In an inane study of the world’s countries by the U.N. and released on World Happiness Day (what an absurd concept) the land locked nation with its active printing press was heralded as ranking FOURTH while the U.S. fell to 14th. To paraphrase Tolstoy: Happy countries are all alike; every unhappy country is unhappy in its own way. On March 17 Bloomberg ran a story, “Swiss National Bank (SNB) Foreign Reserves Soar, Signaling Interventions.” In February the SNB’s reserves increased by 3.8% to 668.2 billion francs, “the biggest increase since December 2014.”
SNB President Thomas Jordan regularly opines that is Swiss currency is overvalued. The SWISS bank reserves are not increasing because of robust Swiss exports. However, the SNB regularly turns on the printing presses to produce Swiss francs to sell and purchase other currencies in an effort to meet the insatiable demand for the Swiss foreign currency. Currently, SNB foreign reserve holdings are equivalent to the entire GDP of the Swiss economy. The SWISS FRANC represents the fragility of the global financial and political system as investors are willing buy Swiss assets with negative yields out to over TEN years.
The Swiss are doing nothing more than printing more SWISS FRANCS to meet the demand. When they use the fiat francs to purchase other currencies the SNB converts those currencies into EQUITY AND BOND assets in a symphony of some of the most high-quality worldwide corporations. THIS IS FINANCIAL ALCHEMY OF THE HIGHEST ORDER. The SNB owns almost $2 billion of APPLE Corporation.
While the Swiss increased its portfolio of foreign assets by almost 21 billion francs last month, the targeted EURO/SWISS crossrate barely moved as it remains in a well-defined range of 1.06 to 1.08 during the last eight months. Yet again the SNB is merely keeping the FRANC from appreciating and not having any success in weakening its OVERVALUED currency. No wonder the Swiss are so happy. They are laughing as the world keeps willing to swap its banknotes for real assets, helping Swiss citizens become the world’s largest hedge fund.
The SNB has discovered the PHILOSOPHER’S STONE and lo and behold it is a printing press. The VIX may represent investor complacency but the SNB’s attempts at financial alchemy represent something else. Not sure as of yet but if I were a Swiss national I would be voting for the SNB to be increasing its GOLD RESERVES.
***President Trump and the U.S. Treasury are the “guardians” of the DOLLAR, not the Federal Reserve. It is important to remember that the DOLLAR is a potential tool of the executive branch. When Germany and others threaten to sue in world judicial settings to counter the potential Border Adjustment Tax, the Trump Treasury can pursue a weak dollar policy as a counterweight.
It is not the FED that sets dollar policy but the central bank can affect potential dollar value by manipulating monetary policy. If the FED were to raise rates and strengthen the DOLLAR to curtail the inflationary impact of fiscal stimulus, the President could set in motion a weak dollar policy by intervening. (See Clinton, Bill and the dollar/yen policy of June 1998.) This is a heads-up for all my readers as we try to understand Trump’s efforts to prevail with his agenda.