By Gary Scott

Magic mountains cry golden tears, reflections of a dying sun. This purple morning of dusk, carried on eventide winds sings of sweet indigo rest and new salmon dawnings that can now begin.

Recently Merri and I were traveling south down Ecuador's Avenue of the Volcanoes, a 200 mile long plateau situated between massive mountains hunched in brooding, snow-covered grandeur that contrasts with the green equatorial lushness of the valley.

We approached Mount Chimborazo (mountain of snow), the second highest mountain in the world (about 22,000 feet). We were given a rare treat. The volcano is usually shrouded in mists and clouds. That evening the sky cleared exactly at dusk. A salmon glistening tinted the fading light, and the day’s end turned into an ivory patina from the new moon.

I took this shot and was reminded of a fundamental in the market place.

Our last three messages have looked at systems and how they affect fundamentals of markets. We have seen that systems are subject to entropy and always fall apart. Yet we also saw that the end of one system is the beginning of something new. Thus the death throttle of dusk is a bird song in the dawn.

Other fundamentals of systems and markets are that they are always in a state of flux. This means that markets are rarely in equilibrium. In fact imbalance is the motivating force of the market.

This means that markets are usually overbought or oversold. The skill of good traders is knowing which.

One way to spot emerging imbalances in a market is to observe velocity. When markets start to move quickly, there is a greater chance of an imbalance.

Right now emerging markets and currencies are in a difficult phase, and have been shifting quickly. This creates great opportunity, if we can ignore the daily tensions and stick to the fundamentals.

This is a special time of opportunity because the US dollar is under pressure as well.

Late in February 2006, Jyske Bank wrote that we “step on the brake” with respect to the emerging markets. We went on HOLD from BUY for bonds denominated in local currencies. The bank was concerned about profit-taking in general and/or the effects of a shift in the Japanese interest-rate cycle. They expected that external factors would trigger a correction and they were right.

However emerging-market fundamentals are still very positive and are heading in the right direction.

When Jyske issued that warning my liquid portfolio was

Metals
1.5% Silver
5.5% Gold

US$ Block
29.0% US$
11.0% New Zealand dollars
6.0% Japanese yen
1.5% Singapore dollars
5.5% Australian $

Euro Block
15.5% Danish kroner
8.0% British Pounds
15.5% Euro
3.0% Swedish kroner
8.0% Norwegian kroner
-10.0% Swiss francs

% By Investment Blocks
7% metals
53% US dollar block
40% Euro block

% By Investment Types
7% metals
17% equities
76% short term bonds with the latest maturity 2008 and interest bearing demand accounts

Since that time as the NZ$ and emerging market currencies have dropped I have switched US dollars into

2.5% Australian dollar bonds
2.5% British pound bonds
2.5% Hungarian florint bonds
2.5% New Zealand dollar bonds
2.5% Brazilian cruzero bonds

That liquid portfolio is only about 50% of the portfolio. The other 50% is in US and Ecuador real estate.

I have since taken profits on US real estate equal to 12.5% of the portfolio and am switching this and a portion of the US dollar portfolio into more non-dollar block investments.

In the end, my goal is about 35% real estate and 65% liquid.

My goal is to balance the 65% liquid portion of the portfolio at 50% in US dollar block but to reduce the US dollar portion of that block and add more of the other currencies. I am looking at increasing the emerging portion of this portfolio perhaps with Mexican pesos.

I am also looking to increase the Euro block to 45% including more emerging positions perhaps with the Turkey try, South African rand and Icelandic kroner.

I also plan to maintain a high degree of liquidity with the idea of increasing emerging equities (especially in water companies) if volatility pushes emerging equity process down.

I’ll update you as the dust settles.

Learn more about how to develop investing philosophies, invest in water and balance your portfolio. Join Merri, Thomas Fischer of Jyske Bank and me at our next International Business and Investing Made EZ course in North Carolina.

Of course none of this has anything to do with my daily earning power. My goal is aimed at 50% earnings in the US and 50% earnings abroad. I am adding to my publishing business and am increasing our export activity.

One great fact is that Cotacachi has a wonderful new market place. Here is Ma and me during a quiet time. This is a wonderful spot to get a local lunch for 75 cents! The locals are very proud of this new market.

However on market days the place looks like this! Chock full of goods.

This is why we are pushing this aspect of business for all our readers now. Here is what one reader wrote:

Hi Merri and Gary,

I would like to thank you both very much for a wonderfully enlightening and successful experience on the Import Export adventure!!

Although it certainly was a rowdy independent crowd and probably the first event of that nature and magnitude, you both did a great job by my experience and I appreciate all of your efforts!!

I fell in love, as have you and many, with Ecuador, its people and environs, and intend to make it my home when there are simultaneously hurricanes threatening Florida and typhoons in the Philippines.

I placed my first order for carvings while there and expect a first produced of each of the three pieces in 1-2 weeks.† They will be professionally photographed and I'll immediately create the first ad for one of the national magazines which would come out in 60-90 days.

I am also, on my return to Cotacachi the end of May, gathering the photos I need to create my other sales website, www.EcuadorSaddles.com, and scheduling the first magazine promotion to drive business to that site.

I have additionally come up with an ingenious way (from feedback of two of my fellow attendees) to get the highest quality artistic web design for a top artist’s site and lots of press at the same time in two very affluent art communities. Winter gallery shows in these two markets, plus two more, are highly likely, as well as the production of a top class high gloss soft cover coffee table book telling her story, the plight of the Andean guild craft artisan dilemma, and exquisite professional photos covering the entire spectrum and variety of her exceptional work.

Having explored almost 30 countries on my own, and never dreaming of going on a "tour" per se, and after accomplishing more in the first half of the trip than I ever imagined. At 49, I joined the company and career I'm now leaving at 56 to embark on a completely new career ... the talk about the seven-year cycles certainly hit home with me !! My deepest thanks, respect and love, Bruce

Learn how to earn anywhere you travel. See beautiful sights. Learn how to have everlasting wealth. Join Merri and me and our Ecuador Import-Export Expedition.

Until tomorrow, may you find peace and riches in this dynamic momentum of change!

Gary

P.S. Health tip. Yesterday’s message mentioned that low fat diets should be avoided. See why.

Learn how to gain energy and lose weight as you shed stress.

P.P.S. If you cannot make our upcoming Ecuador course in April, our friends at International Living are having an Import Export course in May. You can learn more.