Post: #1

Read Sovereign Man’s recent article, and since I can never tell if he’s bullshit or for real, I looked into his strategy of investing in Republic of Georgia myself.

I chose a random bank, Liberty, and took a look at their interest rate info.

10% for a 1 year time deposit is impressive, certainly higher than the S&P’s performance lately. Assuming they’re open to U.S. depositors, I’m trying of figure out why the rates are so high, and what the reasons would be for not investing, especially if the Georgian banks are as well capitalized as espoused in the article. Tax wise, I’m assuming you’d get taxed at the 20% Georgia income tax rate, which you could apply as a foreign tax credit to your U.S. obligation...unless there’s some special tax for foreigners.

The two obvious considerations are:
1) Sovereign risk-- nationalization, war, or any of those types of things that befell 3rd world countries
2) Logistics of setting up an account -- looks like just a passport is required, but still probably would have to make a trip to Tsibili.

To point #1, if this is a valid concern, are there types of insurance policies you could get?

Can anyone think of why this is a bad idea? Any experience with this or a similar idea in another country?

Post: #2

(06-26-2012 08:05 PM)nmmoooreland20 Wrote:  Assuming they’re open to U.S. depositors, I’m trying of figure out why the rates are so high, and what the reasons would be for not investing, especially if the Georgian banks are as well capitalized as espoused in the article.

Impending war with Russia over Abkhazia and / or Ossetia?

Post: #3

(06-26-2012 08:54 PM)Icarus Wrote:  

(06-26-2012 08:05 PM)nmmoooreland20 Wrote:  Assuming they’re open to U.S. depositors, I’m trying of figure out why the rates are so high, and what the reasons would be for not investing, especially if the Georgian banks are as well capitalized as espoused in the article.

Impending war with Russia over Abkhazia and / or Ossetia?

The risk being that the government would nationalize banks? Or that the destruction from the war would inhibit banks from finding good loans to make? Is there cost-effective insurance or a good hedge you could put in place?

Couldn’t war also serve as a catalyst to manufacturing and other ventures requiring bank financing? Or could destruction following a war require bank financing for the rebuilding effort?

Post: #4

you also have to consider 1) foreign exchange rates - how does Georgia currency move in relation to the USD and how do u expect it to move? 2) inflation

The japanese yen carry trade was a very similar trade that made a lot of people a lot of money. I suggest you research that for how to implement a similar type of trade.

Post: #5

(06-26-2012 10:09 PM)HiFlo Wrote:  you also have to consider 1) foreign exchange rates - how does Georgia currency move in relation to the USD and how do u expect it to move? 2) inflation

The japanese yen carry trade was a very similar trade that made a lot of people a lot of money. I suggest you research that for how to implement a similar type of trade.

I'll look into the Yen carry trade-- looks informative, thanks. The article actually mentions a potential carry trade for this situation.

I don't think exchange rate would be an issue, since the bank takes USD deposits. The rates are even higher for GEL deposits tho, so could be something to look into.

Post: #6

I wouldn't risk it. The author has stars in his eyes; GE has the the GDP of Swaziland, is 50% rural, so any comparisons with Singapore or even "Singaporizing" are ludicrous.

Best investment strategy now, IMO? Uranium.