Swiss Watch: How an Offshore Money Manager Finds Profits by the Headlines

By Rich Checkan

Robert Vrijhof is the founder of WHVP, a Swiss wealth management firm. In part I of our interview, we discussed gold, foreign currencies, and the U.S. dollar. In part II, we will look at Mr. Vrijhof’s take on how world events affect portfolio protection and profit.

Rich: We are hearing a great deal about ‘negative interest rates.’ Switzerland is one of the first countries to employ this strategy. What impact has it had on your investment decisions?

Rob: Negative interest rates were imposed by our National Bank to weaken the Swiss franc, which in their eyes is much too strong. With a strong franc, we are out priced for international trade. Negative interest rates force equity style investing to infuse growth.

What's important to understand is that negative interest rates (NIRs) are an arrangement between retail banks and the National Bank, not the average investor. NIRs do affect large pension plans and other entities with big cash holdings. I watch how their analysts determine where to move cash. For my clients, we still have 20% in Swiss francs which is holding up very well against the dollar despite any rumors that NIRs will weaken the franc.

Rich: Has terrorism become an investment issue after the Paris and Brussels events?

Rob: This is very tricky. Terrorism per se has not been an issue. As you remember, when the terrorist incidents occurred in Belgium, there was some pressure on the markets. This pressure lasted around 90 minutes.

On the other hand, a catastrophe as big as 9/11 will definitely affect markets. Should there be something where the Eiffel Tower is attacked, or anything else where thousands of people are killed, that might take Wall Street down with it. Everything is so interconnected nowadays. If something falls, there is a domino effect, and everything is liable to fall.

Rich: By ‘interconnected,’ do you mean we are affected by world news as much as market reports?

Rob: Actually, I mean more than that. Of course, world news affects us locally and in all the markets. But I would actually not be surprised, even excluding terrorism, if we will see markets coming down, led by S&P, Dow Jones, and NASDAQ, with all other markets following suit. In the U.S., diversification means owning equities of variety of types and bonds with different maturity dates. This is naïve. My view is that this is not enough diversity by far. When one equity market goes, so will the rest. Balance has to come from alternative investing like gold, silver, and of course currencies.

Rich: One of ASI’s biggest headlines, of which we have written about often, is the askew gold/silver price ratio. What is your take on silver?

Rob: Silver should have, in my eyes, been trading above $16 per ounce. It tried to break the barrier in October, February, and at the beginning of March. And we're back at $15.50 per ounce right now. (At the time of this interview, silver was currently $15.50 per ounce). In my view, silver will eventually be outperforming gold by going to $20/$21 per ounce - a gain of 30%, rather than the 15%-16% price rise in gold I also see in the future. But, we have not been able as of yet to put the downside behind us. For an alternative investment portfolio, this means there is still time to buy for profit.

Rich: Especially in early 2016, commodities and oil have been in the headlines. What position did you take?

Rob: Now it is confession time. We do indulge in well-selected stocks for our portfolios from time to time. But, we do not usually own the big ones. One example is Baytex Energy Corp (BTE), which sold at $37 in the past, and paid high dividends. The company suspended dividends in August 2015 and it is now trading at $4.26! Should oil go back to $60 a barrel, which I believe will happen in the next 12 to 18 months, Baytex will trade at $10 or something around that price.

It is a Canadian stock so we also are buying with a very strong dollar. We don't do this for every portfolio. This is more for someone who says, "Well, I don't mind doing something a little bit sexier, and I don't mind the volatility."

Rich: What is your position on the British pound, as Britain might exit the EU?

Rob: The British pound is an interesting story. The weakness we currently see is because of the so-called Brexit; Britain’s exit from the European Union. That has been putting a lot of pressure on the currency. The referendum is on June 23. At the moment, David Cameron is not taking a very strong stand. It seems there are more British people in favor of a Brexit. If that happens, we will see further weakness on the British pound. Should the English people decide to stay in the EU, we will likely trend to the old high of 0.72.

Rich: What about the euro… is it strong?

Rob: Actually, yes. Mario Draghi, the head of the European Central Bank, who we call Super Mario, is doing everything he can to weaken the euro, similar to Switzerland. However, despite all the negative talk and refugee problems, we have a rising euro.

During the past 6 months, the euro is up about 9%, and it's actually getting quite close to a 12 month high. This is surprising because unemployment rates are still fairly high. This is one reason currency diversification can do so much for a portfolio as it balances not just the dollar, but infuses the portfolio with the economic strength of the currency country. In the case of the euro, Germany is driving the locomotive.

If you would like to consider taking advantage of the strong dollar by using WHVP’s asset management services, simply send Rob an email to start the conversation. Of course, ASI is here to assist you with the currency conversion and transfer when it comes time to fund your relationship.