Cue Panic As Fed Resumes Liquidity Swap Lines, Lends $200 Million To Swiss National Bank, Most Since October 2010

Tyler Durden's picture

If yesterday's news broken by ZH that one bank was in dire need of US dollars and ended up borrowing $500 million from the ECB was enough to send the market down almost 5% today, then the follow up news that the FRBNY just reactivated FX swap lines with Europe will likely send ES limit down at tomorrow's open. The FRBNY has just announced that in the week ended August 17, it lent out $200 million to not the ECB, not the BOE, but the "most stable" of all banks: the SNB. This is the first use of the Fed's Swap Lines since March, and the most transacted under this "last ditch global bailout swap line" (see more on how the Fed bailed out the world using swap lines here) since October 2010. This event also gives us a hint that the European bank in question in dire need of cash is Swiss, which in turn means that it is not some usual PIIGS suspect, but one of the two "big ones." If true, this means that the European insolvency, liquidity and what have you crisis is about to take an exponential step function higher.

From the FRBNY:

And the history of FX swap usage:

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Sofa King's picture

Swiss banks...I thought that was the safe place to be, with their currency soaring and all?

Sudden Debt's picture

I'm actually VERY surprised to that one also.

I wonder where the loss cam from. Not a bank run. so....

 

I think I need to buy a gun's picture

cue end of physical gold and first parabolic move

Pladizow's picture

Dont know much about international banking but....

Could the SNB be a middle man to hide the swaps final destination?

silvertrain's picture

yeah..the fx market intervention

akenathon's picture

Ouppss this might be the end of the Dollar fall...

I am wondering that if with all the US dollars shorted around the world the next real crisis is not a gigantic short-covering into the USD as when markets start to realize that even with an S&P dowgrade of US, investors are still pourinig money into US Treasuries (unlike any other country in the world) at a crazy speed.

It would solve quite a lot of problems

1) Commodites to plummet (except for Gold and Silver where a sell-off would provide a big opportunity) which in turn would help the US and the entire world with lower energy prices and those likely to pay for this mess are likely to be once again OPEC countries as been in the 80's

2) Solve some of the current US to Chinese issues

3) Repatriation of US dollars into the US

etc......

The big thing is that if one of the two Swiss Banks were to fail, all Switzerland would be BK and as such CDS on the country would skyrocket as well - The same could be said for Japan.

The best trade might be to be long Gold in CHF and JPY at current levels as you would profit from a fall of the CHF and the JPY but have Gold upside

LowProfile's picture

My thoughts exactly.

1.  USD rip your face off short cover rally/deflation scare.

2. Commodities/stock plummet.

3. UST buying in earnest.

4. Printing presses go on MAXIMUM OVERDRIVE.

5. Dollars come home to roost.

6. New gold-reference monetary system born.

spiral_eyes's picture

i doubt it will be as fast. If there's one thing that central planning is good at it's making shit run really retarded 'til the wheels come off. they haven't even started directly monetising debt yet (which even paul krugman admits would stoke hyperinflation), and it will take months at step 4, and months at step 5 — of china and the arabs buying up gold and productive assets to kill their dollar pile — for step 6 to happen.

i do think you have your sequence pretty much right.

scatterbrains's picture

Do these 6 steps occur in six minute, hours, days, weeks, months or yeas ?

BaBaBouy's picture

 

3:47 ...............  Now Printing 1866.

 

KITCO is now out 1 ozs and 10 ozs Bars according to thier site.

 

Looks like public sheer (but silent) panic to buy is just starting.

 

My target still 2 ozs GOLD gets you an nice new F150.

 

Eat that SACKS ...

KrugerrandFan's picture

Been buying Krugerrands for the last 2 years (saw the ZH light) but was told last week they had run out.  Was put on a list to get them as they come in!  That was the first time I've had to wait for them.  Says something I think.

Central Bankster's picture

Exactly, panic first, then crazy monetization later.  If they really want to save the TBTFs they need to monetize IMMEDIATELY.  European TARPs, backstop all the banks for any losses etc.  They will do it eventually, probably after a few fail-- very Lehmanesque.

Syrin's picture

akenathon, forgive my ignorance.   I am not a finance person by trade.   However, I do follow this stuff with a fair degree of regularity, but my depth of knowledge is still shallow compared to those here.  Your theory intrigues me, but I am a bit confused.

 

What do you mean by " gigantic short-covering into the USD"?

 

Wouldn't repatriation of US dollars into the US cause mass hyperinflation?  

 

Thanks in advance.

akenathon's picture

Syrin,

Money was created for the last three years, which in turns has been flowing into the system and fuelled a bubble into the short dollard trade as it has been leveraged 100 of times...

Now if part of this money (as per BSN trade) is asked back, the consequences on the USD is that you are likely to assist at many financial institutions running for USD at the same time, thus the USD short-covering.

On the monetary consequences I think it would serve the US by floowding the world with even more dollars but at the same time it would completely debase all other currencies (including the swiss franc and the japanese yen) and as such the entire world would be pegged to the dollar.

Don't forget that 80% of the emerging markets are already in dollars and once the remaining EU mouribound currencies are gone, the likely result is to have a world currency which is the US dollar where its intrinsic value is almost zero...

The people would have no choice but to accept those dollars and if everyone were to exchange those dollars for hard assets, we could assist at a $10'000 in Gold unless the FED in conjunction (Bretton Woods II ????) with world's central banks peg the USD to Gold.

CrashisOptimistic's picture

You do realize the Brent spread is now north of $24?

In all history it was about minus 50 cents until this year.

All fall in the price of WTI does not define what the world pays for oil.  It doesn't even define what the US pays for oil.  It's an obsolete parameter because so little WTI comes out of the ground anymore.

Flakmeister's picture

I have been trying to make heads or tails out of this for a while and I am at a loss... BTW, it reached $24.97 today at one point. The spread can be arbed away for about $7, the cost of transport by rail car to the LOOP.

Is it massive short positions with the IBs at the behest of the Treasury to drive down the price and to be covered by the SPR releases?

Is it the beginning of a decoupling of the US dollar and oil?? Brent is world price, WTI is US internal price. Damned if I know.... 

Mr Lennon Hendrix's picture

JPM et al are shorting oil and they are using the SPR release they aquired as the location.  The are shorting WTI contracts, because even though America produces squat for oil, the dollar vs WTI is still the international reference point concerning both.  This is similar to how silver is still treading water, when we all know demand has increased much more than the price action.  JPM shorts real assets to keep the dollar above water, because the dollar trades inversely to real assets.  What else is new.....

Flakmeister's picture

Ok... but to what end? The price at the pump reflects Brent. Do they really think the sheeple are that stupid?

Looks like the spread has blown out to $26.30....

If this is the true spread, VLO should have insane earnings, last I checked they don't. Something is very amiss. 

akenathon's picture

Ouppss this might be the end of the Dollar fall...

I am wondering that if with all the US dollars shorted around the world the next real crisis is not a gigantic short-covering into the USD as when markets start to realize that even with an S&P dowgrade of US, investors are still pourinig money into US Treasuries (unlike any other country in the world) at a crazy speed.

It would solve quite a lot of problems

1) Commodites to plummet (except for Gold and Silver where a sell-off would provide a big opportunity) which in turn would help the US and the entire world with lower energy prices and those likely to pay for this mess are likely to be once again OPEC countries as been in the 80's

2) Solve some of the current US to Chinese issues

3) Repatriation of US dollars into the US

etc......

The big thing is that if one of the two Swiss Banks were to fail, all Switzerland would be BK and as such CDS on the country would skyrocket as well - The same could be said for Japan.

The best trade might be to be long Gold in CHF and JPY at current levels as you would profit from a fall of the CHF and the JPY but have Gold upside

goldinpenguin's picture

at least one of the big swiss banks was gobbling up Fedbucks during the lehman era meltdown and the Bloomberg FOIL lawsuit forced that disclosure, maybe the Fed has gotten more devious and will just flow the bailout funds thru SNB to avoid FOIL law

Pure Evil's picture

Why would they want to swap Swiss Franks for toliet paper?

1984's picture

Because a lot of their clients took big dumps?

Strider52's picture

All of your Swiss Bikini Team are now belong to us.

Central Bankster's picture

Damn all you titty avatars!  I try to read this stuff at work and instead, I find myself looking over my shoulder for co workers.

Little John's picture

  If you're really a central bankster you should, perhaps, be looking over you shoulder for something a bit more alarming.  The rodeo is near.

Little John's picture

  If you're really a central bankster you should, perhaps, be looking over you shoulder for something a bit more alarming.  The rodeo is near.

StychoKiller's picture

Are we talkin' footlong corndogs here?

Bicycle Repairman's picture

Weren't the Swiss big financers of the real estate bubble in eastern Europe?  That can't be good.

CH1's picture

If memory serves, they were... at least one of the big ones.

A pigmenationally gifted swan alert?

mkkby's picture

Did I hear my name?

Ratscam's picture

just came back from a dinner with an MD from CS who got 3 new bosses within 3 months, anymore questions? good bye Swiss major banks. same shit happening at UBS.
told them to cover their vested shares by writing calls and buying puts, they all laughed at me. hahaha the last laugh is the best!
go long gold and silver, the real money, not currency!

Flakmeister's picture

Massive exposure to Poland and Hungary...

trav7777's picture

75% of world debt is denominated in dollars.  40 years of BW has made the dollar like herpes.  You just have to live with it and the inconveniences and pain of occasional outbreaks.

slaughterer's picture

The fact that the SNB used the Fed facility and not one provided by the ECB should be worrying.  It shows how strapped the ECB really is.  Whether the SNB was paid to stand in for another bank (cough cough Soc Gen or Dexia) can only be revealed through extensive forensics.  The Swiss used to be able to protect all inquiry into their FX management, but this time, since it came through the newly transparent, user-friendly Fed, they are caught with the tide going out...  Expected drop in European indices tomorrow: approx. 2%.  BTW, every German banker I talked to today was extremely grumpy.  Guess they were not prepared for the DAX double bottom.     

Spitzer's picture

No.

It shows how the ECB is set on their only mandate, price stability.

slaughterer's picture

The ECB has about 3 different unofficial mandates right now, liquidity being one of them.    

slaughterer's picture

"Price stability" has a wide variety of interpretations for Mr.  finger-at-the-bazooka-before-I-retire Trichet.  ;-)

Mike2756's picture

No kidding. WTF! Is the dollar backstopping everyone on the planet?

New_Meat's picture

Well, for a while, don't cha' know.

Iam_Silverman's picture

"Is the dollar backstopping everyone on the planet?"

Not surprising since the USD is the Global Reserve Currency (for now).

Clampit's picture

Not everyone, just countries with government funded by central bank operations.

StychoKiller's picture

All it takes is one wild pitch to get by the catcher for the run(s) to score!  GAME OVER!

Greater Fool's picture

ECB has its hands full with dollar funding needs of Euro-area banks.

This surprises me a bit. If SNB is intervening by pumping out CHF they would need to buy up at least some USD in addition to EUR to prevent their intervention from driving EUR up excessively against other majors in the process. Anyone who understands central bank FX interventions better than I do want to explain?

A Man without Qualities's picture

Good call - the SNB may very be acting as a conduit to a European bank - in theory, they shouldn't be short of capital.  Or maybe they don't want to have BofA as a counterparty?