Where is a good place to invest?


Inspired investors always have a good place to invest. So if the stock market is in a 15 year decline as my recent article suggests – see http://www.garyascott.com/market/606/ – where should one invest now?

The chart in that article suggests that the market and economy move in thirty year cycles, 15 years up and 15 years down and that we are in a 15 year downwards trend. These economic waves are tied to new forms of social productivity and war with each downwards cycle leading to WWI, WWII and WWIII (The Cold War)

Yesterday we looked at the chart in that article and saw over the last hundred years there has also been a U.S. bank crash a few years into each downward cycle, the crash of 1907, 1929 and 1975.

This suggests that we will see a cycle similar to that of 1968 thru 1982 before equity markets recover so right now equities and bonds are not safe.

History also suggests that the U.S. dollar will fall. Cash is best and will be rewarded down the road as interest rates invert. We'll see very high interest rates. Inflation will accompany this. Then after interest rates reach their highs, (in about seven years) bonds will become king (for maybe five years) until interest rates fall again and equities will again be a good buy. Of course the one thing we know for sure is that we will not be totally correct and that though history may move in cycles the exact timing is very hard to attain.

However based on the assumptions above I believe there are several intelligent ways to invest now.

#1: Find distortions and value in the chaos. We looked at good value markets in last Friday's message.

#2: Find shares that will be winners in the next industrial era. (bio-tech, nano-tech, alternate medicine, etc.)

#3: Borrow Low-Deposit High takes advantage of currency distortions. This is a powerful tactic I have been writing about for nearly two decades. At the recent seminar where I spoke in London, David Griffiths, the manager of Jyske Bank in London gave me these Borrow Low-Deposit High ideas.

This idea begins with making a diversified investment, 20% in CDS of which 10% is in Hungarian florins paying 8.63% and 10% in Polish zlotys paying 7.88%. 55% is in medium term bonds: 15% in Euro A- rated denominated Rolls Royce bonds maturing 2007 and yielding 6.00%

20% in AAA rated Norwegian kroner Norway government bonds yielding 6.90% and 20% in New Zealand dollar AAA rated IADB bonds maturing 2004 and yielding 6.25%.

The remaining 25% of the diversification is in the Jyske Bank Emerging Market Bond fund denominated in Euro and yielding 8.40%.

This investment has an expected return of 7.28%.

You then use the investment as collateral to make a loan.

Borrow 1/4 in Japanese yen at 1.38% and one half in Swiss francs at 2.63% and 1/4 in US dollars at 3.13%. This gives you an average loan value of 2.44%.

You then invest the loan in the same spread earning 7.28% bringing you a net return of 4.84% (the 7.28% less the 4.84%).

If you borrow the same amount as you originally invested, your projected return increases to 12.12%. If you borrow two times your investment, the return on your original investment is 16.96%. A three times loan brings the projection up to 21.8% and four times to 26.64%.

Of course keep in mind that there are several ways one can lose money in this investment as well! Currencies or bond values can drop. Interest rates can change. The more leverage you have, the more you earn or lose so make this risk portfolio just a part of the high-risk portion of your portfolio.

This Multicurrency Sandwich tactic will be covered in detail at the Jyske Bank seminar in Copenhagen August 28 through September 3. Yu can get more details from Thomas Fischer at FISCHER@jyskebank.dk or from David Griffiths at griffiths@jysekebank.co.uk

We'll look at two other ways to invest tomorrow.

Until then, good global investing!


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