International property investments are the best option. Going forward anyone with any savings will do well to invest in international real estate. On October 13th 2008 the financial markets finally responded positively to the measures proposed by the major governments around the world in a concerted effort to remedy the crisis in the banking system. A crisis very much created by the world’s leading governments’ flawed policies, poor decisions and failure to adequately regulate the credit markets.
Ben Bernanke should have reduced interest rates much sooner as the high interest rates clearly caused many US homeowners to default on their mortgage payments, which was the beginning of the current US mortgage problems. By lifting US interest rates the dollar remained strong and made exports difficult at a time when more and more oil was imported at ever increasing cost to the US economy. This was really bad news for the US budget deficit. Interestingly the US National Debt as of today - 14th October 2008 stands at an incredible $10,281,930,345,890 which is equal to $33,721.60 for every single US citizen and too long to read properly. It is growing at over $3.34 billion EVERY day!
Notice that since US interest rates have been reduced US exports have increased which has helped strengthen the dollar. These increased exports have provided some relief to the US economy; failure to cut interest rates sooner – a big mistake Mr Bernanke.
Emerging markets sovereign wealth funds in the past few years decided they should keep some of their cash and this added to a lack of liquidity in the US markets.
Something many seem to have forgotten is that the major investment banks were allowed to increase their leverage in 2004 with changes to the SEC's "net capital rule." This in effect allowed the five largest investment banks in the US to greatly increase their capital leverage ratios from 12-1 to as much as 40-1. Basically this was one of the main motivations for the investment bankers to conjure up new ways of packaging debt. Interestingly all of these banks have recently either collapsed or transformed themselves into commercial banks.
So the cause of the current financial crisis “credit crunch” is a mixture of poor regulation of the credit markets, failure to cut interest rates sooner, the effects of increasing cost of commodities; particularly oil, sovereign wealth funds hording cash and changes to the net capital rules for investment banks in 2004.
It has to be said that most of these factors are a direct result of government policy and lack of government action. Clearly the US is the major culprit but in the UK Gordon Brown surely has to stand up and accept responsibility for not regulating the UK credit markets. A classic example is allowing local councils to gamble tax payers’ money on high interest schemes peddled by incompetent banking staff in countries such as Iceland; roll-up roll-up today we are offering an extra 1% for your money; what they didn’t shout about was the fact that this extra 1% was offered because the investments were in toxic debt; very high risk debt instrument that should have been paying 20% not 6%.
As for the UK banks they gambled money they didn’t have on various high risk debt instruments packaged in “special investment vehicles” set-up by smart US investment bankers to make toxic debt look harmless and our UK bankers now claim they didn’t properly understand the risks. Well if they didn’t understand the risks then they should have steered clear but the truth is that the culture in the city was to focus on yearly bonuses not worry about what might happen when these toxic debt packages mature in 3 to 5 years time. So it was an attitude of “make hay whilst the sun shines” and this is exactly why better regulation in the credit markets is needed.
So what does the future hold? The banking system is going to take years to recover so where should we put our savings? The stock market does not look like a very attractive option at the moment; stocks will take years to recover.
With a global recession pending commodities will fail to deliver the kind of attractive returns seen in the past 5 years or so.
Savings schemes offered by the big banks and financial institutions will obviously be viewed with a huge pinch of salt so that leaves property and with an ever increasing world wide population that has to be housed - surely property is the place to invest.
Find the right property in the right location; which probably means not the UK or the US and negotiate the best price, stay in there for the longer term and watch your investment grow. There are a number of developments in locations that are just becoming established and for the shrewd investor willing to do their homework the international property market today offers the best mix of security and growth.
