This page has been archived and commenting is disabled.
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.
- advertisements -



One moment, the ATMs work, the next, they do not.
Only the (shadow) Fed knows....
:)
You are right that the Central Banks are falling like dominoes. Should we care? We are replacing their worn out paper currencies with aurum http://www.peakprosperity.com/podcast/84359/new-way-hold-gold from the Global Debt Facility.
https://s3.amazonaws.com/khudes/Twitter1.15.15.pdf
Version ID:
bruce , you are a fool.
the swiss bank coordinates every action behind the scenes with the ecb, the bis, the fed, the boe, and the most powerful banking families of the western empires.
this was a calculated inside job BY the central banks to screw someone---you just don't want to accept the world and world financial history is a game of inside dealings by the bankers against the exporters/industrialists/politicians/media etc....., and in your ignorance, you seek to push a a narrative the denies basic reality.
the bankers are in charge. the snb move demonstratese their power , not their weakness. they just surprised you and many other people, and you consider this weakness"?
This is a very big deal and all of the details of how it came about will be know in a month or so.
I say the SNB did this with no consultations with anyone. This was a lone wolf effort.
In my first piece about the SNB I said that a key reason that they would be forced to float is that they had no friends. Not the ECB, Fed, BoJ. No one was on their side. So why would they call them up? To ask permission? To leak the SNB stealth move?
We shall see.
"I say the SNB did this with no consultations with anyone. This was a lone wolf effort."
I think you're right on this, and it's a big news. To keep this system together, the central banks would need to act in a coordinated fashion. Today, they're clearly not doing that. Very dangerous.
I don't think Bruce is a fool, but you are exactly right. This was planned and coordinated by all CBs. I suspect it is easier to confiscate wealth by "surprise" moves like this and NIRP, than through direct taxation.
Yes, it's their "crack suicide squad" in action.
Reminds me of Blazing Saddles - "Stand back or the nigga gets it".
Still amazed at how well it actually works.
I don't think Bruce is a fool, but I do agree that it is highly unlikely that this decision was made without all the other CBs input and approval.
"BY the central banks to screw someone"
"One Ring to Rule Them all, and in the Darkness Bind them," (evil laugh).
b ut in the end good triumphs over evil - I still believe that!
Which Chinese Stratagem is that? Pretending a weakness is actually a strength?
I agree.
This reeks of simple TREASON if not Fraud.
The liars fucked over both their Nation and their trading partners.
It is at the very least a dreadful and shameful public FRAUD. Fraud on an International Scale at that.
A Government made a public promise, not just to it's Citizens, but to domestic and foreign businesses -the whole world: and then broke it.
Still waiting for you Bruce to put some modifier on your statement (see http://www.zerohedge.com/news/2015-01-11/wise-man-sinks-snb )
The Swiss National Bank earned an incredible $38B in 2014
Not sure what you want from me on this one. A modifier? What's that?
I'll repeat it for clarity sake. The SNB has reported a profit of CHF38B (USD = $38B) for all of 2014.
Yes those are paper profits, and they all went out the door today. But that is what the SNB reported just a few days ago.
http://www.foxbusiness.com/markets/2015/01/09/swiss-central-bank-reports...
How about something in the direction of
The SNB has reported a profit of $38B for all of 2014 ignoring all even bigger downside risk that has piled up on it's balance sheet.
(I do hope here at ZH we do a little more than simply repeating what some entity reported.)
Still waiting for you Bruce to put some modifier on your statement (see http://www.zerohedge.com/news/2015-01-11/wise-man-sinks-snb )... The Swiss National Bank earned an incredible $38B in 2014
@Malek, you beat me to the punch. I remember SOMEONE very recently blabbing on and on about how the SNB had "earned" a ton of money last year without explaining exactly how that "profit" was calculated. It was the very same Bruce K. and the $38 B was obtained by anal extraction. Talk about losing all credibility!
Nice heads up on even the idea of this happening as well.
This was planned all right...like Operation Barbarossa.
I fail to see how anyone could fail to see this.
Of course Abrams Tanks in Zurich might raise a few eyebrows....
Good for the SNB and the Swiss people!
"Good for the SNB and the Swiss people! "
Sure. IF you like to pay to keep money in a bank.
...& the Swiss stock market is on fire-sale! Happy buying!
If this is your complete and serious opinion after being 3+ years on ZH, I'm afraid there's nothing that can be done for you...
US 30yr Bond just traded at a yield of 2.407% on my screen.
We may test 2% before the end of trading Friday if aother CB doesn't front with emergency stimulus/intervention before then.
Refinance. It's the patriotic thing to do, especially because WFC, BAC, etc. need the fees.
I don't think that many mortgages or ReFi's are actually being granted.
Maybe if you are a favored minority and go shuffling to an FHA direct lender...
Falling oil prices gives the deflationary chills to CBs around the well.
Interest rates so deep in the negative side makes no sense. It is a
race towards the event horizon.
Kudos, as always, Bruce!
Thanks Bruce!
i don't know bruce. sounds to me like you're s*itting your pants.
anybody that believes that the cb's can pull this out is very naive.
you seem to fit into that category.
reality is a bitch. time for you to wake up. lol
Heh that egg is hollow!!
Well hopefully other losers of QE, Japan for decades followed by the clowns in the US, will speed up the process of the EU QE failure. The longer they string this shit together the worse it's going to get for us peons.
Congratulations Bruce on your more than timely call a few days ago. I should have given it more weight than I did. That said let me go out on a limb and say that the reaction is overblown in the sense of having triggered massive stops. Once these arecleared (with a lot of pain and losses and possible bankruptcies), I think the CHF will depreciate against the dollar to above parity once again. The USD/CHF has already popped back above the 29 year downtrend line.
The action today also show what bullshit the SNB was feeding us in their campaign against the pro-gold referendum less than 2 months ago. It was certainly not their fear of an appreciation of the franc that led them in their No-campaign for that is what they acquiesced to less than 2 months later. It was fear of granting a greater role for gold by one of the major western central banks. But imagine how much fear must be involved in such an instance when what the havoc they accomplished today was nowhere nearly as feared!
Gold is the ultimate no-no in the eyes of the west. Hence it represents something of a binary option. It will be fought tooth and nail on an ongoing basis but explode upwards with any sign of fuck-up or loss of control as we are witnessing today.
The bank lost because they were hedging against themselves, but they win when their reserves are revalued upwards. Doesn't that offset? I'm having trouble netting this out to an overall loss, when their currency gets stronger.
And this causes gold to go up, how? The Euro spikes down on this. I'm lost.
Funny, wasn't a big part of the scare campaign against the referendum question proposing that the Swiss repatriate their gold and buy more shrieking that if the referendum passed then the Swiss would have to drop the peg to the euro and it would crush their export industry.
Well now they successfully scared the populace away from the gold referendum and they have to drop the peg anyway but they don't have any more gold.
What should we expect of a country named after former Dallas Cowboys coach Barry Switzer.
The Fed and the ECB and the BOJ and every fucking CB on the planet was "in the room" when the SNB made that decision. Whether a pig is pink, brown or black, it is STILL a "pig" and bankers are bankers no matter the colour of the flag. Here comes QE4 and a massive eurozone stimulus pump and the canary in the coal mine is gold. Deflation is the Kryptonite of the Central Bank Supermen...
The SNB is a little guy. Looking back, it is not surprising they folded first. ECB QE would make the game too rich for their blood. To keep up the peg, they would have to print trillions worth of Swissies. Better to lose $100B today than to lose trillions tomorrow.
The ECB is a quack central bank. The EU's internal cohesion has substantial political risk. QE has the potential to strain the fabric of the EU past the breaking point. If the Eurozone breaks up, the flood of money into the USA could be truly epic. But Draghi has no choice but to roll the dice, and roll them big.
so they drop the peg and join the EU? there might be more to this than meets the eye
CH is not joining the EU. :)
We will see about that...
Why would the Swiss join the EU? They have relished their independence for centuries. To join san empire that is possibly failing would be insane.
Just as the European Union was not the choice of European citizens, joining the EU will not be the choice of Swiss citizens. The central banks decide.
so who's next to drop their peg, China?
For years American politicians were screaming that they were currency manipulators at 8 yuan/$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)
They will need to do that at some point if they're to establish alternate exchange mechanisms that survive USD paper going to reality.
Promises, Promises! What could possibly go wrong?...
https://www.youtube.com/watch?v=GqnxVuGp9PA
Gay show tunes? Seriously.
I'm no expert of course, but who wouldn't pick a recession, even a severe one, over a complete collapse? The Swiss are wise to keep their high ground while the rest of Europe sinks into the abyss.
i'm even less of an expert, but i heard them on TV this AM, and the CNBC british guy was calling for parity (dollar/euro i assume) and that should strengthen the hands of the two most powerful central banks on the planet. this is war between the global currency NWO and the old sovereign currency nations. i mention China in passing, does this give them any ideas? they're already in recession i think. at the end of the day the global currency folks have all the cards.and bernanke has already helped them out, the die is cast EU/US cbs against the world (china and russia). Ukraine is just a warm up.
Bruce, I believe you wrote about the failure of this peg long before December 2014. I had a short eur long chf position on in anticipation of this peg in 2012 probably as a result of reading something you wrote about it and doing some other research. Of course I abandoned the trade after some time because it was tying up too much capital. I looked at it yesterday and thought to myself about the soros pound trade but sadly didnt put it back on. Sometimes I really do want to kick myself. And yes I understand the Swiss are trying to weaken their currency while the english were trying to strengthen theirs and why that is totally different but still. this was kind of a one way deal.
Let's have some perspective....
It's only a fly in the fondue....or is that Mothra?
The SNB balance sheet is "only" about 90% of Swiss GDP
The two biggest banks, CS and UBS, "only" have assets worth about 4 times Swiss GDP (vs .8 times the COMBINED total of the assets of the US' five biggest banks)
CS and UBS, even after working down their leverage, are still at more than 20 to 1, so a 5% move in asset values cleans up all of that untidy shareholder capital
About 25% of CS and UBS assets are exposure to developing economies, and a good slice of this is SFr loans to former East Bloc mortgagers.
So looking at it in sum, there's nothing to worry about....if you're William Tell or John Calvin and already dead.
Also, I believe Bruce nailed the key issue, which is there are cracks in the crown of every CBer, although this will still take a year or so to play out.
Fingering a dike.