New Multi Currency Sandwich Tactics


In response to last moth’s message about speculating in a Norwegian kroner multi currency sandwich, a Pi subscriber asked this question.

The question was: I also wanted to know what Gary’s thoughts were on shorting the US dollar against the Norwegian kroner  instead of buying the IShares Norwegain ETF (symbol ENOR)? And does he still like the idea of the multi-currency sandwich now that rates are all low around the globe? I know I’m not getting paid much in terms of the carry but there might be some good price appreciation or deprecation for gains. I know this is probably more of a trading question even though I was thinking longer term short US dollar and long other currencies like Chinese yuan, Norwegain and, Swedish kroner.

I’m glad the reader asked because the answer to this question make a perfect Pi lesson that gets to the roots of the Pi strategy.

norway

Five year chart iShares MSCI Norway ETF (ENOR) ETF.  Light blue line is S&P 500.

First the basic answer for short term currency trading is… beware.  Short term currency trading for most of us is not a good idea.

The root benefit of Pi is to avoid the high costs of active trading… and to avoid getting in any arena where big companies with huge reserves, high tech and top trading skills can manipulate markets (such as the currency market).

Most important, Pi aims to reduce stress and protect ourselves from our natural risk aversion bias.

Short term currency trading has all three of the obstacles (trading costs – risk of ruthless big business manipulation and risk of quick, large loss).

Most of us should avoid this.

Long term currency trading (multi currency sandwich) uses currency values and looks for a strong currency with weak fundamentals and low interest rate (US dollar) to be borrowed and invested into a weak currency with strong fundamentals (Norwegian krone) WHEN the weak currency has a higher interest rate than the strong.

The differences in the interest creates “Positive Carry”,  a position where the investor makes a positive yield for taking the forex risk. If the dollar could be borrowed at 3% and invested in krone at 5% or 6% there would be a sandwich opportunity… for those who have time to let the currency fundamentals work themselves out.  They would earn 2% or 3% per annum while they wait for the currency distortion to adjust.

At this time,  the krone has a lower interest rate than the US dollar so the sandwich requirements are not met.

That’s why the message was about borrowing dollars to invest in good value Norwegian shares, not cash or bonds.  The investor gets a high value equity investment denominated in a fundamentally strong currency that is currently weak instead of getting higher interest rates.

Investors who invest in iShares MSCI Norway ETF (ENOR), an ETF that invests in the Norwegian stock market, gets a high value investment and a forex opportunity.

There is even greater opportunity if investors borrow US dollars and invest in ENOR, but this increases short term risk.  The added leverage should  only be used by investors who have  time (maybe years) for the value equity distortions and forex tensions to resolve.

Regards,

Gary

Prophet Words for Profit in 2020

Here’s ten most important words (and numbers) for the 2020 decade…  MSCI World Index All-Time High Valuation December 31, 1999.

Keep these word and numbers in mind when thinking about the stock market this year.

Here is the all time high valuation for this index.   Price to book 4.23.  Price Earnings Ratio 35.7. Average dividend yield 1.30%. 

Those were the all time high valuations for the Morgan Stanley Capital World Index in December 1999, just before the dot.com bubble burst.

Here is a chart of the Dow Jones Index for the past three decades.  You can see that bubble pop just before the beginning of the 2000 decade.

microtrends.com

Let’s compare some valuations just before the US stock markets began to crash

                                                                                 Price to Book       P/E       Average Dividend

The All World MSCI World Growth Shares           5.22                28.4                 1.28%

MSCI  US Index                                                               3.65                 23.1                  1.83%

MSCI Word Index                                                           2.57                 20.0                  2.33%

MSCI World Index All-Time High                            4.23                  35.7                  1.30%

MSCI USA Index                                                            3.65                  23.1                   1.83%

These valuations create the important investing question. “Will the 2020 decade be more like the 2000s decade or the 2010 decade?”

The current bear market suggests that we are back in a 2000 scenario, which mans that the greatest opportunity is ahead.

“How close can the USA Index come to the all time high watermark before there is a correction?”

For the past four years, my strategy, to protect against the next stock market crash and yet gain from rising share prices is to invest in an equally weighted  of the value based portfolio of country ETFs we invest in and track in our Purposeful Investing Course is formulated.

The valuation of the top value portfolio we use as the basis of our portfolio is now Price-to-book  below 1.4, P/E Ratio under 14 and average dividend yield of nearly 4%.

An equally weighted combination of  these top value markets offers the highest expectation of long-term risk-adjusted performance and the valuation of the top value portfolio is now undervalued by more than 40% compared to the MSCI World (Standard) Index, by 50% compared to the MSCI USA Index and by 62% compared to the MSCI World Growth Index.

Since no one knows what the future will bring, investing in value makes the most long term sense.

Our Purposeful Investing Course (Pi) teaches an 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.

Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares.   Investing in an index is like investing in all the major shares of the market.  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 Pi portfolio 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 held at the beginning of 2019.  Now I am updating my plan to include when it’s best to invest more.

70% is diversified into developed markets: France, Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in emerging markets: Brazil, Chile, China, Colombia, the Czech Republic, South Korea, Malaysia and Taiwan.

iShares Country ETFs make it easy to invest in each of the good value markets.

The ETFs provide incredible diversification for safety.  For example, the iShares MSCI  Japan (symbol EWJ) is a Country Index ETF that tracks the investment results the Morgan Stanley Capital Index MSCI Japan Index which is composed mainly of large cap and small cap stocks traded primarily on the Tokyo Stock Exchange mainly of companies in consumer staples, financials and materials. This ETF is non-diversified outside of Japan so an investment in the ETF is an investment in hundreds of different Japanese shares.

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

There is an iShares country ETF for almost every market.

How you can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (Pi).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

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.

You also receive a 100+ 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.

This year I will celebrate my 52nd anniversary of global investing and 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.

Those five decades of experience have taught me several incredibly valuable lessons.

The first lesson is that there is always something we do not know.

The second lesson is that stock market booms and busts always eventually return to value.

Third, the only sure way to succeed is to use time not timing.

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.

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%.

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.

Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report and access to all the updates of the past two years.

 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 in the first two months for a full no fuss full refund.

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, plus begin receiving regular Pifolio updates throughout the year.

Subscribe to a Pi annual subscription for $197.

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

Gary