Q for Ladislav and others: Where can you get 8% in 2010

[Rock]

Ladislav, you've lived all over the globe in many out of the way places and presumably are familiar with local opportunities for investing in many countries.

Do you know of any second or third tier banks in any countries which pay 8% or more on local certificate of deposits or even commercial paper this year? These opportunities used to be easy to find (New Zealand , Brazil, Costa Rica, Philippines, South Africa, etc.) but with the global deflationary trend (in spite of inflation pressure), interest rates have tanked. A CD, even with a very long maturity, which offered around 8% wold really be tempting. I think CP is a lot riskier.

I think its fine to invest in foreign currency CDs. Investing in a large portfolio of currencies + gold (easy to do with a good broker) is an easy way to escape the long term risk of holding US$ or any other one currency. Brokers enable you to do this with minimal capital as you can leverage through carry trades, some of which can even earn you interest.

[Winston]

I doubt if Ladislav knows. Questions like that are better addressed to Momopi, who is our resident economics/finance expert. He is very knowledgeable in that area, as well as left brained (which he will probably take as a compliment lol)

Momopi, any idea?

[Contrarian Expatriate]

That is an immensely difficult rate to achieve unless you have a promotional rate or it is from a risky country.

I was aware that some former Soviet countries had new banks that had 10 to 12 % promotional rates so long as it was in the local currency. There might be restrictions on getting your money back when you want and there would be currency fluctuation risk too.

8 percent is roughly the long term return rate of the stock market so good luck finding that in a CD or a Money Market.

[Rock]

Hi Contrarian Expert. Perhaps this thread should be moved to money section.

Thanks for your reply. I don't mind taking on the risk which goes with holding a local currency CD in a second or third tier bank based in an emerging market. I've done this before and its worked well for me. Of course the country has to allow non-resident foreigners to open such accounts. Some do and some don't.

The best way to learn about these opportunities is being on the ground in a given country and talking to long term expats or savvy locals. I had mentioned Ladislav because he is extremely well traveled. Perhaps Momopi, yourself or others could suggest some other alternatives (you mentioned Russia, which banks?).

Presently, I am open to most currencies in Asia, Latin America, Russia, and perhaps Eastern Europe in spite of Greek contagion risk. South Africa is a possibility. Of course I don't consider countries which barely function such as Zimbabwe or countries currently at war.

On average, emerging market currency values do fluctuate in value more than so-called first world currencies. And yes, sometimes they collapse. In the last 15 years, this has happened to the Russian Ruble, Argentina Peso, Mexican Peso, several southeast Asian currencies, and even the Icelandic Krona (is that an emerging market) among others.

But, it is also increasingly risky to hold just US$ as we Yanks are learning from painful experience. Ditto for other fiats like the Euro, GBP, and to a lessor degree, the Japanese Yen.

Therefore, I believe the safest currency strategy is to diversify asset exposure over a broad range of currencies and quasi currencies - First world, emerging markets, and gold.

Since I am willing to hold a wide array of currencies, I will seriously consider opening local currency accounts in high interest yielding countries even if they are considered riskier. These could be in the form of local CDs, money market, or demand deposit accounts.

I've had a Brazilian Real demand deposit account since late 2002 which until last year was earning at least 9%. Its fell to just 3.5% in 2009. That currency is considered a risky emerging market currency and has had ups and downs. But its current value relative to the USD is more than double what it was when I exchanged my money right before account opening. So the volatility has worked strongly in my favor so far.

Finally, countries with high inflation typically offer better CD yields. But their currencies don't always loose value against the US$ as economic theory would suggest. At least this has often been the case over the last decade. I believe this has a lot to do with the States increasing foreign debt level as a percentage of GDP which puts long term downward pressure on the USD value.

Remember, back in the high inflation 70s, USD CDs were paying rates above 15%. Anyone who had invested a lot of money into a long duration CD would have made a made a killing.

[ultraviolet]

8 percent is roughly the long term return rate of the stock market so good luck finding that in a CD or a Money Market.

The US indices have been flat in the last 10 years and CD's are definitely not yielding anywhere near 8%. However I've been told that preferred shares on banks are yielding anywhere from 6-8% (at least here in Canada) so that might be an avenue to explore.