Multi Currency Portfolios 2007
Multi currency portfolios for 2007 are below.
We began our service by following five MultiCurrency Portfolios on October 21, 2005.
These portfolios were: The Emerging Asian Portfolio for those who want to invest in Japan and emerging Asia .
The Emerging Markets Portfolio for those who want to invest in global emerging markets.
The US Dollar Long Portfolio for those who believe that the US dollar will strengthen.
The US Dollar Short Portfolio for those who believe that the US dollar will weaken.
The US Dollar Hedge Portfolio for those who are concerned with global currency instability.
All five portfolios made a nice return but Asia with 114% appreciation rose far more than expected.
| The Final Performances | Projections Made in 2005 | |
| US Dollar Long | 9.04% | 18.35% |
| US Dollar Short | 10.43% | 15.02% |
| US Dollar Hedge | 11.46% | 17.34% |
| Emerging Market | 42.93% | No Prediction Made |
| Asia Emerging Market | 114.16% | No Prediction Made |
This is an educational service so you may want to look back at the original ideas behind these 2006 portfolios.
You can see our introductions (made last year) of the five portfolios at:
Dollar Long http://www.spottingtrends.com/currency/currency_trends_6.htm
Dollar Short http://www.spottingtrends.com/currency/currency_trends_2.htm
Dollar Hedge http://www.spottingtrends.com/currency/currency_3.htm
Emerging Markets http://www.spottingtrends.com/currency/currency_trends_8.htm
Asia Emerging http://www.spottingtrends.com/currency/currency_trends_5.htm
Now we are studying five new 2007 portfolios. Here is the report “The Titans Clash” that looks at these new portfolios and why they were formed. Also attached is your free nine chapter report “Borrow Low – Deposit High.”
Shortly I’ll send you the most current 2007 Multi Currency Portfolio Update. Then every two to three weeks we’ll send another update.
Thanks again, I look forward to sharing this education with you.
Gary
The Titans Clash
New international investments for 2007.
MultiCurrency Portfolios we can track in the year ahead.
Sunrises are special, promise of days unborn. This time is best, in my office writing, to see this.
Dawn’s hope, is of life’s never ending cycle, birth….fulfillment…transformation. The night is dashed. A morning born from its hiding in the rubble of night’s shade. Daylight’s oath broadcasts the reality of change….”Endings create opportunity and new beginnings”. The great, wealthy family of today’s Italy probably began in the dawn cast from the shadows of Rome ’s fall.
The daybreak also casts patterns of nature’s way. Recently Merri and I while in Seattle visited the educational exhibit entitled “Bodies”. One of the exhibits showed all the patterns of the blood vessels. They looked exactly like sea fans or these trees above. Early morning leads by example spotting trends in the future by seeing parallels.
As is above so below.
Dawn also shares sights and sounds. The silence awakes to bird song and busy rustlings as the wilderness yawns. Root colors open the pineal, red, its opening salvo, shifts in faded pastel flashes through the spectrum, orange, yellow, green, blue, purple, violet and white light, insignias of the many forces that turn the inky darkness into the light of day.
Thus it is fitting that as this dawn unfolds we look at the forces behind new MultiCurrency Portfolios that we will track for 2007.
This report first reviews some of the thoughts that went into the building of this year’s portfolio. Then we look again at the portfolios of 2006 and lessons we gained.
Finally we’ll take an in-depth look at the ideas behind the new portfolios and the portfolios themselves, plsu their risks and rewards.
First, though, let’s look at some of the forces that will have some impact on the dawn and day and dusk of 2007. Hopefully they will help us spot trends in a clearer light.
These forces include:
#1: Growing Population & Increased Consumption per Capita
#2: New Technology and its Impact on Human Nature
#3: Urbanization & Specialization
#4: Concentration of Population
#5: Environmental Deterioration – Global Warming – Water Shortage
#6: Enhanced Communication
#7: Spread of WMD
#8: Islam Christianity Conflict
#9: Energy Price Hikes
#10: Western Debt
#11: Liquidity in Market:
#12: Inflation
#13: Globalization
Isaac Newton helped clarify modern understanding of the relation between color and light. He refracted white light with a prism that broke it into component colors of red, orange, yellow, green, blue and violet. Newton used a prism to refract the colors and then refracted the colors back to light.
This is what we are trying to do as well, refract components of the past, into hues of the here and now to shed light on the future. We cannot assume that any one of these parts is unconnected to the other. The Islam – Christianity conflict certainly influences Western debt. Debt certainly influences liquidity in the market and so forth. Yet our very limited logic can never hope to fully grasp the infinite universal unfolding.
The best we can do is take these fractured pieces, stick them back together again and hope that the resultant cracked and flawed picture is an accurate enough facsimile to not lead us astray.
Nearing 40 years of global travel and international investing leave me accepting this reality and can remind us of two governing beliefs that should overlay whatever conclusions we draw from our study.
#1: There will always be something we cannot see.
#2: We should never leverage investments beyond the point that we invest more than we can afford to lose.
Here are the 13 refracted forces:
#1: Population Growth.
To put population growth in perspective, read what our son (who works from Britain ’s environmental agency) just wrote: Dad, Re population growth statistic … amazing in the US . But also consider that it took 10,000 generations for the human population to reach two billion people on the planet (by the birth of the baby-boomers). Now a person who anticipates making it from his or her birth to demographic life expectancy in the US of about 80ish years, will see the population rise from 2 billion to 9 billion in just one human life-time. Change is certain but there are times when change speeds up! We live in such a time. Jake
America’s population growth is especially high. As mentioned yesterday this was a significant journey in part because while we drove the US population to hit 300 million people.
A USA Today article “Where will everybody live?” By Haya El Nasser outlines three significant facts about this.
First, the American population has risen from 200 million to 300 million in 39 years. At present growth rates the next hundred million will come in only 34 years!
Second, today each American owns 20% more developed land (housing, schools, stores, roads) than 20 years ago. By the 1990s 1.7 acres of land was developed for each additional person.
Third, these 100 million additional people will need 70 million new homes and 100 billion square feet of non-residential space.
America trails only China and India in population and is the fastest growing industrialized nation! This in itself will create tension, the struggle between the US , India and China . Hopefully the competition will remain friendly. In fact this triangle of struggle could bring greater military stability to the world. These three nations, along with Europe , have more to lose than any others from a major war.
America needs an emerging Asia to provide it with low cost goods. India and China need America ’s consumption to spearhead their growing economies. Asia ’s Pandora has escaped her box. The massive populations in these nations now expect better and more materialistic lives. The one thing political systems dare never to do is crush expectations. The Indian and Chinese governments jumped on and are riding capitalistic, consumer based waves. They dare not stop or the wave will wash them away.
We have the three largest populations on earth growing at faster rates and their populations expecting to consume more and more, per capita.
This leads us to the next force.
#2: New Technology and its Impact on Human Nature
International investments are dramatically affected by the way human nature changes lifestyles based on the availability of new technology. These changing lifestyles have a profound impact on everything we do.
I saw a reflection of this fact when I spotted a large number of indoor water parks during a recent driving trip.
A USA Today article says that indoor water parks are the latest recreation fashion sweeping the US . They began in Wisconsin Dells in 1994 and a total of 144 parks with 36,000 hotel rooms will be open by the end of 2006 up from 50 with 8,500 rooms in 2002.
The article says: “Indoor water parks are usually available only to hotel guests. Most parks are aimed at kids up to age 14. They are regional destinations, attracting families within a three-hour drive, and don’t compete directly with mega-theme parks such as Disney World in Orlando . Guests seldom stay longer than three days.
Another quote from the article gives us a reflection of how technology can make such huge changes. It said: “What’s really driving the indoor water park is the changing nature of American childhood. Kids want to be entertained non-stop. They want fast action and they want it in a hurry.”
There seems to be a growing plague of attention deficit syndrome in the US . Is it possible that American parents are creating this by thrusting children in front of faster and faster moving technology so their brains learn to work so fast that they cannot pay attention in school? It was boring enough to my slow brain when I was kid.
We see again and again that humanity tends to take the road of least resistance and how commercialism weakens many aspects of the body and mind.
One message at the SuccessGuidelines.com site looked at how technology and new products have altered the world and said:
The soft drink industry has ruined the blood sugar balance of society.
.
Fast food businesses have dulled our tastes for life.
Pharmaceuticals have put our defenses to sleep.
National governments have used communications to bury our humanity.
News media has reduced us to the lowest common denominator.
Car manufacturers have robbed us of our lungs and legs.
Oil and mining interests have burned our deepest desires.
Legal systems have overwhelmed us with unnatural laws.
The housing industry has unleashed our lust for false security.
Organized religion has limited our relationship with God.
Science has tyrannized us with reason.
Accountants have frozen our ability to serve.
Banks have burdened us with debt.
The tobacco industry has choked our livelihoods.
Brewers and distillers have removed our agony and ecstasy.
Health insurance has burdened us with fear.
TV & movie producers have mummified our minds.
Tax collectors have sucked our energy.
Fashion trades have herded us like sheep.
Education systems have locked us in a box.
Chemical industries have eliminated our long range view.
This picture by Dr. Joe Losos at the Corporate Accountability website says it all.
Actually none of these industries have done any of these things. We, mankind, have done it to ourselves by always migrating to the lowest common denominator.
Businesses drop to the lowest by not caring about long term effects of the impressions they bombard us with day in and day out.
The market also drops by allowing itself to be affected.
Most people in the Western world want to be millionaires (few could tell you why), yet only 3.5% reach this goal. 96.5% of the world fail because under the influence of materialism, they spend their money rather than save and invest.
This is not a condemnation of the system, it’s a statement of fact that this is the system.
What realities will unfold as China , India and the other emerging nations also drift into such lifestyles.
#3: Urbanization & Specialization
Austrian economist, Joseph Schumpeter, clarified in his famous book on economics how humanity has moved through five eras of innovation, Steam Powered – Internal Combustion Powered – Chemical/ Plastics Powered – Air/ Electronics Powered and Information Powered.
Since the first industrial revolution, each era made society more efficient and each new era found better methods of productivity that changed the way we eat, work, sleep, live, practice religion and politics, gather our families, spend, etc.
Each era enhanced specialization and greater specialization enhanced urbanization. This may now be changing as the Information Era is fueled by the internet and the internet allows people to decentralize. Time and space lose their impact.
Technology is altering the concepts of time and space so…properties (like the farm we live on) that were once pretty useless, or land in the desert or in remote areas suddenly have a new utility. This is especially true for tens of millions of boomers who are or will be highly mobile when they retire.
#4: Concentration of Population
However, this shift does not seem to be spreading populations but concentrating them. Apparently people are now more able to live where they desire and they seem to desire to live along the coast.
In recent decades one of the largest migrations in mankind’s history has transformed the Atlantic and Gulf coasts.
Now one in 7 Americans live on the East and Gulf coasts. Beach economies have been growing faster than anywhere else.
This concentration of humanity has flocked to the coastline from rock-strewn coasts in Maine all the way around to sandy barrier islands hugging Texas .
New retirees and baby boomers are settling on the coast full-time or buying vacation homes for later retirement.
A USA TODAY analysis found that an estimated 41 million people now live in a county that abuts the eastern or southern seaboard. There are also several million inland residents with second homes near the coast. Since 1993, 100 coastal counties have grown nearly 50% faster than the rate for the entire USA . About 1,000 new year- round residents arrive each day.
To a large extent, this migration is being fed by the booming metropolitan centers along the East Coast: Boston , New York , Baltimore-Washington, Charlotte and Atlanta . Many urban residents start out buying or renting a weekend home along the coast and eventually move permanently. This is important as you will see in a moment!
This growth should continue with the aging of the USA ’s 78 million baby boomers. Millions of boomers should have the financial resources to move to the beach.
The crowds also create problems. Traffic jams are everywhere. Quaint, charming villages have turned into high rent suburbs and lost their charm. The quiet pace that originally attracted is gone. Along with the traffic jams comes overcrowded schools, higher crime, a shortage of affordable housing and higher taxes to deal with the growing mess.
Now imagine what this will mean as Chinese, Indian and other growing wealthy consumers make similar moves!
#5: Environmental Deterioration – Global Warming – Water Shortage
This growth in numbers and consumption per capita plus concentration of the population complicates environmental conditions.
It is believed by many, for example, that global warming affects the weather. National Geographic devoted a huge portion of an issue to Global Warming. It says that the 20th century has seen the greatest warming in at least 1,000 years. Sea levels rise with the temperatures, a result of sea ice decline. Higher waters initially drowns low lying islands which is happening now from the Indian Ocean (the Maldive Islands continued existence is in doubt) to Western Alaska (Inupiat Islands are eroding). Peru ’s ice caps are contracting more than 600 feet a year. The Larsen Ice Shelf is collapsing. Alaska ’s forests are dryer and have more forest fires. Lake Chad in Africa has shrunk by 90%. The Western U.S. is in a five year drought. The Sierra Nevada Snowpack melts earlier and the Sacramento River gets 12 % less spring and summer snowmelt. Himalayan glaciers that provide most of Asia ’s drinking water are retreating 75 miles a year. The list goes on…and on.
Warmer weather is suspected of creating increasing numbers of larger storms. Last year saw a record number of hurricanes hit Florida .
These changes shift water so in some places there is too much. In others areas there is not enough. Another bigger problem is water pollution. These are huge challenges, the surging costs of providing water and dealing with nature’s risks.
Mother Nature grows nastier with the warming and this coincides with the crowds. We are seeing more and stronger hurricanes, record floods and lots of beach erosion. The danger to life and property is rising, and the cost of disaster relief is soaring. Insurance costs have risen dramatically and even so is available only with government support.
This creates stress. As the coastal crowds grow, the traditional strategy for hurricanes, to get out does not work. There are not enough roads to evacuate everyone ahead of a storm. One USA Today headline read, “Anxiety, fatigue grind down hurricane-lashed Floridians ; ‘ Normal ‘ comes to mean insomnia, power outages and evacuation orders”.
Multiply this by the huge Indian and Chinese populations that live on coasts with even greater potential for disaster.
#6 – 7 – 8: Enhanced Communication – Spread of Weapons of Mass Destruction – Islam-Christianity Conflict
Greed, envy and fear play important roles in human nature. Various people have used religion as a cover for their expression of these negative aspects in the human being. 1000 years ago this did not have as much fast, direct impact.
Now, even the poorest people on earth have access to TV. One of the most watched shows in the world is “Bay Watch”. Imagine how those without imagine people in the West live. This enhances envy.
During the Crusades, it was quite a horse ride or walk to express anger. Today it only takes the time of an airplane or rocket. During the Crusades, the best a soldier could carry was a bow and arrow or spear. Today the anger can be shown in more powerful forms ranging from bio toxins to suitcase nuclear bombs.
#9: Energy Price Hikes
The largest consumer of energy in the world ( USA ) is aghast at nearly a doubling of gas and energy prices. Yet costs are less than a third of what Europe pays. Energy prices are bound to rise more.
#10: Western Debt
US debt and trade deficits are massive and growing. The US dollar’s fate is currently divided between two beliefs which tend to move further and further apart. One side is the imbalance proponents predicting a sweeping and urgently needed weakening of the dollar, and on the other side the dollar enthusiasts believe in the dollar’s status as a reserve currency and hence a safe haven.
There may be three main factors supporting the dollar.
First, Asian governments continue to buy low yielding (guaranteed loss) US dollar bonds. They want the US dollar to remain strong so US consumers can afford to continue buying imported Asian goods. The Asian political system demands continued prosperity now so Asian governments are willing to make these investments. At the same time US industry is investing in highly profitable Asian businesses. Low returns flow back to Asia . High returns come into the US . This cash flow imbalance may be keeping the bigger imbalances at bay for now.
Next other Western (and the Japanese) governments have gone deeply in debt as well. The reduces the appearance of any clear currency alternatives to the dollar as a reserve currency.
Third, the US stock market is rising nicely. This attracts more US dollar returns.
However, we do not want to forget that historically stock markets tend to go up for an average of 16 years and then go down for an average of 16 years. The year 2,000 was the end of an 18 year up period. Investing in shares now might only work for very short term rallies. A strong Wall Street correction is likely and this could seriously dampen US dollar demand and parity versus other currencies.
#11: Liquidity in the Market
Since Wall Street’s 1999-2000 correction, industrialized governments have flooded banks with easy money. This led to a global real estate boom that propped up paper wealth that had previously been fantasized by the raging bull equity market. This has allowed consumers to continue spending and real estate prices to rise. This continues to prop property prices even though they have corrected.
#12: Inflation
This liquidity creates inflation and means that property prices may not fall as much as some expect. There is an inherent value in buildings because inflation means construction costs are not going to fall! Normal inflation and increased demand from emerging markets for cement, steel, timber and other basics assure this. Plus environmental concerns will continue to slow acceleration of supplies as well.
#13: Globalization
Another impact on property prices and values is changing utility created by globalization. For example, my mom’s home which was once the bastion of suburban WASPs is now filled with Mexicans, Chinese and Ukrainians. Our builder friend tells me that at least half his home buyers are first time immigrants who use a family plan (the whole family comes over, pitches in and buys the house). This means that a single house is once again becoming more popular as a place for two, three or even four generations to live together rather than just one.
House lots used to be 5,000 square feet minimum. Now they can be 2,500 square feet. That’s a big change in utility.
If we compare US property prices in global terms, we see that prices are still low. Sometimes the forest is hard to see because of the trees and real estate values are hard to see because of local comparables.
Prices of housing in the US may seem high, when you compare them with US house prices of five or ten years ago.
What happens when we compare US real estate prices to those in other industrialized countries like France, England , Denmark and such instead? The thought “We ain’t seen nothing yet” may arise!
Let’s do a comparison. Condos I recently looked at (with the thought of buying as an investment) in Portland, Oregon were three bedroom, two bath homes of about 1,500 square foot. The asking price for each unit is $229,000. Plus they have a special tax abatement feature for ten years (essentially no property tax on the building for a decade). I looked around Portland in other areas at older houses of about the same size, but with yards. Prices rose a bit up to $299,000 and even $359,000 for places that had been built 40 and 50 years ago.
Wow! I bought my first house, albeit only two bedrooms and one bath for $12,500. Are people willing to pay so much for a house?
Let’s compare this with some homes of about the same size that we may have passed on our drive. These prices come from local multiple listing services.
I started with Lake Tahoe . This area is nice!
The first listing I found in this area for a three bedroom, two bathroom house of about 1,500 square feet reads:
Bijou – 3 bedrooms, 2 baths, 1508 square feet. Do you want to be close to everything? There’s No Substitute for Time. Minutes from skiing, the beach, shopping, golf, LTCC, this is the place for vacation rental or second home!!! Don ‘t wait. $399,000
Then I looked nearby but away from the water in Nevada and saw that prices drop.
Nevada – Home Sweet Home! Rambling Rancher on Quiet cul-de-sac. 1501 square feet Roomy & comfortable 3 bdrm., 2 ba., sunroom/atrium leading to delightful fenced yard. .16 acres, oversized garage (small garage door) with storage!
$299,000.
So maybe people are willing to pay around $300,000 for such an average home and even more in nice areas.
Can they pay more? Let’s look abroad.
I began in my old stomping grounds, London . Here’s the first listing I found there.
Central London – 3 bedrooms , 2 baths, 1803 square feet. An immaculate apartment set over the ground and lower ground floor of this popular garden square. Ennismore Gardens is one of London ’s most sought after residences with a gated communal garden for residents, and located just a short walk from Hyde Park and the excellent amenities of Knightsbridge. $3,600,000
Another place I lived for years is Hong Kong and in a quick search I could not find an exact 1,500 square footer most were double the size (at double the price of the little apartment below). I found one little apartment that’s close. The listing reads:
Hong Kong, St. George Apartment, 3 Bedrooms including 1 Ensuite, 2 baths, 1,398 sq. ft. Price: HK$11,000,000. (That works out to about US$1,415,701.40.) Perhaps you could negotiate down the 40 cents!
So these are the titans that clash, merge and form the fabric of what is and will be.
Now let’s look at the 2006 portfolios, how they performed and lessons we learned. Then we’ll look at our MultiCurrency Portfolios for 2007.
This is an educational service and so it will do us well to look back at the original ideas behind these portfolios. One of the three most important lessons gained in studying these investments this year is that belief in an idea is vital.
2006 Dollar Long. The US dollar long portfolio was geared for a strengthening US dollar.
| Starting Date 10/21/05 | |||
| $100,000 Invested & $200,000 Borrowed | |||
| $Amount | Currency | Investment | %Yield |
| $12,000 | BRL | 12.5% Brazil Rep 05-01-16 | 11.82% |
| $30,000 | AUD | 5.5% Landwirt Rentenbank | 5.48% |
| 16-04-2007 | |||
| $15,000 | GBP | 7.125% British Tel 07-12-06 | 7.32% |
| $15,000 | HUF | 6.25% Hungary Gvt 12-06-07 | 6.20% |
| $30,000 | ISK | 0% Iceland 09-02-07 | 11.20% |
| $60,000 | MXN | 8% Mexican Fix Bonos | 7.89% |
| 24-12-08 | |||
| $30,000 | NZD | 6.5% ABN Amro Bnk 08-02-08 | 6.47% |
| $12,000 | TRY | 14.5% E.I.B. 21-02-2007 | 14.34% |
| $30,000 | USD | 7.2% Ford-Global 15-06-07 | 7.10% |
| $15,000 | USD | 3.875% Deutsche Telekom | 3.78% |
| 22.07.08 | |||
| $15,000 | EUR | JI High Yield Corporate Bond Fnd | 5.00% |
| $36,000 | USD | JI Emerging Markets Bond Fnd | 7.00% |
The Total Invested was $300,000 and estimated Gross Income $ 22,812
Loans in UD$ Equivalent were 20.00% JPY 1.63% ($40,000) and 80.00% CHF 2.38% ($160,000) or a total loan of $200,000. The total estimated loan cost was $4,460 . The net amount invested was $100,000 and the estimated income after loan cost was $18,352.
This portfolio had a potential return 18.35% per annum on the initial $100,000 invested, plus if those who long for a rising dollar are correct there will be some extra forex profit on this portfolio that is dollar long!
The actual return was 9.04%. There was the second largest drop in emerging currencies of the decade. Hungarian florin, Icelandic dollars and Turkish Lira especially fell. This kept the performance of this portfolio down. This still provided better returns than money in the bank, but only half the return that was expected.
The 2006 US Dollar Hedge portfolio was similar to the dollar long and had a projected return of 17.34%. The actual return was 9.93%. You can see the entire 2006 Dollar hedge Portfolio at http://www.spottingtrends.com/currency/currency_3.htm
For 2007 we are replacing the US Dollar Long Portfolio and US Dollar Hedge Portfolio with a US Dollar Neutral Portfolio. The starting date for this portfolio was November 1, 2006.
The Invested amount is US $300,000.00 comprised of $100,000 original capital and US$200,000 borrowed.
The portfolio was invested as below:
| CCY | Name | Invested Amount | |
| AUD | 5,00% | BK Nederlandse Gemeenten 16.07.10 | 30,000 |
| BRL | 12,50% | Brazil rep. of 05.01.16 104.75 | 12,000 |
| GBP | 6.375% | Rabobank Nederland 20.03.09 | 30,000 |
| HUF | 6.50% | Hungary Gov. 12.08.08 | 15,000 |
| ISK | 9.50% | Iceland 13.06.2008 | 12,000 |
| MXN | 9.00% | Mexican Bonos 22.12.2011 | 15,000 |
| NZD | 6.00% | KFW 15.07.2009 | 18,000 |
| TRY | 10,25% | KFW 09.02.2008 | 12,000 |
| USD | 3.875% | Deutsche Telekom 22.07.08 | 15,000 |
| USD | 5.45% | Hutchison 24.11.10 100.40 | 15,000 |
| USD | 7.20% | Porsche Intl. 01.02.2049 | 21,000 |
| EUR | JI Favourite Fund | 15,000 | |
| EUR | JI German Equity Fund | 15,000 | |
| EUR | JI High Yield Corporate Bond Fund | 15,000 | |
| JPY | JI Japanese Equity Fund | 15,000 | |
| USD | JI International Equity Fund | 15,000 | |
| USD | JI Emerging Markets Bond Fund USD | 30,000 | |
| Total Investment | $300,000 |
| LOAN | ||
| CCY | Interest | Amount |
| JPY | 1.880% | 40,000 |
| CHF | 3.130% | 100,000 |
| EUR | 4.500% | 30,000 |
| CZK | 3.880% | 30,000 |
| Total Loan | $200,000 | |
The idea behind the 2007 US Dollar Neutral Portfolio is to provide income and maintain capital growth so the purchasing power of the portfolio in US dollar terms stays ahead of inflation.
This is a mixed portfolio of bonds and equities. We learned from last year’s drop that equities recovered much faster and better than bonds so none of our portfolios are pure bond portfolios this year.
The 2006 US Dollar Shirt Portfolio had a projected performance of 15.75% but, rose only 10.32%
You can see this portfolio in its entirety at http://www.spottingtrends.com/currency/currency_trends_2.htm
The 2007 Dollar Short Portfolio differs from last year’s dollar short. This uses a 100% dollar loan and has no USD investments. The starting date for this portfolio was November 1st 2006. Here is the 2007 US Dollar Short Portfolio.
The Invested amount is US $300,000.00 comprised of $100,000 original capital and US$200,000 borrowed.
The portfolio was invested as below:
| CCY | Name | Invested Amount |
| AUD | 5.00% BK Nederlandse Gemeenten 16.07.10 | 30,000 |
| BRL | 12.50% Brazil rep. of 05.01.16 104.75 | 12,000 |
| GBP | 6.375% Rabobank Nederland 20.03.09 | 30,000 |
| HUF | 6.50% Hungary Gov. 12.08.08 97.40 | 15,000 |
| ISK | 9.50% Iceland 13.06.2008 98.96 | 12,000 |
| MXN | 9.00% Mexican Bonos 22.12.2011 | 15,000 |
| NZD | 6.00% KFW 15.07.2009 97.18 | 18,000 |
| TRY | 10.25% KFW 09.02.2008 | 12,000 |
| EUR | 6.25% Turanalem Finance BV 27.09.2011 | 15,000 |
| EUR | 4.75% Iss Global A/S 18.09.10 95.46 | 15,000 |
| EUR | 8.625% NXPBV 15.10.2015 105.50 | 15,000 |
| EUR | JI Favourite Fund 83.00 | 21,000 |
| EUR | JI German Equity Fund 80.25 | 15,000 |
| EUR | JI High Yield Corporate Bond Fund | 15,000 |
| JPY | JI Japanese Equity Fund 9927.00 | 15,000 |
| EUR | JI European Equity Fund 120.80 | 15,000 |
| EUR | JI Emerging Markets Bond Fund EUR | 30,000 |
| Total Investment | $300,000 |
| LOAN | ||
| CCY | Interest | Amount |
| USD | 6.875% | 200,000 |
| Total Loan | $200,000 | |
The idea behind the 2007 US Dollar Short Portfolio is that in 2007 the US dollar will drop in parity versus other currencies. This is a mixed portfolio of bonds and equities. About one third of the portfolio is in emerging markets and the balance in industrialized bonds and equities. This portfolio is meant to produce income and capital appreciation, plus gain a forex profit in US dollar terms to protect against erosion of the greenback’s purchasing power if it falls.
The 2006 Emerging Market Portfolio rose last year by 42.93%. This was an excellent return but would have been much better with more equities and less bonds (hindsight always works so well). That portfolio made great sense at the time it was formed as emerging markets had outperformed major markets for the past five years. $100,000 was invested. An additional $200,000 worth of Swiss francs was borrowed at 2.38%. The $300,000 (original investment and loan) were invest as below:
| $ Amount | Investment |
| $48,000 | Mexican peso 8% Mexican Fixed Bonos 24-12-08 |
| $48,000 | Hungary florin 6.25% Hungary Gvt. Bonds 12-06008 |
| $51,000 | Sth. Afr. rand 10.00% SA Republic Bonds 28-2-08 |
| $51,000 | US dollar Jyske Invest Latin Equity Fund |
| $51,000 | Euro Jyske Invest East Europe Equity Fd. |
| $51,000 | US dollar Jyske invest Emerging Mkt. Fund |
The growth in this portfolio during 2006 came from the three equity funds. So this year we have expanded on this lesson plus made it easier to zero in on regional performances.
The second emerging market equity fund was our Asian Emerging Market Fund which rose an amazing 114.16%.
The idea of that portfolio was to tap into the growth potential of Asia . $100,000 was invested. An additional $200,000 worth of Japanese yen was borrowed at 1.63%. The $300,000 (original investment and loan) were invest as below:
| $ Amount | Investment |
| 75,000 USD-Rupees | J I Indian Equity Fund |
| 75,000 USD-Yuan | JI Chinese Equity Fund |
| 75.000 JPY | JI Japanese Equity Fund |
| 75,000 USD | JI Emerg Mkt. Bond Fnd |
With this type of return one would wonder if it was worth trying to improve on it.
It is and in 2007 w have merged what we felt was the best of the 2006 Asian and Emerging Market Portfolios. From this we derived two 2007 emerging market portfolios.
The first is the 2007 Emerging Market Portfolio that is entirely leveraged with a Czech Koruna loan.
This uses a 100% dollar loan and has no USD investments. The starting date for this portfolio was November 1st 2006. Here is the 2007 US Dollar Short Portfolio.
The Invested amount is US $300,000.00 comprised of $100,000 original capital and US$200,000 borrowed.
The portfolio was invested as below:
| CCY | Name | Invested Amount |
| USD | JI Chinese Equity Fund | 50,000 |
| EUR | JI Eastern European Equity Fund | 50,000 |
| USD | JI Indian Equity Fund | 50,000 |
| USD | JI Far East Equity Fund | 30,000 |
| EUR | JI Turkish Equity Fund | 20,000 |
| Total Investment | $200,000 |
| LOAN | ||
| CCY | Interest | Amount |
| CZK | 3.875% | 100,000.00 |
| Total Loan | $100,000 | |
This 2007 portfolio blends the best performing funds of the 2006 Asian and emerging markets portfolio and adds in 10% in the Turkish market as a speculation that adds enormous extra spice.
The second 2007 Emerging Market Portfolio is the Swiss Samba which borrows Swiss francs and invest in Latin America .
| CCY | Name | Invested Amount |
| USD | JI Latin American Equity Fund | 75,000 |
| MXN | 8,00% Mexican Fix Bonos 24.12.08 | 75,000 |
| USD | JI Emerging Markets Bond Fund USD | 75,000 |
| BRL | 12,50% Brazil Rep. of 05.01.16 | 25,000 |
| Total Investments | $250,000 |
| LOAN | |||
| CCY | Interest | Amount | |
| CHF | 3.125% | 150,000 | |
| Total Loan | $150,000 | ||
This Swiss Samba portfolio has been developed because in 2206 the region of Latin America has outperformed the other two emerging regions. Latin America Morgan Stanley Capital Index is up 17.4 %. Asia is up 15.2 % and Europe/Middle East/ Africa (EMEA) returned 4 %.
As a region Latin America offers better value in five of the six value categories. This region offers a better price to cash flow, earnings and yield as well as greater cash flow and return on equity.
| Region | Price | Price | Price | Dividend | Cash Flow | Return |
| Book Value | Cash Flow | Earnings | Yield | Return on Equity | on Equity | |
| Latin America | 2.38 | 7.9 | 12.3 | 2.65 | 30.0 | 19.4 |
| Asia | 2.08 | 8.6 | 14.0 | 2.40 | 24.3 | 14.8 |
|
Europe/ |
||||||
| Mid East/Africa | 2.59 | 10.6 | 14.7 | 2.20 | 24.5 | 17.6 |
We may well learn a lot from this portfolio. Some Latin markets have topped and may now seem pricey, but even if they are for now, given global growth and Latin America ’s energy, the Swiss Samba may add some spice in our inflation fighting portfolios.
Here is an important point. Note we have reduced the leverage in the Emerging Market Portfolios from two times to 1.5 times. This is because the 2006 emerging portfolios gave us great performance for the whole of the year, they also had a severe dip.
The 2006 emerging portfolios began October 21, 2005 and shot off like race horses bolting from the gate.
Four months later I wrote:
“After 20 weeks on March 5, 2006 these portfolios had risen as below:
Asian Portfolio +75.19%
Emerging Markets Portfolio +61.03
I also added: “These results are especially pleasing since there have been several articles in newspapers that warn that Borrow Low systems of enhancing profits through leverage may be at an end due to sharp shifts in several currency parities”.
The warnings were true. Beginning in March 2006 the second worst emerging market plunge of the decade began.
In July 2006, a portfolio update said: “The last month has seen a blood bath in emerging markets and currencies”.
The Asian portfolio had dropped to 30.28%. The Emerging Market Portfolio was down to + 4.68%
If an investor attracted by high returns had jumped into the Asian portfolio as an example, here is what happened to that investment from March through July, 2006.
If $300,000 was invested in March ($100,000 invested and $200,000 borrowed) the portfolio was down 44.91%. With the two times leverage, the investor lost $134,710. Those who jumped in at the early top lost everything plus 34.71% more. This is why we remember again and again do not invest more than we can afford to lose.
If investors believed in the idea and could afford to hang on, or had a money management system in place to cut losses and then reinvest when the idea turned around, they were well rewarded. The Asian portfolio rose 83.88% from July through October, 2006. In three months, the $300,000 portfolio gained $251,640, a 151.64% profit on their $100,000 base investment in three months! This is one if too many. Many investors cannot afford ifs.
Let’s review what could have happened with the Asian portfolio over the year. All the other portfolios offered the same potential in varied degrees.
Investors who invested $100,000, borrowed $200,000 and held on through thick and thin, made 114.16%
On the $100,000 actually invested, they earned $114,160 in one year.
Investors, caught in greed, who jumped in March and exited in fear in July lost the whole $100,000 invested and could have lost $34,710 more! These losses all took place quickly, in just five months. Had they held their sandwich at Jyske Bank, the bank would have closed their position before it reached a negative position.
Had a really wise investor timed their investment right and invested $100,000 in July 2006 they would have earned
$151,640 on the $100,000 invested) in just three months.
Here are the three most important lessons this reminds us of this year:
#1: There are always things you cannot see. I believed the US dollar would fall. It did and a 10.00+% return on this bet was not bad. Yet the greenback did not fall much. The dollar short portfolio was not much better than dollar long.
#2: Belief in the idea is vital. Keep a good money management system. This year investors needed one or two approaches. They needed to invest in what they believed in (with a win or lose all philosophy) and hang on. Or they needed a money management system where they took profits when losses began and then reinvested.
Investors who started the portfolios and then bolted when profits fell, lost great opportunity. Investors who jumped in late through greed rather than belief may have lost all. This leads us to the third valuable lesson.
#3: Do not invest more than you can afford to lose! In an utterly brilliant year (when viewed from the annual perspective), the seeds for incredible performance and total loss were planted.
Therefore we have reduced the leverage in the 2007 Emerging Market Portfolios.
The 2007 Green Multi Currency Portfolio uses a 100% Japanese yen loan and has no USD investments. The starting date for this portfolio was November 1, 2006. Here is the 2007 Green Portfolio.
| CCY | Name | Invested Amount |
| EUR | Seche Environnement | 48,000 |
| DKK | Novozymes B | 48,000 |
| DKK | Vestas Wind Systems | 51,000 |
| JPY | Kurita Water Industr.6370 | 51,000 |
| EUR | Q-Cells Ag | 51,000 |
| SGD | Hyflux Ltd | 51,000 |
| Total Investment | $300,000 |
| Loan | ||
| CCY | Interest Rate | Amount |
| JPY | 1.880% | 200,000.00 |
| Total Loan | $200,000 | |
The idea of the 2007 Green Portfolio is to enhance capital value through holding shares in businesses that help grapple with rising energy costs and environmental concerns.
There you have it, five portfolios we will track and examine as they unfold over the year ahead.
Which if any of these portfolios are for you? That is determined by the ideas you believe in, how much you have to invest, how much you need from your investments and how long you have to let the investments grow. How much you can afford to lose is also a huge factor. You should review the portfolios with your banker or financial advisor before if you plan to invest in one or all.
Until our first update on these portfolios, good investing!
Gary
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