Doctor Samuel Johnson once said, "If you tire of London, you tire of life," and he was so right. But let me take a break from my holiday in the Greatest City in the World to tell you about a very important development here and how to profit from it.
Centuries in retreat, Britain is now experiencing a remarkable recovery, and London, the financial center of the world, is leading the way. "The whole country is staging a recovery," British financial advisor Jon Golding told me. "I have sensed a real change in attitude and economic activity recently." He feels that the British pound under $1.50 is a good buy, and I agree.
I also spoke to Dr. Madsen Pirie, director of the influential Adam Smith Institute, a free-market think tank that has had a significant impact on the Thatcher government. He says that Britain is on the move again for two reasons: marginal tax rates have been cut from 98 to 60 percent, and the British government is "privatizing" a wide variety of inefficient government agencies and services. These new trends have created a boom in many British industries. So far, Thatcher has privatized all or parts of several government holdings, including hotels, land, buildings, steel, oil, sugar, and, in the near future, British Airways and the Post Office.
Another factor favoring Britain's outlook is the "high interest, low inflation" period the country is going through. The situation is uncannily similar to the US experience in the early 1980s under Reagan. Britain's interest rates (12–13 percent) are extremely high compared to the rest of the Western world, while price inflation remains at 5 percent.
How to profit? There are several avenues:
First, open a "high interest" checking account at Lloyds Bank in London. You can earn over 12 percent a year on this unique checking account, which is in British pounds. Interest is earned daily, but paid quarterly. Minimum investment is only $3,500.
In addition to the checkbook, you can obtain an American Express gold card and a line of credit of approximately $10,000. It's a great plan. A branch of Lloyds I can recommend, one that deals frequently with Americans, is: Lloyds Bank, Elephant & Castle Branch, Elephant & Castle Shopping Center, London SE1, England (Brian Ray, manager).
Second, invest in London real estate. The real estate market in London has been booming, up 20 percent in the past year—and that's in pounds! Still, London houses and flats are relatively cheap compared to New York or California.
I don't recommend taking out a mortgage in pounds, however, because of the appreciating sterling and high mortgage rates. Better to borrow in dollars, not pounds. You can still get a nice two-bedroom flat in the center of London for less than $100,000—a bargain, in my opinion. And rental income is good, as long as you rent only to foreigners, companies, or individuals "on holiday." Don't rent to local Brits on a long-term lease, because it's virtually impossible to evict them, even if they aren't paying the rent. There's considerable talk of abolishing these unprogressive rules—but until then, play it safe. (If you are interested in London real estate, contact the agency Phillips, Kay & Lewis, 67 Jermyn St., London W1, England.)
Third, buy London stocks and mutual funds. Hundreds of foreign stocks and mutual funds are traded and issued through London. The best way to get involved is to buy a few good mutual funds through a London broker. Unfortunately, because of the US Securities and Exchange Commission's anti–foreign investment attitude, it is difficult to find a London broker who will do business with an American. But it's not impossible. Gary Scott, an American with lots of experience in London, can give you full information on investing in London-based mutual funds (Gary Scott, President, INEX, P.O. Box 1427, Naples, FL 33939).
Fourth, buy insurance funds and investment products. There are several choices. For example, Eagle Life Assurance Co., one of the largest insurance companies in Great Britain, offers a unique "international bearer bond," issued in either US dollars, British pounds, or "Eagles" (a quasi-currency made up of a combination of four currencies—dollars, pounds, yen, and German marks). The bond pays a decent yield and can be issued in "bearer" form, meaning that the bond does not have your name on it, only a number. The bond can be redeemed at any time. Minimum investment is only $3,000.
"Endowment" policies in major currencies are another possible investment. Endowments are similar to bank certificates of deposit, but are issued by major insurance companies and include a term policy. The endowment matures in several years and pays tax-deferred income. You can also borrow against the policy. (For full details, write to Robert Edgar, Director, Edgar Ward Ltd., 15 Minories, London EC3 N1NJ, England.)
If I have piqued your interest in investing in London, I also urge you to get a copy of an excellent report, "Special Report on the British Isles," by Gary Scott (available for $19 from International Living, 834 E. Baltimore St., Baltimore, MD 21202). Gary has some excellent first-hand experience in visiting London, including the financial advantages, specifics on stocks and mutual funds, things to do, real estate, even shopping tips. It's a must if you want to become an international investor.
Mark Skousen is the editor of the newsletter Forecasts & Strategies and the author of several books on investment, including High Finance on a Low Budget.
This article originally appeared in print under the headline "Investments: Pound on the Rebound".