My conclusion is that the SNB deliberately screwed the market, and in the process shot itself in the foot for 30-50 billion dollars. What were they thinking?
Top ten things that investors will likely be watching in the week ahead.
We’re getting back to normal, and though normal’s going to hurt – and far more than you realize yet - it’s hugely preferable to upside down; you hang upside-down long enough, it makes your brain explode. The price of oil was the first thing to go, central banks are the next. And then the whole edifice follows suit. The Fed has been setting up its yes-no narrative for months now, and that’s not without a reason. But everyone’s still convinced there won’t be a rate hike until well into this new year. And the Swiss central bank said, a few days before it did, that it wouldn’t. And then it did anyway. The financial sectors’ trust in central banks is gone forever. And none too soon. Now they’ll have to cover their own bets. If anything spells deflation, it’s got to be that. But not even one man in a thousand understands what deflation is.
Since the European sovereign-debt crisis erupted in 2009, everyone has wondered what would happen if a country left the eurozone. The risks created by the SNB’s decision – as transmitted through the financial system – have a fat tail - and the consequences will not be limited to Switzerland. After years of wondering whether the exit of a small, fiscally weak country like Greece could undermine the euro, policymakers will have to deal with an even bigger shock stemming from the exit of a small, fiscally strong country that is not even a member of the European Union.
Just to make things interesting, overnight Russia told a beleaguered Greece, and specifically its hurting farmers, that it "may lift its ban on food imports from Greece in the event it quits the European Union" according to Russian Minister of Agriculture Nikolai Fyodorov who spoke in Berlin on Friday. “If Greece has to leave the European Union, we will build our own relations with it, the food ban will not be applicable to it,” Fyodorov said as reported by Tass. In other words, Russia has casually thrown out feelers to Greece (and any other peripheral European country) and given it the option of joining the greater Russian sphere of influence (because the USSR 2.0 and satellites is still not trademarked), should it decide that 5 years after the first Greek "bailout" things for the country caught in an endless depression are as good as they will get with a bunch of Goldman bankers in charge.
At the hastily arranged press conference on January 15, SNB's president, Jordan, looked like a red-faced school boy caught with the hand in the cookie jar. None of his explanations made any sense. The SNB was clearly caught by surprise itself and didn't have time to make up some better lies. But why this sudden change of heart, throwing in the towel causing book losses of somewhere around CHF 75bn (>10% GDP)? Some theories...
Self-government is the gift our founding fathers made possible and out of lack of respect for the sacrifices of the past, the constitutional rights of the present and the freedoms of future Americans we allow it to be traded for a comfortable existence. We must stop and truly understand the concept of self-government as it was meant to be and then mentally reconcile that with the current state of our government. We are parented not represented. We are enslaved with encroaching laws that are demeaning to rational self sufficient adults. And by a legislative body that feeds from our bosom, fights with our fists and has buried us in debt to a foreign body who they sold the rights to our currency. How is this in any way a self-governed society? We have been captured by a group of fraudulent citizens who control our money, our military and have desecrated our constitution.
When it comes to America's foreign creditors, only two names matter (except for Belgium whose Euroclear service continues to be used by an anonymous entity(s) to buy up US Treasurys): Japan and China. And it is in the Treasury buying and selling dynamics of these two entities that we can see how Japan's monetary policy has impacted its holdings of US paper, which just hit a new all time high of $1,242 billion, while on the other hand Beijing's official holdings of Treasurys have remained unchanged since the summer of 2011, and which in July declined yet another month to just $1,250 billion, the lowest since January 2013.
At the moment, the US dollar is choice. This isn’t necessarily a vote of confidence for the dollar. It’s more like a vote against all the others. If big institutional investors must choose between bankrupt America and bankrupt Europe, right now they choose America. But this is a decision that can and will be changed in an instant. Just look at the Swiss franc...
"The first lesson is never trust a central banker when he or she makes a commitment or gives guidance..."
What we see now is the recovery of price discovery, and therefore the functioning economy, and it shouldn’t be a big surprise that it doesn’t come in a smooth transition. Six years is a long time. Moreover, it was never just QE that distorted the markets, there was – and is – the ultra-low interest rate policy developed nations’ central banks adhere to like it was the gospel, and there’s always been the narrative of economic recovery just around the corner that the politico/media system incessantly drowned the world in. That the QE madness ended with the decapitation of the price of oil seems only fitting.
The bad news is that as we also speculated, and as Greek officials tried to cover up as usual, the Greeks have resumed doing what they do best any time their country is facing a grand crisis: walking to the bank and withdrawing what little deposits they have left. Or rather running to the bank. Which brings us back to the topic of the Emergency Liquidity Assistnace, which as Kathimerini reported moments ago, at least two Greek systemic banks have reportedly resorted to, indicating that the liquidity situation in Greece is once again as dire as it was in the depth of the European collapse.
"we venture that the SNB will sooner or later be forced to permit the franc to appreciate and thus to enrich the holders of low-priced, three-year call options on the Swiss/euro exchange rate. It's a long shot, to be sure--the options are cheap for a reason--but we judge that the prospective reward is worth the obvious risk." - Jim Grant, Sept 14th, 2014
Muppet Murder: Goldman's "Top #6 Trade Reco For 2015" Crushed, Stopped Out After 16.5% Loss In One DaySubmitted by Tyler Durden on 01/15/2015 14:21 -0400
It's a one-two for the muppet mauling masters at Goldman Sachs, who first crucified anyone who listened to the Buy Best Buy reco from Tuesday, and now, those who put their money into Top Trade #6 for 2015 by the Goldman uber traders, which was to Short CFH/SEK - obviously on margin - just got crucified after the unlevered pair just crashed 16.5%, stopping out those who listened to Goldman and sold CHFSEK to Goldman's prop, pardon flow, traders, and leading to a complete loss on margin, unless of course one has an infinite balance sheet.
This morning's decision by the Swiss National Bank has polarized the investing community. From the 'smartest men in the room' to the 'most renowned newsletter writers in the world', the reactions could not be more different...