Swiss Francs, Anyone? (Or, how is the US dollar doing?)

from Christine Harvey

HOW IS THE US DOLLAR DOING – AND WHAT CAN YOU DO ABOUT IT?

I spent the better part of two mornings this week working at turning an IRA into a Swiss Franc account. And why would I do that anyway, you might ask? The interest rate on a Swiss Acct is horrendously low, like 1.18% after fees. The Euro has 3 or 4 time better interest – you can get a whopping 4.2% interest.

But let’s stop the focus on this interest nonsense. Who cares about 2 or 3 % interest difference when we can make huge returns on real estate investments, and businesses.

Why am I looking at Swiss Francs anyway? The answer is simple.

I’m REALLY concerned about the US dollar. The Chinese are threatening to undermine it, the French stopped trading in 3 funds today because of their concern over the US mortgage market, and on and on. Just look around you. We have a war to pay for, and the way the government usually does that is to print money. With more money in circulation, your dollars are worth less and less.

When I called the brokers this week to move into Swiss Francs, they all tried to talk me into other currencies – ‘you’ll get higher interest’ they said. But my objective was not interest, it was the preservation of my capital.

And why Swiss and why not Euros, you might ask? Well actually Euros are my close second choice. It’s a gamble. But I look at it this way. The old money believes in Switzerland and Swiss Banks, and the Swiss Franc. If things get really rocky internationally, the old money will go back to the safest haven they can find – the Swiss connection. And I heard recently that the Swiss Franc is still backed by metals. If that’s true, that’s vital when the chips are down.

The Euro on the other hand has the advantage of being in line for the currency of choice, if the dollar is undermined - which could be the most traumatic economic shift of our lifetime. The Euro has big pull due to the European Union and the huge number of countries it represents. I don’t personally have faith in their stability in the long, long haul because of the interdependence they face. If one country falters, the others have to prop it up, and eventually the whole deck of cards could fall. But for the short haul they are doing pretty well. (In fact when I changed money in Rwanda 2 weeks ago, it had to go to Euros first then Rwandan Francs, and the exchange rate between the dollar and the Euro was 1.38. That’s a pretty amazing rise, when you consider it was 1 to one when the Euro was launched a few years ago.)

Well, that’s all from me for the moment, now I’m going to turn you over to our personal US Bond Advisor, Tom Harvey. I don’t know anyone who knows the bond market better than Tom, and by studying the bond market, you have a window into every aspect of the economy. So I’ve asked him to do a summary of activity, and here it is…

Market Summary, by US Bond Guru, Tom Harvey from EconomyGuy.com

Today was one of those days that should be remembered in the future. The DOW went down 387 points due to lack of confidence in the sub-prime mortgage market.

The trigger was the French Bank BNP Paribas stopping trading in 3 funds that invested in US sub-prime mortgage because the market value of the funds could not be determined. The European Community Bank added $130B to bank overnight trading to calm the market, but this had just the opposite effect. (You can tell that these central bankers are working in uncharted waters.) The US Fed added a greater than normal $24B in overnight funds.

Now that’s what I call inflation.

The US Bond market jumped up, and became a haven of security in these turbulent times. (Don’t worry, investors will forget about today around 8AM tomorrow.) The 10 year bond interest rate fell .07%, but this was only half of what it lost the last few days.

The currency market was interesting. The US Dollar strengthened slightly as people thought the US was a haven for security. (This attitude will change sometime in the future when foreigners realize that the US Dollar is not a haven for security, but just the opposite.)

Here’s the closing details:
DJ30 – 13,270 (down 2.83%)
10 year US Treasury Bond – 4.79%
US Dollar - $1.3661/Euro. About 2 cents off the record high.