Betting on the Safety of the Swiss

That’s the strategy you’ve been pursuing in Global Bull Market Alert this year. By focusing on commodities and currencies, you’ve been able to avoid most of the bloodshed in global stock markets. This strategy also generated some very solid profits until the sudden, historically unprecedented drop in commodities prices two weeks ago. Nevertheless, since then, commodities prices have already steadied, and are resuming their upward trend. Your current exposure to the commodities boom — through the iPath DJ AIG Agriculture TR Sub-Index ETN (JJA), Yamana Gold Inc. (AUY), and iShares Silver Trust (SLV) — remain much safer bets than trying to guess the bottom in global stock markets.

With such uncertainty dominating the markets, where else can you look for alternatives with upside potential? 

With the relentless decline of the U.S. dollar, foreign currencies have been the steadiest and most reliable way to make money this year. The Japanese yen has been the top performer among the 16 most-traded currencies, having gained 12.47% in the first three months of the year. Your own position in the CurrencyShares Japanese Yen Trust (FXY) already has generated triple-digit percentage profits on your options just since late January. This week’s Global Bull Market Alert pick, the CurrencyShares Swiss Franc Trust (FXF), is another currency bet on what has been the ultimate defensive currency during times of uncertainty.

The Swiss franc has more than matched the slow and steady performance of the Japanese yen in 2008. It’s easy to see why. Switzerland has long had a rock solid monetary policy that operates independently of the Fed or the European Central Bank. That means that the Swiss central bank is focused exclusively on good, old-fashioned, inflation targeting. And with Swiss inflation accelerating to a 2.4% annualized rate in January, the fastest since December 1993, it was the first time in 12 years that inflation exceeded the central bank’s 2% threshold for price stability. That means Swiss interest rates won’t go any lower anytime soon, lending additional support to the currency. The currency markets are recognizing the virtues of the Swiss Central Bank’s traditional approach to monetary policy. Not only is the Swiss Franc at record highs versus the U.S. dollar, but also it has been gaining against the Euro.

And from a trading standpoint, the Swiss Franc, like the Japanese yen, has an inverse correlation with global markets. That means it’s a great diversifier: as the global markets wobble, and the dollar weakens, the Swiss franc just keeps getting stronger and stronger.

The one danger with buying the Swiss franc at these levels is that the dollar is so oversold that it may rally. But with the Fed continuing to lower rates and the global markets still in crisis mode, I’m betting that any dollar rallies will be short-lived. Once a currency starts to trend in one direction, it tends to keep going, and even overcorrect. That all bodes well for the Swiss franc, and poorly for the U.S. dollar.

So buy the CurrencyShares Swiss Franc Trust (FXF) at market today and place your stop at $92.00. For potentially even bigger upside, buy the September $100 call options, (FXFIV.X).

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