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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 - 01:07 | 5678776 gimme-gimme-gimme
gimme-gimme-gimme's picture

This guy is just pissed he lost a ton of money on a "sure bet". If you are retail and speculating in the FX market - you're a complete idiot and deserve what you get.

Hopefully any retail investors that were wiped out will get a real job and stop being a drain on society.

Obviously SNB was not going to give a chance for these roaches to front run them and they made the right call surprise announcing the peg being removed.

To quote ol' Jean-Claude Juncker: "When it becomes serious, you have to lie."

Mon, 01/19/2015 - 00:14 | 5678669 Mac Avelli
Mac Avelli's picture

They were watching out for themselves, they are not a part of the euro currency, what obligation do they have to the Spanish, or French? If anything, the peg was forcing them to buy a billion euros a day, and they could see further euro devaluation coming.

If you can't sustain it, you get out, even if there will be other consequences.

I know what I'm talking about, I just moved out of my ladyfriends house!! 

Mon, 01/19/2015 - 00:06 | 5678657 Lazane
Lazane's picture

The Swiss know what is lurking right around the next curve, buckle-up and hold fast on to your shiney.

Sun, 01/18/2015 - 23:51 | 5678615 Slarti Bartfast
Slarti Bartfast's picture

Perhaps it was going to happen, but it happened like that so some SNB insiders, or someone close, could line their pockets?

Sun, 01/18/2015 - 23:31 | 5678527 andrewp111
andrewp111's picture

Why did they do it on a Thursday? Why not. If the meeting where the decision was made was on that day, they would want to do it immediately. You know, just to make sure that nobody out there got an illicit heads up. Maybe the members of the board don't trust each other or their wives.

Sun, 01/18/2015 - 22:50 | 5678420 cfosnock
cfosnock's picture

Nice article, but if they intended to inflict maximum pain I have to assume the plan was to stop front running on the ECB's QE. IE the entire purpose was to destroy creditability of the CBs or at least cause enough doubt of the true intention of the CBs to the surviving FX traders to give them breathing room or set a precedent if they also "break their word."

Sun, 01/18/2015 - 22:35 | 5678370 cbaba
cbaba's picture

Hi Bruce,

Yes It was a sneak attack, I agree with you,
You know why ? Because they were pissed off with the US Government
And the IRS. As you may remember IRS targeted the Swiss banks who
Has US customers and the ones hiding some money and in the process
Killed the secrecy of the Swiss banking.
This was planned and organized revenge from SNB and i am guessing that
SNB. Might already tipped the big swiss banks to keep quite and start
To unwind any short SFR positions ,just my WAG.

Best

Sun, 01/18/2015 - 22:58 | 5678443 cfosnock
cfosnock's picture

No the Swiss government\banks cooperated in order to become international banks rather than  regional ones. IE if they wanted to join the international banking party they had to play ball, and they did so willingly

Mon, 01/19/2015 - 00:25 | 5678704 Oldwood
Oldwood's picture

For the same reason I drive the speed limit, I don't like the costs otherwise.

Swiss banks didn't ask for the US to come poking into their business. They were doing just fine. They had no good choice. They either joined the US lead banking cartel, or were on the outside. A similar choice has been given to Russia, and I believe they chose differently.

Mon, 01/19/2015 - 11:14 | 5679495 cfosnock
cfosnock's picture

But until recently they have always been on the outside, it could be they buckled under pressure but if you can hide\hold Nazi money for decades I'm sure hiding tax cheats is a small matter.

Sun, 01/18/2015 - 22:27 | 5678348 assistedliving
assistedliving's picture

rigged currency, lies, set up?  the french, italian, spain screwing the euro came at who's expense? actions hv consequences and i'm unsure

but some Germans worked w/ Jordan on this.  sidenote:  before maligning people, i'd like to know the accuser's positions (as in losses)

might add an element of bias into the analysis yes?

Sun, 01/18/2015 - 23:04 | 5678459 g speed
g speed's picture

sour grapes ya think?

Sun, 01/18/2015 - 22:25 | 5678331 topspinslicer
topspinslicer's picture

Perhaps Russia gave them a heads-up. Large regional wars have financial consequences after all

Sun, 01/18/2015 - 21:38 | 5678178 rsnoble
rsnoble's picture

Well maybe the SNB wasn't happy with the EU for the QE stuff?  Instead of what they lost over this, how much would they have had to print to keep up with EU QE infinity?

Touche motherfuckers.

Sun, 01/18/2015 - 21:36 | 5678176 Downtoolong
Downtoolong's picture

I assumed from the moment I heard about the SNB move it was a costly, antagonistic, retaliatory move aimed primarily at the ECB and TBTF banks. It’s an example of what I was referring to in a previous post as the financial tactics of World War Three,  which is already under way. The forex brokers and retail traders were collateral damage, not the primary targets. Perhaps the SNB was simply getting tired of watching Goldman, JPM, DB, and others profit on their positions in the forex market thanks to undesirable policies and risks which they helped to impose on the SNB.  At some point you realize you’re not a respected ally of TPTB, you’re a hostage.   

Sun, 01/18/2015 - 21:25 | 5678141 NoWayJose
NoWayJose's picture

The SNB got word of the QE on Thursday, felt it would further weaken the Euro, and decided to take the plunge now - so as to avoid anyone leaking QE news and further driving down the Euro and Swiss Franc. The SNB actually SAVED speculators who would have gone even MOAR short had the news been leaked. If the SNB did not announce now, it would have needed to buy up lots of the new QE Euros to hold the peg, and it didn't want to do that.

Sun, 01/18/2015 - 21:14 | 5678101 if
if's picture

Seems harsh to describe SNB statements as lying, what else could they do without triggering an immediate test of the limit ?  Their limit had been getting infinitesimally closer for days as EUR weakened.  I interpreted that to indicate massive intervention by the SNB.  Arguably, with QE from the ECB looming they should have anticpated the CHF impact, but it's clear from interviews (Q&A published by the FT ...etc) that events took them by surprise.   Of course they could have held till the weekend, but why do so and risk leakage of the decision (ala Hildebrand's Paki wife) ?  Also, increased volatility has its benefits if it makes CHF less appealing for safe haven flows, a real headache for CH.

What still amazes me is that they appear to have taken no action in derivatives to soften the blow to themselves.  That's their stated longterm policy, but given the anomaly in the published derivaties data for 9/2011 (back when they began this fiasco) I assumed it was not dogma.  But it all fits nicely with the narrative that unfolding events took them by surprise.

 

Sun, 01/18/2015 - 21:03 | 5678055 Inbetween is pain
Inbetween is pain's picture

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

That's a silly statement.  You have exactly no evidence for that statement, just convolluted logic.  CBs act for their own good; they don't make decisions based on emotion.  The idea that the SNB acted out of maliciousness is ridicilous--they had some higher aim in mind, not vengence.

 

Mon, 01/19/2015 - 00:40 | 5678736 Things that go bump
Things that go bump's picture

So the pain inflicted was only a happy bonus?

Sun, 01/18/2015 - 21:48 | 5678037 RaceToTheBottom
RaceToTheBottom's picture

"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. "

Screw the short term gamblers.  The US Stock market and by extention, the US Financial markets owe NOTHING to gamblers.

If they Gamble at least have the BALLS to accept risk.

Anyone that wants freebees is just a WS Welfare Biatch.  >>Oh there was no Thursday crisis.  Why weren't we told in advance?<<

Screw People whinning for a free lunch in what should be a free market..

Sun, 01/18/2015 - 20:49 | 5677994 xamax
xamax's picture

Bruce
Your analysis is good but you omit to discuss a major issue:
The SNB had around 600 bn Euros on their books before eliminating the peg. Good sources here in Switzerland say the needed to buy 1 bn a day to support the peg. Swiss GDP is around 650 bn , so without acting, the SNB would find with 2x GDP on their books in 1.5 years. This was not sustainable for a small economy like Switzerland.

Sun, 01/18/2015 - 21:18 | 5678121 Bruce Krasting
Bruce Krasting's picture

I would not have objected if the SNB let this play out differently.

This should not have happened on a Thursday. There would have been no cost to waiting until Sunday when net positions are small. As I said, the approach the SNB took cost them an "extra" $50b. Expalin that.

Nor should J.P. have given the market bad information 72 hours before D-Day. I tell you, this was a sneak attack.,

 

 

Mon, 01/19/2015 - 09:58 | 5679282 Vooter
Vooter's picture

"This should not have happened on a Thursday. There would have been no cost to waiting until Sunday when net positions are small."

LOLOLOLOLOL...you are a FUCKING WANKER. In the words of an angry Steve Buscemi: "Blood has been shed, Jerry!"

Mon, 01/19/2015 - 07:56 | 5679095 falak pema
falak pema's picture

A sneak attack to bite the HF piranha that needle them and in anticipation of the Draghi QE put as well the Syriza blowback in EZ. They had to achieve TWO aims : one to tell market they could play MEAN (its a dog eat dog currency war world) the other to keep clear from Draghi put until the dust settles on what will be the deal on OMT/Greece plays.

And, the SNB can ALWAYS go reverse gear if they feel the fall out in market is estimed over-reaction----They are a CB and Swiss land is a huge "still offshored" money market and storage facility.

The main thing to note; as in Saud for Oil; as in Putin land for cold war boils; its now every Oligarchy clan for his own.

We have the makings of a combination of Sarajevo 1914 on the geo-political front and the Reichstag burning 1933 in the fragile Eurozone/EU combine, if the wheels come off the ECB/Mutti stand-off or if Grexit achieves the same result.

Mon, 01/19/2015 - 08:02 | 5679103 Ghordius
Ghordius's picture

falak, the Greek issue is way less of a standoff as it's narrated in ZH. evidence: three quarters of Greek debt pays no interest until 2023

now, if you were elected Greek Prime Minister, which part of the debt would you tacke... first? the interest bearing "market" part or the not-yet-interest-bearing of your european peers?

a lot of those discussion are based on the funny assumption that Greece will elect some morons to power. I see a young Syriza with the will to be in power or near power for a long time

Mon, 01/19/2015 - 09:02 | 5679176 falak pema
falak pema's picture

I can see your logic, Ghordius.

But the issue facing Greece is one of principle : The country has been raped by these corrupt oligarchs who ruled them. The whole political class. The nation now suffers with a collective global state debt of 350 Billion E (+ ancillary private debt). It has to be shaken down with a huge debt jubilee or it will kill that nation (and its a basket case for all of South E).

All the troika has managed to do with its previous plays is to impoverish the Greeks further as 90% of the Troika "handouts" come back to the banks; of which the German and French cabal is vary strong. We are protecting the rich banks which "OWN" our economy! Simple as that.

SO at best 10% trickles down to the Greeks. And this could continue "ad vitam aeternem" in this ECB/TRoika can kicking without end. We could condemn two generations of Greeks to pittance existence and debt interest slavery. And this is a BASKET case for Europe. 

I am not so optimistic that the EU can work its way out of this mess by just fiscal discipline and less state spending. Something will give and we could be into a spiral of social conflicts of the type we haven't seen for 60 years in Europe (except in Serbia/Cro/Bos and now Ukraine).

So, if in the interim period 75% bears no interest, I would clap your optimism, if in that time frame the Europeans could find sustainable growth again.

That is the 64000 $ question.

Do you see the problems of Eurozone resolving in the next 7-8 years for this ongoing exercise be deemed worth the sacrifice, now in place and causing havoc since 2010 ? 

I hope young Syriza will have the ambition of youth and the wisdom of old well honed ethics.

I hope these Lux laundry mat boss man's team members running EU have the same ethics AND some cojones to define an independent vision to current Imperial plays imposed by Pax Americana. 

Mon, 01/19/2015 - 09:35 | 5679245 Ghordius
Ghordius's picture

Syriza says the same, i.e. "The country has been raped by these corrupt oligarchs who ruled them "

interestingly, they are naming the Greek oligarchs. something that hasn't been done since quite a while, in that country. and this alone shows me that Syriza is not thinking in the same "foreign financial" way as many comments here in ZH

7-8 years is a looong time, in political terms concerning mountains of debt. we'll see how serious Syriza and their supporters are, and soon

your "trickle theory" is imho wrong, as long as it does not involve interest payments for three quarters of that debt

Mon, 01/19/2015 - 09:47 | 5679261 falak pema
falak pema's picture

I bow to your superior economic wisdom on technicalities. I hope you are right. I always enjoyed my holidays in Greece and loved their ingrained hospitality. 

Btw : Interesting that M. Hollande has ALREADY announced that the ECB will do siginficant QE as of thursday. 

This is VERY unusual that a President short circuits the ECB, nominally totally independent.

You can see that Hollande, after his internal political victory in front of french electorate on the handling of the terror attack and subsequent soldarity march, now wants to win on the economy front by announcing (BEFORE the ECB) that the European cavalry is coming to rescue Fort Sagan or Fort Acropolis in Euroland! 

Mon, 01/19/2015 - 09:57 | 5679280 Ghordius
Ghordius's picture

it would fit my guess. Hollande talking about QE = Banque of France getting more active = French cavalry coming to the rescue

behold the EuroSystem fleet shutting down the big guns of the ECB and switching on the secondary Aegis pin-point defense system

watch that old dreadnought, the Banque, making a solo intervention, like the bassist of a jazz band having his two-minute piece after and before getting back to the usual programme

as I wrote above, I would not be surprised if the Banque issues it's third currency to be managed by it, until the end of the month. we have a complex financial system that can handle every ball thrown at it, and adores new balls, while it sulks when one is taken away as the SNB did for three years

Mon, 01/19/2015 - 10:08 | 5679310 falak pema
falak pema's picture

Haha, that will be novel if we have two monies to play around with in France.

I buy my baguette with one and my holidays in Swiss or Italy with the other. 

France has built a new philharmonic concert hall in Paris that cost twice its budget. But this chinese guy, pianist Lang Lang, brought the house down in his inaugural night. 

Talk about the chinese walking away with the prize! 

Mon, 01/19/2015 - 04:20 | 5678954 xamax
xamax's picture

My only explanation is that the SNB knows something we dont.....could be a much worse situation of Eurozone , Grexit etc.
On a long term basis, 50 bn is anyway peanuts for SNB.

Mon, 01/19/2015 - 01:44 | 5678814 Soul Glow
Soul Glow's picture

Bruce,

There is no honor among thieves.

Mon, 01/19/2015 - 00:18 | 5678690 Oldwood
Oldwood's picture

I have never heard or known of anyone in the financial industry who ever lied, exaggerated or mislead to simply make a buck. It never happened. This is judging from indictments, convictions and perp walks of course. Never happened.

Mon, 01/19/2015 - 00:17 | 5678682 SheHunter
SheHunter's picture

Ahhh stop whining.  Sneak attack?  Play hard die hard.,  All's fair.  Skip the self-righteous bullshit Bruce.

Sun, 01/18/2015 - 23:07 | 5678465 TheReplacement
TheReplacement's picture

So they pulled a sneak attack and shot themselves 50B times extra.  Good theory.

Sun, 01/18/2015 - 21:34 | 5678163 DaddyO
DaddyO's picture

Sneak attack, maybe...but what do the SNB Board see down the road that scared them into making such a costly mistake now?

Are there black swans on the horizon that only insiders can see?

This was a horrendous move that cost the FX markets dearly, paybacks will be hell...

DaddyO

Mon, 01/19/2015 - 08:10 | 5679111 ebear
ebear's picture

"Are there black swans on the horizon that only insiders can see?"

If they could, they wouldn't be black swans.  Purple, maybe, but definitely not black.

Mon, 01/19/2015 - 03:52 | 5678931 old naughty
old naughty's picture

sneak attack, to us semi-smart muppets, perhaps...

1. master commands; and/or

2. give-and-take, wipe off gold short clean?

Board cares "Bottomline", nothin' happened.

Sun, 01/18/2015 - 20:38 | 5677951 Stained Class
Stained Class's picture

SNB's just showing its appreciation for the CB Discount on commissions at the CME...drumming up some extra business for the merc.

Sun, 01/18/2015 - 20:32 | 5677930 joego1
joego1's picture

Pigs get slaughtered.......

Sun, 01/18/2015 - 22:13 | 5678305 indygo55
indygo55's picture

Pigs get fat. Hogs get slaughtered.

Sun, 01/18/2015 - 21:27 | 5678146 Moe Hamhead
Moe Hamhead's picture

Je suis pig!

Sun, 01/18/2015 - 21:26 | 5678145 Moe Hamhead
Moe Hamhead's picture

Je suis pig!

Sun, 01/18/2015 - 20:23 | 5677861 Joebloinvestor
Joebloinvestor's picture

Yeah, the Swiss could have telegraphed the punch and then watch the EU MASSIVE QE kick the shit out of them.

I don't feel sorry for any FX trader/entity that got clobbered.

If money was based on something of value rather then a politically controlled printing press, the only ones that would make money on currency trades would be a Numismatic.

Furthermore, I seem to remember some fool preaching doom and gloom from a church pulpit should the gold referendum pass.

Guess he showed them!

Sun, 01/18/2015 - 20:45 | 5677982 DeadFred
DeadFred's picture

He showed them, but why? My guess is that Draghi is the one they aimed at because QE was going to be death on the franc and Mario just didn't care.

Sun, 01/18/2015 - 23:09 | 5678474 TheReplacement
TheReplacement's picture

More likely they found out about ECB QE and decided to let 'er rip.  After all, if they found out it is logic that others would find out.

The article relates how they lost 50B more than they had to.  If that were true then why did they do it?  Obviously they are either insane or figured they would be worse off waiting.

Free market - you get to change your mind when new information is presented.

Sun, 01/18/2015 - 20:03 | 5677806 Amish Hacker
Amish Hacker's picture

Springing the trap on Thursday instead of over the weekend doubled the move in the Swissie from 10% to 20%, which is another way of saying that the CB maximized the Swiss franc price movement in gold to the downside. If they were trying to close out a big short position in gold, created to finance euro purchases, this might be a good strategy. Does this seem possible, Bruce?

Sun, 01/18/2015 - 21:11 | 5678074 Bruce Krasting
Bruce Krasting's picture

No. The SNB did not have an embedded gold short on the books. I say that because the SNB is audited on its year end positions. Everything gets reported. They can't have put on a short in 2015, not enough time, it would have been noticed and reported on.

 

Gold is an embarrassment for the SNB. The guy who started the Peg also sold HALF OF ALL SWITZERLAND'S GOLD!! That would be Phillipe Hildebrand. He sold 1,170 Tonnes of gold at an average of $400. Hildebrand went on to get fired at the SNB because his wife was trading FX on the side.

The policy mistakes at the SNB go back a long way. Last Thursday would not have happened if the gold was never sold.

 

Mistakes always catch up with you. This one was a doozy....

 

A link to Hildebrand saying what a great job he did offloading the Swiss gold at rock bottom prices.

 

http://www.bis.org/review/r050509b.pdf

Mon, 01/19/2015 - 08:12 | 5679113 Ghordius
Ghordius's picture

"I say that because the SNB is audited on its year end positions"

funny thing, eh? in Europe, the only currently badly audited entity is the EU org, while the other (last) badly audited entity was... Greece

so in europe, the national banks, the ECB and the national government get lots of cross-checked audits, while in the US, the FED is not audited

Mon, 01/19/2015 - 00:15 | 5678678 Oldwood
Oldwood's picture

There is a great deal of discussion about the evils of debt. Please explain why anyone should be allowed to borrow money to place a bet? I'm sure it makes it easier for the gamblers but does it not put the whole system at risk. I had always read that the 29 collapse was due to borrowed money used to buy stock. Everything was levered. My idea of risk is that it is a positive thing, but never, ever take risks greater than you can afford, and by afford I mean pay out of pocket. Has the whole world simply gone nuts for easy money? Are all rules of common sense verboten when it comes to speculation? The whole thing seems to be ringed about the concept of gambling, but always with other people's money principally at risk.

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