In the wake of the financial crisis, investors have flocked to so-called safe haven investments like U.S. treasuries and debt of Germany and the United Kingdom. The price for that safety is too high, however, according to some experts. Those experts claim that the debt of those safe havens has been bid up into bubbles with negative returns. In other words, some investors are paying more than par value and not receiving any interest, in order to lock in the least possible loss.
In fact, German bondholders are already paying for the privilege of holding their bonds. Likewise, Danish authorities recently cut a key interest rate below zero to deter investors. Sometimes “authorities slam the door in their (investors’) face” before a bubble is created, as is the case with Switzerland and Denmark (“When Safe Havens Become Bubbles,” CNBC.com).
Switzerland has been the ultimate safe haven for centuries. But the current flood of incoming money is pushing up the Swiss franc and hurting the Swiss economy, according to the article. “[Y]ou need a mortgage to buy a cup of coffee these days,” one economic strategist was quoted as saying.
“It is clear that Switzerland does not want to be a safe haven anymore. And anyone who parks their money there has to accept the central bank will be fighting them all the way.” But the fight will be very, very private.
The key, according these experts, is to identify the next safe haven before it becomes one. Here is a hint, according to the article: It is not the Euro zone, where politicians “understand about as much about the markets as most of us do about the Higgs-boson particle.” In something of an irony, speculators are now trying to move in on safe havens. Their strategy is to pick a likely safe haven before it becomes one, and make a killing.
The Icelandic krona may be a good safe haven or speculative bet, depending on your investment objective, according to the article. “It is close to the euro zone but safely outside it. The economy is recovering fast from the financial crisis. And its banks have probably learned their lesson about taking crazy risks.”
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.