Tag Archive | "Euro"

How to Prosper in the Worst Times


Many readers send me notes about our political system that sounds like sour grapes (frustrated).  Other notes I receive are more like the grapes of wrath (angry).   Many readers are angry, many are frustrated and most are a little afraid.

Let’s remind ourselves of some basics and remember even rotten grapes can be turned into sweet wine.  See below a way to earn extra profit with a falling US dollar.

grape pie

Concord grapes from our little vineyard at Merrily Farms.

A reader sent this note:  Hi Gary,  If the USD is replaced as the world’s “go to” currency, we’ll have a major crash in this country.  I believe it’s inevitable.  So what references can you offer to help us prepare for the worst?  Your input will be greatly appreciated.  Please tell Merri hello and give her our best.

My reply:  First, a weak dollar is not a bad thing for Americans.  Imports cost more but the US still has the largest domestic economy in the world by far.  Here are the stats from the IMF for 2014 (1).

Rank   Country                 GDP   $ Millions

1          United States           17,418,925
2         China                         10,380,380
3         Japan                          4,616,335
4         Germany                    3,859,547
5         United Kingdom      2,945,146
6         France                        2,846,889
7         Brazil                          2,353,025

Right now there is a very good case for diversifying out of the US dollar into the Euro.  This ten year chart of the Euro shows how it has been dropping in waves versus the US dollar since 2008.  The dollar’s strength since late 2013 suggests that the green back is very overbought.  The Euro zone has lower debt as a percent of GDP, a smaller deficit and a much better trade balance.  All of these fundamental strengths give the euro a good reason to surge.

US dollar

Chart from www.xe.com (1)

Our reports  “3 Economic Conditions for 50% Profits or More” and  “Silver Dip 2015”  both show how to to profit when the US dollar falls.

The loss of purchasing power of all currencies are a growing global problem.  The US dollar has been losing purchasing power since I began traveling and investing in the late 1960s.  Today almost every currency is under pressure because almost every government has used the same overspending tactics as has the US.

Winston Churchill outlined the crux of the problem when he said: “If the Almighty were to rebuild the world and asked me for advice, I would have English Channels round every country.  And the atmosphere would be such that anything which attempted to fly would be set on fire.

The opposite has evolved.  Modern communications and technology have allowed a growing population that is increasingly connected.

Technology creates greater wealth.  Communications allow even the poorest to know about (and desire) this wealth.  As always, the extra wealth is not distributed equally or fairly but in the modern world technology allows the poor to express their frustration in deadly ways, if they don’t get enough of the added affluence.

This is why no one is isolated from the Syrian problem.  This is why a very small number of people at ISIS can affect most of us wherever we are in the world.  This is why no one country can (or should) be allowed to crash.

Inflation is one way of creating soft landings to these equality distribution problems.

Here are some of the steps we have taken to reduce the effects of inflation and gain from currency fluctuations..

First, we have expanded our investments in rental real estate.   We reduced our equity position, almost totally eliminated bonds and added rental income property.  Rental property is a lot more work than investments in CDS or bonds (not enough return) or buying US shares (hard to find value).

We aimed for a sweet spot, two and three bedroom houses that rent for about $1000 a month.  Our renters are mostly working professionals, teachers, police, foremen and retired couples.  The reasoning is that these are stable renters and rents will rise with inflation and provide a sufficient income.

In stock investing we are investing in value markets outside the USA  (explained in the report “3 Economic Conditions for 50% Profits or More” and  and speculating in precious metals as in our report “Silver Dip 2015”.

Second, we have moved to remote places away from the madding crowd and more out of harms way from traffic jams, noise, pollution, riots and such.  I want to point out that this decision was not made because we think the world or the US dollar is coming to an end.  Life is just better out here in nowhere for us.  If we loved shopping and concerts, theater, socializing, dining in restaurants. etc. our decision might be different, but we do not. We love land, fresh air, lots of water and space and we like to stay at home or with our children and grandchildren.

Third, we stay away form the US medical system as much as we can and work at maintaining good natural health.  Fortunately, we really like to garden so I get good exercise growing some of our own food.  This provides a double benefit, the exercise and truly ripe, organic food picked right off the vine eaten with fish from the creek or lake.

grape pie

Finally, I am very picky about reading the news, never at night and only looking at specific items that might relate to what we are doing.  So much of the global medias is aimed at instilling and/or enhancing fear.  What a shame to live in more fear than is required!

The world, governments and the currencies they issue have changed a lot in the last 45 years that I have been multi currency investing.  The almighty may not have listened to Winston Churchill for evolutionary planning, but we have been given two key economic essentials, that are the very basics of all economics, more demand, (a growing population) and  more supply (increased productivity).

There are plenty of distortions and displacements caused by unequal distribution of wealth.  These errors remain and will remain cause of concern and of inflation.  The overall trend however is of greater wealth. When we achieve mastery at selecting currencies and live in a peaceful healthy way, we can increase our share of this wealth.

grape pie

Grape pie we recently baked from grapes off our vines at the farm.  It was not sour. Nor was there any wrath involved!

To help you gain mastery over all your important goals in life, this week only Amazon.com has a countdown special on the Kindle edition of Bob Gandt and my new book MASTERY for only $2.99.   The print list price $13.99, the Kindle regular price $6.99.  Download it directly to your Kindle reader or onto your PC, Mac or tablet on an app from the Amazon page.

mastery

Order MASTERY (this week only) at Amazon.com for $2.99

Gary

(1) IMF GDP Stats

(2)  Euro Dollar Chart at www.xe.com

Value Prevails in Three Ways


This month there has been a trifecta of value recovery for those weighted out of the US dollar.

Value investors are often a lonely lot… because value is found in unusual places… that are out of the way.   When everyone is doing something… the action becomes fashionable and prices rise too high.

The mathematical formula is easy… big crowds = poor value.

Investing in Europe and the euro has not been very fashionable for quite some time… with reason.  There has been plenty of risk in Europe and the euro.

Three events came together at about the same time so readers who have been reading this website in preparation for our October 5-6-7 Super Thinking + International Investing and Business Seminar have enjoyed a nice spurt of profit.  For those who borrowed dollars low and deposited euros high the profits have been very nice.

The three events are the Fed’s action… European Union action and more trouble in the Middle East.

To those who said we Europhiles were crazy to be investing in the Euro… here is our revenge.

Screen shot 2012-09-17 at 9.37.34 AM

www.finance.yahoo.com euro to US dollar account as of yesterday at 9:30 Eastern time.  (Click on photo to enlarge).

For those who thought we were even crazier to be investing into Britain’s recession with 10% Skipton Building Society pound denominated bonds that pay almost 10%… here is our spurt of profit as well.

Screen shot 2012-09-14 at 2.13.19 PM

British pounds to the US dollar www.finance.yahoo.com

For those who thought we were totally nuts to invest in more Unicredit shares… here is our double profit… the share spurt… and the currency because Unicredit is denominated in Euro.

Screen shot 2012-09-14 at 2.14.55 PM

Unicredit share chart from UK.finance.yahoo.com

10,000 unicredit shares were worth 31,470 euro a month ago.  Today they are worth 37,000 euro.

Because the euro has risen from 1.23 dollars per euro to 1.31 that means the shares were worth $38,700  a month ago. Today they are worth $41,225.

Borrow Low-Deposit High

Those who leveraged their speculations earned even more.

Those who borrowed dollars at 3% to invest in Unicredit shares $38,700 invested a month ago (plus $38,700 borrowed) is worth $82,450 now.

The 38,700 loan payoff and costs (estimated at 1.25% – about $485) would leave 43,265… a profit of  $4,565 or 11.79% in a month.

Honestly it is not fair to just grab one moment of time and look at profit or loss.  This is not a suggestion that we’ll see the same spurt this month… but these sudden profits were expected. We just did not know when.  This is the lot of a value investor… to buy good value and wait for the forces of reality to prevail.  At times the portfolio will show losses… even more if the portfolio is leveraged… but reality is on your side when you invest in value.  You stack the odds in your favor especially if you can be patient and wait for the spurts.

At our upcoming October seminar we look at how to calculate potential gains and losses and how to lock n profits after a spurt.

These three events (in the Fed, EU and Middle East) by the way did not cause profit spurts.  Events do not cause spurts.  Imbalances in value are the forces that move markets and prices.  Events just get a ball rolling.

The First Event was created by the Fed.

Last week’s New York Fed Times article entitled “New Aid to Jobs Recovery in Forceful Move by Binyamin Applebaum  shows how the Fed has started a ball rolling… one that could be a big ball that rolls for a long time.

Here is an excerpt from the articles:  The Federal Reserve opened a new chapter Thursday in its efforts to stimulate the economy, saying that it intends to buy large quantities of mortgage bonds, and potentially other assets, until the job market improves substantially.

This is the first time that the Fed has tied the duration of an aid program to its economic objectives. And, in announcing the change, the central bank made clear that its primary reason was not a deterioration in its economic outlook, but a determination to respond more forcefully — in effect, an acknowledgment that its incremental approach until now had been flawed.

I agree with part of Bernanke’s statement… that the previous approach has been flawed.  There are at least three problems n this policy.

Policy problem #1:  This makes it more attractive for banks to deal with the Fed than with businesses.   The Fed’s policy has made credit really inexpensive.  Just one problem… you can’t get these cheap loans.  Why in the world would a bank lend to a risky business when it can make great profits dealing with the Fed instead?

Policy Problem #2: The low interest rates destroy the concepts of investing and pensions as we have known them.   No supposedly safe investment gives any return at all so investors are forced to speculate instead… or risk watching the purchasing power their savings and pensions obliterated… because these policies will bring inflation eventually.

Policy Problem #3: The two problems above are being financed by accounting slights of hand.  The Fed creates money by calling debt an asset.  This eventually leads to the deterioration of the monetary system… the social promise and the stability of the nation.

Thomas Fischer at Jyske Global Asset Management JGAM) agrees.  He wrote:  Hi Gary,

Ben Bernanke has really added downwards pressure on the US dollar. Today the dollar is trading to the euro at 130.50 and I think we could easily see 135 in the near future.

With the so called fiscal cliff approaching and a presidential election much uncertainty is still expected – should be a strong case for diversifying outside the US and the US dollar.

The Second Event is Perceptions of More Stability in Europe.

JGAM wrote about this as well and said:  The waiting game is over, as the German high court, the Dutch electorate and the Fed all delivered what the financial markets have been seeking, namely clarity and stimulus.

Wednesday investors shouted “Yes” as the German high court ruled that the European Stability Mechanism (ESM) did not violate the country’s constitution. The court did, however, state that the German parliament must vote on any further increases to the ESM. Germany is currently liable for about 27 percent or 190 billion euro to the European bailout scheme of 700 billion euro.

In the Netherlands the voters shouted “Yes” to Europe and backed the two pro-European parties, while simultaneously rejecting the Freedom party, which had campaigned against an integrated Europe. The Prime Minister Mark Rutte claimed victory and said that he would seek a coalition with the Labour party that came a close second in the election.

Thursday, Ben Bernanke and the Fed did both a twist and a shout sending equities and gold higher while the US dollar (USD) took a hit against all major currencies.

The Fed announced a new round of quantitative easing (QE3) to the tune of USD 40 billion per month, indefinitely. It has furthermore extended the guidance for low interest rates through mid-2015 from 2014. Lastly, they will also continue operation Twist throughout 2013. The Fed has thus decided that improvement in the economy is more important than any concerns about possible inflation.

You can see how JGAM’s portfolios have fared below.  More importantly one can see how the higher returns have shifted towards the speculative end of the investing spectrum.

The new Fed policy guarantees that safe investments will not really be safe until at least 2015.  A more likely scenario will be that these policies which are similar to the failed policies that Japan has used for almost 15 years will keep the economy flat for three more years.  This will also almost guarantee any real return on deposits and bonds for the next several years. This will leave savings and pensions vulnerable to the inflation that is almost certain to begin when the economy comes back.

JGAM Performance Update

Jyske performance

Leveraged Portfolios

Jyske performance

Benchmark Performance

Jyske performance

The Third Event Was a Trigger in the Middle East.

The Fed’s action did not cause the dollar to fall. The Fed just pulled the trigger.  The  same can be said for the riots and deaths in the Middle East.  The recent Youtube video about Mohammad did not cause the riots.  The years of tension between the regions were the force.  The video was judge a nudge on the trigger that released this negative energy.

Such problems create more American spending on security… less on important economic issues like education, health care… innovation… all bad in the long term for the US dollar.

The US dollar won’t always fall.  America is not the only nation suffering from decades of prosperity… aging populations… weather change and the stresses of globalization.  These simply are value distortions that had accumulated in the last recession. No one knew what to do. Europe was plagued by a rich country poor country rift. Asia’s economic growth was slowing down.   The fashion was to stampede back into the greenback.  A stampede mathematically is big numbers + moving fast = stampede.   Stampede + time = fashion.  Remember  fashion = poor value.

As markets unfold and currencies shift… ignore what the markets are doing. Focus instead on how the values of the shares, markets and currencies shift.

Gary

Learn how to value currencies and when to borrow low and deposit high at our October 5-6-7 Super Thinking + International Investing and Business Seminar.

New York Times article Fed Ties New Aid to Jobs Recovery in Forceful Move

Survival of the Euro


Can the Euro Survive?

euro

If not, what will are the consequences for you and me?  Is there anything we can do to prosper and thrive during the turbulence these profound questions create?

See how to thrive by seeking value in place where other investors flee.

Gary

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Ecuador & Euro


Ecuador is now a country where you can diversify into the euro.

Some Ecuador banks offer accounts in Euro.

Ecuador-multi-currency-atm

Frankly… the euro may not last long as it now stands… and we can expect that those holding euro will not be the winners if there is a shift to two euros… the “Euro Mark” and the “Euro Pigs”.

However the US dollar is in trouble too and the greenback is Ecuador’s currency.  It is really convenient when traveling to Ecuador from the USA not having to convert money, but many who move to Ecuador and live there might want to hold other currencies as well as the buck.

So Ecuador banks that offer euro accounts provide some form of diversification now.

Before introducing the Ecuador banks offering the euro accounts… a word about Ecuador banks overall… why Merri and I do not use them and other ways to get currency diversification.

I do not ever hold many assets in the countries where I reside.  I believe in asset protection by keeping money in numerous banks outside the country where I live. There are no tax advantages to this. One should never hide these funds from any taxman… but the asset protection and investing benefits are huge.

I also do not especially trust Ecuador banks. I  lost a fair amount of money in Ecuador banks when they crashed in 1999.  “Once bitten, twice shy”.  Plus it is hard for anyone without a resident visa (which Merri and I do not have nor desire) to open an Ecuador bank account.   There are better ways to pay your bills when in Ecuador.

One way is  to use ATMs.  Merri and I don’t use an ATM card in the US (we pay for everything with our credit card to get frequent flier miles) but found that ATMs are good way to access cash in Ecuador. We have safes in all the rooms at our hotel Inn land of the Sun (formerly Meson de las Flores). Most hotels  offer free safety deposit boxes so when we arrive, we just put our cash, wallet with credit cards and passports in our safe box. Then we just have a bit of cash like $20 or so in our pockets.

Bring small bills and plenty of coins when you come to Ecuador… never $100 bills nor travelers checks which are almost useless.

Ecuador ATM’s

Merri and I live off of ATMs in Ecuador for our day to day cash needs..

ATM’s are in almost every village in Ecuador and are compatible with international credit cards.

Visa credit cards work at ATMs operated by Bank of Guayaquil, Pichincha, Produbanco and Banco Pacífico. Each ATM shows the logos of which cards can be used on that machine. We use our regular ATM cash card issued by our Florida bank at this Bank of Pichincha branch (shown above) on Cotacachi’s second smaller plaza.

Ecuador-multi-currency-plaza

The plaza is pristine because it is maintained by the bank.

Ecuador-multi-currency-atm-sign

The bank is next to the police station and the second smaller Cathedral.

Ecuador-multi-currency-atm-cathedral

Be sure to see further on what they are doing behind the bank.  There are two Cathedrals in Cotacachi and one bank…a nice ratio.

However there are three Cotacachi ATMs. The other two are on the main street 10th of August. Here is one of them…the newest of the three.

cotacachi-road-work

We are allowed to take $500 a day from the Pichincha ATM and $300 a day from the others.

Jyske ATM Banking in Ecuador

We hold assets for our global portfolio at Jyske Global Asset Management, the branch of Jyske Bank that serves Americans.  Assets there are asset protected plus JGAM has incredible global investing and multi currency experience.

One nifty way to combine global investment management banking and any cash needs in Ecuador is through Copenhagan with Jyske Bank’s VISA debit cards.  This card makes it easy to access cash from your Danish bank account.

Why a Danish bank?  As mentioned earlier I do not trust Ecuador banks. On the other hand Danish banks are among the safest in the world.  In recent years Denmark has been rated by Standard & Poor’s as one of the safest country in the world in which to bank.  Jyske Bank is well established with a history of over 100 years. Jyske is Denmark ’s second largest bank, with 450,000 clients in Denmark and over 30,000 abroad.  Jyske Bank has over 23 billion euros in assets and also happens to be one of the leading currency traders in the world. Many other large banks use Jyske to handle their off hour currency positions. This means that Jyske is huge when it comes to multi currency activity. In fact their turnover reaches $50 billion dollars a day.

Jyske can manage your wealth. For anyone with $100,000 or more to invest Jyske can buy, sell and hold investments from all over the world, stocks, liquid assets, bonds and commodities. They provide full managed or advisory only services.  They even lend in multiple currencies to leverage investments for investors with $200,000 or more.   Almost no bank in North or Latin America can do this.

Once you have Jyske caring for your wealth, they can then help you when you need it…via a global debit card.

US clients who have managed accounts at Jyske Global Asset Management  (JGAM) can have a VISA debit card.

These cards can provide access to cash anywhere in the world…including Ecuador.

Here is Cotacachi’s third ATM.

cotacachi-road-work

Jyske offers three different cards to match different needs.   Each type of card provides considerable flexibility.

You can choose to have the card denominated in a number of currencies based on your choice.  An account is created at Jyske Bank in the same currency. No matter the account currency,  the cards can be denominated in euro, US dollar,  British pound, Swiss franc, Swedish or Danish kroner.

If you have have dollars invested and are drawing dollars in Ecuador, you can eliminate forex costs by denominating your card in US dollars.

For more information US investors contact Thomas Fischer of Jyske Global Asset Management at fischer@jgam.com

Non US investors contact Rene Matys of Jyske Bank at mathys@jbpb.dk

For those with less than $100,000 to set aside or who want to keep their assets nearby… but who would like to diversify their currency holdings in Ecuador can use two of the best Ecuador banks (Banco Bolivariano and Banco Pichincha) offers Euro savings accounts.

See more on Ecuador bank  Banco Bolivariano here.

See more on Ecuador bank  Banco Pichincha here.

Gary

Thomas Fischer from Jyske will speak on how to bank and invest globally at our International Investing and Business seminar next Friday-Sunday February 11-13, 2011.

We have a few spaces for the seminar left.  Join us and meet Thomas there.


Terror on Currencies


There is terror in investing markets because of currencies.

gary and jens

Gary Scott speaking about currencies with Jens Lauritzen djrector of Jyske Private Bank.  Jyske is among the leading currency traders in the world.

World stock markets continue to slide as this chart of the Morgan Stanley Capital Index  at Bloomberg.com for November shows.

msci-chart

Yet November is generally a month when stock market are strong. One part of the market terror driving markets down is to create by fear the fate of the US dollar.

When I first started investing in and writing about multi currency investing in the 1970s… the formula for making forex profits was simple…  invest in the currencies where the governments were employing economic sanity… such as Germany and Japan.  Bets against the US dollar almost always worked because the US government continued to spend more than it earned.

Then these other countries caught on to America’s bad habits.   Germany went into debt bailing out East Germany. Then the Germans partnered up with other insane spenders (Italy, Greece, Spain, Ireland) gave up the Dmark and joined in the euro.

Japan had a bubble burst that was as bad or worse as the 2008 US shakedown… but fifteen years earlier.  The Japanese government became one of the biggest spenders of all.

Plus Germany and and Japan have rapidly aging populations.

Japan has also fallen behind as a global competitor in many other ways.  Beyond its demographic troubles, Japan’s productivity per worker is terrible, and there is not enough opportunity for  women and older people. Immigration is almost non existent so there are no new ideas and energy to help stimulate a vibrant society.

On top of these problems, the US dollar is rapidly losing its role as the reserve currency of the world… which without an alternative leaves everyone worried… concerned… in a state of fear of the unknown.

The only way to protect against this fear is to invest in a spread of currencies and take advantage of currency contrasts and trends.

This leads us to the stage where understanding global currency markets is so complex that unless it is one’s daily business the only way to overcome the complexity is with the most simple, basic equations.

This is how Jyske Global Asset Management trades currencies. Though Jyske is among the most active currency traders in the world, JGAM takes fundamental positions based on basic formulas.

Here are JGAM’s November 2010 positions in currencies. (They may change positions during a month but in November made no changes.)

Existing positions:

Short US dollar – Long the Singapore dollar

JGAM says: The Asian economies are struggling with increased inflation pressures and will have to accept appreciating currencies to fight inflation. Singapore is already at the top of the comfort zone identified by the monetary Authority of Singapore (MAS) and this should thus indicate that an appreciating currency is acceptable. We therefore keep our current  Singapore dollar (SGD) position and keep the existing stop loss at 1.3415.
Position taken: Sold USD and bought SGD at 1.2889

Size: 20% of AUM
Stop loss: 1.3415 (-4.08%)
Target: 1.25

Long EURO –  Short US dollar

JGAM says: The Federal Reserve (Fed) last week moved to implement QE2 as expected. The Fed will buy US Treasuries to the tune of USD 600 billion over the next 9 months. The initial market reaction was a significant US dollar (USD) weakness and the EUR/USD moved to 1.4285. More Quantitative Easing means that US short term interest rates will remain near zero for an extended period and should suggest that the USD remains weak. However, renewed fear about the Irish economy and its banking sector spooked the markets this week and has weakened the euro (EUR) to currently 1.3700.
Position taken: Bought EUR and sold USD at 1.4009

Size: 20% of AUM
Stop loss: 1.3580 (-3.06%)
Target: 1.45

Short US dollar –  Long Mexican peso

JGAM says: The Mexican peso (MXN) should still benefit from increased risk appetite and the search for yield in a low yielding environment. We thus keep our long MXN and our defined stop loss at 13.60. Position taken: Sold USD and bought MXN at 12.6423

Size: 20% of AUM
Stop loss: 13.60 (-7.58%)
Target: 11.85

Long Great Britain pound – Short US dollar

JGAM says: The British pound (GBP) is testing the important 1.6000 chart point and if broken could move to the August 2009 high at 1.7000. UK GDP growth was surprisingly strong at 2.8% year over year in the Q3 and with inflationary pressures high this should keep Bank of England (BoE) on the sidelines with further Quantitative Easing. Position taken: Bought GBP and sold USD at 1.5921

Size: 20% of AUM
Stop Loss: 1.5300 (-3.90%)
Target: 1.6370

US investors can invest directly in the JGAM fund that holds these positions ($100,000 minimum).

Details are available from Thomas Fischer at fischer@jgam.com

Canadian and other non US investors can learn how to invest in forex and currency positions from Rene Mathys at mathys@jbpb.dk

Gary

Global Multi Currency Economic Update


Here is a global multi currency economic update.

See below why I show this chart again and again.

The biggest of the seven trends I have cashed in on over the past 42 years has been the declining US dollar.  This chart of the greenback’s fate from the Grandfather Economic Report says it all. The buck has collapsed over the decades and anyone who has bet against it, as I have has reaped a fortune, except…

multi-currency-chart

at our June North Carolina Quantum Wealth seminar we saw how sometimes such as from 1979 to 1985 the US dollar was strong. Speculators who just bet against the buck were bucked out of the profit zone.  Anyone who shorted the dollar… long term… in 1979 had to wait until about 1987 before they saw  it drop below the 1979 level.  So we cannot just randomly bet against the dollar and expect automatic profits.

There are risks to betting against the US dollar as speculators are seeing now.

This is why at the Quantum Wealth course, I outlined seven places to invest now.

Only one of these might include speculating against the US dollar, which is #1:  Multi Currency Interest Spreads.

#1: Multi Currency Interest Spreads
#2: Value Markets
#3: Emerging Markets
#4: Wellness
#5: Water Alternate Energy
#6: Truth & Cohesion
#7: Real Estate

There are several ways to speculate against the greenback.  Personally I use the multi currency sandwich. I borrow dollars at low interest rates and invest the funds on dollar related currencies…. currently the New Zealand, Canadian, Australian dollars and Mexican peso.

This is a slow, partly hedged speculation versus the dollar… but forex profits are not my main goal.   The interest differential is what assures my profit… if I can wait for the dollar to drop.  My loan cost on dollar loans is currently below 3%.   My average yield is 6.31% so I am paid about 3.31% to borrow the dollar.

Here is an example of how this works.

100K ea. MXN BONOS  10% Due 2024 117  = 8%
EUR INVT BNK AUD 6.0 2013 101.49  5.56%
EUR INVT BNK NZD 6.5 2014 104.77  5.38%

Average 6.31%  + $18,930

Loan cost      $   9,000

Return           $   9,930

Plus Forex Potential

There is some new bad news to this for US investors.  Regulations on overseas banks by the US have become so extensive that many non US banks will no longer accept Americans.  Even Jyske Global Asset Management has had to increased its minimum account for advisory clients to $ 1 million.
The news is not all bad.  Non Americans can still use this technique and Americans can also borrow low and deposit high IF they let JGAM make the portfolio decisions.

To help US investors, JGAM provide managed portfolios with a $100,000 account minimum ($200,000 if they want loans). This is compared to the minimum of 150,000 euro required for non US investors to start.

In either case these minimums are among the lowest for investment banks.

To get complete details, US investors should contact Thomas Fischer at fischer@jgam.com

Non US investors should contact Rene Mathys  at mathys@jbpb.dk

Investors with smaller amounts can best diversify through ETFs and Investment Trusts on the US and UK stock exchanges.

There is some other really good news though that we looked at in our June Quantum Wealth course.

The key to borrowing low and depositing high is to find strong currencies… with low interest rates… when their strength is not supported by economic fundamentals. Right now three currencies are in this state… the US dollar, the Swiss franc and the Japanese yen.

Jyske and JGAM (and I ) are taking advantage of this fact in their managed and discretionary portfolios.

Lars Stouge, the President of JGAM, recently sent me a full analysis of the US dollar and I have copied it here for you… so you can see why the current US dollar strength creates unusual opportunity.

Analysis on USD/EUR

14 June 2010 By Lars Stouge

Summary

Historically the US dollar (USD) has shown a down-trend against first the German D-Mark (DEM) and later the euro (EUR), periodically interrupted by significant appreciations. However, lately the USD has strengthened again moving close to its fair value. Relative prices, real bond yields and yield curve differences between the US and the eurozone explain to some extent movements in the USD.

If the business cycle in the US moves further ahead of the eurozone, it is likely that real bond yield spreads and yield curve differences will become even more favorable for US securities, increasing the demand for the USD.

History

In 1972 the Bretton Wood system was abandoned and the USD became a free floating currency against most major currencies including the DEM. In 1999 the DEM was substituted by the EUR when a single currency area was created in Europe, the eurozone.

The graph below shows the development in the USD since 1970 against first the DEM and later (since 1999) against the EUR, indexed with 1972 at 100. The graph slopes downwards with a total loss in the value of the USD of almost 60%. However, the down-trend was interrupted by large movements up in both 1980-85 and 1995-2001.

multi-currency-update

Purchasing power

The Purchasing Power Parity (PPP) theory explains the long trend development in the USD. As prices in the US have risen more than in Germany and the eurozone, the US has lost purchasing power and therefore, the USD has fallen in value to compensate for the loss in the US competitive position.  

multi-currency-update
The graph shows how well the estimated1 PPP explains the downward slope in the USD. When the USD index moves above the PPP-line, the USD is overvalued (i.e. too expensive compared to relative prices) and when the USD moves below the PPP-line, the USD is undervalued. At the present price level of approximately 1.20 USD per EUR we are close to parity, i.e. at fair value.

In the graph below we have taken out the PPP component of the USD by measuring the USD-index relative to the estimated PPP. The graph shows that in 1972, 1981-1986 and again in 1999-2002 the USD was overvalued. The rest of the period the USD was undervalued.
multi-currency-update

Estimated by use of simple linear regression.

Interest rates and bond yields

The deviation from PPP could be caused by spreads in (real) interest rates and (real) bond yields. When investors expect a yield or interest rate pickup on a currency, they will invest until expectations of future depreciation correspond to the yield or interest rate difference (this is called the Interest Rate Parity, IRP). Until the level of IRP has been reached investors will buy the currency with the high (real) yield or interest rate and the currency
increases in value.

We have examined how short interest rate spreads and long bond yield spreads, both in nominal and real (i.e. inflation adjusted) terms, correlate with the PPP deviation of the USD. To cut it short, the analysis shows that the real bond yield spread best explains the development. The graph is shown below. For example the overshooting USD in the beginning of the 1980’s is explained by the real bond yield spread in favor of the USD.

Other considerations

However, the model has its limitations. As can be seen from the last graph not all USD movements around its PPP value is explained by the real bond yield spread. For example in the beginning of the 1990’s the USD continued to depreciate to become more undervalued despite a favorable movement in the real yield spread.

Also, when the USD became overvalued up to and after year 2000 it happened without a movement in the real yield spread. There are several reasons why the model has its limitations as explained in the following.

One reason is that many other factors than the real yield spread influence a currency. Relative growth, productivity, balance of trade and payments, debt burdens and a number of other factors determines the price of a currency. However, many of the factors not considered directly in our model do indirectly have an influence, as these factors also determine relative price levels, inflation, interest rates and bond yields. Therefore, indirectly our model captures other determining factors.
multi-currency-update
Another reason why the model has its limitations is that the price of a currency today is determined by investors expectations of future real bond yields and other possible determining factors. In our simple analysis we have used actual price levels and bond yields. It is difficult to measure or estimate market expectations and only if markets are efficient and investors are rational (i.e. never make mistakes) then expectations will be fulfilled.

To sum up, one should be careful not to rely too much on a simple model as the one presented in this memo. However, even more sophisticated models also lack prediction power.  Actually, in the very short run (days and weeks) analysis prove that the best prediction in the currency market is to flip a coin.

Yield curves

The aspect of expectations can to some extend be modeled by examining yield curves. A yield curve reflects the markets expectations of future interest rates. E.g. if the long bond yield is higher than the short interest rate it is an indication that investors expect short term interest rates to rise. Therefore, by comparing yield curves we get a measure of which currency should expect to see the largest rise in interest rates. The graph below shows the yield curve difference between the US and the eurozone plotted against the USD’s deviation from PPP.

Except from the period 1991-93 where the yield curve in the US versus the eurozone formed a temporary peak, the yield curve difference explains well the development in USD’s deviation from Purchasing Power Parity.

Conclusion

In 2010 the USD has strengthened to a fair value against the EUR close to 1.20 USD per EUR. We assess that the USD could become even stronger and become overvalued. This could happen if the US economy continues to move ahead of the eurozone and cause the real bond yield and the yield curve in the US to distance itself even further from the eurozone.

Short term free floating currencies move like a random walk making today’s price the best prediction of tomorrow’s price.


multi-currency-update

However, we warn against using the simple model presented in this memo as a prediction tool. The prime
purpose of the model is to evaluate if the USD is over, under or fair valued.

The phrase that jumps at me in this analysis is:

Actually, in the very short run (days and weeks) analysis prove that the best prediction in the currency market is to flip a coin.

Fundamentals and value rule the direction of currency parities.  Human emotions rule the swing of currencies as parities become overbought and or oversold.  When you can be paid to borrow a currency that has become strong but is not supported by fundamentals (like borrowing the Swiss franc, Japanese yen or US dollar to invest in higher yielding currencies) you can take advantage of these human emotional errors.  

Join Merri and me with Thomas Fischer in Copenhagen this August or next October in North Carolina when we will update our portfolio positions.

The strong US dollar makes this the year to enjoy Europe and Thomas Fischer at Jyske just sent me this note: Gary due to the increasing US dollar, the cost for our August seminar in Copenhagen for Americans has dropped from about $2,050 to $1,700, a 15% discount. (THE COST INCLUDES MOST OF THE FOOD, TRIPS, MAKING THE CONFERENCE A GREAT BARGAIN.)

I love attending these seminars because of the great speakers.

This year speakers include will be Bjorn Lomborg known as the “Skeptical Environmentalist.”  See more on Lomborg here.

Another speaker will be Jeff Rubin. Rubin was the Chief Economist for CIBC, a North American investment bank for 20 years. See more about Rubin here.

Kenneth Rogoff  the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University and former Chief Economist for the International Monetary Fund is also a speaker. See more at Rogoff.

Because updating multi currency strategies is so important in today’s investing world, another speaker is Daniel Brehon, the foreign exchange strategist, for Deutsche Bank AG. Deutche Bank is Germany’s largest bank and one of the laregst banks in the world with 1,999 branches situated in 70 countries.  The bank has significant regional diversification and substantial revenue streams from all the major regions of the world.

They have established strong bases in all major emerging markets, and therefore have good prospects for business growth in fast-growing economies, including the Asia-Pacific region, Central and Eastern Europe, and Latin America.

In Europe, Deutche Bank is well placed to benefit from resilient conditions in Europe and Germany in the euro zone.  The bank began in the 1870s and now employs more than 80,000 people in 72 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets.

Deutsche Bank has offices in major financial centers including New York, London, Frankfurt, Paris, Moscow, Amsterdam, Toronto, São Paulo, Singapore, Hong Kong, Tokyo and Sydney. Furthermore, the bank is investing in expanding markets, such as the Middle East, Latin America, Central & Eastern Europe and Asia Pacific.

See details on how to join Merri and me at Jyske’s bi annual Copenhagen seminar here Global Wealth Management Seminar.

Some great things about the Copenhagen conference are the seminar of course…then there’s the stunning food and the wonderful visits included…This package includes:  accommodation at the Copenhagen Marriott Hotel for four nights, (25-28 August) including breakfast,  Reception and dinner at the bank’s Copenhagen offices, seminar fee and materials for the seminar sessions on Thursday, Friday and Saturday. full lunches on Thursday, Friday and Saturday, canal & harbour tour on Friday in the late afternoon, four-course gala dinner with entertainment and dancing on Saturday evening, and a Sunday excursion including lunch.

Merri and I always go on the excursion also to Silkebord with a drive out into the country, lovely food, picnic cruise and a chance to see the main office and the trading center.  This is always our most interesting, favorite and delightful conference…and we hope you will join us there!  We love the stroll along the harbor, the fresh air, wonderful meals and interesting people from all over the world.

Gary

See Ecuador real estate for sale at the Ecuador MLS

How We Can Serve You

How to Make Money in the Multi Currency Era


The US and Ecuador property market offers a rare opportunity to make money in this multi currency era. Here is an excerpt from a recent multi currency update.

Two economic forces have come together to create extra special profits.

I know because the same  combination occurred in London during the late 1970s and allowed me to increase an investment eleven times in two years by buying property then.

Earlier in 1970 I had lived in London, England for a year, then moved to Hong Kong. During that time I also maintained a home outside of San Francisco, California.

This was a time of great inflation. My homes in California and in Hong Kong appreciated greatly. In the mid 1970s, when I moved from Hong Kong back to London, I noticed that London real estate was priced about the same as it had been in 1970. This puzzled me. Why had London property prices remained flat despite inflation?

On investigation, I learned that there had been a huge real estate crash in 1970 which continued to dampen real estate prices six years later despite the rampant global inflation. I felt this was a great distortion as European property prices had risen, but London prices had not. Yet London offered the best utility as the center of the English speaking world. This, to my way of thinking, created a huge distortion.

It’s late 1976. Britain faced  a sterling crisis. In less than two years the pound has fallen from $2.40 to $1.60. Investors had no faith in the British economy, or the government that ran it. The government’s budget was a mess.  Investors  were ditching the pound.

The plummeting pound pushed the economy to breaking point. Prime Minister Callaghan, in desperation borrowed as much as possible, £2.3 billion from the IMF.

At that time, the British pound collapsed to its lowest level ever (a pound per dollar for a short time) so the distortion widened. This meant in US dollar terms London property had dropped almost 50% while property in other major cities of the western world had increased in price by three or four times.

london-house

The house I bought was right next door and very similar to this house in Bedford Park, London W4.

This house in West London was 34,000 pounds, 9,000 pounds down (then $9,000).   I took a mortgage for 25,000 pounds ($25,000).  I lived in the house and three years later the pound had recovered to 2.2 dollars per pound plus London real estate had caught up with property in other major western centers. I sold the house for 115,000 pounds or $253,000 a profit of $244,000 on a $9,000 investment.

Now it’s the US dollar that is very low.

You will have seen articles something like the the September 7, 2009 Bloomberg article “Weak Dollar? Currency, at 10-Year Low, May Fall More” by Bo Nielsen.

An excerpt says: Anyone who says the dollar is weak after it fetched a record-low $1.3681 against the euro and the fewest pence against the pound in 25 years is expressing a euphemism.

The currency may decline at least another 10 percent by the end of 2008, say Jay Bryson, an economist at Wachovia Corp., and Kenneth Rogoff, the former chief economist at the International Monetary Fund. The dollar has only fallen 3.4 percent in the past two years to a 10-year low, according to a Federal Reserve index that weighs trade with 38 countries including China, Mexico, Canada and countries in Europe. It tumbled 30 percent in the three years ended 1988.

“Dollar weakness will be broad-based and could last for years,” said Bryson, a global economist at Charlotte, North Carolina-based Wachovia who previously analyzed currencies at the Federal Reserve.

Investors are dumping dollars, lured by higher returns elsewhere. The U.S. will grow more slowly than Europe for the first time since 2001 and Japan for the first time in 16 years, the IMF forecasts. The difference in yield between 10-year German bonds and Treasuries has shrunk to the smallest since 2004.

Those who read this site regularly or subscribe to our multi currency course know that I reported my personal portfolio and recommended getting out of the US dollar in February 2009. See that recommendation here.

I showed that my portfolio was 86% out of the greenback.

My liquid portfolio currency allocation was reported as Brazilian real  4%,
 Denmark kroner  33%
,  euro 31%
, British pound 10%
, Turkey lira 8%
, US$ 14%.

I also mentioned in February that I was going to start buying Florida real estate.

So Merri and I began looking and in our research found that there appears to be a hole in the market for Central Florida property selling in the million to $750,000 range.  There seems to be no buyers at all. We have been watching prices tumble hundreds of thousands.

We are viewing one property next week that started at $800K+. It just dropped $100,000 last week from $395,000 and is now down to $295,000.

This is about a 25% drop in that house’s price in six months. That’s pretty good!

Now look at what this means in depreciated dollar terms.

dollar-chart

Here is a chart of the euro to US dollar from yahoo.finance.com from February 2009 to September 10, 2009 when this was written.

In February a US dollar bought .80 euro so that house at $395,ooo cost 319,200 euro.  Now a US dollar buys about .68 euro so this house at $295,000 costs about 200,000 euro.

That is a drop in that house price of 37% in six months in terms of euro. That’s even better!

Here is the magic in this hidden, built-in profit.  For most of the market, the profit is hidden.  Most investors are not comparing currencies and real estate prices.  Yet these distortions will filter through. Eventually European investors…. or those like me who are holding currencies other than dollars will see this distortion and cash in.

I, and now you, just have an advantage because we are always looking at both markets… currency and real estate.

Ecuador Real Estate Cheaper as Well

This also creates better value on Ecuador real estate. Take for example one penthouse property I am selling at $139,000.

This is a perfect property for those who want peace… quiet…and instant access to miles of empty, warm Pacific beach.

ecuador beach rentals

This two room, top floor penthouse is at Palmazul and includes use of the the swimming pool, tennis courts… and spa.   You can dine here, one floor below.

ecuador beach rentals

The units are fully equipped… kitchen…

Ecuador beach rentals

with full size fridge.

Living room…

Ecuador beach rentals with a view…

Ecuador beach rentals leading…

Ecuador beach rentals to large private balconies…

Ecuador beach rentals with these views…

ecuador beach rentals

and sunsets to kill for.

ecuador beach rentals

Long walks on the beach… you can amble at low tide for ten miles and not see a soul.

ecuador-seminars

Luxury bathrooms with bathtub…

Ecuador beach rentals

and a king size bed with view and caressed by the ocean breeze.

Ecuador beach rentals

This unit would have cost 111,000 euro in February. Now the price has dropped to 94,500 euro… just from the dollar’s fall.

The US and Ecuador property markets offers a rare opportunity to make extra profit now because of hidden added value from the US dollar’s fall. History suggests that real estate is a real asset so its price rises as the currency its counted in falls.

These corrections take time because most property owners do not calculate their property in multi currency terms.  Those of us who watch this can gain extra profit now.

The article above is an excerpt from a recent Multi Currency update. Learn more about multi currency investing. Subscribe to our multi currency course.

Gary

The greatest asset of all is the ability to earn globally in many currencies.

This is why we are providing a special three for one offer with our  course Tangled Web… How to Have an Internet Business. This can help you create your own internet business.

Our emailed course “Tangled Webs We Weave – How to Have Your Own Web Based Business” is a continuing educational program.  You receive the first 28 lessons when you enroll and a new lesson every week or two.

This course teaches how to create a web based business and is developed from the ongoing experiences that we have from our successful and profitable internet business.

This course is well worth the enrollment fee of $299… but currently you also receive two additional courses FREE.

The other two courses are #1: International Business Made EZ, and #2: Self Fulfilled – How to be a Self Publisher.

These two courses have sold for $398 and thousands have paid this price. We add them to your course at no added cost as I believe they will help you develop a better business in these crucial times.

Even Better Get All three Courses Free

To make this offer even more compelling,  I am giving everyone who enrolls in our North Carolina or Ecuador International Business & Investing seminar in October or November all three courses, “Tangled Web… How to Have an Internet Business Course,”  “Self Fulfilled- How to be a Self Publisher” and “International Business Made EZ” free.

Join us with Jyske Bank and my webmaster David Cross in West Jefferson North Carolina. Learn more about global investing, how to have an international business at the seminar.

Oct. 9-11 IBEZ North Carolina with our webmaster  David Cross & Thomas Fischer of JGAM

Or head south to Ecuador!

October 16-18 Ecuador Southern coastal tour

Oct. 21-24 Ecuador Import Export Tour

Oct. 25-26 Imbabura Real Estate Tour

Join us with Peter Laub of Jyske Global Asset Management in Ecuador. Learn more about global investing, how to have an international business at the seminar.

Nov. 6-8 IBEZ Ecuador Seminar

Nov. 9-10 Imbabura Real Estate Tour

Nov. 11-14 Ecuador Coastal Real Estate Tour

Join us in the mountains and at the sea. Attend more than one seminar and tour and save even more plus get the three emailed courses free.

Attend any two Ecuador seminar or tours in a calendar month…$949 for one.  $1,349 for two.

Attend any three Ecuador courses or tours in a calendar month…$1,199 for one.  $1,799

Read the entire articles:

Weak Dollar? Currency, at 10-Year Low, May Fall More

Dollar Is Near Lowest in Almost Year as Borrowing Costs Plunge