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Swiss Nat Bank Ends Peg To Euro!


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This was my first reaction. I mean if they know Germany were leaving then they had to pre-empt it. However, I think that they just played a blinder, 3 years of a peg buying EMU assets, making loads of money by being long duration and core yields crash. Now they have 500Bn of reserves and Draghi wants to buy 1Tn. It makes sense after front running them to want to sell him what he wants. Very clever.

I think the SNB have got this exactly wrong, unless Germany is leaving the euro.

If it's just about the pending QE then it's the wrong move. As we have seen, QE creates demand for bonds and currency as speculators buy all the bonds they can lay their hands on, to sell them risk free to the central bank. The SNB just sold them right before the buyer of last resort came in and took them at a higher price.

ALL those hedge funds were not stupid, just maybe the SNB is the stupid party?

(again, unless Germany is out)

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Will it prove to have been a good decision to have very recently bought a multi-million Swiss ski chalet, and using a mortgage to do so?

Swiss franc Q&A – what the currency changes mean for tourists
The traditional Swiss ski holiday will now cost an arm and a leg after the central bank in Zurich suddenly abandoned its currency cap

Thursday 15 January 2015

http://www.theguardian.com/business/2015/jan/15/swiss-ski-holiday-now-costs-arm-and-leg

Had this bookmarked just a while ago... for cryptic UK house price reasons.

http://www.ernalow.co.uk/blog/nine-new-swiss-resorts-added-to-erna-low-portfolio

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The mountainous country of Switzerland was far more hospitable to small-scale farming than to the large feudal estate. Even so, it wasn't very hospitable. Farming in the Alps conferred a military rather than an economic advantage to small holders. The steep mountains and almost impenetrable passages effectively neutralised the advantage that heavily armed knights enjoyed over the foot soldier on flat terrain. After rugged Swiss fighters decimated an Austrian army in a mountain ambush in the thirteenth century, isolated Swiss communities were effectively freed from the political domination of the landed aristocracy who had held sway over much of the rest of Europe.

The basis of the later Swiss prosperity was laid in the late medieval period in which Swiss pikemen became the premier mercenaries of Europe. They rented their services for cash, then retired to unassailable redoubts in the mountains. The foundation of Swiss economic prosperity was the topographical advantage that enabled Swiss archers and pikemen to preserve their independence over the heavy cavalry that predominated elsewhere. (-Davidson)

Their merc work was seriously more involved, and obviously well paid, than I had realised. Where's Injin with his love and kisses no violence? Power always matters. Might be time for others to exert theirs, after all the decades and centuries, in competition, and seeking more of a share of the wealth to support their own economies?

The Swiss Pikemen

"The Swiss are well-armed and very free." - Niccolo Machiavelli

swisspikemen51.jpg

.....From this point on, not only did nobody f*** with Switzerland, but basically every ruler from Austria to France spent the next hundred years or so hiring Swiss Pikemen to fight for them as badass neck-obliterating mercenaries. The Swiss were happy to comply. Decked out in garishly-big-pimpin' uniforms, Swiss merc bands hired themselves out to anyone who would pay them, kicking ass from Spain to Italy and carting off all the plunder they could carry. In 1494 they helped the French conquer Naples. In 1525, they conquered Milan, then fought against the French. The back-and-forth was so intense that Kings were hiring them not just because they wanted the best infantry in Europe, but also because they didn't want to have to face these guys in combat, and various Kings routinely found themselves in bidding wars to see who could secure the services of Swiss pikemen. To this day, there's a saying in France that dates back to this time period – "No money, no Swiss."

Oh yeah, and the Swiss took their jobs really damn seriously. Remember that "no quarter for the invaders" thing? It applied to their mercenary work as well – any foreign mercenaries caught by the Swiss in combat would receive no mercy and be massacred on the spot. It was the Swiss way of making sure there wasn't any competition for their merc jobs.

The Swiss would battle through the Middle Ages, staying strong until the eventual ascendancy of cannons and muskets phased the pike out as a viable infantry weapon. But even in the twilight years of their power they stayed badass – ........ .... .....To this day, the Swiss still serve as the personal bodyguard of the Pope.

http://www.badassoftheweek.com/index.cgi?id=31684493594

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Reposting this from a private board I moderate. There's probably going to be a few days / weeks of fallout from this.

--------------------------------------------------------------------

The Good Stocks must now pay for the Bad Trades.

A retired Wall Streeter told me that this morning. This Swiss Franc thing was HUGE and totally unexpected leaving, as Warren Buffet famously, all the naked in the water when the tide went out. He said, "so please think about how they are positioned and what they are going to have to unwind."
Then Phil Davis said:
Needless to say, hedge funds who made the very usual, very normal short bet on the Swiss Frank are F'd this morning. As the Euro had been very weak recently, there were a large amount of short bets on the Franc (CHF) in expectations of the SNB stepping up their Euro-buying program to get back to their usual 1.20 goal.
those wrong way currency contracts (and there are 1M of them on this chart)lose $1,100 PER PENNY move. That's $22,000 on a 0.20 move in CHF x 1M = $22Bn in losses this morning for currency traders. Someone is gonna have some 'splainin' to do!

I think everyone jumped onto the news, and the FX went directional. I don't think traders predicted which way it went. Risk a pound to go either way, but ride the move. It would have been very profitable for people on the inside who knew about trading and when the announcement would be made.

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I should have bought a Swiss Ski Chalet with debt......a good investment!

_80179117_80179116.jpg

That's another Builder Burger memo note I didn't take down, as well as the Oil price. I thought the conference was a a jolly up and for free tea and biscuits!

untitled.PNG

Edited by 200p
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http://www.bloomberg.com/news/2015-01-15/new-zealand-currency-broker-closes-on-losses-after-swiss-shock.html

The franc surged as much as 41 percent versus the euro on Thursday, the biggest gain on record, and climbed more than 15 percent against all of the more than 150 currencies tracked by Bloomberg. Dealers in London at banks including Deutsche Bank AG, UBS Group AG and Goldman Sachs Group Inc. battled to process orders yesterday when the SNB surprised markets with its announcement in Zurich.

..

“Clients experienced significant losses” after the franc’s surge, FXCM said in a statement dated Jan. 15. That “generated negative equity balances owed to FXCM of approximately $225 million.”

..

Drew Niv, FXCM’s chief executive officer, said that individual currency traders are enticed by the chance to control large positions with little money down, in remarks that were published in Bloomberg Markets magazine’s December issue.

“Currencies don’t move that much,” he said. “So if you had no leverage, nobody would trade.”

The company warned investors in a regulatory filing last March that its risk controls were imperfect. FXCM had 230,579 retail customers on Dec. 31. They traded $439 billion of currency in December, with an average of 595,126 trades a day.

“Some of our methods for managing risk are discretionary by nature and are based on internally developed controls and observed historical market behavior,” the company said in the regulatory filing. “These methods may not adequately prevent losses, particularly as they relate to extreme market movements.”

O dear sounds exactly like 1929. Perhaps not trading not speculating in currency is the better option....

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http://www.bloomberg.com/news/2015-01-15/new-zealand-currency-broker-closes-on-losses-after-swiss-shock.html

O dear sounds exactly like 1929. Perhaps not trading not speculating in currency is the better option....

Yes I was wondering how this could hurt currency 'traders'.

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Yes I was wondering how this could hurt currency 'traders'.

My guess is that some market makers will have large paper profits, but their clients will not be able to pay them.

Others will have large losses, and be unable to pay their clients.

Alpari just entered insolvency:

Russian Market @russian_market · 10 seg Há 10 segundos

ALPARI HAS ENTERED INSOLVENCY #Francogeddon

Excel yesterday

L0gg0l: Just 12 hours after the SNB shocked the world, a first casualty: Forex broker Excel Markets forced to quit

Barclays cancelling trades too:

L0gg0l: Market breakdown? RT @AndreaHotter: #Barclays cancels Euro Swiss trades on back of ISDA-related issues, market sources tell MB. Unconfirmed

Zerohedge:

http://www.zerohedge.com/news/2015-01-15/2-fx-brokers-suffer-significant-losses-after-snb-surprise-breach-regulatory-capital-

two FX brokers (US-based FXCM and New Zealand-based Excel Markets) announced tonight that they “can no longer meet regulatory minimum capitalization requirements," due to "significant losses" suffered by clients. For FXCM these losses mean a $225 million negative equity balance and they are actively discussing alternatives with regulators. For Excel Markets, it is over... "we will not be able to resume business...Client positions will be closed within the next hour."

FXCM is in trouble...

  • *FXCM: CLIENTS EXPERIENCED SIGNIFICANT LOSSES AFTER SNB MOVE
  • *FXCM: NEGATIVE EQUITY BALANCES OWED TO FXCM ABOUT $225M
  • *FXCM: MAY BE IN BREACH OF SOME REGULATORY CAPITAL REQUIREMENTS
  • *FXCM DISCUSSING ALTERNATIVES TO RETURN CAPITAL TO PRIOR LEVELS
Edited by weaker
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I think the SNB have got this exactly wrong, unless Germany is leaving the euro.

If it's just about the pending QE then it's the wrong move. As we have seen, QE creates demand for bonds and currency as speculators buy all the bonds they can lay their hands on, to sell them risk free to the central bank. The SNB just sold them right before the buyer of last resort came in and took them at a higher price.

ALL those hedge funds were not stupid, just maybe the SNB is the stupid party?

(again, unless Germany is out)

Just sold what?

SNB has been buying bunds. See SNB b/s I posted above.

This thread is full of stuff & nonsense about SNB losing 100 bn and all sorts of sh1t.

With ZERO evidence.

Ive asked KB to post his evidence rather than assertions. Nada.

Edited by R K
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The lesson of Alpari (and the other brokers losing in aggregate £00s of Ms) is

Rule #1: DON'T TRUST C BANKS

Rule #2: See #1

I tell you, with Oil and CHF, I'm actually starting to wonder if we have seen the start of 2008.2 - which like all Hollywood sequels will be bigger than the original.

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Lagarde didn't know. Jordan didn't want move front run Full marks to him.

Cost of peg CHF50-100Bns 10-20% of GDP

F'g c bankers!

#turningjapanese tumteetumteetumteetum

The Great Big Swiss Roll.... it has just occurred to me, or have had that one before.

Although it's going to roll again in the future imo, if it strengthens and sticks at a level which hurts Swiss economy and competitiveness (not sure what that point might be... this strength last seen in.....?) and we see Swiss kicking out hundreds of thousands of temporary workers - unless market participants don't mind about that vs if they perceive worse options in other currencies, and force costs on Switzerland. Markets will decide, unless SNB pegs again at some point.

Allowing my imagination to run away here... the move allows those holding cash to see how it affects indebted or complacent bulls in Swiss stocks/housing, perhaps to pick up assets at lower prices, so maybe it will be sustained for a while....perhaps long enough for younger Swiss to put their savings towards buying a house + take a mortgage. Same for all world wide holders of CHF; a deflationary trigger perhaps. Pump and dump.

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All the currency fund/dealer blow ups.

Seems to me this is classic asymmetric outcome a la Taleb/Soros.

The ONLY bet anyone should have had on swissie peg was a long volatility bet.

Instead it appears most people chose to be Turkeys. Yesterday SNB decided it was Xmas.

Theres no such thing as a gaussian distribution in financial markets.

Theyve just (re)proved that.

DONT BET ON static disequilibria. You WILL go bust.

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http://www.telegraph.co.uk/finance/economics/11347894/Swiss-franc-shock-triggers-mortgage-panic-for-wealthy-homeowners.html

One for Libertas - broker quoted at the bottom says that Swiss people buying property in London which is suddenly cheaper will NOT be enough to stop the slowing London property market.

Also, confirmation that a lot of people are going to hit by the impact on Swiss denominated mortgages - including Russians

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Bloomberg:

“I would be astonished if we did not see more casualties,” Nick Parsons, the London-based head of research for the U.K. and Europe at National Australia Bank Ltd., said by phone from Sydney. “This was a 180-degree about turn by the SNB. People feel hurt and betrayed.”

Oh dear.

Lol.What a dick!

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If the SNB has been buying bonds denominated in euros, it has just seen the value of those bonds decline in its own currency.

Of course, until they sell it is still a paper loss. The income stream has fallen if they continue to hold (to maturity. So whichever way, their holdings are less than before.

Of course, where is the 'loss' if you just print money and live off the income streams of other countries. Nice work if you can get it. But if that is your strategy, probably best to buy more when your currency is strong and less when its weak. Doing it to buck pricing in the market is not a great bet in its own right.

and dollars. over several years using money they printed

USD/ChF only back to its level 1 yr ao.

Also, dont forget the corollary - What happens if SNB continues to buy Bunds as Euro plummets (if it does) after QE? and the benefits accrued during the period on the peg. Peg was for a reason.

You cant just take nominal value on Weds v nominal value next day and conclude anything. Why do people just repost nonsense they read on the web as FACT.

Edited by R K
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http://www.bloomberg.com/news/2015-01-15/snb-officials-eating-words-risk-long-lasting-market-indigestion.html

Switzerland’s central bank officials have just eaten their words, risking lingering indigestion in financial markets.

Just three days after Swiss National Bank (SNBN) Vice President Jean-Pierre Danthine called the franc cap a “pillar” of monetary policy, the SNB yesterday dropped the minimum exchange rate of 1.20 per euro.

The shock abandonment of the SNB’s primary policy of the past three years may now leave investors warier of taking officials’ words at face value, according to economists including Karsten Junius, chief economist at Bank J. Safra Sarasin AG in Zurich. By scrapping one tool, the franc cap, SNB President Thomas Jordan risks blunting the effects of another.

“The SNB’s credibility has suffered a bit,” said Junius, a former economist at the International Monetary Fund. “Statements will get read in the future with a bit more caution. Verbal interventions will hardly work any more.”

..

SNB President Jordan yesterday defended his surprise move, saying that a tool like the cap would always need to be abandoned unexpectedly. Anatoli Annenkov at Societe Generale SA agrees.

“It’s something we aren’t used to anymore because most central banks are talking about warning markets, improving communication, not surprising anymore,” Annenkov said by phone from London. “But in such circumstances, there’s basically no other way to do this. Markets would have speculated, positioned themselves beforehand.”

Some people seem really upset they weren't told.

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http://www.telegraph.co.uk/finance/economics/11347894/Swiss-franc-shock-triggers-mortgage-panic-for-wealthy-homeowners.html

One for Libertas - broker quoted at the bottom says that Swiss people buying property in London which is suddenly cheaper will NOT be enough to stop the slowing London property market.

Also, confirmation that a lot of people are going to hit by the impact on Swiss denominated mortgages - including Russians

I can't get my head around those rich enough to be living in still relatively tax-friendly (unless they look to squeeze non-dom equivalent for revenue in future) Switzerland, one of the safest and cleanest countries in the world...the perception of neutrality and security and financial wealth.... let's say downtown Zurich... rubbing their hands at buying a PCL house. They've already got tax-friendly positions in Switzerland.

Although I could fully understand the impulse if more Swiss real estate owners go looking to STR their properties in Zurich and everywhere else in Switzerland.

Having 2 houses is expensive, and the Global top 1% (only 9% of their wealth in real estate according to recent report by New York professor)... well they know property, running, maintaining, and then Govs a concern with talking up all sorts of new real estate taxes, stamp duty at top increased... if PCL is as overvalued and prone to falls as I think it is, they're not that dumb... the real money that is; although to be fair it has been pulling in such buyers. Perhaps tapped out younger Swiss with some savings could be attracted (or their ultra rich parents there), but not PCL, from this point... if they expect UK HPC they won't buy PCL and when sentiment changes, as it appears to be doing.... All imo.

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You can imagine who gets told, when they get told and how much money they make as a result of having advance warning of being told or being in a psoition of having that information to pass on.

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