Guest Post: "With Immediate Effect"

Tyler Durden's picture

From Simon Black of Sovereign Man

"With Immediate Effect"

Holy Red Screen, Batman! If you haven’t seen the news, the Swiss National Bank has just announced that it is putting a ceiling on the franc’s appreciation against the euro… effectively abandoning its economic sovereignty and putting its future in the hands of woefully corrupt and incompetent bureaucrats.

On the news, the franc fell off a cliff, dropping almost 10% INSTANTLY. Gold priced in Swiss francs jumped from 1497 to 1620 per troy ounce, all in about 45 seconds.

Precious metals are now all alone as the only forms of sound money that are truly safe havens.

Just 6-weeks ago on July 27th, in a letter entitled “Should I buy gold at its all-time high”, I wrote:

“Even stronger currencies like the Swiss franc have limits to their appreciation. At some point, the Swiss National Bank will impose capital controls to thwart the rise of its currency. . . [Y]ou’ll probably feel like a sucker for not buying gold at $1600 when you still had the chance.”

Since then gold has soared roughly 20%, and as of this morning, the SNB has imposed capital controls to thwart the rise of its currency.

This is just the beginning.

The Swiss government has basically told the world that they will print as much money as it takes, and buy up as much crap sovereign debt as they can, to competitively devalue the currency.

This essentially puts Switzerland in the same sinking boat as Italy, Greece, and Portugal… with one key difference: Switzerland has 0% interest rates.

In other words, you can now borrow in francs at 0% and buy government-backed euro garbage yielding 5%, 10%, 30%…. with absolutely no downside currency risk.

Here’s a practical example you can do– open a FOREX trading account and borrow Swiss francs at 0.5%. Buy the EURCHF cross and simply hold euro cash, paying 0.65%. At 100:1 leverage (quite common in FOREX trading), that translates into a 15% return simply for HOLDING CASH with no downside currency risk.

It’s free money, courtesy of the Swiss National Bank. I’m just waiting for the next wave of margin hikes. Needless to say, this is utter madness and will absolutely hasten the end game for Europe.

A few other points to make:

1) Big Swiss exporters like Novartis and Nestle are dancing a jig right now as this will surely boost their sales in the short-term. Also, banks in Switzerland and Austria who had heavy exposure to Eastern Europe are breathing a sigh of relief right now.

You see, Swiss interest rates have traditionally been lower than in Europe’s emerging economies. For example, many Hungarians took out mortgage loans in Swiss francs because the borrowing rate was so much cheaper.

Once the Swiss franc began to rise, however, borrowers had a difficult time paying back the loan; suddenly their mortgage payment and balance were much higher than before, and default rates soared.

Banks in Austria, Germany, and Switzerland who wrote most of the loans were sitting on huge potential losses… and this destruction to the financial system has been mitigated thanks to today’s move. I have to imagine this had some influence in the decision.

2) For all the talk of a pullback in gold, this is only further reason for a rise in precious metals. It’s true that nothing goes up (or down) in a straight line, but given that the world just lost nearly its last remaining safe haven currency, there are few other asset classes to turn to.

3) Markets are not functioning properly. Competitive devaluation means that governments are all striving to out-print each other… Europe is printing as much as they can to bail out the PIIGS, Switzerland just signed up to join then, Japan and China are not far behind, and QE3 is set to launch soon in America.

With so much money sloshing around the financial system, there is absolutely no sense of value anymore; people cannot invest with confidence given all the massive bureaucratic intervention.

4) In the Swiss National Bank’s brief statement, they said “With immediate effect, [the SNB] will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”

The three key words here are ‘WITH IMMEDIATE EFFECT’. This is just another example of a government making instant changes that pose dramatic risk over people’s lives and livelihoods.

Make no mistake, we can all wake up tomorrow to a new reality.

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maxmad's picture

You can't eat the ETF GLD!

Pladizow's picture

Jim Rickards book - "Currency Wars" will be a timely read.

12/21/12 here we come. Not the end of the world, but simply the end of the economic/financial world as it has been known.

tradewithdave's picture

I disagree. With HKMex and PAGE coming online, this SNB move marks the end of the currency war, not the beginning.

All that remains is the petro dollar protected by U S military might and the nationalization or plundering of gold and silver mines.

Now we're harmonized so no one can arbitrage the global mergers; one for the East, one for the West all pivoting on a gold see-saw until you wake up one morning to the reset switch flipped over a holiday weekend.

Dave Harrison
www.tradewithdave.com

Pladizow's picture

REALLY!!!!! - "...the end of the currency wars...."

Your comment could easily be the most stupid comment I read today.

bid the soldiers shoot's picture

And you don't think we're there now, because?

Thomas's picture

You can eat Nestles. 

Snidley Whipsnae's picture

"You can't eat the ETF GLD!"

I was curious about this oft heard remark so I tried eating some... It gave me indigestion followed by nausea, constipation, flatulence, extreme erections, migraine headaches and the runs... but it doesn't taste bad with A1 Sauce...

MayIMommaDogFace2theBananaPatch's picture

This sounds like something BigPharma would definitely be interested in developing!

Snidley Whipsnae's picture

LOL... Matter of fact, I was repeating a warning accompanying a bigpharma add heard on tv...

Why would anyone, after hearing the warning, take that stuff??? Death wish?

maxmad's picture

Make no mistake, we can all wake up tomorrow to a new reality.

 

Wow where's the mushroom cloud?

cossack55's picture

Awaiting new nuclear CDO/CDS issuance.

spiral_eyes's picture

Currency wars are hilarious. People need to look at the real underlying figures that governments can't massage with QE.

Priced in gold, bitchez.

http://azizonomics.com/2011/09/06/america-priced-in-gold/

 

Gmpx's picture

CERN created a black hole finally?

DogSlime's picture

Probably about 12 months into the future from here.

Bullish for sunblock?

doomandbloom's picture

"Wow where's the mushroom cloud?"

here. look at my face

youngman's picture

"Make no mistake, we can all wake up tomorrow to a new reality"

I agree...it will be an overnight policy change...done on a weekend...that changes everything...think Belarus....

j0nx's picture

Which is why nobody should be investing in this market or have anything to do with it. It is and has been a rigged game for 3+ years now.

falak pema's picture

The great psy war "save the Euro from becoming the Titanic" begins!

This will send a CLEAR signal to the German supreme court : Fellas we ARE ALL iN THE SAME BOAT...ALL EU ZONE. SO pull your finger out, feelen dank and tout de suite!

Banking cabal, in Europe, to save the five legged cloned sheep called Dolly EURO! 

Wow, let the games of currency war begin. Herr Merkel, Zurich calling you loud n clear!

cossack55's picture

You may mean Frau Merkel, but maybe not.

Ratscam's picture

still no indication on the amount of EUROS the SNB bought?
propaganda works!

Gringo Viejo's picture

Gimme Shelter...........................

max2205's picture

A lot of Forex blow ups....and liquidation to follow shortly in other assets...rinse repeat

Josephine29's picture

Another problem with this move by the Swiss is explained below

One of the causes of this situation has been the carry trade which mostly took place in the middle of the last decade where both Swiss Francs and Japanese Yen were borrowed heavily in many countries. This depressed the currency then and its partial unwind is raising it now. So how is creating the conditions for it again going to help? You see one cause was low interest rates which, ahem, are now negative and the exchange rate has just been effectively pegged against the Euro reducing currency risk too!

So carry traders have an implicitly pegged exchange rate versus the Euro and negative interest rates in what one might consider to be a type of carry trade heaven!

http://www.mindfulmoney.co.uk/wp/shaun-richards/the-ecb-and-the-italian-government-are-playing-high-stakes-poker-so-why-has-switzerland-just-joined-the-poker-players/

Yes they have just created conditions for the carry trade to thrive again! And this is one of the things which created this problem...

Catullus's picture

I will create "stability" by causing the FX market to move 10% instanteously.

These motherfuckers just sank Europe's life-raft.

newstreet's picture

Carthago delenda est.

bid the soldiers shoot's picture

SPQR = TPTB

CARTHAGE = GOLD AS CURRENCY

BATTLE AT ZAMA = GOLD FAILING @ $2000

HANNIBAL = T. DURDEN

SCIPIO = B. BERNANKE

PontifexMaximus's picture

lets wait til currency res. of the SNB are mounting north of CHF 350 Mrd. Probably at this very moment Mr. P. Hildebrand will have a problem although he has the political backing for the moment. Looks like GS made the call to clients about going long USD and EUR dumping CHF....before the action obviously 

topcallingtroll's picture

Since Goldman Sachs has spies in every central bank and every government treasury office it is easy for them.

I suppose this is the ultimate form of regulatory capture.

Will trading on inside info ever be prosecuted again?

Oh I forgot. Prosecutions are for little people and mid level independent hedge funds.

chinaguy's picture

Currency intervention, I'm shocked

SheepDog-One's picture

Yea lets 'invest' in ham fisted total central govt control everywhere....this should end well.

Central Wanker's picture

Yesterday, you could go to CHF or Gold for a safe haven. Today, you just have... Gold!

Oh regional Indian's picture

When the trade looks so good, it's probably really bad for you. No such thing as a free lunch in money/forex markets. If the swiss can peg (a 7 sigma event as someone said) then China can surely de-peg?

No safe havens, no free lunches. This is a preservation of capital time. Leave the mad swing trading tot he madmen with inside knowledge.

V

http://aadivaahan.wordpress.com/2011/09/05/water-branding-and-thoughts/

SheepDog-One's picture

Gamble the 'sure trade' against the Maniacal Monetizers and insane desperate central planners....no thanks not me I'm out.

ManufacturedOpinion's picture

That is a lame article by Oh Regional Indian.

I suggest y'all just skip over the spam.

Oh regional Indian's picture

Newbie, are you going to be my troll bitch? 

V

Ancona's picture

WOW!

I'm 'gonna make some popcorn and sit back to watch the show today. This should be good!

Snidley Whipsnae's picture

dow futures down 252... sp futures down 30...

Yes, should be an entertaining day... for those clever rascals sitting on the sidelines with physical gold...

gwar5's picture

Good morning, Sovereign Simon.  

 

All of the rapidly changing events and bizarre goings-on are banker primal screams of DESPERATION. Lack of signals to the market before radical shifts in policy indicates to me that they are so desperate they no longer even care if everybody knows they are just making it up as they go along. This is all so FU.

 

 

 

 

SheepDog-One's picture

Everyone is now totaly desperate, and CNBC and Bloomberg arent even reporting on any Eurozone market collapse or currency mayhem or the fact we're opening near -300 down. Anything to keep 401K robots calm. 

Withdrawn Sanction's picture

"Lack of signals to the market before radical shifts in policy indicates to me that they are so desperate they no longer even care if everybody knows they are just making it up as they go along."

Spot on. "desperation" and "Swiss" are 2 words not usually associated w/ea other. Double whammy.

Quintus's picture

Hildebrand has essentially just bet the entire Swiss economy on a strategy of doing an 'Unlimited amount' of the very thing he has tried many times before yielding nothing but failure and massive book losses.

Central Bankers are a conservative lot.  Swiss Central Bankers even moreso.  This decision can ONLY have been taken in the light of there being absolutely no alternative.

This is 'Last roll of the dice, all or nothing' stuff, and CBs just don't do that.  Unless the 5% chance that this will not result in the total hyperinflationary collapse of the Swiss economy looked like good odds when compared with the alternatives.

The SNB just sounded the 'Abandon Ship' alarm folks.  Whatever is going on behind the scenes in the Eurozone is about to blow up.

Pretorian's picture

Look EUR?USD some 1 woke up Bernanke to reverse margin call since cant do shit on eur/chf/. 300 pips up 300 pips down.  CRY GOLDY BITCH CRY

 

 

 

lolmao500's picture

With immediate effect, they raise the margin on silver and gold yet again in Shangai.

oogs66's picture

if qe2 worked because it devalued the dollar, actions like this won't help

 

NuYawkFrankie's picture

As the ground trembles, as we stare into the abyss the rush is on to that Uber Safe Haven, that paragon of virtue, that anchor in a sea of instability, that timeless asset recognised as such since antiquity... well, since 1945 at least (no, not gold Virginia... but nice try my dear, now run along) - the US Dollar!  Take a bow UNCLE BUCK!

All those Swissie promoters/hustlers/idolators (good morning Marc, Gerald, Robert, Bob Steve...)  just got a royal kick in the bollocks - OUCH!

Oh my! No one can say that the gods don't have a  sense of humor! Too funny for words! LOL!!!

 

GoldBricker's picture

Prisoners of the system! Love the avatar!

Rusty Shorts's picture

...ah yes, the US Dollar, the mark of the Beast Bitchez.

 

ECONOMIC THREAT LEVEL

Harmonious. :)
Content. ;)
Indifferent. :-
Discontent. :/
Almost fucked. :( 
Totally fucked. :0 -------------You are here------------

Max UK's picture

Gerald Celente already announced on KWN that he is out of the CHF, and now 100% into gold, as being the only safe haven. He saw the writing on the wall regarding the Swissie, and communicated that publicly.

topcallingtroll's picture

"You can borrow swiss francs at zero percent interest"

No I cant. Only the banks and the politically connected wealthy can.

It is now the perfect carry trade currency for insiders. The swiss ventral bank has made it clear thete is no downside risk, for now.

I can get a 5.25 percent rate. I suppose I can pick up a few crumbs the oligarchs dont want, but not without risk in my case.