Saturday, August 13, 2011

Swiss Franc is the best choice in tough times ahead--by Shan Saeed

Swiss Franc is a defensive currency. You bet.

In bad times, most assets fall in value. For instance, in the 2008 sell-off, stocks fell. Most commodities fell, and real estate was falling too. Most investors/people didn’t know where to put their money to keep it protected.

However, during 2008, gold flourished. The Swiss franc flourished. The Japanese yen flourished. The U.S. dollar flourished. And, some of the biggest defensive, cash-rich dividend paying stocks made it big, like Wal-Mart. But that’s not a lot of assets “making the cut” when the crap hits the fan. What is tricky is that in every downturn, there will always be a slightly different twist to it.

In other words, as stocks are beginning to fall again, I don’t know that investors can just go out and buy the same combination of assets mentioned above just because they worked the last time around.

I wish it were that simple. However, this time around, Standard & Poor’s has just downgraded the U.S. So that could put a kink in owning U.S. Treasurys or the U.S. dollar this time around.

Japan is intervening in its yen to try to weaken it. So in owning the yen, you could find yourself fighting against Japan’s central bank. They’ve already sold 527 billion yen to weaken their currency but they said they are prepared to sell up to 2 trillion yen.

Does the retail investor want to be trading against that kind of fire-power during those times? I wouldn’t. But I am bullish on Yen for the long term.

Sure, if Wal-Mart drops another 20 percent down into the low $40s then it might tread water through another economic slowdown and stock market sell-off from that point.

I still believe that gold is a no-brainer with all that’s going on in the U.S., Europe, and Japan right now. Not long ago, when I was asked on TV Channel how high I felt gold could go, I told them that it should be no problem for gold to head to between $1,700-$2,000/oz in the next 12-months. I still stand buy that.

But as far as currencies go, I believe that the Swiss franc may be the best candidate if stocks continue their slide-off. Yes, they don’t like their currency being so high right now but there’s not much they can do about it.

Also, even though their currency is so high and it’s challenging their exporters, Switzerland still is in better economic shape than much of the world right now. For instance, their unemployment rate continues to head lower. Right now the Swiss unemployment rate is at 2.80 percent. That’s incredible. No other major industrialized nation has that low of an unemployment rate.

So while they may not like their ultra-strong franc right now, it’s not hurting employment. Therefore, if almost everyone has a job, it’s a great thing and it’s a great place to park your money.

But aside from this, investors historically have a habit of running to the franc and to gold when times get tough or uncertain or chaotic. In fact, the Swiss franc has actually been stronger than gold over the last couple of months.

A simple way to own the franc through your regular stock brokerage account is just to own the Swiss franc ETF, symbol FXF. Therefore, as stocks slump and the U.S. economy continues to slow down, you may want to consider padding the blow to your stock portfolio by owning some gold and especially owning some francs.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

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