A Banana Republic No Longer

“I have no idea why they did that either…”

I was walking from the customs office at the airport in Managua, Nicaragua, to the airline counter to check in. A customs official was assigned to me to ensure that I didn’t grab my microphones and run outside to operate them. He agreed the whole thing was odd and provided me with the above quote.

On entry into Nicaragua, a customs official and a representative of the telephone company had determined that the wireless lavaliere microphones I use for videos might interfere with aircraft communications and impounded them. I’ve traveled often enough to know not to debate illogical conclusions with people who have decision-making power, so I surrendered them and paid the $21 storage fee covering the time until my departure. The good news was that this customs officer found the decision as funny as I did. But, as a result, there is no video today.

I had come to Nicaragua to speak at the Beyond the Dollar Conference at the remarkable Rancho Santana. We had two days of great conversation about how to select and analyze opportunities from around the world in an admittedly wonderful setting.

Globally, the markets gyrated while we talked. First, China and the rest of Asia, then the U.S. stock market. Bonds bounced up and down on market news and economic releases. The U.S. dollar went up against most currencies adding to its surge of strength over the past couple years. The “big dog on the porch,” as Chuck Butler likes to call the euro, stood its ground. Since April, there has certainly been some movement up and down, but the value keeps returning to about $1.08 U.S. dollars per euro. Maybe the continued strength of the U.S. dollar is petering out – I’m definitely watching.

My View On The Markets
One major investment house suggested last week that the end was near, calling for a market apocalypse and suggesting that their clients sell everything but high quality bonds and hang on for dear life.1

While there is always the potential for a total meltdown, I think that these falling commodity prices, in particular, may be a great opportunity to consider. Unlike interest rates, the price of oil and copper and other things we use to make things cannot fall below zero. They may continue to decline in price given the market psychology right now, but at some point, their value will allow for their profitable use again, which should begin to nudge the prices back up.

This is a little like what we all saw in the housing market coming out of the Great Recession. Prices fell steeply. Then the pace of decline slowed down. Eventually, cash buyers – speculators really – started buying a few houses along with people who simply had to move. Then finally, the mainstream market slowly kicked in.

I don’t think we are quite there yet with resource companies or with the raw commodities, but I am becoming more attentive every day.

A Little About Nicaragua
It’s funny that a number of the countries we used to rightly call “banana republics” are currently on a better pathway. Nicaragua isn’t a global powerhouse – to be sure – but there is definitely a contrast to the horrific picture painted in the 1980s as the Contras and Sandinistas slugged it out in the wake of the dictator, Anastasio Somoza. Today, the Sandinistas run the country.

Eric Fry, co-founder of Beyond the Dollar, covered the concept of investing in real estate outside the U.S. At the EverBank Global Markets Group, we usually focus on our WorldCurrency® deposits2, non-FDIC insured precious metals3, and marketable investments around the world, but your real estate asset class doesn’t need to be bound by borders either. It is always about value, potential appreciation, and risk.

Concerning Nicaragua, Eric pointed out that the country has moved from slow growth to consistent strong growth.

Fig. #1
Nicaraguan vs. U.S. Economic Growth – 2005-2014

Source: From a presentation by Eric Fry at Beyond the Dollar Summit, Rancho Santana, Nicaragua, Friday, January 15, 2016. Used by permission.

Perhaps more interesting is that while debt used to place it solidly in the banana republic camp, today it’s looking pretty good like many developing and emerging economies. Maybe it’s the U.S. that is the “Banana Empire.”

Fig. #2
Nicaraguan vs. U.S. Debt-to-GDP – 1999-2015

Source: From a presentation by Eric Fry at Beyond the Dollar Summit, Rancho Santana, Nicaragua, Friday, January 15, 2016. Used by permission.

Seems like it might be worth a look.

Until the next Daily Pfennig® edition…

Onward and upward.

Frank Trotter
EVP & Chairman
EverBank Global Markets Group