Swiss National Bank Confirms Massive FX Intervention Losses, As Spike In M3 Reported

As widely speculated previously on the pages of this blog, the SNB confirmed earlier it has lost billions of euros due to currency speculation in attempting to keep the CHF low. As the FT reports: "The Swiss National Bank on Wednesday revealed the cost of its massive foreign exchange interventions to restrain the value of the franc, with losses of more than SFr14bn ($13.3bn, €10.4bn) in the first half of this year." Following such a massive losses for the small country (nearly 2% of GDP) it was only a matter of time before the other 26 Swiss cantons, which share in the profits and losses of the SNB, said enough. "The SNB said last month it had stopped intervention. Its official reason was because deflationary risks from the surging currency had declined, but most economists ascribed the move to growing concerns about the risks from the massive foreign currency holdings." Yet it appears Switzerland has its gold holdings to thank for keeping the loss manageable, and why, at least the SNB, will not allow a quick depreciation in the price of gold, for as long as the EURCHF continues to be at these low levels: " the central bank was, as in the past, a significant beneficiary of the
surging gold price, allowing it to take big paper profits from revaluing
its large bullion holdings. The rising gold price allowed the SNB to
“hold the loss within certain limits”, it said in a short statement." Elsewhere, we read that the Swiss economy is being aggressively liquefied with both M3 (up 7.7%) and loan issuance (up 4.4%) surging in June.

From Goldman Sachs:

Money growth edges higher, dip in FX reserves confirmed

BOTTOM LINE: Following a rapid growth rate of +7.5%yoy in May – which pushed the Swiss monetary base to a record high – M3 growth increased to 7.7%yoy in June, underscoring the fact that the SNB's FX interventions have led to excess liquidity in the banking system that will need to be mopped up at some point. Also in today’s Monthly Bulletin, final figures published by the SNB confirm an earlier release in showing that foreign currency reserves held by the SNB fell from CHF 239bn in May to CHF 227bn in June.

DETAILS:

1. Chart 1 shows the scale of the recent increase in banknotes in circulation and deposits of domestic banks at the SNB. Coupled with already quite lively lending growth, today's out-turn underscores the inflationary risk from the central bank's FX interventions, if left unchecked. The most recent data in Switzerland continues to shrug off any sign of a 'credit crunch': loans to domestic non-banks rose 4.4%yoy in May (Chart 2), still relatively stimulative on a historical basis and a robust rate given the depth of the recession.

2. Alongside the release of money supply data today, the value of FX reserves held by the SNBwas confirmed as falling from CHF 239bn in May (revised up from 232bn) to CHF 227bn in June. These data confirm that, in light of its June Monetary Policy Assessment, the SNB has suspended its FX interventions – originally intended to prevent an ‘excessive appreciation’ of the Swiss france. Despite the policy significance of the confirmed dip in FX reserves in June, the volume of foreign currency assets accumulated by the SNB has increased almost fivefold since the beginning of 2009.

3.) The SNB's balance sheet data have been released at irregular intervals (and by various sources) over the last few months. In particular, the SNB's balance sheet has historically been published only in this release of the Monthly Statistical Bulletin, but recently a 'flash' preliminary estimate of selected line items has been published by the Swiss Federal Statistical Office a few weeks ahead of the SNB. This seems to have agitated the central bank and, as far as we can tell, the SNB will now publish - in the first few working days following the end of the reference month - an estimate of the foreign currency reserve position under the IMF's Special Data Dissemination Standard (SDDS). We commented on this preliminary release on July 6, and today’s Monthly Bulletin confirms the dip in reserves reported in those early estimates.

Comments

[Internet Tough Guy]

Gold is useful. Who knew?

If they really wanted to weaken the CHF they would sell gold.

[lettuce]

werd

[rd]

Could you please check the reply I left to your comment on the arb trade?

Thanks

[kaiten]

"Elsewhere, we read that the Swiss economy is being aggressively liquefied with both M3 (up 7.7%) and loan issuance (up 4.4%) surging in June."

In other words, they´re trying to debase the currency. If they cannot through forex markets, they´ll try via inflation.

[jmf]

Moin from Germany,

Flashback 2005.....

The Swiss National Bank completed its gold selling program of 1300 tonnes on March 30, 2005

Couldn´t resist......

[buzzsaw99]

they were probably betting against the squid. nice going swiss miss, thanks for playing!

[gookempucky]

And who would have thought that Bungee Jumping with pallets of cash strapped to your back was out of style.

[Cognitive Dissonance]

"Swiss National Bank Confirms Massive FX Intervention Losses, As Spike In M3 Reported"

We really do need to find better language to describe some of these "events". Just as the term "spill" doesn't begin to describe the disaster released upon the GOM, a "spike" doesn't begin to describe the current monetary insanity.

If you look at Chart 1, those little upwards blips during the 97-08 time period would be properly called "spikes" since they don't represent more than a 50% increase in the current trend. What happened in 2009, going from around 45 to 120 plus isn't a spike but a massive rocket launch back to the moon. Beginning in 2010, after back peddling for a bit, it takes off again from around 90 to 150.

Chart 3 begins 2009 at 50 and quickly rockets to near 250. How can we call that a spike? Shouldn't the "spike" have some relationship to the base line? 

May I suggest we ask the ZH membership to suggest more appropriate language for this insanity? For example, instead of saying the chart spiked, lets say the chart Hannibal Lectered.

[Paper CRUSHer]

Or How about,

"HERDS UPON HERDS OF DUMB EUROPA-EINS SHOVE THEIR HARD EARNED CASH DOWN THE SNB's THROAT FOR SAFE KEEPING".

[Miss Expectations]

Clearly the spike indicates a state of excitement.  It's not Hannibal Lecter, but George Costanza, who's condition was most aptly described by his mother:

"I come home and I find my son treating his body as if it was an amusement park."

[Cognitive Dissonance]

LOL

I can still hear that high pitched voice of Estelle as she lay in the hospital bed yelling at George. In fact, here it is.

http://www.youtube.com/watch?v=dBxhAa5zy-4

Here George tells his friends at the coffee shop that his mother....you know......caught him.

http://www.youtube.com/watch?v=H5JLUXbgGVA

[John McCloy]

Anyone see this joke of a White House video on financial reform voiced by Kumar from "Harold & Kumar go to White Castle. They truly do think Americans are brain dead for both the delivery and presentation in this video and the complete falsities told like.

http://finance.yahoo.com/tech-ticker/article/522874/Its-the-Great-White-...

Wall Street is now prevented from gambling on your mortgage, Wall Street is no longer Too Big Too Fail and the banks have been prevented from becoming larger and will now only be serving as traditional banks.lol

Now they are going with the other propoganda spin with "The Growing rift between the President and Jamie Dimon" evidently meant to score political points for President Bad Ass as he kicks arse from Wall Street to the Gulf.

Propoganda bitches!

[newstreet]

Does this mean we can sell CHF now?

[hedgeless_horseman]

Poor Ben can never whack all the moles.

http://upload.wikimedia.org/wikipedia/commons/e/e1/Whackamole.jpg

[trav7777]

so the Swiss actually STILL publish their M3?  Wow

[Quinvarius]

So rising gold prices are the key to successful money supply increase without a complete destruction of the currency?  Someone ought to tell the Fed and the US Treasury.  You can print as much funny money as you want as long as you have an asset somewhere on your balance sheet.  Genius!

[Pretorian]

So, if they create inflation within the economy and keep interest rates low for the time

inflation is on  they think nobody would like to keep CHF, so they want the CHF back which they have previously sold for EUR. This is the game, but deadly gaming.

[carbonmutant]

The Euro is falling because the Swiss aren't buying...

Well if they aren't buying why should anyone else?

[Grand Supercycle]

DOW chart update :

http://stockmarket618.wordpress.com