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Fog of War
I think this man must be worried. He has a huge weight on his shoulders. This is Thomas Jordan, the head of the Swiss National Bank.
Mr. Jordan has excellent academic credentials. He's a scholar, and a 'lifer' at the SNB:
University of Berne, PHD Economics
Department of Economics at Harvard University,three-year post-doctoral research.
1997 SNB Economic Advisor in Department 1.
On 18 April 2012, appointed Chairman of the Governing Board of the SNB.
Unfortunately, Mr. Jordan's academic prowess is not going to be of much help with the mess now on his desk. He needs to learn how to play - and win - heads up guts poker. In my experience that's a skill one is born with, or never acquires.
Jordan is a General who has a war on his hands. It's a currency war; only financial blood will flow. But the stakes are high. Mr Jordon understands that more than the Swiss economy is at risk. The idea of the "All Powerful Central Bank" is being called into question. General Jordon is on the front lines of a conflict that could spread throughout Europe, and then to Japan.
Thomas Jordon has enormous power. He can print a biblical amount of money with a keystroke. He's pledged to do exactly that. But, Jordan also has some significant strategic weaknesses:
- Jordan has no allies in this war.
* The US Treasury has put the SNB on its watch list of 'currency manipulators'. Don't look to the US Fed to get involved in this fight.
* The Japanese could care less about the Swiss war - they're trying to wage their own war.
* The SNB has no friends at the ECB either. If anything, Mario Draghi is working against the SNB.
- Jordon inherited the Swiss Franc peg policy. He came in when Hildebrand was thrown out. For the first time in his tenure he's being called to fire his guns in anger. He's an academic, not a warrior.
- Jordon is playing defense. He has promised to hold a line in the sand regardless of the consequences. So Jordon must now stand and take on all comers. The circumstances in Switzerland are today 180 degrees opposite to that of England twenty-years ago. That said, this story is looking a hell of a lot like the devaluation of the Pound. Who can really say, "I'll take em all on at once!"
- There is a "stink' feature to the CHF peg policy. The benefits to the Swiss economy from the peg are at the expense of the French, Italian and Spanish economies.
- The peg policy has the support of the Swiss Parliament - for now.
- The Macro story outside of Switzerland is piling up on the SNB:
* Draghi has promised that a decent sized bazooka will go off at the next ECB meeting (1/22/15). One of Draghi's objectives will be to cheapen the Euro - exactly what Jordon does not want to hear.
* The ongoing Russian story is a factor that increases the need for a safe haven for hot money. Zurich and Geneva have always been a destination for money looking for a safe harbor.
* Greece is going to go down to the wire on December 29 with the final vote. It will be very close. There is a real possibility that GREXIT comes back onto the table. This development would bring with it huge pressure on the EURCHF.
* The Yen is the worst place to hold reserves. Some of the money leaving Japan is headed to Switzerland. There is no safe haven left - but the CHF still comes close. All those Francs will have to be sold by Mr. Jordon - there are no other sellers.
The one thing that Jordan can't do in this war is appear to be weak. He has to be decisive if he is to win. He has to take on the FX market and beat it to submission. Mr. Jordon is off to a bad start - I think he pulled a weak move this morning.
The SNB announced that it was going NIRP. For a few minutes there was some market shock and awe. But the new SNB rate will be -0.5% - that's nothing! The new SNB measures will not take effect until 1/22/15. This coincides with the Draghi bazooka. What the SNB has done is create a beacon that is shining on a date that is only sixteen trading days from today. The SNB should have made the measures immediate, and more costly if it wanted to win a skirmish in the war. But it chose to let the players off easy.
EURCHF forward swap bids got hit this morning with the news of negative interest rates. The swap is the cost of being short the EURCHF. As of the close in NY the two month forward EURCHF swap was a crummy 8 ticks!
This is not a penalty at all. 8 ticks goes by the spot market in seconds. This cost is not going to keep the players at bay. It's an incentive versus a disincentive. Round One was a disappointing draw for the SNB. Round Two will start in January.
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"He needs to learn how to play - and win - heads up guts poker. In my experience that's a skill one is born with, or never acquires."
You don't say...
Can someone explain why the Swiss is still considered a "safe haven"? I always thought that it held that status due to its closer to "real money" monetary policy and its financial independence from EU and US which all seems to be in the permanent distant past now.
No one can explain it; it is irrational. people have memory tones; emotional memes that are "left over" from previous orientations of reality. Any such intent or belief at the present is purely based on a past that has utterly ceased to exist.
Read Gold Wars by Ferdinand Lips ( ex Rothschild Banker).
The whole aim of the CB Cartel was to destroy Switzerland's (safe haven) Banking Industry ... and that meant removing the Gold Backing from the Swiss Franc.
The new Fox in the henhouse is actually very succesful (at destroying the Franc) ... just depends on whose side you are on.
If the Swiss ( the young probably ) want the Euro , then give them the damn thing ... it might just teach them a lesson , one they shoud have known by reading their own History.
Just sayin'
The dreaded double click.
It's because of the full faith and credit meme of the western world, the clowns showed them the gold, left town somehow and now can't deliver on the back end of the physcial gold promise. The bazooka is needed because the timer ran out about 4 or 5 years ago, which is exactly the period of time of a persons memory, hence your distant past. Now that rules have changed the snb needs to both keeps it's doctorial integrity intact, while fighting the lower degreed, greedy money makers. It's a tightroap act with the law of #'s working against you.
I could write that they have the most liberal constitution and the most liberal laws of perhaps the whole world. But it would depend if you understand how the rest of the world uses that term
That;s charming; and I already understand that; but what good is it going to do a currency pegged to the dying Euro? None.
The solution/decision might not be in the hands of the Swiss CB, but instead in what the Northern Eurozone members will decide to save their common currency. Grexit may just be the beginning...The hardest nut to crack will be France.
This comment should get 5000 up arrows. How interesting it doesn't...?
Thanks for the response. With their recent history of cooperation with the IRS/others, do those liberal laws still hold for parking money? I can't imagine that the majority of funds that flood into their during times like these is from people hoping to go there if needed.
And I agree with you entirely.
It is exactly money "flooding in" in times of crisis that creates instability in monetary policy and the domestic economy. The whole reason for the CHFEUR peg was implemented was foreign currency competing for the domestic currency and effectively withdrawing it from circulation in the local economy (deflationary death spiral for an export oriented economy) - if foreigners stopped looking to the CHF as a safe haven, the SNB wouldn't need to print like lunatics.
it is exactly when I am sputtering in near-incoherence because one of those outlandish articles about european affairs that I appreciate your sensible, measured comments most, Urban Redneck
in other terms: too many foreigners value the CHF too much for the CHF's own currency zone's needs. and, as usual, size matters, while bad money drives good away
I've gone fishing/trolling (twice) for a more effective or conventional solution to the Swiss monetary conundrum than splitting CHF into parallel currencies, but I haven't caught anything yet. Not that the SNB board would ever be amenable to such non-traditional solutions, or seriously examining how such a solution is different than the previous experience with unifying the competing Cantonal currencies that led to the creation of the SNB six years before the FED.
I'm off to the land of the Valley of the Shadow of Death for the holidays, I have the suspicion that when I return to Switzerland after the ensuing business road show, I will finally sit down and right the letter to change my permanent residence to Switzerland.
I would love to provide you with a more effective or conventional solution, served on an intellectual platter worthy of you. But there isn't any I have found. As long as the downward leg of this currency war continues, that is. The logic of the currency grid still applies, like coral growth in the face of ripping tides. And so the CHF is an informal member of the EUR alliance
Wish you a Merry Christmas and a Happy New Year, UR, and to all other ZH commentators in good faith. I'll visit you in the Shire of the Hobbits which lies so often on my path. Or should I say the Dwarfs' Mountains? You know that Tolkien was inspired to his works by his visits in Switzerland, don't you? cheers
you are a cultured chap there, my friend.
or, you like to read the recent print of the ny times travel section!
http://www.nytimes.com/2014/12/21/travel/down-the-hobbit-hole-in-switzer...
Schöni Wiehnachte und es guets Neus!
There's always Hope that the War will end, Peace will reign, and Wrongs will be Writed (the inverse doesn't really work well) but this feels more like 1914 than 1918.
Cheers! And best holiday wishes to everyone who keeps this place an enlighterning and worthy hangout.
well, this is a 6-sided political conflict among Swiss liberals, socialists, conservatives and banking lobbies. Safe haven and banking secrecy only for clean, "white" money or for all kinds of funds?
we eurozoners pressure them to a "white" policy, I'm afraid. but the big guns are being deployed by Washington, our socialists would have gotten nowhere without Uncle Sam
Very true; i'ts the saddest of the sad truisms of this holiday season, that the USA; once some sort of refuge for freedom and the rights of man is the central bully in the Socialist / Fascist movement.
You don't have to win every battle to win a war. A draw is enough and even advantageous if it wins a few allies in the process. I'm sure someone appreciated the heads up.
Yes. TJ is fighting the flight to safety with kids' gloves. You demolish your warehouses in this currency war.
Bruce, so many things wrong about what you write, here. Just starting with this:
"There is a "stink' feature to the CHF peg policy. The benefits to the Swiss economy from the peg are at the expense of the French, Italian and Spanish economies."
seriously? do you really care to break this in... numbers? that's the whole eurozone you are talking about. not 100 times bigger then Switzerland, but close enough
I agree with your point. Bruce could just as easily argue that the peripheral Eurozone was trying to benefit from the strength of the Franc.
how much oil does the swiss economy import? merry christmas Hans, yippee ki yay MF. the swiss dug a hole and jumped in with the bayonet of the IRS at their back..that is thier problem bruce.
how much oil does the eurozone import? at the same, low prices? the "cost of gas at the pump" never applied to Europe. that's an American argument. evidence: the horrendous taxes that europeans pay for gas at the pump since practically three generations. sure, we all need oil. but this continent wasn't ever that price-sensitive
Ghordius, how cold is EU with out oil and gas in january even if it is at record low prices? or has solar and wind saved the day?
seems only France had the guts to go nuke, they might do just fine. everybody else is shit outta luck if putin says I won't sell at this price. never corner a cobra - it makes the cobra mad and gives him only one option ..
an oil well or gas well that works is an asset. one that doesn't... a liability. if you are willing to pay top price, in a liberal world order, you will be first served. different from "more and cheaper"
"January" used to be November, and imho will change to March, June, September, and so on. there is no need for "January", except for a chance for a Christmas Rally, that is
But is cold fusion coming to town, or shyed away. Soon to arrive in fla.
A STRONG ECONOMY WITH A WEAK CURRENCY does not exist. Think long term my Swiss friends.....
There is always the Nail Gun Option avalible and its on sale at Home Depot
It only takes one guy to peg a country, the rest are strong.
Where better for blood to flow, than at the bank.
If your going to get into a monetary gunfight make sure you've got something besides a nerf gun.....
...or a 'nirp gun."
Or in your case, any gun in general.
Great stuff Bruce, always ahead of the pace car.
Yes, good article, Bruce.
I don't think the SNB policy is at the expense of Italy, etc, though. Lots of money comes into CH for none-trade reasons. They have to deal with it or suffer competitive consequences.
Educate the uninformed, Bruce... Why is it difficult to keep a currency from appreciating when you have a printing press? I get why it's tough to keep a currency from appreciating... You can run out of foreign currency to sell. But if you can inject a currency into the global markets with a keystroke and buy dollars and euros and yen and gold and bonds of all shapes and sizes how hard is that?