This page has been archived and commenting is disabled.
SNB Loses 8b on Euro Intervention. Folds.
The Euro/CHF cross closed in NY at 1.3732 Friday. I believe that is an
all time low close. I am still scratching my head how this could happen
during a week where the Euro did a five big figure move to the upside.
The Swiss National Bank has been intervening in the FX market to
slow/stop the appreciation of the CHF against the Euro for the
past six months. This week they threw in the towel and will let the
Franc float higher. It cost them a bundle.
Philipp Hildebrand took over as the head of the SNB On January 1, 2010.
He inherited a policy of defending the strong Franc. He continued the
policy from the day he took office. He will suffer the biggest loss in
FX history. Hildebrand publicly defended his actions on numerous
occasions. He always hid behind the threat of deflation in Switzerland
as the justification of his massive purchases of Euro’s. A chronology of
this. Note the dates:
Reuters:
Swiss Central bank
repeats will fight franc appreciationSun Jan 17, 2010 9:08am EST* SNB will fight excessive
franc appreciation resolutely* Deflation continues to pose risk to Swiss
recovery
Reuters:SNB says FX intervention a
success, sticking to policyTue Mar 23, 2010 8:15am EDT* SNB chairman repeats cbank's
intervention threat*
Says will not allow deflation risks from franc rise
This is from an important annual presentation. There is no equivocation
here regarding the threat of deflation in Switzerland.
Speech by Mr
Philipp M Hildebrand,30 April 2010.Any threat to this
currency stability would, by definition, have a negative impact on
Switzerland, above all if the Swiss franc were to appreciate sharply due
to its role as a safe haven currency. The SNB will not, however,
allow such a development to turn into a new deflation hazard for
Switzerland. For this reason, it is acting decisively to prevent
anexcessive appreciation of the Swiss franc.
HILDEBRAND,
MAY 11
"We will not allow any excessive appreciation that might generate
deflation risks".
Okay, we got that message. Deflation was to be avoided at all costs. But
actually those cost got too high. The SNB has foreign reserves of
CHF230 billion. Nearly half of total GDP. It comes to CHF 30,000 for
every citizen. The policy got out of control.
The SNB has reported a CHF 3b loss from Euro holdings in March. Based on
the close today and an estimated Euro 50b intervention in the past 75
days and you have a mark to market loss of CHF 8.4b. That may not sound
like a big number, but you have to consider this in the context of
Switzerland's GDP which is small. The 8.4b loss for the SNB would be
equivalent to a $200 billion loss for the Fed. So actually this is a
very big deal.
What does Mr. Hildebrand do? He does a u-turn on the fight against
deflation. His words from Thursday:
“The deflationary risk in Switzerland has largely disappeared.”
What? In the past 60 days the risk of global deflation and particularly
deflation in Switzerland have increased. With the Euro/Franc at 1.37 and
now obviously headed lower deflation is a very real risk for the Swiss.
The decision to discontinue the policy of holding down the franc had
nothing to do with a risk analysis of deflation. It was about the money.
The losses were too big. The impact on the money supply was
undesirable.
So Hildebrand went to the big casino on his first day on the job and
lost a bundled and continued to double up until he had no chips. The FX
market ate his lunch for the biggest ever FX loss that I am aware of.
It is true that some Swiss exporters, farmers and the tourist industry
got some benefit from Mr. Hildebrand's efforts. My guess however, is
that 80% of his losses went into speculative hands. A nice win for some
folks.
»
- advertisements -
how can you lose money when changing crap for crap.
The real loss for swiss was when they change a big portion of their gold for crap
just like the Brittish and Dutch.Really made the masters very happy with that move.
This was a really dirty rap(e).
The SNB has gold. So they made money on that side of the ledger. The also have dollars. Also profitable. It is "normal" for the SNB to hold large amounts of euros. But they bought an "extra" 100 b in an effort to stabilize the Franc. The idea that they did so much, and then quit is not a success story for the SNB.
So Hildebrand went to the big casino on his first day on the job and lost a bundled and continued to double up until he had no chips. The FX market ate his lunch for the biggest ever FX loss that I am aware of.
It is true that some Swiss exporters, farmers and the tourist industry got some benefit from Mr. Hildebrand's efforts. My guess however, is that 80% of his losses went into speculative hands. A nice win for some folks.
Great, great stuff here Bruce. Well done sir.
Where did the money go?
The money doesn't disappear if it didn't exist in the first place.
In 2000 my house was worth $150,000. In 2005 it was "worth" $500,000 thanks to the shenanigans of a lot of crooked banks. Now it's worth $150,000 again, or will be next year.
OOOOO! I lost $350,000! No I didn't, it was a Ponzi scheme and the high price was a fake. My $150,000 house is still worth what it was always worth.
Same with the stock market. On any given day less than 1% of all the stock in existence, gets traded. But somehow that establishes a value for all of it. So your stock went from $10 to $100. Where did that $90 come from? Nowhere, it doesn't exist. In a small thinly traded stock a few million in new money is enough to pust the stock up by a billion, in theory. But just wait till everyone tries to cash in at once and watch the billion "disappear".
It's a magic trick, hey presto! You are rich! Abracadabra! You're broke!
All based on the slick trick, the quick fix, and the gimmick. Wait till you see what magical new tricks they have up their sleeves to fix a busted economy.
Nah--they're not even pretending anymore. They've just thrown BP on the fire for the public's amusement. Wonder which industry they'll destroy next?
There's a name for this administration's philosophy, and it isn't socialism--it's nihilism.
They've already named what they're going after next. It's called the Internet.
Correct. They have to or risk losing control of everything. People are awakening.
I find it curious that NASA has just released a warning of forthcoming solar flare and CME eruptions in the solar cycle 24 ramp-up in a year or three. It just came out... please hunt it down you will find it instructive. I find it simply absurd.
While solar flares and coronal mass ejections can fry the circiutry of the internet (and auto electronics BTW...) the forecast for cycle 24 continues to show a low energy cycle well below 23 that just past.
I wonder...
beware the Schwabe 24!!
Pulkovo Observatory: 2010-2012 temporary flattening of solar declines before continued drop off for apprx 45 years. violent solar outbursts possible but not likely. falling temps from the past few years may have slight reversal before continued drop off. expect AGW CO2 trade pronzi to go into overdrive and hype any temp increases in last gasp money grab before climate cooling and accompanying falling crop productivity and associated events expose their fraud.
http://www.gao.spb.ru/english/astrometr/abduss_nkj_2009.pdf
Such a spectacle watching various banks as they trade one color of worthless paper for another color of worthless piece of paper, all in the name of being the holder of the final category of worthless paper to reach its inherent value -- zero.
Got Gold?
EURO bullish signals I warned of during the past few weeks - has resulted in the recent rally and the daily chart remains bullish.
The DOW/SP500 counter trend rally suggested on June 13 continues, however ...
http://stockmarket618.wordpress.com/about
Grand Supercycle: please stop posting your gay porn links.
Grand Superspammer strikes again!
I always knew, deep down, that clowns are evil.
Even a worm learns. Someday, maybe we can say as much for central bankers.
Thanks for the post. The bigwigs love to claim these interventions are cost free, but the cash losses are real, regardless of how they choose not to account for them.
Foreign exchange manipulation seems to be slowing the bond vigilantes, but this too shall pass. Running stops is fun, and quite profitable, as long as you have more chips than anyone else in the game. Looks like these dudes forgot how to count.
Of course someone won on the other side of the trade. Me puts my tinhat on and can't wait to see UBS's capital market earnings release next round!
Roger that, Snowman. These losses translate into more than $1,000USD per Swiss person ($8.4B loss, 7.8M population), meaning a comparable loss in the US would be over $300B. Still, talk of losses doesn't lead to torches and pitchforks in the streets. But what if the headline said, "Speculators make huge profits at public expense. Newbie SNB chief Hildebrand repeatedly doubles down on unwinnable bet, banks & hedgies walk away with billions."
People don't get mad when they realize their lunch is missing. They get mad when they see someone else eating it.
Did the central bank fall on its sword or do they have something to back the currency up? Time to dig in to that other SNB "vault" by Lake Geneva with the gold teeth and jewelry they hid from everyone for 60 years? It's good to be "neutral".
This might not be what it seems. Possibly the SNB would not have attempted this without secret co-ordination 'understandings' with the ECB, and an agreement to make the SNB whole in some way.
They perhaps wanted to see what they could accomplish in short trading time frames, and the SNB-ECB together simply decided not to go further, as larger-scale intervention would give away the game that the SNB was backed by somebody else.
We may yet see more interventions to create brief short-squeezes re a sinking euro, if not by the SNB then by other parties, at a later date, using the info that was learned here to scale-up the next attempt.
Yes the SNB will be back in the markets at some point. But what will they say when that happens? "Deflation did it".
I think they look silly with the on again off again fight on deflation.
Bruce,
Since you know I am an old guy like you, you also know that any prop up of a currency by a central bank or otherwise never works. NEVER. Why is anyone surprised here? This is the way it has always been and guess what--it is never different, this time, that time, or anytime. Currency intervention is the biggest waste of time on the planet.
...to be followed quickly by the other "biggest" waste of time on the planet, "Parsing Fedspeak".
How much wasted time is made by the bobbleheads, industry analysts, traders, etc. waiting for the Fed chairman to speak, then trying to understand what the heck he just said? It's a supreme joke, as the Fed chairman has every incentive to lie and mislead (and he does) without fear of accountability.
What a system. Humans are truly weird.
Ouch!
mikla,
that's a very good point. there is a belief by central bankers and officials that they can control and shape events. moral hazard is everywhere and the free flow of capital is a myth. the great american bailout set the template for the handling of liquidity and debt crises. this will now play out globally as one by one, sovereign nations are called to account and tapped on the shoulder.
wait until australia and new zealand appear on the horizon. australia has private debt of 241% of gdp and a housing bubble to add to its current account deficit.....new zealand not far behind.
the boys in charge really don't know what they are doing because they don't really want to acknowledge the fraud on which the mountain of debt has been built.
uncomfortable times ahead.
+1
Australia will become a smoking crater in the debt unwind (maybe New Zealand too -- haven't studied that as much). Australia is so incredibly screwed, and I'm amazed at their propensity to "double-down" in the advance of the unwind hurricane.
My only ability to make sense of it all is that these are politicians and political appointees -- they really are truly stupid in terms of "normal" and "common sense".
I am continually amazed that humans all over the world seem to think it's a good idea to have these "ruling elite lotto winners" get rich while micro-managing everyone else's lives into oblivion. Their damage to society is entirely demonstrable.
Anyone here from Australia that could expound on what it'll be like there after TSHTF? Only gangs and police have firearms, so wondering how different that might play out versus U.S. (or Canada, to a lesser extent--they do have some gun owners, just not as many)...
They are buried in 3 x 12"HDPVC tubes with screw cap ends somewhere handy in the garden. Two full auto 7 round 12 gauges, a full auto ruger 10/20 and the crazy lad -F88C AuSteyr - Present and accounted for - Sir.
As to what it will be like - Beautiful one day perfect the next. No worries Mate
Muahahahhaha thank you. I go to bed with a smile on my face...
Tragic ... but funny!
Maybe Switzerland should ask admission into the EMU ... they have plenty of euros, now.
:)
by the way, thanks Bruce...your posts are always great, and since I know nothing of currency markets, much appreciated.
wow, this is shocking, and why don't I hear about it on TV?
If the SNB was going to spend that kind of money, think what else they could have done with it for the Swiss people. Instead, vaporized to the hands of some Fabulous Fab-types or Soros's of the world, ouch.
Understand your frustration, and share it.
But why isn't this on tv? Look at it fromthe incentives/economics perspective. Financial TV doesn't cover it because people don't want to hear what's coming--it isn't good tv to frighten your viewers. Plus, what advertiser is going to run an ad on a network that is telling people not to buy jackshit except PMs, food and ammo?
This is what amazes me about financial media--people never figure out that Jim Cramer has to fill 22 minutes with SOMETHING, that Bloomberg's Betty Liu is way more concerned that her hair looks full and lustrous each morning than whether she's imparting actual news (FYI--it does, it does!), and that Kiplinger and Money Magazine can't run 12 succeeding issues of "this is the end, get out of the stock market!" Cuz it'd go from a magazine to a one-pager...
And my friends REALLY crack me up when they quote something Warren Buffett said last Tuesday or whatever, recommending they buy X. I just shake my head and mutter "DUDE! He's already bought it and is just telling you to push his price up afterwards! He's talking up his own portfolio and you can't figure that?!"
So much for the gnomes of Zurich!
Pikers...
Welcome to the Big Boys room.
My printing press is bigger than yours...
Fiat Uber Alles
Sincerly,
B-52 Ben
Only $8b? That's theoretically funny money too since they can always literally print more.
Boy they really got Bern'd. What were they thinking? How does a country with a GDP of only $400B defend itself from a Euro exodus from the European Union with a $14T GDP?
+1
Bern'd. Snerk!
+1
It's the "Masters Of The Universe" hubris. They are Central Planners. They are absolutely convinced that they are smarter than we, the little people (the "morts"), which is why they should just decide all this stuff for us.
And, of course, these brainiacs are utterly incapable of basic math and relative measure.
Linear meets exponential: FAIL.
I guess currency manipulators are evil only when their currency manipulations work.
truffles anyone! Euro crash a sure bet
Lurid tales of central bank idiocy (but I repeat myself). Always appreciated.
Whilst we are on the topic any idea how much the BOJ is in for when $Yen crashes through 80 on yen repatriation?
Great article.
It's a good thing this is just electronic bits on some computer, or somebody somewhere would be in big trouble.
Howzabout I take the 1's and you get the 0's?
A giant sucking sound was rumoured to have been heard throughout the Alps... talk about rope burn!
Yoodle oodle lay ee ooo...
lets see, that great sucking sound has been heard in near every industrial country around the world...WHERE IS HELL HAS ALL THIS MONEY GONE??????? Someone explain that to me! It didn't just vanish, no government has repatriated it and burnt it, so where is all of it...dollars, euros, yen, etc.?
The money never went anywhere, because it never existed. Total debt claims outstanding right now exceed total global GDP by several times, possibly an order of magnitude.
What happened were people were lured into fraudulent investments. This is the nature of every single Ponzi scheme that has ever existed. And that is what our economy has been for several decades now, a giant Ponzi scheme.
Now the Ponzi scheme is collapsing and everyone at the end of the chain is going to get burned. As Senator Alan Simpson (WY) recently noted, it was always a scam. Social Security was a scam. It was all a scam. Social Security retirement age was set to 65 when the average lifespan was 57. You do the math, ok? SS was easy to run in that environment. Now, when lifespan in the US is about 78, it's demonstrated for the scam that it is. Likewise all these government funded retirement scams in Europe. Greeks retire at 53. Tell me how that can ever work out mathematically without turning subsequent generations into debt slaves for the retired.
The system can't be fixed because there never was a real system to begin with. It was a scam, from the beginning. The sooner people accept this and realize that we have a whole lot of organizing from scratch to do, the better.
The corollary to this of course is the realization that there is no possible recalibration prior to the great reckoning. Just the Ponzi practioner who plays it out till the last possible sucker is drawn in, and the last dollar paid to the unwitting "investor", so too the political class in this country will not have the integrity or courage to admit that all those promises made to the bovine consumers of this country (once called, quaintly, "citizens") are defunct.
Absolutely true, SamThomas. That means the ending is going to be messy, not because it has to be but because cowards will choose that before the truth.
+1000... please post often!
No it didn't vanish.
In the U.S. citizens chose to give most of their money to China via buying their shit at Wal-Mart, plus the U.S. govt took from our pocket April 15th and gave it to elite Wall Street firms and big banks via TARP (they kept their profits for last 20 years, but now their losses belong to Uncle Sam). In return, Chris Dodd and Barney Frank (et al) get re-election money from those firms and banks, thus concluding the transaction. It's win-win!. Unless you're a sucker who pays his taxes--and Tim Geithner knows that's a sucker's play.
In Switzerland most of their money got lent to Eastern European developers who will never pay it back.
And the PIIGS will bail out each other's banks with taxpayer money until their populations figure out what happened and break out the pitchforks and guillotines for their politicians who got bought off--also more of our money is bailing out European banks via the IMF (which the U.S. govt gives money to, after taking it out of our pockets every April 15th).
And...it's gone.
How true... nice concise style BTW.