Notes From Underground

Gimme some truth. That is what John Lennon craved back in 1971. In 2018, it seems that investors and traders crave the same thing:

The musings of ECB President Mario Draghi and SNB President Thomas Jordan, plus the constant flow of TWEETS from CEOs and policy makers all wanting to control the public narrative I retreated into the Imagine album for some solace. Let us examine the SNB and ECB interest rate decisions. The Swiss held true to form and held its deposit rate at negative 0.75%. The Swiss maintain negative interest rates in an effort to make its assets less attractive to investors seeking a haven. Why? Because the combination of European politics and the ECB’s negative interest rate policy kept in Swiss institutions, which are close to HOME. The official statement said very clearly: “The SNB will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.”

The SNB continues by noting that the EUR/CHF cross rate is virtually unchanged since September 2018. On Thursday the EUR/CHF settled at 1.129.

The statement continued: “Overall, the Swiss franc is still highly valued and the situation on the foreign exchange continues to be fragile. The negative interest rate and the SNB‘s WILLINGNESS TO INTERVENE in the foreign exchange market as necessary remains essential. These measures keep the attractiveness of Swiss franc investments low and reduce upward pressure on the currency.”

This blatant contravention of the G-20/G-7 proclamations against currency manipulation is HYPOCRISY of the first order.

When the home of the BIS and its real makers violate international agreements what does any standard mean. The Swiss have excelled at financial currency through its own interventions by selling FRANCS and buying baskets of other currencies in which they use to purchase a cacophony of foreign stocks. The effort to weaken its currency makes the GOLD/SWISS chart a very important barometer of central bank malfeasance.

The ECB also kept its interest rate steady at zero with a deposit rate of NEGATIVE 0.40%. The Magician of Frankfurt dodged every question and responded in long meaningless statements in order to render the post-decision press conference, NULL AND VOID. The key word was UNCERTAINTY: geopolitical uncertainty fomented by trade protectionism, specific factors of political uncertainty in Europe, lessened uncertainties in the Emerging markets but overall just general uncertainties. One great dodge was an obtuse answer to a question about bank profitability during the age of uncertainty created by negative rates. President Draghi stated that the ECB was studying this. Save your money Mario and bring up a chart of Japanese bank stocks. Also, in the U.S. commentators raise the specter of a flattening yield curve as the primary reason for bank stocks performing so poorly.

In Europe, yield curves are much steeper, resulting in larger profits if the theory holds. However, check the European bank stocks and you will be dissuaded of that viewpoint. There was a very pertinent question concerning how the ECB would model the impact from trade frictions. The answer was anything but … and so it goes. The ECB has created a monster balance sheet, and, similar to the FED, it is struggling to comprehend the impact on the financial system as it attempts to steer it. Mario seems to have just one desire: Keep the situation steady and leave it for his successor to confront. This adds new meaning to “whatever it takes.” Please, just give us some straight talk for a change. Like Putney Swope, “How many syllables Mario?”

There was one attempt at truth today. Rick Santelli had a great piece on CNBC when he challenged the conventional wisdom about the economic fallout from a HARD BREXIT. The conventional wisdom is for Britain to go into an economic tailspin from all the projected negative outcomes. But Rick raised an important question: Wouldn’t Europe be adversely impacted if the British pound collapsed versus the EURO as British goods would attain a great advantage versus its main trading partners. There would be pain for importers and thus consumers of some tradeable goods but the economic result would be much more dynamic than the static analysis of so many model builders.

Would Germany move more auto production to the U.K. even if the EU didn’t provide a non-tariff entry point. If WTO rules were followed British goods could flow to many places in an effort to boost the British economy. Remember that the structure of the British empire is still in place because of the dominions. Santelli made an effort to shine some light on the established narrative of static thinkers and their platforms.

To juxtapose Rick’s commentary, CNBC interviewed Richard Branson who decried a hard Brexit for the impact it would have on his business for much of it was priced in DOLLARS so a dramatically weakened POUND would harm him the Virgin empire. Narrow-minded hypocrite, indeed. Just can’t get away from the need to bring balance to a world where 2+2=5. As always, from Notes From Underground.

Tags: Brexit, British pound, ECB, Euro, Mario Draghi, SNB, Swiss Franc, Thomas Jordan

This entry was posted on December 13, 2018 at 8:27 pm and is filed under Currency, ECB, SNB, UK. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.