The FBD Blog – investments, insurance, pensions, savings in Ireland

Since Lehman Brothers failed in September 2008, the Swiss franc was seen as a safe haven currency. It has experienced a parabolic rise as financial instability beset many of its neighbours as well as the US. Recently the Swiss National Bank announced measures to decrease the value of Swiss franc by pegging it to the Euro. The SNB did this in response to worries that the ever-strengthening currency would jeopardize the country’s export-based economy. This had the effect of decreasing the Swiss francs value by 8% and there was massive volatility on the currency markets.

The SNB’s move was widely viewed as positive for another “safe haven” – gold. It’s thought the metal will gain even more popularity as a safe-haven investment of choice. Gold possesses the added advantage of independent movement, particularly important when most other market assets are moving in the same direction, a trend known as correlation. Indeed, as the threat looms of a global competitive devaluation—where central banks continue to debase currencies in an attempt to gain a leg up in the world trade markets—thus making gold even more valuable as an inflation hedge. Worries over global recession and the debt crises in peripheralEurope have only enhanced gold’s attraction.

In a recent interview, famous investment expert and author Marc Faber expressed the following views  “ one more currency that was perceived to be a safe haven, is no longer a safe currency because it’s pegged to a relatively weak currency, the euro.  Therefore I think investors will increasingly ask themselves, ‘If I want to hold cash and I have US dollars, they are not very desirable because of the money printer Bernanke.’  The euro, not very desirable because they will overprint money and they will probably issue euro bonds at some point and monetize them “Then they look at the pound sterling and so forth, in terms of paper currencies there is nothing really very desirable.  Then people will ask themselves, ‘How can I park some cash in something that will maintain its value over a long period of time?’  Then they will look at gold and silver.”

When asked what investors should do in the current environment he said  “simply –  you have to be diversified. You know if you look at the last two to three years, if you owned some equities around the world, if you owned some property, if you owned some gold and if you owned some cash, you didn’t do all that badly.  But recently stocks have been down and gold has been up, so I think gold is a good hedge against financial assets.”

Sound advice in my view!

Too see the full article with Marc Faber click the link below

http://www.kingworldnews.com/kingworldnews/Broadcast/Broadcast.html

Please email me on steve.garavan@fbdlife.ie. if you would like any further information on investment matters.

-Steve Garavan

Fear and Greed in uncertain times

In simpler times, depositors were only concerned with getting the best deposit rate. People motivated by Fear stuck with deposits while those seeking an additional return (is it fair to call this Greed?) invested.

Every day, we now hear from clients who have perfectly understandable fears about what was once the safest asset – money in the bank. So, what should you do? The answer, of course, is that it depends! It depends on your outlook and attitude and addressing some of the key questions below will help you establish yours:

1. Are you aware of the different Deposit Guarantee Schemes and the differences between them? If not, you should educate yourself before making any further decision. 
2. Are you confident about the future? 
3. What is your feeling on the possibility of Euro breaking up?  
4. How important is rock-solid security to you? Is it less important than getting a return?

At this point, you can address the issues. Having read extensively in this area – and the commentary ranges from the balanced to the hysterical – here are some personal observations and opinions which might be of interest:  

• The greater balance of probability suggests that the Euro area will muddle through, probably from crisis to crisis, but that the Euro will survive.
• The Deposit Guarantee Scheme is of great benefit; even the gloomiest forecasters are comfortable with the €100,000 limit per head.
• If you have money in An Post, are you aware of the status of the State Guarantee? You should be….
• Perhaps we should all consider having Gold or Precious Metals in our Portfolios?
• If you are really nervous, and willing to accept a puny return, German Government Bonds represent a safe bet without the dangers associated with currency changes.
• Moving to a non-Euro currency is very risky if you have to live here and pay your bills here. Here are some current monthly volatility levels which demonstrate that you can easily lose money by dappling in currencies:

Euro Swiss        16%                                                  Euro Sterling       9%                                                Euro Aussie      11%                                                  Euro Dollar        13%

To highlight the risks of investing overseas the attached article is worth a read. When switching between currencies there are many, many variables and therefore additional risks to be considered.

http://on.ft.com/swissfrancFT

If you would like to discuss any of these matters, please email me on ian.cooke@fbdlife.ie and I would be happy to help if I can.

 -Ian Cooke