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Swiss Franc Hits All Time High Against Dollar After SNB Books Profit From UBS Bad Bank, Warns On Inflation

Tyler Durden's picture




 

And the parade of dollar negative news continues this morning. First the USDCNY an 18 year low, now the USDCHF hit an all time low, trading as low as 0.8675. This is astounding considering the pair had traded north of parity for pretty much all time until last summer when the USD succumbed to Bernanke's strong dollar policy. The reason for the record surge is attributed to comments by SNB president Philipp Hildebrand who, in observing the economy, says that the "inflation outlook still in range of price stability and Swiss economy grows more vigorously than anticipated." Translation: record CHF has killed off all our exports, and Nutella is about to picket our offices. And in other related, and very entertaining news the SNB said that posted a first-quarter profit of 1.9 billion Swiss francs ($2.18 billion), thanks to gains from currency transactions and a fund in which it parked toxic assets from banking giant UBS. In other words, SNB has now become AIG, booking MTM profits on its literally toxic subprime assets (thank you Brian Sack and Chicago permabid IWR algos), all the while ignoring the 220 billion in USD backing the "asset" side of its balance sheet, which if fairly marked would likely bankrupt the central bank overnight. And people say we can't teach the euros a thing or two about banking...

From Reuters:

The positive result could take some pressure off SNB Chairman Philipp Hildebrand, who has come under fire for huge losses the central bank incurred previously due to forex interventions intended to cap the rampant Swiss franc.

"In the first quarter of 2011, the Swiss franc depreciated against the European currencies, leading to exchange rate gains, especially on euro holdings," the central bank said in a statement on Friday.

Hildebrand will face shareholders at the SNB's annual general meeting in Berne later on Friday for the first time since the central bank racked up a 2010 loss of 19.2 billion francs, its largest ever.

In the first quarter of this year the SNB also recorded a profit on the fund with toxic assets bought from UBS during the financial crisis and said its loan to the Stabilisation Fund was further reduced to 9.9 billion francs from 11.8 billion francs.

The SNB set up the fund at the height of the crisis, buying assets from UBS for some $39 billion. The fund posted a quarterly profit of $678 million and contributed 338 million francs to the consolidated result, the SNB said.

And for those lamenting the sad passage of the rag known as the dollar first in Chinese and now in Swiss terms (we hope readers did all their Bahnhoffstrasse Patek Phillipe shopping last year) we present its obituary, translated into Swissish.

 

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Fri, 04/29/2011 - 05:22 | 1219513 asdasmos
asdasmos's picture

Swiss Franc Bitchez

Fri, 04/29/2011 - 08:55 | 1219900 SWRichmond
SWRichmond's picture

FXF Bitches.  I also hold a small amount of CHF.  The lady at the bank asked me if I was going on vacation.  I just smiled.

Fri, 04/29/2011 - 05:27 | 1219518 Harlequin001
Harlequin001's picture

well, I would never have believed this...

Fri, 04/29/2011 - 05:59 | 1219522 Cognitive Dissonance
Cognitive Dissonance's picture

we present its obituary, translated into Swissish.

I say old man, but isn't that actually Swoooish?

Image is of Ben and Timmy taking the dollar for a ride. Timmy is on top....of course.

Fri, 04/29/2011 - 05:39 | 1219523 swissaustrian
swissaustrian's picture

The CHF hits all time highs for several months now - this headline is a bit sensationalistic

Expect a further price move like 1971-1979 and 1985-1988.

Fri, 04/29/2011 - 06:05 | 1219533 Itsalie
Itsalie's picture

Swiss engineering exports to Asia were competitive up to 2007, then hit a wallwhen the franc abruptly gained and USD/CHF traded below parity. They recovered during the crisis, now both Swiss and German exports are hitting a wall again. Last I check swiss exports shrank 5% in March, mom. As usual, things in forex market dance to chairsatan's tune, so maybe another few more centimes to drop. DXY 70 here we come :) and gas to $5 as promised at the FOMC. "Not much I can do for you, sorry".

Fri, 04/29/2011 - 06:12 | 1219546 swissaustrian
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As you can see from the statistics here http://www.bfs.admin.ch/bfs/portal/fr/index/themen/06/05/blank/key/ausfuhr/herkunftslaender.htmlAsia and the U.S. markets are not the main contributors to swiss exports. So a weak dollar is not the main concern here, its the EUR. The EUR/CHF-rate is somewhat stabilized since the ecb rate hike anouncement.

A lot of the exports to Asia are luxury goods (especially watches). We also have herds of Japanese and Chinese people buying this stuff during their trips to switzerland due to importing restrictions / tarrifs in their home countries.

To make a long story short: The USD is not such a big worry for Swiss exports in general.

Fri, 04/29/2011 - 06:26 | 1219567 Urban Redneck
Urban Redneck's picture

The data for today's press releases is on the SNB homepage

http://www.snb.ch/

Fri, 04/29/2011 - 06:04 | 1219537 Dick Darlington
Dick Darlington's picture

OT: Very bad news from Spain. Unemployment jumped to record 21,3%. Also Retail sales reported today collapsed almost 9% YoY in March. CPI hit almost 4%. I expect the officials and the banking cartel to increase the positive spin abt Spain to keep up the "CONfidence". Only a matter of time when Spain will be asking for a handout from the German taxpayer...

http://www.washingtonpost.com/business/spanish-unemployment-rate-rises-one-full-point-to-eurozone-high-of-213-percent/2011/04/29/AFP9fNBF_story.html

Fri, 04/29/2011 - 06:15 | 1219544 Turtlelord
Turtlelord's picture

It's all good....

(When you're swiss based)

Apart, that is,  from wiping any return on my USD denominated investments which despite rising 30+% in USD they're still slightly in the red in CHF terms....

 

Fri, 04/29/2011 - 06:20 | 1219552 swissaustrian
swissaustrian's picture

Did´nt you hedge your currency risk?

I also started a bit too late and began hedging in september 2010. But i still would do it now if i had not done before. Fx-hedging Cost me about 1,5% of my total USD-holdings.

Fri, 04/29/2011 - 06:28 | 1219570 Snidley Whipsnae
Snidley Whipsnae's picture

"Did´nt you hedge your currency risk?"

Yes, with PMs... the greatest hedge against financially ignorant and profligate pols, and central banksters that do nothing but push the print button...

Fri, 04/29/2011 - 06:35 | 1219586 swissaustrian
swissaustrian's picture

Well, i  have to account in CHF.

Therefore PM-prices in CHF (not USD) matter to me. I bought Fx-hedges for my pm holdings too.

Non-hedged gold did´nt make a new in CHF since 1 year!

 

 

Fri, 04/29/2011 - 07:47 | 1219704 Turtlelord
Turtlelord's picture

Did´nt you hedge your currency risk?

I guess that makes me look like a bit of a fool and in a way I may have been.

On the other hand I do hold physical PM's (UBS is so easy to deal with as long as you use ubs-issued bars) to balance things out. My goal is not to make a killing (although I'd welcome it if it came by, like with Ag) but rather to keep things in balance and hopefully growing a bit.

 

The truth is that other than shorting everyone else's currency, at the moment, there isn't a hell of a lot of options to deploy one's CHF.

Fri, 04/29/2011 - 06:18 | 1219554 rokakoma
rokakoma's picture

Agreed:

S&P on:
3rd Jan: 1271
28th Apr: 1360

DXY on:
3rd Jan: 79
28th Apr: 73

S&P * DXY on:
3rd Jan: 1271 * 79 = 100409
28th Apr: 1360 * 73 = 99280

YTD the S&P is actually down more than 1% if you look at it as a foreigner. The S&PDXY graph is basically FLAT all the year.

After all, I just simply do not understand how can european stocks be up on a stronger euro. But the US is definiately doing ZERO market growth in terms of an average foreign currency basket. (DXY) And since the S&P index is capitalization weighted, we can say, US companies worth not a penny more, than at the begining of the year. Meanwhile they cost more in dollars.

What, if not this, is called inflation? Stocks up 7% YTD while they worth NO MORE? 7% inflation in 4 months! That's yearly 22.5%

Fri, 04/29/2011 - 06:22 | 1219563 Snidley Whipsnae
Snidley Whipsnae's picture

But Chairistan tells us that inflation is gdp growth. Meanwhile this am after London opened PMs are rising... again...

Blythe's minions... always late to work on Friday morns...

Fri, 04/29/2011 - 06:53 | 1219610 Urban Redneck
Urban Redneck's picture

1) Ben Prints Paper 24/7 and spreads it amongst his friends

2) Many recipients of Ben's USD paper run as fast as they can to Jean Claude and buy his EUR paper

3) Proud new owners of EUR paper want to make a profit on their otherwise worthless fiat, and since they don't trust Greek bonds yielding 20% they buy EUR stocks

Voila - rising EUR & rising EUR stocks

Fri, 04/29/2011 - 07:01 | 1219628 rokakoma
rokakoma's picture

Probably you are right, the problem is, that's not sustainable, since it's based (the eur stock buying) on nothing.

Sooner or later european stock must collapse, while US stocks can still go up. The money will have no place to go, and on that day comes the big dollar collapse with all the foreign stock market collapses, at the same time commodities and us stocks will skyrocket.

The tipping point will be, when ppl realize buying european stocks is not the same than buying commodities. 

Fri, 04/29/2011 - 06:36 | 1219582 johny2
johny2's picture

Silver is going over $50 today with DXY under 70 in a very short time...

Fri, 04/29/2011 - 06:46 | 1219597 AUD
AUD's picture

Wouldn't a healthy 'profit' on toxic assets indicate CHF denominated credit spreads tightening? Could explain the 'strength' of the CHF.

Fri, 04/29/2011 - 07:54 | 1219720 Turtlelord
Turtlelord's picture

Could explain the 'strength' of the CHF

As I see it the strength lies in several factors. Here are a few and I'm sure more knowledgeable folk could add to this:

  1. SNB has more extensive Gold reserves than equivalent organisations.
  2. Banks are regulated somewhat more tightly than elsewhere, hence the term "Swiss Finish" to the various Basel agreements.
  3. Extremely stable democracy and rule of law.
  4. Very healthy state tax income stream. (Zug, where I am, stands to get an extra $600MM in taxes just out of Glencore going public instead of staying private).
  5. Swiss "niches" (pharma, choccies, discreet banking) withstand cycles quite well.
Fri, 04/29/2011 - 09:35 | 1220068 SoNH80
SoNH80's picture

Switzerland is the ultimate safe haven.  I've been there, I was mightily impressed that all homes and public buildings have SOLID air-raid shelters, designed for when the country would have to survive a Soviet occupation of all of the surrounding countries.  First-rate defensive military infrastructure, and when the chips are down, energy independence (hydroelectricity and electric trains).  It will be the last tent pole standing in the West.

Fri, 04/29/2011 - 06:51 | 1219602 ZeroPower
ZeroPower's picture

Not convinced till the USDCAD hits its 2008 lows.

Fri, 04/29/2011 - 06:59 | 1219621 Tense INDIAN
Tense INDIAN's picture

warns of INflation .....Wow ...after so much already.....i wonder how low DXY may go

 

 

Fri, 04/29/2011 - 07:06 | 1219635 Hephasteus
Hephasteus's picture

After people borrow their 401k dry, use up their unemployment it hits 66. We are a bananna republic.

Fri, 04/29/2011 - 08:08 | 1219754 tmosley
tmosley's picture

I really don't see why everyone complains about loss of exports when their currencies rise.  Your people have a lot of that currency.  Its rise means they don't have to work as much to get goods, including foreign goods.  Just retool for more internal consumption.  It doesn't take long.  The US did it in a year after WWII, and we are HUGE.  The Swiss should be able to do it in a few months, for the most part.

But then, we are all ruled by the insane, so simple ideas like that just go out the window.

Fri, 04/29/2011 - 09:35 | 1220086 SoNH80
SoNH80's picture

The Swiss still make excellent things that the world wants to buy. They have the right stuff to weather just about any storm, short of cosmic-scale disasters.

Fri, 04/29/2011 - 08:49 | 1219888 AbbeBrel
AbbeBrel's picture

The nice steady supply of liquidity oozing from The Bernank means that all the Banksters and Hedge Funds can reliably borrow short, sell the bucks, and go long whatever - PMs, Bunds, Equities, Aussies, etc.   You can feel the tension building as this carry trade continues to be wound up.   Of course, with unemployment high and the housing sector busted, The Bernank doesn't have to worry too much about inflation expectations "becoming unmoored" - and thus doesn't have to signal to his minions that there will be any pertubation in the Flow.

Bottom line is that, as observed by the FT.com, a low interest rate regime is actually supportive for a currency, as it forms the source liquidity for the carry.   It is when the rush for the exits begins, that things get interesting.   Not every bankster and hedge fund will make it out the door in time.   At that point, the other side of the carry has to be sold to cover the loans that leverage the bet.   After two years of gearing up, the moan of the mainspring as the clock is forcibly unwound is likely to be deafening.   When will this happen?  It is unknowable - but watching for the first of the bulls to get sick, as when Bear Stearns expired in March 2008, will likely be the first hint that "This Time is Not Different".

 

Fri, 04/29/2011 - 10:06 | 1220194 Mountainview
Mountainview's picture

Swiss National Bank president Hildebrand and Big Bernanke are Princeton buddies...they now each other from those days. Their mind set can't therefore be too different... It's all about perception...todays Swissy strength has nothing to do with the real industrial,commercial economy, but with refuge value like gold and silver...and dislike for $... 

Fri, 04/29/2011 - 10:34 | 1220341 broogy
broogy's picture

Guys, NOK is the right currency

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