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Swiss Nat Bank Ends Peg To Euro!


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If any government or central bank moron is still concerned about deflation - like it is wrong that prices of stuff like fuel is falling ...

They just need to increase VAT or other related tax to "create" the inflation ...

As I said, they are just complete morons ... :(:(:(

Morons is not the right word IMHO

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There is no need for concern about the SNB's balance sheet. A weak balance sheet is exactly what they should have wanted because - as with any central bank - CHF is their LIABILITY, meaning that weaker assets (EUR) imply weaker liabilities (CHF) in theory. There was no need to abandon this peg, as the SNB could have printed CHF into oblivion, buying Euros from it. But the point seems to simply be that they are afraid that the ECB will overdo it, so they bail out now. It's simply a sign that Switzerland after all still stands for a sounder currency than many global counterparts. Also, if a Swiss biggie should fail, they might have to monetize at such a level that the CHF would turn into some perforated milk derivative faster than anyone can say "Kuchenschachteli", ie no need to burn the house down right this minute already.

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I always thought this was on the card, kicking myself for not taking a punt on CHF. Still at least world has at least one proper currency again so I may still dump a load of cash into CHF.

Looks overvalued to me, heavily reliant on perceptions of safety (gone on for lot longer than I expected though) - when Switzerland can be pushed around a lot more these days.

Effects on Switzerland house prices? Any foreign buyers would have to pay more exchanging into CHF. Swiss exports to the world more expensive, shares down...company redundancies to come (?)... all those Swiss guys campaigning for Citizens Income just a few months ago... money doesn't come out of nowhere.

The UK VI rubbing their hands that Swiss execs will pile into UK property.

For wealthy Swiss executives trying to buy a home in London, typically in Chelsea and Kensington, it just got cheaper. However, now could be the time to buy in Swiss francs, according to economists at the Royal Bank of Scotland.

The bank said that a property worth CHF2.15m at 9am this morning now costs £1.86m.

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Why only Russians?

Bcos their currency has collapsed against practically every other and they will be delighted to lock in massive (v Ruble) gains. Even if they then deposit in a London bank the sale funds.

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I always thought this was on the card, kicking myself for not taking a punt on CHF. Still at least world has at least one proper currency again so I may still dump a load of cash into CHF.

Ha! The $ is by far the strongest and will be so for years.

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I worked for 8 years in Switzerland, at the start I was getting around 1.65 CHF/EUR. Most of my earnings are still sitting in my Swiss savings account (still paying interest too). I should be happy but all this volatility makes me nervous: oil, London housing and now CHF. Not exactly a black swan but certainly a shock to the system.

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..The SNB’s peg — AKA their self-defense model to safeguard their economy — has bought warfare to the markets with the Swissy bulls getting totally cleaned out.” — Steve Woodcock, head of trading at TradeNext

..Clearly, the SNB felt that they were giving with one hand and taking away with the other by moving rates further into negative territory. But at this point in time, the SNB has broken a dam wall and the waters have flooded out. It will take time to see what lies beneath.” — Simon Smith, chief economist at FxPro

“If sustained, the impact of the decision on Switzerland’s economy could be significant for a few years. Exporters will suffer lower price competitiveness and might move more production outside the country. Tourism and retail trade are also likely to suffer. A period of strong deflation is a serious risk. However, the Swiss economy is used to occasional periods of overvaluation and should ultimately be able to cope.” — Christian Schulz, senior economist at Berenberg

Among Swiss business leaders, Swatch Group’s UHR, -17.00% chief executive, Nick Hayek, called the move a “tsunami” for the Swiss economy. “Words fail me! Jordan is not only the name of the SNB president, but also of a river… and today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country,” Hayek said, according to media reports.

http://www.marketwatch.com/story/from-tsunami-to-warfare-in-currency-markets-reactions-to-swiss-shock-move-2015-01-15

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What does this actually mean... in numpty terms for those who don't understand it... Gold is up and apparently lots of hedge funds are about to go bust... but what are the implications of this for stuff that affects people's lives?

Le margin calls for les cuckoo clockers.

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So those sitting on dead money savings not chasing yield, accepting 0% or even -negative for Switzerland, just got a nice pay day. Can hope it comes here, vs house prices.

One of my bosses (old guy) when I was Summer job working at the Highways Agency (he was on the local council side) in 1996 told me his family savings, in Swiss banks, had hardened some 800% against the GBP over decades. I can recall looking into it at the time, and there were large gains. He'd just bought his daughter a house for cash.

Another time, YHA trip through Europe, Swiss guy was bragging to me how Swiss companies involved in everything, especially in the arms/weapons trade.

Perhaps we should learn from Switzerland if their currency keeps on going up against the GBP.

Then again I cannot imagine any British politician wanting us to be like Switzerland - real local government - what would Sir Humphrey and Jim Hacker say.

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The hundreds of thousands of cross border workers in Switzerland just got a big pay rise. That isn't going to please some native Swiss.

It'll be interesting to see what happens. One possibility is that, because the attraction of a cross border job has just shot up, more people living just across the Swiss border will now apply for jobs in Switzerland, an increase in applicants which in will act to suppress Swiss wages, or at least Swiss wages for those jobs that might attract foreign domiciled workers.

It's a bit like the situation with income tax cuts. If income tax were hypothetically to be cut to 0% you'd see a worker who was prepared to work for a net wage of £20,000 a year suddenly receiving, say £23,000 a year. It wouldn't take long before the employer realised they could claw some of this back via lower wages, if the employee was happy with £20,000 before why should that employer need to give them £23,000 now in order to secure their labour? Alternatively a star footballer earning say £1,000,000 a year might be in a strong position to resist any wage cut so would reap a disproportionate benefit from an income tax cut. Net result from the studies on tax cuts is they tend to benefit the highest earners who receive all or most of the increase, but the lowest paid tend to see relatively little of the tax cut and it's their employer who, over time, reaps the benefit. It suggests that income tax for the lowest paid is actually a tax on employers, where as income tax on higher paid workers is genuinely a tax on the employees.

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I always thought this was on the card, kicking myself for not taking a punt on CHF. Still at least world has at least one proper currency again so I may still dump a load of cash into CHF.

I didn't see this coming, but I did foresee much more FX volatility in 2015, so I bought shares in Record PLC, the FX consultancy and FX hedging specialist, on the grounds that more volatility means more demand for their services.

Not the smartest investment I've ever made as they're down about 9% since I bought them!

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It'll be interesting to see what happens. One possibility is that, because the attraction of a cross border job has just shot up, more people living just across the Swiss border will now apply for jobs in Switzerland, an increase in applicants which in will act to suppress Swiss wages, or at least Swiss wages for those jobs that might attract foreign domiciled workers.

At the same time frontaliers were recently hit with big increases in social security charges, swings and roundabouts. There will also be less demand for staff with the CHF at 1.05 EUR.

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The SNB just rang a bell. The era of central bank omnipotence is over! B)

Bruce Krasting:

I wrote about the Swiss National Bank being forced to abandon its currency peg to the Euro on 12/3/14, 12/8/14 and 1/11/15. That said, I’m blown away that this has happened today.

Thomas Jordan, the head of the SNB has repeated said that the Franc peg would last forever, and that he would be willing to intervene in “Unlimited Amounts” in support of the peg. Jordan has folded on his promise like a cheap suit in the rain. When push came to shove, Jordan failed to deliver.

The Swiss economy will rapidly fall into recession as a result of the SNB move. The Swiss stock market has been blasted, the currency is now nearly 20% higher than it was a day before. Someone will have to fall on the sword, the arrows are pointing at Jordan.

The dust has not settled on this development as of this morning. I will stick my neck out and say that the failure to hold the minimum rate will result in a one time loss for the SNB of close to $100B. That’s a huge amount of money. It comes to 20% of the Swiss GDP! If this type of loss were incurred by the US Fed it would result in a loss in excess of $2 Trillion!

In the coming days and weeks there will be more fallout from the SNB disaster. There will be reports of big losses and gains from today’s events. But that is a side show to the real story. We have just witnesses the collapse of a promise by a major central bank.

The Fed, Bank of Japan, ECB, SNB and other Central Banks have repeatedly made the same promises over the past half decade:

Don’t worry! We are here. We will do anything it takes to achieve the stability we desire. We are stronger than the markets. We can overwhelm all forces. We will never let go – just trust us!

I never believed in these promises, but the vast majority of those who are active in financial markets did. The entire world has signed onto the notion that Central Banks are all powerful. We now have evidence that they are not.

Anyone who continues to believes in the All Powerful CB after today is a fool. Those who believed in Jordan’s promises now have red ink on their hands – lots of it!

The next central bank that will come into the market’s cross hairs is the ECB. Mario Draghi has made promises that he would “Do anything – in any amount”. Like I said, you would be a fool to continue to believe in that promise as of this morning.

http://brucekrasting.com/end-cb-power-snb-folds/?utm_source=rss&utm_medium=rss&utm_campaign=end-cb-power-snb-folds

Edited by zugzwang
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The SNB just rang a bell. The era of central bank omnipotence is over! B)

Bruce Krasting:

It went for small size CB's ages ago with the opening of the markets. Small size CB's such as swiss and BOE don't have enough firepower to fight the market (unless it involves them printing their own money).

US, China, ECB and BOJ are the only players now who have a chance. BOJ will fade. China will rise.

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It'll be interesting to see what happens. One possibility is that, because the attraction of a cross border job has just shot up, more people living just across the Swiss border will now apply for jobs in Switzerland, an increase in applicants which in will act to suppress Swiss wages, or at least Swiss wages for those jobs that might attract foreign domiciled workers.

I can't see it... new jobs... against the Swiss clinging on to their own jobs now? Can vaguely recall something in Neither Here Nor There (Bill Bryson 1991 - Travel book) how when last recession hit Switzerland, because limited residency rights, businesses and households let a lot of casual workers go... in number... and were pretty cold and ruthless about it. Perhaps even revoking their right/pass to be in country.

Possibly George Harrison's trust/inheritors sold out at peak? Been browsing the Swiss expensive real estate today... they might find it more difficult to find buyers?

http://www.dailymail.co.uk/news/article-2119176/Money-buy-love--But-it-buy-George-Harrisons-sprawling-Swiss-mansion-ask-afford-it.html

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