Forget Tulips & Bitcoin - Here's The Real Bubble

While the broader market for Swiss stocks has risen modestly this year, one 'entity' has outperformed its peers by such a staggering margin, it has left bamboozled market experts struggling for an explanation.

And that company is…the Swiss National Bank.

The price of a share in Swiss National Bank in August rose above 3,000 francs ($3,143) for the first time, more than double the level of a year ago, and up 50% since mid-July, as the Financial Times noted in a story about its performance.

Shares of the SNB trade like any other company listed on the Swiss stock exchange, though because of their price liquidity is somewhat thinner. The Swiss cantons together own 45% of the SNB while 15% is owned by cantonal banks and the remaining 40% by private individuals or companies. The Swiss Federal Government owns no shares.

Given the SNB’s holdings – it has demonstrated a voracious appetite for Apple stock and currently holds more than $80 billion in US stocks – the shareholder-backed hedge fund is also having one hell of a year. Perhaps it’s understandable that shareholders see these gains as a driver of value.

 

And of course, the FT has a few theories about what’s been driving the bank’s astounding gains.

One is that, because of the bank’s stellar P&L, it will almost certainly make a dividend payment this year (it has occasionally failed to do so, like in 2015). Dividend payments are fixed by law at a maximum of 15 Swiss franc per share.

If paid in full, that would amount to a yield of 50 basis points – far superior to the minus 15 basis-point yield on the country’s 10-year bond.

Another is that some German investing newsletter issued what amounts to a “buy” call:

“German investor newsletter Actien Börse encouraged a buying spurt after likening the shares in July to ultra-rare “Blue Mauritius” 19th century postage stamps. Trading in the 100,000 SNB shares is thin, so even modest buying or selling leads to significant price swings.”

Of course, these arguments seem specious: Investors could still probably lock in higher yields by buying Treasurys and hedging their exposure, as one example. And the influence of that newsletter sounds like it’s being overstated.

However, the FT hints at one possible driver that’s probably closer to the truth: Private investors are trying to front-run a possible share buyback by the central bank. As the FT notes, the SNB wouldn’t be the first central bank to buy back its shares.

“Another theory is that investors are speculating they might be bought out. Central bank buybacks have happened before. In the early 2000s, the Basel-based Bank for International Settlements — which acts as a bank to central banks — bought out its private shareholders so it could focus on its public service functions, rather than the interests of financial investors.”

Regardless of their motives, the stock’s gains are almost definitely being driven by private shareholders. As we reported last year during a smaller bout of appreciation in the SNB's stock, it’s unlikely that a canton or a cantonal bank would buy the shares en masse because their ownership has been carved in stone for many years.

And as the FT notes…

Harder to explain, however, is why the price of SNB shares has risen so steeply this summer.

 

“Institutional investors do not invest in them, so there is no demand for analysis or coverage,” says Andreas Venditti, bank analyst at Vontobel in Zurich. “Since the impact of even small financial market moves on its financials is so huge, it would be difficult to do a reliable earnings estimate.”

The alternative is that a private investor is quietly buying up all the stock available. The single largest private shareholder is a German national called Theo Siegert, a German business leader and professor at Munich University. He owns 6.7% of the Bank, more than any Swiss canton except Bern. Still, if the buyer was Siegert, he would have to file a new report as a large shareholder once he crosses a 10% threshold.

While buybacks are unlikely, and a leveraged buyout of the central bank woud be impossible - though it'd make for an interesting case study - there’s only one probable conclusion left: The SNB is pushing global stock prices up, in the process creating the next bubble. And now private traders are gobbling up shares of the bank itself, adding a dangerous feedback loop to the equation.

The SNB isn’t the only central bank that trades publicly. Both the Bank of Japan and the Bank of Greece are publicly traded, as is the Bank of Belgium; but when it comes to massive wealth-multiplying asset purchases, the BOJ is the real master.

And we all know how that turned out. 

Comments

aloha_snakbar Sep 12, 2017 10:18 AM Permalink

Ive got it....'BitBabies'! Little golden virtual/invisible dollies that are stick figures made out of ones and zeros... a zero for the head, ones for the torso. I have just mined/birthed a dozen of them and for 10K you can 'adopt' one of these little beauties, give it a name, and call it your own!

Gobble D. Goop Sep 12, 2017 9:58 AM Permalink

This is far too simple for some folk to understand.If you can't touch it, you don't own it.The PTB use your greed and avarice against you.  Draw you out of your shelter into the whirlwind they do with thier ephemeral software and fackery.They use inflation against you.  The only way to fight that is to use it yourself. Stacking it's called nowadays. And, again simply, PATIENCE.If something appears too good to be true(BTC), it probably is.    Don't need to read a bunch of books or watch any videos to understand Au / Ag.  (Too simple once again for those computer algorithm folks who are too smart by half.)Turn your hard earned fiat into something tangible while it is still to be afforded, for the day is short, and it is the ONLY money you'will have ever made in your entire life; The rest belongs to someone else.  Again, too simple for some folk.If these very simple principles are too simple for you, if you are too smart by half, may your appointed angel take care of you, I've done all I can do.BBB brothers and sisters.beans, bullets, and bullion

khakuda Sep 12, 2017 9:29 AM Permalink

Well, they print money and trade it for stocks and bonds which are real claims on real assets because people think their fiat is worth something.  Fiat had value because it was scarce, was a store of value, etc.  This is basically the raping and pillaging of that trust by academic central bankers.  The whole process in and of itself highlights the insanity.  In theory, it is a money machine and will ultimately probably go the way of all money machines in time when people figure it out and the currency collapses.Under this theory, they should print endless CHF and buy all the stocks and bonds around the world.  Own everything without firing a shot.  How very Swiss.Fiat is like the abused spouse these days.  They keep beating it and some day it will break.

youngman Sep 12, 2017 8:22 AM Permalink

Its like a big Monopoly game..where one player..the Central Banks can print up the funny money...but in the end ..they will own everything...game over..then what do they do..open a real estate company

DjangoCat youngman Sep 12, 2017 11:40 AM Permalink

Maybe my brain is getting fuzzy, but I do not understand what happens when the central bank owns it all, or even the majority of paper assets.The race is between the companies themselves buying back their shares and the CBs buying up what is left.  What happens to the pension funds and savings?What will it mean?

In reply to by youngman

Totally_Disill… Sep 12, 2017 7:36 AM Permalink

You've got to wonder how real all this Bitcoin rage is...   Read an article stating if I had bought $1000 worth of Bitcoin last year, I would have amassed $90Million in wealth.  If that's so, why are people not cashing out - where's the trading?

East Indian Sep 12, 2017 7:35 AM Permalink

Bank issues shares out of thin air.Bank issues "money" out of thin air.Bank uses this "money" to buy its own shares.Bank uses this "money" buy up the whole share market.Share prices go up.Bank's share price also goes up.People rush to buy these shares.Share prices go up.Bank issues more shares.................Ad infinitum. Soon we will be all billionaires. And an apple will sell for $100,000.I don't foresee any problem with this model.

Blue Steel 309 Sep 12, 2017 7:31 AM Permalink

" “Another theory is that investors are speculating they might be bought out. Central bank buybacks have happened before. In the early 2000s, the Basel-based Bank for International Settlements — which acts as a bank to central banks — bought out its private shareholders so it could focus on its public service functions, rather than the interests of financial investors.”
"

Is this when FT started buying ocean front property in Arizona?

silverer Sep 12, 2017 7:10 AM Permalink

Since when has investing in a bank ever been a bad idea? Because no matter how poorly they are managed, they always seem to be rolling in money.

Bro of the Sor… Sep 12, 2017 5:08 AM Permalink

man ZH has had so many clickbait articles about the cryptos. i laugh reading through the comments, unbelieably polarizing subject with this crowd.but ive got a bone to pick with everyone.let me preface this by saying i have a huge stack of ag/au that i lost in a boating accident and continue to lose in boating accidents regularly, but i have some advice for all the anti-crypto crowd: do your research on crypto. i thought this was a well educated and open minded crowd but i have never seen such a zealous denial of the opportunity that is the cryptocurrency revolution.everyone who is bashing crypto needs to take a deep breath, and do what ZHer's are supposed to do--and ulitmately what fight club is all about--which is make a well reasoned argument from an objective and WELL RESEARCHED standpoint. i have been investing in cryptos for about 2 years now, i still stack as much as i can, and i am STILL amazed at how little i know about the cryptos. ive read multiple books and constantly watch youtube videos and read as much info online as i can. guess what, if you can't put aside your preconceived notions about cryptos and pick up a fucking book then you don't deserve to be a member of fight club. this website is supposed to be about improving your understadning of the world from a point of view outside of the echochamber that is the MSM. it's supposed to be about liberating yourself from the chains of our slavemasters, breaking out of the matrix, getting out of debt and understanding the true nature of finance and geopolitics.i've got bad news for the haters. all of the arguments i see against crypto show a total lack of understanding of crypto and are often fundamentally incorrect. stop bashing something you don't undrestnad, pick up a book about it, and then come back here and make a logical post so the crypto clickbait message boards don't dissolve so quickly into retarded shit slinging contests. you're missing out on the biggest opportunity in history because of your obtuse refusal to do what you implicitly claim to respect by your very presence on this website, objective analysis of all sides of an argument and the notion that we win an argument by the merit of the content and facts of your position instead of by incessant ad hominem.

aloha_snakbar Bro of the Sor… Sep 12, 2017 10:56 AM Permalink

...it's supposed to be about liberating yourself from the chains of our slavemastersYou may have read some BTC/Crypto books (I have) but you may want to go back to the library and pick up a few history books. What kind of world do you envision that has fully embraced cryptos? Will we all be lounging around in silken robes, listening to harp music, peeling grapes for each other, with not a care in the world? If only. In a crypto world, I believe, as do many people smarter than I am, that you might be throwing off the old chains, only to voluntarily don a new, far more insidious set of virtual chains, that will allow the same people that crypto fans rail against, *unpresidented and unlimited* control over every aspect of your life. In such a 'utopian' world how might they *value* cryptos? How about President Zuckerberg signs an executive order stating that the value of YOUR cryptos is tied to the number of your 'likes' on Facebook? Sound crazy? Sure it does. But not any crazier than having that dangerous fool as a president in the first place. My whole point is that they will have the tools to do that, or pretty much anything they want. And YOU will have handed that power over to them. Total and complete domination, just a few keystrokes away.Your entire post is a passive aggressive ad hominem attack. If you want to invest in cryptos, no one cares. I absolutely do not. I would only agree with you that there is a lot of misinformation, disinformation and general lack of knowledge floating around, and all participants would be well served to take the time to educate themselves better, but having said that, this IS as you pointed out, the Fight Club, and not the Mensa Club, but we would not have it any other way. Some of us take a larger view of things, and see a bigger picture with cryptos, one that goes beyond the mere instant gratification of our bank accounts or bottom lines.I think that the blockchain is interesting technology and will have uses going forward, cryptos, not so much. I see cryptos as a purely speculative play, no more, no less. The IRS, Australia, and I would assume most developed countries have already designated them as 'assets', for purposes of establishing the ever important revenue stream from .govs wallet to yours. They are not currencies, they have none of the qualities that would make them suitable as a currency. Price stability for one...anything that can rocket down 500 to 1000% in a DAY because some Chinese guy somewhere sets up a manipulation play, removes it from consideration as a currency.

In reply to by Bro of the Sor…

BobEore Bro of the Sor… Sep 12, 2017 7:27 AM Permalink

Bro--man o LA MANCHA, you just arrive here after a tour of inspection of the planets of the outer galaxy? Lay down shit like

do what you implicitly claim to respect by your very presence on this website, objective analysis of all sides of an argument and the notion that we win an argument by the merit of the content and facts of your position instead of by incessant ad hominem...

I don't give a rat's ass bout your cyrptos, I gots enuff cyrptos of another kind pon my plate... but this naive and touching call out to another time an place takes me back... when the site rocked with guys n gals who knew their p's n q's and had their ducks all in rows... around 2011 or so...when the boyz who manage things here were pointing a finger towards a dude at a desk in the Basel Building of da Beast, as being the ultimate place to blame for the incessant gold manipulation wese were all growing to love...  to loath... and a line like todays'

the Basel-based Bank for International Settlements — which acts as a bank to central banks — bought out its private shareholders so it could focus on its public service functions, rather than the interests of financial investors.”

could only have appeared as the most ridiculous sarc. Public service functions?But that was then... and this is now. And to expect your interlocutors here to be capable of raising the bar of debate above the level of the lowest form of "tranny mud wrastlin mud slingin" is touchingly naive... and out o touch. But I likes yur style... takes me back to a kinda kinder, gentler me... so lemme give ya a brief history of the DEVOLUTION of GOLDBURG ... into a steaming cesspool of inarticulate angst, malice, and envy. To which point ... this BIS thing is central... ya see...back in the day,,, there really were ... top flight investigators, advocates, street-fightin, bitchin warriors o the word what knew how to put serious FEAR into the BANKSTER GANGSTERS of the BIS n other scamster central to our modern system of crony capitalism gone beserk. Two of the most prominent being REG HOWE... and his buddy BOB LANDIS. Reg took on the BIS in a legendary lawsuit confrontation AND battled them to a draw... over their refusal to pay fair market value for withdrawing shares amongst many other things(see link)and conclusively demonstrated the role of that body in collusive serial market manipulations. LANDIS was equally masterful at reading over eye glazing bs from scamsters like Barrick... spotting the serial criminality hiding behind the accountant style bafflegab... and parsing the motivations and methods behind a blizzard of buzz words designed to conceal more than reveal the financial data.THOSE. WERE. THE. DAYS. THOSE WERE MEN. Their time has passed.Bout the end of the first decade of this new millennia... with the giants worn down and used up... we entered the alleged 'bull market' of 2010... and a new Klondike style gold rush of new smart guys looking to score from the upsurge of investor interest in shiny things. A raft of poseurs... with no real knowledge of metals, markets, or meritorious communication, stepped up to steal the mike and bombard us with bullshit which would turn out to have been at the behest of the very "manipulators" who they loved to scream loudest at! BACK UP THE TRUCK@NEVERBEENABETTERTIME.CONA whole generation of gullible investors led down the garden path by a phalanx of pretend friends ALL WORKIN FOR DA MAN! Who turned out to be a Panda in a three piece suit with a Harvard MBA and a desk at the PBOC... workin the phone all day with his allies at JPM to turn the big wheel o fortune eastwards ho... at the expense of the wretches of the west and their dying polities.Gold is real. I got's me some... then I GOTS outta Dodge... for good... and sat back to watch the show. Endless scamming bullshit investment advice from fake experts on the payrolls of serial con artists. That was the precious metals thing. Seven years o pain no gain and the gomers here never tire of comin back for MOAR!And somehow... you think the next thing got invented to turn folks into bagholders... "crypto currencies"... is gonna turn out different huh? You'll get no ad homs from me... I just watch and wonder...is there any limit at all to the gullible and naive acceptance of the oldest shell games recycled over and over by the usual suspects? Can their victims ever learn to avoid the siren call of 'the next big thing?" Have fun here dude... I certainly do... but drop your expectations of your interlocutors down... way down... from your starting point here... in order to learn to do so. Ain't been no 'fight club' here for many a moon.

In reply to by Bro of the Sor…

bshirley1968 Bro of the Sor… Sep 12, 2017 7:17 AM Permalink

"i have been investing in cryptos for about 2 years now, i still stack as much as i can, and i am STILL amazed at how little i know about the cryptos. ive read multiple books and constantly watch youtube videos and read as much info online as i can."2 years?  Really?  And you openly admit you are amazed how LITTLE you know about crypto......after 2 years of hard study?  And you wonder why Fight Club has a problem with the digital ponzi called crypto-currency?  Stop being an idiot!  Go make all you can on crypto.....more power to ya.  Why you trying so hard to be a salesman for that shit and convince everyone here to get some?  Cause you care so much for us?  You don't know shit about it because you aren't suppose to know shit about it..........other than its 1. Perfectly safe 2. Untraceable 3. Freedom from The Man. And 4. You can make a lot of money by "trading " it.   Shit!  I guess you could say it's PERFECT!  What more do you need to know........sheeple boy?Now, go clean up, get someone to fix that broken nose I just gave you, and by all means buy some more crypto. .......it'll make you feel better.LMAO! 2 years studying something that passes itself off as "currency"!  What a frickin joke!  Can no one around your dumbass see the insanity of that statement?  Keep walking towards the light sheeple boy,  if you are lucky you will just get sheared and not slaughtered.  "Block Chain" what a fitting name for the ultimate enslavement of mankind. 

In reply to by Bro of the Sor…

bshirley1968 bshirley1968 Sep 12, 2017 7:43 AM Permalink

COME ON!  YOU CRYPTO-PUSSY-BASTARDS!  Let's hear you defend that shit.  Put some meaningful logic to your digital shit storm and down votes!  Oh, I know, I know, "Look how much it has gone up!"  "You're just mad cause you missed out."  Blah, blah, blah!It's just like everything else in thus shit hole world, the only reason you give a shit about it is because it makes you more shitty worthless dollars.  As long as it does that, who cares about anything else, right? That is your worthless, ultimate,  fucking litmus test on everything.......if it makes more dollars, well, it's gotta be good......right?And then you dumbasses look at the world around you and say, "What happened?!"  Stupid is as stupid does.......and you can't fix stupid........here's your sign.........and nd all those other statements that talk about how stupid people are.

In reply to by bshirley1968

bshirley1968 SubjectivObject Sep 12, 2017 7:56 AM Permalink

Well, isn't that sweet?  Regretting only one up vote to give......to some jackass that admits that after 2 years of wasted time he still doesn't understand crypto-currency. .......but HEY! he's buying more.  How about I just go Baaaahhhh,  baaaahhhh!  You got an up vote for me?  Cause I just said something as meaningful. ......in your native tongue.Some of you really need to go back in time and try and figure out where you left your balls.

In reply to by SubjectivObject

DjangoCat bshirley1968 Sep 12, 2017 12:01 PM Permalink

So I suppose the subject of the article, the Swiss National Bank, is your idea of a solid enterprise?  They print up fake money, buy USD and then soak up stocks in the US of A, and that is more real than crypto currencies?  More moral perhaps?  Not a real ponzi?I am not sure what bee has got under your bonnet, but methinks you do protest too much.

In reply to by bshirley1968

The central planners Bro of the Sor… Sep 12, 2017 7:10 AM Permalink

First  bitcoin was sold with a bunch of lies like its was untrackable that government could do anything against it or it was a threat to governments and now you see governments supporting it and the FBI arresting crypto veterans not the average crypto guy. Another lie its the decentralization with the exponential growth of the blockchain every year less and less people will be able to "mine" bitcoin wich will lead to a kind of centralization.

In reply to by Bro of the Sor…

chuckymcgee The central planners Sep 12, 2017 9:09 AM Permalink

No one working on Bitcoin ever claimed it was untrackable- just the opposite. The blockchain is a public ledger, derp, the whole point is that coins are constantly tracked so you know coins aren't being counterfeited! The blockchain isn't growing exponentially. And the growth of the blockchain doesn't make mining infeasible anyways. A $50 hard drive today will hold the blockchain for years, for $100 it'll hold it for a decade.

In reply to by The central planners