I have had numerous enquiries about leveraged investing opportunities in the greatly weakened euro. One of these questions and my reply below may help you understand this position better.
QUESTION: Gary, I was wondering if the time was opportune, being that the US dollar was so strong and the euro so weak. Would this be the way to go or would you recommend another sandwich. Thank you and God bless you. Sincerely, Joe M.
Thanks for your questions. I too am tempted to speculate more on the euro. I keep a regular portion of my portfolio in euros and this has cost me a fair bit in lost interest and a paper reduction in capital value over the past couple of years. However this diversification into the euro is very long term for me. I have not leveraged any dollar loans into euros at this time as the sandwich never makes sense when there is not positive carry (interest rate on invested currency is higher than on borrowed currency). Right now it costs more to borrow the dollar than I would receive from the euro. So I remain on the sidelines.
A better deal would be to borrow yen and invest in euro because the yen is even stronger than the dollar and if the dollar falls versus the euro the yen is likely to drop as well. Plus there is a chance that even if the dollar remains strong the yen would fall. Yen loans can costs as little as 1.5% and I can earn higher interest than that on euro deposits.
However I still remain on the sidelines in this position because I do not have a feeling for the euro as I did for the European currencies. When I was investing in or borrowing German mark, French franc, Italian lira, etc., I had thirty years of experience in dealing with these currencies. I could look back and see their highs and lows and make educated guesses as to what parities and interest rates they would attain. I have no such buildup of experience for the euro.
Remember that loans work both ways. They magnify your profits, but also increase your losses if a currency moves in the wrong direction. Use this tactic with care.