How to Avoid Swiss Francs During Inflation


Inflation is important.  Some parts of the cost of living have been rising much faster than statistics suggest.  Anyone who visits the grocery store quickly learns this fact.

The last time this economic phenomenon happened my investments earned extra profits so I have been preparing to react to this particular type of inflation. Intelligent investments can create extra earnings that will offset the costs.  My investment will not include many Swiss francs, if any at all.

swiss franc

In the past, inflation protection was easier because other major governments were not involved in excessive government spending.  One could get out of the US dollar and invest in German marks, Japanese yen or Swiss francs and expect to make a profit.

This tactic no longer works.  The German mark is gone, so we have to invest in euro to get a German investment.  The euro has great potential versus the dollar but nothing like a German mark would have.

The Swiss franc, was a great currency for protection for many decades, but the fundamentals no longer are so strong.

First of all, Switzerland’s economy is simply too small for the franc to be a reserve currency.   In eras past, only a small portion of the world’s wealth (held by the richest) had access to Swiss francs.  In modern times, a huge population had access to investing in the franc.  Yet Switzerland’s population at 6 million people is the size of Philadelphia or Dallas, Houston or Washington, DC.

Switzerland needs to keep its currency pegged somewhere close to the euro as Germany is its largest export country.

There is good information about Switzerland’s exports at a MIT University site. (1)

mit swiss franc data

This chart from the MIT site shows Switzerland’s main exports.

Gold                                                                     $52,519,814,522     20% of all exports
Packaged Medicaments                                   $29,809,689,115     11% of all exports
Human or Animal Blood                                 $16,366,090,711        6.2% of all exports
Watches                                                              $21,895,590,400      8.3% of all exports
Orthopedic Appliances                                    $6,274,875,494         2.4% of all exports
Jewelry                                                                $5,861,875,912          2.2% of all exports
Nitrogen Heterocyclic Compounds               $4,813,692,968.35    1.8% of all exports

Some investors make the mistake of looking at the Swiss franc as it was decades ago. I have warned against this for many years.

Years ago in a different world, Switzerland was isolated and fiercely independent. Its mountainous terrain and well-organized citizen’s army gave strength to claim and enforce neutrality.

The small population (about 6 million) believed in personal and hence banking privacy. The people were incredibly conservative and highly efficient. They did not believe in government debt and demanded that their national bank keep a large amount of gold as a reserve for their currency.  This made Switzerland an ideal banking center in those days plus made Switzerland a refuge in times of turmoil. Swiss francs in a Swiss bank account were considered one of the ultimate forms of financial safety.

This all changed. The computer, new tactics in war and the global economic community turned everything upside down. The computer was like the Colt .45, a great equalizer, making bankers in England, Italy or Spain, etc. as efficient as the Swiss. New instruments of war, intercontinental and cruise missiles, nuclear weapons, etc. dramatically reduced Switzerland’s natural defences.

Most of all, the global economic community forced Swiss banks to deal in US dollars, British
pounds, Japanese yen and German marks. Swiss banks had to open centers abroad and hence became vulnerable to other country’s laws. They lost much of their independence!

Today Swiss banks are affected by what happens in the US and other countries.  More importantly, the Swiss franc can no longer be allowed to be the reserve currency of last resort. Switzerland is a poor country in terms of natural resources lacking oil, minerals and the ability to feed itself.

Switzerland is a trading nation and must have its currency at parity with other nations which allows them to export goods.  It must export to survive. A large segment of its exports go to Germany. When the Swiss franc becomes too strong, especially against the euro, the Swiss react quickly to force its parity down.

During the 1970s recession when investors began flocking to the franc, the Swiss National Bank imposed a 12% per quarter negative tax on Swiss franc accounts over 100,000 SFR held by overseas investors.

In the last five years, the Swiss franc appears to have really strengthened versus the Euro as this chart (2) from Xe.com shows.

swiss franc chart

Click on image to enlarge.

This chart shows a special risk in the Swiss franc. The Swiss National Bank protects the SFR and has a nasty habit (see 2011 and 2015) of manipulating the SFR exchange rate. The sharp drop of the franc earlier this year is like a spring ready to push the parity of the Swiss franc back down versus the euro.

This also gives a distorted view of the Swiss franc Euro relationship.  The Swiss franc has simply switched its parity with the US dollar and as the chart (3) shows.  The franc has maintained its value with the dollar now for five years.  I believe this is because someone at the Swiss National Bank is smart enoughj to know that the dollar is too strong and when it corrects, the francs parity will move back closer to the euro.

This was really bad for speculators who were long in Swiss francs, a brilliant move on the part of the Swiss National Bank.  Investors will think twice about jumping into the Swiss franc thinking they can make an automatic profit.

swiss franc chart

Since the US dollar is seriously overbought, the suggestion is that when the greenback corrects versus the euro, so too will the Swiss franc.

Switzerland is a good banking center, yes.  The Swiss franc may be a strong, stable currency, yes, but the Swiss cannot afford to let the franc rise too high and the profit potential on Swiss franc investments is extremely low.  The Swiss SNI Stock Market index has risen 33% in the last five years, compared to a rise of over 60% in the Dow Jones Index.  Since the currency parities have remained equal, investors in the SNI have earned half the profits as investors in the Dow.

Why choose a currency that is not likely to go anywhere when you are not getting paid a handsome income return?

I have shared this information for at least fifteen years warning not to invest too much in Swiss francs, especially when it is strong and overall this has been correct.  I have not changed my opinion on this.  If you find a good value investment denominated in Swiss francs, go for it, but overweighting a portfolio in this currency runs the risk of muddled returns at best.

Gary

Learn how to master inflation.

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Gain From the Volatility of the Next Four Years

However America’s politics turn out, one thing is sure.  There will be volatility in stock markets during the next four years.

The first reason markets will bounce has nothing to do with politics or policies.   The market’s downward shift is simply due regardless of the party or the person in office.

Second the new politics will create an uncertain era. Everyone is shaken whether they are pleased with the election or not and nothing frightens markets like uncertainty.

Third we’ll see rising interest rates over the next 48 months. This will push markets down.

Despite these pitfalls, there is a way to profit using the downtrends  to pick up good value shares.

During nearly five decades of global investing I have noticed found that good value strategies increase through bull markets and bear, through good presidents and bad.  The steps to take are simple.

The first tactic is to seek safety before profit.

We can look at Warren Buffett’s investing strategy as an example.  Buffett success is talked about a lot, but rarely does anyone explain how he make so much money.  That was the fact until some researchers really stripped his operation bare.  They looked at everything and learned the deepest of Buffett’s wealth management secrets.  Fortunately they published all in a research paper at Yale University’s website. that reveals important truths about extending wealth.

This research shows that the stocks Buffett chooses are safe (with low beta and low volatility), cheap (value stocks with low price – to – book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios).

The second tactic is to maintain staying power.  At times Buffet’s portfolio has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.

keppler asset management chart

This chart based on a 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of outperformance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.  Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio the better the odds of outstanding success.

The Buffett strategy integrates time and value for safety and profit.

A third tactic is using limited leveraging, tactic in the strategy boosts profit.  Buffett leverages his portfolio at a ratio of approximately 1.6 to 1.   The Yale published research paper shows the leveraging methods used by Warren Buffett to amass his $50 billion fortune.  The researchers found that the returns from Buffett’s investment company, Berkshire Hathaway, far outweighed those achieved by any rival that has operated for 30 years or more.  The research shows that neither luck nor magic are involved.  Instead, the paper shows that Buffet’s success hinges on using leverage at the rate of 1.6.

To sum up the strategy, Buffet uses limited leverage to invest in large purchases of “cheap, safe, quality stocks”.   He limits leverage so he can hold on for very long periods of time, surviving rough periods where others might have been forced into a fire sale or a career shift.

Stated in another way buffet uses logic (buy good value) to have the conviction, wherewithal, and skill to invest with leverage over many decades.

What do we do when we are not Warren Buffett?

May I introduce the Purposeful Investing Course (Pi) for those who want to invest like Warren Buffet, but know they are not.  This course is based on my 50 (almost) years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.

Enjoy Extending Wealth

Pi’s mission is to make it easy for anyone to create a three point strategy, like Buffett’s even though they do not have a lot of time for or knowledge about investing.

Pi reveals investing secrets and the sciences that make investing easy, safer, less time consuming and increases the chances of profit.

One secret is to invest with a purpose beyond the cash.  One tactic as mentioned is staying power.  This means not being caught short and having to sell during a period of loss.  This also means having enough faith in a strategy that we stick to the plan.  When we invest with purpose, doing what we love, we enjoy the process more and are more likely to hold on during down times, when most poor investors panic and sell.

Slow, Worry Free, Good Value Investing

Stress, worry and fear are three of an investor’s worst enemies.  They create the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market sector they choose.  The behavior gap is created by natural human responses to fear.   Pi helps create profitable strategies that avoid losses from this gap.

Spanning the Behavior Gap

Behavior gaps are among the biggest reasons why so many investors fail.  Human evolution makes fear the second most powerful motivator.  (Greed is the third.)  Fear creates investment losses due to behavior gaps.  Fear motivates us more strongly than desire.  By nature investors are risk adverse.

Winning investors though embrace risk because they have a plan based on good value.

Purpose is the most powerful motivator,  stronger than fear and greed, so a strategy with purpose is the most powerful of all.

Combine your needs and capabilities with good value secrets and the math to back up your value selections through the Pifolio – The Pi Model Portfolio

Lessons from Pi are based on the creation and management of a Primary Pi Model Portfolio, called the Pifolio.  There are no secrets about this portfolio except that it ignores the stories (often created by someone with vested interests) and is based entirely on good math.

The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets using my (almost) 50 years of global experience and my study of the analysis of four mathematical investing geniuses (and friends).

The Pifolio analysis begins with a continual research of international major stock markets that compares their value based on:

#1:  Current book to price

#2: Cash flow to price

#3: Earnings to price

#4: Average dividend yield

#5: Return on equity

#6: Cash flow return.

#7: Market history

We follow this research of a brilliant mathematician and have tracked this analysis for over 20 years.    This is a complete and continual study of international major and emerging stock markets.

This analysis forms the basis of a Good Value Stock Market Strategy.   The analysis is rational, mathematical and does not worry about short term ups and downs.   This strategy is easy for anyone to follow and use.  Pi reveals the best value markets and provides contacts to managers and analysts and Country Index ETFs so almost anyone can create and follow their own strategy.

A country ETF provides diversification and cost efficiency by spreading one simple, even small investment into a basket of equities in a good value stock market.  The costs are low and this type of ETF is one of the hardest for institutions to cheat.  Expense ratios for most ETFs are lower than those of the average mutual fund.

Little knowledge, time, management or guesswork are required.  The investment is simply a diversified portfolio of good value indices.  Investments in an index are like investments in all the shares of a good value market.

Pi matches this mathematical certainty with my fifty years of experience. This opens insights to numerous long term cycles that most investors miss because they have not been investing long enough to see them.

For example in the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich.  Some of my readers made enough to retire.  Others picked up 50% currency gains.  Then the cycle ended.  Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview.  He said:  Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!

I did well then, but always thought, “I should have invested more!”  Now those circumstances have come together and I am investing in them again.

The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.

The two conditions are in place again!  There are currently ten good value (non US) developed markets,  plus 10 good value emerging markets.

Pi shows how to easily create a diversified, worry free portfolio in some of these good value markets using Country Index ETFs.

The current strength of the US dollar is a second remarkable similarity to 30 years ago.   The dollar rose along with Wall Street.  Profits came quickly over three years.  Then the dollar dropped like a stone, by 51%  in just two years.  A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.

This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago.  There is so much more to write and the trends are so clear that I have created a short, but powerful report “Three Currency Patterns For 50% Profits or More.”   This report shows how to earn an extra 50% from currency shifts with even small investments.  I kept the report short and simple, but included links to 153 pages of  Good Value Stock Market research and Asset Allocation Analysis.

The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000).  There is extra profit potential of at least 50% so the report is worth a lot.

This report sells for $29.95 but you’ll receive the report “Three Currency Patterns For 50% Profits or More” FREE when you subscribe to Pi.

Leverage

Pi also explains when leverage provides extra potential without undo risk.  For example in 1986 I issued a report called “The Silver Dip” that showed how to borrow 12,000 British pounds (at almost 1.6 to 1 dollars per pound the loan created US$18,600) and use the loan to buy 3835 ounces of silver at around US$4.85 an ounce.

Silver had crashed, I mean really crashed from $48 per ounce.  As prices decreased from early 1983 into 1986, total supply had fallen to 449.7 million ounces in 1986.  Mine production was restricted by the low prices at this time, with silver reaching a low for this period of $4.85 in May 1986.  Secondary recovery also was constricted by these low prices.

Then silver’s price skyrocketed to over $11 an ounce within a year.  The $18,600 loan was now worth $42,185.

The loan was in pounds and in May 1986 the dollar pound rate was 1.55 dollars per pound.  So the 12,000 pound loan purchased $18,600 of silver.  The pound then crashed to 1.40 dollars per silver.  The loan could be paid off for $13,285 immediately creating an extra $5,314 profit.  The profit grew to $47,499 in just a year.

Conditions for the silver dip have returned.  The availability of low cost loans and silver are at an all time low.  The price of silver has crashed from nearly $50 an ounce to below $14 as did shares of the iShares Silver ETF (SLV).

silver chart

(Click on chart from Google.com  (1) to enlarge.)   Imagine investing in a spike like this… with leverage!

At the same time the silver gold ratio hit 80, a strong sign to invest in precious metals.

I have updated a special report “Silver Dip 2016” about a leveraged silver speculation that can increase the returns in a safe portfolio by as much as eight times.  The purpose of the report is to share long term lessons gained through 30 years of speculating and investing in precious metals.  While working on the report, when the gold silver ratio slipped to 80 and the price of silver dropped below $14 an ounce, I knew I needed to share this immediately.

I released a new report “Silver Dip 2015” so readers were able to take advantage of these conditions and leverage 1.6 times as a speculation.  That report generated profits as high as 212% and a revised 2017 issue has been produced.

“The Silver Dip 2106”  sells for $39.95 but  you receive  “Silver Dip 2017” FREE when you subscribe to Pi.

Save

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $102 off the subscription.  Plus you receive the $29.95 report “Three Currency Patterns For 50% Profits or More” and the $39.95 report “The Silver Dip 2017 free.

Triple Guarantee

Enroll in Pi.   Get the first monthly issue of Pi, and the report “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2016” right away.

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free purposeful investing.

If you are not totally happy, simply let me know.

#2:  I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.

#3:  I guarantee you can keep “Three Currency Patterns For 50% Profits or More” and “The Silver Dip 2106” report as my thanks for trying.

You have nothing to lose except the fear.   You have the ultimate form of financial security to gain.

Subscribe to the Pi for $197.   You Save $158.95.

Gary

 

 

 

(1) https://atlas.media.mit.edu/en/profile/country/che/

(2) http://www.xe.com/currencycharts/?from=EUR&to=CHF&view=5Y

(3) http://www.xe.com/currencycharts/?from=USD&to=CHF&view=5Y


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