The Swiss National Bank Owns $80 Billion In US Stocks - Here's The Catch

Authored by John Mauldin via MauldinEconomics.com,

Switzerland is a small country of just 8 million people, but they make an outsized impact on economics and finance and money.

Because Switzerland is considered a safe haven and a well-run country, many people would like to hold large amounts of their assets in the Swiss franc. This makes the Swiss franc intolerably strong for Swiss businesses and citizens.

So the Swiss National Bank (SNB) has to print a great deal of money and use nonconventional means to hold down the value of their currency. Their overnight repo rate is -0.75%.

That’s right, they charge you a little less than 1% a year just for the pleasure of letting your cash sit in a Swiss bank deposit.

Switzerland Is Buying US Stocks on an Enormous Scale

And the SNB is buying massive quantities of dollars and euros, paid for by printing hundreds of billions in Swiss francs.

The SNB owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).

They have bought roughly $17 billion worth of US stocks so far this year. And they have no formula; they are just trying to manage their currency.

Think about this for a moment: They have about $10,000 in US stocks on their books for every man, woman, and child in Switzerland, not to mention who knows how much in other assorted assets, all in the effort to keep a lid on what is still one of the most expensive currencies in the world.

Switzerland is now the eighth-largest public holder of US stocks. It has got to be one of the largest holders of Apple.

What Happens When There Is a Bear Market?

Who bears the losses?

Print just more money to make up the difference on the balance sheet? Do we even care what the Swiss National Bank balance sheet looks like? More importantly, do they really care?

We all remember European Central Bank President Mario Draghi’s famous remark, that he would do “whatever it takes” to defend the euro. We could hear the Swiss singing from the same hymnbook soon.

Central Banks and Governments Exacerbate the Bubble

The point is that central banks and governments are flooding the market with liquidity all over the world.

That’s showing up in the private asset markets, in stock and housing and real estate and bond prices. It creates an unquenchable desire for what appear to be cheap but are actually overvalued assets—which is what creates a Minsky moment.

Now, remember what Minsky said: When an economy reaches the Ponzi-financing stage, it becomes extremely sensitive to asset prices. Any downturn or even an extended flat period can trigger a crisis.

While we have many domestic issues that could act as that trigger, I see a high likelihood that the next Minsky moment will propagate from China or Europe. All the necessary excesses and transmission channels are in place.

The Great Reset Is Close

The hard part, of course, is the timing. The Happy Daze can linger far longer than any of us anticipate. Then again, some seemingly insignificant event in Europe or China—an Austrian Archduke’s being assassinated, or what have you—can cause the world to unravel.

It’s a funny world.

Our central banks and governments exhibit unmistakable herd behavior and continue to do the same foolish things over and over. They never really intend to have the crisis that ensues.

Remember Farrell’s Rule 3: There are no new eras. The world changes, but danger remains. Gravity always wins eventually. It will win this time, too. And when it does, we will begin to undergo the Great Reset.

Comments

Paul Kersey knukles Sat, 07/01/2017 - 15:45 Permalink

Since central banks can create unlimited amounts of money, what's to keep them from propping up asset prices for at least another 35 years? After all, the central bank of Japan has been propping up the country's asset prices for 35 years, and the BOJ will continue to do so well into the future (unless other central banks no longer honor the yen). The Swiss National Bank can continue to buy stocks from any country, with money it creates out of thin air, as long as it wants. Central banks are like perpetual motion machines.

In reply to by knukles

Insurrexion (not verified) Paul Kersey Sat, 07/01/2017 - 16:35 Permalink

Putrid is right...in regard to your real point.Mauldin, imagine there are no markets.Imagine only Central Banks own each other's equities and bond debt.There is fucking nothing preventing them from holding, trading and selling as they see fit, forever. There is no fucking Minsky Moment, there are no fundamentals, no S&P, no shit.Very close to what you have right-fucking-now!Except for one problem.Say, one CB's currency goes full gold backed. Then another, and another. (Name any one).Another goes full oil backed, another goes full silver, full platinum, full Rhodium, and Canada goes full Bourbon and "water" back. (You get the picture). Then, the fucking Ponzi scheme these fuckers created folds, like they always do.And then, the shithitsthefan. A cheaper solution is suiciding them all. 

In reply to by Paul Kersey

Putrid_Scum Insurrexion (not verified) Sat, 07/01/2017 - 16:40 Permalink

But the more insightful question is WHY the Central Banks own all those bonds and equities.And the answer to that question is truly frightening: It's because the System Framework of Capitalism is defunct and if they didn't the market would unravel.See The Reset, edition 3. Most people assume The Reset will be a financial event: Wrong. It's the End of an Age. Perhaps extinction.I know many Hedgers are emotinally invested in the old isms working; but I'm sorry friends---the future is looking very very dangerous.Putrid

In reply to by Insurrexion (not verified)

Insurrexion (not verified) Putrid_Scum Sat, 07/01/2017 - 16:54 Permalink

We happen to agree.I would not say, "unravel" though.There are no markets. The only unraveling will be the public finally getting this revelation and the panic that ensues. As for the End of an Age, I agree.I was just being kind to the snowflakes and the perpetual one-act comedians in the crowd.

In reply to by Putrid_Scum

mkkby Paul Kersey Sat, 07/01/2017 - 16:38 Permalink

Kersey is right and the author is wrong.  Central banks never have to sell, don't worry about losses.  They are not in business to make money.  They can just sit on losses forever.The fed has no competition.  Europe/japan/UK are basket cases in worse shape.  So is china... don't forget those vacant cities.  Their finances are as fake as media news.Here is your 18 month warning.  When a major economy crashes and cancels their debt so they can start all over.  Watch investments flow there and the USD will be toast.Until then -- This WILL GO ON FOR DECADES.

In reply to by Paul Kersey

Paul Kersey Putrid_Scum Sat, 07/01/2017 - 18:17 Permalink

Putrid, there is no "The Reset", no matter how many of your books you want to sell on this site. There are resets going on all the time in many different countries. In the U.S., 1837 was a reset, 1873 was a reset and 1893 was a reset, when, for all practical purposes, the U.S., unable to come up with the gold to pay its foreign debts and back the US Dollar, was in default. Had JP Morgan, along with a cartel of bankers, which included Baron Rothschild, not sold off bonds in order to buy back gold from the Europeans to back the dollar, this country's history could have been quite different.

There was a great reset in 1913, when the Federal Reserve Bank was born, codifying what had previously been called the "Money Trust". 1929 was a reset (stock market followed by The Great Depression), as was 1971, when, once again, the U.S. was technically in default, because it didn't have to gold to pay its foreign debts. That's when Richard Nixon and John Connally took the U.S. off of what was left of the gold standard. That also marked the beginning of the end of real, inflation adjusted wages rising for the American worker. We are still in that reset, and it's been getting worse for the American worker from that time on.

Until the late 1960's, a man could support a family of four. After the 1971 collapse, it a husband and wife to support a family of four. In the 80's, it took a man, wife and a credit card to support a family of four. By 2006, it took a man, wife, credit card and a second mortgage or cash-out re-fi to support a family of four. This led to the reset of 2008, when the consumers defaulted, got foreclosed, lost their savings and any interest on any savings they might not have lost. The banks, however, were able to run the table with an infusion of over $23 trillion in "loans" from the Fed.

Global debt today is over $217 trillion, but the international banking cartel, which used this latest 'reset', and central bank infused money, to extract multi-generational wealth from 90% of the U.S. population, is doing just fine.

In reply to by Putrid_Scum

Putrid_Scum Paul Kersey Sun, 07/02/2017 - 06:06 Permalink

I like you Paul, I wish you the very best of luck. > I'll send a message.Thank you.> Maybe someone will talk, but these guys tend to be tight lipped these days. Because they are scared.> I think they're planning something horrible. Depopulation. >Yes, depopulation---you are correct. Letting hundreds of millions freeze to death, drown & starve. We are heading into an ice age, my dear friend.

In reply to by Paul Kersey

TheReplacement knukles Sat, 07/01/2017 - 15:49 Permalink

So yer sayin' that I can just go on my computer, print "money", buy USD with it, and then buy assets of real value with that?Hello bitcoin.Seriously, bitcoin is not money but wth, seriously.  Mine the stuff and be your very own Switzerland (except don't get stuck holding the equity bag).  If it doesn't make sense to print crypto and get stuff like gold for free then what does make sense?  I think crypto will not last the way anyone (except TPTB) wants but for now, it is a mechanism to be your own sovereign on a strictly cooperative level.  Just don't buy it unless you are buying one crypto with another crypto that you created yourself (mined).

In reply to by knukles

GUS100CORRINA knukles Sat, 07/01/2017 - 15:55 Permalink

The Swiss National Bank Owns $80 Billion In US Stocks - Here's The CatchMy response: This is TOTAL and UNMITIGATED BULLSHIT!!!!!Since when do CENTRAL BANKS have the authority to buy stocks using FIAT CURRENCY THEY CREATED OUT OF THIN AIR?I know it has been going on for some time now, but it is TIME IT STOPPED!!!

In reply to by knukles

tunetopper knukles Sat, 07/01/2017 - 15:55 Permalink

It will become illegal to go to cash.  You think I am kidding, right?  I am not.  The penalty for going to cash will be instantaneous loss.  The money market mutual fund is now unable to quote 1.00 unit as if it always represents $1.00 in cash (of any currency)  So that now we have a world that is all-in otherwise known as  FIAT/PONZI.  Another way to say it is meaninglessness money.  Why do we even pretend that employment statistics and GDP have meaning anymore?  There is no connection to real assets when the values of New York vacant apartments are completely disconnected to affordability by people who want to live and work there.  The only value that can be used is what the last guy paid for their similar unit.  Where is the value if it is not based on an affordability metric like incomes/wages?

In reply to by knukles

OverTheHedge tunetopper Sun, 07/02/2017 - 00:06 Permalink

We are getting on for 10 years of doom on zerohedge - still no crash.I'm now of the opinion that there won't be a crash. I don't see any government backing their currency with gold, because that would instantly create fiscal restrictions and probity etc., and you can't fight a good war when you have financial restraint.It will just continue onwards, except that they will become less and less relevant, as inflation eats into.the value of everything, in order to reduce, and then increase the debt. People may eventually turn to other, competing currencies, such as gold, silver or oil, but governments won't. I just don't see any incentive for them. How can you buy up the world with fake.funny money, if it has to be backed by reality?Cryptocurrencies are the nasty smell that will need to be outlawed, so the ponzie can continue.(Now that I have nailed my colours to the mast of perpetual inflation, expect the mother of all crashes this September)

In reply to by tunetopper

dark fiber Sat, 07/01/2017 - 15:12 Permalink

Safe haven?  They caved into the US and OECD.  They caved in to the IMF about a decade ago and abandoned the (partially) gold backed CHF.  There is nothing safe haven about Switzerland any more.

Son of Captain Nemo Son of Captain Nemo Sat, 07/01/2017 - 17:26 Permalink

"Gravity always wins eventually. It will win this time, too. And when it does, we will begin to undergo the Great Reset."...

What a prophetic statement to free will in the pursuit of ignorance instead of "truth" that started in earnest 15 years ago when "gravity" was no longer deemed appropriate for contemplation, and was outright blatantly ignored in the mechanical analysis of that day that changed the banks and the World in the worst way possible. Perhaps FOREVER!

If only we had studied it more closely when our own government refused to... What those banks, our military and the Middle East would like like "NOW" if we had taken matters into our own hands and punished those that "should have been" but "were not"?!!! Bankrupting our military and it's economy beyond recognition instead!!!

In reply to by Son of Captain Nemo

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