Austria FinMin says expects Swiss franc to weaken in longer term | Business News

Austria FinMin says expects Swiss franc to weaken in longer term

25 Jan 2015 | Author: | No comments yet »

Stock Market Volatility And What Its Return Means For The Global Financial System.

They are well known as a very low crime society where nearly everyone has a gun (maybe this is why crime is low?) but their greatest claim to fame has been their “neutrality.” They did not participate in either World War I or WWII. Recent international developments have created extremely favorable conditions for the U.S. dollar’s value while many other countries face challenging economic conditions. Multiple factors have a direct effect on the fluctuating value of global currencies, including things like wars, bank crises, political instability, deficits, unemployment, civil unrest and natural disasters. In today’s piece on volatility, we will measure recent stock market volatility and discuss what the return of volatility to the global financial system may mean.

It is a complex system, but it has simple effects: Americans will find that the dollar’s increased value means a Rome vacation is cheaper, flat screen TVs made in Asia will drop in price, and gas at the pump … well, an oil supply glut and a higher valued dollar could soon lead to a two-buck gallon of gas. It is also highly likely Switzerland still has untold tons of gold in their vaults from the Nazi Germany regime, which was stolen from overrun people and even nations. With the above in mind, the Swiss National Bank as you know were very big “supporters” if you will of the European paper currency unit, amassing nearly 600 billion euros on their balance sheet. Expected corporate earnings, interest rates, monetary flows, political events and liquidity within the banking system all have the power to roil the markets.

A sizeable and resilient country like the United States that can develop, organize and access the power of its people, industry and natural resources is powerful and provides underlying value for its currency. While the dollar is regarded as the world’s reserve currency in good times and bad, when times get really tough globally, capital always flocks to stable currencies, safe havens and secure countries – even if these countries are tiny. Last week, the Swiss franc momentarily spiked in value by 41 percent against the Euro because the Swiss central bank actively bet against the Europeans.

This action invited capital flight to the franc from legitimate investors seeking security as well as “crooks, tax dodgers and dictators,” as The Economist magazine once summarized a notable class of Swiss clients. When measured by the frequency of “100” point days, the DJIA’s price volatility has more than doubled between Q2 2014 and the last three and a half months. Perhaps the most stunning piece of detailed data is that the index rose/fell by at least 100 points during 70 percent of the trading days last October and in 73 percent of the trading days so far in January. In Greece, a potential victory in today’s election for the Radical Left and its untested leader, Alexis Tsipras, is roiling markets with fears that Athens will exit the Euro. That does not make life easier for every American or business, but when looking at the rest of the world, the best way to judge a country’s success is by its relative power, the stability of its society and system, and the external strategic threats it faces.

The financial world is facing all of the above risks and U.S. stock values are roughly one standard deviation above their long-term (50-year) normal valuation bands. As President Barack Obama said in his speech before Congress, “The shadow of crisis has passed, and the State of the Union is strong.” The dollar, too. Countries that do well offer citizens security, individual liberty, property rights, equal legal protections, sound fiscal and monetary policies, intellectual freedom, growth and hope. If America actively supports equality of opportunity, keeps strategic competitors at bay and continues to practice innovation, investment and international caution, then the U.S. and the dollar can stay in its supreme position globally – even when the size of China’s economy soon surpasses America’s. This coming week, investors will be concerned about the upcoming election in Greece – the results of which may determine whether Greece will stay in the Euro/EC or flee the common currency.

It is highly possible we may experience a 10 – 20 percent price decline in U.S. stocks during 2015 although we don’t currently see a cyclical “bear” market (more than 20 percent decline) unfolding within the U.S. stock market at this stage. It is not intended to be personal legal or investment advice or a solicitation to buy or sell any security or engage in a particular investment strategy.

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