But if you buy your special certificates in Dominican pesos and the capital is returned in Dominican pesos then the only devaluation concern is against the US dollar and if you have no need of US dollars then any devaualtion is not so important . I asume that you are advocating converting your pesos to dollars and sitting on them at a miserly 2% and hoping the dollar will continue to rise against the peso .
- Thread starter PeterInBrat
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Putting money into Dominican Cert of Deposits?
If you have no need to convert back to USD, then perhaps that strategy can be implemented, but only with a percentage of your capital. Anything beyond that is not properly spreading risk.
And make no mistake, there is risk. Risk from inflation returning within the country and the government printing more pesos and devaluing the currency, as well as other currencies getting stronger vis a vis their own central bank policies. Its a double edged sword.
If the US raises interest rates (as I suspect is coming by year end), the DOP and for that matter most currencies including the Euro will devalue without having done a thing on their own.
Bottom line is, if you are "investing" (I do not consider this an investment, but more a strategy) in those certificates to front run inflation and have no intent of converting those pesos to another currency and will not outlive the peso's march to zero....then it's probably ok as a strategy for a small portion of your capital......but definitely not as an investment. Also, don't forget the specific tax implications that may also come into play.
Keep your other investments as safe and liquid as your personal risk tolerance allows.
Respectfully,
Playacaribe2
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Here is why there is risk in going all in with pesos even if you live here and primarily use pesos. When the DR peso falls against the dollar, prices in the DR go up in pesos. If you had kept your US dollars you can then change them to pesos as needed at the higher peso rate which will somewhat offset the inflation based upon Dominican pesos.
Interesting observations here..especially when inflation here has been so low for a good amount of time and when the country that printed so much money one and two years ago was the USA and some USA banks had to be rescued or bought out during the USA led economic crash I do have 90 % of my eggs in one basket . I do not spread my risk and over the past 4 decades have not the slightest worry but I suppose I can count myself lucky . However I am thinking of selling almost everything and buying only Rio Tinto and BHP on the basis that they are dirt cheap and that China will eventually return to strong economic growth.
Certainly a contrarian view as commodities and commodity stocks have fallen out of favor....based on slower growth and lack of inflation....both integral components to sustain a move higher in those stocks (might be a trade...but not yet investable). Also, be aware, current earnings will likely signal a dividend cut...which will put further downside pressure on the stock.
Speaking of commodities, the DR has somewhat tied its fortunes to Barrick and the Pueblo Viejo mine. All was good at $1,900 oz gold....but now with gold at $1,145....the countries share of the profits has dropped dramatically....affecting its budget projections and ultimately its ability to spend and pay down debt.
It is interesting that those budget projections for next year also are based on a 47:1 Peso/USD projection.....giving one more information why those bank certificates being sold are not a good investment.....but perhaps only a strategy to try and front run inflation....which is indicated as low....but in reality food staples prices in the DR tell a slightly different tale. And Brazil, heavily dependent on commodity prices and a huge investor in the DR is currently in recession with all the attendant political ramifications. Expect investment from Brazil in the DR to continue to decline.
The good news, and perhaps buttressing a pro argument for those certificates is threefold. Oil, a huge portion of the DR's budget...is down.....creating a windfall in the country's coffers. Additionally, tourism continues to increase since its low point during the global recession. Finally, remittances have bounced back since those lows and continue to form a cornerstone of the DR economy.
Respectfully,
Playacaribe2
Perhaps his Ex informed him of this, and kept it in "safekeeping" in her name?
Confirmed, NOT a requirement, possibly a bank account, but no minimum CD required.
Why do people make things up, and post as fact, I just do not understand the train of thought?
playacaribe. BHP has guaranteed at least the same dividend for 3 years , by which time , commodities will have increased in value ..unless all history has no meaning .
A note put out in June by Morgan Stanley disagrees.....but that is what makes markets.
Morgan Stanley expects that BHP won?t have sufficient free cash flow to cover its dividends at today?s commodity prices, as the loss of South32 would cause a cash flow shortfall of about $400 million, which would need to be funded by raising debt. Net debt to EBITDA, a commonly used measure of indebtedness, was 1.5x in 2014.
Rio Tinto has a safer dividend unless iron ore prices continue to deteriorate....but both stocks are vulnerable to any rise in interest rates in the US.
Respectfully,
Playacaribe2
South 32 was highly successfully spun off , not lost..I prefer tolisten to the highly respectable directors of BHP than Morgan Stanly..but is my gamble and am not worried... Why should a rise in US interest rates which would cause a rise in the US dollar adversely affect the BHP when their contracts are largely in dollars??
playacaribe2...I just relooked at the Fridays end of the week advice I receive from two large broking firms in Australia and in relation to BHP and Rio Tinto they have revised their earnings forecasts down by between 12 and 16 % for the next two years. In relation to BHP , they still predict a very large operating cash surplus each year from which must be paid capital expenditure and after paying the steady current dividend , there will be a cash drain for the next two years . The dividend each year is only 25% of the positive annual operating cash flow figure ..The dividend will be paid partially out of retained earnings..hardly touches that figure .. so I see little problem.. Sorry to bore other readers with this ..and thank you for your advice
Lost as in the income it generated....as a result of the spinoff.
For a technical read on how rising US interest rates will affect dividend paying stocks....look for the article; Wolves in Sheeps Clothing: Hidden risks in dividend portfolios.
Precious metals stocks and in particular Gold stocks/bullion will also likely take a hit.
If you like dividend stocks and if you believe US interest rates are going to rise soon.....you should be buying bank stocks. Rising rates will boost profitability and allow them to also increase their dividend.
Respectfully,
Playacaribe2
I would suggest that the metric to look at for sustainability of the dividend is free cash flow....not operating cash flow.
With current dividend yields north of 6% for both stocks....you can then buy some DR certificates of deposit.
Respectfully,
Playacaribe2
I think I've heard enough so it won't be a priority anytime soon. Just glad I cashed out some of the stocks a month or so ago before they dropped.
"Safe" is a very strong word. There is risk inherent in equity markets as well as in capital markets. If you can distribute deposits in American banks beneath the FDIC limit, the risk is negligible but the return is closer to 0% than it is to any significant number.
The short answer to the original question is higher risk is the price of higher return. If you hedge higher risk investments with lower risk and lower return instruments such as cash deposits, insured CDs, highly rated government bonds, with an eye toward your short and long term liquidity needs, you would be managing your finances responsibly. Best of luck, please let us know how you make out - - in case we need to ask for a loan
The short answer to the original question is higher risk is the price of higher return. If you hedge higher risk investments with lower risk and lower return instruments such as cash deposits, insured CDs, highly rated government bonds, with an eye toward your short and long term liquidity needs, you would be managing your finances responsibly. Best of luck, please let us know how you make out - - in case we need to ask for a loan
6% on insured investments seems unrealistic. There are hedgies who meet or exceed that kind of return from time to time but their funds are neither insured nor guaranteed, but their fees, "buy in" rules, and redemption restrictions are 100% solid.