Thursday, February 28, 2008

An Early Update on Google versus BHP

28 February 2008, 10 May 2010, 8 April 2011

On only October 10, 2007, I wrote that two companies with then approximately equal market capitalizations could differ by a factor of perhaps 100 over ten years' time.

It is only 4-1/2 months later, so a progress observation may be premature. However, there are already interesting observations to be made.

On October 10, 2007, I compared BHP Billiton (BHP), the world's largest mining company, with an unimaginable store of physical mineral wealth still buried "in the ground" in multiple locations around the world, to Google (GOOG), an innovative company which I really like, but which I consider a will o' the wisp investment with a fragile income stream based on the thin reed of "click-based" internet advertising.

I asserted that if Google falls in market capitalization and BHP rises in market capitalization, each by a factor of ten, then BHP will have 100 times the market value of Google in ten years' time.

On that day, BHP was valued by the market at $230 billion, and Google was valued at $182 billion. If you think I'm being unfair to Google in equating it to BHP in initial value, consider that in early November 2007, Google did reach a market capitalization of $234 billion - at which time its stock price had soared to $747.24.

BHP reached its so far best levels at about the same time as Google, in late October 2007, when its stock traded at $86.74 per share, placing its market value at that time at $244 billion.

Both stocks are down now, but, as per my prediction, Google is already down considerably more than BHP.

If I am right, BHP will continue to rise and GOOG will continue to fall, until eventually BHP will be recognized as having the market worth of 100 "Googles."

Where are we today?

BHP closed on February 27, 2007 at $75.01 per share, with a market capitalization of $210.59 billion, down modestly (13.5%) from its early November 2007 all-time highs.. Google closed yesterday at $472.86 per share, with a market capitalization of $148.18 billion, down 39.3% from its late October 2007 high of $244 billion. (Note that Google's Tuesday low of $446.85 per share - representing a market capitalization of $140.04 billion - had already taken it down $94 billion from its maximum market valuation - that is, Google has been losing about $1.5 billion per day in market value since mid-November!)

If my analysis is accurate, of course, Google's so-far 39% fall will be only the beginning of a long decline into the 21st century. Only an additional 51% need be lopped off of Google's maximum market capitalization to reach the levels I have suggested as a modest ten-year price target.

Again, I don't bear ill will towards Google. I just don't see the company as having great leverage to the market based on a business model of generating profits on a long-term basis by selling internet advertising to display to individuals who use the company's innovative products.

In short, at its present $211 billion market capitalization, BHP is a company that is on its way up for many years, and probably many decades, to come. Could BHP be a $2 trillion company in ten years' time? Maybe.....

And Google? On the move as well, but downwards in a secular trend for as far as the eye can see....

Could Google be a $20 billion company in 9-1/2 years' time? It's not hard to imagine. $20 billion is still quite a rich valuation, and Google might struggle to maintain its market worth at this level through the likely trials and tribulations of the next ten years.

Disclaimer: I do not hold shares of either Google or BHP Billiton, nor do I trade in either stock or its options or its futures in any way. This statement, however, does not preclude the possibility that I may do so in future.

10 May 2010: Here is a brief update on the BHP-Google contrast. The chart below is a ratio chart, showing the value of BHP stock, divided by the price of Google stock.

There can be no argument, I think, that the trend is clear. BHP is obviously outperforming Google. However, BHP is weak at this time for two reasons. (1) Both BHP and Google are negatively affected by the Greek crisis and the associated European contagion. (2) The Australian prime minister has proposed to add an additional and onerous 40% production tax on all Australian mining companies. This idea is so ludicrous (is Australia truly ready to become a pariah nation along with Venezuela, Bolivia or Zimbabwe?) that I do not think it will ever be enacted as legislation. However, the uncertainty is certainly exerting a downward drag on Australia-based BHP at this time....

8 April 2011: OK. Google is back up to a market capitalization of $186 billion (from $148 billion on February 28, 2008). Looking good. However, BHP has now soared from $211 billion to $282 billion.

The differential now makes BHP worth 50% more than Google. Honestly, I don't WANT Google (who is my free blog host) to lose 99% of its valuation relative to BHP. But so far, the trend is as predicted, though a long way from plus 10x and minus 10x....

But there are 6-1/2 more years to go. So, let's keep watching!

All posts on this topic:

Revisiting BHP and Google at Year Four

An Early Update on Google versus BHP

Google versus BHP Billiton - Part II

Meet Me Here in Ten Years' Time: BHP Billiton vs. Google


Wednesday, February 27, 2008

The Structure of S&P/TSX Global Gold Index (SPTGD) Uplegs

February 27, 2008

Adam Hamilton recently published a formative piece on the Amex Gold Bugs ("HUI") Index, entitled "HUI Upleg Structure." Mr Hamilton develops several theses, some built on his earlier work, which has examined HUI leverage to gold. Foremost among his ideas is that the market price of gold mining stocks, as represented by the HUI index, continues to be leveraged positively to gold, the underlying commodity which the miners produce.

Mr. Hamilton also notes that HUI uplegs generally see two primary downtrend corrections while maturing, the first of these usually starting around the 63rd trading day (about the end of their third month). In his view, the function of these downtrends is to function as "a safety valve to prevent popular greed from growing too extreme before an upleg nears maturity."

Most importantly, Mr. Hamilton concludes that HUI uplegs see 47 to 60% of their gains in their final two months. Thus, only investors who hold on to the end are fully rewarded.

Of particular interest, Mr. Hamilton notes that the current gold surge is clearly the strongest of the 2000-present gold bull market, and also that the current HUI upleg has in fact demonstrated the strongest first stage of all of the (now four) "massive" HUI uplegs to date.

I could tell you more, but of course it makes more sense for you to read the article for yourself.

Here is the rub for Canadian investors.

No one has attempted a comparable analysis of the (so far comparatively underperforming) S&P/TSX Global Gold (SPTGD) Index. Unfortunately, I lack the sophisticated charting tools that Mr. Hamilton has available, so it is not possible for me to undertake a similar analysis here.

But let me perhaps offer an introduction to the topic of upleg structure (and leverage) for Canadian gold investors.

Let's begin with charts of the four uplegs of the SPTGD, which I discussed in greater detail on January 27, 2008.

Here is chart number one for your delectation:

The first SPTGD upleg, which occurred prior to the rapid escalation in value of the Canadian currency, has so far demonstrated the greatest gains for Canadian gold stock investors. This 19-month-long upleg started out at a humble value of 83.97 in October 2000, and proceeded to advance 178% to 233.08 in May 2002.

By the way, the HUI has outperformed the SPTGD from the very beginning to the present. It is one long outperformance on the part of the HUI, and currency differentials alone do not explain it. (The HUI has most dramatically outperformed the SPTGD index since the Canadian dollar initiated its long climb, which happened to begin in about January 2003.)

Strikingly, SPTGD upleg one shows no sign of the dramatic correction periods which Hamilton observed in all of the HUI uplegs, though a series of minor, or "soft" corrections, enduring no more than two months, can be seen.

Suffice it to say that Canadian investors who were shrewd enough to ignore the internet craze and purchase gold mining shares in 2000 have had no regrets since that time. They have been amply rewarded for their initiative, insight, independence and timely action.

Let's now look at SPTGD upleg number two:

Please note that in this preview article, I am ignoring the intervening downlegs, which, as Hamilton points out, tend to bleed off excess positive sentiment even in the strongest of bull markets.

From a starting value of 137.02 in July 2002 (representing a 41% decline from the peak value of the previous upleg), SPTGD upleg number two in fact climbed only slightly higher than upleg one, to a value of 244.47. This was also a brutal and unruly upleg, with three sharp, severe and dramatic corrections, the third of which in March cruelly took Canadian gold stock investors back to where they had started 8 months earlier, in July 2002. The discerning Canadian gold investor could have sat out this ugly but ultimately rewarding upleg!

However, for those who were late to the party, upleg two certainly provided another chance to get into the game, with a 78% gain (I bought my first gold stocks in June 2003, which, as is often the case with beginner's luck, happened to be an exceptionally fortunate time to buy).

SPTGD upleg number three returned to the gentle, steady climbing pattern of upleg number one, as can be seen below:

Upleg number three advanced through a series of gentle, upwardly rolling minor corrections which exceeded one month in duration on only a single occasion, for a 122% maximum gain from May 2005 to May 2006. This was a slow, steady, and rewarding upleg which I remember fondly as a fully invested Canadian gold stock investor at the time.

I recall seeing a greater than doubling in our personal portfolio value from its previous correction low during the advance of this particular upleg, and, save for upleg one, upleg three remains the best one-year period for Canadian gold stock investors since the 2000-2002 upleg.

Note that upleg three started from a value of 166.76, and rose to a very respectable 369.72.

The correction preceding this upleg was a relatively modest but very extended and grinding 32% sideways correction which persisted for a brutal 17-1/2 month period, discouraging many Canadian gold stock investors, who watched the US dollar price of gold climb steadily while Canadian gold shares could muster only a 32% decline!

Without going into a level of detail which is beyond my present purposes, let it suffice to be said that the downleg from May 2006 through August 2007 was another horrendous one.

From a high of 369.52 in May 2006, the SPTGD plummeted in three vicious corrections to a numbing low of 240.42 in August 2007, revisiting the SPTGD peak value of a full 5 years and 3 months earlier, in May 2002.

Let me say that another way. Canadian gold stock investors could have sold everything in May 2002, and done nothing for over 5 years, until buying back at the same prices in August 2007! American HUI investors still saw their investments double (from the 2002 HUI high to the 2007 HUI low) during that same period. It was not a good 5 years to be a Canadian gold stock investor!

Nothing corresponding to the inglorious May 2006 through August 2007 SPTGD correction can be seen in the HUI, which handily outperformed the SPTGD during this period, even accounting for the plunging US dollar!

Now, let's look at the current upleg in the SPTGD index, which, as mentioned, started at a modest 240.42 value in August 2007.

Of course, we are not yet done with the current upleg. As of January 14, 2008 (its peak so far), upleg four has advanced as much as 59% from its August 2007 low. This can be compared to a 72% gain in the HUI during the same period.

Certainly the current upleg has seen one dramatic advance followed by a sharp correction in the December-January period. However, the January low has so far held, and the index is presently advancing along with gold, which in Canadian dollar terms has surged from $679 to $969 during the same time frame following August 2007, for a 43% gain, upleg-to-date.

What does the future hold in store for the SPTGD index?

Well, the Canadian dollar is now at parity with the US dollar, and I think we will more or less stay there for some time to come, as currency markets need to digest the Canadian dollar's 65% gain from January 2002 through today's date. This means we shall most likely see the true test of the SPTGD against the HUI on equal terms over the next few months. So far, the HUI has been the clear winner, and 2008 will tell if any change in that trend may possibly emerge.

Please allow me to close by agreeing with Mr. Hamilton on several points.

Our present analysis of SPTGD upleg structure shows that Canadian gold stocks, similarly to those constituting the HUI, clearly see their best gains in the final two months of their uplegs. Even sizable intermediate losses can be recovered simply by holding through to the end of the upleg. That is, one must allow the upleg to finish its course, and impatience is of no benefit to any investor. Another pattern that is very clear in the structure of SPTGD uplegs is that there are often significant corrections just prior to the final upleg surge. It would be particularly onerous to sell on these final plunges in the SPTGD, as the darkest hour is very typically just immediately before the dawn for SPTGD investors.

The duration of SPTGD uplegs has so far been 19, 15 and 12 months. Thus it seems probable that our present 6-month upleg is far from maturity, as there could be a further 6 to 12 months to go, and the duration would simply be typical.

Given that gold's present upward momentum is its strongest in the present bull market to date, it is reasonable to expect that if the value of gold shares continues to leverage the price of gold, then gold shares could be considerably higher than they are now in 6 to 12 months' time.

And of course, a note of caution must also be sounded. With gold's stronger than usual run to date, greater and sharper than typical corrections are also very likely. And any lasting downdraft in the price of gold will be sure to wreak considerable damage in gold stock valuations. So some quite powerful corrections are probably quite likely between here and the next peak in Canadian gold stock prices.

Perhaps the most satisfying aspect of our present situation is that we seem still to be in the relatively early stages - at least nowhere beyond the broad centre - of the current SPTGD upleg.

SPTGD upleg four may not unfold in the way that we would most desire (events in investing seem designed regularly to unnerve even the most savvy investors), but there are nonetheless likely to be further very satisfying gains in the SPTGD index in the months ahead!

Tuesday, February 26, 2008

Investor Words

26 February 2008

Yen Carry Trade: (Def) A specific example of a currency carry trade, where an investor will exchange a specific amount of Japanese Yen for another currency with a higher interest rate, and then will invest the new currency in hopes of earning more interest than could have been earned with the yen.

Have you ever been dumbfounded by the plethora of terminology that accompanies our ever more innovative (and ever more distorted) global financial marketplace?

Are you just looking for a way to preserve and grow your savings for retirement without being punished for engaging in the activity of saving by the artificially-low trendsetting interest rate policies of the international central banks?

In that case, you need!

This site will sort the meaning from the jargon, and guide you well in interpreting the ever-more confusing language of the increasingly leveraged, manipulated and dangerous international markets.

And, if the language still confuses you (not to mention the concepts!), just buy and hold gold or silver. You will always be OK if your investment time frame is two years or greater.

Wednesday, February 20, 2008

Thank You Richard in Bellingham

21 February 2008

Richard in Bellingham is a full-time investor. He authors a blog entitled "The Resourceful Bear Blog."

His bearish take on the broad markets, and his affinity for gold, are similar to my own perspective.

Richard collects and compiles several articles and links per day to illuminate the machinations of the bubble economy that we presently inhabit. He adds his own comments to spice things up.

He was sufficiently gracious to cite my article yesterday (
Saville's Thesis Accords with Hunt's Thesis - Serendipitously) on my probably more than transient alliance with Steve Saville over the influence of inflation on precious metal markets.

As Richard was kind enough to refer to my work, I shall cite his

Visit the Resourceful Bear Blog here.

Tuesday, February 19, 2008

Saville's Thesis Accords with Hunt's Thesis - Serendipitously

19 February 2008

Serendipity occurs only when you're looking for something. Solely those who are seeking a particular objective will experience chance encounters with evidence which reinforces - or disconfirms - the ideas that drive their thinking.

As a present example, in today's reading, I note that Steve Saville has presented a thesis similar to my own, posted only yesterday.

At that time, on February 18, 2008, I postulated that a secular trend reversal in the 30-year "long bond" would signal a redirection of investor attention to inflation concerns, and that this in turn would drive renewed interest in precious metal mining companies.

Interestingly, Steve Saville, in a post of the same date, notes that as thirty-year treasury bond rates begin to exceed five-year treasury note rates (indicating increasing expectations of longer-term inflation), the HUI to gold ratio tends to climb - meaning that gold stocks begin to appreciate relative to the price of gold.

As you have heard me say here repeatedly, Canadian gold stocks have dramatically lagged the price of gold since 2002.

If Saville is right, that trend may now be changing.

Beginning in mid-2007, the thirty-year US treasury bond to five-year US treasury note spread began to widen dramatically. Saville asserts that the HUI to gold ratio tends to follow this trend with about a 6-month lag.

If he is right, increasing inflation expectations will be driving precious metal mining equities higher relative to the price of the commodities they produce, and possibly in the very near term.

Mr Saville's chart is below.

Be sure to read Mr. Saville's article in full here, on the Safehaven website.

Monday, February 18, 2008

Top in Long Bond Signals Shift of Investors’ Focus from Recession to Inflation

18 February 2008

I have been
writing for over a year now about the weakness in Canadian gold stocks relative to gold, as signalled by the stalling S&P/TSX Global Gold Index.

This has been a paradox and source of frustration for Canadian gold stock investors, who have seen gold rise steadily (even in Canadian dollar terms) from 2001 through to the present, while Canadian gold stocks relative to the price of gold have fallen steadily since May 2002.

That is, we have now very nearly completed the sixth year in which Canadian gold stocks have dramatically underperformed the commodity that they produce.

What is taking place that can explain this paradoxical trend?

Well, there has been much talk about rising energy and production costs, and of course, the Canadian dollar has risen dramatically during this period, eroding the gains of gold in Canadian dollar terms.

But let me tell you, mining gold, even in Canada, is a more profitable proposition today, at over $900 gold, than it was in May 2002, when gold in Canada sold at $550 per ounce. While the cost of inputs has risen sharply, the ability of Canadians to purchase many of these inputs with appreciating Canadian dollars has risen as well.

Further, Canadian dollar gold was flat from late 2002 through late 2005. However, in the last quarter of 2005, the Canadian dollar price of gold lifted off, and it has not looked back since.

To keep it simple, let me put forward a single alternative idea to explain what might be going on.

The eyes of investors have been fixed for years, if not decades, on fears of economic slowdown or recession, rather than on fears of inflation, which was the bugbear of the 1970s, but which has not “officially” returned since then. (What happened to inflation? Paul Volcker struck it down with high interest rates in the early 1980s, and globalization has kept the prices of finished products low since that time.)

As I have already written, inflation is in fact much higher than acknowledged, but the combined polities of government, banking and investment management have tacitly agreed to ignore inflation by redefining it. Governments have continually massaged cost of living indices to make it appear that inflation has remained under control, though soaring commodity prices have certainly given the lie to this shared pretence. When the costs of food and energy rose too much, they were literally removed from the cost of living indices, rather than acknowledged as signalling the return of the figurative wolf at the door.

Let me suggest that at some point, the eyes of investors must inevitably shift from the fear of recession – which by most measures, now appears to be upon us – to the fear of inflation, which has been an escalating but ignored reality since the beginning of this decade.

It is perhaps incredible that our official decision-makers and policy-makers have been able to ignore the reality of inflation for almost the entirety of the present inflation-ravaged decade.

Let me submit to you that the era of the ignorance of inflation is now drawing to a close.

For evidence, let me submit the yield on the 30-year United States Treasury bond, which recorded a multi-decade low at 4.23% only last month. The 30-year bond yield is widely acknowledged as a barometer of inflation expectations.

My suggestion – in an environment of escalating inflation, the so-called “long bond” yield can no longer continue to fall, nor can it remain at today’s record low levels.

Why is that?

Inflation drastically devalues long-term investment products, and there are few investments requiring longer-term commitment than the 30-year bond.

Where then is the yield on the bond headed?

I wish to caution you now – much higher than today’s exceedingly modest levels, and certainly into the double digits as the years unfold.

Is there a “magic number” to watch for?

I can assure you, such knowledge is beyond my ken. But I defer to
Pamela and Mary Anne Aden on this point, as they have computed leading indicators and other technical measures which signal a possible reversal in the long bond yield.

The Adens’ calculations result in a figure of 4.78% for the yield on the 30-year US Treasury Bond. A move of the long bond yield above this level, provided rates remain higher than 4.78% going forward, may signal a reversal in the 28-year downtrend that has defined the long bond yield since 1980.

In my view, this reversal, if it occurs in the near future, will signal a very dramatic psychological shift.

For 28 years – almost three decades – investors have concerned themselves primarily with rates of economic growth, and markets have risen and fallen mostly in accord with expectations of accelerating or decelerating economic growth.

I propose that this pattern is now readying itself for a secular (or very long-term) change. Underlying this shift is a continued dramatic increase in monetary inflation, as illustrated by the chart of estimated US "M3" money supply growth below.

Yes, you have read the chart correctly. In four short years, from 2004 through 2008, the number of circulating US dollars has risen from $9 trillion to $13 trillion - almost a 50% increase in a 4-year period - an unimaginable $4 trillion boost in US funds in circulation in little more than the blink of an eye.

I submit that for the next 28 years, we are more likely to focus our concern on rising levels of monetary and associated price inflation, a reality which erodes the value of all investments, save one – the price of precious metals, which reliably rise in an inflationary economic environment. (Collectibles in some cases are also a hedge in such conditions.)

Watch the 30-year United States Treasury Bond yield. If it moves and holds above 4.78%, the era of primary concern with economic growth – and recession – has perhaps come to an end.

With this shift in the long bond yield, from reaching a record low only last month to (possibly very soon) grinding relentlessly higher for years to come, another era of concern with rising inflation, and its manifold disruptive economic impacts, will likely begin. (Note that the inverse of the yield, the long bond price, reached a record high of 122.81 in a dramatic island reversal top on January 23, 2008, as recently noted by Clive Maund.)

I submit to you, the era of inflationary concern is with us now, making concerns about both economic growth and recession of secondary importance for years if not decades to come.

Along with this shift, I expect heightened interest in precious metal investing – and correspondingly amplified interest in the mining companies
which, at great cost over many years, and against nearly-insurmountable obstacles, produce the precious metals which represent financial security in an inflationary age.

If I am correct, a reversal in the almost three-decade downtrend in the 30-year US Treasury Bond yield at 4.78% will also signal a shift of focus of investment markets to the precious metals and the precious metal mining companies.

The implication of this shift is that the 6-year drift in the relative value of Canadian precious metal mining companies may also soon be nearing an end. That is, the Canadian precious metal miners may before long be accorded that value they deserve against a background of a long-term “mega” uptrend in the value of the precious metals (specifically gold and silver).

Time will of course tell if I am correct in this assertion.

In the interim, I shall proceed to act as though the shifts in trend which I have described here are already in motion.

Saturday, February 09, 2008

My First Compliment from Fleck

9 February 2008

Bill Fleckenstein is the perhaps soon to be bestselling author of the recent book on the follies of Alan Greenspan during his tenure as Chairman of the US Federal Reserve Board: Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve.

Mr. Fleckenstein is known to his followers as "Fleck." I have subscribed to his site for years. As far as I can tell, Fleck is a contrarian by nature - in fact, down to his sinew and bone. He simply thinks for himself, and he is very rarely impressed.

Fleck invites questions and comments from his readers, but he does not hesitate to let us know when we are simply annoying him with foolish questions and statements which should first have been considered more thoughtfully, and perhaps then never stated.

So why am I mentioning this today?

Well, after over 5 years of reading Mr. Fleckenstein, and perhaps e-mailing several dozen missives to him - perhaps more - I have just received my first compliment.

Let me tell you, when Fleck recognizes you, you will feel worthy. It is not that easy to win his favour (just consider the plight of Mr. Greenspan, who has certainly garnered Fleck's vituperation!).

So, without further ado, please allow me to announce to you my first compliment from Fleck.

My statement, which closely parallels my previous blog entry, is followed by Fleck's reply:


Re: Canadian dollars. I'm not a currency trader, but I am a Canadian. I think the present currency trends are pretty clear.

The commodity currencies are down on the recession trade.

The (low interest) carry trade currencies are up, more or less for the same reason (unwinding of the carry trade).

A look at XJY and XSF pretty well sums it up. I'm happy to hold my recently appreciated Canadian dollars (though the SPTGD has been horrible due in part to the currency trend), but if I were Swiss or Japanese now, I wouldn't buy Canadian dollars so long as recession fears are driving the market.

Once the focus is (finally) on inflation, Canadian dollars and the other resource currencies should have their next leg up, along with the precious metals. But inflation has been raging for years and nobody has noticed. So how long does that take? Might be a while....

• (Fleck replies:) "Excellent points-- I hadn't thought of that... may explain Thursday's weird action in those currencies..."

Fleck has spoken. I am humbled to have gained his recognition.

For more Fleck for yourself, subscribe here.

And beware, Helicopter Ben may be the next to incur Mr. Fleckenstein's wrath!

Here is a list of my blog entries concerning the Swiss Franc:

1. Canadians, Buy the Swiss Franc Now!

2. The Swiss Franc Continues To Climb in Canadian Dollars.

3. My first compliment from Fleck.

4. Currencies 101.

5. Another Swiss Franc Buying Opportunity for Canadians.

6. All You Need To Know About Global Money Supply in One Place.

7. The Swiss Franc Is Still Strong.

. Use "FXF" (CurrencyShares Swiss Franc Trust) To Buy the Swiss Franc.

9. Gold is Better Than the Swiss Franc.

10. Swiss Franc Alert.

11. Gold Isn't Gaining All That Much... In Canadian Dollars!

Addendum: Many visitors to this site have enquired about how to purchase the Swiss Franc. The most direct method is simply to purchase Swiss Francs from a currency dealer. In Canada, Custom House Currency Exchange offers competitive rates. You may also wish to contact your broker about an exchange-traded fund or a Swiss Franc government bond (which would pay interest on your investment, but could be subject to decline in value even if the currency itself rises relative to other currencies). Additionally, some banks permit investors to maintain foreign currency accounts. Sophisticated investors may wish to enter this trade through purchasing futures contracts or other types of options, such as calls. Many brokers specialize in foreign currency purchases, so I suggest that you start with a broker familiar to you. As I understand it, Pamela and Mary Anne Aden at Aden Research, for example, will execute foreign currency trades for their customers. But for those who don't know how, simply purchasing the currency from a competitive currency trader (possibly your local bank, or a trader recommended by your bank) will be a good place to get started. Ideally the "spread" between the buy and ask price for the currency should be less than 4 cents on the dollar (roughly 4%). That is, you should not pay a premium of greater than 2% to purchase the currency. This being said, my own experience with currency dealers is that it is very difficult to exchange currencies in this idealized range. Our local broker's rates are much higher, for example. Never exchange currencies in large amounts at airports, hotels and other locations that are charging large premiums to provide a convenience service to travellers. Look for the best rates any time you exchange currencies!

August 5, 2008:
As currency purchases at fair exchange rates are extremely difficult to obtain, I am now recommending that mainstream investors simply purchase the FXF exchange traded notes, "CurrencyShares Swiss Franc Trust" (denominated in US dollars) through their broker. This exchange traded note uses the interest on its deposits to cover the management fees of the fund, with the result that you will receive modest interest income via this method.

Note (9 August 2008): Most global currencies happen to be weak against the US dollar right now, as the US market is presently driven by the fantasy that the US government's now $800 billion rescue of the financial system by "nationalizing" the government sponsored enterprises (Fannie Mae and Freddie Mac) and using taxpayer money to guarantee worthless bank assets will make everything "all right again." That fantasy will persist for a season, and then it will fade, as all fantasies do.

In the meantime, the Swiss Franc may not have bottomed for US investors. However, I note that the Franc is holding up fine against the Canadian dollar, as both are under pressure versus the US dollar, which is presently enjoying a transient upward move due primarily to concerns about the stability of the Euro. Pamela and Mary Ann Aden advise that the market value of the Euro is presently stronger than that of the Swiss Franc. My own take is that the Swiss Franc clearly possesses superior fundamentals compared to the Euro, which relies upon the historically unproven concept of international cooperation (don't expect the cooperation of the European countries to be maintained in hard times or in crisis!).

October 11, 2008: If you're interested in Swiss Franc Government Bonds, here is a recommendation from WikiAnswers. This brief note recommends EuroPacific Capital. Its C.E.O. and Chief Global Strategist, Peter Schiff, is a long-term US dollar bear who saw the present economic meltdown coming years ago. EuroPacific Capital is a secure and well-managed company, and I can certainly vouch for the reputation of Mr. Schiff, whose articles on the mismanaged US economy I have been reading for years on Safehaven.

While I am currently recommending gold as a superior store of value to the Swiss Franc, gold trades as both a commodity and a currency, with the result that its market price is much more volatile. If you are a long-term buy-and-hold investor, gold will certainly outperform the Swiss Franc as a long-term store of value. But if you don't like $100 price moves in a day (gold has had two such moves in the past month - including only yesterday!), then holding the Swiss Franc may prove less unsettling.