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Asymmetric Threats Contingency Alliance

Did the Swiss Franc Just Light A Crisis Fuse?

SWITZERLAND - bridging the ravine

Financial World In Shock

As the value of a euro plunges significantly against a Swiss franc, we are on the cusp of a major financial event.

World central bankers have now been put on deflation alert as interest rates have been moved to -0.75% by the Swiss central bank. In the annals of financial history 15th January 2015 will go down as monumentally significant.

ATCA 5000 already indicated in early January 2015 that this year is going to be extremely turbulent. Note, "Why's the Oil Price Collapsing? Answer: $8+ Trillion Carry Trade" and "Amber Alert: Emerging Markets Financial Crisis?"

The formidable Swiss franc made a massive, unprecedented and epochal move in terms of foreign exchange markets, ranging from 15% to 30% swings in a single day, as though it was an insignificant currency without the decorum of a hard, reliable and solid asset which normally only moves by a few percent a day when in the midst of a monumental shift. 

Negative Interest Rates

If such negative interest rates were to be deployed by other major central banks eventually, wouldn't this have profoundly awkward consequences for the future of banking, finance and world trade? 

In parallel, note the relentless downward march of government bond yields from Japan to the US and from Germany to the UK.  The SNB's latest move may be the clearest indication yet that de facto negative interest rates may be the next chapter in the global financial crisis for certain major nations whilst other commodity producing countries go towards becoming modern Weimar Republic equivalents with double digit inflation and eventual hyperinflation. 

Swiss Reliability?

What has happened on this day is going to wreck the Swiss National Bank's reputation as a reliable and credible force in international markets. 

Why did the Swiss central bank governor Thomas Jordan and his deputy Jean-Pierre Danthine give interviews in recent weeks and months that the Swiss franc would not be allowed to rise beyond the cap against the euro of CHF 1.20?  Clearly the European Central Bank (ECB) is about to do something major in terms of printing money, i.e. quantitative easing. Did this scare the Swiss central bankers into a U-turn? Especially when:

  1. This single event will bring further suffering to the beleaguered Swiss private banking and private wealth management industry; and
  2. It will also hammer Swiss exporters and risk importing deflation through the Swiss current account.  

No wonder the Zurich stock market fell by nearly 9%, its biggest one day fall since 1989. 

Unintended Consequences

It may take years to understand what really happened on this day, because its unintended consequences will continue to cascade.  Rumours from trading desks abound that some very big UK and US based macro hedge funds were caught short on the Swiss franc, and may get severely damaged as a result of their positions and associated margin calls.

Eastern European currencies tumbled and banking stocks slumped after Switzerland’s move to allow its currency to appreciate stoked concern individuals will struggle to repay loans denominated in Swiss francs, which have been very popular in Eastern Europe.  The Polish zloty, Hungarian forint, Romanian leu, Bulgarian lev and Czech koruna were the biggest decliners against the franc today among 24 emerging market countries. 

As this is an evolving situation, ATCA 5000 will return to this subject.  

Key Question 

Why did this event fundamentally change the course of financial history not just for Switzerland but also for Eastern and Western Europe -- albeit for different reasons -- and perhaps for the entire interlinked global economy?


What are your thoughts, observations and views?  We are keen to listen and to learn.  Please add your comments below.

DK Matai

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All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Comments (5) -

  • Prabhu Guptara

    16/01/2015 00:54:35 |

    In the absence of a sensible global financial architecture, it is every nation for itself.

    The SNB acted as it did because it had no alternative, even though it is going to be costly for the Swiss economy in the short run, it is going to be good for it in the medium term (but what is the length of a "run" or a "term"? no one knows nowadays...)

    In spite of marginally negative interest rates, the strengthening of the Swiss Franc will mean more global funds flowing into Switzerland, as people realise that the days are over in which one could make money from emerging markets without considering political and currency risk.

    Emerging markets will be hit even harder than they were before the SNB move.  Expect other moves to follow which will strengthen the US and Swiss economies and weaken others.  Expect huge turmoil in emerging markets.  

    The only alternative, to the current disarray and the momentous negative consequences which will follow for most of the world, is to put in place a sensible global architecture which embeds the values of reliability, transparency, accountability, equity, freedom and human rights.  We have talked about such things for decades while steadily reducing the framework for these globally since the 1980s.  

  • Royston Flude

    16/01/2015 11:13:34 |

    For Thomas Jordan the Head of the SNB, to take this action having previously stated that the Swiss Franc will be pegged against the Euro with a willingness to intervene to 'unlimited amounts' can only mean that an asymmetric threat or 'Black swan' event has been foreseen.

    The nature of this threat is one of conjecture but we are experiencing unprecedented levels of both natural and complex disasters, With the Derivatives market exposure in excess of 2,000 trillion USD and a global GDP of say 80 trillion USD it is a system sustained like the South Sea Bubble on a distorted belief system. Fractal banking now means that Tier 1 levels are only 7% (Basel). Any Financial Call on the system could be catastrophic. Whilst quantitative easing has worked to a degree and probably stalled a Euro Crash in 2013, it cannot be an ongoing solution.

    To this mix you add the political uncertainties and the brinkmanship that is currently going on. I understand that Russia is planning to cease gas supplies through its Ukraine pipeline that will impact severely on Southern Europe and could trigger a recession in what is already a very fragile Socio-Economic region.

    There would also appear to be an agenda by the BRICS to move to an alternative gold backed alternative to the USD. The Swiss Currency with be considered by many to be the security location of last resort. Individual Inward investment into Switzerland from the BRICS is likely to be substantial.

    Added to these variables the potential of pandemics coming from both China and the Middle East is becoming a 'clear and present danger' that could impact of gas supply and cause civil unrest.

    Now is a time for careful reflection and risk management, particularly for family businesses,

    It will be interesting to see how the ECB and other Central Banks react in the coming days. weeks and months

    • David Tiessen

      20/01/2015 20:27:48 |

      Black Swan event seen or being created? The ebb and flow of the economic cycle is rarely left to the natural forces of supply and demand but is manipulated by inflating and deflating the money supply by those pulling the strings to who's best interest?

      The waning of the markets is only to be exacerbated by the repeal of Glass Steagal and removal of the uptick rule. 2008 would not of occurred if these 2 important curbs created after 1932 had not been removed. What purpose was served removing these market stabilizing rules? To who's best interest?

      As an economic major, lifelong trader, and economic anthropologist it is clear to me that 2008 was akin to 1929 and what comes next is 1932. All by design as it was then.

      "The world is governed by very different personages from what is imagined by those who are not behind the scenes." - Benjamin Disraeli, First Prime Minister of Britain

      "The Great Depression was not accidental, it was a carefully contrived occurrence. The international Bankers sought to bring about a condition of despair here so that they might emerge as rulers of us all." - Louis McFadden

      "Capital must protect itself in every way. Debts must be collected, mortgages foreclosed as rapidly as possible. When through the process of law the common people lose their homes, they will become more docile and more easily governed through the strong arm of government applied by a central power of wealth under leading financiers. People without homes will not quarrel with their leaders. This is well known among our principal men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd. It is thus by discreet action we can secure for ourselves that which has been so well planned and so successfully accomplished." -Sir Denison Miller U.S. Banker's Association Magazine, 1924

      "The Illuminati bankers rule the world through debt, which is money they create out of nothing. They need world government to ensure no country defaults or tries to overthrow them. As long as private bankers, instead of governments, create money the human race is doomed. These bankers and their allies have bought everything and everyone." - Henry Makow

      "Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them but leave them the power to create money, and, with the flick of a pen, they will create enough money to buy it back again. Take this great power away from them and all great fortunes like mine will disappear and they ought to disappear, for then this would be a better and happier world to live in. But, if you want to continue to be the slave of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit." - Sir Josiah Stamp, President, Bank of England (2nd richest man in England)

      "All the perplexities, confusions, and distresses in America arise, not from defects in the Constitution or confederation, not from want of honor or virtue, as much as from downright ignorance of the nature of coin, credit, and circulation." - John Quincy Adams

      "We are on the verge of a Global transformation. All we need is the right major crisis and the nations will accept the New World Order." - David Rockefeller to the United Nations Business Council on September 23, 1994

      "We shall have world government whether or not you like it… the only question is whether or not it be by conquest or consent." - James Warburg, Rothschild Banking Agent, 1950

      If mankind is ever to have peace and prosperity for all, not just a few, each nation needs to gain control of the issuance of it's own money supply. Until then Captain Ahab is at the helm.

  • John Whiting

    17/01/2015 08:18:54 |

    With the entire global economy on the point of implosion, the traditional safe havens are as vulnerable as everyone else.

    • Royston Flude

      17/01/2015 09:38:44 |

      I agree. The Chinese have put their faith in the mountainous regions and made Chengdu the secondary capital. Some months ago, I met with their 'remote viewers' who predict chaos and instabilities of unimaginable proportions. Who knows who is right?

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