On November 9, 2007, within days of the start of its current move upwards, I recommended that Canadian buy the Swiss Franc.
On July 15, 2008, I noted that Switzerland, along with Japan, is one of only two major world powers to be managing its money supply conservatively (that is, to be refraining from the practice of inflating the money supply in order to finance irresponsible government behaviour).Accordingly, I though it might be timely once again to examine the value of the Swiss Franc relative to the Canadian dollar.
I have done that, and have reached two conclusions.
1. From a technical perspective, the Swiss Franc still has ample room to increase against the Canadian dollar - even though it has already gained 25% since its early November 2007 low. This can be seen in the moderate values of the RSI and MACD indicators, as well as the evident position of the Swiss Franc at the midpoint of its relative position against the Canadian currency over the past 12 years.
2. Fundamentals also favour the continuing recovery of the Swiss Franc. The Swiss are refraining from inflation of their money supply, and global realities no longer support the borrowing of the Swiss Franc to win more lucrative gains in other currencies. It is becoming too risky to borrow at low interest rates in conservatively managed currencies to make investments in high risk currencies that are managed irresponsibly - the US dollar being a prime example of this latter case.
The chart for the Swiss Franc against the Canadian dollar since 1996, presented above, reveals that the Franc has already won a tidy 25% gain against the relatively strong Canadian Loonie. But the Swiss manage their currency more conservatively than do we Canadians - and so, in my view, the Swiss Franc can rise further still. Its time to increase is not yet done!
Here is a list of my blog entries concerning the Swiss Franc:
1. Canadians, Buy the Swiss Franc Now!
2. The Swiss Franc Continues To Climb in Canadian Dollars.
3. My first compliment from Fleck.
4. Currencies 101.
5. Another Swiss Franc Buying Opportunity for Canadians.
6. All You Need To Know About Global Money Supply in One Place.
7. The Swiss Franc Is Still Strong.
8. Use "FXF" (CurrencyShares Swiss Franc Trust) To Buy the Swiss Franc
9. Gold is Better Than the Swiss Franc.
10. Swiss Franc Alert.
11. Gold Isn't Gaining All That Much... In Canadian Dollars!
Addendum: Many visitors to this site have enquired about how to purchase the Swiss Franc. The most direct method is simply to purchase Swiss Francs from a currency dealer. In Canada, Custom House Currency Exchange offers competitive rates. You may also wish to contact your broker about an exchange-traded fund or a Swiss Franc government bond (which would pay interest on your investment, but could be subject to decline in value even if the currency itself rises relative to other currencies). Additionally, some banks permit investors to maintain foreign currency accounts. Sophisticated investors may wish to enter this trade through purchasing futures contracts or other types of options, such as calls. Many brokers specialize in foreign currency purchases, so I suggest that you start with a broker familiar to you. As I understand it, Pamela and Mary Anne Aden at Aden Research, for example, will execute foreign currency trades for their customers. But for those who don't know how, simply purchasing the currency from a competitive currency trader (possibly your local bank, or a trader recommended by your bank) will be a good place to get started. Ideally the "spread" between the buy and ask price for the currency should be less than 4 cents on the dollar (roughly 4%). That is, you should not pay a premium of greater than 2% to purchase the currency. This being said, my own experience with currency dealers is that it is very difficult to exchange currencies in this idealized range. Our local broker's rates are much higher, for example. Never exchange currencies in large amounts at airports, hotels and other locations that are charging large premiums to provide a convenience service to travellers. Look for the best rates any time you exchange currencies!
August 5, 2008: As currency purchases at fair exchange rates are extremely difficult to obtain, I am now recommending that mainstream investors simply purchase the FXF exchange traded notes, "CurrencyShares Swiss Franc Trust" (denominated in US dollars) through their broker. This exchange traded note uses the interest on its deposits to cover the management fees of the fund, with the result that you will receive modest interest income via this method.
Note (9 August 2008): Most global currencies happen to be weak against the US dollar right now, as the US market is presently driven by the fantasy that the US government's now $800 billion rescue of the financial system by "nationalizing" the government sponsored enterprises (Fannie Mae and Freddie Mac) and using taxpayer money to guarantee worthless bank assets will make everything "all right again." That fantasy will persist for a season, and then it will fade, as all fantasies do.
In the meantime, the Swiss Franc may not have bottomed for US investors. However, I note that the Franc is holding up fine against the Canadian dollar, as both are under pressure versus the US dollar, which is presently enjoying a transient upward move due primarily to concerns about the stability of the Euro. Pamela and Mary Ann Aden advise that the market value of the Euro is presently stronger than that of the Swiss Franc. My own take is that the Swiss Franc clearly possesses superior fundamentals compared to the Euro, which relies upon the historically unproven concept of international cooperation (don't expect the cooperation of the European countries to be maintained in hard times or in crisis!).
October 11, 2008: If you're interested in Swiss Franc Government Bonds, here is a recommendation from WikiAnswers. This brief note recommends EuroPacific Capital. Its C.E.O. and Chief Global Strategist, Peter Schiff, is a long-term US dollar bear who saw the present economic meltdown coming years ago. EuroPacific Capital is a secure and well-managed company, and I can certainly vouch for the reputation of Mr. Schiff, whose articles on the mismanaged US economy I have been reading for years on Safehaven.
While I am currently recommending gold as a superior store of value to the Swiss Franc, gold trades as both a commodity and a currency, with the result that its market price is much more volatile. If you are a long-term buy-and-hold investor, gold will certainly outperform the Swiss Franc as a long-term store of value. But if you don't like $100 price moves in a day (gold has had two such moves in the past month - including only yesterday!), then holding the Swiss Franc may prove less unsettling.
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