About the Swiss franc situation vs. the U.S. dollar: I agree that, if the U.S. resolves its fiscal situation, the dollar will retain its position as the reserve currency. I agree that the U.S. debt resolution is the real question. I don't think the U.S. will resolve its fiscal situation. It can't. Its not politically possible. Both political parties are unwilling to make any real cuts to solve the problem, which is not a few billion in this or that program, but hundreds of billions in Medicare, Medicaid, Social Security, and defense spending. The real issues have yet to be addressed.
I've been watching this closely. The Republicans are trying to appease their base by cutting small programs everywhere; they offered a bill to cut spending $40 billion this year. The Democrats are rejecting it, and counter-offered with a $4 billion spending cut for this year. The government is running a $1.4 trillion deficit for the year. Both bills are non-starters: The Republicans' for being too drastic, and the Democrats' for being too pointless.
Actually, both bills are pointless. $1.4 trillion is the deficit the government is running for the year 2011. The debt to GDP (per year) is at 100%, but the issue is, no one is trying to balance the budget going forward. Next year, the budget could run another $1 trillion over, making the entire deficit $15.2 trillion, which would be now greater than 100% debt to GDP -- more like 107%.
Here's the real problem that no one is daring to say out loud: That $14.2 trillion of current debt does not include Social Security or Medicare/Medicaid, which is estimated to be $40-50 trillion or higher.
So what's the "solution" here? Keep issuing more treasury bonds to keep running the deficit.
When the investing public (foreigners, institutions, sovereigns) starts to not buy U.S. Treasuries because of concern of dollar devaluation, and interest rates skyrocket on U.S. Treasuries, then the U.S. has to cut under very bad and forced conditions (very ugly austerity), or, again, engage in monetization of the debt (money printing) by the central bank. This day is becoming closer and closer.
If the monetization of the debt happens, that is a default. When people understand this, interest rates will go sky high, as investors will demand more interest to compensate for dollar devaluation. It appears at the moment that all paths lead to higher interest rates, which also adds to the deficit as it becomes more expensive to service that debt.
The Swiss franc should be strong; the entire country is built on attracting foreign deposits. When a country's core business is basically other people's money, the country will be controlled by foreign exchange. The dollar will not strengthen in any meaningful way unless Washington politicians (1.) balance the budget first, and (2.) start paying down the debt. If #1 doesn't happen, #2 has no chance. The Swiss franc is an island of safety as the euro has its own structural issues.
The dollar has gained a little strength, after an earthquake, a tsunami, and a potential nuclear catastrophe. It took three exogenous, act-of-God-styled events of epic proportions for the dollar to gain any strength whatsoever. That says that, under even very disruptive geopolitical conditions that affect economies (like the civil war in Libya and the rest of the Middle East, and European debt crisis), the dollar is not gaining any strength.
Last year, after the euro debt crisis, people ran to the dollar out of fear, but that behavior is showing itself less and less. People are not running to the dollar "just because" anymore. That is itself significant.
I think long FXF long-term is a winner.
I'm thinking of going long the JOF right now. Because of the crisis, Japan might look interesting on a valuation basis coming out of all of this, but it's a "hero" trade, so it could be very volatile for the next week, and may not be worth the stress.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in JOF over the next 72 hours.