Are We Days from Dollar Disaster?


Are we days from a US dollar disaster?

This is such an urgent question, I posted a free report for all readers entitled “US Dollar Protection Review“.

This report is quite long so here is an executive summary as it is important that you do not miss this part.

Understanding multi currency investing is very timely and important.

There are three factors that suggest there will be another significant US dollar fall.   If the dollar weakens… everything Americans buy abroad… which is a lot… will cost more.  Interest rates may rise and business may suffer.

Factor #1:  Economic recovery.  Since the 1960s the greenback has lost as much as 95% of its purchasing power to other major currencies, but it  has been strong since the 2007 recession.  There is a precedence for this.  After the other terrible recession in the 1980s, the US dollar became the currency of choice for about five years. Then after the recession ended, it took a terrible fall.  Investors have fallen back to the dollar again and again in times of fear.  They do not know where else to invest.  This is a short term emotional response that is fundamentally wrong.

Factor #2:  Congress.  Congress has just days left to approve lifting the $16.7 trillion borrowing cap and a government operating budget.  If this does not happen… an increasingly likely prospect… the government will shut down and the US could default on its debts shortly after.

This is a first-ever scenario which could throw the dollar into a tailspin at any time.

The $16.7 trillion debt limit was breached last May but the government has continued by using emergency measures such as not funding pensions for federal workers to stay open.

The Treasury says it will run out of options around mid-October and could default around that time.

However a US dollar crunch could come sooner… at any time in fact, because investors may lose confidence and stop reinvesting in U.S. government debt.

If this happens and bond investors switch to other countries’ bonds… the greenback’s snowball downwards could turn into an avalanche.

Every Thursday, the Treasury pays about $100 billion to investors.  Normally these investors roll over the investment.  If they lose confidence and want to be repaid instead, the Treasury’s entire cash balance could be wiped out leading to default.

In other words, America… right now is living from payday to payday.  Any Thursday payday could stop.

This would likely cause a crash on Wall Street and hurt the US economy, business and the public with a sharp and high increase in interest rates.

The administration acts as if it is expecting a shutdown and the Office of Management and Budget’s director has sent memos to federal agencies outlining preparations for closure.

Congress will most likely get their act together… again but this could cause an emotional panic and force the dollar down.  This emotional weakness is important because the US dollar should not be so strong anyhow. The dollar has been buoyed for some time by inertia… not by strong currency fundamentals.

Factor #3:  Weak Fundamentals.   The forces that support a currency are weak in the US.  Other currencies have better fundamentals.

Start for example with the Mexican peso and how it protected its purchasing power over the past five years.

At the bottom of the 2000 recession when investors were flocking to the US dollar,  I invested in Mexican Fixed Rate  MXN 780.000 with an  8% coupon. They mature December 2015 and are still in my portfolio.

I purchased at a premium of 103 ($10,000 of these bonds cost $10,300) so my yield has been 7.30% per annum for the past four years… plus as you’ll see I have enjoyed a forex profit.

Mexican peso data

Dollar peso multi currency chart from www.finance.yahoo.com

Click on image to enlarge.

When I invested in these bonds, each dollar I invested purchased 13.6 pesos.  That means that each peso was worth 7.35 cents.

I would like to say I was a hot shot and made the investment in February 2009 when the peso had drop temporarily to 15.3 pesos per dollar.  I did not. I do not ever try to capture the absolute tops and bottoms…for a reason.

This is multi currency diversification, not multi currency speculation.

I invested in these bonds when the peso was a bit stronger… as mentioned 13.6 pesos per dollar.  I immediately made a nice forex profit as the dollar fell from 13.6 pesos per dollar to 11.3 pesos per dollar.  That was a 15.4% forex profit in nine months.  I did not take that profit though.

This is multi currency diversification, not multi currency trading.
I was not looking for a short term speculation but a long term profit.  The US dollar strengthened again.  Today each US dollar buys about 12.9 pesos. This means that each peso is worth 7.75 cents.  In other words every 10,000 peso bond I bought was worth $735 at purchase.   Today each 10,000 pesos is worth $775 and the dollar is trading down versus the peso.

I am still earning 7.50% per annum and in 2015, I’ll get my money back with either a forex profit or loss.  If the peso has a strong run up in the next year or so, I may lock in the forex profit with a forex contract.

Simply put, the purchasing power of those bonds has increased, plus every year I received 7.5% income.

Let’s look at what this means in terms of total return.

From 2009 till 2015, I get $750 for every $10,000 I invested.  In simple return I earn 45% and then I get my money back.

Compare that to having invested in a Dow Jones Industrial Index ETF.  Right now had I invested in October 2009 my return would be about 35%.  The Dow has to rise 10% more to match the peso bond return.  Of course if the peso rises the Dow would have to climb more to provide an equal return.

Why the peso still makes sense.

Here are three charts from the Economist magazine.

Mexican peso data

Mexican peso data

Click on the image to enlarge or go to the Economist Statistics by clicking here.

Compare the fundamentals of the US versus Mexico. The first important statistic is the interest rate, 7.75% for Mexico and  2.92% for the US.  Budget deficit for Mexico  is -1.8% of GDP.  The US deficit is -4%.  The US current account is -2.7% of GDP. Mexico’s is about half that at -1.4%.  These fundamentals suggest that the peso with strengthen  versus the US dollar.

This next chart shows that Mexico has strong foreign reserves.

Mexican peso data

Click on the chart to enlarge or go to the Economist chart by clicking here.

Finally this chart shows that the Mexican peso is the 8th most traded currency in the world so there is plenty of liquidity.

Mexican peso data

Click on image to enlarge or go to the Economist website here

Jyske Bank’s website says:  We recommend investors to BUY MBONO 9.5% 2014 as we find that the bond and the currency offer reasonable return potential. We estimate that there is basis for a strengthening of the currency. However, a number of factors may weaken the currency in the short term. Sustained moderate growth in Mexico and the US and the Fed’s initiated scaling down of its purchase programme involves a risk of affecting the currency adversely.

It is important to keep an eye on particularly two issues with respect to our expectations of a strengthening of MXN over the next 12 months. Firstly, that energy and fiscal policy reforms will be implemented and, secondly, that growth will improve in H2. We expect that both of these factors will materialise. There is still potential of a number of upgrades of Mexico’s credit rating, and Mexico’s proximity to the US will be beneficial.

This bond yields about 3.5% per annum at this time.

How to Leverage

There is one more step that investors with a more speculative nature can take.  Borrow US dollars in the 3% range  and invest in pesos in the 6% range.  The idea behind this Borrow Low – Deposit High Strategy is to take advantage of the interest differential called the “positive carry”.  This creates additional income and potential for increased forex profit at the cost of risk from forex loss.

We will review how to calculate risk reward on such speculation at the upcoming International Investing and Business seminar October 4-5-6.

The bond that matures in 2104 does not pay high enough interest now, but longer term bonds do such as the 8% Mexican Bonos maturing 07-12-2023  is rated Baa1 A- and selling at 114.34 yields 6.11%. You borrow for 3% and invest for 6.11%.

EZ Peso

An easy way to invest in the peso is with the ETF iShares MSCI Mexico Index Fund (EWW) launched in 1996 on the New York Stock Exchange. This is an easy way to invest via the Mexican Stock Market into pesos, but of course has the normal market risks.

The iShares MSCI Mexico Index Fund seeks to provide investment results generally equivalent to publicly traded securities in the Mexican market, as measured by the MSCI Mexico Index.

You can learn more about investing in a diversified portfolio of ETF from Morgan Hatfield at mhatfield@ruggiewealth.com .

In the past year we have also looked at the potential of investing in Singapore dollars.

We also looked at how we sort of cleaned up with a Yen dollar- Multi Currency Sandwich.

See ENR Asset Management’s six currency diversification recommendation here.

We will look at the seven best currencies to invest in now at our International Investing and Business Seminar October 4-5-6.

Gary

Multi Currency Value Investing Seminar

Old Accord Creates New Profits – Multi Currency Investments.

Earn more with multi currency stock market breakouts.

Improve Safety – Increase Profits

Learn how to improve the safety of your savings and investments by selecting good value and diversified investments in a multi-currency portfolio.

Few decisions are as important to your wealth as the value of the markets and currencies you invest in.  This has been our area of expertise since the 1970s and we have worked with and advised some of the largest currency traders in the world.

Gain Protection First – Against the Dollar’s Purchasing Power Loss.  In 1913 the The Federal Reserve Act created the Federal Reserve Bank to protect the purchasing power of the US dollar, which has since lost about 94% of its purchasing power.  Here is its price compared with gold since 1900.

priced in gold

Dollar chart from pricedingold.com (1)

The Fed has let the dollar lose most of its strength plus has allowed interest rates to fall so low, that safe investments cannot keep pace with the drop in purchasing power.

multi-currency-chart

Chart from Grandfather Economic Report (2)

Many investors have forgotten about the risk of a falling dollar because the greenback has been strong for the past five years.  This temporary dollar strength came after the great recession of 2009 just as there was temporary dollar strength after the great recession of the 1980s.  Then about six years after the recession, an agreement was made by major governments to weaken the dollar.

There was a severe global economic recession affecting much of the developed world in the late 1970s and early 1980s.  The United States and Japan exited the recession relatively early, but high unemployment would continue to affect Europe and the UK through to at least 1985.  As a consequence between 1980 and 1985, the US dollar had appreciated by about 50% against the Japanese yen, Deutsche mark, French franc and British pound, the currencies of the next four biggest economies at the time. Then the governments reached an agreement and exchange rate values of the dollar versus the yen declined by 51% from 1985 to 1987.

Now the world is again in the same place.  The recession is over.  Europe is a bit behind in recovery and the dollar is higher than before the recession.

There is no reason for the greenback to be  strong.

The agreement in 1985 was called the Plaza Accord.   Over just two years the greenback dropped nearly 50% versus other major currencies.  The next accord will generate great profits for those who know what to do while it ruins the purchasing power of dollar back investments.

The strong US dollar and low interest rates have created one of the biggest stock and multi currency breakout opportunities in history.  Learn how to create a plan to profit from multi currency shifts ahead.

One reason for the potential gains is that stock markets and currency values are cyclical.  Due to low interest rates created by the 2009 economic downturn, the US and a few other equity markets have risen to some of their highest prices, ever.  These markets offer very poor value now.  The steep valuation creates incredible profit potential but also hides some enormous risks.  Learn how to develop an investing strategy based of earnings, cash flows, dividends and book values to increase potential for profit and reduce the risks.

Next Extra Profit Created by Value Breakouts

Over the history of US equity markets, the  price of overall markets have risen about 9.1 percent, respectively, compounded annually.  Yet over more than a hundred years of stock market activity,  a majority of the profits have come from just a very few dramatic breakouts.

Equity markets are ruled in the short term by emotions that create unpredictable ups and downs.  Numerous fears of defaults, worries of double dip recessions, high unemployment, concerns about fiscal cliffs, hold investors back.  Yet global population growth and advances in production and prosperity are relentless economic fundamentals that increase value.

When fear holds back a a fundamentally rising value, rising profit potential grows.  Values increase as prices stagnate.  Then markets break free and rocket upwards creating wealth, prosperity and growth.

Find out which breakouts are likely to take place next.

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 years as shown in this graph.

stock-Charts

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 create war.

Here is the war stock cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WWIII) 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.

Learn how the Cyber War (WWIV) may change the way we live and act and how this will affect currencies and investments.

Learn:

* 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), but 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 outperformance 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.  Buffett leverages his portfolio at a ratio of approximately 1.6 to 1.  This rate of expansion by the way is called the “Golden Ratio”.  It is a mathematical formula that controls the growth of most natural things; trees, the shape of leaves, the spiral of shells, as well as the way economies and societies grow.

We’ll sum the strategy, how to leverage cheap, safe, quality stocks and for what period of time based on your 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 (almost) years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

Enjoy investing more with slow, worry free, good value investing.  Stress, worry and fear are three of an investor’s worst enemies.  These are major foundations of the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market they choose.  The behavior gap is created by natural human responses to fear.  The losses created by this gap grow when investors trade short term under stress.

Learn how to put meaning into your investing by creating profitable strategies that combine good value investments with unique, personal goals.

Learn how to span the behavior gap.  Behavior gaps are among the biggest reasons why so many investors fail.  Human evolution makes fear the second most powerful motivator.  (Greed is the third.)  Fear creates investment losses due to behavior gaps.  Fear motivates us more strongly than desire.  By nature investors are risk adverse, when they should embrace risk.  Purpose is the most powerful motivator,  stronger than fear and greed.  One powerful way to overcome the behavior gap is to invest with a purpose.

Combine your needs and capabilities with the secrets and the math of our good value model portfolio.

Share ideas about my good value portfolio.  My personal investment portfolio comes from a continual analysis of international stock markets and a comparison of 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.

Markets included in this portfolio are:

• Norway
• Australia
• Hong Kong
• Japan
• Singapore
• United Kingdom
• Taiwan
• South Korea
• China

These markets have been chosen based on four pillars of valuation.

• Absolute Valuation
• Relative Valuation
• Current versus Historic Valuation
• Current Relative versus Relative Historic Valuation

Learn how to use Country ETFs to easily construct a diversified, risk-controlled, equally weighted representative country portfolios in all of these good value countries.

To achieve this goal my portfolio consists of Country Index ETFs that track an index of shares in a specific country.  These country ETFs provide diversification into a basket of equities in the good value countries.  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.

This is an easy, simple and effective approach to zeroing in on value because little 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 pick and choose shares.  You can invest in the index which is like investing in all the shares in the index.  All you have to do is invest in an ETF that in turn invests passively in all the shares of the index.

Learn 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 a test.

The Test for Low Cost Trading

Research put every part of this portfolio in place, except knowing the best, easiest and least expensive way to buy.  A search for an optimal way to buy and hold boiled down to two methods.  One tactic to test was to use a unique online broker that appeared to offer the lowest cost deal.  The other approach was to use a community bank in Smalltown USA.  The small town bank that I use looks after my 401K trust account and their service is first class.  The benefit of small banks is that they still treat us as a human beings (instead of a number) and when we need, it’s easy to go right to the top to answer a question or get a problem resolved.  There are no call centers and the bank and the person looking after my account is just around the corner.

I created a test to see which offered the least expensive service.

Working with my banker in Smalltown USA,  I created two accounts, one at the online broker and the other at the bank. I placed $40,000 in each.

I set up the order for the country ETFs online, while my trust manager set up orders for the identical amounts of the same shares in his system.  Then we got on the phone, coordinated our timing and on a count of three each pushed the button “BUY”.

The results of this test  show how you can gain on any purchase of country ETFs.

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.

ecuador-seminar

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 “Silver Dip 2017” 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.

Your subscription will be charged $299 a year from now, but you can cancel at any time.

Gary

 

Gary

(1) Dollar chart from pricedingold.com

(2) Grandfather Economic Report

 

To help you see a bigger picture I have posted a free report for all readers entitled “US Dollar Protection Review“.