Tuesday, February 9, 2010

Hair of the Dog

The mantra that is continuously repeated throughout Keith Fitz-Gerald's Fiscal Hangover:How to Profit From the New Global Economy is: "You must begin investing on a global scale, with a special focus on China. Fail to do so and I can almost guarantee that you will be left far, far behind.". Fitz-Gerald, who has a subscriber base of 500,000 with his daily missive Money Morning, believes that a decoupling has taken place in the worldwide economy and that the BRIC (Brazil, Russia, India, China) countries with China as the lead sled dog pulling: "the world's economy and its investment markets out of the mire.". I don't agree with his decoupling theory and am from the school that the world economies commingle and are interconnected through a vast spiderweb of financial and trade relationships. In fact, I don't agree with a lot of what Fitz-Gerald proposes in his well written book except for his premise that: "this U.S. economic collapse may become the toughest in recorded history - far more destructive in financial terms than the Crash of 1929 and the subsequent Great Depression.".

I got the feeling from reading Fiscal Hangover that Fitz-Gerald has his roots in the Austrian School of economics because he stated many times in the book that the stimulus programs were a mistake. He sums it up here: "...we should never have begun the bailouts. The concept of 'too big to fail' is a total myth. History is littered with failed institutions of all kinds - from banks to brokerage companies to automakers and airlines. In the end, U.S. taxpayers will be on the hook for all of the bailout costs, either directly through higher taxes or indirectly through still more inflation.". Again, I beg to differ. If there hadn't been a bailout program, the entire free world's economic infrastructure would have come to it's knees, if not worse. Throughout the book I got the impression that Fitz-Gerald thinks he's breathing rarefied air and that he somehow cracked the code on how to solve the world's economic problems. It's just not that easy.

Fitz-Gerald spends an adequate amount of time in Fiscal Hangover giving practical investing advice, some that I agree with, some that I don't. What I concur on is his belief that right now investors should be preserving liquidity and hoarding cash. He doesn't feel we are out of the woods yet as far as the financial crisis is concerned here in the United States, but despite that, you should be putting your money into overseas securities, particularly those from the BRIC countries. As he advises: "I still firmly believe that, while maintaining a diligent safety-first attitude, you should have at least 40 to 60 percent of your assets allocated to international investments...". I don't see eye-to-eye with him on this stance for two reasons. First, I think stocks worldwide are overvalued, especially in China. Secondly, he doesn't think that ADRs are the best way to go when investing in foreign securities.

Fitz-Gerald believes in investing directly in overseas stocks by going to the foreign exchanges via specialty brokers. He recommends Euro-Pacific Capital run by Peter Schiff and International Assets Advisory if you need a full service broker in this arena. For discount brokers, he suggests Interactive Brokers, Charles Schwab Global Investing Service or E-Trade. I still believe that if you want to invest in overseas companies, the best and safest way to go is with ADRs. With an ADR, you won't need a specialty broker. Investor's Business Daily has many BRIC country ADRs to chose from. You just have to read the paper on a regular basis to see which ones are up and comers or hot established companies. If you would like more information about specific stock recommendations, the author does offer a small smattering of individual securities in Fiscal Hangover, but the best route would be to subscribe to his newsletter The Money Map Report which goes for $99.95 a year. A reasonable price for a stock newsletter.