InvestIdeas

Paraguay

The Largest Electricity Exporter on Earth
By Tom Dyson

Yesterday I visited the world's largest hydroelectric power plant. The name of this plant is Itaipu. It sits on the border between Brazil and Paraguay, on one of the largest rivers in Latin America, the Rio Parana.

A few months ago, I visited the largest coal-fired power plant in America, Plant Scherer. When Scherer operates at full capacity, it produces 3.5 gigawatts of power. A nuclear reactor produces around one gigawatt of power

Itaipu produces 14 gigawatts of power. In other words, it's four times the size of America's largest coal power plant... and 14 times the size of most nukes. Itaipu provides 93% of Paraguay's power and 25% of Brazil's power.

I can't explain in words what a beast this dam is. It stretches four miles across and 65 stories high. The iron and steel used to build it would give you 380 Eiffel Towers. It's one of the seven modern wonders of the world, alongside the Panama Canal and the Golden Gate Bridge.

According to their joint agreement, Paraguay gets 50% of the electricity from the dam. Brazil gets 50%. But Paraguay is a small country. It has a population of 6 million people... versus 200 million in Brazil. So Paraguay only keeps 5% of Itaipu's power and sells the rest back to Brazil.

This makes Paraguay the largest exporter of hydroelectric power in the world.

Here's the thing: Paraguay sells its electricity to Brazil at $3 per kilowatt-hour. Right now, Brazil can sell the same unit of electricity to its private utilities at $150 per kilowatt-hour. There is an electricity crisis in Latin America right now, especially in Chile, and electricity prices are very high. It's immediately obvious Brazil is not paying Paraguay the right price for its power. And Paraguay is losing billions of dollars.

Corrupt politicians set this low price in 1973... under a 50-year contract. The Brazilians bribed the Paraguayan government to sell them power at a rate that's far too low. Now, there are calls to change this rate, but who knows if that'll happen...

The thing is, Paraguay doesn't have to sell its power to Brazil. It could consume the power itself. I think it would be a great business to set up an aluminum or zinc smelter here. These businesses are electricity-intensive. The problem is, Paraguay is a poor country and has absolutely no industry. It's all agriculture here.

According to the people at Itaipu, the energy the dam creates every day is the equivalent to 433,000 barrels of oil. That's about half of what Canada's Athabasca oil sands produce each day. Except it's renewable, it's clean, and it takes no energy to produce.

This cheap electricity is one of the reasons I like Paraguay as an investment. But it's hard to get your money into the country...

Paraguay has no stock market... only a small bond market. So to invest in Paraguay, you'll have to go there yourself and buy assets from the locals. That's a good thing. It means everything is cheap.

In Paraguay, for example, you can buy companies for book value... that pay 45% dividends, according to one broker I met. You can buy real estate with 10% rental yields. And cattle farms with 18.5% cash yields.

Source: Daily Wealth

Paraquay

You've Never Considered the Next Great Emerging Market... By Tom Dyson

I asked my taxi driver if he knew where I could buy an AK-47...

The driver studied me for a second. He paused. And then he said, "I know somewhere... Vamanos."

Ciudad Del Este is a smuggling town. It's on the eastern edge of Paraguay, about a five-hour drive from Asuncion. It sits on the border with Brazil and Argentina. It's the "three-frontier town."

Ciudad Del Este

Here's the thing about Ciudad Del Este. There's no tax in Paraguay, so the city has become the largest inland trading post in South America. You can sell anything you want at cost from Asia. Electronics are the big market... laptops, cell phones, and digital cameras. Brazil and Argentina have high import and value-added taxes. So bandits come from Brazil and Argentina, buy cheap merchandise in Ciudad Del Este, and smuggle it back.

Huge quantities of cocaine and marijuana flow through this town into Brazil. The same is true of real Paraguayan passports and guns. (I was asking for an AK-47 not because I needed one, but I was curious to see how easy it would be to buy one here.)

You can buy anything in Ciudad Del Este's huge, open-air market. I spent the afternoon wandering around, browsing fake DVDs, Rolexes, shoes, clothes, computers, perfumes. I could have bought a Sony Vaio laptop for under $1,000... a dozen socks for a dollar... or a 30 milliliter bottle of designer perfume for $23. The market is dirty and loud. It goes on for blocks and blocks. I never found the edge.

Ciudad Del Este has huge populations of Koreans, Taiwanese, Lebanese, Syrians, and Chinese. They run import-export businesses. The Russian, Nigerian, and Chinese mafias all operate here.

It's also a safe house for Arab terrorists. The State Department says Ciudad Del Este is a significant source of funding for both Hezbollah and Hamas. In 2001, CNN said this town is "a terrorist paradise."

I drove back and forth between Brazil and Paraguay five times. I didn't need a passport... a visa... money... identification... nothing. When I checked in at the airport in Asuncion, they had no computers behind the check-in counter. They filled in my boarding pass by hand.

The scene in Ciudad Del Este is pure raucous capitalism... and I couldn't wait to see where the taxi driver took us to buy guns. I was hoping for an illegal warehouse or some cinderblock shack in the shantytown, but he went to a fishing and hunting store. We looked at Glocks, Turkish rifles and other guns, but they were more expensive than the same guns in the U.S.

"We have to bring these in across a lot of borders," explained the woman behind the counter...

Paraguay is a landlocked country with low taxes. So it serves as a "trampoline" for merchandise into other countries. That should make Paraguay a very attractive place for capital. According to one person I met, Ciudad Del Este is the second-largest free-trade area in the world, after only Hong Kong. It generates 60% of Paraguay's GDP.

But corruption is the problem. Every time large firms try to start a project, the local bureaucrats steal everything... including the machinery. Also, most of the capital leaves Paraguay with the Asian and Lebanese traders... and with the smugglers. It doesn't stay in Paraguay. So 40% of Paraguayans live in terrible poverty.

This year, Paraguay has a new government... for the first time in 61 years. If the new administration can clean up corruption and resist the temptation to raise taxes, Paraguay could be a fantastic place to invest over the next 10 years.

Source: Daily Wealth

Nicaragua


Up Fivefold... But Still Cheap and Undiscovered
By Dr. Steve Sjuggerud, from Nicaragua

In 1993, a poor family in rural Nicaragua took me in.

I didn't know them. I met their teenage son, Alfonso, on the side of the road when I asked him for directions. His hospitality was incredible. We ended up eating dinner at their house that night... And Alfonso's family took us in for days.

The family had nothing... No utilities. No running water. My "bedroom" had a dirt floor. We ate chicken with rice and beans twice a day.

They wouldn't accept our money for anything. They were just happy to have something interesting happen... They had some gringos in the village to learn from and talk with.

When we left a few days later, we each placed a $20 bill on our beds. That was $60, total. We wondered if it was the right thing... In this isolated village three hours from Managua, could this family even use U.S. dollars? And then, what was the right amount to leave? Back then, $60 was a month's pay in Nicaragua! Did we leave too much?

I'm in Nicaragua today, 15 years later, just a couple miles from where I met Alfonso. I asked about Alfonso today. "Alfonso? Oh yes, he is still in the same place. He has a pulperia on the side of the road to Popoyo." A "pulperia" is a Central American Spanish word for a little corner store. "He's serving the surfers."

Good for him! When I first visited in 1993, I came to surf. I believe we were the only surfers in the country at that time. And if teenage Alfonso hadn't hopped in our car to show us, we never would have found Popoyo Beach – and the amazing surfing waves we'd come for. Today, surfing has boomed in Nicaragua. The Popoyo area is unrecognizable from what it was... It's gone from literally nothing to a bustling community of surfers. Hotels, restaurants, neighborhoods, high-speed Internet, cell phones... all the comforts of home. Thousands of people surf in Nicaragua now. And Popoyo is still "the" spot.

I returned to Nicaragua in 1998 to look at a massive project called Rancho Santana that some friends were putting together. They wanted to build a world-class beach community like Nicaragua had never seen before. When I arrived at the project, I couldn't believe it... Rancho Santana was just a couple miles from where I'd stayed five years before. We were three hours away from the Managua airport and had to drive over many bad dirt roads. Yet the big rock cliff of Popoyo was easily visible.

My friends bought the Rancho Santana property because of the beauty... "It's like California – 100 years ago," they said. They had no idea they were in Nicaragua's prime surfing zone. I ended up buying a lot in Rancho Santana immediately. I built a beach house there – one of the first houses built in Rancho Santana.

The price of the lot I bought is probably now up over fivefold in the 10 years since I bought it. But you know what? Nicaragua is still cheap...

Quite frankly, it was a gamble buying back then... Rancho Santana was just a big dream. There was nothing but a pretty master plan. I figured the rental income could keep the house alive, and I could use the house myself to surf the great waves of the area.

Today, unbelievably, Rancho Santana is all a reality – a community of high-end homes. In fact, this Sunday, the U.S. Ambassador will give a speech at Rancho Santana, pointing to it as one of the great foreign investment success stories of the country. It's much less risky to buy today, 10 years into it, now that you know it is a success, with nice homes and community amenities in place.

For years, I've said, "As long as Americans think of Nicaragua as Russia with palm trees, it'll be a good buy."

Yesterday, I talked to one wealthy Nicaraguan, who had fled the country in 1979 when things started to go downhill quickly in Nicaragua. He moved next door to Costa Rica. He told me back when he fled the country, Nicaragua was actually wealthier per person than Costa Rica.

He returned home when the dust settled around 1990. But the damage had been done... In the 1980s, the income per person in Nicaragua fell some 80%. And its reputation was tarnished in the process.

But the country has been a true democracy for 18 years now, since the election of Violeta Chamorro as President in 1990. Today, everyone here understands big projects like Rancho Santana create jobs. They know foreign investment like this is the way to increase income here.

And everyone knows Americans are the main source of that investment. Nicaragua is much different today than my first visit in 1993. Back then, the country had only a few paved roads outside of the towns. It hardly had any cars. And it had nothing like you're used to at home.

Now – for better or worse – it's extremely Americanized... I have five bars on my mobile phone, and I'm really in the middle of nowhere. I have wireless Internet access, and I don't know where it's coming from. And of course, you have shopping malls with all the American shops, American-style movie theaters, nice hotels, and fancy restaurants. It's quite a big change.

The most extraordinary thing is the quality of life you can have here for so little money... It's significantly cheaper than neighboring Costa Rica, though it's barely any different. And on my last visit, we paid about $5 a day total for cooking and housecleaning, and they did a fantastic job. Many folks whom you wouldn't call rich have a driver, a gardener, a night guard, etc.

If you've read my writings, you know I've traveled to dozens of countries. I can go anywhere. And the Pacific Coast of Nicaragua is the place I come back to in the summers. I enjoy an incredibly high standard of living, with excellent weather, cheaper and closer to home than anywhere else around.

It's not for everyone. But don't dismiss it. If you want to live like a king, without being as rich as a king, Nicaragua may be the best deal going. Check it out.

Source: Daily Wealth

Paraguay


What I Heard from a Government Official in a Small Tax Haven By Tom Dyson

There was a knock at the door. A soldier entered the room and raised his arm in salute. Then he drove his boot heels together to produce a loud snap. He waited for the politician's attention...

I studied the soldier's crisp brown uniform. It looked like something you'd wear to a dress party. His black patent leather shoes matched his belt and the peak of his hat. The gold buttons on his sleeve were so shiny they could decorate a Christmas tree.

The politician turned to the soldier. He took a whispered message. Then he dismissed him with a flick of the wrist...

Tito Saguier is a senior member of Paraguay's government. Last week, Tito invited me to the senate for a cup of coffee and a discussion about Paraguay's future.

Soldiers escorted us everywhere we went. Other soldiers opened doors and saluted as we walked past. A female soldier stood at attention at the door to Tito's office. She wore the same pressed uniform as the male soldiers, except, instead of trousers, she wore a mini skirt with knee-high Nancy Sinatra boots.

Paraguay has a new government. It just won power. The old government held power for 61 years. I wanted to know how this new government would behave. Would those in power continue to steal? Would they decrease the size of government? Would they decrease regulation and taxes?

An investor has several reasons to take a close look at Paraguay... Itaipu is the world's largest hydroelectric dam. Thanks to Itaipu, Paraguay generates 10 times more electricity than it needs. Per person, Paraguay has access to more free energy than any other country on Earth. This energy will never run out... and it's clean.

There are few taxes in Paraguay... and a small government. It has no external debt and no currency restrictions. The Paraguayan currency – the guarani – has risen almost 50% against the dollar in the last couple of years... and is the best performing currency in the world this year.

Paraguay has this interesting geographical location right between Brazil and Argentina. Both of these countries have huge populations compared to tiny Paraguay. Paraguay can make a fortune trading with both. Plus, Paraguay is a member of the Mercosur, the free trade agreement that also includes Brazil, Argentina, and Uruguay. Goods produced in Paraguay are not subject to Brazilian and Argentine tariffs.

Paraguay is very cheap and unknown. There is no industry, and the stock market is tiny. And there's a potential trigger for a rally: The Argentine government has raised export duties on soybeans to 40% and banned the export of beef. I found evidence Argentine farmers are about to rush into Paraguay, where ranchland is cheap and the politicians don't steal their profits.

Unfortunately, I didn't get the answers I was looking for from Tito Saguier. At one point, I asked him for details on Argentine and Brazilian import duties. He didn't have an answer. He wasn't familiar with the trade terms of his neighbors.

And he was full of bland generalizations. "We want to increase economic production... and encourage foreign investment," he would say without any further explanation.

I think Paraguay is ripe for investment. Let's hope the government doesn't get in the way...

Ambrose Evans-Pritchard (Telegraph): Argentine alert as inflation spectre stalks the world

“Argentina is defaulting on its sovereign debt yet again, this time by stealth.

“European and US pension funds that snapped up Argentina’s peso bonds at the height of the credit bubble are discovering that it pays to probe the politics of Latin America - and indeed, Eastern Europe, and emerging Asia - before taking the plunge.

“It seems like only yesterday that Argentina halted payments on $95 billion of external debt. The ‘Great Haircut’ of 2001 was the biggest default in history. Investors are so forgiving.

“Argentina’s trick this time, under the presidential double act of Nestor and Cristina Kirchner, has been to purge the National Statistics Office and appoint a friend to manage inflation data.

“The official Consumer Price Index (CPI) is 8.9%. This is the benchmark used to set payments on inflation-linked bonds, now 40% of the country’s debt. The true inflation rate is more than 25%, according to union staff of the statistics office. They allege manipulation.

“‘Argentina is engineering a partial default on its domestic debt,’ said Professor Carmen Reinhart, from Maryland University.

“Vladimir Werning, from JP Morgan Chase, said the yield spread on inflation-linked peso debt has ballooned to 1,230 basis points. They are priced for the dustbin.

“On paper, Argentina looks safe. The world’s biggest exporter of soybeans - and number two in corn - is riding the food boom, even if at war with its own farmers. The trade surplus is $12 billion. Foreign reserves are more than $50 billion. Yet the default premium is soaring anyway.

“Argentina is a warning of what can go wrong once inflation gets out of hand, as it has in roughly half the world.

“Among the CPI rates – if you believe them – are: Ukraine (30%), Venezuela (29%), Vietnam (25%), Kazakhstan (19%), Latvia (18%), Qatar (17%), Pakistan (17%), Egypt (16%), Bulgaria (15%), Russia (14%), the Emirates (11%), Estonia (11%), Turkey (9.7%), Indonesia (9%), Saudi Arabia (9.6%), Romania (8.6%), China (8.5%) and India (7.6%).”

Source: Ambrose Evans-Pritchard, Telegraph, June 3, 2008.

Argentina's debt levels are now higher than they were when it crashed into the biggest sovereign debt default in history in 2001, and a worsening crisis of confidence in the government has brought the spectre of a new default closer, a report to be published next week says.

Despite a radical restructuring just three years ago, public debt has reached $114.7bn (€74.4bn, £59bn), or 56 per cent of gross domestic product, compared with $144.2bn, or 54 per cent of GDP, in 2001 – at a time when Argentina's economy was much larger – according to the paper.

– Financial Times

How to Profit from Argentina's Next Crisis
By Tom Dyson

This week, Buenos Aires supermarkets may not have any fruit, vegetables, or meat for sale... And ships in Rosario – Argentina's busiest port for produce – "drift idly" according to the International Herald Tribune.

Argentina is one of the "breadbaskets" of the world. It exports more soybean oil than anyone else. It's also the second-biggest corn exporter (after the United States), the third-largest beef exporter, and the fifth-biggest wheat exporter. Argentina's farm exports have risen 48.2% since 2003. Farm exports were the main reason Argentina was able to rebound so fast from its economic meltdown in 2002.

With the bull market in commodities making farmers rich, you'd think Argentina would be one of the most prosperous countries on Earth right now...

Unfortunately, when the Argentine government saw how much money farmers were making, it slapped an export tax on food products. Farmers pay 46% to export soybeans right now... And if soybean prices keep rising, the tax will jump over 50%. The government has banned beef exports.

In Argentina, farmers are the upper class. The people there think of farmers as rich landowners. By taking the farmers' money with these export taxes and giving it to poor people in the cities, the Argentine government figured it would gain popularity. The politicians also figured the taxes would reduce exports, keep food in the country, and drive down prices... They'd win popularity that way, too.

They didn't count on the farmers.

In the last three months, farmers have gone one strike four times. Now the truck drivers have joined in. The truckers lose millions of dollars every time the farmers strike. So the truckers are protesting against the farmers by blocking all the highways.

According to political polls, the Argentine president's popularity has collapsed in the last three months. But her government is sticking to its position and won't negotiate. Argentina's politicians argue the tax policy is the key to alleviating poverty and have called the farmers greedy. Last week, Interior Minister Florencio Randazzo said farmers were "intolerant, ungenerous and anti-democratic." He called them "coup-mongers."

Now there isn't enough food in Argentina. And without the billions of dollars in foreign-exchange earnings the country gets from exporting food, the government is going bankrupt. According to an article by the Financial Times, Argentina now has more debt than when it announced the largest-ever debt default in 2001.

You have a couple ways to profit from the impending collapse...

Last month, I met an Argentine farmer in Paraguay. Paraguay is Argentina's neighbor. The farmer had come to buy millions of dollars worth of Paraguayan farmland on behalf of a small farming village in Argentina. This village used to be one of the richest farming towns in northern Argentina, he told us. But the government's new laws are ruining the way of life. So the town's farmers pooled their money together and sent this guy to Paraguay to buy up as much land as possible.

Paraguay's land is just as fertile... it's cheaper than Argentine land... and the political risk there is a mere fraction of Argentina's political risk. This is why Paraguay's farmland is about to soar and Paraguay's currency – the guarani – is one of the top three best-performing currencies in the world so far this year.

I also like Brazilian meatpackers. Brazil's food industry is stealing Argentina's market share. Meanwhile, the shortage of Argentine food in world markets is supporting prices... and Brazilian meatpackers are earning higher profit margins.

Argentina

The Cheapest "Nice" Country in the World Right Now
By Doug Casey

I've been to about 175 countries, and lived in 12. All the while, I've felt the U.S. and Western Europe in particular (but also Canada, to a somewhat lesser degree) are on a slippery slope. So I've always had an eye open for a real second home.

My longtime subscribers will recall my enthusiasm for New Zealand back in the late '90s. Since then, its currency has risen about 75% against the dollar, and well-selected property has roughly doubled or tripled in addition.

New Zealand is still a great place to hang out. I bought a bunch of property and still go there about three months of the year, mainly to play polo and just enjoy the mellow lifestyle. But New Zealand is no longer the bargain it once was; far from it.

I think it's imperative to have a crib outside your home country in today's world. I don't want to get into a detailed discussion of all the possibilities here; that would take a book. But my bottom line is that Argentina is simply the best place in the world right now, all things considered.

It's certainly the cheapest "nice" country in the world. Indeed, Buenos Aires is absolutely one of the world's greatest and most livable cities. The country is running a massive balance of trade surplus. The government (most surprising of all) is running a big fiscal surplus. Rich Europeans are piling in, since Argentina is now ethnically and culturally the most European country in the world. And it should be fairly insulated from WW3. All the stars are aligned for this place. Even as stupid as Argentina's government has traditionally been since the days of Peron, the bull market has a long way to run.

So I'm looking to spend around half the year there. Along with a partner, I bought a ranch in Patagonia 10 years ago, and it's been a spectacular investment.

But if I'd been familiar with Salta province – in the northwest – at the time, I'd never have bothered. The province averages about 5,000 feet in altitude, but is at about the same latitude south as Cuba is north. As a consequence, the climate is perpetually mild. And it's dry. Most of it is indistinguishable from Northern Arizona, New Mexico, or Colorado.

It's possible to buy huge parcels of land very cheaply (e.g. 100,000 acres for US$1,000,000), but that's literally in the middle of nowhere and of very little practical value. You're a feudal lord for the people living there. But if you want a latte and an International Herald Tribune, or anything to eat besides an animal some of the peons have butchered, forget about it.

It's a long-standing tradition at Casey Research that we eat our own cooking, so we've bought a lot of property in Argentina in the last few years. But frankly, I wasn't looking for a bunch more trading sardines; that's what stock certificates are for. I really wanted something I could personally use and enjoy. What we did, therefore, was buy 1,200 acres on the edge of the town of Cafayate, in the south of Salta.

Like San Martin de los Andes in Patagonia, Cafayate is going to become another Aspen. Or maybe the resort town of Taos, New Mexico, is a better analog. Located in a huge bowl, surrounded by the high Andes, it's quaint and picturesque. Especially since it's the center of a large wine region. So the area is really more like a "Taos meets Napa."

What we're doing on this land is putting in a world-class golf course, spa, health club, vineyard, equestrian facilities, and, in fact, lifestyle amenities of all types. A library, billiard room, cigar bar – you get the idea. Since good workers go for $200 a month, costs will be low, and services will be excellent. My personal vision is to take the best features from developments I know all over the world and put them together here.

I think we've got the right place, the right idea, and the right time. I also think the cost will be right. I expect it will, initially, go for something like 10%-20% of what something similar – but not even close to as nice – would go for in the U.S.

I hope early buyers will be successful people of a libertarian character; no jerks need apply. Then, as soon as possible, we're going to raise prices as high as possible to keep out the riff-raff.

So that's the story right now. For traveling or an outright real estate purchase, Argentina, all things considered, is my favorite place in the world.

I think it's imperative to have a crib outside your home country in today's world. I don't want to get into a detailed discussion of all the possibilities here; that would take a book.

i agree...

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