- U.S. Debt stalemate, Swiss Franc and Gold
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Just after the resolution of the Greek issue as a result of the U.S. debt ceiling stalemate investors have returned to the "risk off mode".
I am confident that a solution will be found but part of the damage in terms of investors confidence has been made. Both the U.S. and some European countries face problems like high debts and unemployment that are very difficult to cure in a low growth environment.

The fly to safety landed in both Swiss Francs and Gold. I see the gold prices to remain strong till the end following the appetite of investors wishing to hedge their exposure to equities, to a weakening dollar and a possible US downgrade.

- Swiss banks and Change

UBS and Credit Suisse reported much lower profits in their investment banking activities with cut in workforce as high as 4% in the case of Credit Suisse. This represent a substantial change of the banking landscape where Swiss banks continue to be successful in the Wealth managing business and should perhaps accept that the model of the universal bank with both strong investment banking and wealth management operations is obsolete. Swiss banks continue to benefit from inflows from Asia and emerging economies and should focus exclusively on the wealth management business and any activity as a support, and not core, to wealth management.
Swiss banks need to adapt to change and try to be leader in a market that is less capital intensive and where they benefit from a long history and positive image, particularly relevant in periods of uncertainties like now.

- Sparkling diamonds ? Adapting to Change

Among the sectors that do not seem to face any slowdown we have luxury goods. Both LVMH and Swatch group reported strong results (LVMH net profits up 25% in the first six months Swatch +24.5% in profits despite the strong Swiss franc) and since my recommendation of last year this has been among the best performing sectors. Diamond leaders De Beers, that operates jewelry stores in a 50/50% joint venture with LVMH, is set to open its second store in Hong Kong and several more in China during this year.

According to the De Beers by 2015 China, India and Middle East will account for 40% of global
consumption surpassing the US. (China has currently 11% consumption, India 10% Middle East 8% and U.S. 38%).

Similarly Salvatore Ferragamo (previously mentioned on the Show and up 30% since the IPO of 1 month ago) sells
more in Hong Kong than in any other of their stores.

This confirms that investors should embrace change and focus on well known brands with a strong presence in Asia, India and fast growing markets. This is applicable to any sector including private banking: these private banks with a strong presence in Asia and developing markets will benefit from this inevitable "new normal" !

In short
Adapting to Change
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- While I do think that the US will reach a resolution of the debt ceiling stalemate many issues and the high debt remains. There is a strong need for ways to reduce unemployment and re-create growth.;
- Investors demand for Gold and the safe heaven Swiss Francs will remain at least till the end of the year. Important to note that Gold has not increased year to date in Swiss francs and has increased only marginally since last year.
- Swiss Banks need to adapt to the new environment and focus to maintain their leadership in the Wealth Management business and focus their investment banking activities as support and auxiliaries to the main core business;
- In the new normal where growth is mostly coming from China, Asia and Emerging markets investors need to embrace change and invest in these companies that will benefit from this new trend.
-We cannot ignore the facts that among the best results reported this semester we have luxury good European companies. This because China and emerging countries can pretty much produce anything but in the case of luxury they want the brand and artisanal manufacture unique to these companies.