Right now, the lowering strategy is winning, and the lower U.S. dollar interest rate means that investors are likely to park their investments and savings in other currencies that pay higher returns. This reduces demand for dollars and means the dollar may fall even more against other currencies.

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Dollar drops and you make money

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This creates the perfect Multi Currency Sandwich position…an investment strategy that borrows a potentially weak currency at a low interest rate and invests the loan in a potentially strong currency at a higher rate of return.

The troubles of the U.S. dollar are so serious right now that one opportunity–unimaginable in the 1980s and 90s–is to borrow U.S. dollars to invest in Russian rubles!

Russian political stability looks strong with the new president Dmitry Medvedev assuming office. But Russia is facing many economic challenges, especially inflation. One way the Russian central bank will likely solve this is a revaluation of the ruble. This creates the potential for significant gain due to the interest rate differential between the ruble and the dollar…in other words, a “positive carry.”

My banker at Jyske Bank just offered a Bank of Moscow bond issue that matures in 2009. The bond has a coupon of 7.25%, but sells at a slight discount so the yield is 7.35% per annum. Because of falling interest rates in the U.S., Jyske Bank will lend you dollars for 4.5%. This means you make 2.85% positive carry by using Bank of Moscow bonds to borrow dollars.

For example, say that you invest $100,000 in the Bank of Moscow bond mentioned above. You earn $7,350 a year interest. If you use that $100,000 bond as collateral and borrow $200,000, your cost for the loan at 4.5% per annum is $9,000 a year.

You use the borrowed $200,000 to buy Bank of Moscow bonds, increasing your yearly interest income to $14,700, or $5,700 more than the interest cost of your dollar loan.

Now your total return on the $100,000 you originally invested is $13,050. Your Multi Currency sandwich has nearly doubled the return on your investment. Plus, since your Bank of Moscow bond is actually bought with and denominated in rubles, you stand to gain on any appreciation of the Russian currency as well. If the ruble appreciates 10%, your Forex gain would be $30,000…a nice bonus.

Fundamental fiscal conditions in the U.S. suggest that the greenback will remain weak. Economic conditions point toward continued low dollar interest rates. However, there is always a risk of reversal of rising interest rates and a stronger dollar versus the currency you invest in. I suggest using this technique only for mid- to long-range investment timeframes…five or more years. And never leverage more than you can afford to lose.

Gary Scott
For International Living

Editor’s Note: Gary has been dealing with bonds and currencies for almost 40 years. He never worries about the value of the dollar, or the recession as there are always currencies…and companies…that can weather the storm…even prosper…over the long term. To see how you can do this, too, read this special report.

Source: Safe Bonds with 7.35% Yield

“And”, she continued, “it is the same with clothes. They have fashion seasons and every fashion season is shorter so they encourage you to add to your wardrobe more often. All this marketing – for what?”

My wife is not a shopper, so this was not a hint to buy clothes, for sure. I thought about what she was saying and realised that she was onto something. Something to do with the world we live in.

Investing in Indian stock markets: a fashion?

Let’s take the field of investments: investing in the Indian stock markets. Why is it that we cannot sit patiently with a few stocks and watch them evolve over a ten or twenty year time horizon? Maybe make some changes to some of the stocks we own in our portfolios every 5 years or so. Sure, if a really new idea comes along, and you like the stock of the company involved in that business, go ahead and add it to your portfolio. But, generally, if you did your homework well before you invested in a stock owning the stock for a long time could work well.

But the system won’t let you. The system – the financial system geared up to service the investor – is not built on a “let the client buy only once” strategy. The financial system is geared to help you make profitable investments in the Indian stock markets by investing in a list of Indian stocks or Indian mutual funds.

And then help you change your mind the next day about what you should really do to make profitable investments by giving you a new list of Indian stocks and Indian mutual funds. And then help you change your mind again before the week is over.

For each time the system helps you change your mind, that creates an action: the selling of one stock and the buying of another. Or the selling of one mutual fund and the buying of another mutual fund. They are making you buy what is “fashionable”.

Your investment portfolio for the Indian stock market is your fashion statement. Just like owning the CD of the newest song. Or owning the latest style of shoes or clothing.

So, when you go to a party to meet the parents of your daughter’s school friends, you can discuss the latest fashion statement in investing.

Investing in Indian stock markets: or in your broker’s wealth.

You are not really investing in the Indian stock market anymore. You are investing in the wealth creation for the people in the system. Every time you trade, you generate a revenue stream for your broker. You may have a loss or a profit on your latest, fashionable trade. That is your problem. They have a guaranteed profit.

Come to think of it, there are two rules to be happy and successful:
Rule # 1: say “yes, dear” to your wife and nod your head in agreement.
Rule # 2: say, “no, thank you” to your broker and do not nod your head in agreement.

Most people seem to treat their broker as their wife – and nod in agreement to everything they say. And they seem to treat their wife as if she were a broker – and do not listen to their views.  A recipe for disaster: emotionally and financially.

It’s one year later. From what I hear from my dad, after plunging the Merrill Lynch bond is back up. And the Bank of Nova Scotia’s shares are exactly where they were a year ago. That’s much better than most North American banks have done over the past year.

No harm, no foul?

I’d be the stupidest guy on the planet if I thought that there were no lessons to be learned just because these investments didn’t turn to mush.

Fact is, my assumptions have changed. If my dad showed me the same Merrill Lynch bond today, I would’ve told him not to touch it.

And I wouldn’t have cared if a high-ranking official from an American bank swore to me they weren’t exposed to the subprime mortgage market. I wouldn’t have believed him. I would definitely have put off investing.

The housing bust, subprime mess, credit crunch and resulting financial crisis have done more than just bring the market down.

They’ve led to a stunning collapse of confidence that has infected the entire investment world. Banks don’t want to lend to each other … institutional investors don’t know what’s safe anymore … and retail investors don’t believe anything anymore.

How can they? The rating agencies have proved beyond a shadow of a doubt that they do not understand derivatives. Their ratings are worthless.

And the brokers and analysts who follow every twist and turn the market makes? It must have made them so dizzy that they can’t see the forest for the trees. They’ve been making one bad call after another.

Just a couple of weeks ago, for example, Buckingham Research estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days. This is one of dozens of examples I could cite.

There’s so much uncertainty in the investment world that we can no longer fall back on our long-held ideas of what makes a safe investment.

Munis? Sorry, thanks to the shaky status of the monoline insurance companies (which insure munis), they’re no longer the safe investments they used to be.

Money market funds? They’ve been hit too. Some brokerages are covering losses with their own money rather than pass it on to those who invested in these supposed safe havens.

Good move. I don’t blame them.

Corporate bonds? The spread on what you can earn from them is tempting, but along with falling employment there is increasing evidence that Wall Street’s problems have become Main Street’s. By no means can these be considered rock-solid safe investments.

What’s left? Oh, yes, how could I forget. U.S. government bonds. Okay, they’re still safe but are they really investments? I mean, can anything you get a negative return on be considered an “investment?”

I don’t think so, and that’s exactly what you’re getting with them. A ten-year note would give you 3.6 percent yield.

Inflation is running at 4.1 percent, and that excludes food and energy prices. The real rate of inflation (as my colleague Rusty McDougal would attest) would be much higher.

U.S. bonds are worse than giving the government a free loan. Instead of the government paying you extra money for the loan, you pay the government for the privilege of loaning it money.

Do you feel honored? Or cheated?

Well, I can’t speak for you. But this is the kind of honor that could land me in the poor house. I’d say cheated.

Well, is there any investment that is truly safe?

There sure is. Australian government bonds have never looked better than they do right now. And it’s the perfect time to jump into them…

Not only because Australia has one of the strongest economies in the world. Unemployment is at a 33-year low. And prices of its two big exports – coal and iron ore – are at historical highs. It doesn’t hurt that around 66 percent of Australia’s exports are commodities.

And not only because Australia is effectively shielded from the problems we’re having in the U.S. They trade mostly with fast-growing Asia. In fact, 60 percent of its exports go to Asia.

The biggest reason the timing couldn’t be better is because the Aussie government has been raising its key interest rate to stave off inflation. They’ve raised it all the way to 7.25 percent.

When can we profit from US stocks? Martin Hutchinson reveals how to determine the end of the credit crunch with three key indicators.

Watch this video.

*The following was taken from the April 4 Market Insights video with Krista Das featuring Martin Hutchinson, advisory panelist for The Money Map Report .