase further…and fast. To profit from it, you need to look for real estate markets that will capitalize on the direction the world is starting to move.

Overseas retirement is going to be big business in the coming years. As the first of the 76-million-strong Baby-Boom generation turns 55 this year, more people are going to look outside the United States for second homes and retirement havens. They will come looking for privacy, safety, warm weather, and a relaxed and sometimes more adventurous lifestyle.

Did you know that Boomers make up almost a third of the U.S. population? And they are aging fast. Beginning in 2000, Boomers started turning 50 at the rate of just under 10,000 a day. Already, more than 14 million Boomers are 50 and older, and some aren’t waiting until 55 to take early retirement. It’s a well-educated crowd: Nearly 90 percent of Boomers graduated from high school, and more than a quarter have at least a bachelor’s degree. More than three-quarters own homes, and 73 percent have some form of investments.

As Time Magazine recently reported: ‘Many of the 76 million American Boomers are more likely than their parents to consider retiring to a foreign land, because they have traveled more, have higher hopes for retirement, and tend to be more active and adventuresome.’

Think about it this way–more than three-million U.S. citizens have already moved abroad, looking for cheap real estate, low taxes, and better qualities of living. This trend will only increase in the years to come…"

Editor’s note : Kathleen Peddicord is the publisher of International Living, a publication that, for the past 20 years, has identified and reported on the world’s best opportunities for living, retiring, investing, traveling, and buying real estate overseas.

The Daily Reckoning