Swiss Franc: Still A Safe Haven?

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Re: Swiss Franc: Still A Safe Haven?

Renewable,

I hope for many people's sake it is not true - but everything happening now has the earmarks of a UK style devaluation.

The UK had a property and financial services bubble; Switzerland's will likely turn out to be an Eastern European lending and offshore banking bubble.

The switch on privacy policies bodes poorly not just for EU and US citizen's accounts; the African dictator and drug lord money is also likely uneasy.

If one or more $trillion of offshore banking money (out of the estimated $7t) leaves Switzerland for whatever reason, that can't be good.

I don't think that Switzerland can be as bad as the UK for a number of reasons:
- Nobody can have made more of a mess of a (reasonably sized) economy than Gordon Brown
- My guess is that the EU will largely bail out Eastern Europe
- It doesn't seem certain that all the CHF loans will end up the liability of Swiss commercial banks
- No major Swiss Real Estate bubble
- Where will the money go? The tax evasion reforms were announced fairly simultaneously by: Switzerland, Austria, Luxembourg, Andorra and Liechenstein. Cayman, Bermuda, IOM, Monaco, Singapore & Hong Kong are moving in the same direction - Guernsey & Jersey weren't as opaque as the others in the first place

As an anecdote, I was talking to someone who sells Aluminium across Switzerland - he was shocked at the industrial slowdown across the country, factories empty, etc.

The crash will hit CH like everywhere else, but i'd be astonished if it is a bad as the UK. My CHF exposure is now minimal, but I can't see GBPCHF going back to 2.4 anytime soon.

[GRG55]

Re: Swiss Franc: Still A Safe Haven?

...As an anecdote, I was talking to someone who sells Aluminium across Switzerland - he was shocked at the industrial slowdown across the country, factories empty, etc...

And this is the reason the SNB is working to devalue the Franc...against the Euro. Switzerland simply cannot afford to allow its currency to get too far out of line with the currrency of its biggest market and its biggest competitor.

The idea that the Swiss are trying to devalue against Eastern European currencies is ridiculous. They could never keep up with those multiple train wrecks, and I think we can be quite certain they know it.

[c1ue]

Re: Swiss Franc: Still A Safe Haven?

- Nobody can have made more of a mess of a (reasonably sized) economy than Gordon Brown

No debate there. But being 2nd or 3rd in a race to the bottom should not be construed as not going down.

- My guess is that the EU will largely bail out Eastern Europe

I'm not so sanguine about Eastern Europe being bailed out.

For one thing, there are multiple fires out there and Eastern Europe isn't even close to the most vital. Bailing out actual EU members is likely much more important.

- It doesn't seem certain that all the CHF loans will end up the liability of Swiss commercial banks

CHF liabilities not being all the responsibility of Swiss Francs isn't the whole issue. The other part is Switzerland has enjoyed the benefit of this extra float. Even if the CHF loans are somehow restricted, the benefit of this float is going away. And I greatly question how any foreign bank can get CHF without a government or Swiss bank counterparty. Is either possibility comforting? Also the government is sure acting like there is a big fire.

- No major Swiss Real Estate bubble

See the race to the bottom analogy. Bubble or not is a function of income vs. cost - I haven't explored that but it would be interesting to understand if average Swiss property value is under the traditional 3xincome limit.

- Where will the money go? The tax evasion reforms were announced fairly simultaneously by: Switzerland, Austria, Luxembourg, Andorra and Liechenstein. Cayman, Bermuda, IOM, Monaco, Singapore & Hong Kong are moving in the same direction - Guernsey & Jersey weren't as opaque as the others in the first place

In the old days there was the bank of Sealy, the bank of Oak Tree Root, the bank of Home Safe, and the bank of dear departed Uncle Bennie's offshore estate in the Caribbean.

No doubt these banks will come back to fashion again.

The cost of banking in Switzerland is quite high; the lack of benefit in doing so means at a minimum that moving money back home is more convenient.

[GRG55]

Re: Swiss Franc: Still A Safe Haven?

...See the race to the bottom analogy. Bubble or not is a function of income vs. cost - I haven't explored that but it would be interesting to understand if average Swiss property value is under the traditional 3xincome limit...

I think you will find there is large variation among the cantons. Not only is Switzerland a haven to hide money, but some parts of it are also havens for tax refugees. For example in Zug one can generally maintain a residence, have your kids in school, etc. but shelter most of your offshore income from tax. Not so in nearby Zurich. I suspect the home prices reflect that difference, just as the home prices in places like Jersey in the Channel Islands or Monaco reflect it.

[renewable]

Re: Swiss Franc: Still A Safe Haven?

Bit of an update. Swiss RE one of the few countries in the world that has not fallen in value (I guess bankers fleeing regulation helps), only outperformed by Israel: http://www.knightfrank.com/news/Knig...-2009-049.aspx


Over 2 years, the CHF relationship wrt banking has been clear to see against the USD. It will be interesting to see what effect further banking problems may have, should they happen:



The SNB has managed to cap rises against the Euro:

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Re: Swiss Franc: Still A Safe Haven?

The SNB are printing CHF like mad to buy more Euros:

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Re: Swiss Franc: Still A Safe Haven?

Contrasting views within this Ambrose Evans-Pritchard article. Will CHF strength continue?

Swiss endure safe-haven agony from euro flight

http://www.telegraph.co.uk/finance/c...ro-flight.html

Switzerland is fighting a losing battle to stop massive inflows of funds from investors fleeing sovereign risk in the euro area and the rest of the world, raising the risk of a violent spike in Swiss franc if global debt jitters return.

"If we have a US slowdown with a fresh financial crisis, everybody is going to want to buy the Swiss franc, along with bottled water, tins hats, and a shotgun," said David Bloom, currency chief at HSBC. "Now that Japan’s debt is around 200pc of GDP the franc has displaced the yen as the ultimate safe haven."

"Without intervention by the SNB, the franc might be on its way to parity against the euro," said Jürgen Büscher, founder of Büscher Private Asset Management in Zurich.

"What’s causing all the trouble is a `carry trade’ unwind by real estate companies and people in Eastern Europe who borrowed in francs to buy houses. They are in effect being bailed out at the cost of the Swiss taxpayer. In the end I think the euro will recover and the SNB will get out of this without a loss," he said.

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Re: Swiss Franc: Still A Safe Haven?

I'm thinking that the answer to my question was 'Yes'.

http://www.ibtimes.com/articles/1369...llar-index.htm

The US dollar tumbled to a new all-time low against the Swiss franc on Thursday, as the greenback was dragged down across the board, on concerns over US debt.

USD/CHF hit a fresh all-time low of 0.8810 during European trading, before consolidating at 0.8823, dropping 0.65 percent.

S&P on Monday cut its outlook on the US from ‘stable’ to ‘negative’ citing nation’s very large budget deficit and rising indebtedness.