Does SNB see something that we don't know?

johnyj

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Beyond Imagination

Quote from: Vessko on January 31, 2015, 06:19:16 AM

Quote from: johnyj on January 31, 2015, 12:44:25 AM

Maybe they wanted to take out a large hedge fund who has tons of short positions by surprise Cheesy

Central banks don't endanger their huge holdings and their country's economy for petty revenge like that. No, there must have been a better reason. I just can't figure out what.

Don't underestimated the scale of those hedge funds. Many years ago, Soros took out the wealth of many small country by just shorting their currency. Using leverage, those hedge funds can command a capital much larger than a country's central bank's currency reserve. He only met resistance in HongKong, which is backed by the whole USD reserve of China

I can imagine, many such funds were shorting CHF during the past year since SNB was busy buying all the Euro they can to prevent the CHF from rising, SNB made those funds' short position a risk free ride

If it was some thing much bigger that made SNB's sudden move, it should already happened, but so far nothing

picolo

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Quote from: johnyj on January 20, 2015, 02:44:26 AM

SNB surprisingly removed the currency peg with Euro without any formal information or indication. This is a very strange move that never happened in major developed countries. It seems that they have totally lost control of their pace and don't care about causing shocks in financial markets. It might be a decision made in panic, since it is nothing comparing with something very gigantic that is approaching

This chart shows that the current fiat money system works totally different since 2008

Base money supply increased by 8 fold without any significant increase in GDP. This scale of money supply used to be in M1 (which is only checkbook numbers in banks database. e.g. virtual wealth by just count the same money multiple times), but now it is in M0, with a large amount of debt backing. How could you pay back 8x more debt without your income increase by 8x?

Maybe they are already seeing the total collapse of the debt bubble and want to quit the money printing game first

They had to stop their stupid peg to the euro one day or the other, the ECB QE probably rushed them into stoping it now which is better than stoping it later on.

Vessko

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Quote from: johnyj on January 31, 2015, 12:44:25 AM

Maybe they wanted to take out a large hedge fund who has tons of short positions by surprise Cheesy

Central banks don't endanger their huge holdings and their country's economy for petty revenge like that. No, there must have been a better reason. I just can't figure out what.

Vessko

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Quote from: johnyj on January 31, 2015, 12:25:09 AM

I don't totally agree with this article

I totally disagree with it. Dr. Keith Weiner's articles often contain very weird reasoning and many economic fallacies. (For some reason, they remind me of Prof. Antal Fekete's meaningless and nutty rants.)

This particular article it so wrong in its reasoning that I just don't have the time to list all the errors in it here. For some discussion of them, see this comment.

johnyj

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Beyond Imagination

Quote from: Vessko on January 24, 2015, 09:04:14 AM

Quote from: botany on January 24, 2015, 06:13:08 AM

I guess they really didn't care about losses to traders.

Everything is connected. Wink

If they hadn't caused such an earthquake on the currency market, the CHF wouldn't have jumped so much compared to the EUR, which means that SNB's euro holdings would have lost less and the Swiss exporters would have been hurt less.

I still have no idea why they did it that way. These things never happen by accident. They knew very well what was going to happen, yet they chose to do it nevertheless. There was a reason behind it, a reason why it looked like a good idea to them. I just can't figure out what it was.

Maybe they wanted to take out a large hedge fund who has tons of short positions by surprise Cheesy

Small country's central bank often become the victim of foreign currency speculators since they are always obliged to buy or sell to keep the rate stable. If there is a difference in official exchange rate and market exchange rate, there will always be arbitraging firms making a lot of profit and the central bank will be the one who pay the bill

johnyj

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A view that the swiss franc will collapse:

http://www.safehaven.com/article/36515/the-swiss-franc-will-collapse

"The Bottom Line

The problem of falling rates is crushing everyone, but raising the rate cannot fix the problem. It should not be surprising that, after decades of capital destruction -- caused by falling rates -- the ruins of a once-great accumulation of wealth cannot be repaired by raising the interest rate."

I don't totally agree with this article, but he brought up a good question: Would it be possible to raise the rate again after so many years of near zero or even negative interest?

leopard2

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if they don't find a clean solution for Greece soon, the SNB will have a very hard time holding the CHF at parity.

there is so much EUR out there compared to CHF, that a CHF can be 2 EUR or more easily

the day when the peg was removed, EUR dropped to 0.16 CHF and below, no counterparty available in the end, until SNB stepped in

IF ONLY FIAT-BTC CONVERSION WAS EASIER ... 10 000 would be no problem at all, if BTC was tradeable like FX Cool

thejaytiesto

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EUR is in big trouble, Greece new government as balls to confront Merkel, but this is very bad for Euro as a community, it will create major trouble and headaches.

clementinal

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Quote from: worldinacoin on January 24, 2015, 09:05:54 AM

Not just traders are being burnt but a lot of brokerage firms too.

Still, new firms are popping up on the radar all the time

BTC-Graphicdesigns

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I am selling CHF if anybody is interested. Payment in BTC.
Forget the Euro, invest in CHF.

johnyj

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Beyond Imagination

Quote from: leopard2 on January 28, 2015, 03:39:21 PM

They were getting scared, having tied their little lifeboat to the Titanic

Since the peg was removed, they spend another 26 000 000 000 CHF just to prevent 1 CHF from going over 1 EUR; that is like 1 000 000 000 CHF per day.

However the internal value of CHF is zero, like any fiat currency; but the market still prefers a negative interest CHF over an EUR or an USD.

Crazy Roll Eyes

Rubble can have 20% interest rate but it in fact erased your purchase power by 50%. Same for CHF that preserve your purchasing power much better than Euro

leopard2

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They were getting scared, having tied their little lifeboat to the Titanic

Since the peg was removed, they spend another 26 000 000 000 CHF just to prevent 1 CHF from going over 1 EUR; that is like 1 000 000 000 CHF per day.

However the internal value of CHF is zero, like any fiat currency; but the market still prefers a negative interest CHF over an EUR or an USD.

Crazy Roll Eyes

botany

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Quote from: Vessko on January 25, 2015, 04:10:57 AM

Quote from: botany on January 25, 2015, 01:47:39 AM

They couldn't sell a portion of their EUR holdings, without the market finding out.

That's not what I meant. If they had announced their move on a Saturday, most traders would have been out of the market and the rest would have had two days to think about their positions. The CHF would have still jumped on Monday, but not by that much because it wouldn't have been a panic-induced move. A smaller increase would have meant lower losses for the SNB euro holdings and for the Swiss exporters. No need for the SNB to actually sell anything; I was referring to the marked-to-market value of their euro-denominated assets.

True. Announcing it on a weekday means more volatility.
But in the end, when the dust settles, I don't think it would have made too much difference to the EUR-CHF exchange rate.

Vessko

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Quote from: botany on January 25, 2015, 01:47:39 AM

They couldn't sell a portion of their EUR holdings, without the market finding out.

That's not what I meant. If they had announced their move on a Saturday, most traders would have been out of the market and the rest would have had two days to think about their positions. The CHF would have still jumped on Monday, but not by that much because it wouldn't have been a panic-induced move. A smaller increase would have meant lower losses for the SNB euro holdings and for the Swiss exporters. No need for the SNB to actually sell anything; I was referring to the marked-to-market value of their euro-denominated assets.

botany

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Quote from: Vessko on January 24, 2015, 09:04:14 AM

Quote from: botany on January 24, 2015, 06:13:08 AM

I guess they really didn't care about losses to traders.

Everything is connected. Wink

If they hadn't caused such an earthquake on the currency market, the CHF wouldn't have jumped so much compared to the EUR, which means that SNB's euro holdings would have lost less and the Swiss exporters would have been hurt less.

I still have no idea why they did it that way. These things never happen by accident. They knew very well what was going to happen, yet they chose to do it nevertheless. There was a reason behind it, a reason why it looked like a good idea to them. I just can't figure out what it was.

They couldn't sell a portion of their EUR holdings, without the market finding out.
Tough for them as well.

worldinacoin

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Not just traders are being burnt but a lot of brokerage firms too.

Vessko

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Quote from: botany on January 24, 2015, 06:13:08 AM

I guess they really didn't care about losses to traders.

Everything is connected. Wink

If they hadn't caused such an earthquake on the currency market, the CHF wouldn't have jumped so much compared to the EUR, which means that SNB's euro holdings would have lost less and the Swiss exporters would have been hurt less.

I still have no idea why they did it that way. These things never happen by accident. They knew very well what was going to happen, yet they chose to do it nevertheless. There was a reason behind it, a reason why it looked like a good idea to them. I just can't figure out what it was.

botany

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Quote from: Vessko on January 23, 2015, 03:46:35 AM

The proper thing would have been not to peg in the first place and let the CHF raise gradually, driven by market forces. Also, it was utter idiocy to announce that they are abandoning the peg on a Thursday. They could have waited until market close on Friday, when most traders are out of the market and the rest have 2 days to think about their positions - then the dislocation wouldn't have been so big and the losses to the traders would have been smaller.

I guess they really didn't care about losses to traders.

There are some companies who have CHF borrowings as well. Unlucky them. Grin

Vessko

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Quote from: Q7 on January 21, 2015, 06:26:01 AM

It's a clear fact that they can't continue to peg francs on euro or else this will have negative on their economy.

It was a "damned if you do, damned if you don't" situation for them, really. If they maintained the peg, they would see their balance sheet expand even further while the value of their assets plummeting and be accused of causing inflation by devaluing their domestic currency (which they are supposed to protect). By abandoning the peg they have incurred huge losses on their euro-denominated assets and have caused tremendous pain to the local exporters, who are most of the Swiss industry.

The proper thing would have been not to peg in the first place and let the CHF raise gradually, driven by market forces. Also, it was utter idiocy to announce that they are abandoning the peg on a Thursday. They could have waited until market close on Friday, when most traders are out of the market and the rest have 2 days to think about their positions - then the dislocation wouldn't have been so big and the losses to the traders would have been smaller.

General_A

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Quote from: Vessko on January 21, 2015, 05:12:01 AM

Oh, I am diversified. It's just that a collapse of the euro will hurt badly significant part of my wealth. It won't destroy it all, but it will be very painful. My home currency is pegged to the euro, thus my direct income and a large part of my assets are essentially euro-denominated. Plus, it is really unknowable how an euro collapse would affect my other assets. Presumably, some will go up (gold, USD), at least relative to the euro-denominated assets, but a major financial dislocation of the markets usually has bizarre unforeseeable consequences.

Sorry missed this - sounds like you have your head screwed on

Q7

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It's a clear fact that they can't continue to peg francs on euro or else this will have negative on their economy. Euro is dropping for sure and there might be indications that ecb will move towards QE just like what the fed has done in the past. In order to maintain at the 1.20 level, snb need to intervene. It's either need to buy euro which logically you don't buy a currency that will drop in value or print more francs to devalue their own currency, which is also equally bad.

Vessko

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Oh, I am diversified. It's just that a collapse of the euro will hurt badly significant part of my wealth. It won't destroy it all, but it will be very painful. My home currency is pegged to the euro, thus my direct income and a large part of my assets are essentially euro-denominated. Plus, it is really unknowable how an euro collapse would affect my other assets. Presumably, some will go up (gold, USD), at least relative to the euro-denominated assets, but a major financial dislocation of the markets usually has bizarre unforeseeable consequences.

General_A

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Quote from: Vessko on January 20, 2015, 04:09:53 AM

Quote from: johnyj on January 20, 2015, 02:44:26 AM

How could you pay back 8x more debt without your income increase by 8x?

This isn't debt, it is inflation. They didn't print CHF in order to buy government bonds (like the Fed does); they printed CHF in order to buy EUR and maintain the peg.

Since this week the ECB is expected to start some major printing, the SNB was worried that the value of their EUR holdings would plummet (which it did anyway - by about 25%), so they decided to stop digging themselves even deeper in the hole.

What it probably means is the beginning of the collapse of the euro and maybe of the EU. Sucks, really, since much of my wealth is tied up in euro-denominated assets. Not all, of course, but it will still hurt me badly.

If this is your believe why not diversify?

Vessko

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Quote from: johnyj on January 20, 2015, 02:44:26 AM

How could you pay back 8x more debt without your income increase by 8x?

This isn't debt, it is inflation. They didn't print CHF in order to buy government bonds (like the Fed does); they printed CHF in order to buy EUR and maintain the peg.

Since this week the ECB is expected to start some major printing, the SNB was worried that the value of their EUR holdings would plummet (which it did anyway - by about 25%), so they decided to stop digging themselves even deeper in the hole.

What it probably means is the beginning of the collapse of the euro and maybe of the EU. Sucks, really, since much of my wealth is tied up in euro-denominated assets. Not all, of course, but it will still hurt me badly.

AGD

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Keeper of the Private Key

What does this mean for Bitcoin?

johnyj

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Beyond Imagination

SNB surprisingly removed the currency peg with Euro without any formal information or indication. This is a very strange move that never happened in major developed countries. It seems that they have totally lost control of their pace and don't care about causing shocks in financial markets. It might be a decision made in panic, since it is nothing comparing with something very gigantic that is approaching

This chart shows that the current fiat money system works totally different since 2008

Base money supply increased by 8 fold without any significant increase in GDP. This scale of money supply used to be in M1 (which is only checkbook numbers in banks database. e.g. virtual wealth by just count the same money multiple times), but now it is in M0, with a large amount of debt backing. How could you pay back 8x more debt without your income increase by 8x?

Maybe they are already seeing the total collapse of the debt bubble and want to quit the money printing game first

Topic: Does SNB see something that we don't know? (Read 2512 times)