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Should Average Investor Buy Abroad? MoneyNews
(Headlines - scroll down for full stories)
The Wall Street Journal says the average investor should NOT buy abroad. The WSJ comments that individual investors who don't have Warren Buffett's investing expertise shouldn't bet against the dollar by holding foreign stocks. According to the paper, Dan Fuss, vice-chairman and portfolio manager of Boston-based Loomis Sayles, jokes: "If the individual is Warren Buffett, I'd tell them to go right ahead. But I don't know anybody who can predict currencies over a short period of time."
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The WSJ continues: "Aside from the obvious complexity tracking foreign markets, U.S.-based investors face the issue of how the dollar performs. A weakening in the U.S. currency - as Mr. Buffett expects - would boost returns once holdings in foreign securities are converted back into dollars. But a strengthening in the dollar could savage returns, even if foreign markets perform strongly." But we here at MoneyNews disagree. Certainly, there is currency risk when buying abroad. However, individual investors should not be discouraged from investing internationally. To the contrary, in our opinion, every investor should diversify holdings outside of the U.S. in this uncertain economy ... just like Buffett, the Oracle of Omaha. He recently reduced his contra-dollar holdings from $16 billion to $13 billion, picking up $2 billion in profits since 2002. So why shouldn't individual investors share in his success? In fact, there are some easy ways to invest in foreign markets. In January, our sister publication, SectorTrade, recommended ditching the dollar in exchange for the euro currency by using an exchange-traded fund (ETF) that concentrates on the value of the euro. This position is easily monitored. Plus, SectorTrade also recently suggested purchasing shares in an emerging-markets ETF. ETFs are traded on U.S. exchanges and are made up of a basket of stocks in particular sectors. In the case of the emerging-markets ETF, the holdings are in companies in Brazil, Taiwan, South Korea, South Africa and China, among others. And unlike mutual funds, they are traded like stocks throughout the day. This feature allows investors to respond to currency moves instantly, reducing risk. Editor's Note:
2. New Credit Card Minimums Worry Banks American consumers won't be the only ones anxious over the new credit card minimum payments imposed by the federal government. Institutions like Citigroup and J.P. Morgan Chase believe that delinquent people who can't afford to pay will hurt the banks' bottom line, as well. In filings documented with the Securities and Exchange Commission, both banks tell regulators that the new requirements from the Office of the Comptroller of the Currency, which regulates banks and credit-card firms, will damage both banks that issue credit cards and increasingly extended customers who may not be able to keep up to the new minimum payments. "Banks will not only have increased losses, but reduced revenue as well," Lehman Brothers analyst Jason Goldberg told the Associated Press on Sunday. "For some customers, the banks will have to reduce interest payments in order to keep them from defaulting. There's a bit of uncertainty because it's hard to predict human behavior." Credit card customers are carrying higher balances, according to numbers from the Federal Reserve. The Fed says in its monthly report on consumer finances that 46.2% of all U.S. households carry a credit card balance - up from 44.4% in 2001. Average balances have reached $5,100, up from $4,400 in 2001. "The new guidelines require credit card issuers to charge an amount that includes not just the outstanding fees and finance charges, but at least 1% of the principal owed," says the AP. "This could cost J.P. Morgan and Citigroup each about $500 million of losses and lost revenue this year." Citigroup holds about 130 million credit card accounts, while J.P. Morgan has about 110 million. The latter firm, which tracks customers making minimum payments, says that only 10% do so right now. The new minimum-payment rule could also drive more consumers into bankruptcy, say some card industry observers. Bill Hardekopf, chief executive of credit card Web site Lowcards.com, says card customers will get over the "sticker shock" of being forced to make higher payments - but many will soon wear down under the higher payments.
"The new minimums could be very beneficial to credit card companies because they'll get their money quicker, but it could become very expensive if it has the effect of driving more consumers into bankruptcy," he said. "It's too early to tell, but this won't hurt the big boys as much as it will hurt the sub-prime lenders."
3. More Accounting Bungles at Fannie Mae Fannie Mae, the nation's leading home mortgage lender, has uncovered more accounting errors and will miss its deadline for filing its 2005 annual report with the SEC. In 2004, the company was forced by the SEC to restate earnings to the tune of $11 billion. Now the company's internal audit has found even more errors. According to an AP report: "The company said that its financial statement from January 2001 to the second quarter of 2004 should no longer be relied upon. It will be restating financials from the years ended Dec. 31, 2002 and 2003, and the quarters ended March 31, and June 30 of 2004." Fannie Mae buys and guarantees the repayment of billions of dollars of home loans from banks and other lenders. The company then bundles the debt into securities that are resold to investors. The company's financial struggles call into question the strength of the entire mortgage market. Fannie Mae finances one in every five mortgages made in the U.S. If Fannie Mae were no longer able to purchase the billions of dollars in home loans from mortgage lenders, it would bring the entire lending market to a grinding halt. Without a guarantee from Fannie Mae, financial institutions would undoubtedly restrict lending. And that would mean that the already-cooling housing market could turn ice-cold. Editor's Note:
4. Kia Begins 'Aggressive U.S. Growth Phase' After being courted by several Southern states, Korean car manufacturer Kia Motors has announced plans to build its first U.S. factory - a $1.2 billion facility in Georgia that is expected to employ 2,500 workers and produce a maximum of 300,000 cars per year. Kia "is an affiliate of South Korea's largest carmaker, Hyundai, which has a factory in Montgomery, Alabama, 75 miles away," according to USA Today. Hyundai owns a 38.7% stake in Kia, and over the last five years the two firms have almost doubled their combined U.S. market share, which stood at around 4.3% last year. "The plant will be close to Hyundai's Alabama assembly line so they can share costs and maintain a close cooperative operation," a source told Bloomberg. In return for selecting Georgia, the state reportedly gave Kia an incentive package worth somewhere between $258-$410 million. Kia's overseas expansion is just the latest example of Asian automakers encroaching on American car-manufacturing dominance. "They are following Toyota Motor Corp. and Nissan Motor Co. in building factories in the U.S. as General Motors Corp. and Ford Motor Co., the biggest U.S. automakers, cut production," says Bloomberg. As previously reported in MoneyNews, perennial auto giants GM and Ford have seen their fortunes fade dramatically lately, with Toyota set to bump GM in 2006 as the world's largest car producer. And that has set the stage for vigorous competition. "Kia Motors has entered an aggressive growth phase in the U.S.," said Kia president and CEO Euisun Chung. The company expects to sell 800,000 automobiles annually in the U.S. and Canada by 2010. Analysts also say that manufacturing in America will allow the company to fight elevated currency costs. "The South Korean won climbed 3.2% compared with the U.S. dollar this year, eating into profits made overseas," according to BBC News. Back in February 2005, NewsMax's Financial Intelligence Report interviewed renowned stock picker Sir John Templeton, who mentioned that Kia was his top bargain stock pick. "I think there's a chance that Kia Motors will be larger than General Motors 30 years from now," Templeton said at the time. Editor's Note:
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