International investments through Czech koruna loans are a sensible way to combat inflation and protect purchasing power. International investments can be leveraged with loans in weak currencies. This type of international investment is in tune with the discrepancies created by governmental interferences in money. International investments using this type of leverage offers greater economic diversification for investment safety. The international investments also provide protection from falling or failing currencies. International investments also allow you to cash in on balance.
Politics is the art of the possible and many societies demand impossible things from their leaders. In these cases governments try to meet impossible demands by printing or borrowing money that creates fundamental currency imbalances.
For over twenty years our World Reports have been spotting these imbalances looking for currencies that are valued too highly and having low interest rates. Our goal is to borrow such currencies and invest the loan in currencies that are too weak but have high interest rates.
Messages at this site last September suggested borrowing Czech Koruna (which may be too strong versus the euro and has a low interest rate). I announced I would borrow Koruna to pay off half the Swiss franc loan in my leveraged portfolio.
You can read that September 2006 message at
Jyske Bank continues to look this way and I plan to now pay off the rest of my Swiss loans with more borrowed Czech Korunas even though the interest rate for the loan will be a bit higher.
A recent analysis from Jyske says:
Keep CZK funding
* The benchmark rate is still the lowest among EU members
* The central bank appears doveish
* The political deadlock continues
* We expect CZK to weaken in Q1 2007
* The fundamentals do not point towards a CZK appreciation
The central bank left interest rates unchanged at 2.50% at its meeting in December. CZK appreciation and cheaper oil pushed down inflation, and in its latest inflation report of 3 January, the central bank had revised down its inflation expectations for the year 2007. We do not expect the CNB to raise interest rates in the first quarter.
The political situation has not improved. The winner of the parliamentary election in 2006, the ODS party, has formed its second government, and the party will try to win a vote of confidence in parliament, although it has not secured support yet. It means that there is little chance of winning the vote of confidence.
We recommend investors to include CZK funding in a well-diversified loan portfolio.
Jyske points out that the Koruna has strengthened recently, and the euro/koruna rate reached a record low at the turn of the year and the bank expects a weakening of about 1.25% from the current level.
There are numerous ways to create a multi currency sandwich with these loans. The first approach is to use a koruna loan invested into Eastern European bonds in euro and other Eastern European currencies.
The loan rate for koruna is currently 3.875%. Picture this four to one ($100,000 invested, $400,0000 borrowed) multi-currency portfolio. $100,000 is invested into each of the five bonds below.
|EUR||01/03/2016||TURKEY REP OF||5.58%|
|PLN||24/10/2013||POLAND GOVT BOND||5.02%|
The currency codes are eur:euro, HUF: Hungarian florin, PLN: Polish zloty, RON, Romanian leu.
The RON is the new Romanian Leu introduced in July 2005. Upcoming messages will look at the Romanian and Bulgarian economies in more detail.
This portfolio has an average return of 5.95% less the 3.875 loan cost. In short this portfolio earns $29,770 a year in interest. The loan cost is $15,500. The income left is $14,270 or 14.27% return on the original return. That's a nice return created by this currency imbalance.
This is a well diversified portfolio with some chance of a forex gain as well. Future messages will look at other types of koruna loan based multi-currency portfolios. There are of courses risk. The koruna could appreciate no matter what we think will happen. This would create a capital loss. Bond values could also fall or lenders could default so never leverage more than you can afford to lose.
You can gain more details from Thomas Fischer at fischer@JBPB.com
I have written a sixteen page email report about how 13 economic forces now clash to shape investments markets ahead that shows the rewards and the risks. The report also outlines the five new Multi-Currency Portfolios including the Green Portfolio we are tracking in our Borrow Low-Deposit High Multi-Currency Sandwich Educational Service. You get this report FREE when you enroll in our Borrow Low-Deposit High Multi-Currency Sandwich Educational Service. Subscription is $149 for a year. Details are at https://www.garyascott.com/catalog/bldh/
You can continue this message about the importance of balance in food, tax savings and Ecuador with pictures of Ecuador and international investment pictures at garyascott.com/international_investments/international_investments_160.html
Otherwise, until next message, may all your life, health and wealth be
P.S. Join us in the Ecuador sun this winter. Here is a schedule of the
courses Merri and I will sponsor and or conduct.
Jan. 22 – 26, Mon.- Fri. Self-Fulfilled: How to Be a Writer &
Feb. 20 – 25, Tues.-Sun. Import-Export Course.
Mar. 9 – 15, Fri.-Thurs. Expanded Super Thinking + Spanish.
Mar. 16 -18, Fri.-Sun. International Business and Investing Made EZ.
Mar. 19 – 21, Mon.-Wed. Andes Extension & Real Estate Tour.