International Investment Power of Currencies


International investments gain power when you choose the right currencies.

Special Note: American Airlines and LAN were offering Miami-Quito round trip air fares for $279 yesterday. See more below.

At its most fundamental level, economics and international
investments are about people, their powers of productivity and
consumption.
This basic of life then gets distorted in many
ways such as government intervention in the process, social systems,
debt manipulation and war.

These fiscal warps, bends and buckles in the realities of commerce
are often obscured. Whether the obfuscation is on purpose or not is not
important to us as investors. Our job is to look for signs of blockage
in the true nature of trade. Then we must decide where we think the
results of the obstructions will go. The hunt for distortions is like
looking for the glowing tip of a thief’s cigarette in the dark of
night. Once spotted the questioning begins; “Who is really behind it?”
and “Where might that thief be headed and what will the consequences of
the theft be.”

It is hard enough to spot the glow. Harder still to make sure it’s
an ember and not a firefly or some other flash in the dark. Plus we
must determine the potentiality of the theft. This is a strenuous
process. Yet we must try.

Our international investments and business courses try to
spotlight distortions that will make currencies potentially weak or
strong.

One way to spot distortions is via statistics, even though they are suspect and often truthfulness challenged.

Governments often create distortions when they produce money that is
not backed by precious metal or the productivity of its people. Such a
distortion creates inflation (too much money – not enough supply) and
eventually the inflation makes the currency weaker versus money issued
by governments that do produce money backed by precious metal or
productive work.

This is happening in the US. The US dollar is distorted and has been
for nearly half a century. We can see this distortion in the form of US
debt. Debt is a reflection of consumption without production. The chart
below shows how badly the current administration has added to the US
debt, some of which still dates back to spending during WWII.

International Investments Chart

20070405a.gif

You can see the national debt chart above and more about US debt at zfacts.com/p/318.html

Growing US debt is one main reason I have successfully bet against the greenback for decades.

We formed our latest non dollar multi-currency portfolios below with
Jyske Bank in November 2006. I have written a sixteen page email report
about how 13 economic forces now clash to shape investments markets
ahead that show the rewards and the risks. The report also outlines
these and five Multi-Currency Portfolios we are tracking in our Borrow
Low-Deposit High Multi-Currency Sandwich Educational Service. Here is
their recent performance.

One reason why these portfolios are doing well is the US dollar’s fall.

Portfolio 2007

Dec 29

Jan 30

Feb 6

Feb 26

March 8

March 30

Swiss Samba

8.10%

10.18%

13.83%

20.49%

8.21%

14.83%

Emerging Market

15.11%

14.83%

17.46%

19.61%

1.27%

15.70%

Dollar Short

12.91%

9.71%

12.50%

18.17%

12.30%

19.97%

Dollar Neutral

7.94%

12.63%

13.62%

20.28%

11.26%

16.59%

Green

34.77%

50.08%

63.04%

86.22%

67.26%

85.33%

Learn how to track these portfolios with us at International Investments in Multi Currencies.

With this growing debt in mind another interesting statistic
I recently stumbled across (in the Economist) is a review of national
foreign exchange reserves. Foreign-exchange reserves are needed to
smooth short-term payments and underpin the confidence of a currency.
The reserves provide one small reflection (like that burning cigarette)
of a currency’s strength. These reserves perhaps even reflect a
nation’s character. Are the people balanced and steady or are they
stretched thin?

In this case this reserve comparison becomes one more tack in my
determination to continually bet against the US dollar. My portfolio
has almost no greenback holding and after viewing this foreign exchange
reserve comparison it is even less likely to do so.

What makes the comparison important is I had just seen a similar review from nearly 15 years earlier.

Some countries, usually developing countries, create so much debt
that they cannot produce enough goods to service their debt (principal
or interest). In these cases, the currencies of the countries are
seriously affected. In recent years even major nations are affected.
The numbers below show the dramatic turn on reserves since 1993.

In 1993, the US had the largest reserves in the world, almost twice
the closest nation which was Japan. Here are the 1993 figures. The Euro
area did not exist then but I added together all the European reserves
of 1993 to come up with this note.

1993 Currency Reserves in Billions
USA

147,559

Japan

79,439

Euro Area

230,000

Now the US is almost at the bottom when it comes to reserves.

2006 Currency Reserves in Billions
China

1,100,000

Japan

840,000

Russia

250,000

Taiwan

230,000

South Korea

220,000

Euro Area

200,000

India

190,000

Singapore

160,000

Hong Kong

140,000

Brazil

110,000

Mexico

95,000

Malaysia

90,000

Thailand

85,000

Turkey

80,000

United States

75,000

Poland

70,000

Indonesia

65,000

What a difference 15 years can make! Most of the
foreign-exchange reserves are held in emerging countries and the bulk
in just China, Japan and Russia. Part of this is because these
countries have intervened in currency markets to keep their currencies
weak and support their economies. This continued hoarding keeps
currencies low to enhance exports.

Forget the statistics for a moment though and consider this.
Malaysia, Thailand and even Turkey now have larger foreign exchange
reserves than the US! How have we sunk so low?

This message has looked at reflections on the strength of currencies. Tomorrow’s message looks at the strength of people.

Until then, I hope you have strength in everything good!

Gary

At our upcoming IBEZ in N.C., we will update our latest
multi currency portfolios and much more. Join us May 25 – 27, 2007 at
the International Business and Investing Course in North Carolina. Thomas Fischer joins me to update global economics there.

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