Swiss National Bank

Central bank policy is creating liquidity.  Wrong --- the growth in broad money is slowing across the world.
Central bank policy is allowing a frictionless de-gearing. Wrong --- debt to GDP levels of almost every country in the world are rising.
Central bank policy is creating inflation.   Wrong --- inflation in most jurisdictions is now back to, or below, the levels recorded in late 2009.
Central bank policy is fixing key exchange rates and securing growth.  Wrong --- in numerous jurisdictions this exchange rate intervention is slowing the growth in liquidity and thus the growth in the economy.
Central bank policy is keeping real interest rates low and stimulating demand. Wrong --- the decline in inflation from peak levels in 2011 means that real rates of interest are rising.
Central bank policy is driving up asset prices and creating a positive wealth impact which is bolstering consumption. Wrong --- savings rates have not declined materially.
Central bank policy is creating greater financial stability. Wrong --- whatever positives impact central banks are having on bank capital etc they have failed to prevent the biggest emerging market debt boom in history.

Different elements are rapidly changing within the global monetary complex...

Swiss interest rates were already the lowest in the world before The Swiss National Bank de-pegged from the Euro last week but in the ensuing few days, investor demand for the 'safety' of Switzerland has collapsed the yield curve to levels thought impossible just weeks ago...

As we further showed, the bulk of foreign demand for New York's most expensive properties, originated in China, Russia and various other oligarch-controlled nations, where the impetus to launder illegally obtained hot money meant an impulse to buy US real estate sight unseen and virtually at any price. And all of it, of course, all cash. No mortgages.  That onslaught of foreign oligarch demand is ending, and with it so is the bubble that luxurious New York real estate found itself in on the back of some $12 trillion in central bank liquidity created out of thin air in the past 6 years. Business Week cites Manhattan real estate agent Lisa Gustin who listed a four-bedroom Tribeca loft for $7.45 million in October, expecting a quick sale. Instead, she cut the price this month by $550,000. “I thought for sure a foreign buyer would come in"... They didn't.

Who will ultimately benefit from the action? Will it be the people of Europe or only the mega-rich? For whom, we have continuously pointed out QE has greatly benefitted and as Alan Greenspan recently pointed out – QE has been a “terrific success.” The intensification of currency debasement and currency wars shows the increasing importance of owning physical gold coins and bars.

Laugh if you want to.  Cry if you want to, but the bull market for the US dollar has legs and life. 

The old joke is "In America, you correct newspaper, but in Soviet Union, newspaper corrects you.” Switzerland is now experiencing the bond market equivalent.

Major central banks claim to be independent, but they are totally under the control of politicians. Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that’s all well and good in principle until the economy spins out of control – at zero-bound growth and rates central banks and politicians becomes one in a survival mode where rules are broken and bent to fit an agenda of buying more time. What comes now is a new reality...

Ahead of today's Turkey central bank decision, consensus was expecting no change in either the benchmark repurchase rate (at 8.25%), nor the overnight lending and borrowing rates (at 11.25% and 7.50%, respectively). And then, out of the blue, the Turkish deputy Prime Minister was kind enough to inform markets precisely what non-consensus move the Turkish central bank will do today: TURKEY SEES RATE CUT TOMORROW BY CENTRAL BANK, DEP. PM SAYS.  Sure enough, moments ago we got confirmation that when it comes to "independent" central banks leaking information to so-called heads of state such as France's Francois Hollande, Turkey is not far behind:  TURKEY'S CENTRAL BANK CUTS BENCHMARK REPO RATE TO 7.75%

As we noted last week, the Swiss National Bank's decision to un-peg from the Euro (thus strengthening the CHF dramatically) will have very significant repercussions - not the least of which is for Hungarian and Polish Swiss-Franc-denominated mortgage-holders. The 20% surge in Swiss Franc translates directly into a comparable jump in the zloty value of loan principles and and monthly payments for about 575,000 Polish families owing a total $35 billion in mortgages denominated in the Swiss currency which has prompted calls for Poland's government to bail them out. Never mind the FX risk, the low-rates were all anyone cared about and now yet another 'risk-free' trade has exploded, Deputy PM Piechocinski says, if the franc "remains above the 4 zloty level, the government may provide support" to debtors but Poland's Central Bank is not supportive of the bailout.

The world of investing as we’ve come to know it is over. Financial markets have been distorted to such an extent by the activities, the interventions, of central banks – and governments -, that they can no longer function, period. The difference between the past 6 years and today is that central banks can and will no longer prop up the illusionary world of finance. And that will cause an earthquake, a tsunami and a meteorite hit all in one. If oil can go down the way it has, and copper too, and iron ore, then so can stocks, and your pensions, and everything else.

It appears the actions of the Swiss National Bank have prompted questions for all central banks as cash squirts away from the looming Euro crash (if France's Hollande is to be believed) to any and every other currency. As the Danish Krone rallied to its strongest in 10 years against the EUR in the last few days, worries over the currency breaking its peg have apparently prompted the Danish Central Bank into action:

• *DANISH CENTRAL BANK CUTS DEPOSIT RATE TO -0.2% FROM -0.05%

The immediate reaction was DKK weakness, but that has been completely unwound and follows worrying reassurances this week from Oestergaard that "Denmark's Krone peg to the Euro is secure."

Everyone loves a good conspiracy theory debate. Regardless of whether you argue for it, or against, there are times when suddenly the ramifications for plausible truth are realized that overshadow the conspiracy. This is where the plot of truth can get far more sinister than the imagined conspiracy ever could.

My conclusion is that the SNB deliberately screwed the market, and in the process shot itself in the foot for 30-50 billion dollars. What were they thinking?

We’re getting back to normal, and though normal’s going to hurt – and far more than you realize yet - it’s hugely preferable to upside down; you hang upside-down long enough, it makes your brain explode. The price of oil was the first thing to go, central banks are the next. And then the whole edifice follows suit. The Fed has been setting up its yes-no narrative for months now, and that’s not without a reason. But everyone’s still convinced there won’t be a rate hike until well into this new year. And the Swiss central bank said, a few days before it did, that it wouldn’t. And then it did anyway. The financial sectors’ trust in central banks is gone forever. And none too soon. Now they’ll have to cover their own bets. If anything spells deflation, it’s got to be that. But not even one man in a thousand understands what deflation is.