International Currrencies Made EZ: Chapter 1


The data in this International Currencies Made EZ course is fundamentally correct and useful, but dated.

See how to get an updated report on multi currency investing here.

* WHAT TO DO NOW: Be a Multicurrency Investor. In this course you learn first why all of us must be multicurrency investors now. See below.

* EZ CURRENCY SAFETY: Learn who can really protect your wealth. Page two explains an important lesson about politics and currencies.

* EZ PROFIT: Increase Earnings Six Times. Invest in the right currencies for safety. When you do, your money at times can grow enormously. See Case Study One on page ten. It shows how a 1983 portfolio designed for safety increased earnings from 5.05% to 33.4%!

Imagine the room-walnut paneled with carpeting that is deep blue, rich and plush. The table of polished oak is heavy and important, as are the men that sit around it. Tension hangs, thick. A soft hum, steady and calm, perhaps from a heating fan, goes unnoticed in the deathly silence. These men are powerful, but now they are afraid. The fear shows. They fidget, squirm, their faces tight with the tension. Many of them go pale when the man at the head of the table finally speaks. “Gentlemen, the nation is closer to a monetary collapse than we would like to believe.”

This scene sounds like one we would see in a tense melodrama at the movies. Even worse we could imagine that this was real. It was like this in Mexico just before the last devaluation of the Mexican peso.

It is unfortunate but we must think again. Because this scene is not based on fiction. The events above are all too real. More unfortunately the statement was not made in a third world nation.

The event upon which this scene is based actually took place in the United States of America at the headquarters of one of the most powerful financial institutions in the world, The Federal Reserve Bank. The man speaking was the chairman of the Federal Reserve, Alan Greenspan. The statement that the United States is closer to a monetary collapse than we would like to believe, is his and regretfully is very, very real.

To make matters most unfortunate, this meeting did not just happen. The statement was made by Mr. Greenspan just after Black Friday, October 1987 when the U.S. stock market crashed.

At that time, Federal Reserve policy makers met and grimly speculated that a run on the dollar might trigger renewed chaos or that consumer confidence might cause a recession. Despite their reassuring public pronouncements, they confessed privately to an inability to foresee the economy’s future with any certainty. Greenspan underscored the seriousness of the situation saying at one point, “The nation is closer to a monetary collapse than we would like to believe.” So great was his concern the meeting was kept secret, and this information has only recently been revealed. Mr. Greenspan’s quote comes from a newspaper article published by the Miami Herald that exposed the secret meeting. This secret meeting can be good news for you! I explain next page.

The secret meeting held at the Federal Reserve in 1987 can be good news for you if it proves to you that a new economic era has arrived. That meeting which was so carefully muffled will have accomplished something if it can be a focus that helps all investors see that now is the time to take independent action to protect their wealth! Even a benefit can be gained from the secrecy, if investors learn that this secrecy means the dollar problem is so bad that world economic danger is imminent and extreme!

If you use this meeting as a warning about the enormous currency dangers that exist right now, then that meeting will be of great benefit to you. That warning and the lessons in this course can bring you increased safety and immense rewards.

If you let that meeting serve as the warning, this course can help you learn many reasons why currency disaster is here and what we as individual investors can do to protect and profit ourselves now.

An important point to remember. The first lesson we can learn about currencies is how government officials treat investors. Why did we, as investors, not know of the Fed meeting in 1987? We did not know because government officials almost always deny that a currency is about to be devalued just before it is!

This first lesson caused this course to be created. My name is Gary Scott. I am a writer and publisher of information about international investing and have been for over 20 years, but I was shocked that I had not heard about this meeting. I wanted to know why none of us knew?

We did not know about the currency risk we faced because a meeting of our public servants was kept a secret. As so often happens, the public was intentionally misled and kept in the dark for fear that truth would create panic. Only months ago were secret tapes of this meeting revealed and exposed in various newspapers including the Pulitzer Prize winning, Miami Herald. This is where I learned of the meeting.

Reading about this secret meeting had a profound impact on me. We, as investors all over the world, were misled about dangers that could dramatically affect our wealth! This made me realize two important and urgent facts of investing.

The first fact is that the U.S. dollar and U.S. monetary system is at extreme risk and has been for nearly a decade. The system is now held together with little more than chewing gum, wax and bailing wire. Chances are this system will eventually fail.

The second fact I learned was that we, as investors, will not be forewarned unless we look beyond what our political and major financial institutions tell us. The political system, big banks and brokers have too much at stake. They all fear that the truth about the world’s currency system will create a self-prophesy of doom.

The currency problem is global. The dollar, though under incredible pressure, remains the reserve currency of the world. What will happen when the dollar collapses? What will happen to other currencies when the reserves (in dollars) of thousands of non U.S. governments/banks collapse?

This led me to see the urgent importance that exists for global currency diversification. Here’s the easiest way to diversify now.

Knowledge You Can Use

This course will give you an indepth understanding of currencies, but also will give you many contacts that can further your knowledge. Contacts that you can easily use!

The course format gives information to you in four different ways, #1: Educational Text, #2: Case Studies, #3: Glossaries and #4: Contacts. The Contact Section gives you a way to expand the knowledge you gain from the course and allows you to customize what you learn to meet your own particular needs.

In the Contact Section we show you easy ways to actually invest in overseas currencies. Then we give you names and addresses of businesses that deal in the activities covered throughout the course. The investments and names provided in the contacts sections are not recommendations. They are firms that have generally been chosen because they are among the largest and most experienced firms in their fields. Our goal in including them is to give you a variety of contacts so you can continue learning directly from firms where you can actually put your knowledge to use.

If you ever plan to do business with any of these contacts you should exercise normal care and caution and take the same precautions you would before choosing to do business with any firm. Check and make sure that any firm you do business with is reliable and can provide the services you need with fees that you find acceptable.

In this first contacts section, we look at overseas Money Market Funds, one of the easiest ways to diversify in currencies abroad.

Money Market Funds offer an alternative to saving accounts and certificates of deposit. The funds invest in top quality short term interest bearing instruments at wholesale rates in one currency. The rates of return in money market funds are not guaranteed and will fall during times of falling interest rates and rise during times of rising interest rates (of the currency in which the fund invests). These funds are best held when one expects interest rates in a particular currency to rise, which you will learn later in this course.

Money market funds are also available to many investors when CDS are not, because many such funds allow small investments. Most certificates of deposit start with $10,000 to $50,000 minimums.

Also money market funds let the investor choose which currency to hold. They allow complete flexibility as to when to get in and out. These funds can also offer a high degree of safety because they typically spread their deposits between many institutions.

Contacts

Listed below are managers of many large well established firms that manage Money Market Funds in many different currencies.

Capital House, IGF Funds, PO Box 348, St. Helier, Jersey, JE4 8UH, Channel Islands. Tel: 011-44-534-285-707. Fax: 011-44-534-285-751. This is an example of a manager that has many money market funds including funds in Australian and Canadian dollars, ECUs (European Economic Units), German marks and Japanese yen.

SVB Money Market Funds, Postfach 631, 8021 Zurich, Switzerland. Tel: 011-41-1-228-1111. Fax: 011-41-1-808-3801. This manager is the subsidiary of the large SwissVolks Bank.

DIT Lux DM Garantie, Dresdnerbank Asset Management, 13 rue Beaumont, L-1219 Luxembourg. Tel: 011-352-463-4631. DIT is a subsidiary of one of Germany’s largest banks. It is not surprising that this manager offers a German mark Money Market Fund.

Gartmore Fund Managers, PO Box 278, 45 La Motte Street, St. Helier, Jersey JE4 8TF, Channel Islands. Tel: 011-44-534-27301. Fax: 011-44-534-886689. A well established British firm owned by one of France’s largest banks (Banque Indosuez) with seven money market funds including Swiss and French francs.

Hambros Emma Continental Europe Money Fund, PO Box 225, Barfield House, St. Julians Ave., St. Peter Port, Guernsey, Channel Island, Britain. Tel: 011-44-481-715454. Fax: 011-44-481-727139. Another large British based firm, this manager has money market funds in US dollars and British pounds.

Rothschild Five Arrows Reserve Fund, PO Box 242, St. Peter Port, Guernsey, Channel Islands GY1 3PH. Tel: 011-44-481-713713. Fax: 011-44-481-723965. This manager is part of the well known Rothschild organization and has perhaps the largest number of money market funds available anywhere. It offers money market funds in nearly 20 currencies.

CS Money Funds, Credit Suisse Money Managers, Grand Rue, L-1660, Luxembourg. Tel: 011-352-460-0111. Fax: 011-352-475541. This manager is a subsidiary of one of Switzerland’s largest banks.

Each lesson of this course will also leave you with more action to take to increase your knowledge of currencies. In this case, write to the fund managers above. Find out which currencies in which they offer money market funds. Look at the types of returns these funds have offered. Look at the safety factors provided by the managers. Compare the fees that each fund manager charges and look to see what minimum the managers will accept. Look at the history of each manager and see which appears to be most sound financially.

The Big Currency Picture

We, as investors all over the world, now have to understand currencies, why they move and what makes them weak or strong. We have to know which currencies we should hold and how to hold them. It is imperative to our financial well being that we see the big global currency picture!

This is why we created this course, Currencies Made EZ, and commissioned author, Jeff Moses, to research and write it with me. I chose Jeff because of a book he previously wrote, the best selling book on great religious principles, Oneness.

Jeff’s excellent book, Oneness, is a book about the most important laws of nature and how they are reflected in all the major religions. My decision to choose Jeff to research and write the bulk of this course on currencies may at first seem odd. You might ask why choose an author of a book on universal laws to research and write a course on economics?

You will learn in this course that this choice was very logical because the laws of currency go far beyond mathematics and accounting. You will learn money is much more then credit, plastic, gold or paper.

You will learn that we think of money as a physical object but at its roots, money is nothing more than discipline. Money is a discipline created by applying accounting to fundamental natural laws. Money is more like a religion than anything else. The reality behind money is a social contract that simply applies mathematics to morality.

There are many problem with our monetary system. One is a lack of fiscal discipline that exists in almost every government. But another is that we have lived so long in a world that has distorted its money via political interference that I wanted this course to reach beyond the numbers and touch the very essence of money. I wanted it to help us see and understand the big picture, so that we make intelligent decisions about which currencies we should hold to protect our future.

My plan in creating this course was to let Jeff explain the big picture in the academic portion of this course so I could blend that view with details I have learned through my 20 plus years of international business, investment and money management.

The introduction of this course could not have been at a better time. Just months ago, the Mexican peso was dramatically devalued only three days after the President of Mexico assured investors that the peso would remain pegged to the U.S. dollar. At the time of release that devaluation hangs heavy in economic markets, and the final results are still unknown. This devaluation could even be the spark that ignites a global currency crisis that will rob millions of their wealth.

The peso’s fall certainly was an important factor in one of the most dramatic short term falls of the U.S. dollar ever. Now at the release of this course, the dollar is at an all time low versus the Japanese yen, German mark and Swiss franc. The peso devaluation is a stark reminder that we cannot trust what any government leader tells us about currencies. The fall of the dollar warns us yet again that no currency can be trusted.

The Urgent Importance of Global Currency Thinking

Less than a quarter of a century ago, the United States dollar was worth over 4.25 Swiss francs. If you had taken a fabulous skiing trip to the Swiss Alps at that time, $5,000 U.S. dollars could have been converted into 21,250 francs. As this report was written, the dollar was worth 1.28 Swiss francs. This means that the same $5,000 could be exchanged for only 6,400 Swiss francs. Now as the course is printed, the dollar is worth only 1.13 francs. Just in the few weeks it took to print this course the $5,000 lost another SFR750 and will buy now only 5,650 Swiss francs!

In less than 25 years, the dollar has fallen so much in value that it is now worth only one-quarter of its original exchange price.

Less than a quarter century ago, the dollar was worth 4.00 German marks. Now the dollar is worth less than 1.5 German marks (1.43 to be accurate). That means that a BMW that cost $20,000 now costs over $53,000 (all else being equal).

The dollar was worth nearly 400 Japanese yen twenty-five years ago. Now it’s worth about 90 yen. The dollar is now worth less than one- quarter of what it was once in terms of the yen.

It’s much the same with many other hard currencies, also. The value of the dollar has fallen continually, and as a result, at every stage of the fall foreign goods have cost more for U.S. citizens.

Take, for example, the cost of French wine. In 1971 a bottle of fine French wine might have sold in the U.S. for $20. In France the same bottle of wine sold for 400 French francs. The foreign exchange ratio in that day was, approximately, US$1.00 to 20 FrF. But today the exchange ratio is approximately US$1.00 to 5.3 FrF. That means the same wine, bottled by the same winery, now costs about $75 in the United States.

                 1971                                     1994        U.S. dollar    French franc              U.S. dollar    French franc          $ 1.00         20 francs                  $ 1.00       5.26 francs      Price in U.S.   Price in France          Price in U.S.    Price in France         $25.00         400 francs                  $75.00        400 francs

As the value of the dollar falls in relationship to any other country’s currency, goods from that country become proportionately more expensive when purchased in dollars. This is true for wine, bread, cheese, cars, TVs, CD players, clothing, furniture, etc.

You may say, if you live outside the United States or if you live in the U.S., but buy American, “This doesn’t affect me. I don’t buy foreign products. I buy American when I can and pay for everything in U.S. dollars.” You may think that you only spend U.S. dollars.

But the complexity of international trade and economics today makes it impossible for you to not be affected dramatically by fluctuations in the value of the dollar compared with other currencies. In addition, all you will learn in this course about what happens to currencies applies to your currency as well as the U.S. dollar. The fate of the dollar as the reserve currency is linked to the fate of all currencies.

Take, for example, a U.S. resident who purchases a General Motors car, paying U.S. dollars. Nothing could be more American than a Buick or an Oldsmobile, right? But parts of every car today are produced in numerous countries. Every dollar you pay for the car is divided into segments and changed into many different foreign currencies — not by you, of course, but by someone.

You might pay $25,000 to the dealership for an American car, but several thousand of the dollars are converted to Japanese yen to pay for parts that come from Japan. A thousand or two dollars are turned to Korean won for labor and additional parts. Several thousand are converted to German marks for engineering work done in Germany. Additional thousands for design work might go to Italian lira, British pounds and Irish punts. Additional payments for engineering or labor might be sent to Canada, Hong Kong, South Korea, France, etc. And, if we go even deeper into the actual metallic, plastic and rubber components of the car, separate payments also might be sent to South Africa, Mexico, Saudi Arabia, Russia, Malaysia, Brazil, and so on.

In the end, less than one-half of the dollars you spend on this most American of products stay in America. Someone, acting on your behalf, converts those dollars into foreign currencies.

A person may say that he or she doesn’t buy many products manufactured overseas, so why worry about currencies? The above example shows why every American is continually at the mercy of foreign exchange rates. It also shows why investors have to now understand both their own currency and the U.S. dollar.

The dollar has been falling in value for nearly two decades with the result that prices of products bought by Americans in dollars are rising steadily. This has continually eroded the purchasing power of the dollar and has made many products more expensive for every American.

Automobiles are only one example of this interconnected global maze. The gasoline you use for your car or to heat your home, the clothes you wear, the food you eat, the paper you use to write on, etc., all have components produced or purchased abroad, and have increasing prices reflecting the falling value of the dollar and other currencies.

However, other currencies have fallen versus the U.S. dollar, making goods and services from these countries less expensive to U.S. spenders. Yet this can be a problem too! Right now Mexico is a perfect example. With the collapse of the peso, credit card interest rates have soared to over 100%. Millions of middle class investors cannot make their debt payments. They have been losing their homes, their cars, their jobs and many have been protesting, even rioting in the streets. The short term future of Mexico looks grim. This is likely to increase the flood of illegal immigrants into the U.S. and add to security and social costs here. These added costs are likely to add to the U.S. debt which is one of the main reasons for the weak U.S. dollar.

Mexican bank bad debt ratios have risen to 9% (in the U.S. the rate is 1%) and it is reckoned that it could rise to 16%, causing Mexican banks to fail which in turn could cause another international monetary crisis. U.S. exporters of goods to Mexico have watched their sales almost dry up as Mexicans can no longer afford U.S. goods which have suddenly doubled in price. This means the U.S. global trade deficit will grow and could further weaken the dollar.

At the same time, many U.S. and Canadian industries are being ruined by cheap Mexican prices caused by the peso’s fall. Take the Florida tomato growers. They are currently trying to sue Mexican tomato shippers to stop the flow of the cheap Mexican tomatoes that are flooding into Florida at prices below the Florida growing costs.

Only the most short term thinkers will see the fall of the peso as a boon to the U.S. or other nation that can now buy Mexican goods for less. Any clear thinker will see that economies around the world are now so related that bad news caused by a currency crash is bad news everywhere.

Currency fluctuations affect you and your family daily, and they affect you more profoundly every year. As we’ll examine in this report, the dollar is falling in value and by all rights will continue to fall. This will tend to keep prices inflating. Purchases you make for your business and for your family’s livelihood will continually be affected by the international forces of foreign exchange.

Most lessons in this course will include a glossary of words to make the lesson easier to understand. Listed next page is the Glossary of words that relate to this chapter.

Glossary

Key or Reserve Currency. The central currency of the world, which is used as reserves by many countries and in which many international commodities (such as oil, gold, steel, etc.) are bought and sold. Before WWII, the British Pound was the world’s key currency. Since the war, the U.S. dollar has been the key currency. But with the severe loss of value the dollar has been experiencing, many economic experts say that the world is actually in search of a new key currency.

United States Federal Reserve. “The Fed,” as it is often called, is a privately-owned organization chartered by the U.S. government. It creates and maintains the U.S. monetary supply by buying Treasury Certificates, loaning money to banks and designating interest rates. On a daily basis, the Fed decides if it wishes to add to the U.S. money supply. If it does, it buys U.S. Treasury securities directly from the government or from major banks and brokerage companies. To pay for these securities, the Fed writes a check on its own account — but in reality it has no assets in its account, other than the assurance of the U.S. government that it will pay the bearer of the securities in full. In effect, the Fed has created money with the stroke of a pen (or a computer stroke, to be more accurate). The Fed also makes direct loans to U.S. banks, charging them a specific interest rate (discount rate) that determines the rate banks charge for loans. When making such loans, the Fed, again, simply writes a check, creating money with the stroke of a pen.

Gross Domestic Product. (GDP) The sum of private consumption, investment, government expenditure, net stockbuilding and the surplus of national exports over imports.

Gross National Product. (GNP) GDP plus any excess of investment income from abroad less investment income owed to foreign governments or individuals. The GNP represents the production growth of a country and is usually expressed as a yearly percentage. Thus, a GNP growth of 3% for a particular year means that a country’s total economic productivity for the year increased 3% over the previous year.

ECU. ECU is short for Economic Currency Unit. It is a currency represented by a basket of European currencies — German mark, French franc, Dutch guilder, Italian lira, Belgian-Luxembourg franc, British pound, Spanish peseta, Danish kroner, Portuguese escudo and Greek drachma.

The Cost of a Strong Currency

Here we look at how you can spot whether a currency will be strong or not by looking at how a nation invests in itself.

The strength of a nation’s currency is a reflection mainly of the real wealth of a nation. Let’s look at the richest countries of the world today and compare them with the richest countries of the world one hundred years ago.

                         The Richest Countries Per Capita                          100 YEARS AGO             TODAY                      1.  Australia           1.  Switzerland                      2.  UK                   2.  Iceland                      3.  Belgium             3.  Japan                      4.  Switzerland         4.  Norway                      5.  Netherlands         5.  Finland                      6.  United States       6.  Sweden                      7.  New Zealand         7.  Denmark                      8.  Denmark             8.  United States                      9.  Canada              9.  West Germany                     10.  France             10.  Canada                     11.  Argentina          11.  Luxembourg                     12.  Austria            12.  France                     13.  Italy              13.  Austria                     14.  Germany            14.  United Arab Emirates                     15.  Spain              15.  Netherlands                     16.  Norway             16.  Belgium                     17.  Ireland            17.  UK                     18.  Portugal           18.  Italy                     19.  Sweden             19.  Australia                     20.  Chile              20.  New Zealand

To have their wealth, all the richest countries today have dedicated tremendous internal resources to maintain growth over a long period of time. Each has put together an average 3% or thereabouts annual GNP (Gross National Product) growth rate over the last one hundred years. This is a rare feat among nations. This dedication has also caused the currencies of these nations to be strong.

To continue such growth, to maintain a place on the wealthiest nations list and to maintain a strong currency, each country will have to dedicate steady internal investment to its own future. In U.S. dollar terms, the figures are staggering. To get each American now being born to a level of productivity that will enable U.S. global economic competitiveness in the next century, the following approximate per capita dollar totals must be spent over the next 20 years or so:

1. Housing — $20,000 2. Food — $20,000 3. Education — $100,000 (private and public expenditure) 4. Work Productivity — $80,000 in plant and equipment expense 5. Public Infrastructure — $20,000

This means that an average of $240,000 is needed to be invested in individuals before they are capable of becoming a self-sufficient, average citizen/worker/consumer. If the United States were to continue its average 4% population growth rate, more than 40% of the entire GNP each year would have to be devoted to provide this funding. Clearly, with public and private debt level in the U.S. today, this will not be possible in the coming decades unless drastic changes are undertaken in the national consciousness.

Over the last 100 years, the U.S. GNP has grown an average of 3.3% per year, with population growth 1.5% per year. (Much of this population growth came from immigration, not from internal growth.) As a result, the U.S. per capita income grew on the average of 1.8% per year. Similar figures can be shown for many of the world’s leading industrial countries that are on the list of wealthiest countries: Japan, Germany, etc.

A country must discipline itself to maintain such growth. Real growth cannot be maintained by any other means than by increasing the actual total production of the country. Government borrowing to pay for growth is a temporary measure. Eventually the debt must be paid back…at the cost of future generations.

If a country does not discipline itself to have this real growth, in today’s political atmosphere (where politicians almost always promise a better life without cost to the voter) you can almost be assured that the country’s currency will weaken, both in parity versus other countries and versus internal purchasing power.

To maintain real, substantial economic growth, a country must be disciplined enough to place a substantial amount of its own GNP back into the development of its own citizens and internal infrastructure. Japan and Germany have continued to do this during the last decade; the United States has not, as we will see in this report. The government of Japan funnels much of its GNP back into business productivity and infrastructure development (roads, sewers, airports, etc.). The government of Germany is currently funneling much of its GNP into the unification of its country, a strategy that is producing an enormous industrial machine.

In contrast, the United States funnels much of its GNP into welfare and other entitlements. And increasingly the U.S. is spending its GNP on maintenance of its debt. (Note “maintenance of the debt,” not actual paying off of the debt.) Estimates show in less than 20 years that at current debt rates (if major changes are not made), the U.S. will pay more in interest alone per year than it will be able to take in from taxes.

Because of debt, the United States faces losing its economic position. Per capita income will fall, and the U.S. standard of living will fall with it. The U.S. has already lost economic dominance. Unless government discipline is tightened, future generations of Americans will find their role much different in the world.

Picture of a Currency

We have seen that the strength or weakness of a country’s currency is a direct indication of the underlying, fundamental factors affecting the country’s economic growth. A country’s economic philosophy is related to its economic strength and how its economic strength directly affects the value of its currency both in terms of local purchasing power and in terms of other currencies. How a country thinks about itself, its public debt, its spending and saving habits, its overall economic discipline, its education and dedication to infrastructure development — all these work together to determine a country’s future economic strength or weakness. This strength or weakness, in turn, is directly mirrored in the perceived value of a country’s currency.

In the short term, many factors affect the price of a country’s currency, and we’ll discuss all of these factors too. We’ll learn to see when and how currencies move. In the long term, extending over years and decades, only a country’s level of productivity and self-discipline affect fundamental economic strength and the resulting currency price. An Important Point to Remember: Economic and investment discipline in a country are the foundations for its strong currency.

Case Study

By Gary Scott

In this case study, we learn how spotting economic discipline can help make currency decisions.

As I was researching the relationship of government debt of major countries in relationship to the country’s Gross Domestic Product. The information I learned is next page.

                       CURRENCY RESERVES  (November 1993)     COUNTRY    GOLD TONNES   GOLD $    TOTAL RESERVES   GOLD %    NATIONAL                                        IN US DOLLARS   RESERVES   DEBT AS %                                                                   OF GDP     USA          8,146       86,434        147,559       58.6%      63.0%     Canada         318        3,369         13,175       25.6%      82.3%     Japan          754        7,996         79,439       10.1%      64.9%     Australia      247        2,617         13,609       19.2%      29.7% *     Germany      2,980       31,409        116,965       26.9%      44.0%     Switzerland  2,590       27,482         56,984       48.2%      30.0% *     France       2,546       27,011         54,252       49.8%      50.1%     Italy        2,074       22,001         47,974       45.9%     108.4%     Netherlands  1,357       14,395         34,567       41.6%      78.3%     Belgium        779        8,263         19,545       42.3%     134.4%     Austria        616        6,537         18,621       35.1%      52.1%     UK             581        6,161         43,838       14.1%      41.9%     Spain          486        5,155         47,723       10.8%      48.4%     Greece         107        1,132          4,811       23.5%      84.3%     Sweden         189        2,003         21,409        9.4%      54.4%     Finland         62          660          7,650        8.6%      29.0% *     Denmark         52          548          9,242        5.9%      62.2%     Norway          37          389         16,694        2.3%      43.9%     Ireland         11          119          3,522        3.4%      98.1%

This data among other facts showed me that Finland, Australia and Switzerland had the lowest debt as a percentage of their Gross Domestic Product. Though I was surprised about Finland (a very socialistic country) and Australia (also socialistic), I decided to invest a core portion in these two currencies. In simple terms, I decided to invest in the currencies of the two countries that had shown the most discipline in keeping their debt in hand.

At that time the interest rates for the Swiss franc were 4.62%, the Finmark 6.25% and 4.88%. This compared to a 3.37% interest rate for the U.S. dollar. The currency parities were as shown below.

                    Currency             Rate Per U.S. Dollar                     Swiss Franc                   1.42                     Finmark                       5.83                     Australian dollar             1.54

Holding those currencies over the past 18 months has paid me a much better return than if I had held U.S. dollars. However, it gave two other benefits. First, it added safety to my portfolio through diversification. Second, it brought me some foreign exchange profits.

As this report is going to press, the Swiss franc and the Finmark are the first and second strongest currencies in the world! The Australian dollar has also appreciated versus the U.S. dollar. Here are the current parities.

                     Swiss franc                  1.15                      Finmark                      4.34                      Australian dollar            1.36

Look at the difference in return for a $10,000 investment in these three currencies (assuming that interest rate differentials remained the same) made over 18 months versus a deposit in just the U.S. dollar. In September 1993, $10,000 bought 14,200 Swiss francs, 58,300 finmarks and 15,400 Australian dollars.

         Amount Invested         Interest Rate            Actual Return            US$10,000      3.37%  per annum for 18 mos.       $   505            SFR14,200      4.62%  per annum for 18 mos.     SFR   984            FIM58,300      6.25%  per annum for 18 mos.     FIM 5,462             A$15,400      4.88%  per annum for 18 mos.      A$ 1,127

At the time this course was published, the U.S. dollar deposit, with accumulated interest, in the example above was worth $10,505. Look at how much the deposits in each of the other currencies with interest are now worth if converted back to U.S. dollars.

      Currency     Deposit     Interest     Total      Parity      US$ Value         SFR        14,200         984       15,184      1.15        $13,203         FIM        58,300        5,462      63,762      4.34        $14,691         A$         15,400        1,127      16,527      1.36        $12,152

A U.S. dollar deposit earned 5.05% over 18 months, but an investment in Australian dollars was up 21.52%, Swiss francs was up 32.03% and Finmarks up a whopping 46.91%! Anyone who invested in a basket of the three currencies averaged a 33.4% increase over the past 18 months. here $10,000 grew to be worth $13,340.

The lesson we can learn from this case study above is that it is possible to make dramatic differences in your portfolio returns by simply choosing currencies in countries with strong fundamentals.

However, there is much more we can learn as well. For example in our case study, we assumed interest rates remained the same over 18 months. They in reality did not. Today the interest rates are much different. The rate for Swiss francs has dropped to 3.75%, the Finmark stayed about the same. The Australian dollar rate has risen to 8.00%.

There are many questions that the case study creates.

Question: Does the same tactic that did so well 18 months ago make sense now? The answer is probably not. The U.S. dollar is at all time lows already and the chance of a rebound much greater now. We will look at currency rebounds in the next lesson.

A lesson we can learn from answering this question is that the currency allocation in our portfolio must be continually reexamined.

Question: What kind of investments should we have made in each currency? I made the decision to invest in Australian dollars and Finmarks and bought Finmark equities (via a Finnish mutual fund called Evli-Select) and Australian bonds. We will examine the conditions that dictate when to choose equities, bonds or CDS in later lessons.

The lesson we can learn from answering this question is that once we have chosen a currency, we must then determine whether to invest in CDS, bonds or shares or just speculate on the currency through derivatives.

See how to get an updated report on multi currency investing here.

How We Can Serve You

How to Have Real Safety

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There are only three reasons why we should invest.  We invest for income.  We invest to resell our investments for more than we had invested.  We invest to make our world a better place.

We should not invest for fun, excitement or to get rich quick, or in a panic due to market corrections.

This is why the core Pi model portfolio (that forms the bulk of my own equity portfolio) consists of 19 shares and this position has not changed in over two years.  During these two years we have been steadily accumulating the same 19 shares and have not traded once.

The portfolio has done well in 2017, up 22.6%, better than the DJI Index.

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However one or even two year’s performance is not enough data to create a safe strategy.

The good value portfolio above is based entirely on good value financial information and mathematically based safety programs developed around models that date back 91 and 24 years.

The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets developed combining my 50 years of investing experience with study of the mathematical market value analysis of Keppler Asset Management and the mathematical trend analysis of Tradestops.com.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers, such as State Street Global Advisers, use his analysis to manage over $2.5 billion of funds.

The Pifolio analysis begins with Keppler who continually researches international major stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  He compares each major stock market’s history.

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Michael Kepler CEO Keppler Asset Management.

Michael is a brilliant mathematician.  We have tracked his analysis for over 20 years.   He continually researches international major stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  He compares each stock market’s history.  From this, he develops his Good Value Stock Market Strategy and rates each market as a Buy, Neutral or Sell market.  His analysis is rational, mathematical and does not cause worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each BUY market.

This is an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any stock in that country is an attractive investment, so you do not have to spend hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pifolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

Here is the Pifolio I personally use.

70% is diversified into Keppler’s good value (BUY rated) developed markets: Australia, Austria, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: Brazil, Chile, China, Colombia, the Czech Republic, South Korea, Malaysia and Taiwan.

The Pifolio consists of iShares ETFs that invested in each of the MSCI indicies of the good value BUY markets.

For example, the iShares MSCI Australia (symbol EWA) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Australia Index which is composed mainly of large cap and small cap stocks traded primarily on the Australian Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Australia.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

Pi uses math to reveal the best value markets then protects its positions using more math created by Richard Smith founder and CEO of Tradestops.com to track each share’s trend.

We use Smith’s  algorithms that calculate momentum of the good value markets.

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The Stock State Indicators at Tradestops.com act as a full life-cycle measure that indicates the health of each stock. They are designed to tell you at a glance exactly where any stock stands relative to Dr. Smith’s proprietary algorithms.

Kepppler’s analysis shows the value of markets.  The SSI signal indicates the current trend of each stock (performing well, or in a period of correction, or stopped out).

The SSI tells you one of five things:

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Akey component of the Stock State Indicator (SSI) system is momentum based on the latest 521 days of trading.  A stock changes from red to green in the SSI system only after it has already gone up a healthy amount and has started a solid uptrend.

How SSI Alerts Are Triggered

If the position has already moved more than its Volatility Quotient below a recent high, the SSI Stop Loss will trigger.  This is an indicator that the position has corrected more than what is normal for this stock.  It means to take caution.

Below is an example of how SSIs work.  This example shows the Developed Market Pifolio that we track at Tradestops.com.

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Equal Weight Good Value Developed Market Pifolio.

At the time this example was copied, all the ETFs in the Developed Market Pifolio (above) currently had a green SSI.

We do not know when the US market will fall.  We only do know that it will.  We also do not know if, when the US market corrects, global markets will follow or rise instead.

The fact that the Pifilios are invested in good value markets reduces long term risk.

Additional protection is added by using trailing stops based on the 521 day momentum of each stock in the Pifolio.

Take for example the graph below from our Tradestops account that shows the iShares MSCI United Kingdom ETF.  This ETF had a green SSI and a Volatility Index (VQ) of 13.26%.  This means the share can move 13.26% before there is a trend shift.

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iShares MSCI United Kingdom ETF (Symbol EWU)

Pi purchased the share at$31.26 and in this example the share was $34.43 and rising.  Tradestop’s algorithms suggested that if the price drops to $31.69 its momentum would have stopped and it would have shifted into trading sideways.   The stop loss price is currently $29.86.  If EWU continues to rise, both the yellow warning and the stop loss price will rise as well.

When the US stock market bull ends, know one knows for sure how long or how severe the correction will be.

When the bear arrives, what will happen to global and especially good value markets?

No  one knows the answer to this question.

What we do know is that the equally weighted, good value market Pifolios have the greatest potential long term and that math based trailing stops can be used to protect against a secular global stock market correction when it comes.

My fifty years of global investing experience helps take advantage of numerous long term cycles that are part of the universal math that affects all investments.

What you get when you subscribe to Pi.

You immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Included in the basic training is an additional 120 page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more.

You also receive two special reports.

In the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  Then the cycle ended.  Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview.  He said:  Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!

I did well then, but always thought, “I should have invested more!”  Now those circumstances have come together and I am investing in them again.

The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.  The two conditions are in place again!

30 years ago, the US dollar rose along with Wall Street.  Profits came quickly over three years.  Then the dollar dropped like a stone, by 51%  in just two years.  A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  The trends are so clear that I have created a short, but powerful report “Three Currency Patterns for 50% Profits or More.”   This report shows how to earn an extra 50% from currency shifts with even small investments.  I kept the report short and simple, but included links to 153 pages of  Good Value Stock Market research and Asset Allocation Analysis.

The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

This report sells for $29.95 but in this special offer, you receive the report, “Three Currency Patterns for 50% Profits or More” FREE when you subscribe to Pi.

Plus get the $39.95 report “The Platinum Dip 2018” free.

With investors watching global stock markets bounce up and down, many missed two really important profit generating events over the last two years.  The price of silver dipped below $14 an ounce as did shares of the iShares Silver ETF (SLV).   The second event is that the silver gold ratio hit 80, compared to a ratio of 230 only two years before.

In September 2015, I prepared a special report “Silver Dip 2015” about a silver speculation, leveraged with a British pound loan, that could increase the returns in a safe portfolio by as much as eight times.  The tactics described in that report generated 62.48% profit in just nine months.

I have updated this report and added how to use the Dip Strategy with platinum.   The “Platinum Dip 2018” report shares the latest in a series of long term lessons gained through 40 years of speculating and investing in precious metals.  I released the 2015 report, when the gold silver ratio slipped to 80.  The ratio has corrected and that profit has been taken and now a new precious metals dip has emerged.

I have prepared a new special report “Platinum Dip 2018” about a leveraged speculation that can increase the returns in a safe portfolio by as much as eight times.

You also learn from the Value Investing Seminar, our premier course, that we have been conducting for over 30 years.  Tens of thousands of delegates have paid up to $999 to attend.  Now you can join the seminar online FREE in this special offer.

This three day course is available in sessions that are 10 to 20 minutes long for easy, convenient learning.   You can listen to each session any time and as often as you desire.

The sooner you hear what I have to say about current markets, the better you’ll be able to cash in on perhaps the best investing opportunity since 1982.

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Tens of thousands have paid up to $999 to attend.

In 2018 I celebrate my 52nd anniversary in the investing business and 50th year of writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special seminar session looks at how to spot value from cycles.  Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

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The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.

The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Details in the online seminar include:

* How to easily buy global currencies, shares and bonds.

* Trading down and the benefits of investing in real estate in Small Town USA.  We will share why this breakout value is special and why we have been recommending good value real estate in this area since 2009.

* What’s up with gold and silver?  One session looks at my current position on gold and silver and asset protection.  We review the state of the precious metal markets and potential problems ahead for US dollars.  Learn how low interest rates eliminate  opportunity costs of diversification in precious metals and foreign currencies.

* How to improve safety and increase profit with leverage and staying power.  The seminar reveals Warren Buffett’s value investing strategy from research published at Yale University’s website.  This research shows that the stocks Buffet chooses are safe (with low beta and low volatility), cheap (value stocks with low price-to-book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios). His big, extra profits come from leverage and staying power.  At times Buffet’s portfolio, as all value portfolios, has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

keppler asset management chart

This chart based on a 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of out performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

Learn how much leverage to use.  Leverage is like medicine, the key is dose.  The best ratio is normally 1.6 to 1.  We’ll sum up the strategy; how to leverage cheap, safe, quality stocks and for what period of time based on the times and each individual’s circumstances.

Learn to plan in a way so you never run out of money.  The seminar also has a session on the importance of having and sticking to a plan.  See how success is dependent on conviction, wherewithal, and skill to operate with leverage and significant risk.  Learn a three point strategy based on my 50 years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

The online seminar also reveals  the results of a $80,000 share purchase cost test that found the least expensive way to invest in good value.  The keys to this portfolio are good value, low cost, minimal fuss and bother.  Plus a great savings of time.  Trading is minimal, usually not more than one or two shares are bought or sold in a year.  I wanted to find the very least expensive way to create and hold this portfolio so I performed this test.

I have good news about the cost of the seminar as well.   For almost three decades the seminar fee has been $799 for one or $999 for a couple. Tens of thousands paid this price, but online the seminar is $297.

In this special offer, you can get this online seminar FREE when you subscribe to our Personal investing Course.

Save $468.90 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.  Plus you receive FREE the $29.95 report “Three Currency Patterns for 50% Profits or More”, the $39.95 report “Silver Dip 2017” and our latest $297 online seminar for a total savings of $468.90.

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Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years, the two reports and the Value Investing Seminar right away. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  You can keep the two reports and Value Investing Seminar as my thanks for trying.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

Subscribe to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, the “Platinum Dip 2018” and “Three Currency Patterns For 50% Profits or More” reports, and value investment seminar, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197 and receive all the above.

Gary


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