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It's War?
Whenever something of significance happens in the financial world I struggle to answer the question, “Why now?” There can be clues to markets if that question is answered accurately. If nothing else, it puts things in their proper perspective. I’ve been wondering about the timing of the big move by the SNB all day.
It’s not often a major central bank devalues the currency by 10%. It’s not as if this development is not without significant risks to the Swiss people and in particular, the SNB. It’s been suggested to me that the SNB has no risk; that they can print Francs in any amount necessary. Trillions is not a problem. That's not the case at all.
One of the biggest risks the Swiss face on this is from the rest of the EU. If you were looking for a textbook definition of a “Beggar My Neighbor” policy, this would be it.
So, why Tuesday; after a long holiday weekend in the USA? I am wondering if it has to with this angle of the story:
Swiss Banks Seek Negotiated Tax Settlement Amid Reports of U.S. ‘Ultimatum' on Details
U.S. Deputy Attorney General James Cole wrote a letter Aug. 31 to the Swiss government insisting that Swiss authorities hand over information on hidden U.S. funds in the country by Sept. 6.
The letter specifically targeted Credit Suisse, the country’s second largest bank, as well as nine other private and regional banks.
I don’t argue so much with the US position on this. But consider the implication if you were the Swiss government. The big bad USA takes out its big guns and threatens to fire at poor little Switzerland. They threaten the mother of them all, Credit Suisse. They threaten the smaller banks too.
How would you feel if someone pushed you around like that? No one likes to get pushed. Generally the proper response to pushing, is to push back just as hard in another direction.
Today is September 6th. IMHO it’s not a coincidence that the SNB took a monetary action the same day that the USA had a drop dead date for the Swiss banks.
My question is, “Who was firing a warning shot?” Was it the Swiss? Or was it the US DOJ? Both?
If you think that the timing of both of these issues just happened by accident to fall on this day, I have a bridge to sell you. Everything is connected. Someday we may learn of the facts in this matter. Someone will write a book, or, better yet, there will be a leak. It will come out.
We may have today witnessed the first real cannon shots fired in a global economic war. The muse of history will be that those cannon shots came from the Swiss; the one country that has refused to go to war for the last 200 years. This war is not about principals, land or resources. This one’s about money and wealth. It could get just as nasty as any of the other wars we stumble into.
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someone will walk like a 'martyr'...
but then aren't they all lieutenants?
Thanks for sharing, barliman.
Remind me to NEVER play chess against you!
DAMN! I read it! I'll chew on this for a while. Thanks.
And not a shot across the bow, barliman. This is straight to the wheelhouse. The ramifications of this are yet to be heard 'round the world. (I apologize for the mixed metaphor.)
Agreed, RR. I appreciate Bruce's manner of helping us to put things in context. Looking at the DXY chart since August 31st is also instructive to understand the magnitude of this sucker punch.
Irony - the Swiss initiate the chain of events to provide a reason for QE to the n-th power - while at the same time doing it in a manner that guarantees it will only provide negative results if undertaken.
It's war also when China begins cutting rates, YUAN sinks, trade/FX protectionism goes into overdrive. 3mths and counting.
Konrad Hummler from Wegelin stated that this was the best option to occur in the following: http://www.wegelin.ch/sites/default/files/publications/wegelin_investment_commentary_278.pdf If you look at page 5 down the bottom right corner, he makes the call for the Franc to be held at an upper limit and to be defended on all costs.
Konrad Hummler is a righteous dude.
I like this particular Blog but I think the author is assigning to much of significance to the data matching. The thing is that capital flows to Switzerland not only from Europe but also from US were unsustainable and no country could tolerate huge currency appreciation not based in any degree on fundamentals, especially taking into account that Europe and US are among major importers of goods produced by Switzerland. Having said that, it is not true that every country in the world would not tolerate (or even welcome) modest appreciation of their currency. You need to look at the places which for various reasons are behind their neigbours or peers in terms of living standards and who are prepared to stimulate internal consumption. Places like Thailand and Malaysia come to mind. But even these places will tolerate appreciation up to certain level only...
I like this particular Blog but I think the author is assigning to much of significance to the data matching. The thing is that capital flows to Switzerland not only from Europe but also from US were unsustainable and no country could tolerate huge currency appreciation not based in any degree on fundamentals, especially taking into account that Europe and US are among major importers of goods produced by Switzerland. Having said that, it is not true that every country in the world would not tolerate (or even welcome) modest appreciation of their currency. You need to look at the places which for various reasons are behind their neigbours or peers in terms of living standards and who are prepared to stimulate internal consumption. Places like Thailand and Malaysia come to mind. But even these places will tolerate appreciation up to certain level only...
It's chaos. Then war. The SNB have offically lost their minds, they sent oil bid with their insanity. Great more inflation troubles/tension ahead...this time in Europe.
War, Bitchez!
The Swiss were the only currency left that non-gold buggers could point to and say "look, fiat money can work". Looks like even they had to violate their principles. Shudda known they would after they caved in to the US about banking secrecy, which was their national credo. Oh well. Fuck those cocksucking parasitic bastards.
Krasting: you are in rare form today.
Can the Canadian and Australian dollars be far behind? What about the Singapore dollar and Norwegian Krone? I half-jokingly said a week ago, prepare for the circular currency firing squad. Boy did we get here quicker than I could have imagined.
headlines in norweigen papers about the record strong kroner, we need higher rates to curb a housing bubble but our export industries are hurting, but thank god everyone wants oil
RutRo Shaggy....
nothing like a nice conspiracy theory. i buy it bruce. the swiss gambit may work out for them. the US DOJ has no business forcing foreign institutions to yeild to desperate tax revenue measure -- the swiss banks have their own privacy policies well before all this US financial fuckery.
......and so, without further ado:
FUCK YOU DOJ
FUCK YOU OBUMMER
FUCK YOU BERNANK
FUCK YOU FED
FUCK YOU REPUBS
FUCK YOU DEMS
FUCK YOU STATUS QUO
ETC.
Instead of war, couldn't this just be the next stick save in a long line of stick saves to keep the world from fully collapsing at a rate they cant control... hate to sound drab but.. move along..nothing to see here
Seems possible. Then again there are so many things going on it's hard to be sure what's being reacted to, or what message is being sent. Does SNB's peg really send a warning shot across the bow to the US? It's not like the US hasn't been devaluing its currency willy-nilly.
I doubt the US cares about the peg. And it's going to end badly for the Swiss (big debt for a few months of gain, then into recession with the rest of the world).
And what's up with the 1.2 peg? Talk about showing your hand. This smacks of politics and desperation more than anything.
Wow...check this out- the Sept 119 Swiss Franc put via FXF was up 1,515.38% today. Don't think too many caught that ride.
http://paul.kedrosky.com/
Just as well they're european, otherwise the US might slap them with the 'manipulator' stick. Everyone knows only certain asian economies are manipulators.
In other news, the clock is now counting on when the Japanese will peg the yen. New government, struggling economy.. and most importantly, good ol 'everyone else is doing it'.
Lets all bask in the warm glow of 'free trade'.
This just in from CIA - Swiss are now known to be #1 producer of the pre-cursor for terrorism.
Drones attack in 3, 2, 1
Hey! Cuckoo clocks are well-known as precision timers for explosives. O_o And chocolate? Don't even get me started.....
Agree. It's not like we would send in the drones...people might notice.
Thank you. I was trying to find the words...
generally think Bruce K (as is all of ZH) worth spending valuable time reading & considering .... often tremendous 'no where else' insights propounded.
But after some thought .... think Bruce K overanalyzed this ... am sure Swiss SNB thought this through ... probably have been mulling this for some time. When best? USA Labor Day as good as any time considering German court ruling, etc.
Bruce K did week or so ago highlight possibility of 1-2-3 coordination between WH and FOMC 2 day meeting ... add in Europe stuff ..... lot of choreography going on probably behind scenes.
Apart from ZH, I swear most of rest of world is zombied out. Just watched Bloomberg Rewind. Good guest, nice enouugh people at B'berg .. But young host 2 or 3 times said stuff that was blatantly not true or wrong ... but says stuff so blithely, .... everyone takes it as 'gospel; when it is totally incorrect. Are there any professional standards anywhere anymore? I mean it was not even close ... I had to turn to son and repeatedly say 'that is wrong or incorrect'. No wonder we are going to hell in a handbasket ... no one knows what they are talking about .... chaos and babble.
I'd be willing to bet she has a great rack with an exceptional smile. Who do you think you are to actually listen?
When one watches cheerleaders, one expects abundant cleavage. Please, no one mention that to Varney.
War? I thought the Swiss were neutral.
You have good instincts and this is a high stakes game such that there are no coincidences but I am not sure of the wisdom of a SIG-sauer vs an MQ-9.
Watching the fire burning on the other side of the river is not neutral. It's Szun Zu stratagem number 9:
Delay entering the field of battle until all the other players have become exhausted fighting amongst themselves. Then go in at full strength and pick up the pieces.
The thing is they can do this from complete cover. They can legitimately say they are trying to protect their economy, and who can fault them or even call them on what they do with their funny money. Certainly not the guys who have been printing and handing out money to the banks for so long.
The Swiss were neutral, but there is a pent up hostility now emerging. I pity da foo' dat messes wiff 'em.
Hundreds of years of abstinence can create on helluva woody.
Don't all bankers, especially the ones holding the keys to the printing press want pretty much the same thing? Including the chinese? So somehow they are communicating with each other in some way. The power of the US military is being wielded by multi national finance/oil/industry, and that includes the Swiss.
Whatever the case may be, this massive move by the SNB is clearly showing that no fiat currencies are safe and by proxy neither are their respective sovereign bonds. This should be obvious to any but the densest by now.
The ruling of the supreme court of Germany tomorrow on the legality of the continued bailing out of piigs with german IOU's will be telling of how powerful the few are that are trying to wrest control from the german people against their will. If they succeed, and the court does not rule for the german sovereignty, it will be a sign that another brick was placed in the wall that slowly builds the fortification of the uber ruling class that seems to be bent on consolidating not only Europe, but all nations under one world government.
The Swiss by their massive devaluation unfortunately already caved, or at least is seems so to me. they could have shown some real balls by linking to gold. Their currency would have become exeedingly strong, and they could have bought more gold, becoming the premier financial power of the world.
They didnt do that, but caved. That shows me that they are in it with all the rest.
Gold is now the only safe haven, until some sovereign links their currency. My guess is it will be the US of A.
The Swiss have banking problem as well. Linking to gold will sink their banks.
In a world integrated by multinational corporations there is no way for 90% of the countries to engage in competitive devaluation of their currency at the expense of other 10%. Either they all do it or none of them, otherwise huge trade imbalances develop.
Meanwhile, precious metals soar and economies disintegrate. The new domino theory in action. The reversion to smallness has begun, the evolution of small farms, city states, small manufacturers and service companies. In a resource-scarce world production cannot support many layers of non-productive bureaucracy, whether corporate or government. The ownership of production must move closer to the means of production.
Small is beautiful (except perhaps you know where).
First off, the only way the Swiss will print trillions is if the euro goes into the toilet. The rising franc is a European response to a European problem. If the euro goes into the toilet, the Swiss need to find a safe harbor.
Germany can't print money. Deflation is setting into Euroland. If they print the euro, the other Europe will devour every "free" resource and ask for more. Values will not change until the Germans et al step away from the table. German euros can come to Switzerland, be converted into freshly printed francs, allowing Switzerland to buy European assets at firesale prices (DAX down 30%, others?) Swiss printing is like the steam kettle whistling past the grave...
Where does Switzerland fit in all of this? I suspect the Swiss have had informal discussions with other parties (government and industry) to determine what a fair exchange rate is. 1.20 sounds okay... not too high, not too low. Panic in Euroland pushed their exchange medium to unsustainable levels. If Europe want freshly printed francs, have at it.
I don't think the Americans are too hung up on this. There will only be so many people looking for tax avoidance benefits coming from a Swiss bank account. When the stuff hits the fan, the Swiss will roll over on their banking clients, who in turn will be made examples of in their home jurisdictions.
The Swiss need a safe harbor. Going forward, it may not be fun to be a financial pirate... or provide incomplete infrastructure to support financial pirates.
'...the Swiss will roll over on their banking clients....'
Swiss history suggests this is very, very unlikely. It is a matter of principle and livelihood for them. In the worst case scenario, neither the US nor Germany can/will bomb them. Economic sanctions? the Swiss can live thru any economic difficulties the US tries to create for them.
The Swiss will not be able to live through a coordinated financial sanction in response to a number of jurisdictions looking for tax cheats.
Look at how the global opinion of Greece has fallen.
Are you kidding? Right now if you set up a conduit at the retail level that would allow Americans to hide their assets offshore in the denomination of their choice, at a negative interest rate, there would be a tent city stretching out the door and down the street for miles.
What`s stopping them now... do they need a receipt.
The Obama administration's ever-tighter capital controls (see BK's article above) and the fact that this kind of thing is really only viable for big money players.
One or two shots is not a war, so how do the battles continue? If a great inflow of Euros goes into franks at this discount rate does the SNB just turn around and buy dollars? They could probably create a sizable gain in the DXY and set off a short squeeze. Once the US caves what then? How would the Swiss get out of this mess, just let it float again?
Could it be that China might like those discount euros? Or the oil guys who would probably rather deal in the Euro. Milestones
When I take my money out of UBS I lose 10% on the conversion. Blackmailing clients?
What"s the dilemma!? If you leave your money in UBS, you'll lose a lot more.
Wouldn't it be a hoot to know all the U.S. politicians' Swiss bank accounts or have they moved them already.
Where did Hank send Barry's payoff. "Hope and Change" fizzled like a tired balloon at a frat party.
Yes Bruce, it is all connected.
Well, you have a point there Bruce.
I view the events transpiring as the result of the Fed, and the ECB, after failing to reinflate the bubble through "stimulus" deciding that the system could not be saved. At that time, late 2009 to early 2010, all the central banks started to throw the furniture into the fire to kick the can. No cost has been too much to buy time. The only long term action I see being taken is to acquire gold.
So I viewed this as a conspiracy, a cartel, like OPEC, only this cartel aims to hold down gold prices and slowly buy gold. It is similar to OPEC. Everybody promises to only pump so much. Most cheat and pump more, but nobody pumps freely and crashes the price of oil. The same thing goes with gold. They promise to only buy so much, but they just can't help themselves.
Then along comes China. China knows it is getting screwed. They expected to dominate the 21st century and are not happy with the West changing the game, so they are opening their own gold exchange, lying about their gold acquisitions, and carping about everything going on in the West.
The second canary in the coal mine is the Swiss. The were getting the shaft, and as you pointed out, broke with the pack. Maybe, just maybe, this move was coordinated with the conspiracy being orchestrated by the Fed and the ECB, but I agree with you, it smells like an individual action taken to spite TPTB.
My guess is that the real powers, the Fed and the ECB, will continue to play for time to solidify their position of power within the next monetary system. They will experience more challenges to their authority, and continue to use everything in their reach to stave off the end of the kick the can game so they can continue to buy gold. I don't profess to know what the next system will be, but gold will be central to it.
Excellent points, Bruce & Smiddy here. I'm rooting for the Swiss. Knowing a few Swiss guys personally, if the US DoJ is trying to push the Swiss people around they're going to have a fight on their hands.
Yes, of course Gold will be central to it--and so will China. They are not going to be standing on the pier waving a wet hankie you can bet your ass on that and neither are those fellows with all the oil. The Swissie's have some big friends in the game. Milestones
...and Barry's got Jack Shit and a bunch of debt...