Sweet Spots in International Equities

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MicroPlace.com: The Real Solution to Alleviating Poverty WorldWide

With the holiday season coming around many people are making their new years resolutions. Well one should be to give back to the world, this is a number one priority on my list. Youmight say how? By helping eliminate worldwide poverty within developing countries. So next questions, how is this even possible? Well actually its not that hard. Thanks to an innovative idea, MicroPlace we can now microfinance the third world. Let me describe.

MicroPlace.com

What is MicroPlace?

MicroPlace was founded in 2006. It is a broker-dealer registered with the SEC and it specializes in microfinance for retail investors. Started by Tracey Pettengill Turner it was bough by eBay in 2006.

What is the Goal of MicroPlace?

MicroPlace was founded when Tracey Turner realized that the microfinance industry needed over $250 billion to get capital to the entire world’s working poor who need it to fund their business ventures. The problem was at the time; roughly only $25 billion has been raised. The key distinction he noticed was that Americans give roughly around $300 billion to charity a year, however very little actually goes to microfinance. He believed that there were not enough charities to address all the worldwide poverty problems. As a result he founded MicroPlace to direct socially responsible investment capital to microfinance investments. Since 2006, American’s have loaned over $2.4 trillion to microfinance third world investments.

Why MicroPlace is Special?

MicroPlace allows the everyday investor the ability to make investments in the microfinance industry. You can give as little as $25 yet every dollar counts. Before MicroPlace it was very hard for ordinary investors to microfinance unless they had significant capital.

What is Micro Financing?

Microfinance tries to alleviate global poverty by offering small loans to entrepreneurs in developing countries who would otherwise not have access to credit.

Why I Support Micro financing?

I believe that Microfinance has been proven to be a highly effective poverty reduction tool in developing countries. I support it because instead of giving a handout to people such as charities it give people a hand-up and gives them the opportunity to get their career started and a new life. In developing nations around the world, many people have innovative ideas and the hard work ethic/determination to end their life of poverty. Problem is they have no foreseeable way out of this life. They have the lack of money to grow a business and do not have the ability to access banks/financial services to obtain the capital necessary to start off their venture. Fewer than 10 million of the 100 million people obtaining microfinance are able to obtain loans from a bank. As a result, they are stuck in a rut. Now with MicroPlace it gives them a feasible option to grow their business by receiving small loans, most of which are under $100. MicroPlace invites people in developed countries to invest in their company that in turn takes the money to local lending organizations. You can find an individual venture to loan the money by searching through geographical region. Then the entrepreneur is liable to pay back the loan and the interest, usually somewhere between 2%-6%. 97% of all loans are paid back.

What is my Goal?

Within the New Year, I will be creating my own MicroPlace account with the goal of helping to alleviate global poverty. The best part is you can wire your account easily via paypal/credit card and you are paid quarterly with both interest and part of the loan. It’s a win, win situation for both parities.

What attracted me to MicroPlace?

Last Christmas, my family and I made a trip to South Africa touring the countryside and visiting the fabulous sites. One of which was the shantytowns outside of Johannesburg. This is where I was first exposed to true poverty that exists within the world. These people lived in mud huts with no possessions or assets. They were all stuck in these situations and barely supported by the government. Problem was many had the work ethic, innovative ideas to make it in the business world yet lacked the access to the financial resources that we take for granted in the U.S. As a result, I looked into Micro Financing and found out about MicroPlace and the opportunities it give to these people. In addition, I love the fact that it incentives these people to work hard. The problem I have with charity is its only short-time fix; micro financing creates a long-time opportunity to allow these people to sufficiently support themselves. Like the famous quote:

“Give a man a fish; you have fed him for today.  Teach a man to fish; and you have fed him for a lifetime.”

As a result, this year instead of donating to charities, sign-up for a MicroPlace account and truly help out these people and help alleviate global poverty.

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It’s 1998 & You’re handed 0K to Invest

It’s 1998.  You’re handed $100,000 to invest.  The catch is you can’t invest in individual stocks.  You’ve got to put it all in an index that tracks the performance of one of the following regions:  U.S., Asia, Canada, Latin America, Australia, Japan or Europe.

What do you do?

If you’d chosen Japan, you’d have made a 7% profit by November 2009.  If you’d chosen Europe, you’d have done more than twice as well – a 20% profit.  And you’d have been much better off putting your money in Canada which would have given you a return of 113%.

But you could have done even better.

If you’d chosen Asia, you’d have made a profit of 179% over the next 11 years.  And, if you’d chosen Latin America, you’d have walked away with a profit of 347%.

You could have chosen to put your $100,000 in the U.S. – the biggest and, some would say, the strongest economy in the world.  Your money would likely have gone into blue chips like Microsoft, Caterpillar, or Wal-Mart, instead of into foreign companies.  You could have bought “Made in the U.S.A.” instead of “Made in Mexico”.  But you would have made exactly zero profits.

Believe it or not, between March 24, 1998 and November 16, 2009, the U.S. S&P 500 went absolutely nowhere.  Not only that, but studies show that owning stocks in international companies can cut your risk in half.  So, if you’re thinking about where to put your money in 2010 and beyond, include some foreign exposure in your portfolio.

But how do you go about investing in the best foreign stocks?

Many foreign stocks simply aren’t available to Americans because of laws and regulations governing the buying of stocks overseas.  One way is to buy a fund that’s listed on a U.S. exchange.  These allow you to capture international growth without traveling outside your hometown.

But there’s another way to capture gains in these fast-growing economies:  ADRs (American Depositary Receipts). ADRs prices are in U.S. dollars, pay dividends in U.S. dollars and can be traded like the shares of U.S.-based companies.  Investing in ADRs has another important advantage:  It allows you to easily diversity away from the U.S. economy and avoid the mistake so many investors made when they bought in 1998 and held on.

America’s accelerating debt & expanding federal bureaucracy are bad for investors.

The prevailing political climate will sink America deeper into public-sector debt and a federal bureaucracy that’s unlikely to be investor friendly.  Developed economies are projected to have rising deficits and debt burdens in the next 5 years, on top of a much higher level of indebtedness, while emerging economies are likely to have falling levels of deficits and debt burdens with already much lower levels of indebtedness.  High debt levels will continue to restrain growth in the West, while lower debt levels will support growth in emerging markets.  Economic growth will be higher in emerging markets as those economies grow from smaller bases.

Asia’s the place to be.

So, if you’re looking to invest in places that offer organic economic growth – based on a savings-and-investment cycle (not rising leverage ratios like in the West) – you have to invest in emerging markets, mainly Asia.  The right emerging markets, like those in Asia, will outperform Western ones over the long haul as they have much better fundamentals.  Pullbacks in Asia should therefore be viewed as buying opportunities.

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Diversify Savings into Other Currencies & Overseas Assets

Is it time to leave the U.S.? Look outside the borders of the U.S. for lifestyle and investment opportunities that save money, preserve wealth

With an unprecedented increase in federal spending, a record number of newly printed dollars entering the system, and the shrinking tax base, time is running out for savers, earners and investors who still have all their savings, salaries, homes and their investments denominated in U.S. dollars.  The U.S. economy looks grim…multi-billion dollar bailouts at taxpayer expense…billions of dollars in stock value evaporating overnight…dried up credit…collapsing mutual funds…disappearing retirement accounts.

As someone focused on all things financial, I believe we all owe it to ourselves to constantly explore all options that can help grow and preserve our assets.  One option that’s become increasingly attractive for some Americans is to get out while you still can.  This is especially true for baby boomers and, for that matter, anyone looking at long-term financial planning and retirement options.  It makes a lot of sense to diversify savings into other currencies and overseas assets.  It also makes a lot of sense to search for new areas of opportunity beyond America’s borders.

There’s never been a better time to leave the United States in our 234-year history. These are things you probably won’t read about in the mainstream media.  But, each day, more and more savvy Americans are joining the ranks of retirees living like royalty – but on tiny budgets.  They hope to enjoy a million-dollar retirement without touching their savings.  It’s an approach most people don’t know much about, yet it’s easily accessible to most Americans.

I suppose I run the risk of being called “unpatriotic” or offending some people.  This is nonsense.  The American Dream is all about people having the right to seek out opportunities, go wherever they want and create their own destinies.  It’s only logical that some investors will search for that original America elsewhere in the world.  While not suitable for many people, from strictly a financial viewpoint, it’s worth serious consideration.

Two threats are increasingly eroding our investments and savings: inflation and higher taxes. America now spends far more than it earns in tax revenue.  To close this gap, Washington does two things: it borrows more dollars and it prints even more of them.  Almost every president since World War Two has adopted this irresponsible fiscal policy; but the Obama Administration has escalated the scale of this effort to a staggering and perhaps irreparable level.  The amount of U.S. government debt forced into the hands of the public has risen by $3.62 trillion in just over two years. That’s an increase of 61%!

Meanwhile, over the last four years, Ben Bernanke has managed to create out of thin air 60% of the entire monetary base of the country.  This is bad news for the U.S. dollar.  That’s because the more dollars the Federal Reserve creates, the less each dollar is worth.  The dollar has already lost 95% of its buying power since the Fed was created in 1913.  Given the unprecedented increase in dollar creation over the last four years, many economists expect each one of today’s dollars to hold onto just half their current buying power by 2020.

Couple this inflation threat with the 100% certainty of higher taxes in the future. If you earn $62,068 or more, you already pay 80% of everything collected by the IRS.  But at the other end of the scale, about 50% of adult Americans don’t pay any taxes whatsoever.  This shrinking tax base will force Washington to collect more of the tax take from those who already shoulder most of the tax burden.  Anything else would be political suicide.

There are really only two ways to improve your long-term financial position:  1) Grow your assets faster than inflation and taxes can erode them; or 2) Dramatically reduce your expenses. Stocksonwallstreet.net focuses on equity investments — but it’s going to become increasingly difficult for investors in U.S. equities to stay ahead of the game in the tumultuous brave new world that lies ahead.  So, here are a few alternative investment strategies worth considering:

• Smart investors have already positioned themselves for the inevitable when the dollar fails.  They’ve diversified into non-dollar denominated investments, and there are a lot of them to choose from.  Stocksonwallstreet.net regularly discusses equity investments overseas and in emerging markets, so I won’t dwell on that here.

• Invest in foreign currencies directly.  Currency investing can be tricky and volatile, but in countries like Japan and Hong Kong, financially savvy housewives are heavy day traders of currencies.  There’s no reason Americans cannot do the same.  Just beware and educate yourself well before diving in.

Some smart investors take the guesswork out of currency investing with something called a ‘BRIC CD’.  This is simply a certificate of deposit that buys currencies of the world’s four most up-and-coming economies: Brazil, Russia, India and China.  Upside for the CD is any gains these currencies on average make against the dollar.  The downside?  There really isn’t one . . . the BRIC CD is capital guaranteed.  No matter what the four BRIC countries do during the term of the CD, your initial investment is preserved.  You get at least 100% of your investment back at the end of the term even if there’s no appreciation in value of the BRIC currencies.

• Another strategy is to invest in real estate that’s bought and sold in a currency other than the dollar.  For example, Brazilian real estate is traded in the Brazilian Real, a currency that’s very strong and will probably get stronger as the dollar declines.  However, overseas property investments can be fraught with scams and fraud, so buyers beware!  A lot of foreign investors have been burned in places like the overheated Shanghai property market.  Given the pitfalls, this is not an investment option I’m not particularly keen on.

• The erosion of the dollar can also make the value of the currency part of the equation in determining where to retire.  In many places around the world, you can enjoy an upscale but low-cost retirement…a wonderful high-quality lifestyle for a fraction of what it costs at home.  There’s never been a smarter time to explore.  There are already 7 million Americans abroad for whom the American Dream has simply been priced out of reach.

There are places you can still own your own home or beach house and enjoy appreciation of 20-60% per year…where world-class health care won’t send you to the poorhouse…where the government doesn’t involve itself in every aspect of your personal life…and won’t even charge you taxes.  A house on the beach, a mountain villa, or a super-modern city condo can cost 50-75% less than it might at home.  Same goes for the overall cost of living.  A week’s worth of groceries, dinner at a fine restaurant, a night at the symphony, even full-time household help – like a maid or a gardener – can cost pennies on the dollar.

U.S. citizens and green card holders cannot legally escape the IRS no matter where they live.  But there are places where you’ll pay little or no local income or sales taxes and where property taxes are laughably low.  You can dramatically reduce your cost of living by as much as 80% and still live a high quality lifestyle — places like Ecuador, Costa Rica, or Panama and Mexico which are within a 3-5-hour flight of the U.S.  And it’s not just old ‘geezers’ who are looking at overseas retirement.  Many savvy young Americans have already positioned themselves for the inevitable when the dollar falls — spending years researching countries for overseas retirement to ensure they can preserve or extend their hard-earned assets.

So I say:  Go. Strike out.  Smart investors need to shield themselves from disaster when the dollar falls.  It takes a global outlook to be able to find and evaluate them.  Look outside the borders of the U.S. for lifestyle and investment opportunities that save money, preserve wealth and take advantage of global events that many in the U.S. never even hear about.

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Invest in Emerging Markets: Brazil, China, & India

Brazil: Petrobras (PBR); Vale (VALE).  India: Tata Motors (TTM); HDFC Bank (HDB); Wipro (WIT).  China: PetroChina (PTR); Tencent (0700.HK).

Investors looking for international or emerging markets tend to stick to international funds or ADRs  from the so-called “BRIC’ nations of Brazil, Russia, India and China.  But not all BRICs are created equal.  China and Russia have impressive growth rates.  But you have to be more selective in these markets.  China is probably too reliant on stimulus money to boost its economy and there’s evidence of a growing Chinese bubble.  Russia requires you to put your faith in a corrupt oligarchy.  Sooner or later, China and Russia are more likely to suffer from these excesses than their BRIC colleagues, Brazil and India.

You can trade in international or emerging market stocks through the use of ADRs (American Depositary Receipts).  ADRs prices are in U.S. dollars, pay dividends in U.S. dollars and can be traded like the shares of U.S.-based companies.

My personal BRIC favorite is Brazil, the world’s 8^th largest economy.  As the U.S. sinks deeper into public-sector debt and federal bureaucracy, Brazil has had huge success in reducing public debt and the level of bureaucratic control.  Brazil restructured its finances years ago and is now in far better shape in terms of debt than the U.S., Japan and most of Europe.  Brazil also has huge oil reserves and a fast-growing domestic market – which means it’s less dependent on exports to declining markets in the U.S. and Europe.

Brazil ADR picks:  Petrobras (NYSE: PBR): Brazil’s largest oil and gas company.  Vale (NYSE: VALE): Brazilian metals & mining company, also a producer of iron ore.

India is Asia’s 3^rd largest economy and has maintained strong economic growth through the global financial meltdown, managing to post an impressive growth of 6.7% in 2008-2009.  The IMF projects 2009-2010 growth at 6.75-7.5%%.  This is a fall from the 10% growth rates India enjoyed before the global financial meltdown, but India remains one of the fastest-growing economies in Asia.  Just compare this with estimates of 2010 U.S. GDP growth of only 1.5%.  The best way to capitalize on growth in India is by investing in Indian banks.  Although its economy doesn’t grow as fast as China’s, the banking system operates independently of the government so the loans are higher quality and there’s no forced lending.

India ADR picks: Tata Motors (NYSE: TTM): India’s biggest car manufacturer, maker of the Tata Nano, the cheapest car in the world.  HDFC Bank (NYSE: HDB): One of India’s better-managed banks, this stock’s enjoyed a tenfold gain since 2002.  Wipro (NYSE: WIT): leading tech services group with strong earnings surprise history, recently opened in Brazil.

I continue to be positive on China in spite of increasing talk of a jittery China bubble.  Many portfolios are now underweight on China.  China’s mid-to-long-term outlook is bright and it will enjoy higher growth than India, but expect more volatility, so you need to be very selective and/or perhaps more speculative with your picks.

China ADR picks: PetroChina (NYSE: PTR): China’s largest listed oil company, up 35% over past 12 months but growth to continue, benefiting from higher crude prices & rising energy demand.  Tencent Holding (HKSE: 0700.HK): biggest Internet company most people outside China have never heard of, hundreds of millions users for its IM service, market cap of $38 billion bigger than Yahoo & twice the size of Baidu.  Likely to benefit from Google’s China departure, but beware:  This is a volatile speculative play.

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