Multi Currency Portfolio Update June 2007


Multi Currency Portfolios continue to surge

 

Here is the latest review of the five multi currency portfolio’s were have tracked since November 1, 2006 (seven months).

 

Portfolios 2007  Dec 29  Jan 30 Feb 26 Mar 27 Apr 30 May 11 May 22 June 1
Swiss Samba  8.10% 10.18% 20.49% 16.15% 26.60% 32.86% 41.37% 41.46%
Emerging Market 15.11% 14.83% 19.61% 12.81% 32.46% 31.13%  38.26% 40.38%
Dollar Short 12.91% 9.71% 18.17% 20.12% 30.79% 30.44% 29.78% 31.84%
Dollar Neutral 7.94% 12.63% 20.28% 16.58% 25.58% 28.54% 30.44% 32.26%
Green 34.77% 50.08% 86.22% 86.86% 135.11% 142.42% 147.04% 170.33%

 

These five portfolios we track for educational purposes continue to surge.  Normally the performance of the Samba, Emerging Market and two Dollar Portfolios would seem as extraordinary.  However at this time they are overwhelmed by the Green Portfolio now up 170.33% in just seven months.

 

There are several lessons to learn from this fact and a few assumptions we can make.

 

Lesson #1: We really can make fortunes when we spot trends. Green is a trend whose time has come. Green is currently one of the biggest trends of all.

 

Lesson #2: Alternate energy is hot!  The Green Portfolio has six shares. Four are invested in water treatment. The other two, Vestas Wind Systems (wind generated energy) and Q Cells Ag (solar generated energy) are in the alternate energy business.  These two shares represent most of the profit in the Green Portfolio.  the share price of each has doubled in seven months. The portfolio invested $51,000 in each.  Vestas is now worth $116,420 and

Q-Cells worth $101,352.

 

What does this suggest?  Perhaps it means that a majority of investors have bought into global warming.

 

Perhaps the idea that oil supplies have peaked has caught on.

 

More likely $70 a barrel oil shows smart investors that alternatives now make sense.

 

These facts suggest that the Green portfolio could continue to rise.

 

Take Q-Cells AG shares, as an example. This is still a tiny, new firm. Q Cells only began in 1999.  Today it is the second-largest manufacturer of solar cells in the world but still only has about 900 employees worldwide.  This is so tiny compared to the hydro carbon field!  

 

The company’s main business is producing polycrystalline and monocrystalline solar cells on just four production lines.  A fifth factory, which will be the largest to date, was started last November and the first two sections are scheduled to be ready by the end of 2007. This new factory will expand the company’s production capacity by more than 50% and nearly double the Q-Cell work force.

 

Q-Cells is already exporting 50% of its production from Germany to Southern Europe, East Asia, and North America . The export ratio is targeted to increase to 60% by the end of this year.

 

The firm’s core business is growing as the business focuses on cost reduction, but it is innovation beyond the current core that holds the greatest potential. Solar power is still not efficient enough to compete with other forms of energy on a short term basis.

 

Q-Cells biggest goal is to make photo cells competitive enough to compete with other forms of energy without the need for government subsidies.

 

They are researching heavily to develop and commercialize new photo cell technologies as they work to be a technology leader.   Along with its growing core business, Q-Cells is adding thin-layer field capacity via two companies in which Q-Cells has taken a stake – CSG Solar AG (22%) and EverQ GmbH (33.3%).  In addition to this, Q-Cells is working actively to research and develop new thin-layer technologies. Two of its subsidiaries, Calyxo GmbH and Brilliant 234. GmbH, are constructing their first pilot production lines for new thin-film technologies. Q-Cells is also investing in Swiss and US companies that have developed and are commercializing new technologies.

 

This new form of solar power has incredible potential and there is a huge amount of research being conducted globally to make this work.  Recently Wake Forest University ’s Center for Nanotechnology and Molecular Materials announced that they have pushed the efficiency of plastic solar cells to more than six percent.

 

Researchers there are working with organic or flexible, plastic solar cells created from “nano-filaments” sandwiched between light absorbing plastic.  The architecture uses veins similar to tree leaves that allow thicker absorbing layers to capture more solar energy.

 

This offers an inexpensive, light weight alternative to standard silicon solar panels.  The Wake Forest team has been able to double the previous three percent efficiency of these light weight panels and expects to alter the entire  photovoltaic industry within two years.  Solar cells need eight percent efficiency to be commercially viable and Wake Forest researchers hope to reach ten percent in the next year.

 

The light weight, flexible plastic solar cells can replace roof tiles or even siding and can be placed on automobiles.  So the potential in solar energy has just begun.

 

This could create another trend as countries along the equator, where there is more sunlight could gain an energy advantage!

 

Lesson #3: Sometimes the riskiest currency plays pay off.  This portfolio is leveraged with a Japanese yen loan. This represents a bet on a continued weak Japanese yen. This has paid off so far. The pay off on this $200,000 loan is now $192,447. This means that forex gains represents almost 8% of the profit.

 

In addition we need to look at the fact that all five of the portfolios are doing so well.  Since they are all filled with mainly non US dollar investments, one could think that the high returns come from the US dollar’s fall.

 

The nearly equal performance between the Dollar Neutral and Dollar Short Portfolios discourage this thought.

 

Instead this suggests that investors are investing beyond the dollar, yet non US governments (such as china, South Korea and Japan ) are investing back into the greenback. This artificially props up the buck.

 

Two recent events give cause for some concern which creates even more unease about the state of markets. 

 

One, the high performance of these portfolios smacks of market hysteria. These high returns suggest a thundering herd and we must remember, the majority is almost always wrong.  True the move to green may be a paradigm shift in market thought. The world has figured it out “more and more people are coming but more natural resources are not”.

 

We should smile that the market sees the need for environmental balance.  However these huge shifts are usually accompanied by excess.  Railroads, for example, were an amazing invention when they first started crossing the industrial world. Yet market hysteria began pricing railroad shares on the assumption that every home would eventually have a siding.

 

Spotting trends is important and exciting.  However finding value and good pricing is boring…yet equally important.

 

In other words watch out for ridiculously high prices.

    
The second event reinforces this warning. Last week the Chinese market dropped 7.7% overnight.  When this happened earlier in the year markets began tumbling globally, as fast as the dawn.  This time there was not even a ripple of fear.  If this means that the man in the street now has no fear, then  I am frightened.

 

Enjoy the profits. Recognize that the shares in some of these firms such as Q-Cells AG could rocket even more.  Yet watch out for overheated markets.

 

Cinch up stop losses and keep a close eye on your portfolios. We are happy but cautious and we never leverage more than we can afford to lose!  

 

Until next update, good investing!

 

Gary

See attached file.

P.S. We will update the multi currency portfolios and many other investment markets at our next International Business and Investing Made EZ course in North Carolina .  Join us September 14-15-16, 2007.  See details at http://www.garyascott.com/nccourse


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