The euro has been abandoned by Switzerland.OK. My buddy is on vacation in Argentina or else I'd be blowing up his inbox for his take on things.
Switzerland is of course not a member of the single currency but the Swiss National Bank's (SNB) decision yesterday (15 January) to remove the enforced ceiling of 1.20 Swiss franc per euro essentially demonstrated the tax haven country's complete loss of faith in the currency that it has been pegged to for the last three years.
The Swiss franc has risen to around 15% in value against the euro since the SNB move that shocked markets globally.
In the world of foreign exchange, a 2% rise in a single day is seen as a massive jump, to put the 15% rise into context.
What's the cause?
The most pressing and unspoken reason for the SNB's decision is that in order to maintain a low Swiss franc against the euro, the SNB had to sell its franc reserves and buy euros.
This led to large increases on the euro reserves they held. As any individual might have done, the SNB decided to cut its losses on the euro and abandon what they undoubtedly see as a sinking ship.
Since he isn't here I'll pass along what I've read...
1. The Swiss dumped the Euro because the EU Federal Reserve (or whatever they call it) is about to do American style quantitative easing.
2. Currency traders are taking a beating. One watched stock is down 88% and they halted trading on it.
3. Many speculate that the US will have to do another round of QE because the US dollar is getting TOO strong! Ordinarily I'd cheer a strong dollar but it works against this globalization scheme that has been hoisted on us and will have our shores flooded with a new wave of cheap Chinese products as they keep there dollar low.
4. Commodities are taking a beating. Employment figures are being manufactured out of whole cloth. The US consumer is supposedly enthused about the future but layoffs in the oil industry are coming which means that a recession is coming with a quickness.
I'm still waiting to see (meaning trying to figure out) what all this means. I know its another danger sign on top of tons of danger signs out there.
More to come I'm sure.
Nah, it's more like they got tired of trying to keep with a declining Euro rather than what is going to happen. It's all tradeoffs. You keep the franc pegged to a low Euro, your exports become competitive, but the reverse, all your imports become more expensive is also true. This equals inflation. So the Swiss finally said "Sod it" to all the inflation and let their currency appreciate. Won't affect the rest of the world much other than cause fluctuations that will stabilize in a few days, it primarily affects the Swiss themselves, not much is pegged to the franc. What you're seeing now is simply investor jittery which are baseless.
ReplyDeleteThink about the bright side....Cheaper Tobleron bars and Victorinox knives. Also Bollywood movies doing a song and dance routine in Switzerland just got cheaper.
DeleteBy the way, think easing quantitative actually causes the dollar to drop, not the other way round. QE works against deflation (which means that you have a weaker dollar as deflation means that you can buy more things with your dollar). Once QE is abolished, deflation is allowed to take place, which means a stronger dollar.
ReplyDeleteSo if the USD is too strong, it is a sign to STOP QE, not start it.
Swiss didn't dump Euro (as They have nothing to do with Euro) they just stopped rigging the Franc value as it cost to much to defend it. As everyone is expecting the ECB to flood the market with euro in European version of QE
ReplyDeleteCurrency traders are parasites of the highest order and deserve to go bust.
European bussines is becomming more and more competitive as Euro value drops (in 2008 Airbus was considering moving some production to US do to cheap dolar)for example a 10% ddrop in euro-dolar exchange adds Airbus a bilion Euro in bottom line so vice versa every 10% euro drops against USD hurts Boeing probably in similar billion US range and makes LMs F35 even more unnafordable for partner nations.
Slight modification WRT Airbus. The issue with Airbus is that the majority of the market prices things in dollars, this includes Airbus selling in dollars as well! Their heavy exposure is when they convert from dollars to Euros.
DeleteBoeing has less general exposure as their selling prices are already in dollars and therefore they don't have a selling currency to local currency conversion.
Mr. T
Delete"Currency traders are parasites of the highest order and deserve to go bust."
An extension to your statement if you agree-
Financial Speculators are parasites of the highest order and deserve to go bust.
"Currency traders are parasites of the highest order and deserve to go bust."
ReplyDeleteHey...!!
:P
Sometimes, you got no choice if you work for a multinational, your purchasing is worldwide in all sorts of currencies, and unfortunately, so is your pay.
What they tell us, in The Netherlands, is that the biggest problem facing the Euro a.t.m. is the inflation is TOO LOW.
ReplyDeleteIf someone had told that to my 'high school' economics teacher he would not have been able to explain it.. at that time we were fighting growing inflation.. it is always something..
Switzerland shows one other thing: the problem with TOO MUCH democracy, They have referenda about just about everything and wile I admit this can also stop bad politics in cases, it also stops thier government from doing things that noone realy wants to pay for, but that are needed.. like having a credible airdefense.
The Swiss government ordered a bunch of Saab Gripen's, but the public voted against the buy, so it was scrapped.
The result is that the Swiss now only basically police their skies on working hours of weekdays every other week.. or something like that. If you can not or won't afford the cheapest modern fighter there is, then you have a problem.
Defense is like fire insurance, you hope to never ruse it but you can not afford to miss a payment, because you never know...
Wow nice to hear that, i thought that the dutch were way more german influenced with an inflation-phobia as them.
DeleteIn today's world filled with "terrorism of a particular kind", a country that bans the construction of "minarets" just cant afford to have a shabby air force.
DeleteMeriv:
DeleteSadly the dutch government does not deserve much praise, they are still gutting defense budgets.. to try and be 'fiscally conservative' . Had anyone told us in the '80s that a right wing party would get rid of ALL our tanks.. we would have laughed our behinds of. The peace/anti-nuclear-weapons movement seemed the biggest enemy of a solid defense. Turned out they mostly died a quiet death wile money became the enemy.
It seems we do still have a few tanks, since parliament has put a halt to those sales.. but not many and not operational.
The air force , which not long ago had over 150 F16's and now still has 61, with which it has trouble maintaining readiness wile also having planes helping NATO, will get... hold on to your hat.. 35 F35's ..
35!
Ridiculous... even buying new F16's would have been better.
1. Thats a fear, theres no guarentee its going to happen
ReplyDeleteThe oher problem is simply one of scale, the SNBs holdings of Euros has reached 70% of GDP,
I think Chinas reserves that it has been stockpiling for nearly two decades are about 50%
There are economic side affects, think Tokyo Property Bubble.
2. Yep, with bells on it. Wrong side of that trade and on margin, time to open a window and take the quick route downstairs,
3. Could be on the cards, Yellen is against it so far, but she has defined, when X = Y do Z thinking, so she'll print if she sees a need. Ambrose believes their is a possibility that W is driving X to Y.
4. The recent oil crash will doom a few boom towns, but the concentrated losses will be far out weighed by distributed gains. Its bad for the dozens (hundreds?) of towns that lose 50% of their economy, but there are tens of thousands that will get a boost of a few %.
And if it goes bad, more printing.
MrT
"Currency traders are parasites of the highest order and deserve to go bust."
Right....
Lets hope you never want to Visit London on holiday, or listen to One Direction, or buy Viagra, unable to trade your dollars for pounds.
Veldman
Lets say I earn £100 a week,
I spend £50 on mortgage interest, £30 on essentials, £20 on luxuries
Theres inflation
My wages go up to £110, my mortgage is fixed at £50, my essentials go up to £50, and I only have £10 to spend on luxuries. That sucks, but I'll get by.
If theres deflation.
My wages go down to £80 (either I take a voluntary pay cut, or my employer goes bust and I get a lower paying new job)
My mortgage is fixed at £50, My essentials fall to £25, leaving me £5 for luxuries.
More deflation, more pay cuts, until I cant afford my mortgage.
Inflation is nasty, it destroys savings.
Deflation is brutal, it destroys wages
off topic
ReplyDeletehttp://vigilantcitizen.com/vigilantreport/economist-2015-cover-filled-cryptic-symbols-dire-predictions/
Aggregate Layoffs in the Oil industry need to be seriously contemplated as actually being in the strategic interests of both USA and greater western 'And' developing world. Philippines for one, has caught onto this reality and sensible point of view, and is becoming a developing-world leader in pushing for greater investment in renewable energy reliance.
ReplyDeleteWe simply must get over the paradigm and trap of thinking short-term profits and short-term employment and GDP numbers et al. Mass-scale coordinated international Investment must be planned and implemented towards incremental, transition to renewable and emissions-friendly energy alternatives.
There is simply too much externalized cost coming down the road (above and beyond what is seen today) over the next 5, 10, 15+ years, in terms of likely conflict and economic upheavals, let alone ecological and human-health harm; with respect to staying the destructive and regressive course on Oil/gas dependence as it stands.
Short-term, sure, accelerated increased capacity in US and Canadian-based LNG intended for export, could help sustain industrial stability and interests, while further acting to offset instability and insecurity caused by various foreign market demand for LNG.
But it would be a prudent and calculated foreign policy chess move to pursue accelerated, coordinated, mass-scale alternative energy capacity and technology development, likewise.
You can't run a steel mill on wind turbines and solar panels.
DeleteNot if you want to sell that steel freely and fairly.
It takes approximately 440kwh of eletricity to produce a ton of steel in an arc furnace.
You aren't doing that with wind mills.
I can buy 60kw of panels for £25k right now, which is a little over 40p a watt.
Well under the psychological 1w$1 level, but there are still support costs, and oil is cheap again
Plus wind energy is unreliable. You cant ask mother nature to crack up the turbines to 85% and then dial it back to 65% anytime you like. Sure, you can mechanically restrain the turbines to a lower output when there is slack demand....but what to do when you want to speed it up and there is not enough wind velocity ?
DeleteWind/solar energy is a very usefull and economic side project. For a business whose main line is Thermal/nuclear energy or any refinery/industry of a slightly polluting nature, having this as a side project is excellent. Good PR, tax breaks, CSR, big brother boost to the renewable energy sector as a whole, contribution to the national electric grid etc.
If you have extra output you do as french do with their nuclear power... Italy buys its night time production excess and use it to pump back the water in the dams so in the morning we can use the water again :)
DeleteWhy people when thinking about green energies think only of wind and sun?
The only one that is mature and only in europe is almost completely used is hydropower, in italy we are even starting using micro plants, that are so small that makes economically viable putting them agricultural irrigation canals.
Sun and wind aren't fully developed yet. We still have a lot of more efficient energies to develop(like tidal one or forest biomass that are more reliable)
some analysis from a Russian expert:
ReplyDeleteSo, we can say that the hastily invented explanations of analysts (and this applies not only to Russian experts’ explanations, but in Europe and the United States are similar thoughtfully) do not explain anything in fact .
Will have to seek an explanation on their own. First, a few indisputable facts.
Fact № 1. On the eve of the collapse was the second night took an unscheduled emergency meeting Switzerland Central Bank (SCB).
Fact № 2. Start the collapse of currency does not correspond to the beginning of the trading day in Europe.
Fact № 3. Operations on the foreign exchange market were not carried out by the SCB, and some commercial banks. Who's it for now (to me) unknown.
Fact № 4. Switzerland Stock Index fell by more than ten percent per day lost about 100 billion dollars of capitalization.
Fact № 5. High franc is so harmful to export the Swiss economy that concern about this issue have already expressed publicly several heads of major Swiss companies.
Fact № 6. bankruptcy has already announced the biggest forex broker "Alpari", and it is not alone.
In addition to these facts, there is still a certain amount of speculation (a must-be thing). Rumors go that it causes the great difficulties for some of the largest hedge funds of USA. Also, they say that there have been serious problems in banking giants such as Deutsche Bank and Barclays. And in fact it is only the beginning. The “more-to-come” will be next week, when all try to deal with mutual claims and find out who will be the final victim.
And finally, before my case of arguments I give some very interesting questions:
1. If the decision was done by SCB at night, why the collapse began only at 11-30. If this is the time of disclosure, why there was no inevitable leakage and insider trading before? It's simply impossible.
2. Why would the Central Bank of Switzerland to shoot their own economy? And not only it, but also its own assets including. After all, if we assume that to this day the Central Bank of struggling against the market kept artificially relation to the Euro, to do something he could have only one way. Buying these shit tones Euros. And they are not idiots in this CBS, once removed from their own pocket bought up a third and burn in the furnace of the devaluation?
3. What kind of a world we live if a “8-million-country” is able to bring down the global economy trillions of dollars. Unpunished.
Good question, is not it?
taken here
http://chipstone.livejournal.com/1246595.html
"Fact № 2. Start the collapse of currency does not correspond to the beginning of the trading day in Europe."
ReplyDeleteThere was no start or finish
The collapse happened as soon as the SNB made the announcement, which was at 9.15am UTC
The author deliberately writes just Alpari? because it was Alpari UK? And this is only a small part of the Alpari brand. Alpari's all right.
ReplyDelete