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Warning: Do Not Taunt Happy Fun Schweizerische Nationalbank
Zero Hedge's own Bruce Krasting has an excellent piece ("The Swiss Did It?") from last week, commenting on the interventionist bent the Schweizerische Nationalbank or Swiss National Bank (hereinafter the central bank of Switzerland or the "SNB") has been demonstrating in the face of the recent crisis. Of course, this particular behavior is not at all new on the part of the SNB, but it bears examining in a bit more depth why and how Switzerland's monetary authority acts in the face of global crisis.
One must first understand that at CHF 1.36 trillion1 and CHF 1.07 trillion2 respectively, UBS and Credit Suisse represent over 500% of Switzerland's entire 2009 GDP.
Moreover, it is important to understand that in the years leading up to 2008, Swiss banks shamelessly pressed the carry trade into Eastern Europe, prompting Austrians, Poles, and Czech borrowers to denominate their mortgages in Swiss Franc to take advantage of absurdly low interest rates. Of course, any appreciation of the Franc vis-a-vis the Euro would have the effect of blowing out the monthly payments on these mortgages.
Consider also that Switzerland has both a significant export economy and takes in a great deal of tourism money, to the point where the vestiges of the national airline, now "Swiss," are effectively subsidized to consistently present cheap fares into Switzerland and bring in hard (or formerly hard) foreign currency.
Against this backdrop, and mindful of the ability of the potential impact a failure (or credibility gap) in one of these large, Swiss banking institutions to crater the entire Swiss economy, and assuming that Swiss banks have not materially unwound these instruments since 2008, the motivations of the SNB become clear. Prevent appreciation of the Swiss Franc at all costs. As it happens, and in an interesting divergence from the postmodernish and enigmatic norm in monetary public relations doctrines, they appear quite prepared not only to do this, but to publicly tout their resolve. Consider, for example, the crude thrust of this speech by Phillipp M. Hildebrand of the SNB at Universität St. Gallen on January 21, 2009:
Mit einem Kurzfristzins von praktisch Null kann die Nationalbank einer erneuten Aufwertung des Schweizer Frankens nicht mehr durch eine Zinssenkung entgegen wirken. Bei Bedarf müssen andere Instrumente eingesetzt werden, um eine erneute Aufwertung des Frankens zu verhindern oder sogar eine Abwertung herbeizuführen. Grundsätzlich gilt, dass eine Zentralbank immer in der Lage ist, die absolute Menge der sich im Umlauf befindenden eigenen Währung zu erhöhen. Die Nationalbank kann beispielsweise unbegrenzt Schweizer Franken gegen ausländische Währung verkaufen. Im Extremfall, kann sie sich gleichzeitig verpflichten, zu einem festgelegten Wechselkurs unbegrenzt Devisen zu kaufen.
With a short-term rate of practically zero, the SNB can no longer prevent an appreciation of the Swiss Franc with interest rate cuts. If needed, other instruments must be used to avoid appreciation, or depreciation of the Franc. As a general matter, a central bank is always in a position to increase the absolute amount of its currency in circulation. The SNB can, for example, sell unlimited Swiss Franc against foreign currencies. In extreme cases, it can commit to buying unlimited currencies at fixed exchange rates.3 (Emphasis ours).
Hildebrand was back in full force the month before last, again at the Universität St. Gallen, his favorite venue for aggressive policy illumination. (Astute Zero Hedge readers may wish to begin shorting the Swiss Franc vis-a-vis the Euro whenever Hilderbrand is scheduled to speak at the University).
Die Nationalbank wird nicht zulassen, dass über eine solche Aufwertung sich in der Schweiz ein Deflationsrisiko materialisiert. Deshalb werden wir einer übermässigen Aufwertung des Frankens entschieden entgegenwirken.
The SNB will not permit an appreciation of such magnitude that a deflation risk materializes in Switzerland. Therefore we will decisively counter an excessive appreciation of the Swiss Franc.4
Just last week, SNB Board Member Jean-Pierre Danthine was heard to quip:
Theoretically there is no limit to forex intervention.
Danthine meant intervention to devalue the Franc, of course, as there is a practical limit to defending the currency in the form of non Franc reserves that can be spent doing it, but the point remains with respect to appreciation. One expects, for example, that, in the course of its interventions, the SNB has managed to amass a rather substantial hoard of foreign reserves. Particularly USD and EUR. One further expects the central bank should be able to buy quite a sum of CHF when it feels itself ready to do so.
One of the joys of Swiss Fed Watching is the close matchup between extreme threats (when have you ever heard another central bank willing to repeatedly threaten an unlimited printing press run?) and action. Swiss intervention has been quick, brutal and effective, and has been so since 2008 or 2009. There are signs, however, that more recent interventions lack the enduring effect they commanded in past, however.
A series of suspected interventions, some since confirmed, paint an interesting series of pictures:
Four apparent interventions after the Lehman crash appear in late November of 2008, March of 2009, late June of 2009, and this month. Several other price moves appear suspicious. Two other behaviors suggest either a dramatic psychological effect on traders after the intervention, or continued low level dilution by the SNB. In the period beginning July 2009, following two apparent interventions in March and June which appear to attempt to establish 1.51 as a EUR/CHF floor, the EUR/CHF drifted near horizontal for nearly five months near this floor before beginning another steady decline at the end of the first quarter. AUD/CHF is shown as a rough metric for FX risk aversion (as the unwind of AUD carry trades tends to represent a good barometer for such sentiment). [Source: Bloomberg]
Despite the valiant efforts of the SNB in positioning itself as the European Central Bank of China, one can easily see the writing on the wall for the Euro vis-a-vis the Swiss Franc. Interventions appear to have less effect as time passes and the Euro crisis grows more extreme. This is easily visible if one examines USD/CHF - EUR/CHF spreads:
It seems quite obvious that the SNB has entirely abandoned any efforts (as were rumored) at USD/CHF intervention, and the spread has narrowed considerably, primarily on USD appreciation vis-a-vis the Franc. Likewise, the divergence in direction between USD/CHF and USD/EUR that emerged early this year demonstrates what might fairly be called "panic flight" from the Euro. [Source: Bloomberg]
The SNB could, theoretically, fight a panic run on the Euro of any size, provided it was willing to endure the pain a full-fledged Bernanke style printing program would later create. It seems, however, that the SNB might recognize the damage created by single handedly fighting off market sentiment on the likelihood of a rag-tag parliament of European leaders pulling the Euro together when at least a third of the seats are commanded by the Club Med nations is simply not worth it. Still, a few interventions here and there (and increasingly after hours) might at least slow the speed of descent.
Or not.
- 1. UBS quarterly report, 1Q2010 (May 4, 2010).
- 2. Credit Suisse quarterly report, 1Q2010 (April 22, 2010).
- 3. "The SNB’s Ability to Act in the Crisis," Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, Universität St. Gallen, (January 21, 2009).
- 4. "The Swiss National Bank’s Monetary Policy Strategy in the Financial Crisis," Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank University of St. Gallen (March 23, 2010).
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They will intervene if it profits them, but not if it does not. Except for short-term gain, such interventions would be a silly and futile game. They'd have better luck with Global Thermonuclear War.
How about a nice game of chess?
Joshua is to busy to intervene in currency markets right now he is currently playing thermo nuclear war with the Koreans
My guess is that your request would be a first, for her... I just don't see her playing nice...
Nice writeup, Marla.
For anyone who is curious about the title of this thread...
http://videosift.com/video/Its-Happy-Fun-Ball
Warning: Pregnant women the elderly, and children under 10 should avoid prolonged exposure to Happy Fun Schweizerische Nationalbank Caution: Happy Fun Schweizerische Nationalbank may suddenly accelerate to dangerous speeds Happy Fun Schweizerische Nationalbank contains a liquid core, which, if exposed due to rupter, should not be touched, inhaled, or looked at. Do not use Happy Fun Schweizerische Nationalbank on concrete Discontinue use of Happy Fun Schweizerische Nationalbank if any of the following occurs: -Itching -Vertigo -Dizzyness -Tingling in the extremities -Loss of Balance or coordination -Slurred Speech -Temporary Blindness -Profuse sweating -Heart palpatations If Happy Fun Schweizerische Nationalbank beings to smoke, get away immediatley. Seek shelter and cover head. Happy Fun Schweizerische Nationalbank may stick to certain types of skin When not in use Happy Fun Schweizerische Nationalbank should be returned to its special container and kept under refrigeration ... Failure to do so relieves the makers of Happy Fun Schweizerische Nationalbank, Wacky Products, Incorporated, and its parent company, Global Chemical Unlimited, of any and all liability. Ingredients of Happy Fun Schweizerische Nationalbank include an unknown glowing substance which fell to Earth, presumably from outer space. Happy Fun Schweizerische Nationalbank has been shipped to our troops in Saudi Arabia and is also being dropped by our warplanes on Iraq. Do not taunt Happy Fun Schweizerische Nationalbank. Happy Fun Schweizerische Nationalbank comes with a lifetime gurantee.
Caution: Happy Fun Schweizerische Nationalbank is intended only for central bankers of age 4 and over.
Do not insert Happy Fun Schweizerische Nationalbank into any bodily orifice, or severe financial hemorrhaging may occur.
Do not expose Happy Fun Schweizerische Nationalbank to any quantity of gold, as this will result in a violent and explosive reaction.
Please dispose of all unwanted Happy Fun Schweizerische Nationalbank in a safe and prudent manner, preferably into the vaults of neighboring central banks. Do not allow pets to ingest any amount of Happy Fun Schweizerische Nationalbank, as severe genetic damage and possible zombifying mutation may occur.
The makers of Happy Fun Schweizerische Nationalbank take no responsibility for any unathorized abuse of this product, or its intentional use as a weapon of financial mass destruction.
Any similarities between the actions and monetary instruments of Happy Fun Schweizerische Nationalbank and all previously failed central banks and fiat currencies are intentional and are not purely coincidental.
+100
Thanks for the link. The last time I saw that I was still a kid.
Thanks Marla. I think the Swiss have done their part. Now for them it is time to sip hot chocolate and smoke some buds (it is legal there). BS can take over from his chair at Doelarrs 'R US.
wow
This was my daily ZH-shot into my veins
Did the SNB have anything to do with today's ramp job?
I don't know but it sure correlated with gold/platinum and silver.
News that the Ponzi is dead has been greatly exaggerated. These ramp jobs are done to placate the deluded into believing that all is well. They had to hold S&P 1050 or it was another 50 points lower very quickly.
So it's tomorrow or next week or next month. I expect a bounce sooner or later. Why not now.
yep
All smiles over on CNBC at 4:02 PM after an extremely impressive stick save by Timmy and Company. From China no less, though there's no place left on earth that's not just a phone call away.
Let's see, saved S&P 1050, closed over 10,000 DOW. Time for a cigarette after that work out between the sheets.
Timmah puts the phone down and rolls his chair out from his desk.
"Hey Bennie boy!"
"Don't call me that, Timmah."
"Then don't call me Timmah."
Silence as BS reads the news.......Timmah stands up from his desk, "Well anyway, you know what time it is?" BS looks up at him with hope. "Rampjob time?!?!"
Timmah raises his brow, opens his arms, and smiles, "Rampjob time!!!"
BS jumps out of his chair, turns on the Nintendo, and and quickly walks to the bar. "I will have a scotch on the rocks. And for you Tim?" "Vodka and red bull!" BS hands Tim his drink and pulls up a beanbag. "OK, you ready?" "Ready!"
Together they play "Rampjob", which sounds like they were doing things to each other, but not this time, they only ramped the market through FX swaps and PPT buying.
America, HERE IS YOUR BAILOUT.
Hey - that's the game they give away for free when you open a savings account at Wells Fargo!
I thought that was waht I was given but it was another kinda job.
"Y'all gotta watch bendin' over 'round them boys."
Uhmmmm..
A blonde and scantily clad bank teller appears on screen...."And now with a new membership, er....I mean account, you will get one Vodka and Red Bull free!"
"Hi, I'm Timmah Geiththththner. And not only do I drink vodka and red bulls for breakfast [he sips his redbull/vodka], ah yeah, I bank with Wells Fargo! Yeah!"
ya got a real active mind there, lennon.
frickin jump JUMP†
i like it, you make me smile and laugh. real visuals and all.
some heavy shit going down on ZH pages today.
need you around, organizing the fantasy party.
BYO.
i tried to post one of my nude images over on nate's economic edge blog and got banned†
not quite as liberal as ZH. but hey, he allows for images, i guess just charts allowed.
Reality is our making, might as well have fun fantasizing!
???"B"ring "Y"our "O"wn???
So....they are square, and we at ZH are....not?
Well not me anyway ;)
nude images? certainly sounds more fun than the futures charts I suppose
Imagine that, Harry got another call wrong. :)
LOL
Be nice to Harry. He was trying to be humble in that earlier thread. This is all new for him.
Either that or reverse psychology. :>)
I second a be nice to Harry movement. Harry is always polite, no matter his calls. And if he is central intellegence, at least he offers a platform for debate.
Ill 3rd to take it easy on Harry, No fun in anybody losing cash, even if it is paper..Plus it takes a hell of a man to come up and say they were wrong and were the dunce hat and take the beating he has..We get back on his ass later, but for now hes going ride on down with us..Then we can all buy appl when its .01
that green graph looks like monster from ghostbusters threw up on the terminal...
This one might be funnier.
http://well.blogs.nytimes.com/2008/02/25/saturday-night-live-takes-on-dr...
HA!
Always loved that one.
Especially funny for anyone who has lived with a peri-menopausal wife. It's the same damn thing.
Thanks for the link.
Speaking of Club Med nations...
Greece announces privatization of state owned firms
Greece will start the privatization process for a state nickle producer, state-owned railways and real estate. They look to sell gas and water companies as well as the Athens airport down the line.
However the government was not expecting to sell its stakes in betting company OPAP Reuters reports.
According to some claims Greek government owns various companies and real estate valued at $400bn, which is roughly the size of the greek debt.
Quote:
"The state's stake in listed companies on the Athens Stock Exchange is worth more than $12 billion. Real estate holdings in major state property-management companies are conservatively valued at more than $400 billion and yet yield next to nothing," notes Michael Massourakis, chief economist at Alpha Bank.
http://www.terradaily.com/reports/Walkers_World_Greek_tragedy_unfolds_99...
Looks like one of the central banks is currently intervening in the FX markets. I am so fucking sick of this. Do they feel it neccessary to do something, to act, everytime the market declines? WTF?
Stop fucking with my short positions you piece of shit central bankers.
This is the exact reason why I pray on a nightly basis that this whole ponzi scheme of a financial system comes crashing down on their bald little skulls. Oh how I will untterly enjoy the day, when intervention has the opposite effect that they desire. I'm sure that day is not far off.
+100. They will bankrupt you if you keep trying to play fair. They have way more money than you.
I love how they have billions and trillions for market games and stealing wealth from savers but they are killing the middle class and doing nothing about the gulf disaster. That alone should destroy the economy and it will when all is said and done.
All the money in the world cannot stop or prevent mother nature as John says..It cannt be predicted nor can it be just shut off when they feel like it..If Katla were to blow then were all at its mercy..They cant control that..And something like that will be there ultimate demise..
Mother Nature's colors are red and green, mostly red though.
Price action in Yen and SP in the last 2 hours looks indeed not normal to say the least.
You have moved into their territory that they have held for years. They are the punks with switchblades, they robbed your house last week, and you are complaining? Move out of the neighborhood. Get yourself a little house in the burbs with a white picket fence. You want commiseration or sympathy? Well, I don't know. Never went where you are.
> to the point where the vestiges of the national airline,
> now "Swiss," are effectively subsidized to consistently
> present cheap fares into Switzerland and bring in hard
> (or formerly hard) foreign currency.
No idea where this s coming from but I an categorically call it BS. Swiss is now a subsidiary of Lufthansa and there is no public money being spent into it.
So aptly demonstrating your ignorance of Swiss tax incentives is not wise when on public forums.
Marla, am I allowed to inquire as to your relationship to Switzerland? Are you Swiss? Do you speak German?
The SNB is about to start paying a price in losses. Since the Cantonal Banks and Cantons are the major share holders, this will not be warmly accepted. Here is one on Hildebrand from Businessweek:
http://www.businessweek.com/news/2010-05-25/hildebrand-put-on-losing-sid...And this piece:
http://www.schweizer-franken.eu/2010/05/dilemma-euro-kurs-chf-interventi...
Sure!
Well?
Well what?
I thought you would ask; "Which well, what?".
He's also still waiting for a call back from the looker he gave his phone number to this past weekend.
heh The 2-D, 3-D and most especially the aspirational always end up self identifying...
;)
Again, your logo highlights one of my posts. :)
couldn't resist crawling out from the dark corners of BS to plant the HSG flag...
now that i think about it, i really cannot remember the last time i posted a comment...nevertheless, always getting my daily dose ;)
She supplies them with cough medicine during the ski season.
http://www.fohguild.org/forums/attachments/screenshots/138753d1272618081...
But don't tell anyone. The ricolla mob is brutal.
Or maybe she does some contract statues for them.
http://www.fohguild.org/forums/attachments/screenshots/138671d1272567248...
Marla,
I know of massive subsidies for the Swiss tourism industry in the hotel business (but it still seems as if it's a slow death for them) - but since Lufthansa bought the remains of Swiss Air -after the government burnt through 2 billion CHF trying to restructure them- for 1 symbolic Swiss Franc, I have never heard of direct or indirect subsidies anymore.
Also I believe most tourists arrive by car or train.
Aren't pretty much all airlines outside the US government run or only nominally private? It's such a tough business - so many fixed costs, moving parts and variables. In the US airlines go bankrupt all the time (or are prevented from doing so by various types of government assistance) but most everywhere else they just cut out the middle man and the state runs them directly.
Anyway you have to be pretty price insensitive to take a vacation in Switzerland in the first place. I can't say I've been there with any regularity but everything seems to be expensive there at all times. Plus, the first time I went it (like Belgium) seemed like the planet of no children.
Well, I for one am shocked. Irresponsible central bank behavior led to irresponsible bank behavior which then led to irresponsible central bank behavior? Heavens to Betsy.
Another day for the rally cap...thank god I fear what cnbs would do if they couldn't banter on aimlessly about the strength of how fantastic everything is while trying to ensure no one ever sells one share of anything.
PPT earned their bonus today. Imagine if someone told you around 9am this morning that the market would close in the green? I, for one, would have probably laughed at them.
Gee, who on earth could have just bottle rocketed the currency markets? Who could it be. Oh my.
They can keep putting off the day of reckoning. Keep putting it off. The longer these intervention games keep going the more destruction they do to the markets.
I just simply laugh at the fact people still think this is a place to put their retirement funds. We've become nothing more than a rigged parlor game controlled by whack job central bankers.
I'm in awe of the ramp job that just took place in the last 2....3 hours of trading.
right on
+1 Double right on. They can keep fighting natural market and deflationary forces but all they are doing is running out of bullets.
triple dip flippity flip.
I would hope that those that populate the decision cycle at the SNB could appreciate what a loss of traction indicates. I wonder what leverage the whole of the Swiss banking system could deploy to garner greater support at other central banks for providing the assistance necessary to maintain a rough peg.... If no assistance seems forthcoming perhaps the SNB should consider bolder action to assist others with focusing. After all, many of these same governments and central banks have worked the same in reverse with respect to Swiss sovereignty.
Excellent illumination of these recent tells Marla.
Miles, Switzerland's bank secrecy offers one big advantage in the case of a run on CS or UBS: Since so much of that money is untaxed "black money" from the worlds ultra-rich, Switzerland would not suffer like Iceland did when the English depositors lost their savings.
It is easy to forget that beyond CS & UBS is the whole of the Swiss private banking establishment. The steel fist within the velvet glove. The issue seems to be how will the trigger on losses be pulled and by whom. Highlights at 11.
@Tyler/Marla
The printer friendly version thing is now only available if logged in.
Is it on purpose or not?
Easily a $trillion...
BINGO! It is Dr. Evil running the show behind the curtain! He got back a couple years ago, and said, "Billions" for the bailouts and the banksters laughed, so now he is doing it right, "One Trillion dollars" here, "One trillion dollars" there. Dr. Evil will not relent!!!
If I were a central bank, I would not start by intervening dirctly. I would "leak" (with a few calls to the biggest opposite position holders) that I will be and let the market do the work. After a while it would wear off with the participants looking for the interventions that never came. Then, just to piss them off, I would intervene with prior warning. Pretty soon, no one would want to trade my currency anymore and I can retire.
Which is why, in a world of Central Banking LUNACY, Gold is the only haven for people who wish their life savings to be denominated in an appreciating currency.
Bingo. 100% pure lunacy and lawlessness.
Club Med nations.
Ouch.
Nice piece Marla. Tks for the name drop.
It has always amazed me that this little country of only 8mm people has had a seat at the head of the table for all the big financial events post WWII.
The reason for this is simple. The money is there. Trillions.
There is also a real economy. Tourism, exports, agriculture etc play a big part. That part of the economy is getting crushed by the "too strong" Franc.
The Swiss don't care a bit about the dollar. It's the Euro that makes a difference for them. I have been told that there will be severe domestic consequences if the E/CHF were to go to 1.35. This is why they drew a line in the sand at 1.40 last week. Their effort to control the E/CHF proved to be a destabilizing force in the market. Just the opposite of what was intended/desired.
This will not go away. Watch the CHF crosses for clues. I think a level of 1.4050 E/Chf is when the next test will take place. If they let it go below 1.40 hang on. That will be another "violent" period.
But at some point, when/if it becomes clear that the Euro zone isn't just having some gentlemanly and temporary problem of liquidity - that the Euro is doomed or will collapse much further - the Swiss are going to just have to get out of the way and let the big tree fall, no?
I understand that a Europe in economic chaos is bad for the Swiss - trade, tourism, business etc....so you can't knock them for trying to help the Euro through some bumps but at this point they must have a playbook to look at when the rest of Europe launches itself into one of these periodic and regular upheavals (Here we go again!).
I bet confidential Swiss banking comes back as fast as it (appears to have) gone away.
The swiss have the nice neutral scam worked out. It's like the 2 witnesses problem from theology. They are like 2 lesbians who make you think you are dating both of them but in reality they are just getting you to drive them around on their dates.
Hmmm, we have been going to a lot of softball games actually...
My pleasure. "Too strong Franc" is quite entertaining given that the Swiss are actually paying for prudent policy, central bank transparency and a strong and resilient economy. Ah, the downside of fiscal prudence.
Good article but lacking in historical perspective. The swiss had been intervening for a long time before the current crisis to support its export competitiveness. Interesting comparison of SNB and chinese intervention. Perhaps more interesting would be a comparison of european reaction to this intervention, versus american reaction to the chinese intervention.
This piece was focused on crisis intervention, given that is the only sort of intervention that appears to have prompted the SNB to make the astounding claim that they were willing to print "unlimited" Francs. A deep historical analysis of Swiss intervention would range back to even before January 1973 (for those that know that date). Such an analysis is beyond the scope of this work.
Switzerland - gateway to Italy :) Seriously, it was a clean place. Very clean. We enjoyed their hospitality, and their interesting interpretations of how to use the English language!