Gold and CHF Are Portfolio-Diversifiers: 3-Minute MLIV

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00:00Another day where we see nervousness in equity markets probably driven by what we see in the

00:04in the Middle East and the potential for U.S. involvement there. So European futures now,

00:08U.S. futures down, but we will be without the liquidity there, of course, because we don't

00:13have U.S. trading. What are you watching when it comes to that overall risk appetite story?

00:19I think it's going to be an overall direction this day. We've got some micro themes given all

00:24the central banks on tap, so it's going to be exciting for day traders. But I'm not expecting

00:28a new macro theme yet. I think the backdrop picture here is the Fed sent us a message saying

00:32they're worried about the stagflation risks, but they're not going to try getting ahead of it.

00:36And I think that's a slightly negative message overall for stocks, for the dollar. It's not

00:41helping that the whole general kind of negativity around U.S. assets, but no one wants to trade

00:45aggressively in the low liquidity. So I still think we're kind of drifting along, waiting for the next

00:50big catalyst. And I think it's more likely, given where we're priced, given how optimistic people are

00:54in trade on the tax bill, I think it's more likely that any big next surprise catalyst is a negative

00:59one that comes up. So we're kind of waiting, playing the short-term central banks in the interim.

01:05Well, in the meantime, let's focus on one central bank in particular. I think the Fed,

01:08the BOE is getting a lot of attention. But Mark, I have my eye on the S&B. There is a possibility out

01:14there of negative interest rates, not the consensus, but a possibility of negative interest rates

01:19out of the S&B. In this environment, can you just walk us through what negative interest rates might

01:24mean for a risk-off currency like the Swissie?

01:30What's amazing about the Swiss franc is the Swiss franc is theoretically a currency,

01:35but in reality, it's a financial asset. In the same way that gold is theoretically a commodity,

01:38but in reality, it's a financial asset. The closest comparison between those two assets is each

01:44other. Gold and Swiss franc are both portfolio diversification assets. That's what

01:49they really are. And those trump the fact that the Swiss franc is theoretically a currency and trump

01:53the fact that theoretically gold is a commodity and used in jewelry. And they both, in a world

01:59where one of the world's most, well, the world's most important kind of haven currency and most

02:05liquid and the one most important haven assets in treasuries are both getting a little bit

02:09undermined at the margin. Let's not be dramatic about that. That means that people are seeking more

02:13of these alternative havens. And Swiss franc and gold both qualify in that regards. So the reason I give all

02:18the preamble is essentially the Swiss franc does not trade like any other currency. Fundamental

02:23inputs don't drive it. It drives on geopolitical factors. So really, whether rates go negative or

02:28not, won't decide the future of the Swiss franc. At some point, we're going to go, hey, we want to be

02:32more risk loving and we're going to bail out of the Swiss franc, but not while there are so many risks

02:36around the world going to keep on flaring up every week. Okay. Yeah. Having to deal with all of those

02:41global dynamics in their own domestic situation. Mark, let me ask you about the dollar. We see the dollar

02:46stronger today, not by much, but up a tenth of a percent or so. Has it found renewed haven status

02:51here through this geopolitical tense period? Or is this more about Fed policy?

02:57You know what? I've been so disappointed by the dollar price action. As you know,

03:01I'm a structural dollar bear, but I thought we'd get a bit of a short term dollar squeeze higher.

03:05We've got a little bit of one, but not much at all. And I have to say that the Fed message last night,

03:11the stagflationary message isn't particularly positive for the dollar. So I feel like the short squeeze

03:16running out of ammo very quickly. And that emphasized the fact that the world is structurally

03:20overexposed to the dollar, even if fast money is short at the margin.

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