words:
If the Swiss are not there, get a
parachute.
As of early this morning the Swiss Central Bank (SNB) has backed out of
the market and has temporarily suspended currency intervention. The
market reaction has been swift. The dollar has soared against the Euro
along with all of the Euro crosses. Equities markets have all reacted
negatively.
What triggered the Swiss to back off the intervention is a critical
question. My answer to that is that the SNB has never intended to hold a
given level of the E/CHF. The SNB has a very good handle on the supply
and demand conditions in the market. If they see demand for the CHF that
is in excess of their ability/willingness to absorb they just back off
and let the market find a new level that they can more easily control.
This mornings demand for CHF against the crosses is probably related to
new information on Eastern European (Hungary) and possibly supported by
rumors at Soc.Gen. It does not matter what the impulse for the current
move. The lesson to learn is that the SNB is unwilling to hold any given
rate for the E/CHF. Their only objective is to slow the inevitable.
With that lesson now learned there is no bottom for the Euro. We have
entered a new, highly uncertain FX environment.
It is not clear how much intervention the SNB did in May. We know they
did CHF 24b in April. They must have done at least that amount in May.
This would put their Euro reserve position at approximately 80 billion.
At the end of March they marketed their reserves at 1.4350. As of this
moment this translates into a second quarter loss of ~CHF 3b. They lost
CHF 3.5b in the 1stQ so the total this year is in excess of CHF 6b. This
is a very big amount for the SNB. They hate these losses. Their
willingness to absorb additional losses is now in question.
I doubt the SNB is done with intervention. We will see them come back in
at some point. A guess is that at 1.38 they may be seen. But it does
not matter what they do. They have tipped their hand. There objective is
only to slow what is coming. They will not intervene decisively until
1.35 (if at all).
The
move this morning in the Euro against the CHF and the other crosses trumps all other data.
weimar hungary has a nice ring to it.
boy this is fuggin bugly today
My precious, My precious!!!!!!!!!!!!!!!!!!!!!!!!!!!!
You know the dude from the Lord of Rings was really imitating us gold bitches you know
I called my Swiss Banker today and he told me that the Hungarian Central Bank had made a very large purchase of Swiss Francs in order to cover their short term interest expenses on all those Franc denominated mortgages. Perhaps the Hungarians are buying up all available Swiss francs the way the Germans have vacuumed up all the Krugerands.
On another note, my Swiss buddies in the office were crowing about how low their mortgage interest was right now, both said they are paying well under 1% interest. This is the advantage of a completely variable rate mortgage, you benefit directly from artificially low CB controlled interest rates. One of them said: "I have had a libor mortgage for 8 years, and it has always worked well for me".
Now the chinese are in, those are even worse!!
SNB is not the only CB in FX markets, so analysing only one CB is meaningless. One steps out, two step in, or something like that.
Actually I believe the SNB is the only major CB involved with intervention at the moment. I have seen no evidence that the ECB is involved, nor the Fed of Bank of japan.
The SNB was holding things together up till yesterday at 8am. They were doing it alone. And they failed.
bk
Disagree. SNB is the only one selling its own currency, that I know of.
There again, It could just be the thought of bailing out the Austrians......thanks, but no thanks.
Regards.
From the FT'rumour mill two days ago:
" Reuters spoke with officials in Brazil, India, Japan and South Korea, who told the news agency that their central banks will also continue to invest in the euro.
Via Reuters:
Some of the world’s richest central banks will not stop investing in the euro, supporting its reserve status, despite the sovereign debt crisis hammering the euro zone’s currency, government sources said.
Official sources in Brazil, India, Russia, Japan and South Korea told Reuters in separate interviews that their reserve currency portfolios were too big to change without affecting markets, and there were no alternatives in the near term to the liquidity of the euro and the US dollar.
The four countries control nearly a quarter of the world’s $8.09 trillion in foreign exchange reserves.
…
“Even if the dollar or the euro is in trouble, is there anywhere else to invest? Not really. There needs to be a certain degree of liquidity,” said a senior Japanese government official, who asked not to be identified because of the political sensitivity of the issue.
“Currencies of countries with capital controls won’t work too. That leaves us with very few options,” the official said
http://blogs.ft.com/money-supply/2010/06/02/whos-walking-away-from-the-e...
I don't think you can get a bigger contrarian indicator than this article. It sure sounds like all in... then what?
Take the Euro to the dumpster where any fiat union of bankrupt countries never supports a solid currency!! Just piles of paper fiat chit and the USD gets its due soon!! gov goon paper thin air paper ponzi promises burning down to ashes all over the flawed fiat financial system!! Kaboom!! What they goona do now when it all fails; implodes? Confiscate gold and once raped into thieving coffers, revalue it for wankster gangster spankster skankster profits as with '33 FDR RIP off? Give us your honest money at 20.70 a oz and let us mob-O-craps jack up; revalue to 35 for instant profit!! Nothin but a pack of repuliCONs & demonCraps!
There is one currency up in this move, the Yen.
AUD and CAD show a similar pattern to EUR and SEK with the Yen showing the inverse.
An unwind in the Yen Carry Trade would explain that, see for charts.
http://www.nowandfutures.com/currencies.html
shows a lot of currencies against the USD.
There is more then the SNB; someone needs money in Japan or housewifes there decided to panick.
And as I think I posted under Bruce's Swiss intervention piece last week, supporting the Euro vs. your own currency makes sense only if there is any hope that the underlying situation can be rectified...otherwise...let the big tree fall and get the hell out of the way.
Sometimes it ain't easy playing the best hand at the table I guess.
The Swiss may have the "best hand" but you are right, they still may be a loser.
at E/CHF 1.35 their economy starts to hit deflation. They have very few options left.
If gold makes it to 1200 in euro it would have to go to 1620 ish in chf to keep that 1.35. If they stop QEing euro at EUR/USD 1.1 like I think they might then that leaves gold at 1136 in euro and 1534 in CHF to keep a 1.35 ratio and 1600ish to keep a 1.41 exchange.
Reguardless it's going to take a lot of gold down their pieholes to get those rates. There might be enough tea in china to do it but there's probably not enough gold in comex and london fix to do it.
Reguardless keep an eye on eur/usd and look for some sign of of a bottom. Be nice to see how much they can QE these 2 places without breaking the vault.
Yes, Bruce, I echo the above replies about how good work is. +++
Never leave us.
Tx BK for your insight - sheer clarity
+1, great observations, both posts in this chain.
Thanks for the post, Bruce -- I like reading your thoughts.
Assuming the rest of Europe is in for many years of economic despair it will be interesting to see what the best strategy is for the Swiss with their relatively healthy economy and (I think) long term balance sheet - and tight borders. The sizable business they do with the rest of Europe will suffer obviously. Can they import their way toward sustaining a high standard of living until they redirect/regrow business elsewhere?
Don't worry. The Bilderbergers will sort this all out in their meeting happening now...
Where is the meeting taking place?
Sitges, Spain.
Some real respectable looking dude is going to have to man up and infiltrate the Bilderberger club meetings.
Any alpha males here at ZH ready, willing and able? Alas, I would not fit in there...
An infiltration about 20 minutes into this evening's cocktail reception sounds about right.
Alas, security is probably higher than ever imagined.
If some religiously crazed Middle Easterner wanted to do some damage to the West now would be the time -- and we know the place!
I really hate wishing for violence and bloodshed, but I really really hope Russia or some other power would drop a nuke on that city this weekend. Alas kharma will come for all in the end, to bad they don't see that... as it will probably mean their heads in a guillotine so to speak.
Or at least some commandos to wire up some buildings WTC 7 style. Nice city.
Which reminds me, of this below:
http://pilotsfor911truth.org/forum/index.php?showtopic=20048
(Developed at Raytheon well before 9/11/01....)
Yeah but the Euro is all green against the Forint....oh shit, nevermind.