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Everyone wants out of the Euro except Swiss exporters. What choice does
the SNB have?
ULTRA-CHEAP MONEY has caused a whole heap of mischief to date. But
really, this is getting silly...
"Switzerland
may be better off adopting the Euro as the Franc's appreciation hurts
exports," reports Bloomberg from Basel.
"It's
a nightmare for everybody," says Thierry Stern, chairman of luxury
watchmaker (and glossy-magazine benefactors) Patek Phillipe.
"We
have to adapt. Something will come. I don't know when, but one day it will
happen."
Industrialists
are always in favor of devaluation, of course. Who do you think approved and
drove Germany's Weimar inflation in the early 1920s? And with export sales accounting
for one half of Swiss GDP - pretty much the same proportion as Germany enjoys
- the thought of abandoning the Franc shouldn't really shock your local
bar-room economist. The get-ahead Euro sure helped Germany extend its
competitive edge inside the currency union. No wonder the idea's fast gaining
ground, as Bloomberg reports.
The
Franc is so "strong" right now, Swiss exports recovered barely 7.1%
year-on-year at last reading. "In Germany, sales abroad jumped 15% in
the same period," the newswire explains, pointing its finger squarely at
the "safe haven" Franc. Rising by one-tenth vs. the Euro since
March 2010, it's not even slipped against gold so far in 2011...! And what
good's a currency that doesn't lose value?
Time
was, as our chart shows, that the Euro itself was "as good as
gold". Butting up against €10,500 per kilo for the first 5 years
of the single currency's new century, gold didn't break out until mid-2005.
And
see how gold's correlation with the Euro - the extent to which it moved in
the same direction as the single currency, versus the Dollar, on a rolling
1-month basis - was pretty high throughout? It regularly peaked just shy of a
perfect 1.0. Meaning that gold and the Euro very nearly moved exactly
together. Only once did that correlation drop below minus 0.4, as gold and
the Euro briefly moved in opposite directions.
Now
compare and contrast with that middle period, when gold and the Euro moved
together more often still against the Dollar...but gold consistently
out-stripped the single currency's gains, delivering sizeable returns to
French, German and Italian owners. Since the start of 2009, in contrast, and
especially since the start of 2010, the Euro and gold have spent a good deal
of time going their own separate ways - mostly gold up, Euro down as it
happens - taking the metal to new all-time highs for European holders.
History
buffs may well recall that gold's current Dollar bull market - long-lived but
far from steep enough to be called a "bubble" just yet - began just
after the Euro was launched, right around the time the Swiss public voted to
remove the Franc's famous gold-backing. Just as the gold
sales which followed failed to knock the gold price lower (indeed, gold then
turned higher after a 20-year bear market), so the loss of gold backing has
so far failed to debt the Franc's safe haven appeal. So too has the Swiss
National Bank embracing inflation, slashing its base rate to
zero, and actively creating new Francs solely to dump them into the forex
market in a bid to depress their value.
Seems
you can't keep a "safe haven" down, in short. Not when retained
wealth worldwide needs to escape active devaluation from money-printing and
zero rates at home. What options are still open to the SNB besides killing
the Franc entirely?
"I
don't see any chance that the flow of money into Switzerland will
change," says a New York money manager quoted by BusinessWeek.
"People just want to get the heck out of the Euro." People except
Swiss exporters that is.
Anyone
caught in the middle might want to consider buying
gold instead.
Adrian Ash
Head of
Research
Bullionvault.com
You can also Receive your first gram of Gold free by opening an
account with Bullion Vault : Click here.
City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment gold,
vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
Please Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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