This is the most difficult time for investors since 1968. That period over three decades ago was the end of a thirty-year economic boom which had been started by the end of WWII and had been fueled by the introduction to the common man of the TV and telephone. 1968 or so was the bottom after the end of that cycle had seen a Wall Street bubble that pushed US shares to unheard of heights. But things were changing. AT & T was about to be broken up and Cable TV was getting ready to change TV forever.
Then a new era began and the first years were really tough for traditionalists. Stocks were terrible places to go. Bonds paid low yields and because inflation was ahead were not safe.
Sound familiar? It should because 1999 marked the end of a similar boom which had been fueled by making PCs, the internet and common software available. Now Microsoft is on the verge of a breakup and new hand held devices that access the internet threaten to make PCs obsolete.
Long term we have nothing to fear. Another great 30 year cycle will most likely appear. The fact that this may not really crank up for another decade or so though may be a bit unsettling for some. The question is what do we do until that cycle begins?
Back in 1968 when most investors were slaughtered, there was a small group who made a fortune. There were those who took the untraditional, wild and way out (at that time) path of investing in gold, silver, metals and non dollar currencies.
What we can bet on is that we are at the bottom of a cycle (though shares may fall significantly lower) and that things will get better but not for quite awhile. If the cycle runs as the past several have, then what we can expect ahead is inflation (as the government spends too much to get the economy rolling). So investments now in precious metals, real estate and other commodities make enormous sense. Later as inflation gets rolling, interest rates will revert (short term rates will rise higher than long term rates) and short term investments (such as CDs) will make sense. In the last cycle I remember enjoying US dollar CDs issued by Chase Manhattan that paid me 18%.
But this will come later, for now the hard assets make the most theoretical sense.
This is why in Wednesday's message I included information about Jyske Bank's new Jyske Bank Private Bank Metals 2002 investment pool which invests 35% in gold, 30% in Aluminum, 20% in Copper and 15% in Silver.
In a recent message we saw that is a no risk investment, but let's look at what this really means because there is always some risk.
No risk in this instance means that Jyske Bank (the third largest bank in Denmark) invests 92% of your investment in Cds or bonds that by 2004 will have earned 8%. So the 92% CD and 8% return will give you 1005 of your capital.
Your risk is a 2% upfront fee to get into the pool and the time value of your money, the interest it would have otherwise earned. So this investment is a bet that metals will rise higher in the next two years than what CDs will earn.
The investment is based on the following principle. You make a payment of EUR or USD 102 Up-front fee - 2 You invest EUR or USD 100 Placed in the market - 92 Options in JBPB Metals 2004 - 8
At the current level of interest rates for EUR and USD, 92 is required to obtain a level of return which will insure the repayment of your investment at a price of 100 (par) upon maturity. The balance (8 in the example) is invested in options. The higher this amount, the more options can be bought and the higher the potential return percentage. Thus, your return equals the value of the options, which is paid as a capital gain and added to the redemption price of at least 100 (par). The actual return percentage will be fixed on 1 July 2002 on the basis of the level of the aforementioned interest rates and the price of the underlying metal options.
The development of JBPB Metals 2004 is measured as the difference between the index level at the time of investment and the date of expiry. To prevent the end result from being affected by one-off negative events in the metal markets, we calculate the closing price of the index as an average of one weekly observation during the last six months of the investment period.
Examples of potential return:
JBPB Metals 2004 develops favourably over the period: Your certificate is redeemed at 100 (par), and you will receive at least 70% of the increase in JBPB Metals 2004 index JBPB Metals 2004 develops adversely over the period:Your certificate is redeemed at a price of 100 (par), but you receive no return
Investor profile The investment is designed for the somewhat cautious investor, who would like to invest in the international metal markets while at the same time receiving his/her investment back at 100 (par).
Compared with other metal investments, you give up part of your potential return – the difference between a 100% return and the calculated percentage return of JBPB Metals 2004. The advantage to you is that you need not lose any sleep or money if metal prices start falling. Alternatively, you would have to make all the investments and assume the full risk and costs yourself.
You can get more information about this particular pool which is open for investment only from 17 to 28 June 2002 by going to http://www.jbpb.com/ and clicking on JBPB Metals 2004.
We'd love to have you join us in delightful Copenhagen in August for Jyske's upcoming seminar by clicking on https://www.garyascott.com/courses/
Until then, good global investing!