These International Assets Are Extremely Cheap (If You Own US Dollars). It Won’t Last Long. by Simon Black, Sovereign Man
Sovereign Valley Farm, Chile
It’s officially autumn in South America. And almost as if on cue, the weather changed overnight.
Since the financial crisis, Warren Buffett's Berkshire Hathaway has had significant exposure to financial stocks in its portfolio. Q1 2021 hedge fund letters, conferences and more At the end of March this year, Bank of America accounted for nearly 15% of the conglomerate's vast equity portfolio. Until very recently, Wells Fargo was also a prominent Read More
Temperatures are much cooler now. The sun is less intense. And I can already see the leaves on the trees changing color.
This is a huge change from just a week ago when we were still harvesting fresh fruit in the summer heat.
Now that autumn is here, our focus has shifted at the farm. We’re no longer concentrating on the harvest and have instead turned our attention to expanding the farm.
It is precisely because of these seasons… these natural cycles… that we know exactly what to plan, and when.
Fall and winter in central Chile are optimal times to prepare soil, install fertigation infrastructure, and plant new trees. Spring is the perfect time for maintenance and harvest preparation. And summer is time to make money.
Investing is not so different.
There’s a time for preparation. There’s a time for planting seeds. And there’s a time to sell everything and make a boatload of money that you earned over the last several seasons of hard work.
Like agriculture, you have to invest in the right season.
It would be extremely foolish to prepare the soil after the heavy winter rains set in, or to plant new seedlings in the ground during the peak summer heat when I should be harvesting.
Similarly, it’s extremely foolish to be charging into the market at all-time highs when all the indicators suggest that it’s time to sell… and perhaps plant elsewhere.
And that’s the great thing about our planet— somewhere in the world it’s always planting season.
Here in South America our seasons are the exact opposite as they are up north. July and August are peak winter months. So while farmers up north are harvesting an making money, we’re planting and preparing.
Stock markets tell a similar story.
Over the last four years, US stocks (the Dow Jones Industrial Average) are up nearly 50%. Yet in US dollar terms, stocks in Chile are down 42%. This makes Chilean stocks a relative bargain.
Like agriculture, these things are seasonal.
The US dollar is in a phase right now where it is exceptionally strong against nearly every other currency in the world. And a flood of money has been piling into US assets, including stocks, bonds, and property.
Plain and simple, it’s harvest time in the US. And it’s time to start planting investment seeds elsewhere in the world.
Chile is just one example (and a good example at that– Chile is a commodity exporting country with zero net debt and a very bright future). But plenty of others exist.
Since its high in May 2008, Brazil’s stock market is down 64.2% in US dollar terms. In Russia, the US-dollar denominated RTS index is down 65% over the same period.
But it’s more than shares of profitable companies trading at multi-year lows… or in many cases selling for a tiny fraction of the values of their assets.
There are also places in the world where property is dirt cheap.
Again, here in Chile, our fund is acquiring highly productive farmland that’s selling for multi-year lows… especially in US dollar terms.
Residential property here is also a bargain. Just a few miles from where I sit right now is a gorgeous 11-acre property and an ample 3-bedroom home where the asking price is just $72,500. That’s far less than the cost of construction.
Across the pond in South Africa, colleagues there have been sending me some absolutely gorgeous properties that are in distress or have already been taken over by the bank.
What’s more is that the South African rand is hovering near an all-time low, so in US dollar terms these properties are phenomenally cheap… beautiful, oceanfront estates selling for less than the cost of construction.
We’re also seeing the same thing now in Southern Europe where the euro is at a 12-year low.
Bottom line—if you hold, earn, or invest US dollars, this is an absolute gift. The dollar is strong, and simultaneously many high quality assets around the world are selling at rock bottom prices.
When you consider the fundamental weaknesses of the US dollar, it’s clear that this is temporary… a seasonal, cyclical uptrend that won’t last.
Now is the season to harvest profits in the United States… and to start putting them to productive use in other countries that are on sale and ready to plant.