Swiss National Bank

Greece has no future, so long as it clings to the euro. The dollar won't servce you much better. A drachma will only harm the Greek people. That leaves one other option.

Deflation is back on the front burner and it's going to destroy all of the careful central planning and related market manipulation of the past 6 years. Clear signs from the periphery indicate that a destructive deflationary pulse has been unleashed. After years of suppression, the forces of reality are threatening to overwhelm our managed global ""markets"'. And it's about damn time.

The divergence theme is not longer being eclipsed by the Greek drama and the Chinese stock market slide.  See how this week's developments fit into the bigger picture.  

What happened in the China stock market is the latest culmination of the slippery slope of governmental and central bank intervention in financial markets.....

Markets are beginning to signal that policy makers are losing control.  Many second-order-effects of the unprecedented and experimental global actions taken since the 2008 crisis are beginning to manifest.  There are always causes and effects that develop; but they do so at different speeds. Many actions in recent years have prioritized 'benefits today' over 'consequences tomorrow'.  'Tomorrow' is approaching ever more quickly. There is no 'free lunch'.

The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.

In hyperinflation, the currency's purchasing power collapses. Many Fed critics have predicted this will come soon, though it hasn't happened yet. However all is not well with the dollar.

More than even the unfolding "chaos theory" pandemonium in Greece, market watchers were even more focused on whether or not China and the PBOC will succeed in rescuing its market from what is now a crash that threatens social stability in the world's most populous nation. And, at the open it did. The problem is that as the trading session progressed, the initial 8% surge in stocks faded as every bout of buying was roundly sold into until every other index but the benchmark Shanghai Composite turned sharply red.

We warned previously that when (not if) the market crashes next, The Fed is going to need a scapegoat (other than British traders living at home with their parents) and judging by The Fed's Lael Brainard's comments today, high-frequency-traders (HFT) are in the crosshairs. Crucially, Brainard warns that HFT "may amplify market shocks," and The Fed is "studying possible changes in liquidity resilience." 

At the open, Europe looked in the abyss, and with no help coming from China, it did not like what it saw: And then the answer came from the Swiss National Bank, which stepped in to prevent the collapse just as Europe was opening. Because seemingly out of nowhere, a tremendous bid came in to life the EURCHF, buying Euros (against the CHF and the USD) and selling Europe's last left safety currency. We now know that it was the SNB, the same central bank which is the proud owner of well over $1 billion in Apple stock.

According to BofA's Jill Hall, "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history."

There’s a specific sort of instability in the world today – a game theoretic instability – which means that it has an identifiable pattern and rhythm you can understand in order to improve your investment strategy. It’s the instability of the game of Chicken, and once you start looking for it, you will see it everywhere here in the Golden Age of the Central Banker. Greece vs. the Troika? Chicken. Western sanctions on Russia over the Ukraine? Chicken. OPEC vs. US energy producers? Chicken. ECB vs. the Swiss National Bank? Chicken. Fed monetary policy communications to markets? Chicken. Abenomics? Chicken. US policy towards China? Chicken. ISIS vs. the world? Chicken.

One hoary old myth claims the interest rate you see isn't real. You see, it’s only nominal. To calculate the real rate, you're supposed to adjust the nominal rate by inflation.

European shares remain higher, close to intraday highs, with the autos and travel & leisure sectors outperforming and basic resources, utilities underperforming. Meeting of finance officials to reach a deal over Greek aid ended in frustration, forcing leaders to call for an emergency summit for Monday. ECB plans to hold an emergency session of its Governing Council on Friday to discuss a deterioration in liquidity at Greek banks, three people familiar said. German airwave auction raises $5.7b to top 2010 sale. Bank of Japan leaves monetary policy unchanged as forecast. Shanghai Composite Index capped its worst weekly decline in seven years.