Safety in Norway’s krone

The Norwegian krone might become the new Swiss franc as investors seek a haven from the turmoil engulfing the global economy, argues Axel Merk of Merk Investments.

“The world’s a mess and in our eyes policymakers are inadvertently doing their best to worsen a bad situation,” he says. “We are in a period where a depression, if not a long and drawn-out recession, is a very realistic probability. Where can investors hide?”

Mr Merk believes that recent actions by the Swiss National Bank have diluted the franc’s status as a haven currency.

“Investors put their money in Switzerland because of its safe haven appeal,” he says. “Now, the SNB intervenes in the currency markets to erode trust in the franc. The SNB is also more vulnerable as it engages in unconventional policies, from swap lines for eastern Europe to the issuance of US dollar-denominated Swiss Treasury bills.”

Mr Merk believes that Norway may replace Switzerland as the place to take refuge in Europe.

“Norway is a surplus country - an enviable position to be in should we face an extended depression - and it can afford to get through this crisis.

“The krone is not particularly ‘sexy’; if the markets recover, risk-friendly money may move towards other currencies again.

“However, in our assessment, the Norwegian krone may be the most appropriate depression trade.”

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