International Investments – Really Cool Overseas Investment


* International Investments – Icelandic Krona is Really Cool
* Natural Health Tip – Cool Way to Beat Heath Care Inflation
* Ecuador Real Estate – Multilingual is Cool

The Icelandic kroner is more than cool. It is freezing and has fallen dramatically versus the dollar. Yet the krona could fall more.

This series started when we looked at change. Change affects everything such as our vocabulary and the word cool.

We baby boomers never had the word cool in our verbal armory. Neat, groovy and bitch’n were a few slang expressions I recall…but never cool.

So words and everything is in a continual state of change. This is certainly true with investing and currencies. We need to keep up!

I never invested in the Icelandic krona, though at times it has seemed attractive. Many readers say they have, so I keep track. Plus never say never. The numbers suggest that now is not a good time to invest in the krona for most investors.

But a better time for the krona may be coming. We need to know wait, watch and know what to look for. The enormous fall of the krona means that investors are running from this frigid currency. When market sentiment shifts too far, interest rates and the currency will become stable or even strengthen. This combination of high returns and stability from an oversold currency is what MultiCurrency Sandwich investors should always look for.

On 14 July 2006 Jyske Bank wrote about Iceland: “More inflation and higher interest rates on the way.

We maintain our view on Iceland and expect more turbulence over the coming period. Inflation will continue to increase, which will lead to higher interest rates. Despite the risk of further ISK weakening, there is light at the end of the tunnel. In addition to higher interest rates, the government has now also announced fiscal-policy tightening. Investment in Icelandic bonds may still prove a good investment – for the active investor. A yield of approx. 11% offers something of a buffer zone, after all.”

A reader who lives in Iceland just sent me this note: “Gary, I’m a 51 year old Englishman living in Iceland. I built and sold a number of businesses in the UK before taking to writing, two books published, and am now living up here on the fringe of the Arctic Circle full time – it’s an amazing place. The writing is rewarding in many ways, but only pays a few of the bills, for that I’m engaged in the Icelandic Krona market, where life’s about to get really interesting. The ISK has plummeted nearly 30% against the major currencies over the last 6 months and is set to drop a bit further still, while interest rates are set to reach and all time high in the fall at 14.5% or thereabouts and are projected to remain at a high level for some time. The Icelandic economy is basically strong though, and there is well founded sentiment that it will recover in the medium to long term. In the meantime this is a good place to use the ‘borrow low and invest high’ theory. The Swiss Franc /ISK is, I believe, a good combination and I’d be interested to know what you and your friends/partners in Jyske make of the opportunity up here. I’m on you mailing list and look forward to coming to one of your seminar’s in due course. Best, Robert.”

Robert has a good point albeit with many risks.

The attractive aspect is that Iceland has an excellent credit rating and yet pays really high interest rates (right now about 11%). The downsides however have kept me at bay. First the currency has devalued a lot. My concerns go deeper than this. The country is so small, its industry so thin. Iceland has a bit of tourism, fishing, an aluminum plant, entrepreneurial spirit (Icelandic firms own a lot of European businesses) and some strategic value. Otherwise, there is not a lot.

I like to invest big major trends (shortage of water n Asia for example) supported by demographics (baby boomer health crunch) and or technological change (Brazil’s ability to produce ethanol at $30 a barrel). Iceland has none of this that I can see.

However MultiCurrency Sandwich investors like to invest in currencies that over devalue and offer high interest rates. They want to make investments with borrowed currencies that are too strong and have low interest rates. Those of you who have followed this site for many years know I have been warning about dangers in the Swiss franc for at least a decade. You can see why from a 2001 article in our archives at Old Distortion Creates New Opportunity

So the time may come when the Swiss franc is too strong and the Icelandic krona too weak. The Swiss fran interest rate is very low. If the Icelandic krona stabilizes and pays 14.5% as the reader above suggested, profits could be really strong.

Picture this. Invest $100,000. Borrow $400,000 in Swiss francs at 2.5%. Place the $500,000 in Icelandic bonds that yield 14.5%. The annual income is $72,500 a year. The interest cost is $10,000. This means you earn $62,500 or 62.5% on the $100,000 invested.

This is not the time for this investment! Had you tried it at this time last year you would have lost the entire $100,000! However, with this kind of potential, it is worth keeping an eye open, watching and waiting.

You can read more on Jyske’s July 14, 2006 Icelandic analysis at International Investments in Ireland can contact Thomas Fischer at Jyske Bank at fischer@jyskebank.dk

Learn more about how to enhance profits and reduce risk with the MultiCurrency Sandwich at http://www.garyascott.com/catalog/bldh.html

Natural Health Tip – Cool Way to Beat Heath Care Inflation. Don’t miss tomorrow’s message on how a reader cut their dental bill by 80%! That’s really cool.

Ecuador Real Estate – Multilingual is Cool. Read about the success of Super Spanish on Wednesday.

Until then may all your investing be cool but your assets never frozen!

Gary

Come to North Carolina and enjoy our library on the creek. This is really cool too!

P.S. Learn more about how to invest in overseas currencies. Join Merri, Thomas Fischer from Jyske Bank Copenhagen and Steve from Ecuador and me at our next International Business and Investing Made EZ course in North Carolina. Our free accommodations here on the farm are reserved on a first come first served basis so do not delay! Go to http://www.garyascott.com/catalog/ibeznc.html

 


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