This page has been archived and commenting is disabled.
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.
.
»
- advertisements -
Ha Ha! We've just obliterated our currency! That'll learn ya!
Economic war, baby!!! Gold will win . . .
Excuse me, but this is "Beggar Thy Neighbor" by the Swiss as much as the housing bubble bust was deflation - if you widen your comparison time frame, it's just not true.
To the opposite, the Swiss have slowed down EU and US beggar the neighbor politics, at least for the moment.
I wonder more if the SNB decision is somehow connected to a (possible) German constitutional court verdict tomorrow...
Parts of European neighbors will be very happy - Austria and Hungary where way too many mortgages and household credits were lent in Hungary by Austrian banks in Swiss Franc currency. Trust me, they'll be greatly relieved to have that debt tied to Euro peg/cap vs quickly appreciating Swiss Franc.
Also, consider that Swiss anticipate a default by Greece or Portugal or Italy or whatnot. How high and fast would the Swiss Franc accelerate vs the Euro in such a likely circumstance. The Swiss could understandably want to set peg/cap before that event - which is drawing closer and closer.
And sure . . . Constitutional Court decision out of Germany and Obama's job speech? Want to get it done before those events. But the timing Bruce mentions is influential too. Sept 5th could have worked, but probably wanted breadth that US markets open provided in FX blasts. Need to really pay attention in coming days and weeks. Some big moves are afoot.
By the way, have a better look at Credit Suisse and UBS:
They are Swiss only in name.
A reality check would show you that they meddle with US Treasuries as primary market brokers, have both half of their headcount in the US and are, for all purposes, transnational with a firm foothold in America.
+1