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End of CB Power - SNB Folds
I wrote about the Swiss National Bank being forced to abandon its currency peg to the Euro on 12/3/14, 12/8/14 and 1/11/15. That said, I'm blown away that this has happened today.
Thomas Jordan, the head of the SNB has repeated said that the Franc peg would last forever, and that he would be willing to intervene in "Unlimited Amounts" in support of the peg. Jordan has folded on his promise like a cheap suit in the rain. When push came to shove, Jordan failed to deliver.
The Swiss economy will rapidly fall into recession as a result of the SNB move. The Swiss stock market has been blasted, the currency is now nearly 20% higher than it was a day before. Someone will have to fall on the sword, the arrows are pointing at Jordan.
The dust has not settled on this development as of this morning. I will stick my neck out and say that the failure to hold the minimum rate will result in a one time loss for the SNB of close to $100B. That's a huge amount of money. It comes to 20% of the Swiss GDP! If this type of loss were incurred by the US Fed it would result in a loss in excess of $2 Trillion!
In the coming days and weeks there will be more fallout from the SNB disaster. There will be reports of big losses and gains from today's events. But that is a side show to the real story. We have just witnesses the collapse of a promise by a major central bank.
The Fed, Bank of Japan, ECB, SNB and other Central Banks have repeatedly made the same promises over the past half decade:
Don't worry! We are here. We will do anything it takes to achieve the stability we desire. We are stronger than the markets. We can overwhelm all forces. We will never let go - just trust us!
I never believed in these promises, but the vast majority of those who are active in financial markets did. The entire world has signed onto the notion that Central Banks are all powerful. We now have evidence that they are not.
Anyone who continues to believes in the All Powerful CB after today is a fool. Those who believed in Jordan's promises now have red ink on their hands - lots of it!
The next central bank that will come into the market's cross hairs is the ECB. Mario Draghi has made promises that he would "Do anything - in any amount". Like I said, you would be a fool to continue to believe in that promise as of this morning.
We've just taken a huge leap into chaos. The linchpin of the capital markets has been the trust in the CBs. The market's anchors have now been tossed overboard.
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I can't say for sure that there is a connection...but...it sure makes their pass on the recent vote on Gold understandable, because though Gold has gone Up, its cheaper for them to Buy now in CHF
simply look at a chart of gold in USD and in CHF...I wonder how that vote would go now, regardless it made sense for the Swiss
What is the big deal?
The Swiss realised that a Franc-Euro peg was stupid, and they pulled the plug.
That the markets IMMEDIATELY priced in a 20% depreciation when freed, proves that the CHF was undervalued and there were likely financial costs to that on the SNB level. Either the CB take a loss or the economy take a loss.
Maybe most of YOU trusted the CB's but I did not.
March 2009 I could have BTFD and trebled+ my money, but I would have had to watch the markets as a day trader, but with a buy and hold long position, and wait for an announcement like today's and hope that I was awake, and my country was trading, and all that other nonsense.
Or, I could take my gains and leave. I left.
I left money on the table, but I gained 6 years of sanity and sleep and non-stress as I did not have to wait for today to happen to not lose money.
I hope all you traders managed to front run this news and the HFT algos and made a killing.
I was sound asleep when this happened.
Exact same here.
What about TARP 2? Shirley that is on deck, no? Taxpayers clearly have not suffered enough for the "all-powerful" .01% Inc. skimming off CBs.
So Swiss exported goods are now priced to match US goods.
Who is complaining about US exports from the strong dollar.
The Swiss can now go out and buy the whole of Paris or Berlin on the cheap.
They can subsidise their industries with massive tax breaks. They stuck to the Euro peg a year too long.
I'm not crying over Swiss misery, good thing I bought a barrowload when they declared unlimited buying of euros (from my Mom's basement of course)
Re: "I never believed in these promises, but the vast majority of those who are active in financial markets did. The entire world has signed onto the notion that Central Banks are all powerful."
You're getting carried away with yourself, Bruce. People who manage lots of money, such as Hugh Hendry, had to acknowledge that the CBs were the 800 pound gorillas of the financial markets. That doesn't mean that those money managers "signed onto the notion that Central Banks are all powerful."
It's relatively easy to see what must happen in the financial markets based on economic and financial reality. The tough part is knowing when the markets will turn against obviously unsustainable excesses. This is the basis of the famous quote of Keynes, "The markets can remain irrational longer than I can remain solvent." It is also the basis of the Chuck Prince statement when he was the head of Citibank, "Chuck Prince on Monday dismissed fears that the music was about to stop for the cheap credit-fuelled buy-out boom, saying Citigroup was 'still dancing'” (http://www.ft.com/intl/cms/s/0/80e2987a-2e50-11dc-821c-0000779fd2ac.html...).
You wrote three essays recently saying that the Swiss would have to abandon the peg. Did you correctly predict when they would do so in any of those essays? If not, I don't think that you can claim any special prescience. If so, I hope that you had the courage to follow your published judgments and were long the CHF.
I said the Swiss would have to abandon the peg. I said that the war would start in January. So I had it partly right.
As I said in this piece I was blown out that the Swiss left the battle field before the first shot was fired.
So I did miss the actually timing, I thought the war would go on for 6 months, and then the collapse would come.
I did not have a position on (either way) on the CHF (shit...). I have never claimed to have some "special prescience".
Thank you.
I kinda feel sorry for you getting pissed on, Bruce.
You have made some good calls, right out in the open, and still gotten shit for it despite the fact that those calls wouldn't have been made publicly if you were really looking to sell peeps the dirty end of a trade.
The problem is, and will continue to be, the fact tht the criminals that have been pulling the levers and ripping off people with delight and abandon have not been brought to heel let alone served with the sort of gallows justice that crimes of such magnitude truely demand.
It is not always gonna be their day. Someday a reckoning will come. A lot of innocent people are gonna get taken out back with the perps because when it comes time to clean house the people moping up this mess are going to be in absolutely no mood to hear stories of hierarchical equivocation or unintentional misdeed or mistaken innocence. The fire is gonna be too hot and fierce for all that. The longer the bullshit goes on the worse it is going to be when the tables are turned on the Banksters and Warmongers and Traitors.
Giving up the criminals and political enablers for just punishment, allowing the overdue reset/jubilee; might just protect/salvage more of what exists of the system as it stands, and save a lot of ppeople who might not deserve the full retributive fury that is unavoidable.
Good luck. Really... I, for one, will remember those who tried to tell it like it was and tried to help some of us get through these darkest of times as best as they could during this chaotic transitional time...
Whichever side of the barricades you end up on -I'll see you there.
It will be the event of the millenium, the next best thing to the rapture unfolding; -and I wouldn't miss it for the world.
I'd like to think you're right about the day of reckoning but am far from convinced it'll happen. Don't forget our Rulers control the political, financial, media, education and law enforcement arenas. The only exception is the internet and as the saying goes, they're working on that. Thus any explosion of anger is likely to be unstructured, disorganized and prone to being bought off by bromides and/or misdirected towards the wrong targets.
In the meantime the miscreants make off with the loot to safe havens. (And no, I said nothing about the eastern Mediterranean!)
Swiss National Bank Tells The World – “We’re Getting’ Off This Train!” – Craig Hemke TFMetals Report
TND Podcast Spotlight: The Daily Coin |
The Swiss National Bank (SNB) sent shock waves through the financial markets today, January 15.2015, when they announced the Swiss Franc would no longer be pegged to the Euro. The shock grew in intensity when they further announced, not only would they continue with the NIRP (Negative Interest Rate Policy) but they were in fact going to steal even more currency from savers by dropping their negative interest rate from -0.25 to -0.75. Which of course means that if you had the equivalent of $100,000 in the SNB this morning, this afternoon you would have lost $750–in one day!!
Craig explains all the details and implications of the Swiss leaving the Euro behind and “saving themselves”. Since 2008 the entire financial world has been turned upside down. In late 2011 the Swiss decided to peg their currency to the Euro, in essences giving up their national currency for the debt and death soaked Euro experiment. Keep in mind that England, the home of the Bank of England, is not a member of the European Union nor do they have their currency tied (pegged) to the Euro. That is a story for another day but it is very important to the overall central bankster theft of nation states like Switzerland.
Click here for Rory's full write-up and the podcast
http://thenewsdoctors.com/swiss-national-bank-tells-the-world-were-getting-off-this-train-craig-hemke-tfmetals-report/
YAWN ! The losers who betted on CBs having their backs are out there mourning their losses. Since when the linchpin of capital markets has been the trust in CBs in today's currency war environment. It is each Country/CB for itself.
Counter argument is that it is not asinine to cease at some stage in defending a peg on another fiat currency and cut your losses as well as face the fallouts. Not necessarily bad for a strong SFs to persist as exports is not everything to the Swiss Economy.
Not long ago, BK blasted Jordan for lack of courage to make big moves. Now Jordan did it so is BK just a sore loser ?
SNB...Brilliant move, every hedgefund and speculator lined up on the the side sucking away at the SNB and the SNB just smacked them all on the nose, for once a Central Bank was able to make a move without every man and his dog front running it, there will be lots of sour grapes over this one.
Queue ISIS (Horus/Seb) attack against the Swiss in 3.2.1...
I don't get it.
Surely a CB can "defend" it's currency against a rise in value forever simply by printing and buying whatever people want to throw at you. Defending against a drop in value drains reserves, defending against a rise fills them up. And if you don't like the currencies you are having to buy, sell and buy gold, (but I can see that this may not drop the value of your currency, because having more gold on your balance sheet is an asset backing your currency so it's seen as an even better safe haven, but just because you buy gold at one price doesn't mean you have to sell it at the same, just say hey that's the markup).
The Chinese kept their yuan artificially low for yonks to support their exporters.
It just doesn't make sense.
ah, for the good old days when people trusted in free markets instead of fucking CB's.
Maybe it's as simple as seeing which way Soros is betting
Good luck with that. Most times a vortex of evil is opaque to all light so you'll never see what he's doing.
Bruce, with the peg gone and the continued devaluation of the Euro by Draghi there is no doubt in my mind thaat Germany will either pull out of the Euro or come begging the Swiss to join in.
The Swiss economy will suffer with this strong currency but more importantly, the Germans will not sit idle and watch their wealth take a 20% hit (for now) against the Franc.
Germany may use Draghi's upcoming exercises as the reason to abandon the ship. There is no way that Germany will be saddled with Eurobonds from mountains of foreign debt.
Time to buy Euros (for now) and park them inside Germany. Upon conversion to DM, the profits will be fantastic.
How many mortgages are held outside of Switzerland by Swiss banks in CHF? I remember reading years ago that several banks had engaged in lending to the Eastern Europeans and those mortgages were harder and harder to service. Must be completely impossible now. Not just mortgages but all CHF denominated loans outside CH.
Years ago I was yacking about the two tiered Euro. A north and a south. The north would be worth 40% more than the south. The Swiss would join the northern Euro zone at parity.
This is a possible outcome. But Merkel and Co have so much invested in the existing system that they would fight to the death before this north south thing happened. It is still years away - if ever.
BTW - some of this is 'priced in'. That's why the Bund is a negative yield out to 9 years. Some are already putting on your trade.
Aside from monetary considerations, the French cartoon murders also highlight other problems for the EU. Any country that has open borders with France is implicitly accepting French immigration policy as well. So France becomses a staging area for massive waves of immigration non-Westerners into Europe. Something for any EU member state to ponder.
Isn't that what you are supposed to do... ???
That's what makes them anchors.
They're supposed to have lines attached to them. If you lead with a quote the up/down arrows won't work.
^^Tried to upvote that but for some reason the green triangle doesn't work.
If people are treating your currency as a safe haven, reserve currency and it is making it too "strong" it terms of your global trade concerns, can't this be beneficially offset by simply printing money and spending into domestic ecomony or simple distributing it as citizens dividend - thus "weakening" currency, making it less attractive to hot money and improving domestic economy a bit. Isn't a reserve currency status almost the opposite good to the bad of having bond debt to foeriegners?
According to that Jim Rickards guy the cb's already have something in place for when they all go bust. It's called the IMF.
special drawing rights, yer. NWO fiat ready to be rolled out.
“special drawing rights, yer. NWO fiat ready to be rolled out.”
The SDR is a special “currency” unit based on a basket of 4 or 5 major currencies. It was intended for use ONLY among central banks – NOT for use by the public.
Nothing here; move on.
A massive vote of no confidence for the Euro from the Swiss. They wouldn't do this unless they were worried that the Euro might have a lot further to fall.
For years American politicians were screaming that they were currency manipulators at 8 yuan/$USD, and now it is 6- so they are enjoying the fruits of reduced cost for food, fuel and raw materials (and compared to the Wal-Mart crowd, their man on the street looks pretty spiffy). When it is said that their growth rate is dropping- from 7% to 5%, this means their wealth will not double in 12 years after all- I should be so blessed. Anyone who thinks the road to prosperity is continous bleeding of the currency deserves what he gets (as in Abenomics)
so japan has effectively jumped ship with their jellowback yen and now the swiss divorcing the euro. who is next?
Not sure how this is a bad plan. Why hitch your wagon to a team of horses determined to run off of a cliff? If the Euro goes to zero which in my opinion it will sooner or later then how is in your interest to be pegged at 1.2 x zero?
Sure right now they are going to lose business because everyone within a few minutes of a border will drive across the line to buy their groceries and gas but in the future they will still drive over the border to buy stuff but they will be buying land and property for nothing.
The SNB did this because they have inside information.
The EU and/or euro will blow up soon.
Soon SNB will be called heroes.
Bruce is a tow the line statist, so what did you expect him to say:
"The linchpin of the capital markets has been the trust in the CBs."
Good thing they didn't go for that old-fashioned gold standard idea.
I have been stating that the CB has been defunct since March 10th
2008 Bear Stearns New York time. I fully support Krasting's assertion
wholeheartedly and without equivocation, Z/H. What I don't understand
is why it took him so long given that we have all just witnessed 28
successive business quarters of contractions with no prospect of any change in the trend.
wtf?
:|
I haven't been to Switzerland in several years Bruce, but I remember it as a mostly service economy, insurance, banking, tax (cough, cough) planning and the like, along with Hydro power and some cutting edge science.
I don't see that getting hurt much by a stronger currency. Could you be more specific about why the Swiss have a real problem? From my experience, lower cost of food imports will be really welcome.
The Swiss make stuff, very nice, very expensive, very high quallity stuff.
From my perch in the largest economy in the world, anything Northern European, German, Swiss, Dutch, is preferred to buy to that which wears out in 2 months time and has high heavy metal content. Scandinavian is ok, UK so-so, forget the USA it's probably just re-branded Chinese junque.
Spend 10X for something, but it lasts 10 years not 10 weeks.
Like a ca. 1950''s Speed Queen all metal USA vacuum cleaner that lasted to the mid-1990's.
-Ceramic room heaters
-Deerskin or sheepskin lined thermal unders
-Appliances, utensils, pots, pans
-Headphones, stereo equipment, amplifiers
-Travel book bags
-Knives and watches (if they don't have Asian movements)
-Big tourism - it just cost 20% more to visit.
-Not insignificant farming. Vegetables from France just got 20% cheaper. What's the poor farmer to do?
-Big global banking. Those banks just had all of their foreign earnings devalued.
-Corporate headquarters - with cost up 20% who would move here? Some will be forced to leave.
-The Swiss stores compete with those across the border in France, Germany, Italy and Austria. The Swiss will cross a border to save a bundle on groceries. What will that do to the butcher in Bern or the baker in Geneva?
- Smaller exporters (Swatch) will get crushed (the stock already did).
There will be pain from this.
Switzerland is a nothing. There is no economy there and if there was it wouldn't count for much. This is not to say gold doesn't matter...but there is more to life than Banking and "syndicalists."
Without a doubt no one wants to see formalized Armies on the Battlefield going on over 13 years now.
Without a doubt that is about to be exactly what will be seen.
Sometimes these things happen. Just open up and read a single page of history...all it is is a war.
#9 in the FT 500
Nestle employs 333,000 in 194 countries
http://en.wikipedia.org/wiki/Nestl%C3%A9
Bruce, prescient observations. Kudos. But my guess is that the SNB actually takes much less than a 20% (of GDP) hit, they've had ample time to hedge against what they were about to unleash.
No hedging on this. They were long $s, Euros, Yen and other crap. They all went down by 20%. The SNB even lost money on their gold.
How, exactly can you have hedged? They were actively hoovering up euros en masse. they werent making a bet on direction, they were trying to prevent the direction. hedging would lead to an offset - the otherside of that hedge would have to lay off their own risk somehow.
you cant just "hedge" and think there is no reaction to that action - the very action the SNB was trying to accomplish/prevent from happening.
Hedges don't have to be in the EUR/CHF pair and any reaction would not be instantaneous in any case. As a result of SNB actions, CHF was mispriced relative to many other currencies and commodities. The SNB's hint may be in the NZZ article where they mention the use of a basket for future intervention. And while not a peg per se they will almost certainly intervene in the future. Also, they're holding some 500B in reserves which is a lot but certainly not extreme when compared to the portfolios of major banks and asset managers.
Thanks Oso, well said.
There's also the issue of scale. You and I have fine liquidity, but a central bank would have to move hundreds of billions to have even a modest "hedge." How would any market handle that?
Well, while we crow about the SNB's losses and enjoy a little smack of reality for their stupid ventures in the race to the bottom, I remember something else that Bruce wrote about a few years ago: Swiss exports and employment at the expense of the youth employment throughout the EU.
It doesn't translate that youth employment throughout the EU will get a boost, but the other side of the argument - Swiss export industries - are surely going down the sewer and along with them their much touted employment stats. It's analogous to the curse of natural resources: Having them does not necessarily make your nation rich in a world controlled by fiat. A strong currency may be great for imports and savers but not so much for their exports and employment. They should just stick to what they do best: Keep other people's money safe. Although with this faux-pas, who will still want to go to them for advice?
Who else is going to dump the anchor and de-peg from the Euro and even the USD? I'm trembling with excitement.
You cannot replace Swiss Machining. They are the best machinists on earth according to my brother, who has been a prototype machinist for 30 years. He is now semi-retired. The Germans come in #2 in his book. The Czechs also rate high, and 'mericans are also excellent, but he always says the Swiss are Numero Uno.
I doubt this will hurt Swiss Machinery.
The criminality of central banks is the cornerstone of One World Governance or the NWO.
Nations need to restore their sovereignty by issuing their own currencies with no interest from their Treasury and through a National State bank. One world governance is a disaster for all humanity and the planet.
anyone who thinks the ECB is going to fold up is making the wrong bet. but dont confuse what you want to happen with what is really happening. its been a rocky start for the EURO but nothing to suggest anyone is going back to the old sovereign nation system of currency. remember the EURO had the benefit of providing uniform pricing among the trading partners, and any dissolution will probably be inflationary. the USCB has already included EU banks in its QE, the real issue is competing currencies, will RussiaChina form a joint currency. now i think i understand why the AMERO never got traction, it would be competing currency as well, and create conflicting tensions between EU and NA business partners.
The take away message for all of us is this: central banks will never reveal their plans in advance, the surprise will always be to the benefit of the government. I'm thinking when the dollar gets it's big surprise it will happen like this too. The change will be instantaneous. One moment one world, the next moment a different set of conditions.