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Guest Post: David Versus Goliath – The SNB Against Everybody Else

Tyler Durden's picture


Submitted by Alexander Gloy of Lighthouse Investment Management

David Versus Goliath – The SNB Against Everybody Else

A picture says more than a hundred words, so I wanted to present in graphical terms what happened at the Swiss National Bank over the last few quarters.

Unfortunately, the SNB does not provide foreign currency positions including derivatives on an absolute basis, but here are the unhedged figures:

  • The SNB increased FX positions from less than CHF 100bn at the end of 2009 to 300bn (or 60% of GDP) in Q3 2011. That is a pretty large amount for a small country (boils down to CHF 50,000 for each Swiss citizen).
  • During a turbulent Q3 2011 the SNB enacted a peg with the Euro (1.20) after the Euro briefly reached 1.0067 on August 9.
  • The SNB also bought a lot of USD (doubling its holdings in Q3) after the USD fell to a low of 0.73 on August 9.
  • Overall, the SNB unsuccessfully tried to stem the rise of the CHF versus the Euro since the beginning of 2010, leading to large losses.
  • A break-down of the most important items in the quarterly profit and loss statements by the SNB
  • Gold (yellow) is valued mark-to-market and has a significant impact on the P&L
  • As the SNB invests in foreign bonds (blue), a price impact occurs when yields change
  • The SNB also seems to have a large position in equities (green); in Q3, major stock market indices declined by 11% (SMI), 14% (S&P) and 25% (Dax). Assuming an average decline of 15%, the SNB must have had CHF 20bn invested in order to lose 3bn (as seen in Q3 2011).
  • The largest impact, however, comes from FX positions (red). Over 5 quarters (Q2/2010-Q2/2011) the SNB lost CHF 42bn or 8% of GDP. This is a huge amount, normally seen only during a severe banking crisis (costs of bailout).
  • Here’s a chart of just FX profits and losses (the red bars from the above chart), together with respective exchange rates of the USD and the EUR per CHF:
  • The profits in Q3 and Q4 2011 must stem from the movement of the USD versus the CHF (as the EUR/CHF rate was didn’t change much – thanks to the peg; see right-hand scale for FX rates)
  • Should the peg break, and exchange rates revert to the lows seen on August 9, 2011, the SNB would lose serious amounts of money on foreign currencies as well as gold (assuming gold price in USD being equal; a strong CHF translates into a weak gold price in CHF).
  • To keep it simple, I assume the Swiss Franc would appreciate across the board against all currencies. The SNB currently holds CHF 245bn worth of foreign exchange plus 49bn in gold, so let’s say 300bn. A 10% revaluation would hence result in losses of CHF 30bn, a 20% revaluation in 60bn.
  • The SNB is in a tricky situation. On June 4, the Euro fell again dangerously close to the peg:

  • “Recycling” of Euros into other currencies risks alienating other central banks. Remember, when the SNB announced the Euro-peg, the ECB’s press release was not very cheerful (“took note of the decision”). The SNB cannot expect any love from other central banks, as no one wants to have a strong currency.
  • Should other central banks “fire back”, the SNB stands no chance (due to the small size of Swiss Francs among international currencies).
  • Should the Euro crisis escalate further, the peg will get attacked.
  • It is worth noting that the USD has appreciated versus the Swiss Franc by 31% since the lows of August 2011 due to the Euro-peg (a weak Euro “dragged” the CHF down versus the Dollar):

From a Dollar-perspective the Swiss Franc and/or Swiss assets (real estate) might look attractive at current exchange rates and attract buyers.


Central banks have tried to “manage” currencies in the past. Sooner or later, market forces win. As all other major central banks keep printing additional Euros, Dollars, Yen etc., the SNB looks prone to lose this game. A run on the Swiss Franc could lead to a further increase in prices of Swiss government bonds. Swiss equities however would decline, at least measured in Swiss Francs.


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Mon, 06/04/2012 - 22:33 | 2494603 Newsboy
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I will wait to see what the Swiss have up their sleeves. They are not known for being fools or victims.

Mon, 06/04/2012 - 23:02 | 2494668 Ahmeexnal
Ahmeexnal's picture

CHF is at dirt cheap levels.

Then again, rationality and central banking never mix.


Tue, 06/05/2012 - 00:06 | 2494784 Seize Mars
Seize Mars's picture

The Swiss? You mean the people of Switzerland? Because this most certainly has nothing to do with them. Any more than the FED has something to do with "America."

The Swiss aren't fools or victims? Well, the data suggests otherwise.

We're all fools and victims.

...the cold feeling you get when you realize...'ve been had...

Tue, 06/05/2012 - 00:29 | 2494801 Ahmeexnal
Ahmeexnal's picture

Breaking news: Germany will bail out the eurozone. Print to infinity!

WASHINGTON (MarketWatch) — Germany will ultimately take whatever steps necessary to keep the euro zone intact, said Deutsche Bank’s former Chief Executive Officer Josef Ackermann on Monday.

“If it comes to worst, before the euro zone collapses, everything will be done to bail the euro zone out,” Ackermann said in a late afternoon speech at the Atlantic Council. Read more on Deutsche Bank's CEO handover.

Then he gives clear advice:

“There is no immediate concern about the collapse of the euro-system,” Ackermann remarked.

Which, as we all know, means that exactly the opposite will happen: The immediate collapse of the euro-system.

As much as Germany would like to leave the EZ, by doing so it would be clear to all the reality of the EZ was nothing more than Germany robbing the rest of the EZ countries until it suited them.  War would be next, obliterating once and for all the german imperial elite.  Germany has no choice than to sink into hyperinflation along with the rest of the EZ.


Tue, 06/05/2012 - 01:42 | 2494930 Michael
Michael's picture

With whose money will the European Banks be recapitalized with?

Tue, 06/05/2012 - 01:52 | 2494940 Ahmeexnal
Ahmeexnal's picture

Ludwig Sixpack's money?

The only way they can keep Ludwig Sixpack form rioting is by handing him stein after stein of beer.

Time to go long Tsing Tao, as Germany is about to become the largest buyer of chinese beer!

Tue, 06/05/2012 - 01:50 | 2494942 Michael
Michael's picture

Watch for aristocrats and oligarchs entourages starting to fall apart.

A sign.

Tue, 06/05/2012 - 07:59 | 2495251 LuKOsro
LuKOsro's picture

Still waiting for the EUR/CHF short to pay off ? The swap rates must be killing you.

Tue, 06/05/2012 - 03:36 | 2495014 fx
fx's picture

Losses are meaningless to any bank that can freely print its own money. The SNB could lose 100bn CHF and simply print them anew. Cycle repeats all over again - end of story. A usdchf short at this point still seems a decent idea though - commercials seem to agree.

Tue, 06/05/2012 - 08:01 | 2495254 LuKOsro
LuKOsro's picture

Not really, because not every country is in the USA`s shoes. Not every country has a reserve currency that everyone needs so that they can settle international trade.

Mon, 06/04/2012 - 22:36 | 2494610 Cabreado
Cabreado's picture

If the central banks' intentions were honest and worthwhile, they would be doing fine.

And then they would voluntarily Jump out of the way, with great pride on the way down.

Mon, 06/04/2012 - 22:44 | 2494625 disabledvet
disabledvet's picture

the Hong Kong dollar has been pegged to the US dollar for decades without any problems. Of course "they don't have a Central Bank" which goes a long way towards explaining why they've done pretty darn good all things considered in "keeping it real" as they say. All they have is a currency board. This is obviously "too stupid" for the Swiss who i imagine "fancy themselves smart and all that." Having said that maintaining a currency board is no walk in the park...but since the goal isn't to see how much money you can make being a Central Banker it doesn't involve "how much money in actuality you lost" either. In other words "we're all on the same sheet of music with a currency board." I have read that 70 percent of Swiss citizens are renters...which is absolutely ABSURD. The deflation once it hits Europe will be so massive it will felt for AGES.

Mon, 06/04/2012 - 23:34 | 2494730 Oh regional Indian
Oh regional Indian's picture

True that DA. But HK also has the world's largest Black/Underground Economy. 

I wonder how much these weird territories (Switzerland is clearly one such) like HK, S'pore and the rest of the shady Likmystain and others really skew the world economy with their Under-currents.

My guess is massively.

And spare a tear for the swiss, NOT! Over-armed, over-protected, especially from the great wars...

It's time they really played on the world stage or got off the ride.


Tue, 06/05/2012 - 00:19 | 2494805 JohnG
Tue, 06/05/2012 - 00:23 | 2494812 Ahmeexnal
Ahmeexnal's picture

ORI, Fluke-xembourg is one such place, but they are happy to remain unnoticed.

The national slogan is "nothing ever happens in Luxembourg", as in "nothing going on here, move along"

Tue, 06/05/2012 - 02:48 | 2494982 kkam
kkam's picture

ori, what a load of rubbish! 'black/underground economy' ? you don't know what you're spouting. have u lived in hong kong? the only underground economy there is the criminal element - drugs and related money. there is very little incentive for anybody to be a 'black' business in hong kong since the tax is low and contract law is well respected.

And were the Swiss over-protected? by whom? BY THEMSELVES. It's time you got off the zh stage, weirdos not welcome here.

Tue, 06/05/2012 - 06:38 | 2495115 Cosimo de Medici
Cosimo de Medici's picture

Yes, personal tax rate is 15% and corporate is 14%, or vice versa, right? Very little reason to cheat.

As for the budget, it benefits directly from the peg, since keeping rates low to maintain the peg has produced several bubbles in property and allowed the government to auction land.  And when they run out, somebody fills in some more of the harbor and builds the next waterfront special.  In another twenty years it will be just a creek, no longer a harbor.

Tue, 06/05/2012 - 00:09 | 2494790 Seize Mars
Seize Mars's picture

The reason the HKD has been pegged to the USD is because the locals were easy to strongarm. A currency peg is a method to inject inflation, or rather it's a method of vomiting up money supply and having it impact someone else's lap in the back seat.

So if you call that "without having any problems" then bless you. In fact I've got a bridge you may be interested in.

Tue, 06/05/2012 - 02:50 | 2494987 kkam
kkam's picture

As one who has lived in HK since the time the HKD was pegged to the USD, I can tell you that the locals welcomed the peg. They were not strongarmed.

Tue, 06/05/2012 - 03:47 | 2495023 Cosimo de Medici
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Bingo! Unintended consequences might be considered "having a problem", unless, of course, one's name is Li Ka Shing.

That peg has resulted, among other things, in some of the highest property prices in the world, and is one reason so many HK folks live in 300 sq ft three bedroom apartments that rent for US$3K per month or more, and others live in everything from hell holes to cages.

Skim through the SCMP Property Section and note page after page of cockroach-ridden apartments that are not even cleaned out before the RE Agent shows them, and they often lack stoves, fridges, etc., but go for US$5000 to US$40,000 per month.

"Two bedroom townhouse in Red Hill....easy commute to Central (ha!)....ocean views...won't last long at HK$225,000 per month"

Tue, 06/05/2012 - 11:08 | 2495945 Non Passaran
Non Passaran's picture

Yes real estate prices are high but how is Singapore?
I don't think HK is visibly worse off.
And anyone who's ever bought any real estate in HK has seen his nominal net worth appreciate so I don't think the peg has hurt them a lot.

Tue, 06/05/2012 - 02:59 | 2494991 the tower
the tower's picture

What's wrong with renting?

Mon, 06/04/2012 - 22:46 | 2494631 barliman
barliman's picture


The CHF/euro Peg: Never have so many second guessed so few for no discernible reason

I look at the SNB: FX gain/loss chart and I see the Swiss coming out ahead for the last three quarters. For the six quarters before that they were taking it in the ass.

Since the peg was put in place, many financial wizards have been writing articles saying, "They are doing it all WRONG!"

Well, I guess after people have been used to fucking you over, Switzerland, they are never going to be happy till you let them fuck you again.


Yea, I agree.

Switzerland said to say to the rest of the world,  "FUCK YOU"


Tue, 06/05/2012 - 03:03 | 2494993 Ghordius
Ghordius's picture

I agree with barliman, even though the diplomatic and neutral Swiss would never say it in those terms. The political fight in Switzerland is already ongoing, with the conservatives lobbying for floating and the industries (including tourism and banking) for the floor.

Note that the SNB is a semi-private institution older than the FED (in fact, the FED is a bad copy of the SNB). It belongs mostly to the State's Banks (Cantonal Banks) which belong mostly to the Swiss States (Cantons).

My two cents: the floor will hold as long as needed, no way speculation in the Soros fashion can touch it. It's a question of will, not firepower.

"From a Dollar-perspective the Swiss Franc and/or Swiss assets (real estate) might look attractive at current exchange rates and attract buyers."

I disagree. From a Dollar perspective, everything will look better and better, but Swiss real estate is already at very high prices and often difficult to understand for outsiders (just look at the lowest home-ownership rate of the first world).

Tue, 06/05/2012 - 03:58 | 2495028 Urban Redneck
Urban Redneck's picture

Swiss assets (real estate) might look attractive at current exchange rates and attract buyers-

Swiss property might look attractive in an f/x vaccuum, but the cost of ownership includes subjecting one's worldwide income to Swiss taxation.  Even without the current intentional housing bubble (which is largely the result of structural excentricities in the local market and less the result of CB ZIRP madness induced speculation) Swiss real estate is generally a very unattractive proposition, unless one is actually a natural born and extremely xenophobic Swiss citizen.  Then there is the fact that taxes and maintenance must be paid in CHF, so if the peg breaks, the carrying cost on that vacation home explodes upwards from an already very high level.  CAVEAT EMPTOR.

For a huge portion of those domiciled in Switzerland, renting property makes more sense than buying it.

Tue, 06/05/2012 - 08:08 | 2495223 Ratscam
Ratscam's picture

instead of buying physical Swiss real estate, you rather buy real estate exposure with some stocks of PSP, Mobimo and SPS. There you have your mobile Swiss real estate exposure including yields of up to 3%.

Tue, 06/05/2012 - 05:32 | 2495063 koperniuk666
koperniuk666's picture

Swiss property is not overvalued - It did not bubble;

And is currently undervalued according to Economist;

The build quality should also be factored in - Swiss houses are very well built and built to last.

And prices are rising in Switzerland right now

Mon, 06/04/2012 - 22:48 | 2494635 veyron
veyron's picture

The swiss balance sheet looks like a wedge of swiss cheese: full of holes

Tue, 06/05/2012 - 01:54 | 2494948 Ahmeexnal
Ahmeexnal's picture

You should try REAL swiss cheese sometime.

Mon, 06/04/2012 - 22:51 | 2494640 MikeMcGspot
MikeMcGspot's picture

The Swiss are the ultimate preppers.

They are ready to weather a long storm.

Nations of the world should emulate their example of resilience.

Change memes without a lot of embarrassed cover up.

When the $#S Delta don’t make sense quit your bitchen about the SHTF and PTB,

Move on.

Get medieval on the ass of bull shit.

Be accountable and responsible.

Have integrity and fun .

Or not…

From your Canton wherever it may be.


Mon, 06/04/2012 - 22:54 | 2494646 Poor Grogman
Poor Grogman's picture

Accumulating CHF anticipating the peg to go I don't see too much downside here for the time being.

As far as R/E goes, Ireland has got to be a better deal hasn't it?

Mon, 06/04/2012 - 23:13 | 2494691 MikeMcGspot
MikeMcGspot's picture

Lots depends on how the vote go in Wisconsin tomorrow. Venus is in transit too, the "Watson, market algo will be watching, refactoring to their liking. Me too.


Mon, 06/04/2012 - 23:22 | 2494710 Acorn10012
Acorn10012's picture

Hoping for a clear sky tomorrow at sunset.

Mon, 06/04/2012 - 23:27 | 2494720 MikeMcGspot
MikeMcGspot's picture

I love so how the patterns of astronomy are recalibrated with such precision to leverage history. And the sight of venus dancing across the sun. The story of our people.

Mon, 06/04/2012 - 23:14 | 2494696 Freebird
Freebird's picture

Wanna know, how friggin bad EC has to get before the SNB say ok enough of pegging. Swiss exporters have had a ride for some months at at these levels. Stronger chf equates to internal deflation. Rock & hard place. Where is the line? Answers on a postcard please to "golden bullet" (tm) @ Freebird Central Bank punta com

Mon, 06/04/2012 - 23:36 | 2494736 Yen Cross
Yen Cross's picture

 The " problem" SNB has , is everyone was { LONG} chf last year! ( intervention)  The SNB has to buy euros this time around!

   I suspect the Swiss are short (eur/xau).

Mon, 06/04/2012 - 23:51 | 2494766 blindman
blindman's picture

speaking of david and goliath...
the american citizen is the new indian pt1
john trudell and alex jones
" it is all about energy, think more believe less."j.t.
aka graffiti man.

." it is a disease that travels through the minds
and through the generations."

" if jesus were alive today he would throw up

and never stop." anon?
The Jews Behind US Spy Drones
what won't the state do for pork and
greater influence and power? and which state?
the swiss and italians, and many others,
are falling way behind in the great drone
race of the 21st century. just imagine
the skies the world over full of armed
drones doing surveillance and strikes and
being controlled remotely, perhaps by artificial
intelligence and algorithms of unknown or
unrevealable origin, national security, and also
being hacked by unknown and unknowable sources.
you see, it is security and preparedness that
will settle the minds and lives of the many.
let us get on with it then. you must be brave
in this new world order thingamajig and whatchama-
call it century.
the amount of stupid in the world appears to be
infinite while actual intelligence is rare
perhaps as hen's teeth, it could happen?

Tue, 06/05/2012 - 00:02 | 2494777 Freebird
Freebird's picture

Yes & no. The Swiss have bought Euros to save their exporter & to fend off deflation. So if we were to approach parity usd euro on a disorderly Med default, the SNB has to act rather than get flushed down the same toilet bowl. Capital controls? Nah bs.
My question, what & when? We know where she's going...

Queried from a long Yen hand from 124 & long chf until intervee from 1.17 to the us banana

Tue, 06/05/2012 - 00:15 | 2494799 Yen Cross
Yen Cross's picture

  That was a good post Freebird

  Parity is the last " Issue" that comes to mind. You live in a SAFE HAVEN.   Study the " Barter System". /sarc 


Tue, 06/05/2012 - 00:07 | 2494783 Eireann go Brach
Eireann go Brach's picture

Joe Biden...what part of Africa is Switzeland in?.. Obama.. Jesus Joe, Switzerland is in the Mediteranean!

Tue, 06/05/2012 - 00:09 | 2494789 Freebird
Freebird's picture

& yes, on a long enough timeline short all fiat against the uncivilised yet tradtional barbaric relic ...mmm bitchez no

Tue, 06/05/2012 - 00:22 | 2494811 Yen Cross
Yen Cross's picture

  I was thinking of a new " Hedge fund name"   Pro lapse .com

Tue, 06/05/2012 - 00:20 | 2494809 skepticCarl
skepticCarl's picture

Yea, the Swiss really have it tough, with almost the lowest unemployment rate and nearly highest standard of living of any country on the planet.  And, a postcard beautiful landscape, with reasonable control of its borders.

Tue, 06/05/2012 - 00:26 | 2494815 Yen Cross
Yen Cross's picture

You for-got Cuckoo Clocks, and Chocolate.

Tue, 06/05/2012 - 01:29 | 2494908 Ahmeexnal
Ahmeexnal's picture

what about "free" heroin? yep, they got that too.

Tue, 06/05/2012 - 02:04 | 2494961 Don Diego
Don Diego's picture

Swiss border control? it is not what used to be. They are being invaded like the rest of the West, the Swiss must get on with the program, orders from "above".

Tue, 06/05/2012 - 01:08 | 2494878 Perpetual Burn
Perpetual Burn's picture

This is new? welcome to fiat money...

Tue, 06/05/2012 - 01:25 | 2494900 slewie the pi-rat
slewie the pi-rat's picture

i'm not sure who the author or his management company is about, but he don't know shit, imo

this is correct: During a turbulent Q3 2011 the SNB enacted a peg with the Euro (1.20) after the Euro briefly reached 1.0067 on August 9.

this is backwards: Overall, the SNB unsuccessfully tried to stem the rise of the CHF versus the Euro since the beginning of 2010, leading to large losse  {the SNB isa trying to save the EU currency, for pete's sake!}  [they are bankrolling the EU!]

yes, the FED sold them some beaucoup cheap USDs then, too

the SNB devalued the CHF by 10% on sept 6, 2011, as i recall, did they not, when they announced the recent support level?   i don't know what this guy is up to, but disinfo about what the cBanksters are doing is pretty high up on the list of possibilities. imo

now, it wouldn't be the first time i didn't understand a POV different from mine on the first try, and i apologiZe to the writer if i have my head wedged (again) but this seems incredibly labored and almost as if the man was not around a year ago and is tring to figure out wtf happened from the akashic records, or something

i can name a half-dozen respected writers off the top of my head who see the SNB peg of last year as the beginning of a new phase of heightened centralBankster co-operation ushered in by the sweeping powers given to the benzelbub under frank/dodd/

frankly, the idea that the SNB is gonna be the odd man out and hung out to dry is totally fuking absurd to me

this is like somebody reading the COTS report and trying to deduce wtf blythe's book is~~are you shitting me?  with the unhedged figures only, how could anyone know what this bank is doing, other than working with other central banksters to keep the debt structure functioning given the amount of pure toxicity created by the various RE and mortgage bubbles and ww.frauds.con, and the "checks are in the mail" problems which the EU faces as it now operated, plus guaranteeing bank deposits which no longer exist except in "johnCorzine'sPoche" and M-F global-type "enronesque book-keeping" [as with most fractional reserve bank deposits, if withdrawn as a run]

Tue, 06/05/2012 - 02:47 | 2494981 westerman
westerman's picture

They should just let their currency ride to the top. 1/0 (or nearly zero) is nearly infinity. The poorest man in Switzerland will be able to buy lots of stuff in Euro countries. It would make them very rich.

Tue, 06/05/2012 - 03:38 | 2495015 Dr. Crime
Dr. Crime's picture

While I do not agree with Slewie's comments that the article is poorly researched, I do agree with his premise that the Swiss must cooperate with their neighbors be they centralbankers or politicians. The Swiss need the monies from neighboring countries much that same as any other country that is limited in natural resources. The Swiss media is obsessed with tourism and the real money makers are obsessed with banking. And the Swiss still do make a living providing a safe haven for monies. So they shall continue to make a profit holding others monies, note the negative interest rates on their short-term bonds, while they have to maintain good relationships with future depositors. Trust is a delicate thing to build and so if you are depositing your millions of Euros from your Greek, Spanish or Italian account (or your 10's of hundreds from your Portuguese account), then you have to trust your neighbor. The Swiss are not giving away spiderman  beach towels for new accounts, but they are playing the game of good neighborhood bank.

And the Swiss rent because it is a small country in terms of land and they have strict zoning controls. They recognize the loss of agricultural land to suburbs and are trying, but failing as of late, to curb the spread of suburbia. Housing in Switerland is hugely expensive, but then the Swiss are quite well off, some of the latest numbers show the average, the average mind you, wealth of a swiss household at $603,000. So if they wanted to buy a house, I believe that could do so if they wished hard enough.



Tue, 06/05/2012 - 06:19 | 2495101 slewie the pi-rat
slewie the pi-rat's picture


you don't know me well enuf to be putting words in my mouth and deflecting what i'm writing here, toy-boy

1)  >>>  i didn't say the article was poorly researched you fuking asswipe!  i siad the guy was most probably on an agenda of SPREADING DISINFORMATION about centralBanking

[PASTE}i don't know what this guy is up to, but disinfo about what the cBanksters are doing is pretty high up on the list of possibilities. imo {]

if you can understand what you read, GET THE FUK OUTA HERE

2) >>>  i didn't make a premise that the Swiss must cooperate with their neighbors be they centralbankers or viscious little cunt!  i said this was a cB gameplan and the FED is calling the plays, imo

you are a "deflection" troll and one ingnorant douchebag, too!

STAY AWAY FROM ME and stick with yer ilk, here, son.  you have a severe mental illness and i am not gonna be victimized by a shithead like you

you go ahead and talk about spiderman towels all you want, fuktard.  leave me outa your idiotic pukefest

i do not care for this attention from another fuking professional disinfo screwball here 

go misinterpret somebody who doesn't matter to whoever is paying you toy-boy;  there are so many you can't miss at this point!

Tue, 06/05/2012 - 07:33 | 2495187 Bringin It
Bringin It's picture

Nice cut and thrust Slewie.

Tue, 06/05/2012 - 07:35 | 2495193 Bringin It
Bringin It's picture

BTW, Cosimo [I see Cosimo posting below], Cosimo is totally mixed up about HK.  More disinfo?

Tue, 06/05/2012 - 08:50 | 2495374 slewie the pi-rat
slewie the pi-rat's picture

cosimo is a pretty straight shooter imo

below, he is quite cogent, to me

i think the SNB just devalued, basically, to bankroll [and save?] the EU which they could afford to do, so i don't agree with him, but:

if the EU can keep germany involved as they gut the sovereignty from the "states" of the new "federation", i think the SNB is gonna be quite happy with the new EUR0bonds they end up holding [which will be Reserves, right?]

i saw that stuff about HK;  to me, HK was a colony of theCity till just recently

they have the new asian crimex/ HKmerc gold and silver contracts flying around now, too don't they?  and the "world gold council" keeps reporting how much gold china just keeps buying hand over fist, month after month

so it must be true, right?

Mon, 06/11/2012 - 01:46 | 2513447 Bringin It
Bringin It's picture

Slewie - Yes, agreed, HK has a lot going for it.  Re. Cosmo's comments on what's driving property demand, he's neglecting the obvious special situation.  For wealthy mainlanders who want diversification, there are few avenues available.

Tue, 06/05/2012 - 03:52 | 2495024 Cosimo de Medici
Cosimo de Medici's picture

I'm not sure the peg is going to break.  Would an insurance company write a full no-caveat life policy on someone determined to commit suicide?  Smart money might accept that the SNB is dead set on devaluation and avoid the SFr.

The SNB may have taken a look at the massive (25% of Swiss GDP) exposure of Swiss banks to emerging markets, via SFr loans, and decided the losses from inability for the borrowers to repay exceeds any possible losses incurred by trying to keep the SFr weak.

Then there's the exporters.....

Tue, 06/05/2012 - 04:35 | 2495039 Dr. Crime
Dr. Crime's picture

The Swiss experience with the Hungarian mortgage market last August shows just how far they are willing to go to stablize currencies in Europe. It was estimated that 2/3's of hungarian mortgages were denominated in swiss franc. So when the franc went on a tear last summer, the Hungarians were ready to default. They just couldn't make the mortgage payment. Sound familiar? The Swiss voluntarily pegged the currencies at 180 forint to one franc for the mortgages. At the same time the HUF was trading at 260 to 1 franc on the fx market. They lost some monies experimenting in emerging markets there, but they damn sure are aware of the ramifications of bad neighbor relations and a lesson to be learned about some of the blowback to a strong currency.

For those of us who enjoy pithy remarks "strong currency equals big dick, weak currency equals more pussy".


Tue, 06/05/2012 - 05:30 | 2495062 Urban Redneck
Urban Redneck's picture

Based on my interractions with Swiss women before I got married, I don't think the Swiss would even know what to do with more pussy, let alone what they already have.

Seriously, for all the talk of wunderkind CBs and innate banking ability, the SNB apparently sucks at both jass and strategery- they're playing checkers in a chess world.  The key to the tenability of any CHFEUR peg is the USDEUR cross, ingoring this would be like a lowlander sticking his finger in the dyke and hoping to prevent a deluge, it makes for a cute children's fairy tale, but the engineering isn't sound.  At least the laws of physics could work in William Tell's favor.  Regardless, CBankers spouting fairy tale plans while lacking a viable Reduit do not inspire confidence.  

Tue, 06/05/2012 - 04:53 | 2495046 Yen Cross
Yen Cross's picture

 Post Facto!    1.20 tick-tick-tick.    The Dutch provider must be chomping at Z-Bit?

Tue, 06/05/2012 - 05:59 | 2495083 Dr. Crime
Dr. Crime's picture

I agree with the Redneck that Swiss men may be less attentive to their women than he would think. It is the dilemma of the choice. Americans will go to Walmart and buy a dozen peaches, even if they are hard, unripe and coated with something. "I bought them, I am going to eat them and so I am going to get my monies worth" The Swiss will go to the market and search for the perfect peach. Buy one, take it home and admire it before cutting it into six slices. So in terms of women, they search for one perfect peach and disregard the rest. Americans come along and scoop up the culls? Or is it we prefer quantity?

In terms of fx, however, the remark still stands. You can wag a strong currency around and buy all the things you want, but little actual intercourse takes place. Weaken your currency and people want to trade with you; you may think you are getting fucked but isn't that the goal of sex?

Tue, 06/05/2012 - 07:43 | 2495210 Urban Redneck
Urban Redneck's picture

My long held view on the CHF is that the peg is a necessary evil, because the SNB management is mediocre at best. In an ideal world, where Central Bankers actually serve the national interest, they should be treated as sheep dogs, even circumstances of prosperity; they should be burnt at the stake for being caught unprepared, and never venerated.

The only thing that is a safer short bet than a face-fuck IPO, is an organization headed by "the smartest guy(s) in the room." Before WorldCom, there was LTCM, and how much did it cost Herr Dr. Gloom Boom & Doom to honorably extricate himself from Drexel? Putting Alan ZIRPspan, Mr. GoldmanSucks & Fat Larry on the cover of Time and proclaiming them “the men who saved the world" should have given more thinking people pause to take a closer look at the ingredients of CFMA, the repeal of Glass-Stegall, and rest of their witches’ brew of snake oil cures.

The CHF peg is the brain fart of an F/X PoliSci wunderkind who served on the SNB board since 2003 and yet didn't foresee any problems with the denomination of eastern Europe's mortgages in CHF or UBS & CS taking outsized derivative positions. Jordan wasn't quite as venerated as his predecessor, but has been at the SNB just as long and was caught just as off guard. 

There are things that SNB should be doing and should not talking about publically, but if they were actually doing them Hildebrand would not have been forced out.  There are things that SNB could be doing which would reduce the balance sheet risk and restore balance to the f/x markets.  Instead, they chose to run the Greenspan/Bernanke/Traditional-bitch-of-the-big-banks playbook.  William Tell didn’t chose to split an apple on Walter’s head.  The stakes for the SNB are just as high, but their acumen in banking doesn’t appear to approach Tell’s in marksmanship.  To make the current F/X peg strategy work the SNB has to take the balance sheet with which they have been entrusted to the roulette wheel and continually place red/black bets correctly (JPY being green).

As for the women in Switzerland, mine was married when I met her.  Being an avid hunter and ex-banker- I still take what I want and keep what I kill, which is- nothing that isn’t fine enough to be taken to the taxidermist, stuffed, and mounted for posterity.  When the bankers called me scary smart, I had to finally accept that I was a BSD and move on to a more honorable profession when an opportune exit presented itself, even if I left a few years early and left a lot on the table when I walked away.

Tue, 06/05/2012 - 07:05 | 2495142 fredquimby
fredquimby's picture

The SNB also bought a lot of USD (doubling its holdings in Q3) after the USD fell to a low of 0.73 on August 9

I seem to remember everyone laughing at the Swiss for buying Dollars last year.....

Today rate is at 0.9657 so they won that one!!

And now they are buying EUROS Hmmmmm



Tue, 06/05/2012 - 09:21 | 2495542 defcon
defcon's picture

Guys, defending a peg when everyone wants to buy your currency is not a big deal. You just print more and you are done. No risk of inflation since the CHF are hoarded elsewhere and not spent on the Swiss market. No risk of losses because you are giving your printed stuff in exchange of someone else's stuff. The problem is for the countries that need to defend their currency on the other way, when everyone else is selling and the central bank needs to buy his own paper using real assets or foreign reserves. The Swiss have nothing to loose in this game. It's the idiots that accept their paper that can only lose, since the CHF can only drop in value from the current point.

Tue, 06/05/2012 - 11:18 | 2495987 Urban Redneck
Urban Redneck's picture

Cost of Booze - UP

Cost of Cigarettes - UP

Cost of Food - UP

Cost of Housing - UP

Cost of Gas - Flat to Down (depending on the specific timeline)

Cost of Public Transportation - UP

Cost of Insurance - UP

Cost of CRAP to fill one's Housing with - UP

Walks like a duck and quacks like a SWISS INLFATIONARY duck...

Tue, 06/05/2012 - 17:06 | 2497397 Dr. Crime
Dr. Crime's picture

Sorry, but you suck too you incoherent drunken ranter Slewie. Try to write better with some sense and others will be able to comprehend your discourse rather attempting to assist the hopeless. First rule rules.

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