Tag Archive | "currency risk"

A Yen for Risk & Profit


Adventurous investors should consider a speculation in Japanese yen.   A forex lesson I learned 50 years ago can help you do this now.

Haneda Airport 1968.  I  was flying abroad for the first time from Portland, Oregon to Vancouver, Canada, then on to Hong Kong via Japan.  The plane touched down in Tokyo and I was wandering through the transit lounge.  There were so many sights and sounds that were strange to me.  Plastic samples of meals sit in the restaurant windows and I had never heard of the brands.  I stepped to the bar and was offered a Kirin beer or a Suntory whisky. “Are they good?,” I asked. “Of course,” was the reply. “How much do they cost?,”  “Just divide the price by 400 and you will have the dollar price,” I was told. “One dollar is 400 yen!”

Had I only known then that the yen would rise in value over the next 50 years to reach a high of 75 yen per dollar, I imagine I would have purchased as many yen as possible.   No one could have convinced me then, and worst still no one knew.

I hope I can convince you now because the US dollar is under pressure in many ways.

This chart from macrotrends.com shows is the 50 year history of the yen.  In 1968 a US dollar was worth 360 yen.  Today that same dollar is worth $110.  In 2011 the dollar’s parity to the yen dropped to an all time low of 75 yen per dollar.

yen

If you invested $1,000 dollars to buy yen in 1969, you received about 360,000 yen.   Before any investment returns, that yen is worth around $3,272 today.   In October 2011, those yen were worth $4,800.  That appreciation is pure forex gain.

Dollar Pressures

President Trumps suggestion that ‘trade wars are easy to win is not supported by history.   When President George W. Bush imposed steel tariffs from 2002 to 2004, the USD Index crashed 31% over that 24 month period.

Other downward pressures include:

* China’s launch of a crude futures oil contract on March 26, 2018.   China became the world’s largest consumer of crude oil in 2017.  Increased settlement contracts in yuan are a long-term threat to the US dollar.

* The German Bundesbank is now including the Chinese yuan in its reserves. This is the first time the German central bank will include the Chinese currency in its foreign-exchange mix.

* The International Monetary Fund’s Special Drawing Rights (SDR) basket – a collection of reserve currencies that serve as an alternative to the USD- added the yuan as its fifth currency in 2016.

One way to capitalize on this weakness is invest in the Japanese yen.

The Japanese yen ranked among the top-performing currencies against the dollar in February 2018, rising 2.3%.   Though the yen has rallied 6% in 2018, it has not discounted the growing likelihood of QE tapering at the Bank of Japan.  On March 2, the Bank of Japan suggested it could start moving away from ultra-loose monetary policy as early as next year.

Higher interest rates for the yen could cause its parity versus the greenback to soar.

If your broker allows margin accounts, one way to speculate is to add margin in US dollars to invest in yen based investments. 

An easy way to do this is to borrow US dollars and invest in the iShares MSCI Japan Country ETF (Symbol EWJ).

This ETF tracks the investment results of the MSCI Japan Index investing at least 90% of its assets in the securities of its underlying index traded primarily on the Tokyo Stock Exchange, including large, mid and small-capitalization companies.

This is a good value ETF that is invested in our Purposeful Investing Course model portfolio (and my personal portfolio).  Here is a www.finance.yahoo.com chart shows EWJ’s performance.

etf

Here is the type of potential that exists.

In 2014, when the yen was 122 yen per dollar and EWJ shares were $43.  These shares have risen to $60 per share which reflects both growth in the Japanese equity market and the rise of the yen.

July 2104 the dollar yen rate was 122 yen per dollar.   EWJ was $43.  Assume you invested $10,000 and borrowed $10,000 more to invest $20,000 in EWJ at $43 pr share.    You would have purchased $465 shares.  Today at $60 per share you investment would be $27,900.  Pay off the $10,000 loan and interest of around $500.  $7,400 is left or 74% profit in less than two years.

However   the yen at 110 yen per dollar is still 46% lower than its all time 2014 low of 75 yen per dollar.  There is still plenty of room for the yen to appreciate versus the greenback.

Plus the Japanese stock market currently offers really good value compared to the US market.

keppler

The Japanese P/E ratio is 16.1 compared to 24.4 for the US.  The price to book for the Japanese market is 1.38 versus 3.29 for the US.  Even the Japanese dividend yield at 2% is better than the US yield average of 1.86%

Borrowing US dollars to invest in the Japanese stock market is a good value idea with explosive profit potential.

If you prefer a straight speculation in the yen, there are two ETFs that speculate in yen.

The CurrencyShares Yen ETF (Symbol: FXY) seeks to replicate the performance of the Japanese Yen in U.S. Dollar terms (JPY/USD cross rate), before fees and expenses.

finance.yahoo.com yen

This ETF started in 2007 and is traded on the NYSE  and has a low expense ratio of 0.39%.

The Proshares Ultra Yen currency ETF (Symbol: YCL) is a higher risk, more volatile leveraged currency ETF.  This is a double long Yen ETF that seeks to replicate double (2x) the daily performance of the Japanese Yen in U.S. Dollar terms (JPY/USD cross rate), before fees and expenses.

finance.yahoo.com yen

It is important to note that when you double profit potential you also doubles the risk.   This fund has to roll its yen contracts periodically, so actual performance compared to the change in the price of the Japanese Yen may not be identical to a 200% move.  Due to its leveraged nature some stock brokers may impose higher margin requirements for this type of Yen Exchange Traded Fund.

The ProShares Ultra Yen Currency ETF (YCL) started in 2008 and is traded on the NYSE Arca and has a much higher (than FXY) expense ratio at 0.95%.

The US dollar has many downwards pressures now.  Investing in the yen offers excellent speculative potential.

Though the yen looks good and the Japanese stock market offers good value, the dollar could maintain strength for an extended period.  The Japanese stock market could fall.  Never borrow more than you can sustain and never leverage more than you can afford to lose.

The long term trend favors the yen.  $1,000 in yen in 1969, has been worth as much $4,800.  The yen appears under purchased now and the Japanese stock market is a good value market.  These factors make conservative, well managed US dollar loans to invest in yen or Japanese equities a sensible risk.

Gary

The Only 3 Reasons to Invest

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The stock market has always been the best place of places to protect and increase wealth over the long haul.   Yet it’s also been the worst place to lose money, a lot of it, quickly.

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.

The goal of investing should be to stabilize our security, bring feelings of comfort and elimination of stress!

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

This is why my core stock portfolio consists of 19 shares and this position has hardly changed in three years.  During this time we have been steadily accumulating the same 19 shares and have traded only three times.

A model portfolio that dates back to 1969 has dramatically outperformed almost every stock market in the world.

keppler

A hundred US dollars invested in that portfolio in 1969 is now worth $44833 compared to $100 invested in an equity weighted world index being worth $11,548.

This portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi).  I call these shares my Pifolio.

This portfolio more or less matched the S&P 500 until May 2018.  Then a stronger US dollar made the portfolio look like it was falling behind.   This currency illusion creates a special opportunity we’ll view in a moment.

This portfolio above is based on stock price to value analysis built around 91 years of stock market data.

The value analysis is used to create a portfolio of MSCI Country Benchmark Index ETFs that cover  stock markets that are undervalued.  I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage over $2.5 billion of funds.  However because Keppler’s roots are in Germany (though he lives and operates from New York) and most of his funds registered for the European Union, Americans cannot normally access his data.

I was lucky to have crossed paths with Michael about 25 years ago, so I am one of the few Americans who receive this data and you will not find his information readily available in the US.

In a moment you’ll see how to remedy this fact.

The Pifolio analysis begins with Keppler’s research that continually monitors 46 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.  Then Keppler takes market’s history into account.

Fwd: keppler

Michael Kepler CEO Keppler Asset Management.

Michael’s 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 good value (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 one stock in that country is an attractive investment.  This eliminates the need for 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 held at the beginning of 2020.   There have been no changes since.

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

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

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

For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF  that tracks the investment results of the MSCI Germany Index. The fund is at all times invested at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.

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 every market in our Pifolio.

This year I celebrated my 52nd anniversary 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.

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.

You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.

Triple Guarantee

Enroll in Pi.  Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past three years, two more reports on investing (described below) and an online 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.

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.This year I celebrated my 51st anniversary 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.

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.

keppler

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.

Save $102 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.

Triple Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report, access to all the updates of the past two years,  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 reports 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, 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 $99 a year from now, but you can cancel at any time.

Gary

The Great Pension Robbery III


The Great Pension Robbery III

shoemaker-ashe-county-art-images

Stephen Shoemaker’s “Virginia Creeper in Lansing”

One of the great joys in Ashe County are the murals on many buildings… especially those of the old time trains painted by Stephen Shoemaker.  Ashe County’s economic rise was due to the “Virgina Creeper” a train which crept up the mountains to pick up natural resources from the mines and forest.

Stephen is a famous artist in this area (his web site is linked below) and this rendering depicts the Virginia Creeper standing in Lansing…  the town (of two or three hundred people) nearest our farm.

Every time I see those paintings I am reminded of the Great Train Robbery the name given to a 1963 robbery at Bridego Railway Bridge in Buckinghamshire, England.  Almost $6 million dollars was stolen.

How odd that such a paltry sum made the theft famous.  Trillions are being stolen in the Great Pension Robbery and not enough is said.

This three part series has looked at the three ways that pensions are being robbed.

The first chapter in this series The Great Pension Robbery reviewed the first way pensions can be robbed through underfunding from insufficient contributions.

The Great Pension Robbery II looked at pension theft from lowered return on assets.

This message shows how the purchasing power of pension can be robbed by devaluing the currency.

The great train robbery netted about 6 million dollars in 1963.  To get the same purchasing power today would require a theft of $90 million or more.

Pity the poor train thief who spends 50 years in jail and finds that his hidden money buys less than a 15th of what he expected.

Yet should pensioners be treated in the same way?  Should we toil for 5o years and then find that the promised rewards of our pensions are almost worthless?

This is a sad fact… the likeliest pension loss will come via global currency devaluation.

Rising unsustainable government deficits and ultra low interest rates create pent up, hidden inflation. 

One way to protect again this loss is to have a multi currency portfolio.

We can watch for contrasts and distortions to spot currency trends that can equalize purchasing power.

Take for example the distortions in the parity between the interest rates and parity of the Brazilian real and the US dollar.  The chart below shows how the US dollar has risen and fallen versus the Brazilian real over the past five years.

brazil-real-chart-images

US dollar versus Brazilian real chart from finance.yahoo.com.

The real has gone up and fallen down but over five years it began at about two real per dollar and today five years later it is worth about two real per dollar.

Now the real has fallen dramatically yet pays almost six times more interest.

Thomas Fischer attended our most recent Writer’s Camp and talked about Brazilian real bonds.

On June 27, 2012 Thomas wrote: The Brazilian bonds are yielding as mentioned. The KRW bond maturing in March of 2015 (AAA rated) yields 5.75%.  Jyske Bank has a buy recommendation and a 12 months currency target of 1.90 (+8%) so if that pans out you are getting around 12%.

Morgan Stanley our other research partner is not convinced that the currency will appreciate that much so if you buy the bond it will be more of a currency speculation as the carry is 5.75%

Jyske estimated a 7% forex profit over a year.   They were wrong!  The profit boost came in six days!

On July 3, 2012 Thomas wrote again:  Hi Gary, The Brazilian real has appreciated almost 7% since we discussed the potential at your seminar.

brazil-real-chart-images

Short term US dollar versus Brazilian real chart.

Gain Balance From Distortions

This profit had seemed obvious to me.   The factors that cause currencies to be weak or strong include government debt and budget deficit.  The US has a budget deficit of about 8% of GDP.  Brazil’s is 2.5%.

A look at the Economist World Debt Clock shows US debt equals 61.2% of GDP and is growing at a rate of 20.6%.  Brazil’s debt is 59.3% of GDP and growing 9.9%.

Economist-global-debt-clock-iamges

The Economist Debt Clock. See link below.

When you hold a multi currency portfolio over a sustained period, you gain a never ending series of forex profit opportunities.

Over the past five years Brazilian bonds returned as much as 14% and the currency rose and fell versus the dollar but in the end is almost where it began. Today Brazilian bonds pay 5.75% and are loaded with upwards potential.  There is a great chance that at some stage in the next several years the Brazilian real will jump versus the greenback.  In the mean time you can earn the much higher interest rate.

Currencies rise and fall versus one another in the short term based on fear and greed.  Currencies move long term based on their fundamentals.

Here is our portfolio at JYSKE this time so you can see how we have spread out.

US Dollar  10%
AUD  8%
CAD  7%
NZD  7%
Dollar Bloc  32%

LatAe Mix 5%
MXN  5%
BRL 9%
LatAm Bloc 19%

Euro   13%
GBP  2%
DKK 6%
NOK  6%
PLN  8%
TRY 3%
Euro Bloc  38%
GSD   8%  –  Asia Bloc  8%

A multi currency portfolio is protection against pension robbery from devaluing currencies.

There is a a great chance that interest rates will remain low for some time.

JGAM  (Jyske Global Asset Management) sent me this note.

Central banks take action, again

The events of the week were central bank actions and U.S. job data.

Entering the week markets had already largely priced in further policy easing by the Bank of England (BoE) and the European Central Bank (ECB). Eurozone data showed that factory output remained weak, purchasing managers index remained in contraction area and unemployment had hit a record. Also, recent data had confirmed that the UK economy was sliding back into recession. Therefore, Thursday it came as no surprise that both the ECB and the BoE took action.
BoE expanded its asset purchase facility by British pound (GBP) 50bn to GBP 375bn, exactly as expected.

ECB cut its refinancing rate by 25 basis point to 0.75% and lowered its deposit rate to zero. As a consequence the euro (EUR) sank below 124 US dollar (USD).
The Danish National Bank (DNB) followed suit and lowered both the lending and the deposit rate by 25 basis points. The latter now stands at minus 0.20%. It’s the first time in the history of the DNB that the deposit rate is negative and it mirrors a healthy Danish economy.

Surprisingly, the Spanish and Italian bonds reacted negatively on the rate cuts. The reason could be that the market now think it’s less likely that a third long-term refinancing operation is forthcoming.

What the market had not anticipated was an action from the People’s Bank of China (PBoC). Unexpectedly, PBoC cut its interest rate for the second time in the space of a month. Possibly, an indication that Chinese policymakers are concerned that the economy has not yet found a bottom.

In the U.S. there is also speculation that a central bank action could be coming in the form of a third round of quantitative easing (QE3). Lately, we have seen a weak report from the Institute of Supply Management (ISM), indicating the first contraction in manufacturing activity for nearly three years. Also, the non-farm payroll data released today showed 60,000 new jobs created in June compared to an estimate of 100,000. The initial market reaction was a weakening of the EUR vs. the USD which might indicate reduced expectations of a QE3.

For more information on how to develop a multi currency portfolio contact Thomas Fischer at fischer@jgam.com

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

These central bank actions suggest a slowing global economy.  This risk is further confirmed by a June 2012 article entitled “Everywhere you look, economies slowing” by Paul Wiseman of the Associated Press.

Here are some excerpts (bolds are mine): “The global economy’s foundations are weakening, one by one.  Already hobbled by Europe’s debt crisis, the world now risks being hurt by slowdowns in its economic powerhouses.

“The U.S. economy, the world’s largest, had a third straight month of feeble job growth in May. High-flying economies in China, India and Brazil are slowing, too.

“Since the global recession ended in 2009, the world economy has been fueled by rising powers in the developing world led by China, India and Brazil. Now, all three are running into trouble.

“China’s manufacturing weakened in May, according to surveys out Friday. Factory output was the weakest in three months.

“Australia and other Asian countries have come to rely on Chinese markets for their exports.

“India is suffering an even sharper slowdown. Its economic growth slowed to a 5.3% annual rate in the January-March quarter, the lowest in nine years. Output from India’s factories has declined. “Its consumers have seen inflation — which has averaged 9.2% a year since the start of 2010 — devour their wages.

“In Brazil, the economy practically stalled in the first quarter of 2012. It grew at just a 0.2% annual rate from the final three months of 2011, the government said Friday. That was below expectations of 0.5% growth. Flooding punished farmers.

“But Brazilian officials, like analysts in China, also pointed to another culprit, one that shows how problems in one part of the world cause problems in another: The ongoing trouble in Europe is taking a toll on exports.

“Fears of a global economic downturn have sent investors rushing toward the safest possible investments: U.S. and German government bonds. As a result, the interest rate on the 10-year U.S. Treasury note has hit a record-low 1.46% Friday. The rate on the German 10-year bond is even lower: 1.17%.

“Treasuries are at 1.46 because people are freaking out,” says Mark Vitner, senior economist at Wells Fargo Economics.

These reports suggest a slowing global economy.  The strategy for this is for governments to lower interest rates around the world.  The slow economies can hurt business so more pensions will go unfunded.   The lowered interest rates can further rob pension purchasing powers as returns fall well below estimated asset growth.

Finally the efforts to stimulate the global economy can greatly increase national debt worldwide.  This debt is pent up inflation.

Whenever investors freak out forex profit, opportunities grow.  One way to tap into these currency opportunities is with a mulit currency portfolio.

Gary

Stephen Shoemaker website

Yahoo Brazilian real US dollar chart

Economist Global Debt Clock

Everywhere you look, economies slowing