Learning Markets reports that quantitative easing could send USD/CHF to 1.2300.
(emphasis mine) [my comment]
Quantitative Easing Could Send USD/CHF to 1.2300
The Swiss government appears to be playing "follow the leader" with the British government and the U.S. government as it jumps into the quantitative-easing game.
On the heels of an interest rate cut from 0.50 percent to 0.25 percent by the Swiss National Bank (SNB)---led by Jean-Pierre Roth [aha! Now I have the name of the man leading the Swiss franc to ruin.], the Swiss government began flooding the market with Swiss francs (CHF) to curb the increases in value the CHF has seen during the past few months.
As a so-called "safe haven" currency, the CHF has been appreciating in value during this economic crisis. But now, with the Swiss government intervening, the CHF will most likely continue to lose value---which could push the USD/CHF currency pair as high as 1.2300 in the short term.
My reaction: Swiss National Bank (SNB) is "flooding the market" with printed Swiss francs in order to buy worthless dollars. (Reminder, I used to live in Switzerland long, long ago. So I am a little ticked off by the poor leadership of the SNB in recent years).
Why is the SNB working to destroy the Swiss franc? The credit goes to Jean-Pierre Roth, president of the Swiss National Bank.
Who was responsible for Switzerland's disastrous decision to sell 1300 tons of gold? You guessed it, the current head of the SNB: Jean-Pierre Roth. The details are below.
Swiss Info reports gives a quick bio of Jean-pierre Roth.
Jean-Pierre Roth was born in 1946 and started working for the Swiss National Bank in 1979 after a period of teaching at Geneva University.
Between 1986 and 1996 Roth was in charge of foreign exchange and money market operations at the central bank.
In 1996 he was made a vice-president with responsibility for capital markets, bank notes, liaising with the government and controlling gold reserves.
Five years later he was promoted to the role of president, steering the central bank through the challenges of the 9/11 terrorist attacks in the United States in 2001, the introduction of the euro currency throughout Europe and the start of the current financial crisis.
Roth has also chaired the board of the Bank for International Settlements, based in Basel, since 2006. He will step down from this role in March.
Finally, in Berne on April 29 2005, Jean-Pierre Roth, speaking at the general meeting of shareholders of the Swiss National Bank, gave the following speech about the completion of the Swiss gold sales.
Completion of the gold sales
On 31 March, we completed our sales of the 1,300 tonnes of gold no longer required for monetary policy purposes [Arrrg]. These sales had begun on 1 May 2000. The fears expressed in some quarters that our gold sales would destabilise the market have proven to be unfounded [Of course they did.]. By selling the gold in small instalments and according to a fully transparent schedule, we succeeded in assuaging the market's fears. Moreover, our sales strategy and risk hedging also proved effective in financial terms: the 1,300 tonnes of gold were sold at an average price of CHF 16,241 per kilo [CHF 16,241 per kilo. Keep that number in mind]. This was CHF 700 more than the average market price during the same sales period. An additional profit of more than CHF 900 million was therefore realised.
At the end of the sales program, the National Bank still held 1,290 tonnes of gold, corresponding to one third of the value of its currency reserves. [In other words, instead of being two third gold and one third wortless paper dollars, Swiss foreign reserves are now two thirds worthless paper dollars and one third gold.]
Even though it has been demonetised, the yellow metal still plays an important role in our reserves [Then why did you sell over half of it?]. It is an asset category that traditionally affords good protection in times of crises in the international monetary system [Yes, wouldn't it be nice to still have that gold now?]. It also allows us to hold part of our reserves on our own country, which is not possible with financial assets. Moreover, as expressly requested by Parliament, Article 99 of the Federal Constitution requires the National Bank to hold part of its currency reserves in gold [Thank god! Otherwise you would have sold all of it, wouldn't you?]. The Governing Board considers that the holdings of 1,290 tonnes are appropriate to the current international environment. It does not intend to proceed with further sales of gold.
Average price of Swiss gold sales: CHF 16,241 per kilo
Price of gold today: CHF 35,405 per kilo
Difference: CHF 19,164 per kilo
MINIMUM cost of Jean-Pierre Roth's decision to sell 1300 tons of Swiss gold: CHF 22,600,874,865
Conclusion: Switzerland might be a safe place to keep your gold, but the Swiss franc is not a safe currency to hold your cash. Jean-Pierre Roth is a true Keynesian who believes "gold is a relic" and printing money (quantitative easing) is the costless solution to all the world's problems. So until Jean-Pierre Roth from the SNB, stay away from the Swiss franc.
I stand on the side of SNB and cant see the proof in Roth's bio, he was not corrupted working for UBS or Wall Street houses.
Seems like SNB (which is owned by Kantonal banks) bought EUR cash the day _before_ announcement, then bought gold, locked it under Sihl river bed, and then announced CHF devaluation.
It is true that Swiss sold some gold after SNB unpegged from gold by Swiss referendum in 2000. However, who bought this gold? Knowing the swiss, it was likely bought by swiss kantonal banks themselves and actially SNB profited from it (as owned by kantonal banks, by the way ZKB now have ETF truly backed by gold).
just curious...is it possible that the governments are moving away from gold truly? in other words, is it possible that part of the new economic system is one in which gold will play absolutely no role? It's hard for me to envision such a scenario, but I am curious to hear others' feedback to the potential scenario.
i forgot to say, is it possible that the wealthy are not buying up the gold? (even though it's just as likely possible that they've setup all these gold derivatives to get the masses into paper gold while they collect the real stuff.
thanks
Paper gold ETFs have been made public for physical gold price suppression but then it turns to be an easy rip-off from scary ordinary folks (who don't read blueprints of GLD and watching Skynews) and then it is a good fiat money sink in rainy day - just present madoff in certain time.
Governments and real money makers (not necessary new world order lodge, just an association) hate gold because through human history gold was used to reset our debt to them to zero, so it is just their genetic fear.
Though the gold can't be used as a baseline nowdays, unless things turn really ugly.
There are alternative to the monetary system that is collapsing now.
Public key cryptography plus internet. Look for example here:
http://en.wikipedia.org/wiki/David_Chaum
http://en.wikipedia.org/wiki/DigiCash
http://entmag.com/archives/article.asp?EditorialsID=6094
(The reasons of DigiCash failure are presented hillarious, clearly it was op by you know whom). Now
http://en.wikipedia.org/wiki/Ripple_monetary_system
It might be that in fact such system is already in place on global scale, but the boys who using it can't figure out how to keep it for themselves in the future. Or they figured it out (by RFID, GoogleID or old fashion passport chips?) and just calm the excitements of the crowds to the day of announcement.
Suppose my crazy hypothesis about incoming transition to the new global cryptomoney is true. Then it should be something that is used for transition of wealth between current monetary system and a new system (otherwise it will be global unrest as never seen before).
What is it? Substance of wealth (not likely), media, some kind of process? If I knew this I would not keep posting about it here lol ;)
Something profound is going in financial math field, notably in prediction markets. What is Credit Default Swaps trading? It is essentially betting exchange worth of 500 trillions.
As for returning to the gold, if we take all the gold that have been dug up through the human history and divide it between all of us, it will be 25 grams of gold per head. (and if we start put gold again in a pool and promise that we will never ever print more money then in the gold value, do you believe that this time we keep our words?)
I've been wondering though:
The Swiss may have few other options than to devalue their currency. The strength of CHF paradoxically could destabilize their entire financial sector through writedowns and devaluations.
Considering that a large number of mortgages in Eastern Europe were written in CHF - as well as many other business loans &tc; as part of that carry trade. As those currencies tank against the Frank the Swiss are faced with two main options:
#1 - Keep their currency strong, and watch those assets default, losing up to 100% of their value.
#2 - Devalue the currency in a controlled and measured fashion so as to keep those loans performing.
So long as a large share of their trade partners are also devaluing, it prompts the question of how much they as a nation would really lose by doing so. Especially compared with what they would lose via a banking collapse brought on by spectacular losses.
So it all comes down to a cost-benefit analysis for them. And it would appear that they believe their interests are not served by having such a strong currency.
Perhaps there's something coming down the pipe which they know and we do not (yet).
Swiss are notorious for their public modesty. Just a couple of my observations from 90s:
No price tags in prime shops;
Significant SWX trades done after-hours.
I think that the Swiss heard the margin call to US from China and Carribean (check the Fed bonds foreing holders :P)
I wonder what's with this Nadler guy at Kitko, ever so bearish on gold. May they be in bed with Barrick's short positions? Just a thought.