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Swiss Franc Rise Prompts Emergency Meeting

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http://www.bbc.co.uk/news/business-14442584

The Swiss government is holding an emergency meeting on Monday on how to respond to the financial turmoil.

Currency investors have been piling into the Swiss franc, which - like gold - is popular in times of trouble because of its relative safety.

But it has meant the value of the Swiss franc is rising against other currencies, hurting exporters because their products are more expensive.

The US dollar hit a record low against the franc on Monday.

It's yet another emergency govt meeting, seems to be the next in thing to do.

Isn't the rather amusing by product of this that the Swiss have lent out billions to foreign nationals and it's banks are at huge risk of imploding if the currency appreciates too much meaning those loans can no longer be serviced. Which therefore would mean the flight to safety is in fact a flight to bankruptcy?

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Is half of Eastern Europe's mortgage holders fearful right now?

I would imagine that they are as it was only last week that the SwissNational Bank was intervening and changing policy to stop the rise of the Swiss Franc. As the post below indicates though there is not much that can be done as the forces at play are simply too powerful.

Currency Intervention is going badly

This week we have seen both the Bank of Japan and the Swiss National Bank step up to try to weaken their currencies. I have written often about what I call the “currency twins” and their rise and rise as a result of unwinding of what is called the carry trade. I discussed this on the 2nd of this month which also refers back to past articles. Regular readers will be aware of my view that whilst currency intervention can be a short-term success it very rarely works in the medium or long-term.

Well it would appear that the short-term has got a lot shorter this week as both interventions are going badly already. The Swiss Franc briefly weakened but they went to yet another new high last night as fears gathered yet again about Italy and this morning it is at 1.0874 versus the Euro which only a week ago would have been an all time high! The Japanese intervention which was of the scale of around one trillion Yen did just push the Yen back to 80 versus the US dollar but since then it has risen to 78.65 as I type. There is particular food for thought in this because it is below where concerted central bank intervention took place on March 18th of this year.

This double failure as we stand is in my opinion something that weakens the mystique and credibility of central banks and the SNB and Bank of Japan in particular. You might wonder why they have done it as they have intervened and failed in recent history and here you get another of my themes. Central banks used to be considered to be independent and by this I mean independent of politicians. However both of these moves would have been driven by politicians putting pressure on their central banks which means that independence has been lost.

http://t.co/c5NFymi

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Why don't the exporters just drop their prices? Then the export problem is gone without the government having to conspire against the wealth of their own people.

Sure, margin compression is just what Swiss manufacturers need right now :rolleyes:

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Sure, margin compression is just what Swiss manufacturers need right now :rolleyes:

Not with you. Do you mean they would have smaller margins even though all the raw materials are cheaper because of the strong franc. Couldn't they drop prices while keeping the same margins?

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Not with you. Do you mean they would have smaller margins even though all the raw materials are cheaper because of the strong franc. Couldn't they drop prices while keeping the same margins?

Their cost base is not just the raw materials. Swiss wages aren't lower.

And raw materials have gone up in USD terms, so I don't think they decreased all that much in CHF terms, more likely been stable.

I don't see how Swiss exporters can lower prices without eating into their margins.

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Not with you. Do you mean they would have smaller margins even though all the raw materials are cheaper because of the strong franc. Couldn't they drop prices while keeping the same margins?

And what if the raw materials are swiss?

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I'm fairly certain that the SNB target their actions to allow the likes of Novartis and Nestle to roll their currency forwards - at crosses that won't crush the Suisse economy in the process.

There's a HPC scoop for you.

Make of it what you will.

edit: with that in mind it simply doesn't matter if the effect is permanent; if the contracts are rolled, it's mission accomplished from the Suisse economy's point of view; so what if tourists and speculators get churned and burned?

Edited by ParticleMan

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I don't understand the attraction of the swiss franc. This is a country (a bit like Iceland !) where a big part of its GDP comes from a few large banks- and I doubt they have loads of deposit sitting in their vaults - just like all the rest of the banks they've probably bought some nice Italian bonds and some super-rated us treasuries ( and those are the safer scenarios, I wouldn't like to think about the other possibilities)

If the financial system is going under I would rather put my money somewhere with large tracts of agricultural land ( a few goats on a rubbly hillside won't cut it) and some chunky mineral resources. I suppose it gets a fair amount of rainfall/water though.

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I don't understand the attraction of the swiss franc. This is a country (a bit like Iceland !) where a big part of its GDP comes from a few large banks- and I doubt they have loads of deposit sitting in their vaults - just like all the rest of the banks they've probably bought some nice Italian bonds and some super-rated us treasuries ( and those are the safer scenarios, I wouldn't like to think about the other possibilities)

If the financial system is going under I would rather put my money somewhere with large tracts of agricultural land ( a few goats on a rubbly hillside won't cut it) and some chunky mineral resources. I suppose it gets a fair amount of rainfall/water though.

I was also going to post the question of why the swiss franc.

I'm not going to ask why now, but why is it that the Swiss Franc is generally regarded as a safe haven in times of trouble? Gold I understand. It is a product in short supply that everybody wants at some point or other. It could also be silver, or copper, or any physical material. Gold is favoured because its rarity compared to others and its also quite pretty!!

But the swiss franc is just another currency. what is it about switzerland that makes it so solid?

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I was also going to post the question of why the swiss franc.

I'm not going to ask why now, but why is it that the Swiss Franc is generally regarded as a safe haven in times of trouble? Gold I understand. It is a product in short supply that everybody wants at some point or other. It could also be silver, or copper, or any physical material. Gold is favoured because its rarity compared to others and its also quite pretty!!

But the swiss franc is just another currency. what is it about switzerland that makes it so solid?

By far the most stable and democratic political system in the world, a relatively solid economy, a naturally low inflation tax country but most fundamentally i guess the largest per Capita gold holdings in the world

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By far the most stable and democratic political system in the world, a relatively solid economy, a naturally low inflation tax country but most fundamentally i guess the largest per Capita gold holdings in the world

I daren't ask..... never mind it's the long game.

It's a marathon not a sprint.

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It would appear that the rush into the Swiss Franc is not only carrying on but that it is accelerating.

We have seen some extraordinary moves today in the Swiss Franc. Versus the Euro I have tweeted it going through 1.06,05,04 and now 02!

...............Remember the Swiss government and Swiss National Bank have made various moves to stop the Swiss Francs charge and they have been swept away

@notayesmansecon

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By far the most stable and democratic political system in the world, a relatively solid economy, a naturally low inflation tax country but most fundamentally i guess the largest per Capita gold holdings in the world

ah, so in the end its back to Gold again!

So by piling on in there its a classic case of sinking the lifeboat because too many try to get on board!!

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What is interesting is that the Swiss are piling into Euros at the moment. In Geneva on Monday one woman changed (electronically) 300,000 CHF.

One consequence is that Euros are thin on the ground with big queues outside buro de change. Yesterday a colleague was told that his bank had almost run out at 10am and that they were rationing clients to 50 euros cash for the rest of the day.

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Their cost base is not just the raw materials. Swiss wages aren't lower.

And raw materials have gone up in USD terms, so I don't think they decreased all that much in CHF terms, more likely been stable.

I don't see how Swiss exporters can lower prices without eating into their margins.

well, they can, they can embrace the DEFLATION....their money buys more, therefore the wages can fall.

Why not pay a worker CH10 an hour ( I guess the price of 4 big macs) when an american buying the same in CH will need to work 16 hours.

In other words,for simples sake, the CH worker is being paid 4 times too much compared to an American.

The only thing keeping this up are barriers to entry for foreign workers who are willing to work for less.....See..the UK

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What is interesting is that the Swiss are piling into Euros at the moment. In Geneva on Monday one woman changed (electronically) 300,000 CHF.

One consequence is that Euros are thin on the ground with big queues outside buro de change. Yesterday a colleague was told that his bank had almost run out at 10am and that they were rationing clients to 50 euros cash for the rest of the day.

Yeah I'm considering changing about that amount myself into GBP and Euros.

However where is safe to keep it?

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well, they can, they can embrace the DEFLATION....their money buys more, therefore the wages can fall.

Why not pay a worker CH10 an hour ( I guess the price of 4 big macs) when an american buying the same in CH will need to work 16 hours.

In other words,for simples sake, the CH worker is being paid 4 times too much compared to an American.

The only thing keeping this up are barriers to entry for foreign workers who are willing to work for less.....See..the UK

http://www.zerohedge.com/news/price-big-mac-now-1719-zurich

Well according to zerohedge, the price of a Big Mac in Zurich is now $17.19.

That is a bit over £10, or 11.7 CHF if my maths is correct.

I wish I earned 4 Big Zurich Macs an hour.

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  • 276 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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