Updated Multicurrency Sandwich

by | Nov 21, 2003 | Archives

Wednesday’s message warned us that top investment managers are getting out of the U.S. dollar. Buffet wrote “Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in — and today holds — several currencies.”

Sir John Templeton added that the US economy was in trouble and the US stock market was broken. He anticipates a 40% drop in the value of the US dollar and a precipitous fall in real estate.

Value guru Jeremy Grantham says sucker punch is coming from this bear market rally and that government and personal debt which should have cleansed itself during the economic slowdown (but did not) will create an economic black hole that could cause a serious U.S. dollar crash.

We focused on where to invest at a recent international Investment course in Jefferson North Carolina with Jyske Bank. See their updated multicurrency sandwich at ***link***

This is a perfect time to consider multi-currency sandwiches because a full circle has turned. In 1994 I recommended borrowing Japanese yen. The dollar was crashing and the yen was at 111 per dollar. Investors made fortunes as the yen rose to 80 and then plummeted to 146. Since then many such distortions have offered amazing returns (for example the Japanese yen-South Korean won sandwich earned up to 85% in one month in 1998). Now it’s not the yen-peso sandwich that is so attractive. The peso is likely to drop with the dollar and the yen could rise still more.

Instead you could borrow Swiss francs and the U.S. dollar and invest in a basket of loans and investments that gives the power of leverage, but also spreads risk.

Here is how the position currently works. You borrow (depending on loan size). Swiss francs at 1.65% to 2.375% and U.S. dollars at 2.5% to 3.5%. You can borrow two, three or four times the amount you have to invest. Then you invest in Australian and New Zealand dollar and Hungarian florin bonds and a South African rand CD.

The CDs and bonds provide collateral for the loan. Here are the details assuming you invest $20,000 and borrow $80,000 more. borrow

Amount Investment Rating % Earns Amount US$25,000 Landesbank RLF bond in AUD 05 AA+ 5.75% US$1,437.00

US$25,000 Hungarian Government HUF 04 BBB 8.50% US$2,125.00

US$25,000 South African Rand CD Account BBB- 8.60% US$2,150.00 US$25,000 Export Finance NZD 06 AA+ 6.00% US$1,500.00 US$40,000 Swiss franc loan 1.875% US$ 750.00 US$40,000 US dollar loan 2.750% US$1,100.00 Total Return US$5,362.00 Total yield on $20,000 invested 26.81% You gain added income, currency diversification versus the U.S. dollar and the added opportunity for foreign exchange profit if the currencies held rise versus the Swiss franc or the U.S. dollar. The downside is that these borrowed currencies could rise versus the invested currencies, so one has to calculate risk also. I feel that in these volatile currency situations, no one should risk more than he can afford to lose. We’ll learn more about this in next week’s messages. You can learn more about this from my FREE correspondence course International Currencies Made EZ. Take this course FREE now at https://garyascott.com/currez/index.html Please pass this free course urgently to your friends before it is too late. We all need to know how to diversify into other currencies now. Until then good investing! GaryP.S. Thomas Fischer at Jyske bank will speak at our upcoming seminar in Florida January 9-11. For details go to https://garyascott.com/courses/publishing.html