By Gary
Scott
Shorting the US Dollar MultiCurrency
Sandwich
One of the first nursery rhymes I ever learned dealt with
the dollar!
"A diller, a dollar,
A ten o'clock scholar,
What makes you come so soon?
You used to come at ten o'clock,
But now you come at noon."
Now we can rewrite this poem.
"The
duller, the dollar
The sooner profits can foller"
This message looks at a Multicurrency Sandwich portfolio
that is designed to profit from a dull, falling US dollar.
This suits those who believe that the greenback will lose
its value versus other currencies.
US Dollar Short MultiCurrency Sandwich
Starting Date 10/21/05
$100,000 Invested & $200,000 Borrowed
$Amount Currency Investment Price Yield Amount % of Invested
% Value Portfolio
$12,000 BRL 12.5% Brazil Rep 05-01-16 94.60 11.82 12,000
4%
$30,000 AUD 5.5% Landwirt Rentenbank 99.79 5.48 30,000 10%
16-04-2007
$30,000 GBP 7.125% British Tel 07-12-2006 102.79 7.32 10,000 10%
$60,000 HUF 6.25% Hungary Gvt. 12-06-07 99.35 6.20 60,000 20%
$30,000 ISK 0% Iceland 09-02-2007 89.23 11.20 30,000 10%
$12,000 MXN 8% Mexican Fix Bonos 98.73 7.89 12,000 4%
24-12-08
$30,000 NZD 6.5% NRW Bank 26.08.2008 98.62 6.47 30,000 10%
$15,000 TRY 14.5% E.I.B. 21-02-2007 102.10 14.34 15,000 5%
$15,000 EUR 6.125% Hornbach Baumarkt 98.85 6.05 15,000 5%
15.11.1
$15,000 EUR 5.75% Bombardier 22.02.08 101 5.69 $15,000 5%
$15,000 EUR JI High Yield Corporate Bond Fnd 110.70 5.00 15,000 5%
$36,000 US$ JI Emerging Markets Bond Fnd 242.10 7.00 36,000 12%
Total Invested $300,000
Estimated Gross Income $ 22,406
Loans in UD$ Equivalent
50.00% US$ 5.00% 100,000
50.00% CHF 2.38% 100,000
Total Loan $200,000
Total Estimated Loan Cost $7,380
Net Amount Invested $100,000
Estimated Income After Loan Cost 15,026
You can see numerous changes in this dollar short portfolio
compared to the US dollar long portfolio we examined in the
first message of this series. Belief in a falling greenback
means an increased weighting in the British pound, a vastly
increased weighting of the Hungarian florin, plus increases
in the Turkish TRY and euro. A longer New Zealand dollar
bond has replaced the NZ$ position. Weightings in the dollar
linked Mexican peso is dramatically reduced (from 20% to
4%) and the US dollar denominated Ford-Global and Deutsche
Telekom bonds are eliminated.
The loans are altered as well with the euro loan dropped
from $160,000 to $100,000. The yen loan is replaced with
a $100,000 US dollar loan.
This portfolio has a reduced income potential because of
the lower euro yields and quite a higher dollar loan cost
(5% for the dollar versus 1.63% for the yen). However earnings
are still projected to return 15.02% per annum on the initial
$100,000 invested.
This profit projection is made before calculating fees.
Income on the Jyske invest bond mutual funds is estimated
plus there are risks. Study Lesson 14 of International Currencies
Made EZ (a free online course) to understand the risks of
the multicurrency sandwich.
In addition to enhanced profit potential investors who hold
this type of portfolio gain security and stability by having
a diversified basket of 12 currencies.
There are those who believe in that the US dollar will fall.
If their beliefs are correct, they might earn 15.02% and
perhaps even some extra forex profit on this speculation
Until next message, may all your investments be good!
Gary
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