Spot The Real Bubble

After a seemingly unstoppable surge higher for years, March was a tough one for tech stocks, as the curtain was lifted exposing Oz-like machinations behind the scenes that spooked investors enough to pop the bubble of delusion so many were living in.

After a magnificent 2017, Cryptocurrencies also started 2018 off poorly as yet another 'bubble' popped.

However, there was one 'asset' that had a tremendous 2017, and has gone on to greater and bubblier things in 2018.

Spot the real bubble in financial markets...

Bitcoin has bust, FANG stocks are FUBAR, but The SNB is accelerating.

As we noted previously, The SNB made 32 times more than 85 Swiss private banks... and owns a record $100 billion-plus of American stocks...

$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.

And that 'security' has had a great year so far - up a stunning 93%...

However, as Holger Zschaepitz notes, the market cap of the Swiss National Bank remains below CHF1bn amidst a profit of CHF54.4bn.

But that didn't stop investors piling in to The SNB in March as a 'safe haven' as the rest of the world collapsed...

 

As Macro Tourist's Kevin Muir concluded previously, 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, 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

nmewn Déjà view Mon, 04/02/2018 - 07:01 Permalink

So, coming home yesterday I whipped out my cell phone and asked Alexa where I could get a bunny, flowers & chocolate delivered to the love of my life.

When I got home there was Mrs.N standing in the middle of the living room looking confused with a black hooker in a bunny costume holding some daisies.

Lesson #1: Never trust AI and algo's to get what you really want ;-) 

In reply to by Déjà view

InnVestuhrr GoldIsMoney Mon, 04/02/2018 - 09:01 Permalink

I don't know how Rafterman found out, but it is true, we jews can print all the money we want. If you covert to jewism, like I did, then you will find out this secret along with many others when you go thru the initiation ritual.

Being able to just create money rather than have to earn it was the primary reason why I converted, and it worked out GREAT for me - 3 beautiful homes, new vehicles and fishing boats at each home, plenty of cash in the bank accounts to pay living expenses, and NO debt !

In reply to by GoldIsMoney

mosfet Mon, 04/02/2018 - 05:05 Permalink

What infuriates me is, not so much the SNB's shenanigans, but the inevitable flip-flopping I see coming from Powell & Co...

  • The Fed modestly tightens, leading markets to puke up gains.
  • The Fed has no tolerance for even a moderate market decline so returns to easy money policy...leading to markets soaring again.
  • This leads to a disorderly decline in the Dollar so the Fed (having no stomach for any real decline in either USD or stocks) panics and tries to 'talk up' the Dollar by threatening to tighten again.
  • To the Fed's ignorance, markets see thru the bullshit and continue rising while the Dollar falls.
  • So the Fed finally slams on the brakes and begins to tighten in earnest.
  • Markets panic and go into free-fall.
  • The Fed reveals it's hand as being a market whore all along by whip-sawing back to no holds barred rate cuts with QE.
  • The market now knows they own the Fed lock, stock & barrel while confidence in the Dollar evaporates.  As the DOW blows thru 100K in short-order - 26K seems not too distant a memory.
  • It takes a clueless Fed another few years before they realize how utterly irrelevant they've become while, oblivious to it all, Congress continues to run up increasingly colossal debts.

 

Gold's fair market value I suspect is around $6300/oz but could easily overshoot to $10K until production ramps up.  No matter how much you may despise crypto, the dumb money will panic into most likely Ether, Ripple and/or Litecoin as Bitcoin's clogged network and fees prove too much for the legacy coin to contain in-flows.  I could easily see Oil becoming a safe-haven asset as trade in it becomes increasingly de-Dollarized.

hooligan2009 saldulilem Mon, 04/02/2018 - 06:07 Permalink

well it's actually 500 billion US dollars worth..

if you scoot down to table A7 on page 144 of this BIS report (152 of 358 in pdf form) you will see the reverse image of foreigners holdings of swiss francs.

the snb lends to other swiss banks who, net of intra company loans, engage in all sorts of financial transactions backed by absolutely nothing at all. non-banks also engage in all sorts of shenanigans - equal in amount to the 100 billion you worked out.

claims in local currencies (bottom of the table) exceed liabilities in local currencies by 500 billion US dollars

https://www.bis.org/statistics/bulletin1803.pdf#page=328

 

In reply to by saldulilem

Jambo Mambo Bill Mon, 04/02/2018 - 05:17 Permalink

Trading war... Asian folks are drying funds from the US markets and in the same time shorting the hell of it, now US investors don't have the same exposure on the Chinese market... Same thing with Russians and everyone else except Brits, will be shorting the hell out of the US markets...

BTC will get some traction with all the economic downturn we will have now, the truth is, when you see what the FIAT story is, the creation of money in thin air and lent to folks for interest that benefit few Banks represented by the FED... you then understand the BTC idea.

hooligan2009 Mon, 04/02/2018 - 05:43 Permalink

the SNB has no risk by printing worthless 1's and 0's and buying absolutely anything that produces even $1 of cash flow, like a dividend.

the absurdity lies in the legal frameworks, operating in every country, that allow a central bank to "steal" other people's money by debasing it.

the SNB is worse because it is privately owned - meaning one batch of citizens (its investors) can perpetuate this crime with no possibility of being either accused or, heaven forbid, prosecuted for crimes against the vast majority of people that don't own SNB shares.

the SNB is just like BTC - only 10 times as big - print something worthless and buy something valuable so that it cost others that work for a living so much they can't afford as much of it.

 

Ink Pusher Mon, 04/02/2018 - 06:47 Permalink

They are ALL REAL BUBBLES, there isn't just one.

 

Do us all a favor and Stop conceptualizing stories while you are still drunk from the night before.

 

bentaxle Mon, 04/02/2018 - 06:49 Permalink

The idiocy of Central Banks taking this sort of risk is beyond description, but no sense arguing about it - it is what it is.

How can the people argue about it if they don't know what it is that is so, "beyond description?"

Ok, I'll give you a hint. SNB liabilities = ? SNB assets = ? What happens if assets halve in value? (but liabilities stay the same.) Correct they need a rights issue! (LOL!) You win a cookie!

whatisthat Mon, 04/02/2018 - 06:58 Permalink

I would observe this post calls out another example of manipulated markets by corrupt central bankers and their corrupt establishment members / associates...