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SNB - Post-Mortem

Bruce Krasting's picture




 

 

The Swiss National Bank move to eliminate the 1.2 EURCHF Peg has proven to be a big market/media event. Follows a few random thoughts on how this story played out. Caveat - Some of this is wonkish, some guesses on my part.

 

The Weekly FX Flows

The FX market has two different types of risk profiles depending on what day it is. The two risk periods are:

Monday through Friday

Friday night through Sunday night

There are risks that the FX market participants face every second of the week. But the risks of the weekend roll are much higher than the Monday through Friday trading period

The developments during any given week may cause wild gyrations in FX pricing, but there is also a very active FX market to lay off, or take on risk. The FX market runs 24/7 from Monday morning in Asia until the close in NY on Friday. From Friday night to the next opening in Asia there is no market to lay off risk.

The fact that there are two different risk periods creates two classes of participants in the FX market. Short-term players who are trying to make a buck, but have no interest in taking positions over the weekend. And those who are taking a long-term view of the world, and are happy to take the risks associated with liquidity over the weekend. For every player who takes a long view there are 20 who only dance from Monday through Friday. The bulk of the actors are squared up for the weekend.

There is a very logical reason for this. Over the past twenty years the vast majority of "surprise" critical steps taken by government authorities have been taken on Sunday evenings. (Devaluations/revaluations, Fannie and Freddie going bust, TARP etc., Plaza Accord, Louver Accord) If you're in the FX Biz you pay very close attention to what surprises may have been released when the markets have gone dark. And depending on your risk profile you want to be square for the weekend.

The SNB broke the "rules". It dropped its bomb on a Thursday. It did it at a time that insured that the NY market was still asleep.

The SNB could have held off for a few days and made their big announcement on Sunday. The amount of gross positions outstanding on Sunday would have been a fraction of the positions that were outstanding on Thursday morning. Obviously, the timing by SNB was very deliberate. They acted in what I consider to be a hostile manner - the SNB was a predator to the market participants. Not very sporting at all.

If the SNB had acted in a manner consistent with how Central Banks/Government make announcements of key changes to policy, the losses incurred by the market would have been far less than what they were. The retail accounts that have been blown away this week would not have suffered anywhere near the losses they did. I would add to this that if the announcement had come over the weekend there would not have been a 20% move in the CHF. The adjustment would have been closer to 10%.

My conclusion is that the SNB deliberately screwed the market, and in the process shot itself in the foot for 30-50 billion dollars. What were they thinking?

 

Did the 2014 Profits Play a Role in this?

Every January the SNB produces its annual profit and loss results. The surprise in 2014 was the size of the gains the SNB reported (CHF38B) . The headline from this year's profit report:

Screen Shot 2015-01-17 at 8.05.15 AM

38B Francs is a huge amount of money. This treasure chest is equal to about half of the losses the SNB incurred when it floated the franc. My question is did the folks at the SNB already know that they were going to pull the plug on the peg on January 9 when they released the profit report?

The huge profit report plays into the story, but I'm not sure if the way it was introduced allows for a definitive conclusion that the decision to float had been made six days before the actual event. My read of these tea leaves is that the SNB was, at a minimum, considering the float on January 9, but had not yet made a final decision on when to act. The "profits" gave the SNB the ammo to take the huge loss. My question - Were the 2014 "profits" pumped up so that it would be "easier" for the SNB to act? I think there is a real possibility that those big gains were largely fluff.

 

On the SNB communication of January 6th

A very curious element in this is that three days before the float an SNB spokesperson, Jean-Pierre Danthine, had this to say:

"We took stock of the situation less than a month ago, we looked again at all the parameters and we are convinced that the minimum exchange rate must remain the cornerstone of our monetary policy,"

What to make of this? Was Jean-Pierre lying through his teeth when he said these words? Had the decision to float already been made?

I'm 100% convinced that the decision to float was made prior to the time that J.P. spoke. In other words J.P. lied; he was part of a deliberate effort to set the market up to be short the CHF and to cause the maximum amount of pain to the market participants.

I doubt we will ever know the facts on this. However if JP was tied down and water boarded he might fess up to being the guy who deliberately set up the market. I'm as certain as I can be that good old J.P. would not have said these words without the blessings of the head of the SNB, Thomas Jordan. So it is quite possible that this critical lie was set up by the guy who is running the show.

If this is correct, it is a heinous act. I would think that there would be lawsuits if it could be proven that the SNB deliberately set up the market - billions were lost as result of the J.P. statement. (where is that water-board when you need it?)

 

Jordan Acts Old School Style

Jordan must have read from Paul Volker's playbook. Volker was famous for his "surprises". During those years I was on an FX trading desk. We were always afraid of the "Volker Factor". Markets were under siege by the Fed. As a result positioning was kept light, and market liquidity suffered. The "fear factor" worked to Volker's advantage, but even he would would admit that he was responsible for a great sucking noise in the markets. Volker succeeded, but the costs were very high.

Central Bank communication policy has morphed over the past 20 years. The changes were led by Greenspan who established the concept of 'guidance'. The Fed became more open as a result. By communicating its intentions the Fed was able to steer capital markets in a way that suited it. The strategy of communication was designed to minimize the market shocks of unanticipated policy changes. For the most part, the policy of providing forward guidance has worked. Ben Bernanke took another leg up on the idea of communication as a means of guiding markets. Most other central banks have followed this policy.

But the SNB went entirely in the other direction. On Tuesday it said, "That will not happen", three days later it happened. Thomas Jordan and his merry men at the SNB turned the clocks back 40 years.

 

There was No Crisis on Thursday

When the SNB established the Peg in 2011 there was a true market crisis going on. In a short period of time the EURCHF fell from 1.5 to parity. The SNB introduced the Peg in the same manner that they have taken it off. It came as a surprise to the market, it caused an immediate 20% jump in the EURCHF. Pretty much the exact opposite of what happened on Thursday. One could argue that if the SNB went "Shock and Awe" when the peg was established, it is equally fair that they took it off with the same Shock and Awe.

BUT - There was no market panic last Thursday. There was no crisis that forced the SNB to act on that day. The EURCHF was trading above the peg, it had been for days prior. The SNB had some bids in the market to ensure that there was no move to the 1.2000 level. The intervention required to maintain the Peg in the days just prior to the float was very small - under 10b CHF.

My point is that there was no compelling reason to act on a Thursday. Therefore the only conclusion I can draw is that the SNB acted in a malicious way. It took actions with the express intent of hurting the markets. It achieved its objectives. In the process the SNB incurred losses that are 50% higher then they might have otherwise taken.

 

 

What are the Other CBs Thinking?

As of last Tursday every Central Bank on the globe hates the SNB. Not only did the SNB destroy its own credibility, it undermined the credibility of every other CB. How many headlines like this have we seen the past few day? (hundreds).

Screen Shot 2015-01-18 at 10.03.06 AM

 

I'm convinced that the SNB move has put the ECB (Mario Draghi in particular) in a very difficult position. I expect that we will see markets converging on the ECB in the not too distant future. The empty promises of Uncle Mario are now just that - empty promises. Draghi's job has just become incredibly more difficult - if not impossible.

The Japanese CB is now quaking. They have just observed first hand what happens when CBs take a U-turn. The BoJ has made more promises than any other CB. If the markets come to doubt the resolve and promises of the BoJ then you can kiss off any chance that the BoJ will succeed. A loss of confidence means that Japan will soon slip into another lost decade.

Any CB who is now managing a fixed currency is at risk. Hong Kong, China and Korea come to mind. If (when) any of these CBs come under attack they will face the same fate as the Swiss. The reality is that the global markets are much larger and more powerful than the CBs. What happened in Switzerland will be repeated elsewhere. It's likely that these attacks will happen fairly soon.

 

What About the Players?

I do feel a bit sorry for those who lost big on the CHF move. I think they were set up, and lied to by the SNB. If the SNB had acted on a Sunday we would not be reading about all of the retail losses. The same is true for the big banks that got whacked (JPM, Citi, Deutsche, Barclays, and the many more will soon be fessing.

But - The losers were idiots! What were those thousands of retail investors thinking? In any market a player must think about risk and reward. The "reward" of being long the EURCHF on Thursday was maybe 25BP. This was obvious as the EURCHF had traded the last three days a few ticks away from the intervention zone. There were caution flags flying. Anyone who thought there was some free money on the table made a huge mistake. The downside risks of the short CHF was at least 100Xs what might have been realized if the SNB had not acted. YOU NEVER DO THIS! Never take a 100 to one shot. To bet $100 to make $1 is just stupid.

The retail brokers providing FX executions for retail have been buried with losses. I couldn't be happier with this result. These clowns were providing 50X leverage to unsophisticated investors who did not understand the risks? They deserve to be wiped out.

There might be a few of these brokers left standing in a week - but I promise you the the days 2% margins on retail FX are over. Want to play in the FX sandbox? Be prepared to put 20% down. There are no profits left with that leverage, so the retail FX biz will disappear for a few years. (It will come back - greed trumps logic every time.)

 

Screen Shot 2015-01-18 at 10.10.42 AM

 

 

 

 

 

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Mon, 01/19/2015 - 20:57 | 5681866 NoTTD
NoTTD's picture

All will be revealed in time.

Mon, 01/19/2015 - 15:57 | 5680675 Big Ben
Big Ben's picture

Shorting the euro I could see, but why would anyone short the CHF? So long as the peg held, the CHF and euro were effectively the same thing. But the CHF always had the upside possibility if the peg were abandoned.

In fact, I think that is why everyone was flocking to the CHF. It was seen as the euro, with possible upside. Gresham's law says that when you have two forms of currency that are nominally equivalent but with different actual values, people will accumulate the more valuable one. Which in this case was the CHF.

Mon, 01/19/2015 - 12:55 | 5679892 Salsipuedes
Salsipuedes's picture

The Swiss just yanked their boat out of the downward swirl of the whirlpool of Dollar hegemony and Military Madness. "Fuck the E.U.?"

Fuck you too dumkopfs!

Mon, 01/19/2015 - 12:44 | 5679843 bilejones
bilejones's picture

If you can kick the hedges in the nuts why wouldn't you do it?

Mon, 01/19/2015 - 11:58 | 5679644 madjakk
madjakk's picture

What were they thinking?

What is publicly obvious is that they wanted to decouple the CHF from the Euro and protect their currency in the long run....which USE TO BE A CENTRAL BANKS PRIME DIRECTIVE. i.e. PROTECTION OF THEIR NATIONAL CURRENCY.....as opposed to this "coordinated" central bank response to the current economic climate.

Further, I think they grew abit weary of being the Euro back stop and spending BILLIONs of CHF to maintaining a minimum value for the EU currency all the while seeing the gross incompetence and blithering idiocy of the EU's financial geniuses in action.

Mon, 01/19/2015 - 11:33 | 5679560 Perfecthedge
Perfecthedge's picture

Malicious? The Swiss? A Central Banker? Nah....how do you dare to even think like this.

On another note:  The Swiss are arrogant cunts.  My personal experience dealing with them for many years on countless business transactions (non-financial). Simply cunts.

Mon, 01/19/2015 - 11:44 | 5679598 robertsgt40
robertsgt40's picture

Live by the sword, die by the sword.

Wed, 01/21/2015 - 11:50 | 5688149 Perfecthedge
Perfecthedge's picture

I have yet to find a swiss national that is NOT an arrogant, selfish asshole.  The Bergluft is not good, or they are shagging to many cows nowadays.  Useless country.

Mon, 01/19/2015 - 10:55 | 5679448 janus
janus's picture

howdy, BK. 

long time since i've commented on your turf.  i still drop by on occasion, but why follow these various market's minutiae when they're all ridiculous shams?  to even refer to them as 'markets' affects janus in an unsettling way; it's a physical ache experienced in response to this ongoing inversion of our most basic vocabulary.  casinos are rigged, as are these 'markets'; everybody know this, everyone consents (by virtue of their participation), and they should therefore accept the fact that they are gambling on the whim of bosses, whose motives are inscrutable.

i should begin in agreement with you, yes: the SNB thing was a set up.  an in-your-face, lap it up like swine, 'malicious' act.  in casinos, you can calibrate the odds at the slots...nobody gets all huffy when a boss tilts the odds -- it's just good business; besides, the 'players' know they're gambling -- they come expecting to lose...they just need to feel lucky from time to time.

but let me run with your argument for a moment.  these are the swiss we're discussing.  do you suppose that their nature has somehow mutated into something antithetical to swissness? i reject that as a premise.  please understand, it isn't my intention to come-off contentious-like; i'm only attempting to underscore a point.  my point is that the swiss are obviously acting in a manner that accords to the fundamental swiss virtue: safety.  this is a rejection of the existing order.  this is a crack on the jaw of amorica's hegemony.  the swiss know something.  the swiss are not necessarily acting on orders; maybe they're just doing their part to effect an outcome they now endorse -- an end to amorican economic dominance.  

after all, BK...we drew first blood.  uncle sam came after the swiss banks.  the 'markets' are all amorican; fx is all dollars all the time.  any targeted attack on fx is aimed straight at amorica.  i don't think anyone saw this coming...i think a lot of people who thought they were in the know just found out that there's another game afoot -- and our boys were caught flat-footed.  someone argued that the dollar is falling up -- i tend to agree.  the germans took a good look at what uncle sam did to the russian ruble, inspected our treatment of the boj, watched what happened with india and the ruple, looked on as the brics got chisled...look, the germans have never had much use for amorican imports, why should we think they'd invite our exported inflation?

and here's the other thing.  the swiss, as well as anyone else, understand amorican strength and weakness -- i seriously doubt they'd make such an aggressive move without having carefully counted the costs.  

so, in effect, i'm saying that this was not a 'malicious act'; it is only such if viewed in the context of  a stable and cooperative nato -- this is rather obviously an act of war.  and, to my mind, it's a cleverly developed and brilliantly strategic retaliation 3+ years in the making.  and shit's about to go hot.

somebody smells blood, and they want more of it.  but this time, it's sure gonna be tough for amorica to cast itself as the good guy...everybody knows our lies; everybody's sick of it...so is janus.

 https://www.youtube.com/watch?v=Lin-a2lTelg

janus

 

Mon, 01/19/2015 - 11:24 | 5679529 Bruce Krasting
Bruce Krasting's picture

I can find no viable excuse why the lifting of the peg was done on a Thursday, versus the typical Sunday announcement. The results would have been less dramatic for both market participants and the SNB.

I agree that many Swiss (especially at the SNB and the banks) are mad at the US for the way the banking secrecy issue was resolved. The US DoJ took out a meat axe and started swinging. But this was not a dollar issue for the SNB. Their concern was with the Euro. So the argument that the SNB was motivated as payback for the bank secrecy issue does not fly for me.

The Swiss may be risk adverse by nature, but that has nothing to do with what the SNB did. A CB is supposed to take risk. The SNB took risk when it established the peg, it took a different risk when it lifted the peg. What central bank today is not taking huge risks on its books? They all are.

 

Mon, 01/19/2015 - 12:00 | 5679654 janus
janus's picture

again, to stress my point, i interpret this as an act of war -- pain is the principal.  if you're trying to square this with 'rational actors', it's important to understand it within the framework of warfare; and those are the only options available: 1) the swiss have gone mad as march hares. 2) this is and open and overt act of war.  there is nothing subtle about this; which forces us to appraise it by one of two standards -- insanity or aggression.

i would never challenge your understanding of fx, and i will freely concede your expertise; but when we say that their concern was with the euro, what we are really saying is the eur/usd -- for the euro doesn't trade in a vacuum, it is instead orbiting around the almighty, valuation warping gravity of our own greenback.  and, certainly, simple retaliation doesn't fly; not for a nation who couldn't stand after launching such a retaliation.  this is more a matter of, 'uncle sam, you bloated bully, you're going down for the count, and we're part of the posse sent to hang you at high-noon.'  america has turned on all her friends; she is trying to force-feed the world her garbage.  the nations no longer love america...haven't for a while; we settled on a strategy of fear, and these are the fruits it yields.

i'm going to have to disagree totally with your last point:  i cannot consent to the notion that a CB 'should' take risk.  have they?  yes.  are they all doing it?  definitely.  and that's what's at issue.  if we move from the principal that a CB 'should' take risk, then we must necessarily conclude that they should assume 'all' risk; otherwise they'd necessarily be favoring one form of risk over and against others.  inasmuch as no CB could ever cover every and all risk, one must therefore conclude the contrary: that no CB should take any risk.  you say it must because it is in the interest-fixing (therefore bond) business...and that's sorta the nub.  whether or not CBs are taking risk, and whether or not CBs are issuing debt based currencies in no way justifies their actions; i instead say they shouldn't be issuing debt-based currencies, they should get out of interest-fixing, cease and desist risk-taking and cede the power of printing to a transparent enterprise with no skin in the game.  that, or prepare their necks for the tightening of a noose.

otherwise, hope all is well with you and yours.  and i always appreciate the insights.

janus 

Mon, 01/19/2015 - 10:49 | 5679430 GFORCE
GFORCE's picture

Russian money escaping the Ruble, Greek money escaping, and ECB QE wouldv'e made the peg impossible.

Don't complicate an easy situation.

http://investfts.blogspot.co.uk/2015/01/the-chf-and-investment-success.html

Mon, 01/19/2015 - 09:44 | 5679259 hooligan2009
hooligan2009's picture

this is the modern day equivalent of an unexpected jump in interest rates to defend against inflation as part of the monetary policy settings used by the SNB. other countries assign fx policy to civil servants at a Treasury department.

the corrollary will be a much weaker swiss franc over the next five to ten years as drugs, banking, watches and chocolate become prohibitively more expensive and the productive base moves overseas. the tax base will be eroded by faling profits and a falling labor market AND falls in indirect taxes on consumer expenditure (whatever goes for VAT) as people live outside and work inside Switzerland.

38 billion profit on what? a notional holding of Euros that resuted from intervention to protect a 1.20 peg? profits that are now losses or did the SNB take the view that it had to pay back the profits? did the SNB just make a bigger loss than 38 billion? who actually would benefit from a profit or a loss at the SNB?

what is the size of the SNB in Euros? after all, in Euro terms Switzerland is a pimple on the giant ass of the trillions that the ECB pays with, so the SNB proably took the view that, on a per capita basis, the defense of the peg was larger than it could afford or compared to its peer group of other pimply central banks in the face of the giant asses of the Fed, ECB and BoJ.

 

Mon, 01/19/2015 - 10:36 | 5679388 covert
covert's picture

idiots will always chase free money, thereby giving their money away, free money?

http://www.covert.co.nr

 

Mon, 01/19/2015 - 09:45 | 5679258 Vooter
Vooter's picture

"Therefore the only conclusion I can draw is that the SNB acted in a malicious way."

Malicious is GOOD, fuckface...we can only hope for a LOT more maliciousness in the coming years...

Mon, 01/19/2015 - 09:31 | 5679232 BlackSwanCrash
BlackSwanCrash's picture

they didnt shoot themselves in the foot last week. They did that way back in 2008 when they initially pegged. They were forced to loose billions to save losing greater billions by having put themselevs in an untenable position. Past history tells us that this was an effort/tactic doomed to failure from the start. Fucking morons run our central banks!

Mon, 01/19/2015 - 09:23 | 5679216 SoDamnMad
SoDamnMad's picture

Go investigate who was on the "other side" of the trade and find out whose GF got the leaked information to trade on the lies and insider information.  Send a banker(s) to jail.

Mon, 01/19/2015 - 08:41 | 5679149 Graabein
Graabein's picture

I would hope the SNB announced it in this manner to precisely get recuperate some of the losses they'd previously had defending the CHF. Good for them, I almost respect them now despite the gold referendum propaganda. Hope they did some serious "investments" around the time the CHF was 30-40% up (before it stabilised at 14% up), thus shafting some banks and hedge funds who saw the short CHF trade a permanent fixture. Volatility/havoc is good. Hope this kick-starts a long-deserved prescous metals comeback!

Mon, 01/19/2015 - 09:27 | 5679218 El Hosel
El Hosel's picture

Clearly All the Central Bankers are willing to make large sacrifices of other peoples money, the morale has been removed from the hazard...   

And  the sharks are starting to eat each other.

Mon, 01/19/2015 - 09:15 | 5679194 El Hosel
El Hosel's picture

Screw me once, but if you keep on screwing me, I might screw you back.

Mon, 01/19/2015 - 08:03 | 5679102 viator
viator's picture

 A lot of people lost money Thursday, it would be interesting to see a list of people who made money Thursday.

Mon, 01/19/2015 - 07:45 | 5679086 oak111
oak111's picture

Bruce, thank you for providing the arguments yourself that the SNB did the right move:

"Jordan must have read from Paul Volker's playbook. Volker was famous for his "surprises"." & "The "fear factor" worked to Volker's advantage, but even he would would admit that he was responsible for a great sucking noise in the markets. Volker succeeded, but the costs were very high."

And: "The changes were led by Greenspan who established the concept of 'guidance'." & "Ben Bernanke took another leg up on the idea of communication as a means of guiding markets."

Do you really think that Greenspan's and Bernake's policies were more successful? May be for the crooks who were able to extract money for priviledged information. Time will tell if the SNB move was wise. But I am happy that they have a intermediate to longterm view and approach (see Thomas' Jordan's press conference), not the millisecond approach that is characteristic of today's market players.

Speculation (opinions, not money speculation) is ok, but don't base your arguments on your own conjectures please!

Mon, 01/19/2015 - 07:18 | 5679064 basho
basho's picture

" Caveat - Some of this is wonkish, some guesses on my part. "

nicely said, very understated, you don't do yourself credit with this modest appraisal. lmao

Mon, 01/19/2015 - 06:06 | 5679031 Bernoulli
Bernoulli's picture

My point is that there was no compelling reason to act on a Thursday. Therefore the only conclusion I can draw is that the SNB acted in a malicious way.

I am no expert at all here, but I would strongly disagree. Just because we cannot see any reason doesn't mean there wasn't any. I could think of hundreds of scenarios on why they acted on Thursday.

For example: On Wednesday the ECJ advisor said that OMT is sort of ok. Maybe they had an internal plan in place to still wait for this decision and after this decision would be positive (i.e. negative for the EUR), they would "give up" to avoid the further imminent downtrend to the USD (which came)?

Or how about that: Somebody (So... cough.. Sor... cough.. Soros?) bought 100 billion Swiss Francs on Thursday morning and "pre-ordered" another 100 billion Swiss francs for Friday? What does this somebody have to lose? The Franc will for sure not be weaker than the Euro over the next weeks. And this somebody could have just doubled up the bet until the SNB decides that they are losing control??

Anyway, somebody made some serious money on Thursday...

The SNB for sure had some reasons.

And did you watch the press conference? Looking at Jordan "explain" and answer the questions, it didn't seem to me the SNB had much choice to wait...

Mon, 01/19/2015 - 11:30 | 5679544 hungrydweller
hungrydweller's picture

You are on the money here.  FX is a zero sum game.  All those gamblers who lost on their position had someone on the other side of the trade who made money.  It just doesn't matter when actions get taken.  If the SNB had waited until Sunday that just means that fewer people got to make money during the week.

 

Meh - who cares about this casino.

Mon, 01/19/2015 - 05:00 | 5678984 besnook
besnook's picture

funny how no one has mentioned the other impossible event. what if the yuan is decoupled from the dollar. it is certain to happen. when will china benefit the most?

Mon, 01/19/2015 - 11:18 | 5679510 cfosnock
cfosnock's picture

You assume they will benefit, if so why do they remain coupled?

Mon, 01/19/2015 - 04:48 | 5678975 grant
grant's picture

"Not very sporting at all."

 

As if we should give a s*** what a bunch of whiny FX parasites consider "sporting"

 

Try contributing to society, then you'll have earned some sympathy.

Mon, 01/19/2015 - 07:49 | 5679088 JamaicaJim
JamaicaJim's picture

Even though I have not traded the CHF in years, go fuck yourself for generalizing. I have student traders that seek a way out of their no opportunity malaise that would kick your sorry ass....so again...I say with clarity....FUCK RIGHT OFF.

Mon, 01/19/2015 - 09:49 | 5679267 Vooter
Vooter's picture

WAHHHHHHHHHHHHHHHHH..."my poor student traders"...maybe your poor student traders just got a BETTER FUCKING EDUCATION than you've ever given them...and generalizing is GOOD, by the way, when you're dealing with VERMIN...

Mon, 01/19/2015 - 08:34 | 5679142 CrimsonAvenger
CrimsonAvenger's picture

So any means is alright as long as the ends are acceptable? I'm sure the drug dealing community will be very supportive of your analysis.

Mon, 01/19/2015 - 06:22 | 5679038 Tinky
Tinky's picture

On behalf of Bruce, "I say old chum, we're being a bit harsh, aren't we?"

Mon, 01/19/2015 - 07:01 | 5679048 Ghordius
Ghordius's picture

speculators aren't necessarily parasites. a certain amount of speculation makes prices more stable

a whole damn lot of speculation, though, makes them more volatile. it's a question of balance in the market, and how "market making" is understood

Mon, 01/19/2015 - 03:33 | 5678911 Al Tinfoil
Al Tinfoil's picture

"The Swiss broke the rules."  "The Swiss central bank has lost credibility"

The moral umbrage of the currency speculators is priceless.  Since when do central banks owe a duty to currency speculators to let them know what the bank may do that might affect the profits of the speculators?  Please give details, because I must have missed that part of the course.

The speculators are so accustomed to the US Fed jawboning and telegraphing its intentions months in advance to keep the bubbles inflated, that the speculators have begun to think they are entitled to broadcasts in advance.  Hence the BTFD "wisdom".  "QE has ended" but has been replaced by the Plunge Protection Team.  All is well.  Markets can only go up. /sarc.

The Swiss were suffering from the rampant QE of the US and the jawboning of Draghi.  Surrounded by nations racing their currencies to the bottom, the Swiss were seeing their currency rise as capital fled into their safe and stable currency.  When it looked like Draghi's QE might be allowed to go full bazooka next week, it was clear that it would cost the Swiss dearly to buy up enough Euros to maintain their 1.2 peg to the inceasingly failing Euro, so they decided to let it go.  The Swiss may also be strategizing to cope with the rising Dollar, and perhaps for an expected blowup of the Euro and Dollar as the World economy is slowing and commodity prices are tanking.   

Mon, 01/19/2015 - 03:02 | 5678885 Kreditanstalt
Kreditanstalt's picture

So Bruce would prefer coordinated market-rigging to anything remotely resembling legitimate risk?

Mon, 01/19/2015 - 11:24 | 5679524 cfosnock
cfosnock's picture

No I believe he was saying it was coordinated\designed to inflect maximum damage, which by its nature is rigging.

Mon, 01/19/2015 - 06:53 | 5679044 scrappy
scrappy's picture

"What were they thnking?" SURVIVAL

Mon, 01/19/2015 - 03:00 | 5678882 Quaderratic Probing
Quaderratic Probing's picture

Long Swiss Army nailguns.

Mon, 01/19/2015 - 02:42 | 5678863 besnook
besnook's picture

snb made a huge bet the euro would tank enough to scare them into decoupling. the obvious bet is short the euro.

Mon, 01/19/2015 - 02:18 | 5678847 green888
green888's picture

this has something to do with Gemany being unenthusiastic about QE

Mon, 01/19/2015 - 01:48 | 5678818 q99x2
q99x2's picture

You can still trade crypto currencies except they mostly go one way -- down.

Mon, 01/19/2015 - 03:57 | 5678938 JustUsChickensHere
JustUsChickensHere's picture

Until they go up ... as long as actual usage climbs, then after the 2013 mega bubble is truly deflated, the fundamentals will force them to rise again.

External factors could easily trigger the turn at the bottom for crypto.  Bail-in in Italy? Grexit ?  any one of a dozen likely events could trigger a move to Bitcoin to allow capital flight from a country imposing capital controls... and there are are few candidates there.

Risky playing in the crypto markets - but fun.

Mon, 01/19/2015 - 01:42 | 5678813 JoJoJo
JoJoJo's picture

The Swiss are not going to miss 50 Bil. Its a small price to pay to avoid those cheap Euros. French maids working in Switzerland saw their pay jump 30% (No not the kind of maids your thinking of)

Mon, 01/19/2015 - 06:54 | 5679046 scrappy
scrappy's picture

Trying to avoid maidens?

Mon, 01/19/2015 - 01:30 | 5678801 Soul Glow
Soul Glow's picture

The snake eating its tail.

Mon, 01/19/2015 - 00:21 | 5678698 cbaba
cbaba's picture

http://blogs.ft.com/gavyndavies/2015/01/18/the-swiss-currency-bombshell-...
SNB is 45% privately owned .
Could this be a factor ?

Mon, 01/19/2015 - 01:48 | 5678804 Urban Redneck
Urban Redneck's picture

No.

As I posted in excruciating detail elsewhere- Even Theo Siegert, who owns 6,250 shares only gets to vote 100 of those shares because he is not a Swiss public entity.  All 2,219 private shareholders of the SNB (myself included) actually only own 40.29% of the SNB stock, and private SNB shareholders weren't going to throw a proxy fit over another year of not getting our legally capped dividend (6% of PAR or a meager 1.5% of current MKT price - or a lousy 2nd class bus day-ticket or glass of scotch for each 1000CHF invested).

 

Mon, 01/19/2015 - 07:56 | 5679034 Ghordius
Ghordius's picture

+1. the whole setup makes sure everybody can buy SNB shares, but only Swiss public entities can seriously vote with them

interestingly, that would be a way to reform the FED. problem is, it would work, so I won't hold my breath about anybody proposing such a terrible thing

Mon, 01/19/2015 - 00:18 | 5678684 cbaba
cbaba's picture

The SNB is 45% privately owned,
Could this be a factor ?

Mon, 01/19/2015 - 00:16 | 5678683 malek
malek's picture

Unbelievable.
Bruce, you really need to check if your head is still screwed on right!

They acted in what I consider to be a hostile manner

Based on what preconception? That the main task of CBs is to calm "markets" ideally into total statist straight line charts?
Isn't the higher goal to strengthen resilience against shocks, from wherever they may arise?

We were always afraid of the "Volker Factor". Markets were under siege by the Fed. As a result positioning was kept light, and market liquidity suffered.

Oh the sacred liquidity again!
For starters do you think today's Simulacrum liquidity -as repeatedly demonstrated on ZH- is as good as the real thing, before decrying possible negative effects on it?

I do feel a bit sorry for you.
I'd never thought you would have such a bad case of Cognitive Dissonance.

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