Harbors from Danger Part Two

by | Jul 10, 2002 | Archives

Yesterday's message – see https://garyascott.com/keepingwealth/592/ – showed three reasons why smart investors will hold back now. But where should one invest?This could be a time for a barbell portfolio with a very few high risk-high potential investments backed by lots of safe short-term bonds or cash. One such high-risk investment to consider now is a blend of emerging market currencies enhanced with Multi-Currency Sandwich tactics.

Two events have taken place that make the Multi-Currency Sandwich especially attractive. First, the Japanese Yen has now risen above 120 yen per dollar. This is the threshold where I start becoming interested in borrowing yen. For the past decade, most of the time I have had yen loans. The first time I borrowed at 111 yen per dollar and liquidated the loan at 146. The next time I borrowed at 120 and liquidated when the yen dropped to nearly 130. Now, the yen is back at 118 though the yen may well strengthen 120 is the magic marker. Secondly, Teddy Christiansen showed us in a message several weeks ago how investing in Russia today can make sense as he – see https://garyascott.com/inspired/554/

Now some Borrow Low-Deposit High recommendations from Thomas Fischer at Jyske Bank shows some other Eastern European investments that can enhance profits. J Jyske's current recommendation is to borrow 50% Japanese yen, 50% Swiss francs and invest in short terms bonds and CDs in Poland, Hungary, Norway, Iceland, the Euro and New Zealand. This is an example using a conservative two times leverage, but keep in mind that these speculative investments and that leverage always increases risk along with the added profit potential.

You invest $10,000, borrow $20,000, ($10,000 in yen, $10,000 in Swiss francs) for a total investment of US$30,000. The interest rate on yen is 1.75% and Swiss francs 3.25%.

Amount                Investment                       Yield              Return  $8,000     Norwegian Gvt. Bond 2004 in NOK             7.25%                 $580$6,000     CD Hungary florins                          7.65%                 $459$6,000     CD Poland Zloty                             8.50%                 $510$2,000     Iceland Gvt. Bond 2004 in ICD               8.00%                 $160$4,000     Asea Brown Boveri Bond 2004 in Euro         8.30%                 $332$4,000     Inter-American Dev. Bank Bond 2004 in NZD   6.60%                 $264$10,000    Japanese yen loan                          -1.75%                -$175$10,000    Swiss franc loan                           -3.25%                -$325                                              Total Return                 $1,805

This is a total return of 18.05% on the $10,000 invested and is a very conservative investment in short duration paper with 2004 being the maximum maturity. There is a nice diversification of currencies. The largest investment is in Norway as a net creditor (as is Switzerland and Japan) so if we see an international crisis (e.g. terrorist attacks), the Norwegian currency could be viewed as a safe haven and should move in the same direction as the loan currencies. This reduces currency risk. However, if one wanted to hedge against a falling U.S. dollar, greenbacks could be borrowed instead of yen or Swiss francs.

The Asea Brown Boveri bond was selected because ABB is on track to meet its 2002 targets and near-term prospects look good for the industry. You can get more information about no risk investments or using Multi-Currency Sandwiches fromThomas Fischer: FISCHER@jyskebank.dk. Jyske is my favorite European bank. They specialize in the multi-currency sandwich, can buy and hold CDs, bonds and shares in the top value emerging markets and European major markets.

I will speak about the Multi-Currency sandwich on August 28 through September 3 in Copenhagen along with Larry Grossman and numerous other international investing and tax experts. We'll cover investing in emerging markets, especially Eastern Europe, no risk deals and multi-currency sandwiches. The timing for this seminar is especially good and I hope to see you there. See https://garyascott.com/courses/

There is another vital subject I will cover in Copenhagen that we share in tomorrow's message.

Until next message, good global investing!