Borrow Low, Deposit High

Had you invested $100,000 in a portfolio of Emerging Asian currencies in October 2005, you’d now be $75,000 richer.

In March of this year, a mere 20 weeks later, your investment would have ballooned to $175,000.

That’s a whopping return of 75%.

It may be hard to believe, but this is the type of return you can expect when using a little-known European investment technique that I call the MultiCurrency Sandwich. With this “borrow low, deposit high” technique, banks lend you money – at very low interest rates (think 1.6% – 2.8%) – which you then invest in a portfolio of different currencies.

“Borrow low, deposit high” works because different currencies have different interest rates. Switzerland, for example, has low interest rates. You could borrow Swiss francs for 2.38% and put the money in a Hungarian Forint-denominated government bond (rated AAA) that pays 6.29% interest.

If you invested, say, $100,000 in Hungarian bonds with Denmark’s Jyske Bank, they might lend you up to $400,000 more in Swiss francs at that low 2.38% rate. You would then have $500,000 earning 6.29%, or $31,450 a year. Your interest cost on the $400,000 Swiss franc loan would be only $9,520.

This leaves a profit of $21,930 or 21.93% on the $100,000 you invested. That’s quite a return for ultra-safe AAA-rated bonds.

These kinds of low-interest, high-profit-potential loans are easily within your reach … right now. In fact, these kinds of loans have already made huge profits for millions of investors (mostly in Europe).

In the U.S., MultiCurrency Sandwich loans are barely known. But some European banks specialize in offering this service to their customers.

Jyske, Denmark’s second- largest bank, has provided a “borrow low, deposit high” service called Invest Loan to their clients for over 20 years. The bank accepts minimum accounts of $30,000, and will loan up to an extra $120,000 above this amount. While services, fees, and minimums vary widely depending on which bank you use, I have discovered in 25 years of using the borrow low, deposit high strategy that Jyske offers the lowest fees.

For even higher returns, take a look at the MultiCurrency Sandwich portfolio – invested in Emerging Asia currencies – that I mentioned at the beginning of this article.

(By the way, Emerging Asian markets are great places to park assets. Their currencies are undervalued, because Asian governments are building up assets while American and European governments are piling up debt.)

Here is that portfolio – with $100,000 invested and $200,000 borrowed in Japanese Yen at the very low rate of 1.62% – tracked by my MultiCurrency Tracking Service:

Currency        Investment                                       $ Amount

USD-Rupees    Jyske Invest-Indian Equity Fund          75,000

USD-Yuan       Jyske Invest-Chinese Equity Fund         75,000

JPY                   Jyske Invest-Japanese Equity Fund       75,000

USD                 Jyske Invest-Emerg Mkt Bond Fund      75,000

As you can see, this portfolio diversifies investments into a basket of Asian currencies.

Since much of the borrowed portion of the portfolio is in Yen and related Asian currencies, there is less risk of loss from a rising Yen.

How so? When you collect your profits in Yen and other Asian currencies, they may have all risen to match any increase in the Yen. In addition, if the U.S. dollar falls against the Yen, it is likely to fall against all the Asian currencies, creating more profit from the loan.

That’s why the $100,000 invested in this portfolio on October 21, 2005 rose to $175,000 in just 20 weeks – and that’s before doing any currency conversions.

But the Asian portfolio isn’t the only MultiCurrency Sandwich portfolio. My MultiCurrency Tracking Service has followed five high-performing portfolios. All have performed well in the past five months.

During the same 20-week period (between October 21, 2005 and March 5, 2006), we tracked not only the Asian portfolio but also the following:

Emerging Markets portfolio with returns of 61.03% (an annual rate of 158.67%)

Dollar Long portfolio with returns of 11.60% (an annual rate of 30.16%)

Dollar Hedge portfolio with returns of 9.93% (an annual rate of 25.81%)

Dollar Short portfolio with returns of 7.22% (an annual rate of 18.77%)

Had you made an investment of $30,000 – with a loan of an additional $120,000 – in October with any of these five portfolios, you’d be looking at current profits of between $10,000 and $91,000. And you’d still have significant long-term potential gains.

Sound exciting? It is. Because the MultiCurrency Sandwich can give you outstanding returns – especially if you take care to always calculate potential losses before investing.

You limit your risk by doing the following:

Pay attention to the cost of fees. (They can run as high as 1% per annum.)

Keep your individual investments small and diversify into many currencies. This makes sense, since the bank could ask for a margin call if the borrowed currency (the Swiss franc, in our Swiss franc/Hungarian Forint example) suddenly rises in value against the currency of the bond or mutual fund investment (the Hungarian Forint, in our example).

Borrow more than one currency and invest in several bonds or mutual funds to protect yourself against currency and bond prices moving against you.

When you begin, start small and leverage low. Some banks will lend up to four times your investment – but do not borrow more than double what you risk.

Gradually increase your leverage as you gain experience. Always check with your banker or investment advisor about borrowing more when you see a special opportunity.

Most importantly …

Never invest more than you can afford to lose. Be sure to consult frequently with your banker about which investments should be maintained and which sold.

“Successful investing is anticipating the anticipations of others.” – John Maynard Keynes

[Ed. Note: Gary Scott was among the first advisors 25 years ago who recommended international diversification for the small investor. At first, many thought he was crazy. Today, the establishment advisors are on the bandwagon. Gary has been helping his readers invest in “borrow low, deposit high” strategies for nearly two decades. To learn more, click here http://www.garyascott.com/etr2.]

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