The Swiss Franc Is Almost as Good as Gold

In Europe, the hardest paper money -- this is beginning to sound like an oxymoron -- has to be the Swiss franc.

Switzerland, known for its banking prowess, has long been a safe haven for European investors' assets. As I type this, the Swiss franc hit yet another all-time high against the euro, at almost 73.3 euro cents. Simply put, capital is fleeing the rest of Europe for Switzerland -- which is good news for Swiss assets.

The Swiss franc's move is based in history
With 7.6 million citizens, Switzerland is a small country, but its population is highly educated, and many are employed in financial services. While Swiss bank secrecy laws have been weakened by U.S. pressure on UBS clients (NYSE: UBS  ) and others, European investors are far better off in Switzerland than they are in Athens. The picture's very clear: The yield on 10-year Greek bonds is approaching (again) 10%, while the yield on Swiss confederation 10-year bonds is drifting lower, currently at 1.63%. If the mess in the Eurozone is not resolved soon, this buying pressure on the Swiss franc and Swiss bonds will continue.

The Swiss franc, which U.S. investors can easily access via the Currency Shares Swiss Franc Trust (NYSE: FXF  ) , is actually down against the U.S. dollar of late. But if news surfaces that the strong countries in the Eurozone are considering abandoning the weaker ones -- which would de facto disintegrate the euro -- the Swiss franc rally will be violent. The GDP of Switzerland is $489 billion, while that of the EU is about $15 trillion. Converting euros for Swiss francs may be like flushing a dam through a garden hose.

Two strong stocks from Switzerland to consider are Nestle (OTC: NSRGY) and Syngenta (NYSE: SYT  ) . Nestle had a market cap of $175 billion and is the world's largest food company. The stock trades OTC as the company operates under Swiss accounting regulations, not U.S. ones. Syngenta is the Swiss equivalent of Monsanto (NYSE: MON  ) , a seed and herbicide company that is truly a multinational conglomerate. The shares trade at 16 times earnings and yield 2%, as opposed to Monsanto, which is trading for 19 times earnings and yields 2.2%.

The other beneficiary: gold
The price of gold briefly peaked above 1,000 euro per ounce, which is an all-time high from the standpoint of European investors. It appears that they have been reaching both for gold and Swiss francs to protect themselves from the economic mess on the Old Continent. I feared that deflationary pressures might result in a rally in U.S. bonds and the U.S. dollar, and a correction in commodity prices, which could cause gold to correct within normal historical ranges. Even though all those conditions materialized, I am happy to be wrong on gold in this case -- gold still rallied! I had been hoping for a similar outcome, but I underestimated how dramatic the rally could be.

If that is not a bullish signal for gold, I don't know what is.

More on the Europe issues:

Fool contributor Ivan Martchev does not own shares in any of the companies in this story. Monsanto is a Motley Fool Inside Value choice. Syngenta AG is a Motley Fool Global Gains recommendation. Motley Fool Options has recommended a synthetic long position on Monsanto. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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