Month: February 2012

By MoneyMorning.com.au

The 1920-21 depression in the United States was as sharp as it was short. In just three years, production shrunk by a third before rebounding smartly. The drop was almost as savage as that of the Great Depression. Yet the policy response was totally different.

The government of Woodrow Wilson, followed by Warren Harding, cut spending and then cut it some more. The Federal Reserve raised interest rates right up to 1920. This is precisely the opposite of the policy prescriptions recommended today by most economists – which is to spend more and cut rates.

So were Wilson and Harding right, or lucky? And do the early 1920s hold any lessons for today?

During World War I, US government spending ballooned, financed by borrowing and by a compliant Federal Reserve. During the war, the Fed was, in the words of New York Federal Reserve Governor Benjamin Strong: “[the Treasury’s] agent and servant”.

By 1919, the war was over, but inflation had surged to an annual rate of 27%. In response, the Wilson administration slashed spending. By November 1919, the federal budget was balanced, with federal spending down an astonishing – by 2012 standards – 75% from its peak.

The Fed had only been established in 1913, so the post-war inflation of 1919-20 was the first test of the new system. Under Governor William P Harding, they set about their inflation-busting task with vigour. The various Federal Reserve banks raised interest rates by 244 basis points over the course of eight months, with rates peaking at 7% in June 1920.

The Fed’s aggressive tightening seems to have yanked the economy to a halt. Output peaked in January 1920 when the Fed raised rates by 1.25% – still the sharpest single rise in the entire history of the system. Employment and output fell slowly at first, then collapsed in the summer after the final rate rise in June 1920.

The word collapse is overused – but it’s entirely appropriate in this case. Production dropped by a third in just over a year. Wholesale prices more than halved. Indeed, the price collapse was probably the biggest the US has seen in its entire history. And the fall in output was second only to the Great Depression.

This severe deflation, combined with high nominal interest rates, meant that real (adjusted for inflation) interest rates were exceptionally high. This led to widespread bankruptcies – farmers who’d borrowed to expand their output in response to high food prices during the war and the inflation which followed found they could no longer keep up with interest payments, as high real rates combined with falling prices for their output made the debts unbearable.

Yet the terrible years of 1920-21 aren’t burned into folk memory in the way that the Great Depression is. Why not? The reason that the 1920-21 depression wasn’t ‘Great’, with a capital ‘G’, is that it was short. The economy went from sickening free-fall to rampant roaring ’20s growth without pausing at the bottom.

And that sudden recovery is what’s sparked so much interest in 1921 today.

These crashes are meat and drink to economists. They don’t have labs in which they can simulate all the variables that go into a real-life economy. So big, unusual events like the 1920-21 depression are the only way to put their theories to the test.

But there’s a lot more at stake here than the pride of a few obscure academics. How we understand and digest these big stories will determine how – and whether – we’ll find a way out of the depression begun in 2008.

And as with everything in economics, there’s a lively debate over this story. In this case, we have the Austrians in one corner, and the monetarists in the other.

For Austrian economists like Robert P Murphy, it’s “almost a laboratory experiment showcasing the flaws of both the Keynesian and monetarist prescriptions”. The recession “purged the rottenness out of the system”, says Murphy, setting the scene for the strong decade of growth that followed. Prices fell in 1921, and then markets cleared – once prices had fallen far enough, demand picked up.

So, then, is liquidation and price discovery the cure for sick economies? Do we ‘earn’ a rebound with a firm crash?

Well, there’s certainly no way to spin this as a Keynesian story. Harding succeeded Wilson as president, and enthusiastically continued where his predecessor left off. He oversaw a further fall in government spending throughout the worst of the depression.

But what about monetary policy? Monetarists (who argue that most booms and recessions we see in the real economy are a result of changes in the price or quantity of money – for example, changes in interest rates) would argue that the economic collapse tracked the Fed’s tightening in 1919 and 1920, and then seemed to relent when the Fed cut rates in mid-1921.

But management of monetary policy can only explain half of the monetarist theory. The other half is the demand for loans in the economy. Monetarists would argue that the economy was ‘running hot’ in 1919, just as was the case years later in 1980.

In other words, demand was high – and it’s easier to hold spending down by tightening monetary policy and imposing fiscal austerity than it is to boost spending when the economy is ‘running cold’. When there is strong demand for loans, a rate-cut from 7% to 4% can massively stimulate the economy. Without sufficient demand, 4% interest rates can be high enough to kill off spending entirely.

So like Paul Volcker’s 1981 war on inflation, the 1920-21 depression was deep and short. And it was both brought on by, and cured by, changes in monetary policy.

Whether 1921 has any relevance today hinges on this question of demand.

In economics, demand is an elusive, theoretical thing – like dark matter. And in the same way that physicists use dark matter to plug holes in their equations, economists need demand to reconcile their theories to reality. For more mainstream economists, the dark matter of demand explains why Fed loosening in 1921 and 1982 created instant growth, but the same trick failed in 1930 and 2009.

Sceptical Austrians don’t rely on such sleights of hand. For Austrians, the economy prospers when markets clear, and markets clear when prices are allowed to adjust. Many see the 1920-21 deflation as a savage ordeal. But for Austrians, that ordeal was necessary to clear markets and it led to years of plenty. And Austrians would argue today that if we’d had a similar collapse post-2008, and had allowed asset prices to find a natural clearing level, rather than bailing out the banks and slashing interest rates, we’d be in a much better state today.

But given that the Fed shows no sign at all of tightening monetary policy any time soon, it doesn’t look like we’ll be getting a chance to test the William P Harding / Warren Harding solution, regardless of how well it might have worked in the ’20s.

Sean Keyes
Contributing Editor, MoneyWeek (UK)

Publisher’s Note: This article originally appeared in MoneyWeek (UK)

From the Archives…

Is There a Reason You’re Not Using the 90/10 Strategy?
2012-01-27 – Kris Sayce

In the Market or Under the Mattress?
2012-01-26 – Keith Fitz-Gerald

What if the Australian Dollar Was a Stock?
2012-01-25 – Kris Sayce

Why Tungsten and Other Strategic Metals Could Prove Good Investments
2012-01-24 – Dr. Alex Cowie

Will These Commodities Help You Claim The Best Investment Gains Of 2012?
2012-01-23 – Dr. Alex Cowie

The Depression Everybody Forgot

By MoneyMorning.com.au

It isn’t often that there is standing room only at a presentation on the future of the Japanese economy. But that’s what I found when I arrived, admittedly a tad late, at the Edinburgh International Conference Centre to listen to Dylan Grice. And I didn’t even hear that much either. My choice was to hover in the doorway behind a quite fat and very tall man, or to retire for a coffee and talk to Dylan later. The coffee won and I met him in the press room when he finally escaped from his hordes of admirers.

So what makes Dylan capable of selling out a conference hall when he is, on the face of it at least, talking about one of the most trying subjects known to market strategists? I think I know the answer. You’ll know the old joke about how what we really need is a one-handed economist (to stop them constantly bleating on about ‘on the one hand this…’ and ‘on the other hand that…’). Well, Dylan is the man with just one hand. He has a series of good, well-backed and very strong opinions. And unless the circumstances change dramatically, he sticks to them.

Audiences like that (as do journalists). And they particularly like his opinions on Japan. Ask the average strategist what will happen in Japan and your eyes will glaze over long before your mind can process the technicalities and ifs and buts of the answer. Ask Dylan and he’ll tell you that it will end in a hideous bout of hyperinflation that will take the Nikkei from its current level of 9,662 to 40,000. The country is basically bankrupt, has awful demographics (too many old people, not enough workers), and already spends over 50% of tax revenue servicing its debt. So it is heading for a fiscal crisis, a money-printing binge and an endgame that comes with a currency collapse à la Israel in the 1980s.

Japan Needs a Depression

I ask when this will kick off. He doesn’t know – this kind of stuff isn’t predictable. His best guess? “Within the next five to ten years.” So is there a way that Japan can stop this happening? What would he do if he were in charge? He “would resign.” I tell him people aren’t allowed to say that when my recorder is on. No Somerset Webb interviewees are allowed to resign from the Federal Reserve, from the Bank of England, from the European Central Bank, from the Japanese government or for that matter from the International Monetary Fund.

Instead, when asked these tricky questions they have to pretend they are in said position as a benevolent dictator with a 50-year mandate. That works for Dylan. Under those circumstances he would note that Japan is an “undertaxed economy” and he would gradually raise taxes – first consumption tax and then property taxes. He’d phase it in over a number of years to minimise the pain. He would “effectively engineer a depression.”

Any way out that doesn’t involve a depression? No. And even if there were, Japan’s politicians would mess it up. They are, says Dylan, so dysfunctional that even just after the nuclear disaster they were “trying to score points off each other.” If you want to have even an outside chance of sorting out Japan, you need political consensus. But Japan is “light years” away from that. So while it is horrible to suggest something is inevitable, in Japan, hyperinflation, “the path of least resistance for all politicians”, probably is. “I just can’t see a way out.”

What about the rest of us with our shockingly awful debt levels? Japan, says Dylan, should be seen as a leading indicator. It was first into a “deleveraging, deflationary, demographic crisis”, so odds are it will be the first to see the endgame. But the rest of us are in trouble too. I point out that the US isn’t in the same demographic bind as Japan. Dylan agrees. But while America’s dependency ratio is technically lower, they “have the least efficient healthcare system in the world” and that means that the cost of their retirees is higher than the cost of most country’s retirees. The result? While they shouldn’t be as at risk of “fireworks” as the likes of Japan, their almost unbelievably expensive Medicare and Medicaid systems mean that they are.

Who is Dylan Grice?

Dylan Grice is a global strategist at Société Générale. He joined Société Générale in 2007. From 2003 to 2006 he was Dresdner Kleinwort’s director of proprietary trading and was responsible for running thematic strategies, including macro-thematic and ETF strategies involving cash-equity products. Before that, he worked as a senior economist at Dresdner Kleinwort, which he joined in 1997. He holds an economics degree from Strathclyde University and an MSc degree in economics from the London School of Economics.

So what would Dylan do if he were in charge of the US? This he thinks is a more tractable problem: he would instantly raise the retirement age to “77 or 78 or 80 or something like that”, bringing us back to a time when retirement was supposed to be only a very brief break between work and death and the deficit back into line along the way.

Hmm, I say, it’s lucky that in the world we have created for the purpose of the interview, he can’t be voted out. The point, says Dylan, is that solving the US’s problem shouldn’t really be that hard. “You raise the retirement age and you restructure the healthcare system.” It isn’t that there isn’t a solution. Just that the US is a “vipers’ nest of vested interests”, so there isn’t one that can be implemented.

Central Banks Should Be Scrapped

What else would he do? “Get rid of the Fed.” Dylan would dump central banks completely and go for free banking instead. There’d be no gold standard, “no anything standard” and no Ben Bernankes knocking around fixing the cost of capital.

Why? Because, says Dylan, how can central bankers possibly know what the cost of capital should be? Look back over the last 20 years. “How do we know that this massive debt bubble was not caused by them getting it wrong?” Maybe 2% inflation wasn’t the right level. “Maybe it’s 0%, maybe -2%.” We are always being told to trust the market, “to allow the market signal to work its magic” when it comes to everything from wages to the price of electricity. But when it comes to interest rates we are told that without central bankers “the economy wouldn’t be able to behave itself.”

But that’s just “nonsense”. It may be the case that “the market is not perfect”, but “it’s probably better than anything else” for figuring out the price of capital as well as the price of labour. “And it has got to be better than guys like Bernanke and Mervyn King.”

So does he rate King as badly as Bernanke (who he can no longer “take seriously”)? He does. King has shown every sign of not just being “completely wrong”, but “being a deeply flawed individual” who won’t accept that he is wrong. See what I mean about the one hand?

Gold Isn’t in Bubble Territory Yet

I ask Dylan if – given that he thinks anyone should be able to introduce their own currency – he thinks central banks should be abolished and, as he owns (and keeps hidden) physical gold and silver, he considers himself to be a gold bug. He does not. Instead he claims to “view it as a currency” just like the other ones he holds (the Singapore dollar and the Norwegian krone). He also notes that he isn’t in the business of holding gold forever and he thinks he could bring himself to sell into mania when it comes. A real gold bug couldn’t. I bet he hasn’t buried his krone in his garden, though.

Does he think there is a danger that gold is near mania territory now? No. With long-term inflation expectations in the US hovering around 2.5%, it is hard to make the bubble case. If they go higher, gold will “explode”. And odds are, they will. His fear of inflation isn’t just about public-sector insolvency. It’s about emerging markets too. Look at per capita use of anything from oil to zinc in China and you’ll see that it is still far from international norms. As it moves towards them we might find that the demand for commodities we see today is just the beginning of a huge shift.

You’d think that would mean that we should be stocking up on commodities. But this is not the case at all. Suppose this really is the “mother of all bull markets”, says Dylan, and you’d invested in a commodities index ten years ago. The truth is, it wouldn’t have done you much good – you’d have made about 4% a year over the decade. The best way to back the rise in commodities demand isn’t necessarily to buy physical assets. It might work, but it is “really high risk”. Instead, “bet on human ingenuity” – by buying cheap mining stocks where you can find them. That way, if we really are in a commodity supercycle and the resource companies find better and cheaper ways to produce more, “you are going to make a killing”. If it isn’t, “you just bought some cheap stocks. That’s OK too.”

Regards,

Merryn Somerset Webb
for The Daily Reckoning Australia

Merryn Somerset Webb is the Editor in Chief of MoneyWeek (UK).

Publisher’s Note: This is an edited version of an article that originally appeared in MoneyWeek (UK)

The Most Important Story This Week…

Money Morning editor Kris Sayce has twenty years of experience investing in stocks. In that time he has seen thousands of companies float on the share market. None of them have had a $100 billion market valuation – but Facebook might.

Normally Kris hunts for companies valued at less than $500 million and capable of making big percentage gains. In this article, Kris analyses the numbers and growth prospects of the world’s biggest social media site. Facebook is no small-cap stock, but Kris suggests it might be a buy for some – if you’re game: Facebook Shares – Notice for Mad Punters: Buy This Stock

Other Highlights This Week…

David Stevenson on The Most Bearish Chart in the World: “A drop in the BDI could suggest that worldwide demand for shipping space – and therefore, for raw materials – is falling. That in turn indicates that the global economy must be about to slow down.”

Greg Canavan on Why The RBA Uses The Terms of Trade Indicator: “You make think falling interest rates is good news. And that’s the way the media will portray it. But it wasn’t good news in 2008 and it won’t be in 2012 either. Falling interest rates are a sign the Reserve Bank has run out of ideas.”

Kris Sayce on Why This Bearish Indicator Means it’s Time to BUY Stocks: “We’ve showed you the energy index and the oil services index. Both are near multi-year lows. That means we’re approaching the stage when – as Slipstream Trader, Murray Dawes puts it – sellers become exhausted. That’s when you get buyers flooding in looking to pick up bargains.”

Dr. Alex Cowie on Why the US Unemployment Rate is a Slippery Statistic: “Like lampposts to a drunk, statistics are better for providing support than illumination. At best, you have to read deep between the lines to draw anything meaningful out of them with analysis. And at worst, you might as well use them to pick your lotto numbers.”

Dylan Grice: The Man With One Hand

By The Sizemore Letter

It seems like an eternity ago, but about four years ago the financial press was abuzz with a new catchphrase: decoupling.

Western economies and Japan were in bad shape. No one yet knew just how bad the 2008 meltdown would be, but at the very least it appeared that growth in the developed world would slow. Emerging markets, however, still looked healthy. Under the decoupling argument, emerging markets were ready to untether themselves from the debt-burdened West and find their own way in the world. Emerging market stocks would continue their bull market, even if American and European stocks were flat or down.

Let’s just say it didn’t work out that way. Emerging market stocks, as measured by the iShares MSCI Emerging Markets ETF  ($EEM) lost over 60% of their value in the bloodletting that followed (between late ’07 and early ’09 ), falling harder and faster than their developed peers.

There were two major flaws in the decoupling argument. First, fundamentally, most of the major emerging market economies (and most notably China) depend disproportionately on exports to the West. How, exactly, were emerging markets to continue humming along when their customers abroad weren’t buying?

Secondly, correlations among global equities have risen in recent decades as capital markets have become more integrated. For a host of reasons — the rise of ETFs that bundle stocks together, the dependence on leverage that forces managers to liquidate quickly to cover losses, or that bogeyman of all bogeymen: Algorithmic trading — formerly uncorrelated markets tend to rise and fall together now.

Why do I bring this up now? Because I’m starting to see the same arguments again today.

This week the Financial Times wrote that “Money has poured into emerging markets this year, with funds dedicated to the asset class enjoying their best start to a year since 2006 amid continued investor wariness over developed markets.”

Emerging market stocks, bonds and currencies have all had a fantastic start to the year. EEM is up over 15 percent year-to-date, roughly double the return on the S&P 500 . But there lies an important point: though emerging markets have outperformed their developed market peers, they are very much moving the same direction.

In the “risk on/risk off” market that has dominated since the onset of the crisis, we are now in “risk on” mode. Virtually all risky asset classes — equities of all stripes, commodities, non-Treasury bonds, etc. — are enjoying a rally.

The good news is that I expect this to continue through the first half of 2012. After a year of running for the bunkers, investors have finally recovered their risk appetites. Meanwhile, stock prices — and particularly emerging market stock prices — are attractive, and the monetary conditions are loose. The pieces are in place for a tradable, multi-month rally. More speculative sectors like emerging markets should be the best performers.

The bad news, of course, is that all of this goes out the window if Europe’s debt crisis takes a turn for the worse. Emerging market equities have not decoupled from Western markets, and I don’t expect that they will in my lifetime. When global capital markets are integrated, we all sink or swim together.

The Central Reserve Bank of Peru held its key monetary policy reference rate unchanged at 4.25%.  The Bank said: “Some current and advanced indicators of activity show a moderation of growth in the economy. For example, even though sales of electricity continued to grow in January, they showed a lower pace of growth than in December. Moreover, indicators of global economic activity have shown a better-than-expected evolution, but uncertainty in international financial markets persists and growth in 2012 is expected to be lower than in the previous year.”

Peru’s central bank also held the interest rate at 4.25% at its January meeting, while the bank last raised the monetary policy reference rate by 25 basis points to 4.25% in May last year.  Peru reported annual inflation of 4.74% in December, up from 4.2% in October, up from 3.73% in September, 3.35% in August and July, and compared to 2.9% in June, 3.07% in May, 3.34% in April, and above the Bank’s 1-3% inflation target.  

The Narodowy Bank Polski‘s Monetary Policy Council held its benchmark 7-day interest rate stable at 4.50%.  The Bank said: “In the opinion of the Council, in the medium term inflation will be curbed by the gradually decelerating domestic demand. Decelerating demand growth will be driven by lower economic growth abroad, fiscal tightening in Poland and interest rate increases implemented in the first half of 2011.”

The Bank also kept the following interest rates unchanged: the rediscount rate at 4.75%, the Lombard rate at 6.00%, and the deposit rate at 3.00%.  The Bank last raised the interest rate by 25 basis points to 4.50% in June last year, and held the interest rate unchanged at its previous meeting.  

Poland reported annual headline inflation of 4.6% in December, 3.9% in September, compared to 4.3% in August, 4.1% in July, with previous readings of 4.2% in June, 5% in May, 4.5% in April, 4.3% in March, and just higher than the Bank’s official inflation target of 2.5% +/- 1%.  

The IMF recently reduced its forecast for Poland’s 2011 economic growth rate to 3.8% from 4% previously.  The Polish Zloty (PLN) has weakened by about 9% against the US dollar over the past year; the USDPLN exchange rate last traded around 3.21.

Iceland’s Sedlabanki kept its seven-day collateral lending rate steady at 4.75%.  The Bank said: “it will be necessary to withdraw the current degree of monetary accommodation as the recovery progresses and the slack in the economy disappears. The degree to which such normalisation takes place through higher nominal Central Bank rates will depend on future inflation developments. In the absence of an improvement in the inflation outlook, an increase in nominal interest rates will probably be required in the near term in order to bring the monetary policy stance, which is still quite accommodative, to an appropriate level.”

Iceland’s central bank increased the rate 25 basis points at its November monetary policy meeting, after increasing the lending rate by 25 basis points to 4.50% in August.  Iceland reported headline inflation of 6.5% in December, up from 5.3% in October, compared to 5.7% in September, 5% in July, 4.2% in June, 3.4% in May, and 2.3% in March; the Bank’s inflation target is 2.5%.  Iceland’s currency, the krona (ISK), last traded around 122.2 against the US dollar.

By TraderVox.com

The troubles for Euro are far from over. A leader of Laos’ party which is a part of Greek coalition said he would not vote in favor of bailout as it would bind Greece for half a century. Creditors also demanded more measures from Greek. The threat of Greek default in March surfaced again. Euro fell to the low of 1.3154. It has come off the lows and is trading at 1.3180, still down about 0.75%. Now the support lies at 1.3140/50 and 1.3080. The resistance may be seen at 1.3200 and 1.3250.

The sterling pound rose to a daily high of 1.5849 during the European session. But it lost the gains in response to Greek development and formed a low of 1.5736. It is currently trading at 1.5650, down about 0.40%. The support now lies at 1.5735 and below at 1.5700. The resistance may be seen at 1.5800 and above at 1.5850.

The risk aversion is back in the market and it has reflected with US dollar gaining moves across the board. The USD/CHF pair as expected gained the levels and touched 0.9200, high for the day. But it was unable to pierce through and is currently trading at 0.9180, up about 0.70%. The support may be seen at 0.9160 and below at 0.9130. The resistance may be seen at 0.9200 and 0.9250.

The USD/JPY pair gave back the gains of the day and is currently trading marginally in red at 77.62. It is comfortably trading well above 77 levels. The support may be seen at 77.50 and below at 77.30. The resistance may be seen at 77.80 and above at 78.

The Australian dollar continued its fall during the US session as well. A fresh low of 1.0639, 150 pips down from the open, was formed during the US session. It is currently trading at 1.0670, still down more than one percent for the day. The support may be seen at 1.0650 and 1.0600. The resistance may be seen at 1.0700 and 1.0730.

The dollar index is trading comfortably above 79 levels at 79.10. The high for the day so far is 79.29. Some data came from US today. US trade balance came at $ 48.8 billion. The forecasted value was -$ 48.2 billion. Michigan CSI came at 72.5 against the expectation of 74.3. Greek will be voting on a bailout package on Sunday. So this weekend will not be an easy affair for markets.

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It almost doesn’t make sense…

Last year, Germany, the United States, Italy and the U.K. all installed a record number of solar panels in their respective countries.

In fact, Germany installed more solar panels in December than the United States did in all of 2009.

Yet solar stocks were blindsided by investors in 2011. Top firms like First Solar (Nasdaq: FSLR) fell as much as 80% during the year. Many others fell more than 50%.

What happened?

As our own energy guru David Fessler explained last week:

“Polysilicon prices have collapsed 90% in the last five years. By the end of 2011, they were halved to $0.90 per watt.”

This epic price collapse, coupled with the fact that manufacturers had ramped up production, sent most solar manufacturers plummeting.

Today, most investors see the huge sell-off as a reason to steer clear of solar stocks. But these crash-level prices have also created a number of opportunities to scoop up great companies at deep discounts.

A Solar Comeback

In addition to being undervalued, there are three more reasons 2012 is set to be a banner year for solar stocks…

1. Record low prices boosting global demand: Some analysts worry a supply glut will continue suppressing solar stocks in 2012. Yet solar’s new low prices are sending demand for solar products much higher. Demand is expected to jump in the United States, Europe and Asia this year. China is poised to double its solar capacity for the second year in a row, 4 to 5 GW. Not to mention, solar is also quickly becoming a viable solution for the 1.3 billion people around the world with no access to grid energy.

2. Solar is more efficient than Ever: On top of record low polysilicon prices, solar efficiency is also making leaps and bounds. According to MIT’s Technology Review, conventional silicon solar panels typically convert less than 15% of light. Yet a startup out of North Carolina, Semprius, just tested its solar panels and scored a 33.9% efficiency rating. This is the first time ever any solar module has been able to convert more than one-third of the sunlight that falls on it into electricity. And it makes solar energy generation look much more promising for the future.

3. Big investors are getting involved: Even though government subsidies are set to wind down over the next few years in Europe and the United States for solar, big investors are already picking up the slack. Berkshire Hathaway owned MidAmerican Energy Holdings announced in December it purchased a solar farm in Southern California for $2 billion. Google reported it invested over $450 million last year as well in solar projects. GE announced in 2011 that it’s going to build the largest solar plant in America, capable of powering 80,000 homes each year. Billions of dollars more is expected to flood this market over the coming months.

The Solar ETF That Covers it All

There’s no doubt, the solar industry is set to grow immensely over the coming years. But tariffs, expected consolidation, and the steady removal of government subsidies make it hard to tell who is and isn’t set to profit.

Perhaps the easiest way to invest in solar today is simply looking to an ETF like the Global Solar Index ETF (NYSE: TAN). This fund is currently comprised of 33 securities all relative to solar energy. About a third of its holdings are in the United States, a third is in China and the rest is spread out between Europe and Canada.

Good investing,

Mike Kapsch

Article by Investment U

Last week I spoke at an investment conference at Rancho Santana, a charming resort community on the Pacific coast of Nicaragua, near the town of San Juan del Sur.

Set on more than two miles of coastline with rolling hills and dramatic cliffs, the reserve attracts expats, investors, surfers and nature lovers from all over the world. They like the idea of owning a piece of – or at least visiting – one of the most spectacular stretches of coastal land in the world.

Some are attracted because the property is so inexpensive. It’s hard to believe you can buy a stunning home site directly on the Pacific Ocean for less than $175,000.

And it’s not just the property that’s inexpensive. One evening 14 of us rode into town to have dinner at a favorite local restaurant, Yolanda’s. The proprietor served up heaping helpings of local lobster, fresh vegetables, black beans and rice, plantains and plenty of Corona beer. When I picked up the tab, I was shocked. The cost was less than $9 a person.

Some investors here are banking on increased foreign investment and commercial development. The International Monetary Fund estimates that Nicaragua’s economic growth hit 4% last year… and is on the verge of accelerating.

Exports jumped 23% last year. Tourism is up. MSN Money ranked Nicaragua at the top of their list of “Ten Exotic Retirement Spots for 2011,” telling readers “[Now] is the time to put this country at the top of your super-cheap overseas retirement list.” CNN Money calls it “the next Costa Rica.” Indeed, Rancho Santana is just 50 miles north of the Costa Rican border.

Good things are happening locally, too. A local business leader plans to invest $300 million next door in a world-class marina, golf and spa resort called Guacalito. Due to open in Spring 2013, it’s located just 30 minutes from Rancho Santana and is already bringing increased investment and improved infrastructure to the region. And an international airport is planned for the Tola area, located less than a half hour away.

Other investors are putting money to work here for privacy reasons. They want to diversify their portfolios beyond the prying hands of angry ex-spouses or potential litigants.

But for most, it’s the sheer beauty of the place. The New York Times points out that, “The beaches are among the finest in the Americas, and among the least developed.” Gaze out from atop one of the many bluffs on this 2,700-acre reserve and you’ll see what the coast of California looked like a hundred years ago, pristine and largely undeveloped.

Residential lots are selling quickly. Over 50 homes have been built and 24 more are under construction. It’s not hard to see why. The terrain is such that home sites can capture views of the ocean, the nearby valley and lovely sunsets. Labor costs are significantly lower here. And a master association and various sub-associations exist so that owners are assured that high and consistent standards of quality are maintained.

Is oceanfront property in Nicaragua the ultimate alternative investment? That’s for you to decide. But if you’d like to learn more, feel free to visit the website or, better yet, sign up for a property tour.

The cost is $500 per person ($600 per couple) and includes all transportation, breakfast and three nights in oceanfront accommodations at Rancho Santana. This is a great trip for those wanting to come down and investigate investment, second home or retirement opportunities. (Contact Bryan McMandon.)

In the interest of full disclosure, Rancho Santana is being developed, in part, by colleagues of mine at Agora Publishing. However, I am not compensated in any way (directly or indirectly) for any sales at the development. I just think it’s a beautiful place and an interesting investment.

And whether you decide to invest or not, I know you’d enjoy the experience.

Good Investing,

Alexander Green

Article by Investment U