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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 $200 billion loss for the Fed. So actually this is a
very big deal.
What does Mr. Hildebrand do? He does a u-turn on the fight against
deflation. His words from Thursday:
“The deflationary risk in Switzerland has largely disappeared.”
What? In the past 60 days the risk of global deflation and particularly
deflation in Switzerland have increased. With the Euro/Franc at 1.37 and
now obviously headed lower deflation is a very real risk for the Swiss.
The decision to discontinue the policy of holding down the franc had
nothing to do with a risk analysis of deflation. It was about the money.
The losses were too big. The impact on the money supply was
undesirable.
So Hildebrand went to the big casino on his first day on the job and
lost a bundled and continued to double up until he had no chips. The FX
market ate his lunch for the biggest ever FX loss that I am aware of.
It is true that some Swiss exporters, farmers and the tourist industry
got some benefit from Mr. Hildebrand's efforts. My guess however, is
that 80% of his losses went into speculative hands. A nice win for some
folks.
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At least, back in the day, we had Petro$ recycling. Now it's Tsotchke$ recycling.
Still wondering who the bigger sucker is, the US or China. We got something for our FRN's. Or did we? We got left with worthless crap which, once again needs to have the lead removed. China just got promises to pay.
China got a major industrial complex by playing a game called fiat. What do they care that when the game is over they have a few worthless pieces of paper? The US, on the other hand, lost its industry; I think the winner is pretty obvious.
From being absolutely nobody and without any meaningful future, in just 20 years, China became a world superpower by developing a major industrial sectors. This will allow China to develop a superpower military capabilities.
At the same time, the USA is in de-industrialization process leading to major degrading it military capabilities. It is that simple.
Ack!!!!
protectors of the paper got burnt
a cautionary tale for ben, down the line.
i always thought that they big vaults in the mountains full of money stuff. gold and jewels and big boxes of truffles. now they just got euros. shit.
how many mountains will an oz of gold buy next year?
Actually it's worse than that - inside the Swiss vaults are a bunch of IOUs from Eastern European property developers.
When a countries banks have assets that are multiples of GDP, but the country itself is not heavily in debt, this should lead people to realise that the assets have been lent out. The ide that your money is safely stored in Swtizerland is just bullshit, it's part of the global ponzi like everything else.
Time to short CHF I reckon..
Yep, about 5x Switzerland's annual GDP worth. Assuming they're marked to anything resembling reality, which is questionable.
Imagine a situation where it's 80% cheaper to save the nation than its banks.
Not too mention the slippery, crawly, creepy, stinky stuff on the balance sheets of UBS and Credit Suisse, which, if reports are accurate, completely overwhelm the GDP of Switzerland.