Editor’s Note: Not long ago, we published an interview about Tom’s recent trip to the most dangerous ghetto on Earth. Subscribers keep asking to learn more about Tom’s overseas investment-research adventures. So we followed up with him, below…
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J. Reeves, editor, The Palm Beach Daily: Tom, you just visited Colombia, Cuba, Venezuela, Mexico, and Britain. What prompted your trip?
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Tom Dyson, editor, The Palm Beach Letter: As I said last time, it’s my job to understand what’s happening in the world. A big theme I’m working on is the rise in the dollar’s value and a fall in the value of international currencies.
This is a big story. The dollar’s up about 25%—against a trade-weighted basket of currencies—in four years. That’s a big deal in the world of finance and currencies.
There are 20 currencies—representing more than two billion people—that have fallen more than 50% against the dollar. And this trend is just getting started. It will affect everything: global economics, markets, government policies…
The countries I went to all have interesting currency stories. The currencies of Colombia, Mexico, and the U.K. all just hit new record lows against the dollar. The Venezuelan currency is the worst-performing currency in the world. (Cuba has a peg to the dollar.)
I wanted to see the effects of the dollar bull market firsthand… and see if I could get any clues as to what’s going to happen next.
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J.R.: What was it like in a “reopened” (to Americans) Havana, Cuba?
Tom: The first thing I noticed is how dark it is at night. I felt like I was walking around Victorian London. There’s little street lighting. Plus, pollution makes the air hazy.
The city’s in ruins. It looks like someone dropped bombs on it. Many buildings have either collapsed or look like they could collapse at any minute.
Cuba’s income per capita is around $5,000 a year. It’s one of the poorest countries I’ve ever been to. Most people live off a few dollars a day.
But I felt “safe.” It’s a police state. They say half the population of Havana are police spies. So nobody robs tourists and there’s little crime. But I got fed up with them hustling me for money. In Venezuela, they rob you with a gun. In Cuba, they rob you with a smile.
You stand in line for everything. I stood in line for 20 minutes to buy a bottle of water—while the only cashier stocked shelves. In the U.S., a line at the checkout is an emergency. In Havana, it’s expected.
There isn’t much Internet in Havana. Some hotels have Wi-Fi… but there are no data plans and few broadband connections.
I didn’t love Havana. And the food is awful. There’s no variety. Meat, rice, beans, bread, and a couple of fruits. I couldn’t find any salad. And the supermarkets were so basic… so empty.
J.R.: What’s the tourism industry like in Cuba now?
Tom: There are thousands of tourists everywhere. French, British, German, Canadian, etc. I didn’t see many Americans. That’ll change soon. I read they’re opening up Cuba to American airlines in 2016. We’ll soon be able to fly direct from New York or Miami.
J.R.: Was it cheap?
Tom: Somewhat. Cuba will benefit from the rising dollar trend. There are a lot of Cubans living in America, earning and saving dollars. So when the Cuban economy opens up, it will see a massive influx of American dollars.
Cubans are going to feel rich… for a while. But as those dollars pour in, prices will rise in Cuba.
J.R.: Let’s talk about Venezuela…
Tom: Crazy place. It’s the cheapest place in the world right now. I took cash and changed it on the black market for Venezuelan bolivars. Each U.S. dollar fetched 650 bolivars. If I’d used my credit card for purchases, I would’ve only gotten 6 bolivars to the dollar.
This is what $200 looks like:
for more than 130,000 bolivars.
It’s so cheap there, I wasn’t able to spend this money. Full meals at top restaurants cost about $5 a head. I paid 6 cents for a tube of toothpaste. I got a personal trainer at a gym… for 25 cents a session. A ticket on the metro cost two cents.
The sad part is, for the locals, life is expensive. Venezuela has the highest inflation rate in the world… 200% a year. Incomes are low. School teachers make $30 a month. An engineer with a good job at the oil company makes $100 a month.
The inflation and currency devaluation destroyed whatever savings these people had. An entire society’s finances were wiped out.
J.R.: What’s causing the inflation?
Tom: The government is making every mistake in the book: money printing, price controls, expropriation of foreign assets, currency controls, and theft.
But the rising dollar is a big part of this story, too. As oil prices have collapsed, the dollar has strengthened. Oil is Venezuela’s only export… and its only source of dollars. So Venezuela has resorted to printing money to pay its debts.
Venezuela is an acute case of what will happen to many countries around the world over the next few years. It’s why I was so eager to go there.
J.R.: Where did you go next?
Tom: Mexico. The dollar now fetches 18 pesos there. So it feels cheap. I was buying plates of tacos for a dollar. My hotel was $40 a night. And I was in Cancun… one of the most expensive places in Mexico.
J.R.: What’s Cancun like?
Tom: Cancun’s doing well. It’s a big success story.
There are two parts of Cancun. The hotel zone is like Miami’s South Beach. It’s where all the spring breakers and tourists go. All the big American chains have stores, hotels, and restaurants there. They charge American prices. I didn’t spend much time there.
Then there’s the old Mexican town in Cancun. Twenty years ago, there were dirt roads and donkey-drawn carts collecting the trash. Today, it’s a busy, modern town. They’re even building American-style condo towers, malls, and movie theaters there. The Mexicans in Cancun were behaving like Americans… shopping. I couldn’t believe it.
Cancun isn’t the most picturesque town in Mexico, but I loved it and recommend it for a visit.
It’s safe—thousands of miles from all the drug cartel violence. There were police and soldiers everywhere. It’s so easy to get to. The beaches are beautiful. And the food is incredible. I spent my whole trip planning my next meal. I found this place called Parque de las Palapas, which was an open-air food market. Incredible…
With the peso at record lows and going lower, it’s a great choice for a weekend getaway.
J.R.: What’s going to happen next in international currency markets?
Tom: The trends I mentioned are just getting started. The dollar has a long climb ahead of it, as I’ve explained before.
The dollar is king. And as Americans, we take that for granted. But we’re lucky. And because it’s rising, we can prosper as investors by doing nothing but accumulating dollars. It’s really that simple.
Yes, we can do better by investing and using the strategies we recommend at PBRG… but it’s not necessary. In the eyes of the rest of the world, he who has dollars is rich.