SWISS CURRENCY

A client asked if the situation with the Swiss currency has an effect on our investment strategy. Below is our response.

 

 

Quick answer to your question; It won’t affect my strategy at all.  Currency risk is always a problem and it most directly affects companies that do business in the specific countries involved.

The fact that it happened the way it did upsets the markets which are already on edge because of weak growth around the world. The volatility actually helps our covered call strategy by drawing speculators in to bet on higher prices.

 

The best way to explain it is to think what it would be like if every state in the U. S. had a different valuation for its’ dollar.  Say a dollar in Colorado was worth twice a dollar in Utah.  This would make goods from Utah very cheap for us but Colorado goods very expense for Utah.  It would be the job of the Central bank in each state to try to keep values as level as possible to ease trade among the States.  This is essentially the reason for the formulation of the European Economic community and the establishment of the Euro as a common currency.

 

Now, imagine If Colorado decided to raise the value of its currency overnight by 10 times.  It would cause extreme disruption to trades already in process as prices would have to be recalculated.  If Utah was already worried about the value of their currency vis a vis Colorado, this would be a real shock.

 

That’s what’s going on.

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