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Swiss Notes
On Changing Repo Haircuts
This week the Swiss National Bank announced publicly (FTalfaville link)
that it has excluded Irish government bonds from being elligable as
collateral for its repo operations. They did the same thing for
sovereign bonds of Greece and Portugal. For the Swiss to start off the
New Year with this offensive move is worthy of note. Did the Swiss slap
their neighbors in the face?
SNB officials (with the assistance of both CNBC and WSJ) did their best to downplay the significance of these actions. From the Journal:
A spokesman for the SNB said, “Only securities that fulfill stringent requirements with regard to credit rating and liquidity are accepted as collateral by the National Bank."
And that is correct. Generally speaking the SNB requires collateral with
a AA- minus rating. The recent downgrades for Ireland, Portugal and
Greece “necessitated” the actions by the SNB. This was "no big deal" as
they were only following longstanding and pre-existing rules. I don’t buy that. From Risk.net:
The SNB states that "securities issued by sovereign countries and central banks can be exempted from this rating requirement". A spokesperson for the SNB declined to comment on the specifics of the Irish case.
So the SNB didn’t have to do this, they chose
to do it. That is a slap in the face that leaves a mark. In the scheme
of things this is not a big deal. The repo market for peripheral
sovereign bonds is still open. More a hiccup than an issue. But I am
left wondering “why now?” At the SNB every action is taken after significant deliberation.
Bad Press for SNB
The Neu Zuricher Zeitung had an interesting article today.
I consider the NZZ as the official organ of the SNB. The relationship
is not unlike that which exists between the WSJ and the Fed. An article
that is critical of the SNB is rare, and noteworthy.
The concentration risk of the SNBHigh loss in 2010 eats dividend reserves
The exchange rate losses of the Swiss National Bank on their foreign currencies for 2010 should amount to around 30 billion francs. In politics, the foreign exchange purchases by the central bank will be extremely controversial.
30b CHF is a big deal to the SNB. As the article discusses, there are
already political (and economic) issues that are arising as a result of
SNB reserve management policy mistakes. The SNB has recently referred to
the decision to acquire tens of billions of Euros in an effort weaken
the Franc as, “with the benefit of hindsight….” In other words, they have acknowledged that they have erred.
The forgoing reconfirms an important point. The Swiss National Bank is out of the market. We are entering new uncharted waters on the CHF crosses. And the captains of the ship can’t use the steering wheel.
Switzerland attacks Ireland?
The following is a look at Swiss financial institutions portfolio
holdings from a year ago. The one number that looks large to me in
comparison is Ireland. Irish holdings are 3X’s that of nearby Italy.
Surprising. 2X’s that of Spain. (Spain’s economy is seven times larger
than that of Ireland). Norway’s economy is twice that of Ireland yet the
Swiss held 4X’s as much paper. You get the picture.
The actual SNB announcement of the changes of Repo haircuts for Ireland was back on 12/21. The question I’m wondering about is when
did all of those Swiss institutions that were holding these big slugs
of Irish paper first hear about the upcoming changes in the Repo regs? Was it a day before? A week? A month?
I think the answer is at least a month. The SNB would give
the big hometown institutions a heads up so that they could prepare in
advance for the coming changes. What does that mean in real terms? That
means that Swiss Inc. lightened its books on Irish exposure during the
month of November.
Of course it was November that broke the back of the Irish bond market
and forced a $120 billion bailout. Call me an old cynic. But I never,
ever believe in coincidences. These dots are connected.
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The artist is Banksy -most in tune with the zeitgest for at least a decade now.
That piece is a dig at tosspot Damien Hirst, remember the diamond skull he tried to sell a few years ago. Hirst used to get his assistants to colour in these dots with pastel colours, I think they were color-coded phamacutical compounds. Fin de siecle mas-debation. Time's up Daymo.
Society gets the art it deserves. Good thing Banksy represents the new society.
Bruce, there is an interesting article in our local paper about Canton Zurich's Pauschalsteuerabkommen (lump sum tax agreement) which was repealed in 2008. Many cantons allow rich people to pay a fixed sum of taxes every year without declaring their assets or their income. Supposedly it is equivalent to a few years rent on the place they live in, or several hundred thousand dollars. Zurich ended this in 2008.
By the end of 2010 92 of the 201 people who had these agreements had left the Canton as their "tax domicile". 70 percent set up residency in another canton, 22 into canton Schwyz, 13 to Graubunden, 6 to Zug.
This has cost Canton Zurich 32 million francs in tax income (or close to 400,000 per person), most of it will now go to Canton Schwyz and Zug which have the lowest tax rates in Switzerland and now will probably even be further lowered due to new rich residents paying more than their fair share.
How long will it take before logic and simple justice takes precedence over jealosy and people finally accept that stealing from wealthy people merely drives them away?
The cantons with the 'big cities' (Basel, Zuerich) are all rather left leaning. We were pretty lucky that the last federal referendum on tax (minimum tax rate imposed on all cantons) was not accepted by the swiss population. This would have reduced the inter canton tax competition to near zero and IMHO started a spending spree.
I really don't have a problem with having rich neighbors, as long as they pay in absolute terms sufficient to cover costs of the commune. They also have a tendency to spend more.
A few numbers from:
http://www.24heures.ch/vaud-regions/actu/vaud-abolira-forfaits-fiscaux-2...
5000 foreigners pay 500 millions CHF in communal, cantonal and federal taxes.
They spend around 2.5 to 3 billions CHF per year, which is around 200 million in VAT.
They spend around 20 million in social security.
Now why for haven's sake would any sane swiss want these guys to leave the country and move to Monaco, Singapore or what ever, and just keep a 'holiday' residence here?
that's rich! a bonafide kid fucking motherfucker talking "justice" and "logic", fuck you and your kid fucking caaaaaaaaaantons.
The NZZ article says that for every decline in the Euro of 2 rappen (cents) the SNB looses 3 billion francs. It is certainly also the case for further dollar declines. It also talks about how the SNB has to pay dividends on the Cantons of 2.5B francs and that the dividend fund will be empty after this years dividends.
It looks like the Cantons and their Cantonal Banks are going to have to go without a dividend next year. The question is how much longer will Switzerland be able to weather this storm without taking on water.
bruce, thanks as always, good eye, they pulled the plug.
http://www.henrymakow.com/the_secret_of_switzerlands_suc.html
child prostitution is legal at 16
http://gvnet.com/childprostitution/Switzerland.htm
and soon incest between "adults" will be too
http://abcnews.go.com/Health/switzerland-considers-legalizing-consensual...
what a country!
What a load of drivel, but one look at your avatar explains it all.
Hey General Pickett, you couldn't explain your way out of a bag of grits shithead. The first link is an anecdotal account from a swiss resident of 14 years and the other two links state facts. Now run along and crawl into daddy's pants, I hear it's the latest rage in the caaaaaantons.
So, how will the Irish retaliate? Import duties on Swiss chocolate? ;)
Any reason to believe the EURCHF will not drop to or below 1 this year?
What sacrifice my Toblerone ration ! - never never
Okay, two style points for using a Banksy.
Damn, I should have took my own advice and went long the franc vs the euro. Close to 2% in two days, not a bad start.
Great call.
Should have taken your advice in addition to Bruce's.
You shoulda took some grammar classes, too.
where can I find real time data on the spread between spanish sovereign ten year and german sovereign ten year? some smart guy on zero hedge said to watch that spread for the signal that the system is about to explode (spanish ten year blowing past 400 basis points higher than german ten year). Uh...and I'm cheap I don't want to pay for it by having to set up a power options account or sign up for thinkorswim. I like my shitty cheap broker.
Shit Bruce , you found out - I have basically kept quiet about this (uncharacteristically ) but it looks like the game is up.
M.B. drapier should arrive shortly.
It's the banks version of good cop bad cop. Or bad bank worse bank. I can see the IMF putting on it's uniform right now.
Eeeeeeeyyyye, the luck of the Irish!
SCNB=swiss cheese national bank! Lots'uv holes showing up in E-screw-U back door financing! Need to be invested in blind folds if you don't see this paper ponzi crash coming soon to a neighborhood near you!!
A bank turns down collateral because it sucks and all of a sudden the bank is the bad guy? WTF?
What will it take to realise you can't kite checks forever even if you are a government?
Not a bank. A central bank. Quite different. This has policy stuff written all over it.
Is the SNB/Swiss Government supporting or hurting their neighbors? They have no obligation to help, but they should not pursue policies that hurt. I think they may have. Not they way to endear oneself.
When was the last time the EU adopted or modified a policy because it was "hurting" the Swiss? They have been waging a low intensity war against the Swiss ever since the Swiss people voted to stay out of the EU. Do you remember the chaos at the border with Germany when the Germans wouldn't let the Swiss through? Or the more recent flair up at the Italian border over money smuggling?
Switzerland has a very weak hand. Most people who blame her for not invading Germany during WWII don't seem to realize this.
Hey General Pemberton, only a perennial degenerate loser like you would deflect and go easy on your Nazi collaborating thieving filthy stinking swiss rats. you love my flag now shithead or you still need help?
Do you think that probably most of the old nation states in "Europe" will eventually come around to favoring narrower interpretations of their self-interest as the probably doomed euro construct begins to develop ever more visible and spreading webs of ominous cracks?
Got to keep the ponzi going on all the garbage we sold globally.
Everybody's got to be a player or the game can't exist.
Hot potato anyone?
Exactly. This is a huge fly in the ointment. This is going to put huge pressure on the German leadership domestically to do something about the euro.
How is refusing to accept questionable debt as collateral "an attack?"
Idle, Idle, Idle. You sound like the WSJ,SNB or NZZ. Nothing to see here at all right?
You refuse to connect dots. Fair enough. By the by, I have a bridge for sale if you're interested. Great price....
What I would have to know before forming any opinion, and which you conspicuously fail to mention, is in what the SNB has done in similar circumstances. How can I "connect dots" intelligently when I know that I don't have enough dots to do so intelligently?
If the SNB has routinely refused dodgy debt as collateral, there can be no talk of a conspiracy. The SNB has no obligations to the government of Ireland, and if Irish debt crashes just because the SNB won't touch it, it was junk anyway, and the SNB is to be commended for dropping it.
So much for that "pan Europe" thinking. In you're view it's every man for themselves? Keep all the problems outside your border while enjoying all the benefits of being in the middle of the EU?
Swiss unemployment rose to 3.9% and there is concern. But in Spain the number is already 20%. Something quite wrong with this. That is especially true given the fact that the SNB has spent 10s of billions attempting to sustain an undervalued currency.To some extent this has been at Spanish workers expense and Swiss workers benefit. You call that "fair"? Others call it "beggar my neighbor".
China is doing something similar. Half the globe has come down on their shoulders for this policy. Yet when Switzerland does it, everyone looks the other way.
First of all, you don't answer the question I asked you in your reply. Is this a tacit admission?
A few years ago, my professor of intl economics, who had a bit of a pedigree, (Oxford, IMF, various central banks) taught me that a European currency would cause incredible problems, and would be very foolish. If mainstream economists foresaw that it would cause problems, but the EU went ahead anyway, why do the Swiss owe them anything?
Why do you harp about SNB currency interventions when the SNB has realized, as you write, that they are no longer possible? Why is it "unfair" for the SNB to intervene on the Forex markets as long as the Spaniards (or ECB) are free to (perhaps stupidly) intervene as well?
Comparing China's economy to the Swiss one is like comparing apples and baobab trees. The Chinese have capital controls, dodgy banks galore, government intervention in the labor market, slave labor in the prisons, paltry workers' rights...
May I enquire in what fields you have degrees?
I'm not comparing China's economy to Switzerland. I said they are similar as they have both attempted to manipulate their currency.
I have no advanced degrees. BA in economics and 35 years on Wall Street is all. I truly hope that you are not suggesting that one has to have an advance degree to have an opinion of what is going on today? That would be most unwise. Is that what you're suggesting?
Forex interventions of the type you describe as "currency manipulations" don't work, they merely delay facing unpleasant realities, and are quite expensive, as the SNB is finding out, and the Chinese will in due course. China's economy is pertinent to discussions of "currency manipulations" because the Chinese, unlike the Swiss, have the wherewithal to force their non-voting population to accept absurdly low wages over the long haul, i.e. to effectively beggar their neighbors.
Spain's sky high unemployment rate is no small part due to how extremely difficult it was to fire employees until quite recently. I don't see how the Swiss are to blame for that.
Everyone should strive to form their own opinions; I can only commend you for doing so. I was trying to understand on what basis you do so.
Bruce, the Swiss have suffered from a lot of heavy handed EU, and US, arm twisting over tax policy. Do you think this might enter into their "uncooperativeness"?
Hey General Pillow, you're a fucking joke bro, keep covering for your poor, "suffering" pedophile fuckers you filthy fuck.
What do you consider "the benefits of being in the middle of the EU", geographically?
The Swiss have already let their currency appreciate severely. At some point it is understandable they will start thinking about their own industries and not Spain's. It all feels a little bit like the asylum inmates all pointing their finger at the one sane.
And to my understanding concern on Swiss unemployment starts in earnest when it really surpasses 4% (something like 4.2% and higher), so not yet.
"In a time of universal deceit telling the truth is a revolutionary act."
So the Swiss are ignoring the lies and even acting on conceived truths. Not much to connect here.
Yes, they might bring down the house of cards doing do - it's going to collapse some day anyway. It would be wise for them not to end up as the bogeyman, but that's a different story...
Bruce,
Glad I stopped by here before starting on this piece myself. I like the dots you connected here. Well done.
Best,
Jack
Fiat money you can believe in - Swiss paper currency.
Beautiful and valuable, the 1000-Swiss-franc note is the largest-real-value bill in any major currency now, worth about 800 euros or more than 1000 Bernanke Bux. (Canadian $1000 is still circulating and valid but not printed anymore.)
The Swiss 1000-franc bill is not as well-known as the violet 500-euro note, but much more slick and quietly impressive to the cognoscenti. My favourite currency for discreet carry and savings.
Colour pictures here, you can also see them in rotational views. Nice how they have cultural figures adorning the notes, instead of political ones:
From the Swiss National Bank website:
http://www.snb.ch/en/iabout/cash/current/design/id/cash_current_design_1000
Yes, the Fr1000 is beautiful. When paying (company money) the hotel bill a while back the young clerk was surprised receiving the notes. In this age of credit cards I don't think she was aware they existed.
Good joke. In the swiss Carrefour supermarket I regularly saw people paying with CHF 1000 bills. And it didn't make any check-out girl sit up.
I broke a 1000 at a coop yesterday. The checkout girl had to put it in a vacuum tube and send it to the office. The whole affair took a few minutes and by the time the transaction was completed there were several unhappy customers waiting in like behind us...
You're full of shit Polanski, your old decrepit wrinkly ass was doing lines and flinging 1000 franc bills at 16 year old boys. You're a "free man" now, come on home Roman.
I guess it depends on the demographics of the neighborhood and activities around it...
You cannot be a small neutral country in the middle of a (historically) war-torn Europe and not have learned a long time ago how to throw a business associate under a bus. Not slamming the Swiss, they are quick studies. Just say'n.
That is what it sounds like to me. Hildebrandt was given the ultimatum by the members of the board: stop throwing good francs after bad Euros or you'll be an historical speed-bump.
"But I am left wondering “why now?” At the SNB every action is taken after significant deliberation."
The last thing they want to portray at this juncture is disarray and incompetence. It seems a political maneuvre to me.
Hildebrandt and his "Swiss-cowboy recklessness" have been effectively neutered and cast aside. Maybe he will be happy with that for now, letting others deal with the fall-out from a plunging Euro but once he comes to realise that the Euro is not going to fall through the floor and will instead enjoy a steady rise against the CHieF, he will, in the end, look like a fool.
Too bad. He did his best under extremely rare circumstances. The "benefit of hindsight" is for those sitting in armchairs anyway, not for those who have to make real-life choices. Sorry, Hilly. Better luck next time.
:D
Addo: Of course, it could have something to do with this and the fact that the German bund market was halted today. So much more goes on in back-rooms than we can possibly imagine.
http://www.zerohedge.com/article/portugal-goes-144a-goldman-underwriter
Hildebrand was one of the orchestrators of the Swiss gold sale which is looking ever more idiotic every time the gold price goes up. If one looks at total reserves, Switzerland is sitting on a ton of FC reserves and would be sitting in the cat birds seat if she had hung onto that gold.
As the sovereign meltdown goes into full force and starts taking down the dollar and gold goes parabolic Hildebrand would have been a major liability.
So if Merv and Hilly both sold a boatload of gold...where's the boat?
Where in the world is all this gold?
Hey General Polk, you do pr just for the snb? or the whole bunch of kid fuckers over there?
Bruce:
"Call me an old cynic. But I never, ever believe in coincidences."
Did you learn the truth of the matter while working on Wall Street?