The global currency structure is changing.
Emerging currencies are in turmoil. This may be exactly the
opposite of what should happen.
Investors are rushing to major currencies
because the old global economic engine was the development
of the West. The industrialized nations had the best growth.
Today, the driving engine of the global
economy is the development of emerging nations. Three of
the most indebted currencies are the US dollar, euro and
Japanese yen! Each of these areas has aging populations and
huge, future retirement obligations.
Yet once again the thundering herd is rushing
in reverse, using its past, emotional feelings as a guide.
Hopefully we are the wise, forward looking,
few who will benefit from this.
We are reviewing a short list of emerging
currencies that currently offer high interest rates (near
or over 10%). The list includes Argentina, Brazil, Indonesia,
Pakistan, Russia, Turkey and Venezuela. We most recently
looked at the Turkish lira called the TRY, where I just invested
5% of my liquid portfolio. Now let’s look at the Argentina
I have passed on investing in this but one
of my advisors wrote:
“Gary, We recommend that you hold
on Var Argentina, but if you choose to buy I recommend that
you buy Argentina 03, 08, 2012. with a yield of 8,50% p.a.
There is a sinking fund on these bonds and you will have
12.50% of the face value re-paid every year. You mentioned
in one of your last mails, that you prefer to have the more
risky investments in the pension account. If you want a real
risk with high potential the bonds of this bank would be
a good idea for the pension account.”
First, why high risk in the pension? If
you have a pension and if it is not your only investment
account, think about this. If you are going to make two
investments, one seemingly safe (with low profit potential
or income) and one seemingly risky (with high profit potential
or income) look at what happens if you invest the risky deal
in your pension. Your low profit deal pays low tax. If your
risky deal, wins the big profit in your pension is tax deferred.
If you lose, you get to top up your losses with tax deductible
contributions. This is a way to get the tax man to share
speculative losses, but not immediately tax speculative gains!
This rubs against the grain of normal financial advice and only
works if you have the two equal investments to make (and
have asset protected both investments)! In the right circumstances
it really makes sense.
Back to Argentina. Let’s return to fundamentals we
||GDP Growth Billions
Argentina has good growth but foreign reserves are pretty
low. Plus the country has previously reneged on its debt.
Plus let’s add one more factor ... inflation.
||Consumer Price Increases
Now you are beginning to see why I have
added only Turkish and Brazilian bonds to my portfolio. Real
returns are generally interest less inflation. So we could
expect a real return on an Argentine bond to be 9.88% less
11.1%. That’s not so good. Brazil at 15.6% minus 5.3%
(10.3%) and Turkey at 14.2% minus -8.2% (6%) look an awful
Enhance your profit potential with a diversified
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Learn about investing in emerging
currencies, gold, silver, Ecuador, import-export, overseas
markets and more. Join Merri and me at our September 15-16-17,
2006 International Business and Investing Made EZ course
in North Carolina. Review where to invest and do business
now and learn which markets and currencies may be strong
in the year ahead. Our May course was overbooked and the
September session is already filling up fast. Our free
accommodations are reserved on a first come first served
basis so do not delay! DETAILS