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Swiss National Bank Scraps Hard Franc Ceiling, Replaces With Soft Ceiling Instead Local Press Reports
A little over three years after the Swiss National Bank embarked on one of the most shortsighted attempts to control its currency, one which cost it a balance sheet that has since ballooned to a gargantuan 80% of Swiss GDP, and in the process transforming it into a giant, and money-losing, FX hedge fund whose biggest holding was the fastest depreciating DM currency, the EUR, the SNB - as everyone knows by now - shocked the world, and countless now insolvent retail brokers, when it reported out of the blue that the Swiss cap would be no more, in the process unleashing the most vicious short squeeze in FX history, and sending the EURCHF from 1.20 to 0.80 before stabilizing at around 1.00 (if only before last week's month end window dressing by the SNB meant to dilute the P&L impact of the soaring CHF on its balance sheet).
The aftermath of this historic surge in the Franc is what most now agree will lead to an all out Swiss recession, as not only its export industry just got crushed, but tourism into Switzerland will be drastically reduced as a result of what to foreigners appears as a 20% drop in their purchasing power. Add that to the already well-known woes surrounding Swiss banking, whose deposit-funding model is now long-gone history, and one wonders just what will propel Swiss growth in the future?
In retrospect, what the SNB really did was be the first developed central bank to admit defeat in the global currency wars, realizing that contrary to "popular" Magic Money Tree opinion, it does not have an infinite balance sheet. And now the time has come to pay the price for delaying reality by over three years.
To many this was a welcome move as it means after several years of horrendous monetary policies, Switzerland has finally regained some monetary sense, and while the near-term economic (and stock market) pain may be acute, the long-term will be thankful.
And then, earlier today, we read that the SNB didn't learn its lesson after all, and instead of a hard EURCHF 1.20 floor, it is now unofficially targeting an exchange rate of 1.05-1.10 per Euro, aka a "soft", kinda/sorta Swiss Franc cap, according to Schweiz am Sonntag.
More from Reuters:
Citing unnamed sources close to the bank, the paper said the SNB was operating "a kind of minimum exchange rate against the euro".
"The talk is of a 'corridor' from 1.05 francs to 1.10 francs," the paper said. It also cited a well-informed source as saying the bank would incur losses of up to 10 billion francs, without giving a timeframe.
The SNB's Jan. 15 announcement that it had scrapped its cap of 1.20 francs to the euro - the centrepiece of its monetary policy since September 2011 - unleashed a surge in the value of the currency. After the initial shock, which took it below 0.90 francs per euro, the currency has retreated back to 1.0374 francs, a level still widely seen as strong enough to force Switzerland into recession.
The SaS added that "defending the corridor would cost the SNB as much as CHF10 billion." Actually, if and when the Greek deposits outflow accelerates in coming weeks ahead of the Greek February 28 D-Day, it will cost far, far more.
It is unclear if this story is what official Swiss policy now is as a spokesman for the central bank refused to comment, or if this is merely an attempt at verbal intervention to test if the EURCHF can rise to 1.10 without the Swiss bank buying billions of Euros each day. However, if indeed the story is true, is merely mark the second abysmal decision the Swiss Bank has done since September 2011, because the only difference between then and now is that a) it has lost almost all credibility and b) if and when the 1.05 lower bound is tested, and the CHF surges below the stops, it will not only cost the SNB even more losses but further undermine what little credibility it does have left.
Indeed, as our friend Sean Corrigan put it rhetorically, "So the SNB has a 1.05/10 'corridor' for swissy. Does that mean they now only buy EUR1 not 3 billion a day!?"
Probably yes, but what's worse, there is no "utmost determination" language present anywhere, which means that the lower bound of the corridor will be promptly attacked at which point the story will be quietly retracted, only to reemerge in a few weeks with a "new" corridor suggestion, this one even lower for the EURCHF.
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Looking forward to a bunch of headge funds buying into this (probably the same ones as last time) -- then when something else brakes in the EUR again -- they drop it in the middle of the night and burn the same hedge funds again.
Tooo fochin funny...... this is like a World wide soap opera of douchebags pretending to have a brain
Sometimes I wish I didn't know how screwed we all are in the immediate future. Sometimes I just wish I could work on my car like the average idiot and not worry about shit like this.
In the Matrix, I can understand why that guy just wanted to be plugged back in.
i don't really see this as a defeat for the swiss, or holder of swiss francs. What they did was tell the ECB they aren't dragging their currency down with the euro. Better to do this when the did than wait for the euro to collapse all together.
OT: Fans of the AK-47, your real Kalashinkov may be available again in the US shortly. They're gonna build them over here now, bypassing the "sanctions" imposed by the Obama administration.
http://www.marketwatch.com/story/the-russian-guns-are-coming-ak-47s-coul...
I love how these federal cunts have been driving the growth of a gigantic domestic firearms industry over the last twenty years.
+1
Perfect use of the word 'Cunt'.
Outstanding
;-)
At 1,05 to 1,10 to the Euro the Swiss Franc is absolutely overvalued. But still, with a trillion fresh Euros from the ECB we would see new lows of the Euro against the Franc. If i was the Swiss government i´d create a Swiss national wealth fond of a trillion Franc and buy up hard assets in the Eurozone in Euro. If they don´t act the Swiss industry, tourism and retail will be toast over the next 6 months.
....and consolidate the overall federal and cantonal (states) debt by issuing 15 y 0% and 30 y 1% bonds only for swiss oension funds. Where would swissie head to?
We need Federal and Cantonal debt (at real positive interest) the insurance and pensions are in enough of a bind as it is, and pushing them into debt paper across the border in EUR land is lunacy.
Even better
You nailed the hard part - keeping interest bearing CHF instruments out of the hands of GS, JPM and the rest of their speculating ilk.
I don't trust the insurance and pension companies not to take a product a that been structured to benefit their domestic account holders and structure something new and evil out of it just to squeeze a few more bps across the bottom line by involving an unnecessary foreign counter-party.
Not a bad idea.
M&M in Colorado builds a bitch'n M10 AK.
"Real Kalashnikov" and "Made in US" ????
To carry one feels like a bumper jack of a '53 Buick Roadmaster
A better one. Tapco trigger for one example.
The whole point of having floating exchange rates was so THEY COULD FLOAT...right????
On the other hand, if you want fixed exchange rates, it's got to be FIXED TO SOMETHING REAL...right??? Like, um, gold. Or something.
This shit borders on psychosis.
If the exchange rates are simply a mechanism to reconcile fair agreed prices for physical trades of goods, then why are people even permitted to manipulate and skim from them?
The whole currency trade game as currently constituted is bastardized and fucked in the head.
all markets benefit from benign speculation by having smoother, less volatile prices... until there is too much speculation volume vs the underlying market
from then on, every new speculator can only profit my causing moar volatility. it's really only a question of understanding that "moar" of a good thing... isn't better
at this point, your protuding or not belly might or might not give you a hint that you need to eat so that you live... but moar might kill you, too
too little, a little, just fine, more, much more, too much, please stop, stop!, aaaargh! and... moar
I think we can easily agree self-regulation is a complete conjob.
Human beings and especially banks can not be permitted to do any damned thing they like with vital tools of commerce like currencies.
but the "near-anarco-capitalist" bed story Wall Street tells every trader is that they are entitled to bet on whatever they want. the world is a casino, and if too many bet on wheat because it tickle their fancies, well, then other people have to starve and start food riots, so what, have them eat cake, the damn undeserving poor, if the Almighty would find them worthy... they would not be poor
gee, what to say? ... looks like that about covers the basic problem ... got a solution?
Great comment stream.
Top SHELF actually.
And the answer to the "question" is ALGO'S!
"Everyday when they come to work they turn on a COMPUTER and this " computer' is UBIQUITIOUS."
The platform running the "contraption" might not be....but certainly the PIECE OF MACHINERY IS.
In short....you must "login first."
Everything else after that...is just a War Game.
You give me food for thought there D.
element, many of them. all politically painful
bring back the old legislation. that one that forbade this casino tools
and bring back the old markets. yes, the very old trading tools, simple, proven things like reverse dutch auctions, etc.
and bring back the old "market maker" setups
lastly... balanced budgets
Yeah, makes you wonder where the log-jam lays, huh?
We know what to do, it just isn't being done.
More importantly, bring back the losses, and the risk of getting bankrupt if you do something stupid. Free market is the best regulator... Legislation doesn't matter as long as TBTF (or equivalent) exist.
What do you mean 'borders on'?
+1, "defeat"? nothing further then that. the SNB is still one of the best currency warriors in the arena, and this since 1907
interestingly, several entrepreneurs in Switzerland are already starting to switching their employment contracts to EUR, particularly for businesses that are at the frontier
I have read so often articles and comments about "eur collapse", and yet not ever one that goes through the implications of a "eur collapse". sometimes it sounds like six-legged creatures watching a biped walking and saying "it has to fall down, sooon, it's not natural, or balanced"
remember this: any country exiting the eur has a fully ready national currency to use instead. that's an optionality, in this currency war, that is nothing to sneer about. and yet, most of this anti-eur talk is just wishing and whistling in the wind
back to the CHF: it's the smallest currency zone in the war, but it's powerful in the focus of it's interests and the experience of it's issuer. this "soft ceiling" could be something different: the SNB detecting big bearish or bullish raids and smashing them. this has happened often on this continent (though never in the UK and US, as far as I understand)
it's a different way of understanding the market as a concept: battling the external wannabe market makers, by the issuer and so "natural" marketmaker
I fully expect the CHF to move slowly, in whatever direction, vs the EUR... because the SNB wishes that, in this period of strong deflationary adjustment in Switzerland. and I can well understand and even applaud the rationale and the execution of the whole, up to now
Euro is killing every economy using it, that is not functioning with German efficiency. It's an economic abomination, created by a bunch of arrogant but clueless ideologues. As long as Euro will exist, the European economy will continue to be fucked up beyond all repair. That's the short of it...
When the Europeans will grow the balls and recognize their problem, they might get a chance of solving it. Until then, it's Good Night and Good Bye !
Europe's stagnation is 99% the result of debt levels leading to low disposable incomes, then low aggregate demand, so low wages follow, affordability plummets, and deflation follows.
That happens in all currencies.
If there are or were structural issues with the Euro, or with ideologues within its system, they are rather peripheral compared to the major issue of unaffordable debt growth that has no economic solution, and no discharge mechanism is being allowed.
You're wrong ! Debt is much easier to handle when you can devalue your currency. Euro does not allow this. The single currency is forcing all countries using it in direct economic competition. Southern Europe stands no chance against the northern economies, without the benefits of devaluation. Hence permanent budget shortfalls as result of structural economic discrepancies. The debt is a result of the economic imbalances, not a cause.
Bullshit, you are you just pretending these situations don't also exist in federated USA States and federated Australian States which use a common currency.
I invite you to examine the case of Tasmania, and the blackhole transfer flows.
Is Tasmania going to abandon the Australian commonwealth federation?
Not a bloody chance!
Does the rest of Australia want the Tasmanian black hole to leave the Australian Commonwealth?
Not a bloody chance!
This whole argument that the Euro itself is the problem, is a load of utter bollocks invented and promoted by people who either are ignorant and unrealistic, or don't want Europe to succeed with federal integration.
Whatever, it's going to happen anyway. So whatever nonsense you were taught, or have read about the euro as a currency flaw, you better start questioning the basis of those myths if you want to be taken seriously.
If you want monetary unity of territories with different economic outputs, you have to agree to wealth transfer from rich to poor areas, or else the poor will be nothing more but the modern equivalent of medieval serfs. US and Aussie are willing to pay that tax because they feel like (and were traditionally) unified countries. EU is not in the same situation, as it is nothing more that a hodge-podge of countries thrown together by a stupid ideology, with a minimum of common interests. Sorry, but I don't see the northern flank of the EU willing to fork hundreds of billions over to the south, for decades, just because some bureaucrats think it is the right thing to do. You mistake the effect (debt) for the cause (poor economy), and then have the gall to play the economic "know-it-all" here ? You have no idea what you're talking about. Go learn something before trying to lecture others... EU in its current form is DEAD because it's a construction against the natural economic law. Get used to it, 'cause no amount of indignation from your part is going to change this reality.
"You mistake the effect (debt) for the cause (poor economy), and then have the gall to play the economic "know-it-all" here ?"
You better get at least a basic clue fella. Over indebtedness reduces aggregate demand via the reduction in disposable incomes, per installment payment per month, per indebted and over taxed household (to pay/service the public debt also). When aggregate demand thus falls, incomes of employers fall via less purchases of their products, so they either increase productivity, or reduce their costs. Wages are usually their largest cost, so unemployment increases and aggregate demand falls further, even as the tax burden rises from falling revenue streams.
Credit grows economies and businesses until too much debt growth weakens economies and businesses.
That's rudimentary economics and business operating but you apparently don't even groak that much?
But want to tell me what's what about business and economics, huh?
This is why people like me think for ourselves and stay in business, and make profits. If I'd ever listened to the know-it-alls like you, I'd have been broke in 6 to 12 months, if I'd ever got started in the first place.
I'll direct you to the words of Merkel, about the fundamental importance of the EU conglomeration of states which she voiced at the G20 4-months ago:
So go and tell Merkel, and the rest of Europe's elected heads (who largely avidly share those views) that she's got that all wrong and I'm sure she'll be easily convinced by your ranting disjointed illogical blather.
Then go lecture Greece's new Govt leader and policy formulators on why they have made the tragically wrong choices, in deciding they actually don't want to leave the Euro, after all. I'm sure they will be thoroughly not convinced, as well.
Then ask yourself why you hold such plainly irrelevant and invalid views of the world and the EU and Eurozone countries - at all?
Like I said, if you want to be taken seriously ...
Bye.
It reminds me of the scene in The Perfect Storm when Clooney is fighting the waves and busting his ass to survive and they think they made it out of the storm only to realize that it is just the eye and they are completely fucked. His face says it all! These fucking thieves are coming to the realization that 2014 was just the eye and the 100 foot monetary wave is on its way to sink the world economy. Enjoy each day and appreciate the simple things like cold beer, the Super Bowl and personal safety. It may all be diiferent in a few years.
Perhaps we ought to rethink this idea of having unaccountable technocrats in charge of our currency. In fact, I'd be happy going back to settling trade in physical coin made up of precious and semi-precious metals.
Currency and money are not the same thing.
Currency is a means of exchange, and can be pretty much anything.
Problems arise when a small group can conjour it from mid-air at a cost to everyone else.
Physical coin made up of precious metals are about the only way to combine the functions of both money and currency, in a system of honest exchange.
Maybe we could stick the technocrats in holes in the ground and have them mine real money? Would be rather fitting.
Central bankers = Keystone Cops
SNB 'hard" ceiling definition = shooting pool with a rope.
They have more holes than Swiss Cheese ....
Just depends. Which government approved variety of swiss cheese are we talking about. 1/2" holes, 3/8" holes, 1/4" holes, aged...
EURCHF closed Friday at 1.04, so not much impact in the short run.
Well, I had thought "good for them" a couple weeks ago when they seemed to veer toward sanity and responsibility.
Now I hope they spiral out of control and burn in the financial hell they deserve.
It never made sense that the SNB would rig the gold initiative.....err, the Swiss citizens would vote it down and then the SNB would turn around and de-peg from the Euro. But then again, none of this shit makes much sense.
The SNB "made" CHF 38 billion in profit last year, and despite un-pegging they are now only looking at "unrealized" losses (until EOY) of CHF 10 billion (despite half of their balance sheet supposedly going to shit when de-pegging from the EUR)... It would appear that the SNB might have been the other side of a fair number of those f/x trades that blew up.
To Haus's point- if they can (financially) kill banksters and paper speculators, and make a profit doing so- Party On Wayne... (or Thomas)
It's easy to 'lose' money that never really existed anyway. To 'find' it they just need to look in the pockets of that 'other' cleanest dirty shirt in the laundry ... the $USD.
If true, just another sign that the fiat debt system is at its end. It seems that Central Banks are all spinning in circles.
Does this portend a loss of control?
I think so.
Speaking of fiat, sitting here at home snowed in today and our yongest is watching skewlhouse rock, really old episode about dollars and cents, I'm guessing circa early 70's.
She is asking me(first grader) why they are singing about the bank paying the lady money to keep her money in savings, and I am explaining to her that the bank no longer really pays you to keep money in savings. She then also asks me later in the song "why did that lady have to pay the fat man a dollar and ten cents when she only borrowed a dollar?".
Glad to see the wheels turning at such a young age.
I doubt the SNB will go to full force floor defending. Jordan said these times were gone now and with good reason. He knows what is on his balance sheet. I think a 1.05 to 1.10 range is a good opportunity for the bank to sell some Euros, of course it will be at a lose but I doubt the pair will rise much fruther - ever. I'm against any further intervention but one has to realize the pain during the last weeks is big. The country is small and it's relatively easy to go abroad for shopping, it takes you at most 3 hours to be in the Eurozone and for most of the population it's less than an hour. Even big supermarket chains are not employing new people in stores along the border because of lacking customers.
Just didn't want to have any banker "suicides".
This is quite simply SNB suicide. How exactly do they plan to deal with burning all of the SNB reserves to get where they want to be?
Has nothing to do with any of that... Instead ~ Has EVERYTHING to do with who got to FRONTRUN the announcements.
Why these two should be getting alot more face time in the alternative media but for some reason are not?
http://politicalvelcraft.org/2013/08/28/hungary-orders-rothschilds-imf-t...
http://gzppspb.ru/president-of-the-czech-republic-against-sanctions-and-visas-with-russia/
Son of Nemo, you are correct, sir. If your sources are sound, then that downvote is ridiculous. (Not to slam your sources - I just don't know anything about them.)
From your links:
<<Already in 2011, Hungarian Prime Minister Viktor Orbán promised to serve justice on his socialist predecessors, who sold the nation’s people into unending debt slavery under the lash of the International Monetary Fund (IMF) and the terrorist state of Israel. Those earlier administrations were riddled with Israelis in high places, to the fury of the masses, who finally elected Orbán’s Fidesz party in response. According to a report on the German-language website “National Journal,” Orbán has now moved to unseat the usurers from their throne. The popular, nationalistic prime minister told the IMF that Hungary neither wants nor needs further “assistance” from that proxy of the Rothschild-owned Federal Reserve Bank. No longer will Hungarians be forced to pay usurious interest to private, unaccountable central bankers. Instead, the Hungarian government has assumed sovereignty over its own currency and now issues money debt free, as it is needed. The results have been nothing short of remarkable. The nation’s economy, formerly staggering under deep indebtedness, has recovered rapidly and by means not seen since Germany.>>
Is it true that Hungary is genuinely recovering? (It's been so long that's been propaganda that I reflexively typed "recovering" at first.)
<<The President of the Czech Republic miloš Zeman opposes sanctions and any other isolation of Russia. He told this in an interview to ITAR-TASS... In addition, the head of the Czech Republic voted for the abolition of visas for Russian citizens, calling them “excessive, unnecessary obstacles”. “It is necessary to eliminate visas, for example, with Russia. Why to engage in this kind of bureaucracy that is associated with the visas?”, said Zeman. It is worth noting that the leadership of the Czech Republic, amid growing anti-Russian sentiment among European establishment that consistently occupies an independent position. Earlier, the Minister of defence of the Czech Republic Martin Stropnicky voted against the deployment of NATO troops on a permanent basis in this country.>>
Thanks for the heads-up. I will look around for other opinions on these stories, and see if they're as good as they sound. But these should be prime material for Hedge examination anyhow. Very encouraging at first look!
This initiative too shall fail. I do not know when, but I do know how.
I will seek a good entry point to buy francs. FXCM only allows 5 to 1 leverage on this pair (e.g. $200 gets you a 1k lot position on the EURCHF, but only $100 for the USDCHF).
Lol, the Swiss bankers love throwing good money after bad. Apparently they still haven't learned, even after Greece is bailing.
We soft ceilinged some folks...
Yep!
I read negative fx positions will be forgiven by brokers. Or maybe just Golman-Sachs?
When the only game in town is the FX markets you can be sure the Swiss are going long!
banksters deserv to die slowly...
Not my Muesli. Who cares.
The real question I have is whether the Swiss National Bank is actually seperate from other central banks or if they are simply playing some for now not recocnizable game to obfuscate our handlers intent.
I find it hard to believe that they are acting in the Swiss peoples interest or that they have sovereignty from other central banks.
I'm not saying they're saints or working only for the interest of Switzerland. But Jordan for one never worked at an investment bank and the closest he was exposed to wall street was going to Harvard. So I am hopeful that his game is a different one from Yellen or Draghi...
"I just can't quit you, Euro Peg! Please bone my ass some more."--Broke Bank Mountain
Isn't this tantamount to putting the Jack back in the box and winding the crank AGAIN?
Now even Tyler starts parading out the tourism industry?
Swiss tourism is doomed, was doomed, and has always been doomed - at least according to the STV and all the other propaganda organs (simliar to American NAR for housing.)
Just another reason to smack gold tonight.
Stateside.
Many factors at play but I'm looking at EUR/USD 1.10 as a level that is critical to various other correlations.A breakdown there spells big changes in the world and I believe that commodities have a lot of space to go a lot lower.