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Thinking Outside Your Borders... 7%+ On Your CashBy
Friday, March 17, 2006
7.5% interest on a simple cash deposit... and I can take my money out any time? I couldn’t believe it. But it’s true... How can they possibly pay 7.5% on your cash? And is this some sort of introductory rate that’s going to change? It’s pretty simple how it works, actually. You’ve got to think a bit outside of your borders here. The key is, these cash deposits are in New Zealand. As I mentioned in DailyWealth a few weeks ago, New Zealand interest rates are really high. Just last week here, New Zealand’s version of Alan Greenspan said that he’d most likely leave short-term government interest rates unchanged at 7.25% for the rest of this year. So while money market rates always fluctuate around the rates set by the government, it seems clear that these rates will stay about the same for the rest of this year. To get more familiar with this situation, I met with Wallis Keiller at ABN-Amro Craigs here in Auckland yesterday. ABN-Amro, if you’re not familiar, is one of the world’s strongest banks. It’s not huge in the U.S., but it is well known around the world. ABN-Amro owns half of Wallis’s brokerage firm, ABN-Amro Craigs, where wealthy New Zealanders often keep their money. The product I was most interested in is ABN-Amro’s Cash Management Account. It’s a true multi-currency cash account. You can have your money in New Zealand dollars, U.S. dollar, Aussie dollars, euros, British pounds... you get the picture. Currently, the highest interest rates are in New Zealand. You also have the ability to trade stocks and bonds worldwide with this account. While it’s a safe 7%+ on your cash backed by ABN-Amro, with no fees and no strings attached, you do have one big risk: the currency. But it can also be a big benefit... The New Zealand dollar rose by 25% versus the U.S. dollar in 2002. It did it again in 2003. When you add in the roughly 5% a year that deposits in New Zealand paid, you’d have made 30% a year – an extraordinary result. While the trend was up back then, for the last year the trend has been down. As I write, the New Zealand dollar has fallen below $0.65. It’s almost been in a freefall lately... to the point where any profits from the high rate of interest were eaten up by the fall in the currency. You can see the fall in the chart below:
As Wallis and I spoke over lunch, we agreed on two points: 1) everyone is bearish on the New Zealand dollar right now, and 2) with interest rates of 7.25%, the New Zealand dollar is the highest-yielding easily-tradable currency in the world. I saw a similar situation with the U.S. dollar back in December of 2004... everyone hated the U.S. dollar, and it was in freefall versus the euro. Yet U.S. interest rates were clearly set to go much higher than those in Europe. Going against just about everybody else in the world, I recommended we buy dollars versus the euro in True Wealth. We got it right, and readers of True Wealth made money... as the euro fell from over 1.30 to the dollar down to 1.18 to the dollar (we’re out of the trade now). So I love it when I see that everyone is bearish... yet you’ve got a great reason for money to flow to that asset: high interest rates. That’s the case with the New Zealand dollar now. If you don’t own New Zealand dollars yet, you might want to wait a bit. The New Zealand dollar is now down roughly 15% from its highs a year ago, and we can’t know how far it will go. Once the uptrend appears to return, it’ll be time to put a good-sized chunk of money there.
Ultimately, if you’re looking for high yields on your cash, New Zealand offers interest rates that are the highest in the world (of safe, easily-tradable currencies). Now might be a great time to get one of those Cash Management Accounts with ABN-Amro Craigs set up. Remember, if the New Zealand dollar is still falling by the time your cash is there, you can park it in U.S. dollars, or British pounds, or whatever, and you’ll earn good interest in those currencies while you wait to get into New Zealand dollars. If you don’t want to send your money to New Zealand, you can also get exposure to New Zealand here in the States... As I write today, Everbank (www.everbank.com) is currently paying 6.14% on it’s 3-month New Zealand CDs. This way is safe and trustworthy, and you don’t have to send your money abroad. However, by going local in New Zealand, you’ll get a higher interest rate. And you’ll be able to take your money out immediately, without any commission or early withdrawal penalty. If you’re interested in New Zealand deposits (and you should be interested in diversifying some of your money outside the U.S. dollar), then get in touch with Wallis Keiller at ABN-Amro Craigs ([email protected]). Good investing Steve P.S. An ABN-Amro Cash Management Account is just like a money market account at your bank or brokerage firm, where your cash is not at risk.There’s no catch, except that 7.5% is the highest rate they pay, and it’s only for big accounts (in $300,000+). The smaller the account, the less interest it earns. For example, on a US$65,000 account, they pay half a percent less: 7%. Market NotesMILLER’S CONTRARIAN REAL ESTATE INVESTMENT Bill Miller doesn’t believe in a housing bubble. As the only mutual fund manager to beat the return of the S&P 500 for the past 15 calendar years, Bill is one of the most respected money managers in the world. This time, Bill has taken a truly hard-core contrarian position in the American housing sector. With recent purchases of Beazer Homes (BZH) and Ryland Group (RYL), around 5% of his Legg Mason Value Trust (LMVTX) is now tied to the fortunes of the hated U.S. homebuilding sector. A contrarian position all the way! Bill’s housing bet… 7 times earnings… The Ryland Group (3 year chart):
-Brian Hunt |
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