$11,589.01?... Ask The Swiss!

Authored by Kevin Muir via The Macro Tourist blog,

$11,589.01.

That’s the US dollar amount of American stocks the Swiss National Bank owns on behalf of every man, woman and child in Switzerland. Let that sink in.

A Central Bank has taken on itself to expand its balance sheet and invest in the proceeds, not in gold, nor sovereign debt - heck not even in corporate bonds. Nope, the SNB has taken it upon itself to “invest” that money in another country’s most risky part of the capital structure - equity.

And don’t think it’s a small number. It’s almost $100 billion US dollars.

In a strange twist of fate, the Swiss National Bank is not only Switzerland’s Central Bank, but also a publicly traded security. I know, it makes little sense, but in this day and age, what does? Anyways, the financial community is all abuzz with SNB’s rocket ship chart formation.

The SNB’s equity price market capitalization is only 584 million CHF, so when you consider that the S&P 500 is up almost 6% since the start of the year, and that the SNB owns $100 billion of stocks which are up $6 billion USD during the last two months, maybe it makes sense to take a punt of buying some SNB equity. Now, who really knows how to value this security? Those gains should accrue to Swiss citizens as opposed to SNB equity holders, but it’s easy to understand the excitement.

The real problem

It’s all fun and good to speculate on the SNB equity price, but I am more interested in what the SNB’s behaviour means for the global markets going forward.

The real problem is that a Central Bank just monetized their balance sheet against another country’s equity market, and instead of getting punished for this reckless behaviour, the markets are celebrating the Swiss good fortune. And I ask you - have you ever seen Central Bankers not behave like a bunch of antelopes on the Serengeti? It is an amazingly disturbing precedent.

The Swiss National Bank has gone down a rabbit hole from which it will be extremely difficult to surface. Not only does every Swiss citizen own indirectly through the Central Bank more than $10k of US stocks, but their total assets per capita is over $94,000 each!

Since the 2007 Great Financial Crisis, the SNB has taken the size of their balance sheet from 20% of GDP all the way to 125%!

And look at the period from 2014 to today. From 80% to 125%. And that was during a period of relative calm in both the markets and the economy.

What’s going to happen when the global economy rolls over?

This sort of balance sheet expansion, and especially with the corresponding move out the risk curve, is complete madness.

I know many market strategists are issuing warnings about markets due to forecasted global Central Bank asset tapering. I sure hope they are correct that this insanity ends soon. But I worry that we are being naive.

Have you looked at the Federal Reserve’s balance sheet lately? I know they are on a schedule to taper, but it’s at a glacial pace.

I worry that right now, Central Banks are being rewarded for keeping their balance sheets as big and risky as they can stomach. It appears to be a trade with no cost, and in fact, helps out by both keeping their currency weak, and in the meantime, making some money. It encourages them to be extremely slow easing off the accelerator.

The idiocy of Central Banks taking this sort of risk is beyond description, but no sense arguing about it - it is what it is. But make no mistake, it’s like wearing jeans, a denim shirt, and a jean jacket at the same time (the Canadian tuxedo), it just shouldn’t be done (unless you are Ryan Gosling and then somehow the ladies seem to like it - go figure…)

I don’t have any conclusions to draw from this diatribe. I don’t think you should take this as some sort of apocalyptic warning about a coming crash. In fact, it’s probably just the opposite. If this sort of Central Bank insanity continues at this pace even though the global economy is firmly in the green, then it only affirms my belief that Bill Fleckenstein was correct when he said, “the bubbles will continue until the bond market takes away the keys.”

PS: If the Federal Reserve decided to invest $11,589 in the US stock market per American citizen, they would need to buy $3.75 trillion of stocks… That would mean they would have to almost double the already inflated balance sheet. That’s the level of absurdity from the Swiss National Bank.

Comments

Occident Mortal BennyBoy Fri, 01/26/2018 - 05:37 Permalink

I think the SNB is behaving perfectly rationally. If I could create money from thin air and people accept it as payment for stuff, how does that make me the idiot? If I was the SNB I would probably be much more aggressive about it.

If people keep stuffing billions and billions of USD and EUR into CHF then of course the Swiss are going to monetise that flow. They aren't stupid. They know what they're doing.

 

The Swiss are the clever ones here. They are the ones eating everybody's lunch (as usual).

 

The real losers are the eurozone countries. Those are the countries that are seeing all of their capital draining into Switzerland, that is what has allowed the Swiss to go on a massive printing binge and print masses of paper and exporting all the inflation. The Swiss have been doing similar stuff for 300 years.

 

If you think this is mad just wait until the SNB start's using their voting rights. Hell they might even get together with the Norwegians and start imposing some real power over corporate America. I would do it too especially if I controlled the upper echelons of certain secret societies, like the Swiss do.

In reply to by BennyBoy

E5 TheSilentMajority Fri, 01/26/2018 - 12:29 Permalink

The math is Fucked.

DIVIDE the CURRENT fed balance sheet to find the point we would be at if we HAD NOT put money in the equity market to that degree.

OR divide our debt by population and find out what other countries are buying... that is 10x what the Swiss own.

The swiss are just doing what we DID.

It is a defensive move.

In reply to by TheSilentMajority

mailll Occident Mortal Fri, 01/26/2018 - 09:11 Permalink

And if the market collapses, so what, they just up their balance sheet with keystrokes and invest in something else.  They loose nothing. It's just a game, the game of money. And of course all central banks, with their free money, have been causing inflation in the stock market for a long time now.  We don't control the value of the stock market, they do.

In reply to by Occident Mortal

all-priced-in Occident Mortal Fri, 01/26/2018 - 11:38 Permalink

I don't care about the Swiss all that much.

 

What do you guess will happen when ZeroHedge has an article about the SNB starting to sell some of these stocks?

 

You can shoot holes in this - but it also has some truth -

 

It is not a gain until you sell it -

 

The SNB must not only sell the stocks but also convert the spoils from USD to CHF.

 

Good luck with that -

 

They printed it out of nothing so it is only upside will not hold true in the end.

 

 

 

 

In reply to by Occident Mortal

JIMSJOE2 buzzsaw99 Fri, 01/26/2018 - 05:38 Permalink

The FED cannot buy stocks, corporate bonds or even mortgages from banks unless they are backed by the 3 US housing agencies.

This is not their mandate unlike the Swiss. They have been buying US equities right after Armstrong Economics computer models mad the forecast back 2009 that the Dow would hit 22,000 then 23,000 and eventually to around 40,000 all due to the capital flight out of Europe. The first two targets have been hit. 2018 is 25,000 then to over 28,000 and the first target has also been hit.

      The Swiss are simply chasing yield thru dividend cash flow and share appreciation. Notice zero cash. After paying quarterly dividends to shareholders cash is moved to their treasury and this is used to help fund the government.

In reply to by buzzsaw99

pitz Fri, 01/26/2018 - 05:16 Permalink

Good grief, the SNB hates Swiss people, forcing them to own and to take the risk of being invested in foreign companies.  If they really wanted to devalue the CHF, there's lots of other things they could've done. 

 

In times previous, behavior like this would've earned someone the noose.

 

BTW, the Fed's behavior is equally absurd.  Buying all that RE-backed MBS trash and god knows what else.  

To Hell In A H… Fri, 01/26/2018 - 05:28 Permalink

The USSA mindset?  They would view this as welfare. The deserving and undeserving people. Sell it. Private sector knows best. Let everybody fend for themselves. Any form of the collective good is bad and communism.

The reality is, not thinking about all American citizens has lead to the shit the USSA is today. Keep up this deranged thinking Yankees, because the end is nigh.

From a personal perspective, the UK government sold off all the family silver, in some deranged sacrifice on the altar of free-market capitalism. Nothing is in public hands except capitalist debt the tax-payer had to take on and public spending debt. You name it, we Brits sold it off. The brainwashing was exceptional. Private ownership good/Public ownership bad.

Going forward the 3rd and developing world are in a better situation than us. State own land is almost non-existent apart from national parks. But take a look at Israel and state own land, utilities and the real social contract. Ah, now the penny is beginning to drop. The privatisation and ownership of everything, is far from the Nirvana the free market cult followers believe it is. Propaganda won over commonsense.

OverTheHedge To Hell In A H… Fri, 01/26/2018 - 08:09 Permalink

Don't forget that the people who made the decision to privatise made a packet, and then got executive board seats and even more lolly after the privatisation. If you think only of yourself, then it makes lots of sense. Thinking about the entire nation is just silly - what have all those masses of idiots ever done for you?

This mindset works even more effectively if you don't have any children to invest a future in. I believe that childless people should be barred from holding office, for obvious reasons.

In reply to by To Hell In A H…

Harry Lightning Fri, 01/26/2018 - 06:05 Permalink

I don't think Switzerland will be a neutral country anymore once the air comes flying out of the stock market balloon, and the Swiss taxpayers have to pay for the Central Bank losses. At that point its going to be shotguns and pitchforks in neutral old Switzerland, they'll be hunting central bankers instead of wild boar.

An Shrubbery Fri, 01/26/2018 - 06:21 Permalink

The melt-up is just getting started.

Crazy like a fox, if you ask me.

The Swiss may be the ones to watch as a signal to exit the stock market.

I'm riding this wave, nervously.

romanmoment Fri, 01/26/2018 - 06:36 Permalink

The Swiss are smart people and don't take risks like this without doing their homework.  And, if the public does find out that they're too far out on the limb they'll correct the mistake post haste.  

overmedicatedu… Fri, 01/26/2018 - 06:38 Permalink

the "word" went out..buy, the SNB will sell when the "buy" is turned to "sell"..what part of, "It's a big club and you and I are not in it"

did this economist miss??

there is no" rule of law"..just rule of reptile elites controlling the supply of fiat..paper money aka fiat..is the key to modern economics..

that it is illusion is the genius of the evil madness.  concentration of wealth and power without equal labor to gain it.. (the main purpose of crime) is made possible by the tool of fiat..modern economics is to mask that fact.

That the founders of America hated paper money and central banks. but in the end the banksters won.

 

Sizzurp Fri, 01/26/2018 - 06:52 Permalink

The central bankers now own the world. Armies were not required. All they needed was a printing press, and a complicit populace.  No wonder the bankers hate sound money. The fake stuff is far cheaper and works the same, right up until you wake up and everything is 10x higher in price. What fools we all are.

Let it Go Fri, 01/26/2018 - 07:02 Permalink

One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses.

One thing is clear, the central bank's large foray into stock ownership represents more than just a moral hazard and in many ways, it paves the path for a liquidity crisis in our future. More on this subject in the article below.

 http://Central Banks Massive Incursion Into Stocks.html

J J Pettigrew Fri, 01/26/2018 - 07:19 Permalink

FRONT RUNNING Central Banking decisions......where is the outrage.

Knowing QE is coming, knowing EU negative rates are being pushed....what a leg up!

Now, the question is has the Fed Reserve done the same with futures......front running policy decisions?

Has the New York Fed and their "friends" purchased prior to bullish announcements?  Anyone remember big pops before Fed decisions 5, 6 years ago?

CHX13 Fri, 01/26/2018 - 08:05 Permalink

21 T / 335 Mm = 62.6 k $ public debt (only) for every US man, woman or child... Puts things into perspective, a little at least. Not to mention all the other debt bubbles (student loans, credit card, car, housing, state or communal debt) or the unfunded liabilities north of 100 T. And don't get me started on derivatives...

 

PS. The U$ taper caper is still on and the music is playing a tad too loudly for my taste. 

venturen Fri, 01/26/2018 - 08:49 Permalink

The US Treasury should buy $100 Trillion Bitcoins. /SARC

 

Coincidentally the FED's Balance Sheet of $4 Trillion was used the same way!

Rickety Rekt Fri, 01/26/2018 - 10:08 Permalink

Graph the market value of their US Equity portfolio vs the index. Pretty savage. Can definitely see that they both more or less go parabolic at the same time.

Akdov Telmig Fri, 01/26/2018 - 12:36 Permalink

The SNB is theoretically mainly owned by the Swiss Cantons, the political subdivision of Switzerland, something like the States in the US, and therefore by their constitution the SNB has to share the profits with the Cantons, in 2017 it was like 40B USD, plus the SNB stock is up 600% in one year.

What about the FED?