Pounding Out Profit


Before we start this lesson remember… as a multi currency subscriber, Jyske Global Asset Management is waiving the $499 fee ($750 for two) for  its upcoming May 29-31  JGAM Florida Investment Seminar. You can attend free. Now onto the lesson:

On March 12th our multi currency service looked at and agreed with (JGAM) Jyske Global Asset Management’s suggestion to take a long position in Pounds Sterling at 137.92 GBP/USD.   See that lesson here.

Investors who followed that advise earned 6% in two weeks.

Now, because Jyske does not expect the British pounds to strengthen short term, JGAM (Jyske’s US advisor) has suggested that some clients may want to take profits.

Let’s view this move in more depth because investing in good value currencies is one of the great ways to cash in on huge opportunities now.

Yet the British pound may not be a good value currency. This lesson looks at why it made sense to invest in the pound anyway.

The key to good value investing is the ability to spot distortions and trends.

Distortions are based on long term fundamentals and mis-pricing in markets.

Trends are based on short term human emotions.

Interest rate… national debt and deficit, trade balances, inflation in the form of retail and wholesale price increases and labor cost increases are all fundamentals that  will cause a currency to eventually rise or fall relative to other currencies in the long term.

Fear, panic and greed are the human emotions that cause currencies to rise and fall in the short term.

One current trend, that I believe is short term strong, is the strong US dollar that has been pushed up from fear.   All the US fundamentals are bad when compared to other currencies.  

Yet so too are the fundamentals for the British pound.

Here is current inflation.

Country        Consumer Prices

US                        3.8
Japan                   1.4
Britain                 3.6
Canada                2.4
Euro                     3.1
Denmark             2.9
Norway                3.7
Sweden                3.2
Switzerland         2.4
Australia              3.2
New Zealand       3.7

Britain’s inflation is almost as bad as that of the US, 3.6% to 3.8%.

Interest Rate
Denmark   4.50%
Canada 0.81%
Japan   0.61%
Switzerland  0.54%

The US rate is 0.21% so Britain had a much higher 2.13% interest rate.  This is not that much more than the euro (2.12%) though and would not seem high enough to overcome the other fundamental weaknesses… such as…

Current Account % of GDP
Denmark   +1.1%
Canada +1%
Japan    +3.8%
Switzerland  +9.1%

Britain has a -2.4% current account, way below our four choices for strong currency.  This is a better balance better than America’s though.  The current account  is -4.5% for the US.

Budget Balance % of GDP
Denmark   +3.3%
Canada +.3%
Japan    -3.2%
Switzerland  +.9%

The British budget balance at -5.4% is even worse than the US balance of  -3.2%.

Parity to US dollar
Denmark   – 10%
Canada -20%
Japan    +15%
Switzerland  + 4%

This is where the short term trend mattered! The British pound had dropped 32% versus the US dollar… too far relative to other currencies in JGAM’s experience.

So they recommended a buy for the British pound.

They limited the recommendation to  5% of portfolio for low risk portfolios, 10% of portfolio for medium risk and 20% of portfolio for high risk.

The 6% rise meant that:  A low risk portfolio was increased about 1/3rd% in 15 days.

Medium risk portfolios gained 2/3% and high risk portfolios gained 1.2%.

This may not seem much… but this is how professional managers work.  They take small bits of profit again and again… always limiting risk and sticking to their targets.

Amateurs become caught up in their successes… excited about that big, fast profit.

But this was a high risk profit.

Most British pound fundamentals  are weak. JGAM recognized this… took advantage of the short term trend and  took the quick profit.

Please note that JGAM has not closed its gold position which we will review next lesson.

This course is about how to work with a well established,  experienced investment investment manager or adviser.

Jyske has a huge forex and commodity business that trades $50 billion a day!  They have hundreds of experienced staff, using highly complex programs, in state of art equipment, connected to markets all over the world.   They have the ability to spot these short term trends. They can combine clients capital to make large investments executed under the best possible terms to take real advantage of such trends.

Plus they have the discipline to create and stick to short term targets.

This is why in the long run 80% of all investors will do better with a well established,  experienced investment investment manager or adviser.

Dollar and pound interest rates – governmental budget balance – trade – current account balances are all bad for the pound and greenback.  Long term both of these currencies should be weak…

JGAM spotted a short term British pound anomaly and took advantage. Now that deal is done… for the time being.

Long term, the Danish kroner still has a very high interest rate compared to most of the major currencies…especially the euro…  4.50% versus 0.27% for the US dollar and 2.12% for the euro, 2.13% for the pound.

Denmark  has a positive budget surplus and positive account balances that could strengthen its future parity.

In my opinion, four strong fundamental  currencies remain the Danish kroner,  Canadian dollar,  Japanese yen and Swiss franc.  Look for value opportunities in these currencies and discuss this with your investment adviser to see how they can fit your financial needs.

Gary

You can get more information  about JGAM from Thomas Fischer at fischer@jgam.com

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