The Swiss National Bank (SNB) has pulled off the greatest act of alchemy by printing copious amounts of Swiss francs (CHF) and turning the currency into real corporate assets. The SNB has grown its balance sheet to CHF800 billion from CHF500 billion in 2015, 85 percent of which is foreign exchange holdings in various forms. As the SNB struggled to weaken the franc to prevent the ultimate safe-haven currency from strengthening and putting the Swiss economy into a DEFLATIONARY SPIRAL. The Swiss experiment began January 15, 2015 as the SNB officially removed the EUR/CHF PEG, which it was attempting to HOLD. Yet the market kept buying the franc despite the SNB’s efforts (the PEG had a 1.20 floor).
The day the SNB pulled the plug the EUR/CHF cross dropped to 0.8500 all the way from 1.2015. Yep, you’re reading that right. The Swiss franc appreciated almost 33% in one day. (If you go back to Notes From Underground in December 2014/early January 2015 you will see that I predicted the PEG breaking since I was monitoring the SNB’s massive currency intervention and yet they couldn’t get it off the 1.20 floor.)
Regardless, the critical point for today is that the EUR/CHF has recently rallied 8% since June, even as the SNB has slowed its intervention. Somebody has been selling Swiss francs versus the euro. I don’t know who, what or why but this provides the SNB the greatest opportunity to unwind the greatest act financial engineering. Ever. The EUR/CHF is approaching the previous PEG FLOOR and as the U.S. embarks upon QT the SNB will also have to unwind this massive stimulus. For the record, the entire range for the 33 months was made on that single day in January 2015. Amazing. I am advising the SNB President Thomas Jordan to begin purchasing SWISS FRANCS and to begin selling its massive portfolio of global equities that it has purchased. The SNB owns shares of stock in more than 4,000 different stocks, including 2% of Apple, all bought with newly printed francs.
The recent rally in BITCOIN pales in comparison to the wealth created by the Swiss printing presses. Thomas Jordan, the world does not often provide such an opportunity to unwind a Frankensteinian experiment without suffering severe damages. The Swiss economy has held up well and price inflation is nil. The world’s other central banks will not be given such an opportunity. CARPE DIEM! How the world’s equity and bond markets will react to any effort by the SNB to unwind is a great unknown but let the experiment begin.
Tags: euro/chf, portfolio unwind, SNB, Thomas Jordan
October 25, 2017 at 8:41 pm |
Yra as you know I am Swiss. Thomas Jordan won’t have the balls to go the opposite direction. He should!
October 26, 2017 at 8:44 am |
Rony–you are definitely Swiss and readers don’t have an idea of how much you and Oskar taught me about the SNB and how they benefit from the wisdom I have attained thru you guys of course along with Andy Smitts,Peter W. and the fount of wisdom Paul K, from First Chicago and M.S.—thanks to all you have taught me.
October 26, 2017 at 12:46 pm
NEW YORKERS & CO.; MONEY TRADERS’ SLEEPLESS NIGHTS http://www.nytimes.com/1985/03/01/business/new-yorkers-co-money-traders-sleepless-nights.html
October 26, 2017 at 12:42 am |
[…] “Notes From Underground: A Celebration Of The Greatest Act Of Financial Alchemy (Ever)” […]
October 26, 2017 at 6:42 am |
When central banks try to manipulate exchange rates, it almost always ends in tears.
October 26, 2017 at 7:08 am |
[…] Notes From Underground: A Celebration Of The Greatest Act Of Financial Alchemy (Ever) […]
October 26, 2017 at 11:04 pm |
Financial Alchemy fuels the world!
October 27, 2017 at 6:14 am |
Yra – A question from the bleacher seats: Has there ever been a FX crisis where the CBs (or their private predecessors – the Clearing Houses) simply froze clearing of trades? The academic histories of the WW I closing of the NY Stock Exchange for 6 months are no help in answering what happened to acceptances and other paper floating between London and Paris and Berlin and New York. It has to have been an FX crisis of comparable size and importance.
October 27, 2017 at 9:29 am |
Stefan–good question but i would say all situations are different.Now we are in a free flow of fiat currency around the world the impact would be disastrous –the closest we came was during the Asian Contagion of 1997-98 when Malaysia froze deposits of foreigners.When the world was on a gold standard like the period you mention impacts were different –in a fiat world the impact would be far greater,witness the efforts by the FED to open huge dollar swap lines–the answer is complicated but I hope that helps
October 29, 2017 at 9:02 am |
Hi Sir, a question not relevant to post:
1) Do you subscribe to any independent macro fundamental or technical research? If yes, what are those you subscribed to? I’m looking to subscribe to some macro research products and hence, seeking for your opinion ..
2) If otherwise, do you have any in mind that you’d recommend?
Thank you.
Q
October 31, 2017 at 6:13 am |
Quentin–there are so many places to go.It is cost dependent on what you want to spend but the project syndicate ,economist,FT ,and Bloomberg.com offer very good fundamental pieces.The technical side is all according to your desire to pay–I hope some of our readers will provide input here
October 31, 2017 at 1:19 pm |
Here are 2 that I have used over the years presently I am just reading Yra and trying to make sense of all this on my own….
https://www.grantspub.com/
and….
http://www.macrograph.com
October 31, 2017 at 5:04 pm |
CME Introduced BTC Futures tpday.