Is This Safe Haven Right for You?

Details

Published on Thursday, 12 July 2012 18:47

Written by Sara Nunnally, Editor, Inside Investing Daily

Hits: 359

I have enjoyed Bill Bonner's articles here in Inside Investing Daily, and yesterday's "The Best of the Worst" message clicked with what I've been working on for our annual summit in Las Vegas.

Bill highlighted Switzerland's strong franc that's only been growing stronger against other major currencies -- especially the euro. But is this safe haven right for you?

Let's find out...

Here's the Swiss franc versus the euro.

View larger chart

That obvious ceiling is when the Swiss intervened and try to make the franc cheaper. You can see they haven't had much success, even after wild statements that they will print as many francs as needed to keep their currency from flying into the stratosphere.

The real place you can see all this printing is in the franc versus U.S. dollar.

View larger chart

While a whopping 50% of the country's exports go to the eurozone, 10% go to the U.S., and francs haven't been this cheap versus the dollar since late 2010.

Imports from Switzerland peaked in March 2012 at $2.998 billion -- the highest recorded figure. We also recorded the highest U.S. exports to Switzerland that month, at $2.803 billion. Both imports and exports have been falling since then.

Notice on the chart, the franc versus dollar was at a high point.

The dollar was also at a "low" point versus the euro, but that was before the euro fell off the table.

(By the way, if you've been keeping up with the euro slide, those FXE September 126 put options I mentioned on Monday, July 2, are now trading at $5.60, a full 100% from where you could have bought them when I first recommended them.)

So here's what I'm seeing -- and how it relates to the presentation I'm giving at our Roadmap of the New America conference in Vegas this September...

Global printing is creating safe havens -- the Swiss franc being one of them... But it's not a safe haven for everyone. The whole "best of the worst" idea might protect some of your money, but it will not make more of it for you.

In other words, even though Switzerland is one of the world's freest economies (ranked fifth by the Heritage Foundation) I might not want to invest in Switzerland, or even the Swiss franc -- at least in certain ways.

Case in point: The iShares MSCI Switzerland Index ETF (EWL:NYSE) is down nearly 3% over the past six months.

This slide coincides with the fall of the franc versus the dollar.

In fact, let's compare this ETF with the CurrencyShares Swiss Franc Trust (FXF:NYSE).

View larger chart

There's a lot of correlation. The FXF is essentially the franc versus the dollar.

For being one of the freest economies in the world, Switzerland sure does have strong links to the U.S. dollar (as Bill said, the dollar has lost 98% of its value in the past century). Of course, the dollar still maintains its regal status as King of Currencies -- there're just so many of them that nearly every economy is tied to the dollar.

And that's just my point. Finding true safe havens and growth potential requires looking at things from a different angle.

I've reworked some of the Heritage Foundation data to come up with a different picture. From my calculations, Switzerland comes in at No. 17.

I've asked you to write in with which country you think should be No. 1, and you've given me some interesting responses.

Some have said China or Brazil. Others have gone off the beaten path a bit and said Vietnam or Indonesia. I just got an email ranking Singapore No. 1 based on the news that the tiny city-state is building an MIT-affiliated university.

And science and innovation certainly play their part.

Keep writing in with your ideas. I'm happy to hear them.

Indeed, the more numbers I crunch and compare them to actual performance the more I see the need for two indexes -- one based on the Heritage Foundation's Economic Freedom Index, and one based on pure growth.

According to Heritage, China ranks 138th, and Brazil comes in 99th place. Vietnam's at 136th, and Indonesia ranks 115th.

Singapore ranks second in the Heritage Foundation's list.

But when it comes to GDP growth rate? China's No. 10 , Brazil is No. 34, Vietnam is No. 43, and Indonesia is No. 53. Switzerland comes in at No. 126 on the GDP growth ranking.

That's a huge difference, and one that might have a better use when looking for investments.

(By the way, Singapore comes in seventh according to GDP growth... but I don't want to give much more away.)

With the markets down again today, finding growth -- and even growth potential -- is getting harder and harder. Finding these safe havens is more important today than ever. But it's also important to see if that safe haven is right for you.

And even though the Swiss franc is near all-time highs versus the euro, it's been trending lower and lower against the dollar.

Could this turn around? Sure... And many of us here at ISG think the dollar is falsely propped up, and that its Judgment Day is coming.

When it gets here, our Roadmap of the New America will be more valuable than any single safe haven out there. (Get all the details here.)

Happy Investing,

Sara

Other Related Sources:

• The Best of the Worst
• The Royal Currency
• New America: You Versus Them