more than two decades I have written about the Borrow Low- Deposit
High investing strategy. Most readers who have followed this idea and
have used the tactic have profited mightily.
Once in awhile we have even hit real home runs. For example Here the
14 week performance of the five portfolios we outlined and began
tracking last October 21, 2005 have been outstanding.
The Asian portfolio is up +68% or has risen at a 252% per annum rate.
The Emerging market portfolio is up +47% or at a 174% per annum rate.
The US dollar Long portfolio is up +10% (37% annual rate).
The US dollar Hedge portfolio is up +8% (29% annual rate).
The US dollar short portfolio is up +7% (26% annual rate).
I have been warning readers not to expect this type of performance to
continue. In fact such astounding rises are often followed by bubbles
This is why our service follows five different philosophies, one for
investing in Asian, another for emerging markets and then three
tactics based around the movement of the US dollar. The key is to
have properly constructed portfolios that are leveraged and
diversified. Such portfolios can be safe and profitable regardless of
short term moves if the underlying idea and fundamentals are correct.
Thus I am not surprised to read a recent article in London’s Telegraph
newspaper that warns that the Borrow Low system of enhancing profits
through leverage may end.
The article begins:
"The cash machine that sustained a world boom is about to close, and
it's going to get ugly", says Ambrose Evans-Pritchard.
"One by one, the eurozone, the Swedes, the Swiss and now even the
Japanese, are turning off the tap of ultra-cheap credit that has
flushed the global system for the past year, keeping the ageing asset
“The 'carry trade' - as it is known - is a near limitless cash machine
for banks and hedge funds. They can borrow at near zero interest rates
in Japan, or 1pc in Switzerland, to re-lend anywhere in the world that
offers higher yields, whether Argentine notes or US mortgage
"It's going to come to an end later this year and it's going to be
ugly, even if we haven't reached the shake-out just yet," he said.
Another reader sent me an article about this from another newspaper
that predicted a huge crash something like the Asian and Wall Street
stock market crash of 1987.
This is interesting and brings several thoughts to mind. Let me add
right here that I have some conflict of interest. I publish an ezine
service that promotes the Borrow Low-Deposit High concept. I have
Swiss franc loans (at 2.62%) invested in Euro and other related
European currencies (earning 4%-5% and more) myself.
So the first human knee jerk reaction is to defend the tactic and
position and write "poppycock".
This, however, would be wrong. My loyalty is to my portfolio and my
readers not to a concept. There is always opportunity somewhere. If
the Borrow Low-Deposit High is truly about to end then I should be the first
to say so and get on with looking for “What’s Next?”
I have not been successfully publishing data about global investing
for 38 years by limiting my horizons.
So if the newspapers are correct, we'll examine what opportunity this
shift will create.
However, let’s first think what is happening through as I doubt that
Borrow Low Deposit High is at an end. In fact it may get better.
Remember newspapers almost always get it wrong and they sell panic,
drama and fear. They know that it is panic that gets reader
attention. They love headlines that scream PANIC MARKET CRASH. For
reasons disclosed below, I’ll take the news article with a grain of
salt for now. BUT…a warning.
First, if enough newspapers warn investors of impending doom, there
may be some immediate volatility. This means investors using borrow
low tactics (especially if they have a nervous disposition) should
reduce their leverage now. Or they should make sure they have
adequate cash on hand to fund any margin calls.
Second, investors who use the borrow low-deposit high tactic should
remember that they should “never leverage more than they can afford to
Third, all of us should look at special opportunities that any panic
Lets look at some fundamentals why Borrow Low opportunity may "loom
My attention was caught by the article that suggested recent jumps in
currency and interest rates surprised everyone and was akin to the
great Asian and wall Street stock market crash of 1987…but not because
of panic or fear. This smells of huge profits!
about the 1987 Asian crash under the title “GREATEST
Investopedia explains how this crash nearly wiped out Wall Street and
I recall the panic in the market at that time (even though I had
earlier warned readers to evacuate the market).
Now think about the profits that have been made by those who got in
the markets (especially Asia)….right after that crash of 1987!
They have enjoyed really good returns. Since I am doing this in a
hurry I have not been able to locate all the numbers I want, but we
can get a clue looking at numbers provided for the Templeton Asia (ex
Japan) equity fund which was formed in 1991. DETAILS of
all the numbers.
I’ll just summarize here. The Moran Stanley Capital All Asia ex Japan
Index is up since 1991 + 201.4%. This is after a huge 40% drop in 1997
when there was a second panic. The index has grown 7.9% per annum
The point here is…despite a huge panic sell in 1987 and 1997, Asian
shares have performed extremely well over the past 20 years.
What is more... investors who bought after the 1997 Asia panic have
really cleaned up earning over 15% per annum.
The stock markets in Asia would look even better if Japan had not been
in a 20 year funk. The Japanese economy has stagnated, and its stock
market disintegrated. The Nikkei 225, Japan's benchmark index, dropped
30,000 points, or 78%, from its 1989 peak. Stocks did not merely crash— they
The "Tigers" — smaller Asian countries that turned aggressively
capitalism 20 years ago had a different story. They generated vast
enthusiasm among investors in the mid-90s but went bust in 1997,
practically destroying the currencies of South Korea, Thailand,
Malaysia, and Indonesia.
China, the big driver, suffered due to minimal legal protections, poor
financial reporting, and little transparency.
Yet despite all this, Asia has had really impressive performance.
Why? Due to fundamentals.
3.5 billion people live there — three times as many as in North
America and Europe combined. Asia is the fastest-growing part of the
world and already accounts for over a quarter of all global economic
So what does Asia have to do with Borrow Low - Deposit High? Each
tells a story of boom and bust. There was panic and euphoria…in the
short term. There were big profits for those who ignored the day to
day press and looked at fundamentals.
Investors who ignored the static in the press and steadily invested in
fundamentals did well. Those who took advantage of the scaremongering
news did even better!
This is how I suspect it will be with the Borrow Low-Deposit High tactic. Here
is why….currency fundamentals have not changed.
Most currencies are fundamentally controlled by national productivity,
government debt, trade and current account balances and interest
rates. Governments have limited short term control over these first
three fundamentals so interest rates take up the slack and are
controlled by the multi billion dollar a day market place.
Countries with high debt and a bad productivity and deficits in their
current account and trade balance tend to have high interest rates and
However the market place is more powerful than any government’s intent
so usually some of these fundamentals are out of whack. This creates
opportunity for Borrow Low - Deposit High.
Nothing I see in the panic articles I have read to date changes these
fundamentals. I will continue to dig, watch the interest rates and
currency parities and let you know. Stay tuned. But do not panci. I
suspect there will be some huge opportunities on the horizon. The more
panic, the better and it is fun finding the crisis created investment
Until next message, good global investing!
P.S. Double your profit potential with the MultiCurrency Sandwich. If
my assessment is correct the volatility in currency markets right now
could lead to extra profits. DETAILS on
my Borrow Low - Deposit High service
Merri, Thomas Fischer of Jyske Bank and me at our next 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.
Join Merri and me and our Ecuador
on our Import-Export Expedition. We'll
look at many items to export including carved wood doors like the ones at
our hotel. Here is a picture of the doors below.
Welcome to Meson de las Flores!