Sentiment is now extremely bullish on almost all safe haven assets, like the Japanese Yen and the Swiss Franc. Gold as well as Treasury Long Bond also fall into this category. All sentiment indicators I follow and look at, read extremely bullish levels for both the Yen and the Franc. As a matter of fact, when grouped together, the cumulative sentiment on these two safe havens is at one of the most extreme levels in over 20 years!
Therefore, I would be very very cautious to blindly bet against the US Dollar, when it comes to the Yen or the Franc right now. Both of these currencies have had an amazing run in the last 12 months or so. As a matter of fact, right here I would be looking for a unwinding and a potential reversal of these safe haven trades.
Personally, I am going to enter short Swiss Franc. Every single man and his dog on CNBC or Bloomberg is fascinated by the Swiss Francs appeal right now. Markets reasoning has been that the Swiss Franc cannot lose...
...because according to the consensus chit-chat on Bloomberg or CNBC, if the Greece defaults, Franc will gain, if Italy defaults, Franc will gain, if EU breaks up and Euro crashes, Franc will gain, if US defaults next week, Franc will gain, if North Korea attacks the South, Franc will gain, if Saudi Arabia has an uprising, Franc will gain, if the economy does not recover, Franc will gain and the Franc will rally during "Risk On" as well as "Risk Off" environments.
This is one of those times where the fear has completely gripped the market about some or all of the following:
- Quantitate Easing 3
- Federal Reserve ZIRP (Zero Interest Rate Policy)
- Global Economic slowdown
- Libyan & MENA Turmoil
- Japanese Earthquake
- European Debt Crisis
- US Debt Default
- Any other excuse to buy the Franc!
As I always say, when its obvious to the public, its obviously wrong. Almost everyone believes the Franc has only one way to go. When majority are on one side of the boat, almost always its much better to take the other side. Finally, I would expect riskier assets like stocks and/or commodities to stage at least a bit of a rally here, due to the unwind of capital which is currently parked in the safe haven space!
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