Yesterday evening I was fortunate to be amongst a select few who had the privilege to be invited to hear the investment advice of the chief strategist of a major Swiss bank. (I should mention at the outset that the vast majority of the audience\u2019s reference currency is the Swiss franc.)<\/p>\n
The speaker was clearly an erudite man and his delivery was flawless. The underlying theme of his speech was divergence in today’s economy: in interest rates, in GDP, in unemployment, in central banks\u2019 strategies, and so forth. Render unto Caesar, his presentation was concise, well-researched and extremely persuasive.<\/p>\n
The conclusion of his argument was the bank\u2019s investment strategy. In a nutshell, Swiss and European equities present few opportunites. On the other hand, the USA appears to have left recession and is showing strong growth perspectives, which he estimated at around 6%. The bank\u2019s strategy is thus to move their clients\u2019 assets to Swiss and European gilt of the highest quality for portfolio protection and to US blue-chips for revenue.<\/p>\n
When questioned on the Swiss National Bank\u2019s strategy of locking the Swiss franc to a floor of 1.20 CHF\/EUR, he was of the opinion that the\u00a0floor\u00a0to the Euro would be replaced by a floor against a basket of currencies, probably EUR\/USD\/JPY, sometime in 2015.<\/p>\n
Were I to have followed his advice, this morning, first thing, I would have moved my investments into US blue-chips, the stocks that participate in the Dow-Jones Index: American Express, Boeing, Caterpillar, etc. in the hope of a return of some 6% instead of the measly percent or two that I get on Swiss franc holdings.<\/p>\n
With the most tragic timing for our strategist, some 14 hours later the Swiss National Bank announced that it had abandoned the 1.20 floor. The effect was instantaneous: the EUR and the USD crashed against the CHF, settling at day-end to ~0.86CHF\/USD and CHF\/EUR\u00a0at a similar rate.<\/p>\n
Had I bought those American shares some hours previously, I would have taken a 15% hit on my portfolio in so-many hours; even if the strategist\u2019s predictions come true, I\u2019ll have to wait two and a half years before breaking even.<\/p>\n
There are several lessons to be learned from this story:<\/p>\n
The take-away from all this is that in today\u2019s liquid markets there is no free lunch. If your ambition is to receive the rate of inflation plus a whisker on your investments, there\u2019s a strong likelihood that you\u2019ll get it. If your ambition is get 6%, be prepared to lose 15% momentarily when things go tits-up.<\/p>\n
P.S. For those whose mother-tongue is not English, the title is a pun<\/p>\n","protected":false},"excerpt":{"rendered":"
Yesterday evening I was fortunate to be amongst a select few who had the privilege to be invited to hear the investment advice of the chief strategist of a major Swiss bank. (I should mention at the outset that the […]<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[51,58,21],"class_list":["post-792","post","type-post","status-publish","format-standard","hentry","category-finance","tag-banking","tag-fools","tag-forex","category-3-id","post-seq-1","post-parity-odd","meta-position-corners","fix"],"_links":{"self":[{"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/posts\/792","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/comments?post=792"}],"version-history":[{"count":9,"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/posts\/792\/revisions"}],"predecessor-version":[{"id":816,"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/posts\/792\/revisions\/816"}],"wp:attachment":[{"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/media?parent=792"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/categories?post=792"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.calvert.ch\/maurice\/wp-json\/wp\/v2\/tags?post=792"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}