Take, for example this multi currency Brazilian investment. The recent drop in US dollar interest rates means you can now borrow dollars at between 4.175% and 4.875% from Jyske Bank and earn 11% in Brazil.
We’ll look at this multi currency investment in a moment. Brazil’s real makes sense for multi currency diversification because Latin America s the fast growing emerging region.
Ditto for Ecuador…at the crossroads of Latin America and filled with such wonderful people. We receive raves like this continually.
“Good Morning Merri and Gary:
“This is a rather late but no less sincere THANK YOU! The 10 March days spent in Ecuador with both of you, your Excellent Presenters and Staff plus the 5 Star staff at El Meson de Las Flores, and a most diverse and interesting group of attendees, was greatly enjoyed as well as Educational, Memorable and Priceless.
“The variety of Seminars, wealth of local information, and numerous tours are in retrospect even more valuable to me now than as they occurred!
“Ecuador was a revelation! It is both an opportunity and a challenge. I begin to understand why you are so HIGH on Ecuador. I went to Ecuador, eyes wide open! I did not have a specific Agenda! I had no preconceptions! My objective was to see and learn as much as possible about living opportunities, the people, the food, Weather and the various climates, the coastal areas, transportation, ease of travel, things to do and places to visit, Safety, Culture, Water Supply, Politics, Stability, Taxes, Health Care, Cost of Living, Pollution, Energy Issues and anything else a potential new resident might need to know.
“I know I barely scratched the surface and have a very long way to go.
“I will go back as soon as possible to continue my Ecuador Education and also introduce my wife to Ecuador, hopefully early this fall. It would be ideal for her to attend some of the Courses that I attended and meet/interact with the other attendees. We hope to be able to attend one of your Spanish Courses.
Now back to Jyske Bank, multi currency investments and Brazil! You can borrow US dollars to make multi currency investments from Jyske Bank at rates a bit above and below 4.5% depending on the amount borrowed.
You can also buy Brazilian bonds that yield around 11%.
For example two days ago Jyske Bank offered these two Brazilian government bonds.
Brazil 12.5% maturing 2016 yield 10.9%
Brazil 12.5% maturing 2022 yield 11.0%
If you invest $100,000 (minimum for a leveraged account) and borrow $100,000 at 4.5%, investing both the loan and original investment in Brazil, with $100,000 in each of these bonds. Your average return after fees will be about 10%. That works out to $20,000 a year income on $100,000 invested or 20% per annum.
Plus the Brazilian currency has appreciated enormously versus the US dollar.
This could add an extra profit.
This chart published at Yahoo Finance shows that the dollar has lost almost half its value versus the real in the past five years.
There is risk. yes. The US dollar/real rate could also create a loss.
For example in the last year, the dollar has dropped versus the real until March.
Now the dollar is having a mild recovery. Had you made the investment above in March, you would have experienced some downwards pressure in your loan.
You can see this chart also at Yahoo Finance.
Plus there is always the risk that interest rates could rise which will reduce the value of the bonds. Brazil’s investment rating could fall. Dollar interest rates can rise. Any of these events would reduce profits and could even create a loss.
These risks are why one should never leverage to invest more than one can afford to lose.
On the other hand compare the risk premium. The leveraged Brazilian bonds pay you 20% per annum to take this risk.
There is risk in holding and investment!
The investment that is deemed the safest in the world, US Treasury bonds, also has risk. Inflation can (and has for the past 40 years) chew the bond’s purchasing power to pieces!
On the same day that the Brazil bonds paid 11%, the 10 year US bond paid 3.59%.
Add this up for ten years. The Brazilian bonds pay you 20% per annum or 200%. The T bonds pay 3.59% or 35.9% in total.
Are the Brazilian bonds that risky we must ask?
The overall picture is not quite this simple but these numbers reflect the general idea.
There are ways to make this type of investing safer such as borrowing more than one currency and or investing in more than one type of bond.
For example, a yen and dollar loan invested in Russian, Turkish, Brazilian, Indonesian and South African bonds spreads the risk and increases the risk premium. We’ll see how in an upcoming message
Multi Currency Jyske Bank Questions and Answers.
Yesterday’s message outlined why the current changes at Jyske Bank is good news and how the new Jyske subsidiary, Jyske Global Asset Management (JGAM) can help US investors. If you missed the announcement of Jyske Bank’s new service see https://www.garyascott.com/2008/04/03/2067.html
That message evoked the questions below. I have included answers from Thomas Fischer at JGAM.
Multi Currency Question #1: Is privacy any different with JGAM than with Jyske Bank?
Multi Currency Investment Answer #1: Bank secrecy/privacy is unchanged i.e Jyske is our (JGAM) custodian and does the same amount of reporting as always. Jyske Bank sends information to the Danish Tax office at the end of the calendar year (name+net asset value). JGAM does not report to any US agency.
Multi Currency Question #2: About how much more will fees be?
Multi Currency Investment Answer #2: I have attached our fee schedules (JGAM + Jyske Bank). As you can see we have reduced most prices by 50%. The management fee also includes the safe custody fee which is normally .2% to .3% per annum.
Multi Currency Question #3: Must accounts be discretionary?
Multi Currency Investment Answer #3: Accounts must be discretionary but clients can indicate special requests.
You can direct specific questions direct to Thomas Fischer at firstname.lastname@example.org
Even better, meet Thomas next month in North Carolina. Join me with Thomas Fischer, Jyske Bank and JGAM at our International Investing and Business Course in North Carolina this May 23-25.
Until then, good multi currency investing
Other courses this spring and summer in Ecuador
April 16-17 Ecuador Imbabura Real Estate Tour
One benefit of Ecuador real estate s that pure luxury is still affordable. The entrance in the picture above leads to acres of extensive mature gardens.
May 13-17 Ecuador Import Export Tour
The long entrance road brings you to a sculpted lawn.
June 7-8 Coastal Real Estate Tour
The house is wonderful, contains a workshop and guest house that can probably be rented for$1,000 a month due to its luxury nature.
June 11-15, Super Thinking + Spanish Course
June 16-17 Imbabura Real Estate Tour
June 19- 21 Ecuador Shaman Tour