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THE RICH REPORT
The  2009 Rich Predictions
By Howard Rich

I'm a little leery of predictions. For one thing, "prediction" sounds too much like "perdition." And far too many prognosticators go straight from the former to the latter. Like the Business Week scribe who in 1957 opined, "With over 50 foreign cars already on sale here, the Japanese auto industry isn't likely to carve out a big slice of the U.S. market." Clearly, the U.S. Big Three automakers took that as an article of faith.
 
Nonetheless, it is January of a New Year, predictions are the order of the day, and "fools rush in where angels fear to tread." So, I'm going to stick my neck out. I'm going to give you four predictions as to where I think the smart offshore investment money should – and should not – go in the coming year. And if I'm wrong, I'll buy you a steaming cup of my favorite café con leche on the Sunday morning of your choice at the festive Plaza Dorrego near my home in Argentina.
 
Sound like a deal? Good, then let's get started – after I give you my ground rules for the predictions I'm about to make. If you're a "Rich Report Regular," you know that when I make a recommendation, I'm talking about diving in, not dabbling. The Rich Report is for serious investors only. So, you need to know what goes into my decisions before you make yours.
 
First, please keep in mind that we are dealing strictly in the world of economics. And in my corner of that world, the coin of the realm is capitalism. Pure and simple.  Politics are tossed to the side. And that means any country in which I recommend investing must first and foremost have a solid free market system.

As Ayn Rand wrote decades ago, "Capitalism demands the best of every man – his rationality – and rewards him accordingly. It leaves every man free to choose the work he likes, to specialize in it, to trade his product for the products of others, and to go as far on the road of achievement as his ability and ambition will carry him."
 
If you're the kind of business executive who believes in that, you're likely already studying Latin American real estate markets. And if you're not, I don't mean to be unkind, but you're probably too busy applying for your bailout to think about offshore investing anyway. 
 
Second, I want you to at least have a passing knowledge of the four criteria I consider foremost when making my own offshore investments. If you've ever read Richard Branson's excellent autobiography, "Losing My Virginity," you already know them – because he laid them out with crystal clarity in the Epilogue: "If there's a good business plan that offers good value, limited downside, good people, and a good product, we go for it."
 
That may explain why Branson is now making major moves in Latin America in everything from bio-fuels to airlines. He likes to get in early and cash out big. So do I. And in my humble opinion, so should you.
 
So, let me predict where I think you'll find it best to get in early in the coming year – as well as where I personally recommend you might want to stay out of all together. I'll give you one Latin American country I consider a "Hot Pick" and one other I consider a "Not Pick." And, I'll even throw in an "Honorable" and "Dishonorable Mention" to boot. Then, in the words of the immortal words of Nathan Detroit, "You makes your choices and you takes your chances."
 
Let's start with the "Not Pick," so that we can end on a high note. These (the Not Pick and the Dishonorable Mention) are countries that -- if they continue on their present course – likely will end up as little more than welfare states hell bent on bankrupting investors and rationing scarcity. If you feel charitable, send money. If not, say "Adios."  Top Not Pick: Venezuela -- The whole problem with investing in Venezuela in 2009 can be summed up in two words: Hugo Chavez. 
 
No, not because Mr. Chavez considers George Bush "el Diablo" and pals around with Mahmoud Amadinejad. About half of the Hollywood glitterati would agree with el Presidente on Mr. Bush. And, as to Mr. Amadinejad, he and Sr. Chavez have much in common: they have both managed to parlay oil wealth into abject poverty.  And that, in a nutshell is the problem Hugo Chavez presents for serious investors:  he has destroyed a once-thriving economy – and shows no signs of ending his egomaniacal assault until he has reduced that once-proud nation to Fourth World status.

In the name of full disclosure – and just to demonstrate the arms-length, nothing-personal approach I take to offshore investing – I should mention that six weeks before the 2002 coup attempt against Chavez, I bought stock in Venezuela’s CANTV telephony giant. The stock doubled upon reports of the coup – and then sunk back to where I bought it when the counter coup occurred. Which leads me to suggest that should investors get any reliable advance word of  a takeover by the opposition, Venezuela could again be a very good buy. But, it’s not now. Here's how Dr. Hugo J. Faria, Professor of Economics and Finance at the Instituto de Estudios Superiores de Administracion in Caracas, Venezuela, describes Mr. Chavez’ effect on his country and its industrial base:

"Chavez has been a destabilizing force around the world, attempting to subvert democratic rule and capitalism and to establish the so-called Socialism of the Twenty-First Century in his own country and elsewhere. In Venezuela, the so-called Bolivarian Revolution in 2007 nationalized electricity companies, renationalized the largest fixed telephone company, and shut down a TV station with the broadest audience in the country."

Under Chavez, the inflation rate in Venezuela has reached 20 percent. Price controls have so severely impacted food supplies that Chavez has sent police patrols into grocery warehouses and mom-and-pop stores to search out what he terms "hoarders and speculators." And meat-packers are turning away cattle because government-imposed prices for meat are too low to even pay the cost of butchering and processing.

Now, with the price of oil tanking, Venezuela isn’t going to be the powerhouse it has tried to be the last few years. And with Chavez trying to do away with term limits on him and manipulating numbers in his last election (which even he now admits he lost) things don’t look too promising.
 
Little wonder that the London Times recently reported:
 
"For the past eight years, rich Venezuelans have been trickling out of the country, spooked by the socialist bluster of their populist President, Hugo Chávez. But since being inaugurated for his third term in January, Mr Chávez' talk has begun turning into substance, with an evermore radical series of moves to transform Venezuela into the world's first '21st-century socialist state.' Now the super-rich are being joined by middle-class professionals and, increasingly, families."
 
Enough said. If the best people are leaving the worst person in charge, savvy investors should save their money by looking for somewhere else to invest.
 
Dishonorable Mention: Ecuador: Ecuador is a stunningly beautiful country, with warm, friendly people, abundant natural resources – and a government that veritably embodies Churchill's definition of socialism: "A philosophy of failure, the creed of ignorance, and the gospel of envy; its inherent virtue is the sharing of misery."
 
Lest that sounds too strong, here's how Ecuador's socialist President, Rafael Correa described investors who made the mistake of buying his country's global bonds – and to whom he now refuses to pay $31 million in interest due: "I gave the order not to pay the interest and go into default. We know very well who we are up against – real monsters." As bad as that is, the full story is even worse. Here's how the respected Investor's Business Daily described Mr. Correa's truculent declaration:
 
"The problem is President Rafael Correa. His aim is total state control. By defaulting, he's trying to end Ecuador's use of the dollar and shut down the private sector by depriving it of investment. Both bode ill for the country's future." Perhaps Enrique Alvarez, head of research for Latin America Financial Markets at IDEAglobal in New York, best summed up the situation: "They were already sort of headed into isolation. Now, they drawn shut the gate."
 
My prediction for Ecuador? To quote Rocky III's Clubber Lang: "Pain." In short, don't go there. The good people that still remain can't make up for a burgeoning downside, devaluation, and a product gone awry.
 
Okay, enough of the bad news. Let's knock off the doom and gloom and look at the sunny side of the Caribbean shoreline. And there is plenty of it. Most countries in Latin America have transformed themselves into thriving, free-market economies where the real estate ROI in 2009 and the ensuing years will far surpass anything the Wall Street "paper chase" provides far into the next decade.

Scotia Bank chief economist Warren Jestin predicts that the global economy won't even begin to recover until 2010. And even then, the revival will be "gradual and in some cases disappointing." Says he: "Slower growth in the developed world is the reality as we go into the next decade."
 
So, here's where your friendly Hot Pick prognosticator predicts your money will grow in the next decade – if not rapidly, at least consistently. And, frequently in the double-digit-per-annum range.
 
Top Hot Pick: Honduras: At present, there may be no other locale in the Caribbean that offers investors all the advantages of Honduras. It is close to the U.S. (only a two-hour flight from Houston). It is has a long history of domestic tranquility (a solid democracy for nearly 30 years, it has never had a civil war). It boasts some of the lowest property prices in Central America. And the sun shines year round.
 
Need I say more? Well, I will anyway.
 
Costa Rica and Panama have both established themselves as dream destinations offering first-rate accommodations at Third World prices. But, there is one problem with both: they've been discovered. Every year, an increasing number of Americans – particularly retirees – buy property in one of those two countries either for rental returns or relocation. As a result, real estate prices, though still relatively low by U.S. standards have begun to rise. And the best bargains are long gone.
 
Not so with Honduras. Even on Roatan – considered by many to be the most beautiful island in the Western Caribbean – you can still buy an acre of beach view property for as little as $9,000. On the mainland, in beautiful La Ceiba, surrounded by rain forests and the turquoise Caribbean, a beachfront luxury condo can cost barely more than $100,000. In the mountainous regions of the lush inland, where quaint towns offer all of the tranquility of mid-Twentieth Century America, a acre of land costs as little as $500 or $1,000. And the sun never sets on pleasant living.
 
Add to this a government that welcomes investment and rewards industry, and lure of this little-known, undervalued land becomes apparent. Foreigners who move to Honduras pay no income tax on earnings from outside the country. Premier medical care is easily available at a low cost, with a private hospital room running no more than $30 to $40 a day and a full physical with modern technology priced at under $200.
 
The Heritage Foundation rates "Freedom from Government" in Honduras at a stunning 82.3% -- well above the world average and better than 22 points above the U.S. The president of Honduras is limited to one four-year term. The term of the current president, Manuel Zelaya, expires on January 27, 2010. And that bodes well for offshore investors. The person expected by many to succeed Zelaya, opposition party leader Jose Oswaldo, is a strong free market advocate, educated in the U.S., and firmly in the corner of those seeking to broaden the opportunities for offshore investors.
 
My prediction: By the middle of the next decade, Honduras will surpass Costa Rica and Panama as the top draw for expats and offshore investors. The property is undervalued with the downside risk being minuscule. The people are warm and friendly. And the political leadership is dedicated to providing an investment product second to none in the Caribbean Basin. That's a pretty tough combination to beat.

Honorable Mention: Colombia – Mention Colombia to most people, and they immediately conjure up visions of Pablo Escobar and his Medellin cartel. Which is unfortunate – since Escobar has been dead since 1993 and Medillin (with just 26 murders per 100,000 residents) is far safer now than Detroit (47), Baltimore (43) or even Washington, D.C. (31).
 
In fact, according to Interpol, "The rate for all index (violent) offenses combined [in 2000, the latest year available] was 464.22 for Colombia compared with 1709.88 for Japan and 4123.97 for the USA."
 
But, that's just the beginning of the story that reveals Colombia as one of the most desirable locales in Latin America. Colombia is a country with more than 400 miles of largely pristine seacoast. Its weather varies to suit your tastes – from Bogota where the days and warm and the nights are cozy, to Cartagena where the sun beats down during the daylight hours and the sea breeze cools the evening air. 
 
For an increasing number of tourists and retirees, in fact, it’s Cartagena that provides an all but irresistible allure. Way back in 1976, my wife, seven-year-old son, and I visited Cartagena and saw rats on the beach. Needless to say, we left it to them. But, that was then, and this is now. And here’s how the New York Times describes that beachfront resort now:
 
"The Colombia seaport of Cartagena has emerged as the belle of the ball. This tropical city on the Caribbean is pulsating like a salsa party, drawing well-heeled Latin Americans and European socialites to its restored colonial mansions, fancy fusion restaurants and Old-World-style plazas … But this stunningly beautiful city also has its quiet side. White-sand beaches and crystal-clear water are just a short hop away."
 
Yet, even with all of this, a home in Cartagena can be purchased for as little as $30,000 to $50,000. The cost of living throughout Colombia is far less than half of what it is in the U.S. or Canada. And health insurance runs some $30 a month – for a comprehensive policy. Key to the remarkable emergence of Colombia is the leadership of its free-market-oriented president, Alvaro Uribe, who enjoys a remarkable 90 percent approval rating. As Diarios Las Americas, one of the region's most popular newspapers, recently editorialized, "Anyone who in good faith analyzes the personality and the performance of the President of the Republic of Colombia, Alvaro Uribe Vélez, reaches the conclusion that he is a man with great moral responsibility who embodies all the requisites of a statesman, in the democratic sense of the concept."
 
The only chink I see in Uribe’s armor is that in 2004, he gutted the country’s one-term limit law in order to run again in 2006. That’s never a good sign. Under the new two-term limit, he cannot run again in 2010, and he appears intent upon honoring that commitment. I’ll keep an eye on that situation and keep Rich Report readers posted.

Bottom Line Prediction: Colombia, with an estimated 30,000 Americans already in residence there will, in the coming year see an exponential increase in interest and immigration. And those who buy in now will reap rich rewards for decades to come. That's it. I promised to rush in where angels fear to tread, and I think you'll agree I've stomped around pretty heavily. Whether I'm right on target or way off base remains to be seen. But, even at their worst, my predictions won't leave investors with a downside anywhere near as bad as the Big Three’s. So, I urge you to check out the warm waters of the Caribbean for yourself. Because I have a feeling millions of other Americans will do the same in the decade ahead.

See you next month.