The announcement by the Swiss National Bank (SNB) (SNB), in which he says he will sell CHF «unlimited» to keep the exchange rate against the Euro below (i.e. above) 1.20 CHF/EUR. That is nothing. A relatively small central bank intends to limit the ability of the all powerful Mr. Market to buy as much CHF as he wants. And it will probably succeed in the short term, as the speculators do not have the capacity to join forces in a coordinated way. But in the long term they will all go bald. And it is just as likely that over time the market (all of us) will exhaust the SNB's forces as it is that the desire to seek refuge in the Swiss currency will simply fade away due to a relaxation or change in the global economic scenario. Yes, yes, some of you will say that it was very easy for the Swiss central bank to make such an attack in the face of the facile and inoperative ECB. But in any case, the fact remains that after this defiant announcement by the Scweizerische Nationalbank, the global currency war is more alive and bloody than ever, and nationalist protectionism is at its peak.
We wrote a few articles about the beginnings of this currency war almost 3 years ago. And we did so with titles such as «The Era of Devaluations«its second part,and only 6 months ago with the post about the possibility that our single currency had become the «single currency of the world".«Bad Currency»System.
Faced with so much crossfire in this monetary guerrilla war, investors are desperately seeking to support their wealth in currencies and assets that do not depreciate. But in view of the perhaps temporary disappearance of the USD's leadership, these investors would do well to avoid currencies whose appreciation is due to the weakness of the fundamentals of their respective national economies, such as the Euro or even the Yen. These countries have been playing the suckers in a financial poker game to the death. And the cause is to be found in the ineffectiveness of their leaders and in the very serious fires that they must constantly put out and which polarise all their scarce capacity to react (and financial literacy).
As a result, many investors have, to a greater or lesser extent, rushed into gold as a «safe haven», the value of which has increased threefold in the past four years. But also in the currencies of countries with brilliant (in the world of the blind, the one-eyed man is king) fundamentals, such as the Norwegian krone, the Swiss franc, the Canadian dollar and others.
Taking refuge in foreign exchange has undoubted advantages over gold, which some may not realise. One is that the currency asset itself can itself be invested. However, gold, as Paramés cited at the last annual unitholders' meeting, is an inert asset, incapable of revaluing itself, as, for example, companies with good businesses do. Gold investors can do no more than try to choose the optimal timing for buying and selling. They keep it in the vaults of their banks or in their portfolios and nothing else. Only speculation on its price can increase its value and generate profits for them. If we buy gold, we cannot invest in anything else with it, unlike with currencies. Investing through gold is not possible, as it is in itself an investment to be stored, waiting for speculation on its price to give us profits. Good companies, on the other hand, are alive and their businesses earn, spend, buy and sell every day, accumulating profits over time. Someone once said that businesses get better or worse, but they never stay the same. Good businesses grow, and sooner or later they always end up convincing the market that the value of their shares must go up.
Let us now clarify the true meaning of «safe haven» and distinguish it clearly from greed and speculation. Most investors seek to place their wealth (again remembering that this includes all their financial, real estate, corporate, etc.) in safe-haven assets that appreciate relative to the rest and are sheltered from future dangers and risks. But let us not fool ourselves: The more appreciation we want to achieve with such a «safe haven», the closer we are to speculation and the further we move away from the search for the essence of the safe haven that will prevent us from depreciating. Because the refuge seeker's aspiration should in no case be to increase his wealth, as that is what investments are already for. The refuge should serve to keep our assets away from cyclical risks and devaluations. Nothing more. And confusing these concepts leads us to fierce speculation under the sheep's clothing of seeking refuge. And in almost all cases, in the medium and long term, when someone speculates in the belief that they are seeking refuge, they tend to move a long way away from good investments. The proof is today, with a market full of speculators greedily betting on gold or CHF (with the SNB's permission), pretending or even believing to be seeking refuge.
Now that we have clearly distinguished those who are merely seeking refuge from those who are speculating (consciously or unconsciously), let us propose another way to find real refuge from the risks of devaluation in this currency war, without having to give up our ability to make excellent investments: Investing in companies with global businesses whose revenues are produced in many different currencies. Needless to say, this haven is not suitable for those who cannot bear to suffer potential short term price declines, of course, as it will be the schizophrenic Mr. Market who will hammer us daily with hysterical and absurd valuations, for better and for worse. And as the Master said, the market should serve us, but it should never instruct us.
That said, the reality is that for many investors the fact that buying shares in companies denominated in EUR, USD, CHF, etc, does not condemn them to the performance of that currency against their own reference currency goes unnoticed, provided, of course, that their business is global. Obviously, this globalisation of the income of these companies does not protect them from the fluctuations of the crosses in this war, but they undoubtedly minimise the risk through diversification. In many cases, these global companies also earn income in emerging currencies through their business areas in these countries, which today are still mostly susceptible to revaluation, which logically has a positive impact on profits.
But without losing sight of the original desire to protect our assets from devaluations and central bank wars (remember that we are not speculating), investments in the shares of companies with multinational revenues are a very valid option. And what is more, this multi-currency refuge, unlike gold as we have already seen, is perfectly compatible with proper investment management. Because what will differentiate the brilliance of our investments with respect to the mere refuge, will be the correct selection of companies and prices that we are able to make. (From here, as always, we recommend that you take appropriate advice to select the best managers in the world and to find the way to be able to take advantage of their management).
If a company with global turnover in currencies such as GBP, JPY, EUR, USD, CAD, AUD, emerging currencies, etc., makes a profit, this profit will carry with it the losses and gains related to the cross currency changes in its currency mix. Because nowadays very few global companies use currency hedging beyond the occasional forward purchase of materials. Moreover, all multinationals try to optimise their costs through offshoring and global structures that allow them to benefit from salaries, costs and expenses in general in the cheapest countries, including the currency effect. Therefore, not only investors in these companies benefit from diversification/optimisation in multi-currency revenues, but also in the expenses of these global corporations. In short, all these currency crosses have a reliable impact on the evolution of their corporate value. And in the medium and long term on their share price, sheltering their investors from the currency war in a more than acceptable way. This protection is an additional benefit that is not offered by other assets such as fixed income, or even the corporate bonds of these same global companies.
We therefore have before our eyes a good and versatile refuge from currency devaluations in the midst of a currency war. And what is even better, this refuge allows us to invest in the best companies in a world that is more global than ever. What happens is that for most investors, consciously or unconsciously, the volatility of speculation is more attractive than the patient evolution and growth of companies and businesses. That is why time works against speculators and in favour of investors. This time it is the trees, and unconscious speculative greed, that are preventing us from seeing the forest that will shelter us from the currency war in the open.