out the EURCHF fell off of a cliff two hours ago. I think there is a
story here worth noting. First let me say that we are in no man’s land.
Any part of the Swiss cross is a high-risk trade. Be guided accordingly.
I doubt that tight stop losses will be executed if the SNB shows it’s
hand.
Consider the timing of the collapse of the cross. It kicked off at 10:25. Why? Because “someone” knew that past 4:30 Zurich time the SNB was a no-show for the day. With that risk removed the “someones”
sell hard and fast. Without the threat of the SNB the cross quickly
corrects. It did it Sunday night in Asia. It did it NY yesterday. And
today the cycle is being repeated.
This is a disaster in the making. The SNB has given the “someones” AKA the “market”
a free ticket to coin money. The window is now open to trade around the
SNB. If the door remains open, the players will continue to operate,
the cross will go lower and there will be a crisis.
In September of 1992 George Soros (but really it was Stan Drukenmiller)
broke the Bank of England. They made a bundle in the process. After
that, the CB’s quietly agreed that they could not hand up winners to the
market. By itself, it created a systemic risk. By making it profitable,
it insured that there would a continuing “run on the bank” and the
chaos that always goes with it.
The SNB has been doing exactly the opposite for nearly eight months.
Their losses are FX player’s gains. It is a zero sum game in the short
term.
I can’t imagine that this pattern can continue for long. There is no CB
that is not watching this closely. They understand that this is a
gathering storm. It is even more troubling that it is happening in a
very similar fashion with the Yen crosses. The BOJ is just hot air. Like
the SNB they are powerless.
If the CB’s want/need to stabilize speculative markets they have only one option. They have to re-establish two way risk.
There has to be risks 24/7 that the CB’s will act. The CB’s have to
step up and show they mean business and be active in all markets in
large amounts.
This can only be accomplished if the intervention is done with a number
of Central Banks and the activities are coordinated. It CAN NOT be
accomplished unless the Fed is involved for it’s own account.
Should that be the result it would be the most significant leap in
government involvement in the market since February-March of 2008. If
initiated it would get the capital moving. There can be no certainty of
what the outcome will be. These are the conditions where Black Swans
appear.
I would not advise anyone to dabble in this water unless you are a pro.
It is better to watch this play out from the sidelines. But do watch the
Swiss crosses. There may be significant macro consequences from what
will likely play out in the next few weeks. Either the attacks on
sovereigns will dramatically accelerate, or the financial system will
get “socialized” up another notch. A fair bit on the line.
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Also, gonna go ahead and make the bold but plausible prediction that EURCHF goes at or below 1.000 by the end of Q1 2011. I will probably get junked for that, but the situation I'm looking at appears to dictate a pretty epic move down.
Not unreasonable Funk imho.
Swissie, best of a bad lot.
Just thinking too back to late October of 2008, when the EURCHF plummeted to 1.44 and everyone was getting pretty fucking apocolyptic. Yet, here we are just under 1.30 and all indicators are continuing to point down. Can't fight gravity, as much as I'm sure they'd like to try.
Just an interesting pair to watch in general. I still marvel at Jan. 15-18, 1999.
You can edit your comment at any time up until it has been replied to. No need for additional comments for those after-thoughts.
I seem to remember an oddly similar currency issue back in mid-to-late August of 2008 that preceded the last cliff dive into crisis mode. Straw breaking the camels back there too. If you buy into the idea that history tends to repeat itself, we may be experiencing some seriously painful deja vu shortly here.
Great article Bruce. But if Bernanke uses the Fed to intervene in foreign currency markets, he risks eventual criminal prosecution. Maybe he could flee to Switzerland.
Fed intervening ? Can you say IMF? I knew you could . What about the IMF promising a bottomless bailout if needed , to any and all comers . Is this causing any effects ?
Any intervention = the free lunch the market is expecting...
Or....the central banks could just fuck-off....
I don't see where the disaster lies. Yes, the franc is going to strengthen as the global economy weakens, especially when the Eurozone ban on sovereign defaults fails. That will crush the exporters and fatten the bankers, perhaps in some longer run causing a crisis if all the money that flees to Switzerland from the Eurozone suddenly flees back for some reason. But what's the big worry here, do you have Swiss farmer relatives or something? It's a rich little country, they'll cope.
Yes, Switzerland will do just fine. Even if they have to "import" some deflation.
I tried to make the point that there were big global consequences to this if it gets out of control. It is not out of control today. But we are getting closer.
I say again. This is what brings Black Swans out. The Black Swan is not the CHF exchange rate. It is (as you suggest) not all that important. It is the unknown ripple effects that worry me.
Agree BK & tx for the ongoing...
Well, ok, I guess you never know which straw will break the camel's back. I'm a lot more concerned about the Yen.
Besides, I'd say the franc is a safe bet to appreciate substantially over the next 18 months (I'd say at least another 10% vs the Euro). If there's any more interference-running by the SNB it will be just as ineffective and short-lived as last time.
Agree with you Tom. Big into the Yen previously but there's something with that one which just does not sit too comfortably with me now. Now the CHF, a lovely little fiat - 118 against EUR quite soon methinx. And nah, the SNB will be on a Lake Geneva boat-trip not meddling..let's see.
The Swiss can use a strong CHF to buy cheap assets in depreciated currencies, for all the same reasons gold bitchez are a favorite counter-measure to QE*2. An old Swiss saying: Good money is coined freedom.
VERY important point!
Thanks for your work.
Another good one Bruce, please carry on
+1 thank you Bruce
Any chance SNB just stops intervening and lets the market play out?
CBs just stop intervening.
Seriously, that would be black swan event, right?
CBs must intervene or die.
agreed. someone has to keep the music playing, cuz there are no chairs anywhere to sit when it stops. this is gonna be one hell of a decade watching this shit play out
Thanks a lot for this Bruce. Actually your articles usually do clarify one thing or another for me.
No, this is all on the level, everything is ok.
Secret Bunker, oh dear, mine is called a root cellar.
What shall we do?
That bunker was sold in the early 90s for around $250k. I tried to buy it about 10 years ago and the owner wanted $16m (or thereabouts). I declined.
Where is it? What was it?
b
Bruce, excellent apoints on the dynamics of CHF recently. However I don't think that the problems in Hungary or any imminent deflationary problems in Swizerland would be big enough to cause the coordinated action you describe. Also a conceptual wish to restore symmetry doesnt work either, for me, as I think the SNB went it alone with its attempt to sell CHF, and got burned.
What is happening is that CHF is simply the last major safety play. The SNB are having to pay for the fear of JPY intervention. Until the BOJ shits or gets off the pot, CHF will rally.
I think the main CBs know this well, and are prepared to sit this out. The market will forget Hildebrand soon, it has such a short memory!
With respect, there can NEVER be a crisis because a currency is too strong. It is only demonstrative of how far down the rabbit hile we've come that a STRONG currency is a problem, but money printing causes an FX to rally! :O
And no, I don't need an analysis of how this will impact the Swiss Banking sector. They've managed for 4-500yrs, I'm guessing SOME swiss banks have been smarter, and will make a killing and be stronger than ever, if ALLOWED to.
There's nothing wrong with a recession. There's NOTHING worng with creative destruction. And when you've created bubbles for 30yrs, a bubble on a bubble on a bubble on a bubble on a bubble: ie Reagan supply-side bubble idiotconomics, then Clinton low interest rate bubble idiotconomics, then Bush tax cut bubble idiotconomics, and now Obama borrow quadrillions bubble idiotconomics......then, you haven't chosen a correction or a recession....then......
THERE'S NOTHING WRONG WITH A DEPRESSION EITHER
ps: Swiss Cheese Bitchezzzz
Never a crisis? We are pretty close to proving that wrong. Tell that to the CBs in Japan and Switzerland. This action can derail them.
I also don't agree with you that there is nothing wrong with a depression. That is a world of hurt for many.
That said, it is the growing instability that might just take us there.
We are all bystanders. Even the CBs. Nothing can really influence the ultimate outcome. Some actions slow the pace down. Others speed it up. The CHF is currently one of those things that is speeding things up. Fast.
Bruce, c'mon, you know we're not disagreeing(at least I don't think so). Currency strength is never a crisis. Every single strong economy in world history, was FOUNDED and SUSTAINED on a strong cureency, correct? Currently, FX strength is not CAUSING the crisis, it is EXPOSING a pre-existing crisis, an imbalance, of overinflation/overexpansion of economies constantly built bubble upon bubble,caused by Swiss overdependence on one sector of the economy(banking),Japanese overreliance on export-driven growth(yet JPY historically KEEPS strengthening attempting to redress that imbalance), and a US economy now based on the concept of a $200k income family of 4 owing 2mill, owning 3-4-5 cars, 3-4-5 bedrooms, 6 computers, 5 flat screens, etc. Used to have a word for that, beyond decadence, it's called hedonism.
And we DO keep changing the rules. Taxes, are rules. Housing regs, are rules, Financial regs,are rules. Now, out of other stimuli, we're changing the RULES in an attempt to prop the system up. People with real money, they have zero interest in lending to almost anyone. Hence, FX strength, hence balance redressed and reattained.
Noone is claiming that it will be easy, or pleasant, and noone is lamenting the days of yore, and of poverty. But we're fat. And lazy. And stupid. And I'm just sick of it. This is no longer an economic problem, but a socioanthorpological one, and this part, the amalgamation of many different branches along with economics, always appealed to me. It's a values problem. People aren't in touch with the real value of things. That's why jeans are $200 and Apple has a bigger market cap than Dow Chem. Whole thing is just fucked up!
So Depression? Good. That's not a crisis. Poverty, is NOT a crisis. Disease is a crisis. Death, is a crisis. War, is a crisis. Too bad that last one will be their next stimulus attempt. :(
So in your view, then, Communist China - with its extremely strong currency - would have a superior economic system to that of the U.S..
So when are you moving there?
Or do you favor a planned industrial economy here in the U.S.?
Who are you, Lyndon Larouche?
Hahahahahha :) Lyndon LaRouche ahahhahaha! Ok you win. :)
But everyone agrees that China has a stronger economy than the US and will surpass us, correct? And our economy started fizzing out right around when DXY couldn't hold that 110-100 area right? Just saying. And I don't have to move there, I can find all the Azian poony-toony I need right hea! :)
C'mon you all, we're *****IN***** the disequilibrium.
"With respect, there can NEVER be a crisis because a currency is too strong"
There sure as hell can be when a lot of Eastern Europe has taken out CHF denominated mortgages to benefit from low Swiss interest rates. Watching their loan balance and monthly repayments climb day after day in local currency must be killing them, and will eventually precipitate another wave of crisis in Europe.
You mean mortgage defaults right? Because that's NOT a crisis. Words means things. Let's use them properly. People have been around, living in houses, LOOOONG before there were mortgages. And if they were trying to be slick & gain, there's an implied possibility of loss. I understand what you're saying. I'm just SO FUCKING SICK AND TIRED OF EVERYBODY WHINNING AND BITCHING AND WANTING TO CHANGE THE RULES EVERYTIME IT DOESN'T GO THEIR WAY!!!
Fucking Babies. You don't see me trying to play in the NBA and then bitching they shouldn't be allowed to dunk on me, right? Cuz I'd LOVE to "play" ball (8mins/game) for $5mill a year and bang hot bitchez all around the world.
Defaults aren't a crisis?
Defaults are the definition of a crisis.
The world doesn't operate by "rules". That idea is nothing more than economic Creationism, peddled by Mises and Marx with no real world success, ever..
It operates by norms and if the normal relationship between creditors and debtors changes radically, there's going to be an enormous shift in economic behavior - and not to the good.
The credit economy - one of fiat currency (since all money creation through credit is "fiat") began in the 1200's. Before that, the Goldbug-Godbug moroneconomy existed for centuries - as it exists today - and people starved.
And BTW, how is it that Goldbug-Godbugs can prattle on about the long history of wonderful and just gold-based poverty while forgetting this word: "Jubilee".
Look it up, bitchez.
Friends taraxias and DosZap,
Me three re holding physical gold.
But, the whole, well, "meme" of Jubilee seems to be getting more and more attention and traction. If you are a creditor, NOW is a good time to be paid. Jubilee / debt repudiation OR hyperinflation seem to the only cards left to play by TPTB.
Prepare, the end is near.
Repent! The End is Near!
No comment on your WHOLE post.
But, you must know, their is no ,(has never to my knowledge) ever been a Jubilee, except for the Jews.
(IF your speaking of forgiveness of Debt,and I am fairly sure you are).
the mayans did it every 7 years
Actually, debt repudiation has been extremely common throughout history - mostly in the form of war.
Think about it.
Actually
You can always tell those without physical
(I don't have to look it up, I'm holding it)
Repeat comment
And I'm sure you'll sell that physical when it's over-priced in the market.
Oh, wait, I forgot. Gold can never be over-priced because it's made of magic.
Depression Bitchezz!
Secret bunker bitchez!