Chilean Peso & Norwegian Kroner: The Deutsche Mark and Swiss Franc of the Next Crisis?

Yeah I know, you are probably thinking to yourself that I am daft for even suggesting that I would invest in the Chilean Peso and Norwegian Kroner. Basically, to invest in a Latin American country (the region has been a loony bin until recently) and a socialist nation would seem at first blush to be really anti-antithetical to sound investing, but then again investing in the so called freest country (the US) is not exactly the wisest either. So what sets the Peso and Kroner apart?

Let's start with Chile. Chile is not your average Latin American country. While Latin American has been getting more fiscally conservative (Guatemala and the 7% tax rates and Ecuador's special economic zones), Chile has been this way for a while. A country of 17 million, Chile has very fertile farmland, a stable government, private unemployment and social security, more traditional social standards (self regulate via the family unit), one of the lowest tax rates among the OECD nations, and only a 10% debt-to-GDP ratio, among other endearing qualities which will rocket it to a first world nation by 2020, add to that it's copper exporting capabilities and copper's relatively stable prices, as well as their sovereign wealth fund of 14.7 billion (5% of GDP), and you can see why Chile's currency would be an attractive option among currencies. At the time of writing, the Chilean Peso is trading at one of it's lowest points in 5 years, and would make a good addition to a diversified portfolio.

As for Norway, this may seem very contrarian, but rest assured I did not slip this in for giggles. The fund consists of $717 billion dollars in investments, accrued from the socialized oil off the coast of Norway. While we can debate the merits of Norway's socialization of their oil, we still have to play this objectively, and the fact is that while the rest of Europe sink with the Euro, Norway has continued to hold it's own, mostly due to stable oil prices, and the lack of debt weighing on it's currency. For the longest time it has been going sideways, but I believe that it is because the USD is strong at the moment, and when there is a shred of bad economic news, the Kroner will break out of this range and go on to new highs. There still are threats to the stability of the wealth funds, such as civil unrest which may harm the local economy, social stability, or the threat of more money being siphoned from the wealth fund by future socialist administrations. But for now, this seems to be one of the most stable and sound currencies in the world.

At this point you may be wondering why some popular choices may be missing. New Zealand, Australia, Canada, Switzerland, and Singapore may be good choices, but there are several problems with these countries. First of all, most of these countries currencies are overrated, and thus only have minor upside, and major downside, and thus you have more to loose with these currencies. As for individual cases: New Zealand may have a few dips which will allow buying opportunities, but as people buy into Australia; people will likely buy New Zealand's currency as a cheaper alternative; thus making it more expensive, Australia is not in much better condition in the US (even though they do have mineral wealth which offsets governmental intervention in the economy), Singapore's central bank has a very unhealthy balance sheet and the country's debt-to-GDP ratio is not much better than the US at 111%, Switzerland continues to have no reservations about the printing press, and Canada is a bit overrated in my opinion.

(PS: I have a small stake in the Norwegian Kroner. I am just a financial pundit, and you should check with your financial adviser before you execute any of the above recommendations.)

Want: Or How the Gold Standard Satisfies Marginal Utility in Individuals.

In basic terms, marginal utility is the degree of want someone has for something. Obviously, individuals have unlimited wants, but the more of a person's overall marginal utility that is filled (including intangibles, such as love, relinquishment of guilt, and health) , the wealthier they are. But here is the rub: the less the Dollar, Yen, or whatever currency is worth, the less overall marginal utility that is satisfied. And the more pent up marginal utility there is, the more someone wants something, which is distorted by the inflationary nature of the dollar. So as (in my case) the Dollar devalues, my dreams are cut of further from my merit, and are downsized from owning the world, to maybe having my little piece of the American Dream. The farther away from (almost) complete equilibrium of marginal utility is pulled, the more desperate people become. And when this happen, we tend to get rather greedy. Instead of enjoying life, we dive into more hours, and more and more, until we are worked to death, all to buy less and less each year. This also increase the crime rate, as well as a general hostility towards one's fellow man.

Contrast this with the gold standard. Instead of earning less and less each year, and person would actually hold their purchasing power, or perhaps even gain purchasing power. In fact, until 1913, most people complained about deflation, not inflation! This was because we were based on the gold standard, not a fiat standard which is the fodder for war, famine, and the plague. If we replaced the dollar with a 100% gold standard, instead of there being a disconnect between savings and dreams, and a disconnect between earning more and a larger satisfaction of marginal utility, our marginal utility would be satisfied more, and thus there would be less of a "greed is good culture" and more of a cooperation culture. It is because of the fiat dollar marginal utility satisfaction is less, and why more people get more desperate in order to satisfy it, even it that means crime. Thus because of mal investment, we are less content, and thus because of this economic insufficiency poverty is increased. Overall morality and a civil attitude towards our fellow man decline.

Also consider the investment that is not made due to lack of purchasing power. If a dollar would be equivalent to $20 dollars in real terms, we could perhaps cure cancer, build a (private) next gen infrastructure. But because we dilly dally on the economic inefficiencies of the Federal Reserve, the poorer get poorer, and the richer get richer.