Goldsmith comment: Porter's traveling today, and I'm in between meetings in Nicaragua. Today's Digest will be short and sweet.
"Gold is going crazy... And the Dow could break its previous lows, which would be very bad." I was trying to round up Chris Weber to drive back to Managua. We spent the morning at a beautiful coastal development in Nicaragua called Gran Pacifica. I had a lunch meeting back in the city, and I was running late. Chris was in the middle of updating his subscribers...
We avoided catastrophe. The Dow narrowly missed its November 20 low, which was 7,552.29. It closed yesterday at 7,552.6. If the Dow falls below the benchmark, look out.
On the ride back from Managua, I asked Chris how he felt about the euro disbanding. The debt market is definitely forecasting some trouble... Spreads on the 10-year government debt of Ireland, Greece, Portugal, Italy, and Spain over that of Germany (the benchmark European economy) are widening. Ratings agencies are keeping a close eye on the above five countries: Standard & Poor's has downgraded three of them and put another on credit watch.
Chris agreed that the demise of the euro is very possible and he's started hedging his bets. From Chris:
I've recommended that those people holding euros buy the Kingdom of Netherlands note that matures a year from now. Already you can see differences in the yields of the various euro countries. Holland has traditionally managed its finances very well and conservatively in the centuries past, and this tradition continues. So if the worst happens, and the euro breaks apart, the old national currencies will come back, and the Dutch guilder is what you'll end up with. And I'd rather have that currency than the Italian lira or Greek drachma.
Chris is a spectacular investor. In fact, he's never had a job... other than managing his own portfolio. He called the top in stocks and put his readers into gold and silver at exactly the right time. He writes a bimonthly newsletter that highlights his thoughts on the economy and what he's doing with his personal portfolio. If you're not a subscriber already, it's definitely worth checking out. You can learn more here...
As I said above, I'm in Managua, Nicaragua. Porter asked me to travel here to handle the construction of his new home. He bought a beachfront lot some five years ago and finally decided to break ground. With the new baby, he doesn't have time to make monthly trips to Central America, so I'm handling the job.
For four days, I've been meeting with the top architects and builders in the country. I'm amazed at the professionalism... Nearly everyone I've met was educated in the U.S. And many have worked in the States.
One architect has designed high-end condo buildings in Miami, huge shopping centers in Asia, and even a royal palace in Qatar. One of the builders worked as an engineer for Exxon. A native Nicaraguan, he moved home and now runs one of the largest commercial builders in Managua. They've all returned because they miss the lifestyle and the beautiful country. But they've lived in the U.S., and they understand the quality North American customers expect.
I've also visited several local houses during my trip. They're stunning. Nicaraguan architecture is very open. Everything flows from large central rooms. Parts of the house – an interior walkway, part of the ceiling, or a rear-facing wall – are exposed to the elements. And nearly every Nicaraguan home has a large outdoor, but partially covered, terrace (or "terraza"). It's where everyone spends most of their time.
One house in particular was spectacular: It was high above the city at the top of a hill. The home was 15,000 square feet... and every inch was perfectly designed. The woodwork was abundant and beautiful. There were indoor fountains, amazing artwork, and detailed wooden ceilings. It blew me away.
If you could have been standing on the terraza with me, overlooking Managua with a frosty Toña (the dominant local beer) in your hand and the cool breeze blowing by... I guarantee you'd come back to visit.
If you're not familiar with the tale of diamond giant De Beers, how the engagement-ring industry was born, and the greatest cartel of the 20th century, be sure to check out one of our most popular posts on The Daily Crux: Diamonds are one of the great scams in modern history. It's an amazing story... and one of best articles you'll read all week.
New highs: none.
In today's mailbag, readers weigh in on the land vs. gold debate. Also, if you've got any Nicaragua construction stories – good or bad – I'd love to hear them. And please pass along any contacts in the area: feedback@stansberryresearch.com.
"Well I would like to thank Porter for his excellent advise during 2008 and so far in 2009. In my opinion he is the best analyst you have... I made a lot of $$ following his COF short recommendation... Porter thanks keep up the great work! Please keep highlighting these failed business models... I have read numerous investment letters over the last 25 years and no one is better then Porter! My strategy is to have a few shorts and few very safe long term stks and the rest of my portfolio is selling put options on good safe stocks msft,ko,cop, dna etc and selling naked calls on failed business models or overpriced stk in this mkt COF, amzn." – Paid-up subscriber Rob
"Which is a better investment? I would have to say Gold since it is more liquid. Land has too many variables to make it a better choice. Location, Location, Location." – Paid-up subscriber David
"This is an interesting debate. But I think asking which is a better 'investment' clouds the issue. Both are good stores of value, one of the traditional functions of 'money'. Gold certainly is more fungible and so serves the exchange function better. But its value comes almost entirely from exchange value. It offers no services as it sits in a safe. Land, on the other hand, provides the basic needs of subsistence. You can grow food on it, build shelter, provide yourself with most of the necessities of life if things get really bad. Its value comes mostly from use value. In a certain school of thought, land is the basis of all value, a position which I think has a lot of sense in it. I have been
telling most of my friends that in these times it is a good idea to convert financial wealth into something of real, intrinsic (use) value. Land is the ultimate store of value in this sense. So which is a better 'investment'? I suppose it depends on what your investment goals are. I am currently looking for a good piece of land where I can ride whatever hard times might be ahead in relative comfort and safety. Selling it for a return would be to convert it back into paper money, which is not part of the plan at this point. Maybe I will sell it to someone for gold in a few years." – Paid-up subscriber Michael O'Hara
"Agree with your comment that gold is the better trading medium and land is the
better long-term investment. That being said, a good number of the folks I know
in this part of God's Country otherwise known as rural Northeastern Pennsylvania
are buying up guns and ammo. Because, you know... you can't eat gold or dirt." – Paid-up subscriber CJ
Good investing,
Sean Goldsmith
Managua, Nicaragua
February 18, 2009