Saturday, January 17, 2015

How Will the Swiss Francs Change Impact You ?


       The Swiss have long had a sensible yet alternative view of life and their place in the world.  They take mandatory military service seriously, and in a continent in which almost no one else values guns, they train all their able bodied citizens who keep those weapons for national defense after their service is over.  Swiss disaster preparedness is legendary.

                    Financial security is also a part of preparedness.  In September, 2011, the Swiss who have retained the use of their own franc, pegged its value to the euro.  This means that they fixed its value at 1.2 francs per one euro.  This was supposed to result in some measure of stability for both currencies, which of course is important because it stabilizes trade, markets, and eventually jobs.
                     In the past few years, without going off on a verbose tangent, as is so often my inclination, the euro has had some difficulties.  A number of European nations have suffered financial instability and have required assistance and buy outs of their problems. This has caused fluctuations and concerns for euro stability.  
                    The Swiss are great bankers, and yesterday they announced that they were going to "unhook" the Swiss franc from the euro because longer term linkage to it would be unsustainable. This was quite a surprise. The first result is that the franc surged to being worth 30% more than it had been.   This is going to have some negative effects in the marketplace even worldwide.   For the Swiss, their goods are going to become more expensive for other nations. This will decrease exports and it may cost them jobs, even though they may be more secure in the long term.  For everyone else, Swiss watches, chocolates, technology and anything else are going to become more expensive. Any Swiss francs you are holding are likely to become worth more. The euro may fall as a result of this change.

                     Some of the results of this change cannot be foreseen. There will be unexpected market volatility.   Already, a brokerage house in New Zealand announced this morning that it was going out of business, the result of losing "all of its assets" as a result of this currency change.   With the price of oil descending, jobs being lost, Russian financial losses, and other signs of world economic instability, there is no way to fully assess the unintended consequences of the Swiss move.  We can expect market volatility across the board for some time.

                     If you read this and think you will remain untouched, let me remind you that there are a number of drug companies in Switzerland.  Some of the drugs they make are not made by any other companies in the world. Some of the research they do is not being duplicated anywhere else.  For some, an increase in the price of Swiss goods will be a problem and it may not be felt for some time.

                      My conclusion is that you should continue to save a cash cushion in your own currency.  We are all connected to one another financially in both ways which benefit us, and ways which make us all vulnerable.  You should consider amassing some gold or silver if this is possible for you.  You should stockpile long term food for interruptions in supply or for periods of inflation. You should assemble an excellent first aid kit and you should address any known medical or dental issues in advance of an emergency.  You should take reasonable measured steps to prepare for reasonable emergencies and disasters in your region.  The financially uncertain ride for most of us will continue for some time.