The euro has established itself slowly but surely just below the 1.10 mark against the Swiss franc. As a result it has become more predictable for exporters, while for the SNB – no longer the subject for market intervention.
The US Dollar has been fluctuating moderately against the Swiss franc within trading range of 0.96 to 0.985 in an almost exemplary manner. For currency speculators it is a godsend because it appears as easy as in theory: buy low, sell high. When buying at 0.96, even with a possible drop below this mark, the US dollar shall eventually appreciate in the long run.
The upward trend of the Brazilian currency – the Real – has been halted for the time being. Despite the expected dismissal of the former President, Dilma Rousseff, the country of Sugarloaf Mountain does not seem to be coming politically to rest. Rousseff’s predecessor, Lula da Silva, is likely to be brought before the court, whereby both have been accused of money laundering and corruption. Following the massive appreciation of the real, it is advisable to keep initially to the sidelines.
Negative interest rates seem to have well established themselves by now and one or another pension fund is looking for alternatives to the penalty interest of 0.75 percent passed-on by banks. Today we already observe local communities in Switzerland obtaining loans from pension funds or insurance companies charging positive interest. For institutional investors it is one way they can limit the damage inflicted upon them by the banks charging penalty interest on their cash holdings.
In spite of the fact that interest rates could remain low over an extended period of time, the bond market continues being flooded with new issues. The borrowers, exploiting investors’ predicament, keep offering bonds on almost insolent terms. Meanwhile the Swiss National Bank is attempting to sugarcoat the situation. The negative nominal interest rate of 0.75 percent would yield a positive real return as long as the inflation rate exceeds this penalty rate. Even if this should be true in theory, the disruption of the land, housing, and other real assets prices takes its toll. Pension funds and insurance companies resolve their dilemma while investing ever higher portion of their funds in tangible assets. As a consequence they drive up prices and crowd out private investors, notably, home-builders. – Written by Ralph Weidenmann
Last but not least:
Castles in the sky are not real – their ruins are.
Wolfgang Mocker (1954 – 2009), German journalist and writer
Your Wealth at a Glance.