Central Banks Upside Down

Tyler Durden's picture

From Raúl Ilargi Meijer of The Automatic Earth

Central Banks Upside Down

The Swiss have unleashed a pretty wild storm in financial markets. All sorts of companies and people today are licking their wounds, and quite a few will simply have to fold. It’s no exception to be so leveraged in foreign exchange wagers that a move of a few percent can wipe you out, let alone one of 30%. Leverage makes sure that right off the bat a whole bunch of foreign exchange brokers, including FXCM, the biggest, are literally dead in the water – FXCM stock fell 90% -.

We’ll hear about the real losses in the days and weeks to come, but rest assured they’ll be very substantial. Banks like Goldman, Deutsche and Barclays were heavily short the franc, and therefor of course, so were their clients. Many private investors have lost everything and then some. As if the losses from oil’s jump off the cliff weren’t damaging enough yet to the realm of finance. But, you know, the CHF franc was pegged to the slumping euro, so what did everybody really expect? The timing may have been a surprise, but come on ..

There’s number of lessons in this, but I don’t feel confident that they will be learned. If only because we’ve gotten so used to living in an upside down world that it has become a solid new normal, especially for those who’ve made a killing off of it. But everything, says physics, tends back to equilibrium. And we were many miles removed from that.

The world of finance decries the fact that the Swiss central bank didn’t ‘telegraph’ beforehand that they were going to get rid of the euro peg. And that’s completely upside down, right there. Even apart from the fact that the SNB move wouldn’t have worked if it had indicated it beforehand, what’s the idea behind central banks having to tell you anything at all? Just look at this from Bloomberg:

SNB Officials Eating Words Risk Lasting Investor Aches

 

Switzerland’s central bank officials have just eaten their words, risking lingering indigestion in financial markets. Just three days after Swiss National Bank (SNBN) Vice President Jean-Pierre Danthine called the franc cap a “pillar” of monetary policy, the SNB yesterday dropped the minimum exchange rate of 1.20 per euro. The shock abandonment of the SNB’s primary policy of the past three years may now leave investors warier of taking officials’ words at face value, according to economists including Karsten Junius, chief economist at Bank J. Safra Sarasin. By scrapping one tool, the franc cap, SNB President Thomas Jordan risks blunting the effects of another. “The SNB’s credibility has suffered a bit,” said Junius, a former economist at the International Monetary Fund.

 

“Statements will get read in the future with a bit more caution. Verbal interventions will hardly work any more.” The central bank’s regular pledge to defend the franc cap with “utmost determination” had become part of the institution’s brand, not least because of the success of that policy in protecting the country’s domestic economy. “They’ve lost part of their credibility, I think, ”Han De Jong, chief economist at ABN Amro told Angie Lau on Bloomberg TV. “Whatever they will say, markets will not trust them very much.” George Buckley at Deutsche also argues the SNB’s words are hard to reconcile with the SNB’s new policy stance. “Their commentary now means nothing,” he said. “This is not utmost determination, is it?”

 

Bank of England Governor Mark Carney has suffered similar criticism. He was labeled an “unreliable boyfriend” by one U.K. lawmaker last year for giving conflicting messages on the possible timing of interest-rate increases in the U.K. SNB President Jordan yesterday defended his surprise move, saying that a tool like the cap would always need to be abandoned unexpectedly. Anatoli Annenkov at SocGen agrees. “It’s something we aren’t used to anymore because most central banks are talking about warning markets, improving communication, not surprising anymore,” Annenkov said by phone from London. “But in such circumstances, there’s basically no other way to do this. Markets would have speculated, positioned themselves beforehand.”

There’s this sense of entitlement seeping through from this that makes you want to, I don’t know, shout, puke? Traders and journalists that chide a central bank for not giving them what they want, when they want it? On what logical basis? That Greenspan and Bernanke did it for years, and so screwed up the entire US financial system? That information from central banks is now some god-given right for traders and bankers? Are you nuts? Are we all? We now know the Swiss are not, or let’s say that for whatever reason they did what they did, they’re not completely off their rockers.

So how about other central bankers? Everyone seems to be sure now that Draghi at the ECB has more reason than ever, after the SNB move, to launch full tilt QE. And I’m thinking, I don’t know kiddos, perhaps he has less reason now, because the markets’ faith in central banks has taken a jolt, because the effectiveness of that QE, which has been in the works forever, has already been priced in by those markets, and because the Germans are sure to contest it all throughout their court system(s). What use would a Draghi QE be at this point? Close to zero. He might still do it, but that would just expose him as a tool. And he can resign and become Italy’s new president right after. And it’s not just Draghi:

The Swiss Just Made Japan’s Job Harder

 

Haruhiko Kuroda’s monetary “bazooka” just got outgunned by the Swiss. Since April 2013, Japan’s central banker has been pumping trillions of dollars into the economy in an attempt to generate 2% inflation. But in a mature, aging economy like Japan’s, the effort is 95% about confidence. In order to “drastically convert the deflationary mindset,” as Kuroda puts it, the Bank of Japan must transform sentiment among households and businesses. Kuroda’s massive bond purchases mean little if the Japanese don’t trust that better days lay ahead. The Swiss National Bank’s move to abandon the franc’s cap against the euro may have blown a hole in Kuroda’s strategy.

 

By reneging on a promise made time and time again that he wouldn’t ditch the policy, SNB President Thomas Jordan “has undermined the credibility of central banks,” says Simon Grose-Hodge of LGT. Now, at central banks around the globe, he adds, “the unthinkable is entirely possible. You can’t rule anything out.” Even if the BOJ issues another blast of quantitative-easing after its two-day policy meeting next week, the question is how effective the move would be. Kuroda’s Oct. 31 shock-and-awe stimulus announcement worked for a time by bolstering perceptions that steady inflation was within reach. But this time, with even Economy Minister Akira Amari admitting “it will probably be difficult” for the BOJ to succeed, markets are likely to be more skeptical of the bank’s staying power.

It’s not really the Swiss, central bank credibility was already shot through the past decade, if not more. You have no credibility as a central banker if you serve the interests of one particular niche. Like traders. You need to serve the interests of the entire nation you ‘serve’, or your time will come. No matter how much Draghi, Kuroda or Bernanke were tempted by the omnipotence narrative, deep down they must have known it wouldn’t last.

And now they have to face a new world, one they’re not used to at all. One in which their credibility is shot. I’m guessing that means they understand their ‘normal’ course of action, QE up the wazoo, no longer works. So what then?

Look, Draghi may well come up with that QE of his, but it’ll be stillborn. It’ll only be yet another transfer of money from the public to the private sector. Let’s buy a trillion worth of bonds! Yeah, that worked great for everyone else… But can Draghi still do that? Yes, it’ll bring down the euro for a bit, but the euro is going down no matter what he does. This is turning into a game of whodunnit. And then, of course, there’s the Fed:

Yellen Signals She Won’t Babysit Markets in Turmoil

 

Janet Yellen is leaving the Greenspan “put” behind as she charts the first interest-rate increase since 2006 amid growing financial-market volatility. The Federal Reserve chair has signaled she wants to place the economic outlook at the center of policy making, while looking past short-term market fluctuations.

 

To succeed, she must wean investors from the notion, which gained currency under predecessor Alan Greenspan, that the Fed will bail them out if their bets go bad – just as a put option protects against a drop in stock prices. “The succession of Fed puts over the years has led to a wide range of distortions in financial markets,” said Lawrence Goodman at the Center for Financial Stability. “There have been swollen asset values followed by sharp declines. This is a very good time for the Fed to move away.”

We’re getting back to normal, and though normal’s going to hurt – and far more than you realize yet-, it’s hugely preferable to upside down; you hang uprise down long enough, it makes your brain explode. The price of oil was the first thing to go, central banks are the next. And then the whole edifice follows suit. The Fed has been setting up its yes-no narrative for months now, and that’s not without a reason.

But everyone’s still convinced there won’t be a rate hike until well into this new year. And the Swiss central bank said, a few days before it did, that it wouldn’t. And then it did anyway. The financial sectors’ trust in central banks is gone forever. And none too soon. Now they’ll have to cover their own bets. If anything spells deflation, it’s got to be that. But not even one man in a thousand understands what deflation is.

We have a ways to go before we solve this puzzle. But we are, at least and at last, on our way.

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Latitude25's picture

The SNB had to cover their gold short position which they've had since the top in 2011.

https://www.bullionstar.com/blog/koos-jansen/guest-post-i-have-a-theory-...

Now the Swiss are going long.

Buckaroo Banzai's picture

Wow, great link. Can't believe I didn't know that the SNB instituted the peg on the exact day that gold topped out.

new game's picture

maybe they are smarter than we give credit. all a big front when they roll out a gold backed currency without a referendum...

ya fucking right-hehe

they are cb'ers...

Fractal Parasite's picture

That means the CHF-EUR peg exactly coincides with the 3+ year down-draft of the gold price. Hmmm....

http://goldprice.org/charts/history/gold_5_year_o_usd.png

actionjacksonbrownie's picture

And they removed the peg the same day gold broke it's 200dma to the upside - coincidence?

UselessEater's picture

edit

My question is answered so well below. I learn more from the comments than the articles!! Thanks folks.

scuttlebutt's picture

Thank you and good job Latitude25.

 

This is a good part of why Zerohedge is part of my daily reading. 

 

 

malek's picture

I kind of takes away some credibility if the gold charts only are inspected for the last 1.5 years when the CHF peg was in place a bit over 3 years, while not the slightest hint why the writer believes he can choose comparison periods in such a way.
Or did I miss something?

debtor of last resort's picture

A national bank shorting paper gold? Bullshit imho. It's not a hedgefund.

A weakening currency and gold going down as a parallel chart is ehh.. kinda weird. It's something like the Yen gold carry trade, but i don't know what.

The SNB short paper gold? No.

cnmcdee's picture

A lot of bankers and brokers got bitch slapped in the back alley.. and thats a good thing...

ThaBigPerm's picture

We bitch-slapped some folks.

Kolchak's picture

deflation, it's whats for dinner and i suppose it's prefferable to the rear assalt we've been accustomed to.

Dubaibanker's picture

Look at what the pathological liars and incompetent bankers / advisors at a top Swiss bank are saying. 

They cannot use the word deflation easily. They are saying inflation is -1.5%! :)

"At the same time, inflation could fall to around -1.5%."

http://perspectives.pictet.com/2015/01/16/switzerland-dangerous-move-by-...

But the rest of the article talks of gloom and doom...if EUR goes down further.

noben's picture
noben (not verified) Kolchak Jan 17, 2015 1:55 PM

I'm more skeptical: How much you wanna bet that TPTB will alternative between bouts of Inflation and Deflation?

Just to keep the Ponzi and theft going longer.

aleph0's picture

 

I would always trade on the basis : "Always 'do' the opposite of what they say" ... except  

... I don't trade !

...  applies to Banksters ... and  especially Politicians .

logicalman's picture

A friend of mine has developed a card game that shows how banking works.

When scored, at the end, the only way you don't lose is not to play the game!

 

GCT's picture

Someone made a fortune.  Having said that the SNB did indeed have to do it by surprise.  Otherwise everyone in the club would have made money.  Makes me smile to see some of these assholes lose a ton of money for a change.  Herein lies the root of the problem, many feel they are now entitled to know every move a country makes so they can tell their buddies to become even more rich.  We pleebs would never know the moves and still do not know them. 

The markets now backed up by the CB's think nothing is going to happen to them anymore and this is more of a wake up call then anything else!

Renfield's picture

It's fine for CBs to lie to us, their general public marks, all year every year. No problem if they say one thing, or many contradictory things, and do another, and you must be a newbie if you do not accept and expect this. A CB rep, no matter how stupid or stinking corrupt s/he may be, can "move the markets" with their blathering, because "we" are so sophisticated and above such primitive ideas as right and wrong, and can't be bothered over the crime wave of fraud that's taken over what used to be "our" markets.

It's not "verbal intervention"; it's just a bunch of blather. Quit glorifying this in the language. It's just a bunch of lies and nonsense, a word salad mess for robots to sift through that moves "markets" now, rather than productivity that can be assessed by a forward-looking human. These racketeers and robots are what pass for normal in this disgusting confidence game. Then as a reward for ruining our productive economies, these criminals are wined dined and worshipped on sheeple teevee. Paid thousands of dollars to make speeches full of lies at dinners and commencements. Stupid sheeple raise their kids to grow up just like these goddamn evil liars, to aspire into that club. Fucking stockholm syndrome FTW.

But let a CB miss giving a wink and a nod to their cronies, ahead of time before the information is public for the rest of us poor suckers, and damned if it isn't tears and gnashing of teeth from sunup to sundown. This system runs on fraud, insider trading, front running, and all kinds of crime. And morons love it that way.

Could there be any more glaring evidence that central bankers are nothing but a bunch of racketeers, than their dismay over one not tipping the others off ahead of time? What, they can't use their awesome trading skills to anticipate problems and hedge, like the rest of us are supposed to do? So much for their reputation of being any "smarter" than the newest forex beginner.

Don't cry for them, Argentina. They deserve far more pain, to even begin to pay for what they've done to our lives and cultures, all over the world. Stupid sheeple no longer understand that "right" and "wrong" is not only about morality (I know, I know, so primitive), but these considerations are also about survival. Maybe when the sheep start starving, maybe then they'll get a clue exactly why "truth" and "lie" matters. THIS is why you don't let criminals overrun your government or banking systems. THIS is why you don't allow a central bank to issue YOUR money. And this is why you NEVER fall into the trap of trusting them, neither government nor banker.

Every central bank must be abolished. The era of central banking must be acknowledged as the earth-threatening crime wave it was and never, NEVER be attempted again. This global CB "experiment" must be aggressively exposed as a global crime racket and con game. Down with the red shield, and all their wise guy banker, accountant, journalist and lawyer enablers. Down with every one of these fraudsters and confidence men.

Oldwood's picture

Enabling monopoly for the sake of "efficiency". What could possibly go wrong?

Renfield's picture

heh, I can think of a lot of words to describe monopoly. Or oligarchy even. But "efficient" is certainly not one of them!

Keyser's picture

I would have loved to eavesdrop on the conference call between all the various CB's right after this event... Probably could hear shouting and cursing in a dozen different languages... 

Bay of Pigs's picture

Awesome post my friend.

Central banks are the scourge of humanity.

UselessEater's picture

Few can remember life before the CB's that have gained increasing prominence, gradually spreading over the last few centuries like a slow growing spider web. This is your greatest enemy ZHrs of the USA (us in many other nations have been slower on the uptake but are now full on the rhetoric of CB's justified existence, independence and magnificence)...  how does one fight against a rising tide?

I recall the Greatest Treasures On Earth (choke..) Paul Keating in the 80's in Australia, a 'revolutionary' treasurer further hammering the death nail in the Commonwealth Bank of Aust's coffin as a depositors bank, floating the dollar, swooning over the RBA & its glorious independence from sovereign citizens ...ermm now technically consumers... just days after Kissinger visited to give us the long slow kiss of death with much joy and pride - we were truly becoming global tools -pun intended...slang for unthinking idiot with a function chosen by the tool master ;)

http://www.webofdebt.com/articles/commonwealth_bank_aus.php

CBs are now viewed as legitimate even though they exceed the power & voting effects of an 'elected' govt...I guess, the SNB's actions is just a hint of what is to come, the masses will believe it is terrorism and sovereign battles, CBs globally will never be identified nor held accountable for their crimes. Hidden in plain view, perfectly.

zeropain's picture

"CBs globally will never be identified nor held accountable for their crimes"  you never know how things will turn out when the pick forks come out.  or what manner the pick forks manifest.  when a depression hits things happen that we can not imagine.  Success  ( the Rich  in this timeline ) can get pursecuted in horible fashion.  

The focus on finance and money is what is concerning me.  As numbers and beleifs can shift on a dime but the moral hazzards have there own timeline.  The depression lasted as long as it did in the 30's cus of the Dust Bowl and misalocation of physical resources. not because of just numbers called economy.  I wonder what the Dust Bowl will be this time.  Fukashima? Global Warming? Ebola?  Who knows but these are the real hurdles not how much $ you have others have, numbers are easy to change.  Making everybody responsible takes alot of work.

UselessEater's picture

Seriously read a few books. The focus on money and finance is the ENTIRE point - the parasitic system is designed to regulate & enslave our creativity, productivity and steal our earned & stored wealth. Some of the best researchers "focused on finance and money" are the most gracious people who have lost everything to warn and inform us.

Anthony Sutton

Eustace Mullins

Alan Watt

Ellen Brown

G Ed Griffan

to name a few - their genuine compassion for humanity led them to exposing the impact of finance and money games on average families and nations.

Yes meditate in your own faith system, its your right to do so - but please do not be gullible to the duality of theft game you and your family are living within. Unless you are dippy, you know this is not a good year to ignore finance and money -the pain for ignoring will last many years.

zeropain's picture

Yah in a society that put  a dollar value on everthing, especialy money in politics.  You had better get a level playing ground if you want any kids to play with.

All I am saying is that those in power realize that all the kids have gone home and they are now by themselves.  and they are loney, with nailguns and hookers.  poor things, now what?

 

I like you eater.

malek's picture

It is more efficient from an accounting perspective if the path forward is clearly discernible.

If however the forward path becomes foggy/fuzzy/ambiguous, real competition quickly turns out to be irreplaceable.

UselessEater's picture

Yes, its now cute when one cannot estimate costs just 6 months forward...kinda happy the pain is being spread as we are getting various govt fees and licenses increasing at extreme random numbers some 150% some 1000% without notice.... regulation was recently 26% of drilling program costs (WTF?) and thats before the game the RBA & Oil price players started playing.

Now remind when we last had real competition? (Competition is a Sin.....nah, mate, she's all good)

Arrowflinger's picture

Fantastic post! It is so good I will save it for future reference. Such is why reading the comments is so rewarding.+1000 to Renfield

 

 

 

markar's picture

+1000 best rant of the year so far.

Raging Debate's picture

Renfield - That is quite impassioned and true commentary. Central Banking became an empire and conquered the globe. What is interesting is that they begin breaking down the moment the conquest is complete.

What sucks is the thrashing around of them in survival mode which translates into taxing the little guy into oblivion to stay in power and party down for years and years.

The taxing increasingly becomes more
hypocritical with armed collectors and endless regulation to criminalize the population as the biggest crooks run the place into the ground.

But reorganization is inevitable, it is evolution. It seems like the closer we get to our end of the evolutionay journey the faster things move and adjusting just a tad harder each wave.

In the Information Age, banking can become a public utility. The semantics are easy it is the kicking and screaming of those that have ownership that will bring more pain before the model changes.

El Vaquero's picture

"What is interesting is that they begin breaking down the moment the conquest is complete."

 

If you want to know why that is, you'll have to talk to Charles Ponzi.  Something about pyramids and the end of endless growth.  

GCT's picture

Reinfield +100 for a well thought out post.  Your another reason I come here daily!!  SALUTE!

I am an ole guy and I am just sick to my stomach to see good people being just so fucking stupid.  The criminals get away with this and people cheer them and worse the media sucks their asses to get thrm on their show for a fee of course.  I may not live long enough to see it but some day soon people will wake up and it will all be gone and large metropolitan areas will be kill zones as gangs of people try to survive.  I feel bad for my children and my grand daughter.

Arrowflinger's picture

GCT, YOU NAILED IT TOO. This is disaster of biblical proportions that is unlikely to be peacefully settled because the banks have been enabled to hold vast real estate collateral  from failed loans by ZIRP granting free use of our money. The strategy was to reflate, then sell the RE at enormous gains. Theft is what it is.

 

Duck077's picture

I agree with you GCT, I'm getting to be a "ole guy as well."  We are dumping a lot of debt on the future generation and the continued welfare state is creating multitutes of individuals that can't or won't take care of themselves.  It's going to be a mess.  I wish the younger folks that continue to carp about the Fed hurting the middle class would quit whinning about their plight and take steps to counter the inevitable outcome.  I'm afraid whinning won't do any good, we are too far down the path and the majority of Americans don't have the gumption to stop and rectify the situation.  Button down the hatches, stay out of debt, large welfare cities, and don't forget to build your own reserves.  It won't be easy, but at lease you will have a chance.

UselessEater's picture

Stay out of debt... needs repeating IMO.

zeropain's picture

Each person has the responsibility to give up let others lead or make there own beliefs.  Each have different benefits and cost.  

malek's picture

Fully agree!!

Or said differently, all the whining and SNB-accusing right now is self-serving propaganda from the ones licking their wounds.

Loose Caboose's picture

Renfield has just crystalized what is fundamentally wrong with everything.  This reads like a manifesto.  Perfection.

new game's picture

insiders get the speech before they talk or tips of their tone and place their markers-ah, simple 100 percent guaranteed as long the herd moves, which they always do. what if the swiss betrayal has changed things? na, same shit, que drag queen this week. how can i get his speech? eruo parity w/dolla? nice 10-15% gain on deck...ah, but potential betrayal from no less that the german purveyor of "following the law". intersting weeks ahead. all as a shit storm brews in russia. what do i see south of ussa, 100k beans coming north to da promissed land as oil has plummeted, maybe they can haul oil on their backs following the keystone trail. ah the possiblities...

Victory_Garden's picture

Outstanding, Sir Renfield!!!

Nothing sweeter than truth expressed so well on the ears of those who hear, and for those who see.

Big giant blessings on All the Truthbearers and Truth Lovers here!!

logicalman's picture

No real money was harmed in the making of this farce!

The distribution of the number of zeros and ones in a bunch of computers is what changed.

The world's financial system is beyond 'gamed' - no point trying to do any logical assesments. Only the insiders have even a clue of what's going on - some more than others I guess.

The whole edifice needs to fall.

Trouble is, too few are prepared and so will panic and vote the same bastards in again, to 'save' them.

Lather - Rinse - Repeat.

Until enough wake up.

all-priced-in's picture

We will hear about all the big losers as a result of the SNB action to remove the peg.

 

But there had to also be big winners.

 

Who are they?

 

 

SoDamnMad's picture

Yeah, there had to be the "other side" of the trade.  Nobody has leaked who they were. Thank god Pelosi or Hillery weren't on the other side of this.

g speed's picture

The other side doesn't win till it gets paid---and it ain't getting paid cause there isn't anything to pay um with--- 

Freebird's picture

Whom in their right minds would short the franc against anything? Surely, the rule had to be play the Euro & be chf neutral, as sooner or later a surprise would come from the SNB no?  (Risk reward on the euro /chf pair ....no)

A larger surprise is that very few appear to have seen it coming & with hindsight it was a good play, a la James Grant. Wish I had been paying attention.

sun tzu's picture

If you play the euro, you have to play it against something. Either borrow USD and buy euros or borrow Yen and buy euros. If you played it against CHF you got reamed. If you borrowed the USD or Yen to buy euros, you got hit in the head.