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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Your Link to Freedom, Privacy & Prosperity in the Offshore World
Wednesday, October 5, 2005 - Vol. 7 No. 201
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In This Issue:
* COMMENT: Dish Up Returns With a Currency Sandwich.
* OFFSHORE: EU Directive Riles Bermuda. Swiss Citizenship.
Barbados NOT a Tax Haven! Bahamas Defended.
* WEALTH: New Zealand Tax Attack. Malta-U.S. Relations.
* PRIVACY & RIGHTS: High Court on PATRIOT Gag.
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Our guest comment is by Gary Scott, an economic writer and investment
consultant for 35 years and creator of International Business Made EZ.
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COMMENT: Dish Up Returns With a Currency Sandwich.
Dear A-Letter Reader:
The US dollar recently hit a two month high against the euro after
Hurricane Rita. The dollar bulls are drawing strength from lower energy
prices, which alleviate - for the time being, anyway - worries that
lofty energy costs could slow US consumer spending. As a result, many
traders are convinced that the Federal Reserve is likely to extend its
15 month streak of dollar supportive interest rate rises.
This sudden uptick shows why it is dangerous to speculate against the US
dollar in the short term. However, in the long run, federal debt
fundamentals suggest a long term decline.
US government debt seems insurmountable at over seven trillion dollars.
Plus, according to USA Today, this figure rises to 53 trillion if you
take baby boomer retirement liabilities into account. This works out at
$473,456 for every household's share. This is before you figure in the
huge new expense of rebuilding the Gulf Coast.
Such excessive debt is unsustainable and a devaluation of the greenback
is the one most likely result.
One way to resolve this dilemma is with a multicurrency sandwich, where
you borrow low yielding currencies and invest them in non US dollar
assets.
Here is one example of many options to this approach.
Invest $100,000 in a euro bond such as the 5.75% Ford Motor Credit bond
that matures 12/01/2009 and is rated Baa3. This bond currently sells
for a small discount at 98.65 and thus yields 6.21%.
Use the bond as collateral to borrow $100,000 in Swiss francs (the
current loan rate is 2.375%) and $100,000 in Japanese yen (1.625%) for
an average loan cost of 2%. Invest the loan into eight bonds such as
shown below.
Currency Bond Current Yield
_____________________________________________________________________
Mexico peso 27/12/2007 MEXICAN BONOS 8.41%
SA rand 28/02/2008 REP SOUTH AFRICA 7.42%
Turkey TRY 22/03/2006 VOLKSWAGEN FIN 13.05%
Hungary florin 12/06/2007 HUNGARY GOVT 5.56%
Iceland kroner 09/02/2007 ICELAND T-NOTES 8.90%
British pound 07/12/2006 BRIT TREASURY 4.14%
NZ dollar 27/01/2009 GEN ELEC CAP CRP 6.48%
Australia dollar 06/05/2008 ELEC DE FRANCE 5.55%
_____________________________________________________________________
Click here to sign up for Jack Crooks' FREE, twice-weekly Currency e-letter, My Two Cents.
_____________________________________________________________________
This non-US dollar portfolio has an average yield of 7.44%. After
deducting the 2% loan costs the return is 5.44% or $10,880 extra annual
income from the $200,000 of bonds purchased with the loans.
Add this amount to the $6,210 earned by the $100,000 Ford bond and you
have a total return of $17,090 dollars on the original $100,000 invested
or a 17.09 per annum return.
Bond yields and interest rates can change daily and there are some
currency risks in this portfolio. The Iceland kroner and Turkey TRY for
example are likely to devalue versus even the US dollar.
On the other hand this is an extremely stable, broadly diversified
portfolio with assets in Latin America, Africa, Europe, New Zealand,
Australia and Turkey. All the bonds are investment grade and seven of
the nine bonds are A, AA or AAA rated. In addition since these bonds
have very close maturity dates, the risks of rising interest rates and
reduced capital values are minimal.
There are many variations to this type of portfolio, but the key is to
hold a broad spread of non US currencies for several years as you enjoy
high returns. This is a time proven safe way to protect yourself from
the greenback's weak fundamentals.
Investors using a multicurrency sandwich should have a good
international bank that offers multicurrency loans and advice so the
loan and portfolio can be suited to individual needs.
Best wishes,
Gary Scott, Jefferson, North Carolina USA
E-mail: gary@garyascott.com
Web site: http://garyascott.com/
Editor's Note: Gary Scott has appeared on numerous TV and radio shows
and was heard weekly on the syndicated radio program, Market Rap, in New
York. He offers a free e-zine available at www.garyascott.com and will
conduct an International Investing and Business Course that covers the
Multicurrency Sandwich this November 4-5-6. Details are available at
LINK: http://www.garyascott.com/catalog/ibezecuador.html
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* FROM THE EDITOR'S DESK, BOB BAUMAN SAYS:
OFFSHORE:
* EU BIG BROTHER TAX COLLECTORS RILE BERMUDA
HAMILTON: The Island is host to financial institutions that gather
investments from agents across Europe, so some in the EU insist it's
within the scope of the EU directive, Switzerland among them. Bermuda
Ministry of Finance argues with Swiss tax authorities that the funds
based on the Island are exempt. Stay tuned.
* Bermuda government moves to limit EU scope over funds. LINK:
http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20051004/BUSINESS/110040143
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* SWISS CITIZENSHIP RULES REMAIN UNCHANGED
BERN: Parliament has turned down the conservative People's Party
proposal to give cantons and local authorities full autonomy in
granting Swiss citizenship; concern about possible discrimination.
* Swiss courts keep control over citizenship decisions. LINK:
http://www.swissinfo.org/sen/swissinfo.html?siteSect=111&sid=6135407&cKey=1128374500000
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* A TAX HAVEN - NOT! SAYS BARBADOS
BRIDGETOWN: Playing the semantics game, a top official insists that
BARBADOS is not a tax haven, but rather "a highly developed, well
regulated, mature and sophisticated low tax jurisdiction." So be it!
* Barbados is not a tax haven. LINK:
http://www.barbadosadvocate.com/NewViewNewsleft.cfm?Record=23027
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* BAHAMAS MINSTER DEFENDS GOVERNMENT
NASSAU: The Finance Minister defends the many changes in island
finance laws that have driven out banks, corporations and investors,
claiming international obligations required the crackdown.
* The Bahamas honors its international obligations. LINK:
http://www.thenassauguardian.com/bixex/302811674083270.php
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WEALTH:
* NEW ZEALAND ATTACK ON FOREIGN CORPORATIONS
The NZ Revenue collectors allege that foreign companies are plotting
to avoid local taxes with abusive tax planning schemes. Nothing like
making foreign investment attractive, eh?
* New Zealand launches tax crackdown on foreign firms.
LINK: http://www.tax-news.com/asp/story/story_open.asp?storyname=21324
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* U.S. - MALTA RELATIONS REAFFIRMED
WASHINGTON: Pres. Bush, Prime Minister meet at White House.
Double taxation agreement approval moves closer.
LINK: http://www.timesofmalta.com/core/article.php?id=201214
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PRIVACY & RIGHTS:
* SUPREMES MAY RULE ON PATRIOT SILENCE GAG
The US Supreme Court has been asked to let libraries speak out about
FBI demands for their records in a case involving the Patriot Act. The
ACLU argues the law has gagged its clients right to free speech.
* US Supreme Court input eyed in Patriot Act case.
LINK: http://apnews.myway.com/article/20051004/D8D0TFQ00.html
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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER.
* Bob Bauman, Editor * Daniel Aponte, Jr. Editorial Asst.
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