Investing: The Pros' Crisis PlaybookInvesting: The Pros' Crisis Playbook

Talk to investment strategists about where to place equity bets over the next six to 12 months and they turn squeamish. Most admit they can't tell how long or deep the recession will be, or how risk-averse investors will continue to be after the heavy blows they've absorbed in the stock market downturn.

Some will tell you there are few compelling buying opportunities in the near term, while others, rather than admit to pessimism, doubt, or the failure of diversified asset allocation, emphasize moves for patient investors. Patience, in this case, is for those who can afford to not see a positive return on their investment any time soon.

Since the investing world has been turned upside down in the crisis—with volatile market swings a near-daily occurrence, including a 514-point drop in the Dow Jones industrial average on Oct. 22—BusinessWeek decided to check back with financial pros we have spoken with in the past to get their take on the current situation. Deciding which investment gurus to tap for this story wasn't simple, given how overly optimistic market pros' predictions were for 2008, even among those forecasters who have proved the most reliable in the past.
Another Leg Down?

Rob Arnott, chairman of Newport Beach (Calif.)-based Research Affiliates, an investment management firm that licenses ideas to companies like Pimco, says he wouldn't be surprised if there's another leg down in this bear market. The stocks that have held up best through the turmoil and carnage—growth-oriented names in the technology, telecommunications, and health-care industries—likely have yet to fully reflect the risks that lie ahead, he thinks.

"If we're in the early stages of a recession, then presumably we're in the late stages of a bear market," he says. "Within the next six to 12 months, we will see outright capitulation in the growth sectors. That will set the stage for a bull market." He doubts the housing market will hit a bottom until 2010, by which time the economy will already be on the road to recovery.

The heavy selling that's been seen in recent weeks typically drives the faint-hearted out of the market, leaving only those committed to gains over the long term, says Bruce McCain, chief investment strategist at Key Private Bank (KEY) in Cleveland. But as was the case in the early 1930s, the challenges facing the financial system could end up being fairly benign or could turn out to be very serious. That will depend on whether the government policy response can avoid some of the mistakes made nearly 80 years ago. In the near term, McCain predicts stocks will try to rally before re-testing the lows from early October.
Some Expecting Yearend Rally

For signs of recovery, he says he would want to see selling volume drying up on any retest of the previous lows. If the market doesn't break to new lows, he says he would expect investor sentiment to improve and enable the market to begin an uptrend, but he thinks any progress in stock values will be rather slow and steady. "As long as we see that evolving and as long as the system doesn't start to fall apart more seriously at the economic level, we can define what the next year should look like," he says.

Some market strategists are predicting a yearend rally that could start as soon as early November, based on how oversold equities have gotten, but they don't expect any uptrend to be sustained beyond yearend with a longer and deeper-than-usual recession expected.

Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics , describes the current stock market as a "plasma market," a reference to the abnormal state of matter once it's been superheated and the usual rules of physics give way to the rules of quantum mechanics. In the midst of a global credit freeze, all of the usual rules about market fundamentals, technical trading patterns, and what works when the markets are in defensive mode have ceased to hold true, according to Ritholtz. "It's a very different environment, so we're being cautious," he says. "The easy way to do that is to buy indexes, not individual names. That's the opposite of our usual approach. We're usually stock pickers."
Market Could Revisit Lows

Arnott at Research Affiliates says he's not ready to turn bullish on stocks yet but believes there will eventually be good opportunities in value sectors that have been bludgeoned, such as financial services. "We don't know which ones will be next on the chopping block, but we can say with confidence that with each failure, the competitive landscape improves," he says.

Regardless of what the government's quarterly economic growth reports say, Ritholtz believes the U.S. has been in a fairly mild recession for a year, one that is already priced into stocks. "What we don't know is whether a worse recession is priced into stocks," he says. The market could revisit the lows from early October and possibly break through them, but he's betting on a broad-based rally that could take the S&P 500 index up 10% to 15% with very little stimulation.

William Nobrega, managing partner of the Conrad Group, an investment advisory firm in Miami, believes that heavy equipment makers such as Caterpillar (CAT) and Deere (DE) will do well, due to strong foreign sales and impending infrastructure investments in the U.S. that could total as much as $150 billion in 2009 alone. Renewable energy outfits like Johnson Controls (JCI) and environmental-services companies like Waste Management (WMI) are also good bets, he says.
Lack of Visibility

Manny Govil, a fund manager at San Francisco-based RS Investments who manages the $700 million RS Large-Cap Alpha Fund (called the RS Core Equity Fund until Oct. 15) is one of the few who see lots of potential in equities specifically because of the lack of visibility about the direction of the economy and the strength of the financial system. But he's focusing on individual names rather than broad sectors. The main reason he's steering clear of traditionally defensive sectors such as consumer staples: The valuations aren't low enough to suggest sufficient expansion once the economy begins to recover. He's looking for companies that are as likely to hold up well during an economic downturn as perform well once a recovery begins.

His favorite pick right now is McDonald's (MCD), whose 2008 earnings are expected to grow between 15% and 20% from last year and between 5% and 10% in 2009, while profitability for most companies is declining. He sees the fast-food giant benefiting from a drop in commodity prices, solid same-store sales growth, and an increase in franchisee-owned stores. "Outside the U.S., they've been selling company-owned stores to local entrepreneurs, who can generally market things better because they're better tied into the local markets," he says. And the profit margins on franchise stores, which give a percentage of earnings to the company, tend to be higher than for company-owned stores, he adds.

He also likes Republic Services (RSG), the third-largest trash hauling company in the U.S., but in his view the best managed among the big three. Trash collectors are more resilient than normal cyclical companies and don't rely on a robust economy, and have some pricing power due to the consolidation that's taken place in the past 20 years. Republic will also benefit from lower fuel prices and may garner cost savings as a result of a recent merger, according to to Govil.
"Bargains for Patient Investors"

Consumer staple stocks such as Procter & Gamble (PG) and Coca-Cola (KO) are attractive investments, not only for their fairly low valuations but their annual dividend growth, says Tom McManus, chief investment strategist at Wachovia Securities (WB) in St. Louis. Procter & Gamble, trading at nearly 13.7 times next year's earnings, is down 17% on the year and has held up compared with stocks that are down as much as 50% to 70%, he says. McManus says P&G's 6.2% dividend yield doesn't sound that impressive compared to other high-yielding stocks, but the company has boosted its annual cash payout an average of 12% over the last five years, thanks to profit growth driven by its focus on international markets. Coke is selling at 13.6 times estimated 2009 earnings and its annual dividend has grown by an average of 11.5% over the last five years.

"These are not tremendous bargains but they're bargains for patient investors who will take advantage of the fact that the broad market is down but the economy hasn't put extreme pressure on these companies," says McManus.

But those who aren't so confident about what the future holds may prefer to take a tip from Laszlo Birinyi, president of Birinyi Associates, in Westport, Conn., who says, "If you make any significant moves [within the next year], you're either guessing or hoping."

Given how quickly markets can change direction, he suggests that people be a little more aggressive in taking profits on stocks they currently own while staying in positions by buying back shares of those same stocks on dips. "You don't want to be out of the market," he says.

Make Money Investment Ideas - How to Make Money

Investment is the most talked subject. We all want to invest and make money. There are many investment options. As I said earlier investment option mainly depends on the character of the person investing. You have two ways of making money. There are investments that require considerable risk taking ability. There are safe investments. Dynamic characters would love to take risk and make more profit.

To be among successful business man you have to invest in options that are close to your hearts. There are many options available like real estates and stocks. Here again the investment is again divided on the basis of liquidity. You decide on the option based on the liquidity factor. There are more methods of making money like commodity trading, forex trading and mutual funds.

Forex trading is one option that requires you to be on your toes all the time. You have to take spot decisions and you have to take such decisions based on the knowledge you accumulated over years. It is one option that gives great returns on your investment. Stock market is yet another risky investment but, you take decisions based on the knowledge accumulated. It is one business we cannot predict. Stock market allows you to invest long term and make money with safety. Short term or day trading is full risk.

You can make good income by investing in mutual funds. This is one investment option that allows you to take rest. decisions here are taken by professionals. You can be sure that your investment is in safe hands.

There are many investment methods and you can choose your investment based on your priorities.

Lehman Endgame Looks Ugly

It’s looking like Lehman Brothers may not be able to count on the federal government for any help in its hour of need and that has all of Wall Street shaking. Shares of Lehman sunk deeper into penny stock territory on Friday, as the beleaguered firm races to find another bank to buy it in a bid to stave-off an imminent collapse of the historic 158-year-old firm.

In early Friday trading, Lehman’s stock fell 10% to $3.80, continuing a downward death spiral that began Sept. 8. Now that Wall Street has concluded Lehman CEO Dick Fuld won’t be able to pull-off his previously announced plan for shoring-up the investment firm’s balance sheet, it’s pretty much become a race against time for Fuld to find a buyer—at any price—for the firm. The speculation on Wall Street is that Bank of America, Barclays and consortium of private equity firms are the most interested suitors.

But it’s not clear if any of those potential buyers will want to do a deal with Fuld, as long as the acquirer must also take on some $30 billion in rotting commercial real estate assets that Fuld was planning to unload. Treasury Secretary Hank Paulson, according to wire service reports, say the federal government is unwilling provide any additional help to Lehman beyond allowing it continue borrowing short-term money from the Federal Reserve—-something the firm has been able to do since the spring.

When JPMorganChase agreed in March to a shot-gun marriage with Bear Stearns, to similarly save that investment firm from collapse, the Fed guaranteed up to $29 billion of Bear’s bad mortgage-related assets. The Fed backstop gave JPMorgan CEO Jamie Dimon enough security to take on the risk of rescuing Bear from a certain bankruptcy filing. This time, however, it doesn’t appear that either the Fed or Treasury is willing to provide a similar guarantee to Lehman’s would be savior.

And without that kind of government-backed guarantee it’s by no means certain any bank will be willing to take on the risk of adding Lehman’s questionable commercial real estate assets to its balance sheet. “There’s very little chance anyone will do a deal for Lehman without the government stepping in,’’ says Janet Tavakoli, a derivatives and structured finance consultant in Chicago.

That’s why some of Lehman’s trading partners are beginning to demand cash settlement for trades, meaning trades must be completed within a day instead of the typical three-day period, sources say. Hedge funds and other banks are still trading with Lehman. They are worried if Lehman will be around to make good on those transactions.

The apparent reluctance of either Treasury or the Fed to go the distance and insure that a deal gets done is why some on Wall Street are beginning to whisper the unthinkable: a Lehman bankruptcy filing at some point in time. A bankruptcy filing, of course, could be a real mess for Wall Street given all the tens of billions in short-term loans other banks have extended to Lehman, which are backed by collateral. And of course there are numerous other trades and transactions Lehman has done with hedge funds and other trading partners that also are backed by collateral—-in some cases potentially backed by pieces of the same assets.

Andrew Rahl, a bankruptcy lawyer with Reed Smith, says a Lehman bankruptcy filing would be an unprecedented event, given that some of Lehman’s division, such as it brokerage arm, are regulated entities. “Clearly this would be a filing without any real precedent. There could be unintended consequences; there could even be some favorable consequences.’’ One favorable outcome might be the freezing of some of Lehman’s ailing commercial real estate assets by the bankruptcy court—meaning those assets wouldn’t find their way into the market anytime soon.

One way Lehman could avoid such a calamity would be to simply break itself up into many pieces and let would be acquirers buy what they like best. A bank could take on Lehman’s investment banking arm, another buyer could get its Neuberger Berman operation and vulture investor might take a flyer on Lehman’s distressed commercial real estate property.

The fear of Lehman failing is one reason shares of other financial firms with mountains of troubled-assets on their balance sheet are plunging too—most notably Merrill Lynch and American International Group. Wall Street is coming to grips with the reality that if the federal government can’t bailout all these institutions, there may be no buyers out there to save them. In the government’s bailout of Fannie Mae and Freddie Mac, it wasn’t just shareholders who got creamed—-holders of Fannie and Freddie’s higher-yielding preferred shares also took a beating. To date, most Wall Street banks have been able to raise capital by selling preferred stock to deep-pocketed sovereign wealth funds and private equity firms. But Wall Street won’t be able to do those deals if there’s uncertainty about whether those preferred shares will have any value down the road.

It’s not a pretty picture. But it’s another reason why this yearlong mortgage-inspired credit crunch is shaping up as one of the worst financial disasters in decades.

Investments in Costa Rica - Not Exactly What You Think

Investments in Costa Rica?... isn't that an island?...somewhere in the Caribbean?

My wife and I moved to Costa Rica six years ago from the frigid climate of Minnesota where we had owned a printing business for 15 years. For as long as we could remember we had worked 12 hour days and spent most of our time figuring out how to stay even...getting ahead wasn't even in the cards.

Then 9/11 happened. And for us it was an epiphany. Life was too short to spend the balance of our lives on a treadmill that went nowhere. We accelerated our retirement plans by almost ten years.
And over the next year we sold everything we owned and eventually found ourselves in Costa Rica (which, mind you, we had only visited once previously...and on vacation at that !).

Stupid? In retrospect, sure. To move to a foreign country where we knew no one, didn't know the language and our only exposure was the internet? Of course, it was stupid.

But...we loved it, even in spite of the fact that life here was completely different than the books portrayed or the internet showed. We rented a small home about an hour outside of San Jose in a community which was rural, coffee country and yet still large enough to have a hospital and within 45 minutes of the main airport.

And we purchased land...and we built a house. And luckily, Rhonda had the temperament to deal with the local builders, even though we didn't understand much Spanish. I still remained a type A and the manana attitude drove me crazy.

And much of the real estate and construction business was definitely not in any "how to..." book that we ever found. And we definitely made mistakes. But luckily they didn't hurt us TOO much financially. And we asked a lot of questions and we learned, little by little, how the real estate market functioned in Costa Rica.

And we decided that we wanted to let others know the things that we had to learn the hard way. We started a real estate company whose sole aim was to present properties which reflected prices that locals paid...because there is a two tier real estate market in Costa Rica...one for "gringos" and one for Ticos (locals, as Costa Ricans call themselves).

Because there are very few rules or regulations for real estate here, our "exposure" of the market didn't make us very popular with other real estate people. (remember, Costa Rica is a VERY small country...about the size of West Virginia or Houston). So our website didn't exactly endear us to local agents who were used to charging whatever prices and commissions that they thought the traffic would bear.

And slowly we began to get a reputation...admittedly, some was good, some bad...depending upon who you talked to. And we began to get publicity...unsolicited publicity from magazines like Newsweek and Investors Business Daily. And our business grew. And grew some more.

As our business grew we began to meet more people from Costa Rica...some influential, some not... some quality, some not. And we became exposed to many more types of investments that were totally foreign to us. And we learned who really "controls" the country and which people control investment capital and have the influence to make policy. To illustrate how much of our education was "coincidence" (and I personally do not believe in coincidences... I believe that they happen for a reason) our third attorney was introduced to us purely second hand at a local gathering; "coincidentally" his wife was from Minnesota...Rhonda was then invited to a weekly gathering of "gringas", all of which married Ticos 35-40 years ago and who have now ALL become very influential ; e.g., Minister of Finance; Minister of Agriculture and two other former cabinet members.

Because of our real estate organization (see it here: www.cr-home.com) we are able to see daily what people are seeking and watch the ebb and flow of interest. And not only are we able to gauge areas of interest but also types of properties or homes that are attracting the most interest...e.g., we know that beach properties or condominiums at present are receiving very little interest and the high end beach properties sales are very slow. We have our own hypotheses as to why this is occurring but we are dealing with "what is", not what we think "should be"...nor do we look for esoteric explanations to explain the status. We are big believers in the KISS philosophy..." keep it simple, stupid."

Over the past three years we have made a number of investments here...none have shown a loss and others have turned a 100% return within a 60 day period. Some have unrealized profits. We have yet to take a loss. Please understand here that we are not professional investors (if there indeed is such an animal)... we have simply taken advantage of situations that we consider to be extremely low risk. WE ARE NOT SIMPLY "HOPPING ON THE COSTA RICAN REAL ESTATE BANDWAGON"...because if we had done that, we would have already lost a significant amount of money.

Let me explain...
Our website and mission statement is all about value...and it is about education and knowing "the good, bad and ugly" BEFORE buying. Too many people get caught up in the emotion and beauty of Costa Rica and buy on impulse. And these are the people that ultimately run the risk of losing their entire investment. (con men and fraud exist everywhere but are more common here simply because of the lack of comprehensive rules and regulations concerning real estate and construction). That being said...we attract a different type of clientele...one that typically wants to ensure that he gets the most value for his or her money....and definitely not one that is an impulse buyer. We deal primarily with the "baby boomer" who is looking at Costa Rica as a retirement destination AND the buyer who wants to ensure that he or she gets the most value for their investment.
And the above paragraph illustrates the best, most concise reason why our business is almost recession proof and not affected by the "subprime crisis" and will allow us to continue to capitalize of various forms of investment in Costa Rica.

So...now that we have established our background...WHY are we recommending Costa Rica as a basis for specific types of investments?
We are not attempting to "sell" Costa Rica because we expect anyone who is examining Costa Rica as an investment to do their own due diligence. So...
- Costa Rica is home to the longest running democracy in Latin America. Its stability is unquestioned and it is allied closely with the U.S.
- Almost a third of the land mass of Costa Rica is set aside for national parks. Costa Ricans themselves are huge lovers of wildlife, flora and fauna.
- There is virtually no mineral exploration and absolutely no oil drilling in Costa Rica for environmental protection.
- The literacy rate in Costa Rica exceeds that of the States or Canada.
- Medical care is superb and available to everyone...even to those who are unable to pay.
- Costa Rica is more familiar to Americans than nearly any other foreign destination...for vacation. Nearly everyone who has visited Costa Rica wants to return and, in fact, Costa Rica has the highest return rate for vacationers of any other destination in the world.
- While Costa Rica is technically a "second world country", its infrastructure is excellent.
- Costa Rica's economy, while operating at a deficit, is in excellent shape.
- Costa Rica has no standing army, thus expends no funds on a national defense.
- Costa Rica espouses family values and many visitors liken it to the States from the 50s. The pace of living is slower and the Costa Rican people (Ticos) have different values than their counter parts in America and Canada.
- There are literally dozens of microclimates within a two hour drive from anywhere in the country. Where else can you drive for a day and see two oceans, several volcanoes, sandy beaches, mountains, waterfalls, lakes, rain forests, cloud forests, agricultural land, hot springs, wildlife preserves, and much much more...?
- Cost of living estimated at approximately 30% of equivalent lifestyle cost in the States or Canada.
- An estimated 30% of the population speaks or understand some degree of English.
This is only the abbreviated version of the positives of Costa Rica...other countries such as nearby Panama, Nicaragua and Mexico are attempting to woo the "baby boomers" but OUR belief is that the "blue chip" of Latin American investment will almost always win out. Just because land in Nicaragua or Panama maybe 20% cheaper or because the government offers one time incentives to expats....does not necessarily mean that it is worth the risk of your hard earned savings. Weigh the pros and cons. Some say that Costa Rica is overpriced...some say that its time has passed for investment...we say "take a look at the number of people that visit here...and that return...do your homework...then make your decision."

Okay, we have subjectives about Costa Rica and why people visit here and keep returning. Now we need facts.
During the first six months of 2008, more than 125,000 foreigners visited Costa Rica...and this is a 16% increase over last year. And remember, this is in a so called recession which is worldwide. Don't believe that the trend will continue?...try this: ask your friends what their impressions are of Costa Rica or what they have heard ABOUT Costa Rica. I can guarantee that the responses will be overwhelmingly positive. Subjective ? Yes, but still highly convincing and you will not get these types of responses from any other location or destination.

Numbers of weekly airline flights are climbing...ranging from American Airlines with 43, to Continental with 25, Delta with 24 down to Spirit and U.S. Airways each with 7. This does obviously not take into account visitors from other parts of the globe. Currently, the States and Canada account for over half of all visitors and tourists to Costa Rica. Europe accounts for nearly 20% and the rest of the world, the balance. This is another good rationale why our business is expanding instead of collapsing like many of the local pundits have predicted...the slowdown in the States is more than counterbalanced by Canada (which is experiencing a VERY strong economy and a very strong currency) and Europeans... who are also experiencing gains with the rise of the euro vs. the dollar and other currencies. The Costa Rican real estate market is simply not dependent upon one country or group of people to experience strong real estate interest. And please also keep in mind that Costa Rican real estate is a microcosm of Economics 101...the areas of interest for the "boomers" and second home buyers are small and it is easy to see that there are more buyers than sellers (which is really what the markets are all about... remember our KISS theory?)

We have established statistically that more and more visitors are arriving in Costa Rica. Now we need to establish a base for our investment philosophies...and it is primarily centered upon the huge number of "baby boomers" which are just beginning their retirement years. We do not need a huge elaboration as to why "boomers" are examining overseas destinations in increasing numbers...but here are a few of the major reasons:
- Cost of living...it is no surprise that costs of almost everything are climbing daily. The equivalent cost of living in Costa Rica is roughly a third as much.
- Medical care is excellent and only at a fraction of the cost.
- There is a tremendous amount of diversity here and an almost unending list of activities and sightseeing which is available daily...you will definitely never be bored!
- Stable government and environment.
- High literacy rate and people are genuinely friendly.
- Only a short plane ride from the States.
- Infrastructure is good and water is drinkable everywhere in the country.
- The banking system is excellent and safe.
- There is a huge amount of flora and fauna here which is literally unequalled anywhere in the world...and over 25% of the country's land is set aside for national parks.
- Land and construction is still extremely affordable by comparison.
- Crime is still relatively low, especially when compared to its counterparts and "competition".
Okay, now that we have established that Costa Rica is a viable, growing and stable marketplace AND that the "boomers" have the potential to have a major influence on the marketplace in Costa Rica...let's pinpoint specifics which will allow us to make significant investment gains:
Most "gringos" say that they would prefer beach living. The reality is that over 50% of all people who buy on the beach sell within five years. We have found over the past five years that most gringos prefer acreage with the following features:
- Views...either the ocean from a distance or the Central Valley
- Access to good medical and professional services
- Not "too remote"
- Good shopping and dining accessibility within a reasonable drive.
- Internet availability...good infrastructure
- More moderate temperatures
- More rural than urban but still amenities available closeby
- Within a "reasonable" drive to an international airport.
- Private, but not too private; i.e., neighbors nearby but not TOO close.
- At least half to an acre of land...river, waterfall or lake if possible.
- Fruit trees and other vegetation a major plus.

With the above in mind, Rhonda and I settled in Grecia which was approximately half an hour from the country's major airport, 45 minutes from a first class hospital (yet only 10 minutes to a municipal hospital, in Grecia). We chose to be in the mountains overlooking the town and the Central Valley. Major shopping was 45 minutes away as was "better dining" and (for me) bookstores. Notice how we fit the above "profile"? BTW, we also had a river on our property. Why do we bring this up here?...because our "property preferences" were (and are) the same as 80% of most gringos that move to Costa Rica to retire (full or part time.)

Next factor: there are very very few rules and regulations when it comes to real estate and construction in this country. There are ways to protect yourself legally but there are no sure methods of ascertaining what is a "fair and honest" price. There is no MLS system and there is not a system of comparables. For the most part, real estate is bought and sold the way it has been for decades...primarily word of mouth. This is specifically why people flock to the real estate industry...because of "net selling" or the simple fact that it is almost impossible to know what is a fair price. (net selling refers to "marking up" a property over and above what the seller wishes to "net...very commonplace here.)

Next: There are very few American style houses for sale here... and Tico houses simply are not satisfactory for 98% of "gringos" that move here (lower ceilings, smaller rooms, not enough land, no 220V power, no views, etc). This obviously brings up the logical conclusion...if there is a market, and it appears that it is highly skewed in favor of the sellers...is there an opportunity here to capitalize on that imbalance? (for those of you who are thinking ahead here...remodeling is difficult because almost all construction here is block and steel and all wiring and plumbing is encased in concrete...remodeling costs actually exceed "STARTING FROM SCRATCH".)

Because there is a two tier market here...one for locals and one for "everyone else" it is important to ensure that pricing received is comparable to others of comparison (as much as possible in a country where "comparables" are simply conversation over coffee.) A "gringo" certainly can look for his or her own property but it is almost a guarantee that prices will be at least 50% higher as locals share the common perception that "gringos" have money trees "back home" and that we will pay almost "any asking price" because we don't know the culture or the area.

And remember we know the markets...who is buying, what they are seeking and what they will pay. And then obviously the determination has to be made if it is possible to make a profit.

The last item to take into account is the simple fact of Costa Rican land itself...without the "gringo factor". Ticos (Costa Ricans) are accustomed to an inflation rate of around 12% annually and many compensate by buying additional land and simply holding hard assets. And when selling, Ticos know that if they do not get their price today...they will in six months or in a year. The trick then becomes to truly know the markets and to be able to take advantage of buyers that MUST sell and that need money.

On to "brass tacks" and specifics...
1. The void of, and lack of, American style houses in many areas is crying to be filled. The following is a quick "down and dirty" summary of approximate profits to be made from such an investment: Land cost: (one acre...view property in Grecia or environs) $50,000; American style house of 3 BR, 1500-1600 sq. meters: $75,000...misc costs including architect, utilities and landscaping: $10,000. Selling price: $190-195,000, possibly more. Estimated gross ROI (before payout to limited partner or construction supervisor)...50%.

2. Smaller developments can be even more profitable...we prefer to stick with a much smaller number of homes as it is more manageable and you fly under the municipality's radar...nothing illegal, just avoiding the possibility of locals swarming around with their hands out. Typically, we raise money in smaller increments (shares) as the amounts normally exceed $250,000.

Profit estimates here are extraordinary.
3. Oftentimes, at least bimonthly, we see a property at an extraordinary price...one that we know is substantially below market value. Sometimes these properties can be resold almost immediately...other times they involve buying a larger piece and reselling smaller units of land. A good example is a block of four quarter acre beach front parcels which are titled and located only 1 ½ hours from San Jose on the Central Pacific coast. The owner is in the States and is admittedly desperate. The units can be picked up as a whole and resold for at least a 50% profit (our opinion). They are RARE and gorgeous.

4. Recently, we were contacted by the owner of a small house in Grecia. We had previously listed it at a decent price...but no takers. It has a gorgeous view and the house needs probably $5000 worthy of work. In our opinion, the owner is now willing to sell for close to land value only. Not a huge winner, but percentage wise, probably a 50% profit is available. Estimated ROI to the investor...50%+

5. Occasionally we are shown properties which have a "glitch" in their titles...not major problems but simple filings to correct them. "informacion processoria" properties are normally those which have passed down from family member to family member over the years without doing proper registration or filings. It is a simple matter for a competent attorney to correct the oversight (and, in many cases, it was simply not done for lack of funds). These properties can oftentimes be had at substantial discounts. A good example is a property currently being offered of nearly two acres just on the outskirts of San Jose...a suburb called Aserri. The property HAD to be sold (family financial emergency)...asking price was actually less than 20% of what comparable properties were currently selling for ADJACENT to this property. Estimated "fix" time is six months...properties like this do not often surface and, most of the time they are "no brainers".

Now, we are the first to admit that 99.9% of people that read about these investments are not able to do them themselves. This is why we have typically set up "arrangements" or agreements to handle the everyday details and carry the project from start to finish. Obviously, investments such as the Aserri property, or others that are shorter term investments that can be resold quickly, do not need "special handling".

Hopefully, this investment overview has sparked your interest. We have met nearly all of our investors...some before the physical and actual investment, other afterward. We have an annual pigroast in January and typically nearly all of our investors along with friends and neighbors from Costa Rica get together for fun and an overview of each investment status. In the past it has been a huge hit...plus of course, it is a great excuse to come to Costa Rica.

Investors Looking For Returns Overseas May Need to Think Again

Putting some of your investments in foreign assets had been a winning move for several years. Outsized returns were seemingly easy to find among a number of emerging markets. Even older, more established markets like Japan and Europe were profit-friendly as long as they were anywhere but here. The overseas investment theme has been so consistently emphasized by many professional investors and portfolio managers that it has become a seldom-challenged strategy.

What is not evident, and often not well-defined, is the extra risk associated with foreign investing. And I am not talking about corrupt dictators. Even investing in stable, transparent markets like Europe and Japan creates extra risk - currency risk.

Understanding currency movements has not been a priority since the direction of the US dollar has been favorable for investing abroad. A decline in the value of the dollar in relation to other currencies makes foreign assets more valuable to US investors. While overseas stock markets were soaring there was an extra currency bonus to US investors from the falling dollar.

But that investment thesis may be due for a review.

It is common knowledge that stock markets here in the US have struggled with fallout from the credit crisis and weakening economy. But foreign markets have also struggled, and in many cases the declines have been worse: British stocks are down 18.4% since October 2007 highs, German 21.3%, and French 25.2%. In Asia, Japanese stocks have declined 27.5%, Hong Kong 36.2% and Singapore 30.3%. In the US, the Dow Jones Industrial Average was off 18.5%.

Those declines themselves are enough to give investors pause, but a second hit comes from a strengthening US dollar. Since recent lows the dollar is up 7.7% against the Euro and 12.2% vs. the Japanese Yen. Those nasty market declines above are quoted in local currencies. That means if you held a French market ETF (exchange traded fund) your total decline, in US dollar terms, was 31%! Or 36% in Japan!

There are considerable reasons to believe that the dollar will continue to climb. A large part of its downward trend over the past year and a half was the belief that economic weakness would remain an exclusive problem for the United States (remember when this was supposed to be only a subprime mortgage problem?). That proved to be far from the case as economic growth has slowed all over the globe. Just last week the British economy showed growth of 0.0% - an economic halt. Forecasts for European growth have been cut dramatically and, with the increasing impact of inflation, Asian governments now fear sustained weakness and worldwide recession.

How does all that impact the dollar?

1. It makes the US look like a relatively safe place to invest. While we still have problems, in a storm safety becomes a priority.
2. Central banks typically reduce interest rates in response to weakness. Since the US Federal Reserve has already decreased rates, and is sending signals that it may raise rates, lower foreign interest rates make US investments more attractive.
3. Many foreign markets were dependent on Wall Street cash to keep them moving higher. It is far easier to keep a market moving higher with momentum than it is to restart it once that market has dramatically reversed course. Without tons of cash coming from investment banks those overseas markets may have a tough time reproducing the returns that attracted so many investors in the first place.
4. Inflation is affecting foreign, and especially emerging markets, more than the US. We think inflation is high here (with gas prices through the roof) but the fact is that inflation in Asia and South America is already higher and threatens those regions disproportionately. Since inflation is hostile to investments, regions with lower, stable inflation are preferred.

Those four factors increase demand for the dollar that, in turn, increases the price of the dollar.
For investors with money in foreign investments it may make sense to rethink the exposure. Domestic, multinational companies can gain access to fast-growing overseas markets. There is still currency risk to their profits, but they have finance departments hedging those currency movements. So the ultimate question may be whether or not you would rather manage the currency risk yourself or have companies' finance departments do it.

Legality of Offshore Investments

Having an offshore banking account, corporation or trust are common themes in legal thrillers, spy novels and eastern European politics. There is a reason to be concerned about the legality of such accounts, for although many people would like to include them in their estate planning, a legal misstep regarding the use of any of these asset management tools could result in thousands of dollars lost in back tax payments and legal problems with none other than the IRS in addition to the possibility of spending time in prison. With that in mind, it is not surprising that many Americans shy away from offshore banking altogether.

As any good tax attorney will be able to explain to you there is a difference between tax avoidance and tax evasion. Tax avoidance is the use of legally employable strategies to reduce the amount of tax one has to pay. Tax evasion, on the other hand, is the use of illegal means to do the same thing. So the goal of any transaction that you would like to undertake offshore is to make certain that you are a tax avoider and not a tax evader. A lawyer will never be a willing party to tax evasion, if that lawyer is behaving within the cannon of professional ethics as well as the accepted norms of safeguarding their client's best interest.

To begin with it is illegal to have a secret bank account in another country that you don't tell the IRS about. It is also illegal to move unreported cash even if it is your money. The penalty for either of these offenses makes bank robbery look like a more attractive option.

However, with our own country continuing to advance the goal of globalization, of course it is legal to invest in, and to interact with, foreign markets and there are some tremendous incentives to do so. The key to taking advantage of these opportunities is to start modestly and remember that if it sounds too good to be true then it probably is too good to be true. Secondly, it is your duty as an American citizen to report your financial activities to the IRS. So divest yourself of notions of secrecy in the absolute and think in terms of tax savings rather than not paying taxes. If someone tells you that they can help you avoid paying any tax whatsoever, they are offering to help you engage in a criminal enterprise. And if you already are a criminal of some sort then perhaps you should look into the matter, but for the vast majority of those reading this article, don't endanger a life spent being a law abiding citizen by buying into an outrageous scheme.

As I said before, U.S. citizens and permanent residents are required to disclose their banking accounts abroad, where they are located and what the account numbers are, on a form called a TDF 90-22.1. However, there are exceptions to having to file this report and taxpayers are confused about the definition of these exceptions as well as the meaning of key terms within the document. One excellent way to begin to understand what must be reported, and when, is to look to the Jacobs Report. The Jacobs report which can be found at RealEstatePost and it is an extensive document filled with the applicable law and IRS instructions as well as the accumulated wisdom of many web sites and foreign bank reports.

Remember, the cardinal rule when beginning your inquiry into offshore banking is to find out about these matters in detail. You need to check into things yourself and keep in mind that if a deal sounds too good to be true then it is. In addition, keep in mind the fact that you want to be a tax avoider not a tax evader. Consult your estate planner and a tax specialist because the laws in many of the nations that provide tax havens have changed somewhat since the beginning of the War with Afghanistan and Iraq, because the U.S. is looking for hidden terrorist cash reserves and that has changed the way discretion is handled in many tax haven nations that are friendly with our government.