The poor folks over at the Swiss National Bank have a unique problem right now. They're trying desperately to keep their franc from being severely appreciated compared to other currencies, particularly the euro. As the euro becomes riskier, the Swiss franc look better and better for investors looking for a safe haven.
Last year, in September, Switzerland completely surprised investors - myself included - by linking the Franc to the Euro, causing the franc to drop about 10% almost instantly. The reasoning was pretty simple. You don't want to see money explode in value or collapse in value - both generally have grave economic consequences. For Switzerland right now, that problem is the explosion in relative value to other currencies. Here are a few reasons the Swiss don't want this to keep happening:
Deflation means people start hoarding instead of spending. Now don't get me wrong, hoarding can be awesome and everyone should do it to some extent. But it's also a pretty big economic deal, and a sudden explosion in hoarding means plenty of businesses are going to start struggling that wouldn't otherwise struggle. It's recessionary to an extent. It might be necessary, but that's not generally something the economic masters of the universe like to hear - they want "steady" and "sustainable" growth every year, and of course they get to define what that is.
Deflation means real wages skyrocket. This means employees are getting paid more, and it's hard to cut someone's pay to keep up with deflation. This, again, hurts firms and also undermines business investment opportunity. There are plenty of other impacts such as the slowing of credit, the possibility of deflation getting more out of hand, the impact to exports/imports, etc.
Having a steady, stable money is better than having radically appreciating money. The scary thing is that there are now plenty of rumors that Switzerland might do what would have been unthinkable just a few years ago - introduce capital controls to make it more difficult for the franc to increase in value.
If this was 2005, 2010 or just a couple of years ago, I'd be gung-ho about the Swiss franc, but right now there are just too many scary variables - a government/bank that's seriously looking to take the franc down a peg or two. Heck, just a year ago I was writing songs of praise about the franc, and was taken aback by the euro peg. That's just too much risk for a safe haven.
A mixture of the following would be better: gold like GLD (only mixed with other assets, of course), treasuries like SHY or TLT, TIPs like TIP, or the permanent portfolio like PRPFX/PERM. The obvious ETFs to stay away from would be FXF and any similar franc holding funds.
I've written about this in the past and will write more in the future. The franc is one of my favorite currencies, so it's a shame that the government's volatility is making it a possible sour bet.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I own physical gold, silver, and dollars, and will be adding to my position in gold and silver in the following weeks.