Swiss National Bank
This will end badly. All manipulation ends the same way.
Holy Red Screen, Batman! If you haven’t seen the news, the Swiss National Bank has just announced that it is putting a ceiling on the franc’s appreciation against the euro… effectively abandoning its economic sovereignty and putting its future in the hands of woefully corrupt and incompetent bureaucrats. On the news, the franc fell off a cliff, dropping almost 10% INSTANTLY. Gold priced in Swiss francs jumped from 1497 to 1620 per troy ounce, all in about 45 seconds. Precious metals are now all alone as the only forms of sound money that are truly safe havens. Since then gold has soared roughly 20%, and as of this morning, the SNB has imposed capital controls to thwart the rise of its currency. This is just the beginning. The Swiss government has basically told the world that they will print as much money as it takes, and buy up as much crap sovereign debt as they can, to competitively devalue the currency. This essentially puts Switzerland in the same sinking boat as Italy, Greece, and Portugal… with one key difference: Switzerland has 0% interest rates. In other words, you can now borrow in francs at 0% and buy government-backed euro garbage yielding 5%, 10%, 30%…. with absolutely no downside currency risk.
Currency markets have seen massive volatility this morning after the Swiss National Bank decision to fix the Swiss franc to the euro. Just prior to the announcement, spot gold for immediate delivery had risen to a new record nominal high of $1,921.15/oz in early morning trading in Europe. Then just before 0900 hours GMT came the news that the Swiss National Bank has decided to fix the country's exchange rate at 1.20 Swiss francs per euro. The SNB indicated it would buy an unlimited amount of euros regardless of the risk to maintain that value. In a matter of minutes, gold fell 3% from the high of $1,921.15 to an inter day low of $1,862.72. It then recovered as quickly and surged back to over $1,912/oz. Gold’s London AM fix this morning was USD 1,891.00, EUR 1,330.75, GBP 1,172.86 per ounce. Gold fixed lower in all currencies (USD 1,896.50, EUR 1,341.13, GBP 1,174.67 per ounce). The SNB announced the currency fix because of what it called "the current massive overvaluation of the Swiss franc." It said it will "no longer tolerate" an exchange rate below the minimum rate of 1.20 francs, which it said is still high.
I am tearing up my Eurail Pass, returning my espresso machine to Costco, and sending my gelato maker to the recycling center. Next year’s summer vacation is going to be at Coney Island, not the Italian Rivera. Those damn Europeans are spoiling everything!
The US stock markets made a determined effort to put in a bottom last week, with the S&P 500 rallying 106 points off the bottom with blinding speed. But the Europeans had other ideas.
I love Swiss chocolate, but it’s not that good. The Swiss franc has been driven up to absurd levels by a safe haven bid. This is the next “short gold” trade. It is far easier to weaken a currency than to strengthen them
The European Dollar Funding Crunch Is Back: Fed Does Another $500 Million In USD Swaps This Time With The ECBSubmitted by Tyler Durden on 08/25/2011 15:25 -0500
And now for some disturbing news out of the ECB, just in time for tomorrow's sub-1% GDP announcement and Jackson Hole disappointment. Unlike last week, when the Fed conducted a $200 million FX swap with the Swiss National Bank, this week the bank in dire needs of dollar funding is the ECB itself... and for two and a half times than last week. Furthermore, unlike last week, when we knew in advance that at least one European bank was experiencing a dollar liquidity event, this time the update from the ECB indicated no USD-based liquidity constraints: the $500 million in 7 day USD punitive loans quietly expired and everyone once again assumed that Eurozone liquidity is back to normal. It isn't. The question once again now becomes, who finds themselves in a dollar funding crunch?
Remember when Jim O'Neill was openly taunting the "bears"? Yeah, those days are long gone. In his latest weekend letter the BRICster proceeds to do what so many have already been doing for weeks and months, namely compare the current precarious global economic situation to 2008: "Another ugly week passes, and it is still only August 20th. What a particularly brutal August this is turning out to be so far, even when compared to many challenging ones in recent and distant years. Although there are many substantive reasons why things are very different, many cannot resist the temptation to make comparisons with 2008. So, I thought I would discuss the comparison this weekend." And like a true Keynesian, O'Neill proceeds to do not just that but to provide his solution to all the world's problems: more G7 intervention. Because they keep getting it so right time after time after time...
Note to the future participants of Bretton Woods III – fiat currencies can only be floated with extremely tight and transparent banking laws, nothing like what we have today and this includes central banks. And if you decide to go down the gold standard path, same thing applies, transparency and low leverage are keys to long-term stability. Banks should operate like utilities with tremendous amounts of transparency, low levels of leverage and huge limitations on market size; read: granularity. How we are stumbling around today with the same banks that almost crashed in 2008 with even greater market shares and low-visibility accounting is beyond my understanding. Read the quote above to understand why the status quo is so eager to defeat anything that would reign in these black holes. It was as true then as it is today.
Perfect Storm Sees Gold & Silver Surge – Chavez Gold Action Leads To Backwardation, Short Squeeze And ‘Havoc’ ConcernsSubmitted by Tyler Durden on 08/19/2011 06:51 -0500
There is a small degree of backwardation developing in the gold market with certain near term futures contracts now trading at higher prices than longer term contracts. The near term August ’11 contract was trading at $1871.40/oz while June ’12 contract is trading at $1,870/oz (1216 GMT). The spread between spot and longer term contracts has fallen suggesting that gold may soon join silver in backwardation. The possibility of backwardation in gold suggests that major investors are concerned about the supply of physical gold. Buyers are concerned about securing supply in the future and are willing to pay a premium for spot or immediate delivery. It could indicate that the short squeeze anticipated by many is taking place and we could see a sharp upward move in gold prices. This would not be surprising considering the very small size of the physical bullion markets versus the size of the overall financial and currency markets and considering the high demand coming from investors and central banks globally. It is worth remembering what happened when silver went into backwardation some months ago. It led to a price surge from $30/oz to over $50/oz in 10 weeks. Backwardation rarely happens in the gold and silver bullion markets. Since gold futures first started to be traded in 1972 (on the Winnipeg Commodity Exchange), there have only been momentary backwardations of a few hours. It suggests that larger gold bars are difficult to acquire in volume and that the physical market is becoming stressed and less liquid.
Official Swiss Bank Denials Of SNB/Fed Dollar Swap Line Usage Sends Gold To New Record Just $120 Away From $2000Submitted by Tyler Durden on 08/19/2011 06:11 -0500
When we first presented yesterday that the SNB had used $200 million in FX swaps with the New York Fed, we speculated that this "means that it is not some usual PIIGS suspect, but one of the two "big ones." Obviously by this we meant Credit Suisse or UBS. It took the banks about 12 hours to come out and deny officially that it had been either of them. Well, it simply it is someone else, and hence someone with far less in deposit-based capital buffers. And then, of course, you know what they say about official denials... Anyway, whoever it was, Europe is not waiting to find out: this morning most European bourses are down between 2 and 4%, Dax down 3.7%, CAC down 2.8% and the FTSE down 2.8% at last check, as the specter of a pan-European bank run is back. The net result: spam continues to be a drag in the gold-canned food pair trade, hitting a new old time high of $1878 in the spot market minutes ago, and just $122 away from $2000. Should the market rout persist, we may well see $2000 in the next 48 market hours.
Cue Panic As Fed Resumes Liquidity Swap Lines, Lends $200 Million To Swiss National Bank, Most Since October 2010Submitted by Tyler Durden on 08/18/2011 15:28 -0500
If yesterday's news broken by ZH that one bank was in dire need of US dollars and ended up borrowing $500 million from the ECB was enough to send the market down almost 5% today, then the follow up news that the FRBNY just reactivated FX swap lines with Europe will likely send ES limit down at tomorrow's open. The FRBNY has just announced that in the week ended August 17, it lent out $200 million to not the ECB, not the BOE, but the "most stable" of all banks: the SNB. This is the first use of the Fed's Swap Lines since March, and the most transacted under this "last ditch global bailout swap line" (see more on how the Fed bailed out the world using swap lines here) since October 2010. This event also gives us a hint that the European bank in question in dire need of cash is Swiss, which in turn means that it is not some usual PIIGS suspect, but one of the two "big ones." If true, this means that the European insolvency, liquidity and what have you crisis is about to take an exponential step function higher.
We’re fast approaching a time in which neither the Fed nor the ECB will be able to hold the market together. Indeed, we got our first taste of what it will be like at the end of July when the S&P 500 wiped out nine months’ worth of gains in about two weeks’ time:
The next round of German elections comes in September (the 4th, 11th, and 18th). Is Merkel (and her party) really going to commit political suicide to support the Euro? After all, she would literally have to change the German constitution to participate in the creation of Eurobonds (the latest deranged ECB idea). You think the German people will go for that?
More Posturing Out Of Europe: Franc Surges After SNB's Bluff Is Called, No Peg Announced, "More Of The Same"Submitted by Tyler Durden on 08/17/2011 06:03 -0500
As Zero Hedge was widely predicting (most recently here), there was no announcement of a fixed or floating peg in the CHF (which was obvious from a mile away: the desperate attempts to leak misinformation to the media and make the franc unattractive were enough to only fool various robots), and instead the SNB's now uber-powerless Philipp Hildebrand said that he "aims to expand banks’ sight deposits at the SNB further, from CHF 120 billion to CHF 200 billion." Translation: "we are terrified to do anything more, we can't afford any more balance sheet losses and for all those who called our bluff, you won" - the immediate result is a 300+ pip tumble in the EURCHF. Elsewhere - pervasive disappointment among the sellsiders who actually bought this theater hook, line and sinker: "SNB seems willing to drag feet for now before pulling trigger on FX spot intervention" Valentin Marinov, strategist at Citigroup, writes in note. Ironically the market is now falling for more of the same as it anticipates something to come out of the Swiss government to also discuss measures against the strength of the CHF. However, as Goldman says (note below) hardly anything will come out of it: "After all it is the SNB who decides on the currency regime and today's announcement is, in our view, a clear signal that the SNB first wants to see how the current measures work before they will decide on any additional measures." Prepare for another 11.5 sigma move in the USDCHF as the "priced in" central bank non-intervention unwinds.
Things will be happening in the next 24 hours.