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As EURCHF Plunges (Again), Here Are Goldman's Latest Thoughts On The Swiss Franc
Perhaps this year Goldman's Thomas Stolper will get one finally right: "After some large moves in EUR/CHF to new record lows in recent days, we revisit our analysis published earlier this year. Overall it appears there is still no end in sight to the unwinding of legacy EUR/CHF carry trades, but maybe the start of a new fiscal year may offer some respite from January onward." And as we have said, the Swiss economy is about to be whacked as a result: "The wild card however is the extent to which the exchange rate starts to hurt the Swiss economy. In that respect the recent November trade numbers are quite interesting as they indicate a notable volume decline. Export volume growth has declined to only 3% yoy in November from as much as 14% yoy last May. Not all of this is necessarily due to the exchange rate impact as the global inventory cycle also slowed over that period, but the 14% trade weighted appreciation of the CHF has certainly not helped." Alas, for now there really is no respite: the EURCHF just hit another all time record low: 1.2475. Time for the next "parity" meme?
Full observations on EURCHF:
Long-dated vol markets remain under pressure
Long-dated EUR/CHF volatility appears to remain one of the most useful bellwethers of unwinding pressures in legacy CHF carry trades. The reason is that implied EUR/CHF traded at exceptionally low levels during the peak carry period of 2006 and 2007. At the time, implied volatility for 10 year 25 delta EUR/CHF puts was quoted below 3%, well below long dated averages of realized volatility at the time. The aggressive selling of implied volatility at time, i.e. collecting option premium, coincided with a broad preference to also go short low yielding currencies to collect carry.
The same 10 year 25 delta puts that were exceptionally cheap in 2007 now trade at 12.5% and have moved to just another historic high in recent days, which suggests continued pressure to cover these legacy short volatility and carry positions.
For many institutions the end of the fiscal year approaches, often coinciding with the obligation to report on annual performance and current exposure. Over the last 7 months the trade weighted CHF has rallied by about 14%. Still sitting on unhedged short CHF positions may pose presentational challenges and hence create an incentive to reduce the exposure.
Short-dated implied volatility markets also skewed towards EUR/CHF puts
Contrary to the long end of the vol curve, the shorter end likely reflects more short term market activity and follows more closely the spot price action. Short dated 3 month 25 delta EUR/CHF risk reversals are skewed by about 3 vol in favour of puts and this is comparable with the extreme skew seen in August. This suggests that in addition to legacy unwinding flows another source of recent EUR/CHF selling has been simple speculative activity. Similarly to the August move the recent EUR/CHF setback also coincided with a notable set-back for the broad EUR on rising sovereign tensions in the Eurozone.
Similarly the positioning information from the IMM market indicates speculative accounts are currently long CHF and short EUR. Our implied IMM EUR/CHF positioning score stands at a level of -4.5, at the same levels as in August and consistent with a relatively stretched short positioning that has been exceeded only rarely in the past.
Strength of the Swiss economy
For much of last year, Switzerland was a non-Eurozone proxy for the strong German economy. Firstly there are many similarities including similar exposure to growth economies. Moreover, the high degree of trade integration of the two countries implies that strength of German exports to EM countries also boosted Swiss exports to Germany, which accounts for about 25% of all Swiss exports.
With activity strong and house prices rising rapidly, it also remains quite likely that the SNB will hike rates well before the ECB. The latest PMI number was very strong again and the recent sell-off in Swiss rates markets may have some of this flavor, though most of the move probably only reflected the global sell-off in rates markets.
The wild card however is the extent to which the exchange rate starts to hurt the Swiss economy. In that respect the recent November trade numbers are quite interesting as they indicate a notable volume decline. Export volume growth has declined to only 3% yoy in November from as much as 14% yoy last May. Not all of this is necessarily due to the exchange rate impact as the global inventory cycle also slowed over that period, but the 14% trade weighted appreciation of the CHF has certainly not helped.
In this context it is worth highlighting that the SNB focuses on Financial Conditions and the need to hike rates is somewhat reduced because of the tightening from the FX side.
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I've been on this since mid December continually expecting it to make a reversal or at worst a decent retrace but it, just. Keeps. Going.
It's like the EUR got in the christmas spirit early and can't stop falling down.
Too much spiked eggnog for the EUR, time for detox from all this holiday cheer.
Don't forget the British pound.
The Euro and the Pound charts are a nightmare.
So much for stability. I have alarms going off on my Computer.
The worst day I have seen. Its like slapping at flies.
Will be interesting to see if the metals will be able to hold up on the next leg up for US$ to 83.5. So far it a has had a minor effect, but I wonder if it can continue. A big GREETINGS to my faithful junkers who have pointed out correctly that metals can and do rally along with a strong $. Bid is getting light for GC and SI tho.
Yea but is it REALLY a 'strong dollar', or just whichever fiat turd happens to bob up the highest against the other turds in a particular moment?
I'm with you on that argument Sheep, but the chart for US$ Index is bullish and likely to see 83.5 from current 80.7 in the near term. What the stinkiest piece of shit in the pile is something I factor out. But I hear ya. Have a good one.
Id like it, any pop up in dollar 'strength' just makes it that much more difficult for the grand monetizer Bernank.
In the end Sheep, what does he care? Look at EUO (21.2) a 2x short Euro ETF (21.2) to trade the move to 23 with 27 out there longer term.
Resource producing nations are getting much stronger against the dollar. AUD hit parity today. The Canadian dollar probably won't be far behind.
Of course, even if you don't produce resources, relatively prudent fiscal policies will produce positive results in your fiat currency, as we see with the Swiss Franc, which is now higher than $1.05
The only currencies sinking faster than the dollar are the Euro and the Pound. Of course, we are certain to keep the weightings where they are, so we can point to the useless USDX and say "where's the inflation? We've got a strong Dollar here!"
Since you can't change the Index, Buy it. The AUD was at 102 in November and fell to 95. now it has bounced to 100, so uptrend yes for now, breakout no.
Whatever Goldman says, exact opposite will happen 9 times out of 10, better contrarian indicator than The Cramer.
Tyler, my man, you gotta cover the Bank of America story. They broke into the woman's home while she was gone, changed the locks, threw all her stuff in the trash, including her late husband's ashes. I tell you what, the American people need to arm themselves fiercly, and dare these crooks to come to their home. If these bankers want to take it to the extreme, then the people should obligue them. It's bad enough they are stealing the money, but it's time to say enough is enough when they start treating people like they aren't human beings.
Damn straight thats what americans need to do. Just wondering, is this a new story or the one from a while back that had the 911 call?
News story, released about 1/2 hour ago, here is one of the links from yazoo:
http://finance.yahoo.com/news/In-a-Sign-of-Foreclosure-nytimes-270215034...
Me and Cdad would have sprung out from under our coat piles in the closet and given those banksters a lead salad!
Well, I don't know about that, Dog. A. I'm not very good a springing anymore. B. I am keeping all ammunition in reserve for the day that Apple zombies figure out that they have an odd craving for human flesh. C. AND MOST IMPORTANTLY the best way to get rid of a criminal syndicate Wall Street banker is to simply close your wallet [no guns required].
Other than that, I'm right there with you, and as soon as playing Whack-a-Mole with shares of the world's largest petroshrimp maker ends for the day, I promise I am going to read that article about the criminal banker from the Blight on America bank...and consider selling his shares short...what with them going all ballistic these last few days on...based on...well, because....desperate Wall Street bankers needed to advance bank shares to advance the S&P so that they could all scream "BREAKOUT" right before they headed over to the Roach Motel [SPY] for free drinks at the OPEN BAR while the mirror ball whizzes and on and on...
Just as soon as I'm done, Dog.
You know, I hear that Ms. CHF is very, very upper end, you know? Almost like only affordable for the criminal syndicate Wall Street banker set. But the stories, what that woman can do....oooooo la la.
As for poor little Miss Euro, listen, someone needs to intervene. This has to be an embarrassment for certain members of the European continent that, ummmm, find this sort of partying and upchucking and such in public...well, some that call that a spectacle. I suspect that is why that German photographer is moving in on the up skirt shot just now...to somehow just put an end to this madness.
And last night....AGAIN....19:00...mojito after mojito after mojito...only to be hanginig here on this railing again. You would think she would have built up some tolerance by now...but I don't think so...I don't think she has. All that is left is for USD to show up on the scene...well....and I think we got ourselves the making of a triple rated movie...if you know what I mean.
But I don't trade currencies, so what do I know? [I'm starting to think I missed my calling in life]
Sad watching the starlet hurling over the railing while some poor schlub tries to hold her hair back. Always the same with these Euro party chicks, 'Come on you pussies I can drink more than you! Lets do shots! Lets do 10 shots! Lets do some more beer bongs!' Then comes the party chick downward spiral 20 minutes later like clockwork.
I don't trade them either, but from the outside looking in I would have to guess all currency will propogate to parity. This would need to happen before the bancor could be used.
Who would have ever believed that after the biggest global financial bust in 50 years, the S & P 500 would be going parabolic in Europe just 2 years later....
Robo,
The answer to you IMPLIED question is two fold:
1. Not Average Joe
2. Only criminal syndicate Wall Street bankers
Robo doesnt own any of this shit, he lives vicariously thru selected boner charts.
And will continue to do so as long as more money is thrown in the arena. More pump = more SPX gains.
And, of course, everlasting loss of purchasing power in terms of gold.
Harry, can you get me a 40x60 Velvet Elvis in time for Christmas?
Price it in physical gold for us Harry.
Harry,
I have no doubt that you are right that criminal syndicate Wall Street bankers will keep on printing money and partying down at the Roach Motel...until an FBI guy shows up...and only then will any of this end.
Which is why capital will not form in our banking system...until FBI guys finally do their job...which is why The Bernank continues to commit the largest robbery in the history of the world.
But call me a hopeless romantic. I actually believe that it is possible that the rule of law will return...because if it doesn't Harry...every one's wallet is going to be empty and closed...and we all know what will happen then.
OT, bonds just took a dump, both 10y and 30y. Is there no POMO today?
Oh man this is ugly...hey anyone recall DHS warnings of 'Al CIAda' attacks on Christmas? I'd be taking them seriously they need a diversion here stat.
And why are financials rallying in a flat market? MS estimate has been cut but rallies anyway not to mention the 3 times insolvent BAC is up 3%. I am very very tempted to drop some cash into a short ETF.
Because all that matters is bankster stocks and bonuses. For now.
Tyler was right about the headline reading algos. 2/20 for this? At least they are honest about it.
http://www.bloomberg.com/news/2010-12-22/hedge-fund-will-track-twitter-to-predict-stockmarket-movements.html
As if anyone on Twitter is trading stocks?
Just keep on thinking about all the Euro periphery home owners who took out mortgages in SWF and have seen SWF strengthen while their own currencies have floundered. Real world mortgage defaults coming soon for all those banks (not just Swiss banks) that lent in SWF.
PCLN from $50 to $425, while gold stocks are floundering
RobotTrader - Wed, Dec 22, 2010 - 11:33 AM
Man, talk about "perma-gloomer's remorse"....
So many of the CIGA's and King World News fans must be kicking themselves for not being fully invested in the travel and leisure segment.
Instead, they are getting kicked around with gold stocks constantly getting beatings, false breakouts, huge shank jobs, etc.
Yesterday, it was cruise lines.
Today, it is online travel brokers with P/E ratios of over 100...
LOL...
Image #1:
Man, talk about total desperation...Robo has to walk out the Priceline chart? Lulz.
This is going to end well, I'm sure.
He is now quoting himself. Mental meltdown in progress.
lol, he is probably starting to actually believe it as well.
Like priceline stock price is any indication of actual travel. It has nothing to do with increased ads from airlines and hotels desperately seeking to generate any kind of business right now. And of course has nothing to do with travellers seeking any kind of deal on prices cause they just can't affort it. Not to mention ad impressions are up due to people spend more time shopping instead of just buying the first thing they find...
Thanks, Robo. Although my majority of money is tied up in PMs, my largest stock holdings are PCLN and AAPL. So while gold may be "floundering" right now, as the chart above shows, I'm sitting pretty regardless.
SunTrust breaking out....
I've had this stock since the market turned up off the lows, and I almost dumped it since it wasn't doing anything.
Now it is taking off, I'm glad I held on.
The tape is getting stronger, not weaker....
Oh sure, Robo finds another boner chart and claims he's owned it all along. Weak, even for a Yahoo!Finance message board troll.
The only thing they had of worth, coca-cola shares, was sold off back in '08. Crap bank.
Also, I didn't junk you.
Re: EURCHF. I wonder how our friends mortgage-takers doing in Poland... As far as I know, the majority of their mortgages were taken in CHF.
Greece 12%..finally.
http://www.bloomberg.com/apps/quote?ticker=GGGB10YR:IND
Watching US Munis also.. 'MUB' aka "mugger bonds". We have a bit of a crime problem here.
Nice! I checked it earlier today, it was 11.98% and I was wondering when we'll see 12%... Sooner than I thought, apparently.