Swiss National Bank

Update: EURCHF stops taken out, as pair drops to fresh intraday low of 1.3683. 

As the CHF hits new record highs, the SNB's Hildebrand must be scrambling with both hands tied. Instead, he is trying to deflect attention by pointing out the glaringly ridiculous, i.e., that "stress tests will restore market confidence." The man sure has his Geithner talking points down. Oddly enough, there was not one mention of what everyone was hoping to hear - the fact that the SNB has recently become nothing but a vehicle for currency manipulation.

The last time the EURCHF was trading in the mid 1.37 area, the SNB was stupid enough to intervene, and load up its balance sheet with even more increasingly devalued euros (which as we pointed out previously, has now reached a total of CHF 232 billion). Also, these interventions are now completely futile, as the half life of the rate returning to previous levels is about 4 hours. Nonetheless, we are confident this will not stop the SNB from pulling one off imminently, as the surging franc means nothing but huge pain for Central and Eastern European country banks, which are levered to the gills in CHF-denominated mortgage debt, which is getting more and more expensive even as it generates less and less cash flow. Letting the franc appreciate uncontrollably simply means yet another liquidity crunch episode is about to break out, this time in the Baltics, Central Europe and the Balkans. Keep an eye out for crazy spikes throughout the day, which will be comedy defined as it will refute everything the bank said last night about growth prospects, tapering of the loose policy and non-interventions. Rock, meet hard place.

From the moment the SNB intervened in the EURCHF, to the point where the pair went unchanged on the day, a whopping two hours have expired. The last time the SNB intervened, the return to unchanged took 4 hours, and 8 before that. The next time the SNB buys up EUR, we expect the return to unchanged to take one hour or less.

The SNB has released provisional data indicating FX investments on its balance sheet have exploded by 50% in just the last month, to CHF 232 billion from CHF 153 billion, is indicative of a rate of FX intervention in the market more than double the prior record set in April! All this has occurred as the SNB has tried to keep the EURCHF above 1.40. It has now officially failed at this attempt, as the Euro just hit a fresh all time low against the Franc of 1.3763. Furthermore, recent market talk indicates that the SNB will no longer directly intervene in the pair, thus confirming that there is likely much more room for CHF appreciation in the near term, and more pain for Eastern European countries, where the bulk of real estate bubble borrowing has been denominated in CHFs. In the meantime the side effects of consistent SNB intervention are hard to miss: the Swiss balance sheet has increased to 3 times its pre-2009 average. Unlike the US, it is not loaded up with toxic GSE filth but merely with currencies increasingly backed by such filth, such as euros.

Libor keeps rising as the short-term funding situation in Europe gets worse by the day: today USD Libor hit 0.50969%, a change of 0.01281% from Friday, the first time this metric has pushed over 0.5% in about nine months. The Libor reporting dispersion among BBA member banks has actually tightened marginally from last week, with one notable outlier: UBS. Of the 15 banks that report both USD and EUR-based LIBOR, all disclose a higher offer rate for EUR Libor except for UBS! The Swiss bank is a blatant outlier, in that its disclosed EUR Libor rate of 0.4850% is in fact 10% lower than its USD Libor. Just how big are the dollar funding needs of UBS, which many see as an "open market operations" vehicle for the SNB, a bank which it is no secret is now openly intervening in FX markets, and thus likely has provided a lifeline to UBS to provide this lower EUR Libor rate compared to US Libor. So how would the circle jerk go: SNB buys EUR in the open market (causing massive destruction in the EURCHF and GBPCHF pairs), then the excess euro holdings are funneled back into the market via a much cheaper EUR lending rate in the 3M funding market (LIBOR) compared to all other banks: the UBS 3M EUR Libor rate is a whopping 30% below the average EUR Libor rate of 0.6344%, nearly double the spread from average of the next lowest EUR Libor offer, that of RBS at 0.56%.

Interestingly enough some customers asked me yesterday my opinion on EURCHF, and my opinion was: it's a fallin knife, and every time it reverses the market posts a bullish engulfing day. My thinking was also that despite some short interest in Euroswiss, there is very little priced in for Swiss rates, and a suprise would most likely come on the hawkish side, which would add to downside pressure. Therefore a reversal was most likely going to be driven by intervention. Little did I expect we would see that today! - Nic Lenoir

Everyone's favorite openly interventionist central bank (no, not the Fed: Bernanke is all about covert market manipulation) the SNB is about to pull the mother of all Swiss Franc dumps, as the CHF has just hit an all time high against the euro. And when that happens, the one currency that everyone loves to forget is about to get some seismic shocks. Also Mr. Bigglesworth (aka Ben Bernanke) gets upset, and tress die. It is perfectly logical that Soros-lites all over the world are currently loading up on cheap CHF straddles in anticipation of a UK 1990's redux. The race to the currency bottom is now in the second lap.

It was just a matter of time before the sensible banks (read, not some fossilized dinosaur out of Japan who apparently does not realize what a strong Yen means for his country's trade surplus) told Bernanke: "basta." The latest on the currency intervention front comes courtesy of Switzerland, where the Swiss bank has again sold a boatload of CHFs to prevent the United States from being the only country hell bent on destroying its own national currency.

Developing story: The Swiss - US monetary war is now officially on.

And in other news, documents obtained by the US House Committee indicate apparent dissension among senior Fed officials about BOFA bailout, impact on Fed's bal. sheet. Obama soon to nominate BB for Dictator Czar (yes, yes, I get it).

Developing story: The Swiss - US monetary war is now officially on.

And in other news, documents obtained by the US House Committee indicate apparent dissension among senior Fed officials about BOFA bailout, impact on Fed's bal. sheet. Obama soon to nominate BB for Dictator Czar (yes, yes, I get it).
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