LIVING OFF DIVIDENDS & PASSIVE INCOME

Previously I had mentioned several ways to invest for a recession or a major downturn in the US economy. In that post, I stated that one of the ways to hedge against the declining dollar (apart from my favorite method of buying gold) was investing in foreign currencies.

Several people emailed me asking how to buy foreign currencies.

A few were concerned that they would have to travel overseas and open a foreign bank account. Luckily, it isn’t so difficult. You have 3 choices.

1. Buy Currencyshares ETFs. You can choose between several currencies like Australian Dollar (Ticker: FXA), Swiss Franc (Ticker: FXF), Japanese Yen (Ticker: FXY), Euro (Ticker: FXE), etc. If you have a brokerage account, its as easy as buying stock. This is probably the easiest method. They also pay monthly dividends and are quite similar to buying a foreign currency CD.

As I mentioned 5 weeks ago when oil breached $115/barrel, demand for the black gold will cause the price to keep on rising. On Wednesday, I drove to USC where I had an interview at the Marshall School of Business for the full-time MBA program. While driving there, I heard that Oil had exceeded $133 per barrel. I had a great interview (where I spoke about my background, my interests, the state of the economy, what a moron George W. Bush is, and the current elections) and then proceeded to a friends’ place to spend the night.

I later heard that oil prices hit $135/barrel. That news was broadcast incessantly on all the news channels and I kind of felt that it was being overdone. Whenever everyones saying that the price of something is breaking all records, it usually pulls back. I think thats why the US Dollar had shown some strength this year. I woke up on Thursday and bought the ULTRASHORT OIL & GAS ETF (AMEX: DUG), it went up a dollar and I exited my position, happy to have made enough money to pay for my gasoline bill for this month.

When I first heard about LOR, I thought it meant Lord of the Rings, but no, the topic was on Lazard World Dividend & Income Fund(LOR).

I got this email from a reader:

I love your blogs. Please tell me what to think about an odd stock - LOR. They make money from high dividend stocks AND from some sort of forward contracts involving emerging market currencies.They had a 25% yield last year but are extremely volatile ( and I don’t know why!). They have a lot of institutional investors and it looks like a good dividend pick but I don’t understand how reliable the currency contracts are. Could you do an analysis of LOR?

This week the US Dollar sank to 25 year lows against the Pound, AU/NZ Dollars and other currencies. There’s a saying that money flows to where its treated best.

What does that mean? It means people are converting their money into currencies with the highest yields.

Yields on the AUD,NZD and South African Rand are quite a bit higher than here in the US. Their economies also seem to be growing faster than the US’ too. SA Central bank Governor Tito Mboweni said last week that interest rates were ‘too low’. The South African Reserve bank raised the benchmark lending rate by 50 basis points on June 7th and may raise them again on Aug. 16. Not surprizingly, the South African Rand is sitting at a six week high.

I’ve been selling covered calls on GDX - yes I know selling puts is the same risk-reward ratio but I usually do pretty well in selling far out options. I lost a whopping $40 than if I had outright sold them on friday. I’m hopping we’ll see a small dip in the market next week so I can buy back in at roughly the same price.

I’m thinking I might actually buy CEF or SLW (Silver ETF) instead since I think there’s a chance than silver might run up more than gold on a percentage basis this year. The markets closed today, but earlier kitco.com reported that Gold was around $672.00/oz. quite a jump in the past few months. Hopefully it consolidate before resuming its next leg up.