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Two Opposing Views On The SNB Intervention, Or Rather One View (Goldman's) And One Cartoon

Tyler Durden's picture


When it comes to a simply horrible FX forecast track record, nobody beats Goldman's Thomas Stolper, who for the longest time was beating a drum that the EURCHF is fairly valued at 1.44 (and still does). It only took a massive central bank intervention (and one which will fail shortly, just as it did a year ago), to get the pair halfway to his target, and by the looks of things, even the 1.20 support will be breached quite soon, once the SNB's balance sheet loads up with a few hundred billion worthless EURs and Switzerland realizes that the trade off of exports for German dominance (and US the year before) is not worth it. That will take place in a few days to weeks. In the meantime, here are two opposite takes on what will happen in the meantime: the first, appropriately enough, from Stolper, who again beats the 1.44 EURCHF drum, and the second, a cartoon from Alex Gloy of Lighthouse Investment, which summarizes the "downside" case.

From Goldman:

The SNB committed this morning to a minimum EUR/CHF exchange rate of 1.20. Such a one-sided commitment implies a willingness to undertake unlimited CHF selling intervention and hence unlimited FX reserve accumulation.


This is a credible policy as long as the authorities are prepared to accept the liquidity implications of this potentially very large intervention. However, given the SNB’s recent commitment to oversupply the CHF money markets with liquidity, the new policy mix is consistent and can potentially be maintained until inflationary pressures materialise. Given the substantial overvaluation even at EUR/CHF 1.20 (GSDEER fair value is 1.44) and the anecdotally-observed declines in import-related retail prices, the risks of rising inflation seem remote currently. Political support for this measure is much higher now than last year, given the extreme moves in the CHF in recent months. This likely implies a stronger commitment than during the 2010 intervention.


Beyond the immediate impact on the CHF, the FX market may be influenced by SNB reserve allocation decisions. Most intervention will likely take place in EUR, and hence there could be the need to diversify the newly accumulated reserves into other currencies. The SNB followed this strategy after the last round of EUR/CHF intervention in the 1.50 area. According to the SNB's latest Annual Report, the currency breakdown of FX reserves is EUR 55%, USD 25%, JPY 10%, GBP 3%, CAD 4%, Other (DKK, AUD, SEK, SGD) 3%.


In theory, this diversification could put some downside pressure on other EUR crosses. However, the diversification impact should not be over-emphasised. First, there was no notable FX market impact of the diversification in the second half of 2010, which followed a sizable increase in SNB FX reserves of more than CHF100bn. Second, the diversification move can be spread out over time and be delayed by months after the underlying intervention.


Overall, we therefore expect the impact on FX markets of today’s announcement to be limited to the Swiss Franc.

And, the flip side, from Alex Gloy:


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Tue, 09/06/2011 - 12:15 | 1638534 GeneMarchbanks
GeneMarchbanks's picture

That's funny! Also, kinda sad.

Tue, 09/06/2011 - 12:19 | 1638552 wang (not verified)
wang's picture

Ron Paul on Bloomberg TV with Tom Keene between  12:20 and 1pm

Tue, 09/06/2011 - 12:22 | 1638562 JW n FL
JW n FL's picture


the show will not be uploaded to youtube after and will be destroyed so no one can see it ever again! LOL!!

Invisable Ron Paul shall be scrubbed from any and all hard drives!

Tue, 09/06/2011 - 12:46 | 1638643 trav7777
trav7777's picture

we've always been at war with Eastasia

Tue, 09/06/2011 - 12:59 | 1638689 spiral_eyes
spiral_eyes's picture

I'm really happy about the SNB decision. They just destroyed the last fiat haven (Krugman would say treasuries are still a haven, except that when priced against gold they're not). Hastens the Keynesian endgame, bitchez

(and UBS — who are sure to appreciate the "boost" — told us yesterday about Keynesian endgames) 

Tue, 09/06/2011 - 13:11 | 1638717 Miss Expectations
Miss Expectations's picture

JL, they scrubbed dutchsinse from Youtube yesterday.

Tue, 09/06/2011 - 20:00 | 1640138 RagnarDanneskjold
RagnarDanneskjold's picture

Ron Paul interview is on YouTube:

Tue, 09/06/2011 - 13:52 | 1638819 Shrimp Head
Shrimp Head's picture

Like dancing clowns on fire.

Tue, 09/06/2011 - 12:17 | 1638543 Mediocritas
Mediocritas's picture

Overall, we therefore expect the impact on FX markets of today’s announcement to be limited to the Swiss Franc.


Tue, 09/06/2011 - 12:25 | 1638573 Mountainview
Mountainview's picture

Remember George Soros' fight against Pound Sterling... Expect GS to do the same with CHF!!!

Tue, 09/06/2011 - 12:46 | 1638642 Ghordius
Ghordius's picture

It's not a peg, it's a floor. You can't fight it...

Tue, 09/06/2011 - 12:50 | 1638659 outsidertrader
outsidertrader's picture

Soros was selling an overvalued currency whose central bank was trying to maintain the cuurency level. Thus the Bank of England had to sell foreign exchange reserves and BUY sterling---clearly the BOE's FX reserves are not unlimited so the intervention failed. The SNB is doing EXACTLY the opposite--it is SELLING CHF and is not limited by the size of it's FX reserves. IT can sell as many CHF as it wants to. The two examples are diametrically opposite.


Tue, 09/06/2011 - 13:22 | 1638750 Mountainview
Mountainview's picture

I think the cartoon explains it well. Obviously the SNB can create money at discretion. But if they create it out of reasonable relation to other macro economic figures (GDP, Credit market) they will create distortion in other markets. This is already visible in form of a real estate bubble.

I would recommend the SNB to peg to a trade weighted basket or to separate commercial and financial CHF.

To fix a target against an obviously sick currency is a bad idea.

Tue, 09/06/2011 - 13:36 | 1638766 Ghordius
Ghordius's picture



They will soon debate in parliament about a second currency, the talk in Switzerland is about a "Gold Franc".

This is handy since they coined in the last century some fifty millions of the famous "Gold 20 SFr.", aka "Vreneli", which is identical in weight (some 6 grams - roughly one fifth of an ounce) with all the other historical Gold 20 Francs which France and other European Countries coined.

Now this could be fun - an Exchange Tradable Swiss Currency fully backed by gold and which you can "enjoy" in small coins...

Tue, 09/06/2011 - 13:39 | 1638781 Ghordius
Ghordius's picture

Sorry, the EUR is not sick.

I repeat: it's all well with the ECB.

The trouble in the EuroZone is not (yet) in the currency, it's in the gov debt. Which does not translate into currency troubles (yet).

Tue, 09/06/2011 - 13:43 | 1638796 Mountainview
Mountainview's picture

If a central bank starts to buy massively sovereign debt (Like the ECB in the case of Greek, Irish, Portuguese, Spanish and Italian debt, in the case of the FED of Treasuries) it's a sign of currency sickness. The SNB has no need to buy Swiss debt.

I go with your Gold CHF...

Tue, 09/06/2011 - 14:30 | 1638986 outsidertrader
outsidertrader's picture

It's a cap not a peg. But nevertheless I agree that it would make more sense to cap against a basket. Still, for the moment, although the euro is in my opinion a very sick concept, it is not in fact particularly sick in terms of fx rates. both eur/$ and eur/gbp are very slightly above their average for the last 12 months. The fact is that the chf is grossly overvalued by any rational measure against all other majors. i believe that this is entirely due to the perception that is a safe haven. take away that notion and why would anyone buy chf at these levels?


Tue, 09/06/2011 - 15:33 | 1639242 Mountainview
Mountainview's picture

Correct, remain Norwegian Crowns, Yen, the final undervalued currency--RENMINBI and real commodities -GOLD. Renmibi you have to buy on the blackmarket and in the case of commos you should insist on physical possession...

Tue, 09/06/2011 - 12:20 | 1638547 topcallingtroll
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Tue, 09/06/2011 - 12:18 | 1638548 swanpoint
swanpoint's picture

Cartoons, Bitchez!

Tue, 09/06/2011 - 12:23 | 1638566 Zola
Zola's picture

Exactly why this market will not bottom until GS goes to 0...

Tue, 09/06/2011 - 12:53 | 1638670 Ghordius
Ghordius's picture

How dare you, mentioning the Holy Vampire Squid, you blasphemer.

To zero? It would be like cutting one head and a hundred new arise.

Tue, 09/06/2011 - 12:24 | 1638570 Archimedes
Archimedes's picture

Europe closes so the market rises 150 points like clockwork............

Tue, 09/06/2011 - 13:14 | 1638727 sbenard
sbenard's picture

Yup! Just like clockwork!

The Fed is welfare for Wall St!

Tue, 09/06/2011 - 12:26 | 1638574 hungarianboy
hungarianboy's picture

I wonder if this will fail at all.



Tue, 09/06/2011 - 12:49 | 1638651 Hephasteus
Hephasteus's picture

Now I don't know what you call funny but ^ is funny.

Tue, 09/06/2011 - 12:28 | 1638581 ramirez
ramirez's picture

<offtopic>Greek 1YR bonds went up in the sky, bitchez:</offtopic>

Tue, 09/06/2011 - 12:30 | 1638585 r101958
r101958's picture

I posted this yesterday and something similar last Friday:

Mon, 09/05/2011 - 12:52

I don't like it but watch out for TPTB selling paper gold to prop up market tomorrow. Another paper gold -100 day. Just like before.

Fri, 09/02/2011 - 09:59

I don't like it but, as I said elsewhere, the TBTF's will sell their paper PM's near the near term top and then prop up the market with the proceeds next week (maybe sooner).

Tue, 09/06/2011 - 12:32 | 1638595 adr
adr's picture

No way they let this market close red today. Not with Amazon up and RIM up. At some point today either the humans or algos are going to win and will getan up or down day but the algos have won more than the humans is this game.

This is again total insanity.

Tue, 09/06/2011 - 13:20 | 1638743 djsmps
djsmps's picture

It's a good day to eat out. OPEN is up too.

Tue, 09/06/2011 - 12:38 | 1638612 Oh regional Indian
Oh regional Indian's picture

The templar safe haven has so much ill-gotten wealth stashed away it would boggle the mind. Over centuries. And now, if investigators are to be believed, just the Indian Political class and gangster class has over 1.5 trillion dollars in swiss accounts.

Think also of all the dead dictators and drug king-pins who have had their money stashed there.

I don't think the Swiss have a liquidity problem. Lots of funds for them to access. Such a major crack-down and noise in India, I think the politico/gangsters will not raise a peep.

That, or the Swiss clock stopped. Or they went cuckoo.


Tue, 09/06/2011 - 16:17 | 1639386 ManufacturedOpinion
ManufacturedOpinion's picture

OMG - yet ANOTHER pump for your lame water article.

Jeezus H., dude - give it a break already.

Tue, 09/06/2011 - 12:40 | 1638615 carbonmutant
carbonmutant's picture

Cats must be sleeping with dogs... this out of Paul Krugman today

"The Peasants Are Revolting... by blaming democracy, the people who have gotten everything wrong are letting themselves off the hook. The elites on both sides of the Atlantic have messed up catastrophically, and need to face that fact."

Tue, 09/06/2011 - 12:46 | 1638639 MsCreant
MsCreant's picture

All hands on deck, all hands on deck!

Captn' she's gonna explowde! She caain't take it any longer!!

Bwwwaaaaap! Bwwwaaaaap! Bwwwaaaaap! Bwwwaaaaap! 

Tue, 09/06/2011 - 13:04 | 1638697 carbonmutant
carbonmutant's picture

That's what you get when you shovel too much fuel into the boilers...

Tue, 09/06/2011 - 13:08 | 1638710 MsCreant
MsCreant's picture

+1 Trillion!

Gosh, do ya think they know? Should someone go tell them?

Tue, 09/06/2011 - 13:22 | 1638747 carbonmutant
carbonmutant's picture

Pitchforks and Torches are usually considered a clue...

Tue, 09/06/2011 - 13:23 | 1638749 Mediocritas
Mediocritas's picture

If you try, they'll just look at you slyly, then shovel you into the boiler.

Tue, 09/06/2011 - 12:45 | 1638637 BigJim
BigJim's picture

The Swiss CB shouldn't be buying Euros.. they should be printing money to buy gold.

Imagine if you could conjure almost infinite currency at will... would you use it to buy other currencies that could also be conjured at will? No, not unless you were fucking stupid.

Tue, 09/06/2011 - 12:50 | 1638655 Ghordius
Ghordius's picture

Do you have any idea what would happen if Central Banks would break their agreement on ignoring the yellow metal?

No way. They will stop ignoring it only when they can't do otherwise - and by then gold will be their only asset.

Tue, 09/06/2011 - 12:48 | 1638645 Tense INDIAN
Tense INDIAN's picture

dollar is looking very strong::

Tue, 09/06/2011 - 12:50 | 1638656 bozzy
bozzy's picture

hang on - I thought I read that the SNB accepts the strong Franc, and will do other things to try to stimulate the Swiss economy.... Holy shit - I am SO out of date - that was at least a day or two ago....

Tue, 09/06/2011 - 12:57 | 1638679 Ghordius
Ghordius's picture

One of the rules out of the old CB Handbook: develop a badass street cred.

Never announce when you are going to strike, never pull your blow.

Tue, 09/06/2011 - 13:07 | 1638704 THE DORK OF CORK
THE DORK OF CORK's picture

Any Central bank can destroy its currency if it wants to - it is not trying to peserve the value of its paper which is much more difficult objective.  - the next stop for CHF holders is Gold Baby.

The SNB wants to see Dollars flowing into Gold  , not into CHF.


Tue, 09/06/2011 - 13:12 | 1638722 MsCreant
MsCreant's picture

Poor central bankers, must be like herding cats!

I hope you are right. That would at least be something that made sense in this insanity.

Tue, 09/06/2011 - 13:26 | 1638756 Ghordius
Ghordius's picture

Hehehe, nice picture, "herding cats!"

I have to disagree with The Dork of Cork:

Central Banks don't want anybody in gold. Meanwhile, gold is the "Fallback Scenario" in case they really, really print too much.

China is fine with it because they control one third of the world's production AND they have a cultural "love" for Au.

Tue, 09/06/2011 - 14:29 | 1638983 THE DORK OF CORK
THE DORK OF CORK's picture

Well 30 years of credit opium is in the system - and they seem to have a aversion to bank default so if that continues its Got to be Gold as this wall of credit is just getting negative real returns.

Tue, 09/06/2011 - 23:16 | 1640709 Alpha Monkey
Alpha Monkey's picture

I thought the Euro had some gold on it's books marked to market.  Wouldn't that provide incentive for directing traffic into gold?

Tue, 09/06/2011 - 21:53 | 1640479 slewie the pi-rat
slewie the pi-rat's picture

hey msC!

when i read about the SNB this morning, i thought about you!  i read a post of yourZ over the weekend where you said someone had devoloped the idea that the dollar would hafta be devalued, and w/in about 48 hours, the swiss devalue the Franc! 

wowser!  what nefarious banksterism!  just last week, the SNB decided not to do this, then the trap is sprung, this morning, before the US markets start up after 3 days.  tyler doesn't think it will last, and neither do i, but as far as jawboning goes, today was practically biblical!

Tue, 09/06/2011 - 13:12 | 1638721 eurusdog
eurusdog's picture

As long as USD is headed up, Au stays soft. I am not saying it falls, it just stays soft at these levels. Good time to look at more Ag and Au purchases.

Tue, 09/06/2011 - 13:39 | 1638782 props2009
props2009's picture

SNB did not need to intervene. CHF was anyways in downtrend and had weakend against the weak euro and the USD after mid aug lows. So why did the SNB intervene?

Earlier today SNB intervened in the forex market, with a lot of heavy words "unlimited quantity", "limited tolerance", "fixed rate", words that you never hoped to hear from a modern sophisticated central bank.

The question on everyone mind is whether the SNB big trumpeting intervention is a trend changing event or is it another losing war that another CB has involved itself after the Japanese central bank. Basically SNB has said this is it and we are now on one side and rest of the world on the other side. We will defend our line of defense.

We are pretty sure they will be tested. And therefore we are going to see heavy volatility in the euro pairs. And we know that vols are not the best catalyst for the bulls. Therefore we continue and wait for the charts whether today SNB action can be take ahe s trend changing event.

What is important to note though is that CHF has anyways broken the 6 month downtrend extending from March 2011 on both the USD/CHF and EUR/CHF charts on all time frames. The low for EUR/CHF was 1.00675 (daily closing) on 9 Aug 2011. The trend was broken in mid August and the CHF has been bouncing off the trend for the last few days/weeks. The latest intervention has now thrown the CHF off that line. We do believe if we see a close above 0.8570 on a daily and weekly basis, then CHF has now entered a bear market for the for see-able future.

Daily charts for EUR/CHF

Weekly charts for EUR/CHF

Daily charts for USD/CHF

The trend was broken in mid August as SNB vocal jaw boning broke the trend. We suspect that the latest round of intervention is a mere technical coincidence as the swissy weakens against almost everything out there. Swiss Franc reported an inflation of -0.3% in August (m/m) after falling -0.1% in July 2011. In our view SNB, did not have to act and USD/CHF was headed 0.9 and EUR/CHF headed 1.2 anyways but it would have taken longer. Therefore, we are not too sure whether this was intended to actually peg the EUR/CHF or were there other ulterior motives like supporting the EURO against the USD and JPY of the world., in which case, we will be watching the EURO volatility charts like a hawk. We also suspect that it may not actually support the EURO over the medium term. It is losing battle that the SNB (read ECB) has entered to defend the EURO.

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Tue, 09/06/2011 - 14:10 | 1638893 greek 83
greek 83's picture

How is euro in a losing battle (unless you mean it dies) when practically all major countries try to devalue their currencies for increased exports/decreased imports.All the major currencies are basically tied and the only factors that could change it (barring a collapse) is a significant difference on inflation or productivity through the countries.

Tue, 09/06/2011 - 14:15 | 1638917 AustrianEconomist
AustrianEconomist's picture

The end of the great debt experiment is nearing and everything is pointing towards a big credit crash coming up. The world’s monetary system needs to be backed by gold in order to move forward with a sound financial system that does not allow banks create money out of thin air. Money should not be based on debt, but on sound intrinsic value.

Check out the latest from the Capital Research Institute (CRI): The Debt End Game

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