Swiss National Bank

Last week it was 19 central banks (including the ECB which accounts for 19 nations) which had cut rates in 2015, mostly in "surprise", unexpected easing decisions. Moments ago the number became 20 when the Israel central bank just cut its interest rate by 0.15% to 0.1%, the lowest on record, a move which once again caught the market by surprise as only 3 of 23 analysts had predicted it.

With the world's oldest central bank - Sweden's Riksbank - taking the plunge into negative rates, there have been 19 'eases' by central banks this year, Morgan Stanley warns of "ghosts of the 1930s." With competitive 'easing' stoking fears of international currency wars, The Telegraph notes however that looser monetary policy is not the order of the day everywhere in the world, and herein lies potential danger for the world economy.

The Federal Reserve Bank of Cleveland earlier this week tweeted out a notice of a working paper titled: U.S. Intervention during the Bretton Woods Era:1962-1973... a detailed report on the massive interventions in currency markets that the Treasury and the Federal Reserve conducted and is exceptionally critical of the market manipulations that took place during that period. It is probably no surprise then that the paper is no longer featured at the Cleveland Fed, and the tweet was quickly deleted.

Gold and government bonds now cost about the same to own, but governments actively trying to lower the value of their bonds and bank accounts while gold is rising wherever trouble erupts. The logical conclusion is that if gold and cash both cost the same to own, then maybe gold — which has held its value over millennia while every previous fiat currency has evaporated — is the better bet.

Now that Europe has demonstrated that one can go NIRP and not crash the system, will the Fed - once its silly obsession with hiking rates in the summer only to launch even more easing and/or QE as the ECB did in 2008 and 2011 - follow suit and join a rising tide of "developed" world central banks in punishing savers for hoarding cash? In a note released last night titled "Revisiting Negative Interest Rates in the US", Goldman shares its thought on the matter. It goes without saying that Goldman is important, because whatever Goldman's econ team shares with Goldman's Bill Dudley over at the NY Fed, usually tends to become official policy with a 3-6 month lag.

Exactly as I warned 3 wks ago, Nordic countries are facing pressure. Here's strong evidence of a krone break, havoc to ensue in global banks, how to monetize when skittish brokers pull access & leverage. 

‘Coin bars’ is a bullion industry term referring to bars that were made by melting gold coins in a process that did not refine the gold nor remove the other metals or metal alloys that were in the coins. The molten metal was just recast directly into bar form. Because it’s a concept critical to the FRBNY stored gold, the concept of US Assay Office / Mint gold bar ‘Melts’ is also highlighted below. Melts are batches of gold bars, usually between 18 and 22 bars, that when produced, were stamped with a melt number and a fineness, but were weight-listed as one unit. The US Assay Office produced both 0.995 fine gold bars and coin bars as Melts. The gold bars in a Melt are usually stored together unless that melt has been ‘broken’.

With China devaluation looming as the great unspoken Black Swan trade, and on the heels of the Swiss National Bank folding on its 'peg', we thought a quick glance at the world's "pegged" currencies would be useful as a guide to where the next shoe (and pant legs) will drop. With global FX implied volatility at EU crisis highs, the markets clearly expect more to come...

With SNB's Danthine having proclaimed last week that, despite allowing Swissy to free-float again (with a soft corridor from 1.05 - 1.10), that "the SNB remains ready to intervene on foreign exchange markets" one could be forgiven for thinking that the Swiss National Bank is at it again tonight. The 'stabilitee' of EURUSD - trading in a narrow 45 pip range and holding very close to unchanged (as US equity futures slide, Treasuries rally and gold rises) seems a little too well managed tonight and one glance at EURCHF's "spikey-ness" suggests the visible hand of intervention at play...

“In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings.” Aristotle (?2,400 years ago)

“Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” Alan Greenspan (2014)

Put on the a tin foil hat if you must, but US dollar's rally is resuming after short consolidation phase.  I think the rally is only about 1/3 of where it is eventually going.  

Even as the whispers that the imposition of capital controls by Greece, which is now running out of both time, negotiating leverage and tax money is just a matter of time, get louder with every passing day if not acknowledged by Greek officials yet, it was none other than one of the supposedly most "rock-solid" central banks in the world that fired a shot across the bow of global financial stability when it hinted that not Greece but another country may be the first to engage in capital controls. The country: Switzerland.

"Conditions in the global economy are clearly abnormal. The policymaker response to those conditions is extraordinary, with minimal focus on an all-out push for higher growth. Instead, the primary focus is on boosting “inflation” with repeated doses of bondbuying, stock-buying and super-low interest rates"

"A trait you'll see among the world's best investors is the willingness -- even desire -- to talk about their mistakes. They analyze what went wrong, why they were mistaken, and how they can learn from their errors so they don't repeat them. Everyone makes mistakes, but they seem to grasp what most of us have a hard time admitting: It's your (and my) fault."

Taking interest rates so negative that they threaten a run on bank deposits should not be seen as success --- it is failure. Creating bank reserves at that pace should not be seen as success --- it is failure. The next failure may well be some government-inspired restriction on capital inflows. Well, you could call such restrictions, and risking the liquidity of banks, monetary success if you like, but then you probably also think it’s a success to throw the ball one yard from the touchline.

This was the “Rubicon” moment: the instant at which Central Banks gave up pretending that their actions or policies were aimed at anything resembling public good or stability.