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Swiss National Bank Accelerates Downside Currency Intervention, Raises To Bernanke
It was just a matter of time before the sensible banks (read, not some fossilized dinosaur out of Japan who apparently does not realize what a strong Yen means for his country's trade surplus) told Bernanke: "basta." The latest on the currency intervention front comes courtesy of Switzerland, where the Swiss National Bank has again sold a boatload of CHFs to prevent the United States from being the only country hell bent on destroying its own national currency.
From Bloomberg:
The Swiss franc declined against
the euro amid speculation the central bank sold the currency to
curb its advance.
The franc slid 0.5 percent to 1.5189 per euro as of 1:34
p.m. in Zurich, and fell as much as 0.6 percent earlier, the
most since July 23.
“There is a very strong suspicion that they are
intervening via a Swiss supra-national,” said Sebastien Galy, a
senior currency strategist at BNP Paribas SA in New York.
The net result: a very strategic detour for Bernanke, who has somehow convinced his BOE and ECB counterparts that rising stock markets are much more important than trade and interest rates.
So the question becomes: once the global market hits its artificial high, driven exclusively by the ongoing devaluation of just one currency (the $US in case you were wondering), which has been the primary, and maybe sole, reason for global equity markets being where they are, and countries are forced to trade with each other once again, how fast will the dash for the currency devaluation bottom materialize? Be short the dollar at your own risk at that point.
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Bernanke needs some competition.
Are we sure this is not a part of the making housing affordable program extension via the IMF for the CEE region?
This seems to me one of the main reasons, the banks loan books would explode otherwise. Maybe there was a need to repay some of the swaps with the Fed, hence took the opportunity to jolt the currency down?
OT:
The FIN/CRE short ETFs are going parabolic
Added: Someone's instigating a massive GLD beatdown
Chicago PMI tanked the markets/risk assets. POMO incoming?
Related, there has been a bugger of a bid holding SPG back above its 20EMA today after a quick breach. Would have expected IYR to tank more than it did; I think this is holding it up (relatively).
Teh fed needs an enema.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQFYBQWvGisU
PMI is out - 46.1 (not ISM)
ouch
Who got the Chicago PMI report early? Market started tanking well before it was released.
Geniuses,
Is this the SNB monetizing financial system (UBS) debt overhang?
SNB has always been upfront about intervening to keep CHF strength limited. They don't really hide a thing, or try to spin away ulterior motives. Kind of refreshing, yes?
The swiss are just augmenting Triffin's Dilemma, which I think has a flaw. If the U.S. gets their house in order "so the theory goes" and protects the $, the rest of the world economy will contract. I still believe in the unlinking of foreign market from the U.S.
We will go down the sink alone.
The explains the uptick in exports of kiddy diddlers.
The SNB intervention is a begger my neighbor move. They are trying to protect their dometic economy. A big portion of Swiss GDP comes from the banks. They are getting hit on the head every day. UBS is losing private customers like crazy. So are all of the other private banks. This translates to a drop in income and follows with rising unemployment in this key sector. The other parts of the economy, drugs, chemicals, manufacturing, tourism are all hurt by a strong CHF. So that is why the intervention. It has been going on for months now.
The risk of this is what happens to the Euro. What do Spain, Italy Portugal think of the Swiss move? The hate it. It is just taking away any advantage that they have. This is going to lead to talk of a some form of realignment of the Euro. Either a two tier or some participants will have to bow out for a while.
If talk of this gathers any momentum is will undermine the Euro as an alternative reserve currency. Read that as dollar strength.
This has the possibility of backfiring on the Swiss. If their moves end up destabilizing the Euro the CHF will have to strengthen against the Euro currencies (they don't care about the dollar rate).
Think of this like QE in the US. When you intervene in markets to gain an advantage it often turns out that some unintended consequence will steal the advantage away. Market manipulation rarely works for long. It adds uncertainty rather than creates it.
Sure. You better learn some Swiss German quick and learn how to pronounce "Fränkli" and great the new World reserve currency.
Well thought out comment Bruce,
Japan too I would wager would like their currency to depreciate a little, as most serious analysis notes their continued dependence on export and investment as opposed to household spending for economic strength. I have also wagered in other forums that US policy makers know that other interested nations will try to talk up the dollar and do their best to keep their currencies from overshooting to the upside.
If we do get a winter derisking, the dollar will also strengthen, so perhaps policy makers in the US are not so concerned with the recent slide in the dollar as the deflationary forces are great and will eventually (sooner than most think) bring about a depreciation of asset values?
I find it helpful to distinguish underlying reality from easy rhetoric. So, for example, in the case of Japan, wanting to move from an export driven economy to a domestic demand driven economy is far from actually being able to. This desired change will take quite a bit of time and will not happen before the next big deflationary crisis hits. The same can be said of China.
Don’t think so, Bruce. One chemical company, one chocolate company and too many languages. Intervention doesn’t do much for that. Switzerland is a tax haven from top to bottom. If they’ve lost banking customers it’s because of the uncertainty in tax avoidance. They apparently do care about the dollar rate. It is the dollar that has depreciated against their frank and provoked the intervention.
As to why they would choose to do this I can only speculate. But I would guess it has to do with hot money inflows and the potential for importing inflation via US QE.
MarcoPolo
The Fed and the various other powers-that-be understand that it's all about consumer psychology now.
As most people know, the short term sentiment readings are tightly correlated to the stock markets. Keep the markets up and the average person can convince themselves things are getting better.
Leaders don’t tell lies to convince people of anything. Leaders tell lies to allow people to believe what they want to believe, the lie they are being told. Leaders give the people permission to believe the lie.
I know that sounds crazy to people who may read this blog but the average person who doesn't deal with reality wants to be lied to. It's a very subtle dynamic but well recognized in the field of psychology.
"Daddy, tell me everything will be OK"
Well said
Exactly.
The short-term effects on your average pensioner is simply their perception of how things will be down the road.
Johnny Mc401k could and would take a 50% dip in stride, so long as it didn't come all at once and there was someone on the boob-tube ready to hold his hand.
"Don't worry Son, just go to work. I'll take care of everything."
Race to the bottom...
Someone is trying their hardest to take the dollar back down. It is back to opening levels.
Of course maybe people are doing the math on the latest BO numbers of how much is going to going spend per 'new job created.' >$1M per job, now that is a nice multiplier if one believes that this will continue unabated...
I still don't see the reason behind interventions. I consider it throwing your, more valuable currency back at Ben. World needs to get over the addiction on American demand. Let the dollar die, export elsewhere = cheaper solution.
The more people I meet from outside the US, the more I
realize just how unique the US consumer is. Taking on
10's of thousands of dollars of debt on credit cards that
have 15, 20 even 30% APR, leveraging equity in their home
to purchase new cars and vacations, even borrowing against
thier retirements savings (IRA/401-K) ... That is a AAA
class consumer.... most europeans I've met are reluctant
to become such debt slaves.
Fair point, though I wonder is it an Anglo Saxon mentality because you see the same debt appetite in the UK and Ireland also. They want the latest car, the latest laptop, the latest bag etc. I was in Madrid a month ago and met some let's say "middle class" spaniards and they just weren't as obsessed with brands at all; they certainly seemed "image" concious but that wasn't directly linked to expensive objects at all.
Just when we hit that tipping point...wathc the squeeze in the USD. It will hit the equity markets, but by then GS and .gov should have them high enough (they think) we won;t make new lows. YES WE CAN!!!!
Devaluation: one area where the USA is still #1.
Another of my green shoots.
>(the $US in case you were wondering), which has been the primary, and maybe sole, reason for global equity markets being where they are<
Question...primary and maybe sole reason? Can someone take a
crack at explaining this?
in the absence of a net external force, a body is either at rest or moves with a constant velocity.
Newton's first law.
Since trade volume has been catastrophically low and every sane individual took the dive before/during/after the crash, and is sitting in cash; there has not been a statistically significant flow of funds from cash or real people into equity markets to justify this historic rally.
So where is the money coming from? Computers can only bid and sustain each other so much before fresh meat is needed to feed the beast.
Inversely, the dollar has decreased against most/all of the other major currencies in a proportion relevant to this rally.
That's where the evidence stops and the speculation begins.
And who is going to buy all those wonderful Daimler-Benz's productions at Euro=$3?Despite the Germans being loath to hyperinflation,do they realy have a choice,but to get into the program and start their own printing machines?their economy is export oriented,and they are supporting a bunch of all other nations who are not strange to the idea of printing.So whether DAI trades for 50 or $100 a share,what is the use of their market value if they can't sell their product?I realy think it is only a matter of time before they realise that they have been fooled by BB into believing that they can quit working and become stock traders instead.
And who is going to buy all those wonderful Daimler-Benz's productions at Euro=$3?Despite the Germans being loath to hyperinflation,do they realy have a choice,but to get into the program and start their own printing machines?their economy is export oriented,and they are supporting a bunch of all other nations who are not strange to the idea of printing.So whether DAI trades for 50 or $100 a share,what is the use of their market value if they can't sell their product?I realy think it is only a matter of time before they realise that they have been fooled by BB into believing that they can quit working and become stock traders instead.
I seriously doubt everyone will see a U.S. Dollar bounce. Though the dollar rallied in the past when being viewed as oversold, this will not be the case this time. The Chinese have put a floor under gold, making it virtually impossible for the dollar to recover.
This is the opening shot.
As the Bank of Switzerland repositions the CHF lower against the Euro, the EU will have to follow suit lowering most likely against the yen and the USD.
"Talking down" the USD is just that - talk. Too many vested creditor interests would be in play for a serious downward move against the USD.
The "beggar-thy-neighbor" race will just have two participants IMHO - the Euro and they Yen.
Not a good time to be short USD now.
KptLt. Laughing Swordfish
9er Unterseeboote Flotille
OK, this might seem like a stupid question - but how much is a dollar worth?
What is it's most basic unit? Is it measured in concrete terms or relative to the expectations of everyone else?
And what happens if all of the major currency manipulators all coordinate in the same direction?
I only ask, because - this appears to me as a concerted effort to expand the money supply world-wide (and monetize debt) without debasing the underlying relative balance of the currencies in question; all while making it look like a natural phenomenon.
Sure the Dollar is taking a beating right now, but lets consider for a second that step 1 is to expand the money supply (monetarily erasing the dubious transgressions of fraudulent capitalists in due time, via a reactionary crisis), step 2 is to raise the equity markets (and guarantee our continued and complacent participation, Joe beer-gut won't revolt if he thinks his pension is still there) by sacrificing the dollar (imbalance in trade markets to provide new opportunities for exploitation, and blaze the trail) and step 3 is to lock in equity rates at the new capitalization (and call it a recovery...?) by systematically re-balancing the international trade systems at levels which have been historically financially advantageous for all.
When executed perfectly, this plan would expand the money supply, negating the bad bets by those at the top and pass the expense onto the world-wide lower classes while simultaneously guaranteeing the new investments made of those at the top (though the continuation of the delusion and a constant trickle of new investment) and forcing those of us in the middle to perpetuate the expansion of our particular brand of imperial mercantilism.
If this truly is a perception game, and the average investor has come to expect the Dow to sit around 10k - it is reasonable to assume that those who aim to meet these expectations will do whatever they can to keep them stable.
By the steps we've taken, I see a course in which the proletariat is placated and put back into their world-wide places, while the USA reserves the rights of international financial oversight.
And it can all be done (harvested) in relative balance, without sacrificing anything at the top, or even a drop in equity markets. All you have to do is devalue the dollar in a 6-8 month lead before you devalue all the other major currencies to that level.
Normally a free society would never let such a fraudulent act occur, but Considering the short-term memory of the over leveraged consumer; the fractional magnitude of the money supply is irrelevant, so long as the exchange ratios remain visibly constant. The consumer will never notice, and before inflation overtakes deflationary credit devaluation, we will be long since "on the road to recovery" and any inflationary pressure can be blamed on the next crisis du jour - absolving our broken system of all responsibility and setting the stage for the next scam.
Just a thought... I'm no expert.
So am I completely wrong or should I tender my resume to Lloyd?
Sad, but true. Concur.
Right now everything is irrelevant except increasing asset valuations in relation to debt. We don't want to look like we are insolvent. Once levels have risen and maintained, we can manage deflation to create a soft bottom in about 18 months or so...
"So am I completely wrong or should I tender my resume to Lloyd?"
No expert my ass. Lloyd, is that you?
I agree 100%, what we are witnesses is a massive coordinated cover up designed to obfuscate the greatest fradulent transfer of wealth in history.
The middle classes of the world just got punked.
beautifully written, btw.