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Bitcoin has arrived in Ecuador in more than one way and has implications for the world.   We live in a digital work that makes many tasks easier and faster.   This extra speed is good sometimes but not in the creation of currency without value backing.

In the early years of our residence in Ecuador Merri and I watched Ecuador’s currency, the sucre collapse from 3,000 sucre per US dollar to 25,000 sucre per US dollar because Ecuador’s money supply expanded too quickly.

sucre

To save the nation’s economy, finally the sucre was abandoned and the US dollar became Ecuador’s currency.  This stopped Ecuador’s political system from continually creating more currency that fueled the sucre’s destruction.

Digital currencies have arrived in Ecuador.  This idea may reignite inflation in Ecuador.

Even worse the digital sucre may signal a global trend of faster expanding money supplies.

The concepts of non Bitcoin digital currencies began in Ecuador in 2o10 when Ecuador began using the digital sucre.

Bitcoin arrived more recently in Ecuador.  An article in Bitcoin magazine details how there were 30 delegates at the first Bitcoin meetup in Quito last February. (1)

There are two serious concerns about digital currencies such as Bitcoin and the digital sucre in Ecuador.

To explain the concern, let’s delve more deeply into the definition of money.  Let’s look at how currencies are created, how inflation occurs, and how the value of money is determined.

Money makes it possible for us to buy and sell without bartering. Money gives us a “medium of exchange,” which allows our complex global, economic system to function.

Money acts as a way to put tangible, universal value on commodities and services.  It helps us compare the value of one thing with another.  Money gives us a “unit of value,” which allows us to make decisions about purchases and investments.

Money should also provide  a way to store wealth — to preserve current purchasing power for spending at a later date.

Money must be “real and rare” to carry out these functions.   Only money created by real production can be real money that survives inflation.  Money must have seven specific qualities if it is to work properly.

* Specific Money Quality #1: Money must be acceptable by both parties in a transaction. To be absolutely universal in value, money must be acceptable to everyone.

* Specific Money Quality #2: Money must be portable. One must be able to take money where it is needed. This is what has made paper and plastic money so much more popular than gold.  Paper currencies, checkbooks and credit cards are so much easier to carry than lumps of gold and silver.

* Specific Money Quality #3: Money must be rare and require effort (real production or work) to attain.  If you look at all of the qualities of money, you can easily see why gold makes such good money.  This precious metal has all of the qualities required of money.  Yet if you compare gravel to gold, you will see that gravel also has most of these qualities, except rarity.  Gravel is as common as dirt and if gravel were used as money instead of gold, the temptation to just pick it up on the road, rather than work for it, would be too great.  Money must offer an incentive to work and apply discipline.  Rarity creates this incentive.

Reducing this quality of rarity creates inflation.  When a government reduces the rarity of its money, the action destroys the money’s value.

* Specific Money Quality #4: Money must be divisible and uniform in quality. In other words, people must be able to know that each unit of the money is real, not forged or altered.

* Specific Money Quality #5: Money must have some intrinsic value, or be useful in itself or be backed by some intrinsic value.

* Specific Money Quality #6: Money must be naturally durable. There have been many times when goods or commodities such as chocolate, coffee, cigarettes or silk stockings, etc. have been used as money. The conditions were such that the commodity was so desirable and so rare that these two qualities were enough to make them a form of money.  Yet they failed to last as money because they are too fragile and once consumed cannot be used as money again. Real money must be naturally durable and able to be used again and again.

Metals such as bronze, gold and silver fit many of these categories.

Yet these metals are weak when it comes to the portability issue.  Gold and silver are bulky and heavy.

* Specific Money Quality #7: Money must be safe.

Plus there is the security issue. If everyone knows that everyone has a lump of gold sitting around the house… the temptation to rob grows.  Money must be easy to secure from local thieves and also from governments or others (counterfeiters) who will steal a currency’s rarity.

Bitcoin security is one of my major concerns. The Mt. Gox exchange had the largest trading volume, but had serious security breaches.  There are security risks of individual exchanges and security risks of storing bitcoin as well.

The Sucre beyond Bitcoin

A Wall Street Journal article  “Who Needs Bitcoin? Venezuela Has Its Sucre” by Mercedes Alvaro and Jeffrey T. Lewis tells how Ecuador and Venezuela began using virtual currency in 2010.

The Sucre is a virtual currency designed to replace the US dollar in trade between Ecuador, Cuba, Bolivia and Nicaragua.

The article says:  The sucre is a trading currency. Importers and exporters make and receive their payments in their local currencies.  Until now, almost all the trading using the sucre has been between Venezuela and Ecuador.

Ecuadorean companies exported $737 million worth of goods to Venezuela using the sucre system in the first nine months of 2013, an 80% increase from the same period in 2012, according to Ecuador’s Central Bank.

That growth has drawn attention from the country’s regulators, which are cracking down as fraud involving the virtual currency rises.

The heightened scrutiny of the sucre comes as law-enforcement officials and policy makers around the world are paying more attention to the risks posed by proliferation of virtual currencies. China, for example, recently moved to restrict its banks from using bitcoin amid concerns about money laundering. European regulators have warned of the risks of using bitcoin.

For companies in Ecuador, the sucre’s appeal is its implicit payment guarantee. A combination of falling oil revenue and currency controls have resulted in a dollar shortage in Venezuela that has left many importers of basic goods hamstrung. Ecuador exports to Venezuela everything from carts to tuna to diapers.

In a typical sucre transaction, a company in Ecuador sends the Venezuelan importer an invoice denominated in U.S. dollars, which is Ecuador’s national currency. The Venezuelan company then sends that invoice to the Venezuelan Central Bank, handing over bolívares. The Venezuelan Central Bank converts the bolívares to sucre and transfers the sucre to Ecuador’s Central Bank. There, it is converted into U.S. dollars, Ecuador’s national currency, and the exporting company receives its payments.

This digital sucre system creates several concerns.  One concern is of expanded inflation.  The transaction above has created money that may not exist.   Venezuela may not have the money to pay for the imports from Ecuador.  That sucre transaction may create funds without productivity and without any real backing.  This imports inflation from Venezuela to Ecuador.

The second concern is security.  There have been numerous claims of fraud in the sucre system.  Ghost companies have been created between Ecuadorean and Venezuelan firms, sending invoices with inflated prices for goods.

One Ecuador business exported calcium carbonate at a price of $1,000 a kilogram, when the actual cost of the shipment was 17 cents a kilogram.  Another fraud raised the price of handicraft equipment from $1,200 to  $250,000.

Finally, there is the concerns of money laundering.  The WSJ articles explain that Ecuadorean prosecutors have filed money-laundering charges against 19 people, nine of whom have been arrested while the others are still on the run from authorities. “It’s a very big operation, and we’re working in coordination with the prosecutors’ office in Venezuela,” said Galo Chiriboga, Ecuador’s top prosecutor. “We’ve detected criminal organizations that operated in Ecuador, sending money not just to Venezuela but also to other countries.

The global concern is that if these digital currencies work for the government that the idea will grow.  Digital currency will become the next generation fiat currency. This will make it easier for governments to devalue currency and harder for us as individuals to understand which national currencies are rational and balanced and which are not.

Be careful with Bitcoin.  The verdicts on its success and security are still out.

digital sucre

Digital sucre chart at Bloomberg  (Click on image to enlarge)

Watch the digital sucre (currency  symbol XSU) as well.   As the Bloomberg chart above shows, the digital sucre is already being regularly and slowly being devalued from the already ridiculously weak Venezuelan Bolivar.

The speed of this digital currency growth can be a warning of inflation in Ecuador and of more currency devaluations elsewhere ahead.

Gary

One way to protect again a currency’s devaluation is with multi currency investing.

How to Gain With Multi Currency Value Investments

Old Accord Creates New Profits – Multi Currency Investments.

Earn more with multi currency stock market breakouts.

Improve Safety – Increase Profits

Learn how to improve the safety of your savings and investments by selecting good value and diversified investments in a multi-currency portfolio.

Few decisions are as important to your wealth as the value of the markets and currencies you invest in.  This has been our area of expertise since the 1970s and we have worked with and advised some of the largest currency traders in the world.

Gain Protection First – Against the Dollar’s Purchasing Power Loss.  In 1913 the The Federal Reserve Act created the Federal Reserve Bank to protect the purchasing power of the US dollar, which has since lost about 94% of its purchasing power.  Here is its price compared with gold since 1900.

priced in gold

Dollar chart from pricedingold.com (1)

The Fed has let the dollar lose most of its strength plus has allowed interest rates to fall so low, that safe investments cannot keep pace with the drop in purchasing power.

multi-currency-chart

Chart from Grandfather Economic Report (2)

Many investors have forgotten about the risk of a falling dollar because the greenback has been strong for the past five years.  This temporary dollar strength came after the great recession of 2009 just as there was temporary dollar strength after the great recession of the 1980s.  Then about six years after the recession, an agreement was made by major governments to weaken the dollar.

There was a severe global economic recession affecting much of the developed world in the late 1970s and early 1980s.  The United States and Japan exited the recession relatively early, but high unemployment would continue to affect Europe and the UK through to at least 1985.  As a consequence between 1980 and 1985, the US dollar had appreciated by about 50% against the Japanese yen, Deutsche mark, French franc and British pound, the currencies of the next four biggest economies at the time. Then the governments reached an agreement and exchange rate values of the dollar versus the yen declined by 51% from 1985 to 1987.

Now the world is again in the same place.  The recession is over.  Europe is a bit behind in recovery and the dollar is higher than before the recession.

There is no reason for the greenback to be  strong.

The agreement in 1985 was called the Plaza Accord.   Over just two years the greenback dropped nearly 50% versus other major currencies.  The next accord will generate great profits for those who know what to do while it ruins the purchasing power of dollar back investments.

The strong US dollar and low interest rates have created one of the biggest stock and multi currency breakout opportunities in history.  Learn how to create a plan to profit from multi currency shifts ahead.

One reason for the potential gains is that stock markets and currency values are cyclical.  Due to low interest rates created by the 2009 economic downturn, the US and a few other equity markets have risen to some of their highest prices, ever.  These markets offer very poor value now.  The steep valuation creates incredible profit potential but also hides some enormous risks.  Learn how to develop an investing strategy based of earnings, cash flows, dividends and book values to increase potential for profit and reduce the risks.

Next Extra Profit Created by Value Breakouts

Over the history of US equity markets, the  price of overall markets have risen about 9.1 percent, respectively, compounded annually.  Yet over more than a hundred years of stock market activity,  a majority of the profits have come from just a very few dramatic breakouts.

Equity markets are ruled in the short term by emotions that create unpredictable ups and downs.  Numerous fears of defaults, worries of double dip recessions, high unemployment, concerns about fiscal cliffs, hold investors back.  Yet global population growth and advances in production and prosperity are relentless economic fundamentals that increase value.

When fear holds back a a fundamentally rising value, rising profit potential grows.  Values increase as prices stagnate.  Then markets break free and rocket upwards creating wealth, prosperity and growth.

Find out which breakouts are likely to take place next.

Stocks rise from the cycle of war, productivity and demographics. Cycles create recurring profits. Economies and stock markets cycle up and down around every 15 years as shown in this graph.

stock-Charts

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns create war.

Here is the war stock cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WWIII) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Learn how the Cyber War (WWIV) may change the way we live and act and how this will affect currencies and investments.

Learn:

* How to easily buy global currencies, shares and bonds.

* Trading down and the benefits of investing in real estate in Small Town USA.  We will share why this breakout value is special and why we have been recommending good value real estate in this area since 2009.

* What’s up with gold and silver?  One session looks at my current position on gold and silver and asset protection.  We review the state of the precious metal markets and potential problems ahead for US dollars.  Learn how low interest rates eliminate  opportunity costs of diversification in precious metals and foreign currencies.

* How to improve safety and increase profit with leverage and staying power.  The seminar reveals Warren Buffett’s value investing strategy from research published at Yale University’s website.  This research shows that the stocks Buffet chooses are safe (with low beta and low volatility), cheap (value stocks with low price-to-book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios), but his big, extra profits come from leverage and staying power.  At times Buffet’s portfolio, as all value portfolios, has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

keppler asset management chart

This chart based on a 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of outperformance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

Learn how much leverage to use.  Leverage is like medicine, the key is dose.  Buffett leverages his portfolio at a ratio of approximately 1.6 to 1.  This rate of expansion by the way is called the “Golden Ratio”.  It is a mathematical formula that controls the growth of most natural things; trees, the shape of leaves, the spiral of shells, as well as the way economies and societies grow.

We’ll sum the strategy, how to leverage cheap, safe, quality stocks and for what period of time based on your circumstances.

Learn to plan in a way so you never run out of money.  The seminar also has a session on the importance of having and sticking to a plan.  See how success is dependent on conviction, wherewithal, and skill to operate with leverage and significant risk.  Learn a three point strategy based on my 50 (almost) years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

Enjoy investing more with slow, worry free, good value investing.  Stress, worry and fear are three of an investor’s worst enemies.  These are major foundations of the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market they choose.  The behavior gap is created by natural human responses to fear.  The losses created by this gap grow when investors trade short term under stress.

Learn how to put meaning into your investing by creating profitable strategies that combine good value investments with unique, personal goals.

Learn how to span the behavior gap.  Behavior gaps are among the biggest reasons why so many investors fail.  Human evolution makes fear the second most powerful motivator.  (Greed is the third.)  Fear creates investment losses due to behavior gaps.  Fear motivates us more strongly than desire.  By nature investors are risk adverse, when they should embrace risk.  Purpose is the most powerful motivator,  stronger than fear and greed.  One powerful way to overcome the behavior gap is to invest with a purpose.

Combine your needs and capabilities with the secrets and the math of our good value model portfolio.

Share ideas about my good value portfolio.  My personal investment portfolio comes from a continual analysis of international stock markets and a comparison of their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.

Markets included in this portfolio are:

• Norway
• Australia
• Hong Kong
• Japan
• Singapore
• United Kingdom
• Taiwan
• South Korea
• China

These markets have been chosen based on four pillars of valuation.

• Absolute Valuation
• Relative Valuation
• Current versus Historic Valuation
• Current Relative versus Relative Historic Valuation

Learn how to use Country ETFs to easily construct a diversified, risk-controlled, equally weighted representative country portfolios in all of these good value countries.

To achieve this goal my portfolio consists of Country Index ETFs that track an index of shares in a specific country.  These country ETFs provide diversification into a basket of equities in the good value countries.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

This is an easy, simple and effective approach to zeroing in on value because little management and guesswork is required.  You are investing in a diversified portfolio of good value indices.  A BUY rating for an index does NOT imply that any stock in that country is an attractive investment, so you do not have to pick and choose shares.  You can invest in the index which is like investing in all the shares in the index.  All you have to do is invest in an ETF that in turn invests passively in all the shares of the index.

Learn the results of a $80,000 share purchase cost test that found the least expensive way to invest in good value.  The keys to this portfolio are good value, low cost, minimal fuss and bother.  Plus a great savings of time.  Trading is minimal, usually not more than one or two shares are bought or sold in a year.  I wanted to find the very least expensive way to create and hold this portfolio so I performed a test.

The Test for Low Cost Trading

Research put every part of this portfolio in place, except knowing the best, easiest and least expensive way to buy.  A search for an optimal way to buy and hold boiled down to two methods.  One tactic to test was to use a unique online broker that appeared to offer the lowest cost deal.  The other approach was to use a community bank in Smalltown USA.  The small town bank that I use looks after my 401K trust account and their service is first class.  The benefit of small banks is that they still treat us as a human beings (instead of a number) and when we need, it’s easy to go right to the top to answer a question or get a problem resolved.  There are no call centers and the bank and the person looking after my account is just around the corner.

I created a test to see which offered the least expensive service.

Working with my banker in Smalltown USA,  I created two accounts, one at the online broker and the other at the bank. I placed $40,000 in each.

I set up the order for the country ETFs online, while my trust manager set up orders for the identical amounts of the same shares in his system.  Then we got on the phone, coordinated our timing and on a count of three each pushed the button “BUY”.

The results of this test  show how you can gain on any purchase of country ETFs.

In this special offer, you can get this online seminar FREE when you subscribe to our Personal investing Course.

Save $468.90 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.  Plus you receive FREE the $29.95 report “Three Currency Patterns for 50% Profits or More”, the $39.95 report “Silver Dip 2017” and our latest $297 online seminar for a total savings of $468.90.

ecuador-seminar

Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years, the two reports and the Value Investing Seminar right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, the “Silver Dip 2017” and “Three Currency Patterns For 50% Profits or More” reports, and value investment seminar, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Your subscription will be charged $299 a year from now, but you can cancel at any time.

Gary

 

Gary

(1) Dollar chart from pricedingold.com

(2) Grandfather Economic Report

 

 

 

 

(1)  Bitcoin Magazine Ecuador article

(2) Who Needs Bitcoin? Venezuela Has Its ‘Sucre