a free gift to total newbies from MajorDutch

[meanreversion]

Regarding backing a central bank position as you suggested - this has historically been a very bad trade. 1 central bank vs the world ? But I hope you are right. Why not hey?

This is a common error regarding central bank action. There is an enormous difference between attempting to prevent your currency from strengthening, vs preventing it from weakening, e.g. SNB now compared to BoE in 1992.

The SNB have said they'll print unlimited CHF in order to prevent the EUR cross rate from going below 1.20 .... this is entirely within their power to do.

If inflation picks up in Switzerland, then they might have scope to allow the CHF to strengthen, but it's not a major problem at the moment. What is perhaps of more interest is what they'll do with all the EUR they receive when it gets to 1.20 .... keep them, or sell them to buy other currencies/commodities?

 

[scose-no-doubt]

"Someone shoot me if I get to 3,500 posts"

hahahahaha

 

[meanreversion]

I'll assume the "loosers" reference is bait. I'm not going to rise to it..

 

[scose-no-doubt]

stop moving the goal posts and embrace your t2w addiction.

have a quick look at the vendors are crooks thread. real potential.

 

[wackypete2]

I'll assume the "loosers" reference is bait. I'm not going to rise to it..

Hey, where ya been??
Nice to see you back

Peter

 

[wackypete2]

Hi Peter,

Sorry. Didnt mean to pick on your posts but the first one where you were talking about banks and their control of the fx market. I dont believe this is the case anymore. They dont have the fire power and although I dont doubt your stat of how much business goes thru their hands, it isnt their own prop trades. It is client executions - hedge funds and central banks. These 2 groups have the power (if any) to hit a cross 20 ticks or so - trying to give it some momentum. But even then, you can be banging on a stone wall. I've seen $100's of millions banging on crosses in quick succession and the market can take it on the chin if your timing isnt right.

Regarding backing a central bank position as you suggested - this has historically been a very bad trade. 1 central bank vs the world ? But I hope you are right. Why not hey?

Hope that's a better contribution...... (I didnt think t2w cared about contributions anymore, just a site of gunslingers).

All the best,

Thank you for the reply. I have always enjoyed reading well thought out posts and opinions especially when they differ from my own views. You never know when you might learn a thing or 2

Peter

 

[Martinghoul]

This is a common error regarding central bank action. There is an enormous difference between attempting to prevent your currency from strengthening, vs preventing it from weakening, e.g. SNB now compared to BoE in 1992.

The SNB have said they'll print unlimited CHF in order to prevent the EUR cross rate from going below 1.20 .... this is entirely within their power to do.

If inflation picks up in Switzerland, then they might have scope to allow the CHF to strengthen, but it's not a major problem at the moment. What is perhaps of more interest is what they'll do with all the EUR they receive when it gets to 1.20 .... keep them, or sell them to buy other currencies/commodities?

We know what they do with it... They diversify where they can (into gold, Scandies, etc). What EUR balances they end up with, they use to buy short-dated German bonds (which is yet another reason that all this talk of them not able to enforce the floor is rubbish).

 

[new_trader]

Huh? They buy Euro's to prop it up and then sell them again to buy other suff? Doesn't make a whole lot of sense but I'm not going to argue...whatever...the free market will win in the end.

 

[Martinghoul]

Huh? They buy Euro's to prop it up and then sell them again to buy other suff? Doesn't make a whole lot of sense but I'm not going to argue...whatever...the free market will win in the end.

Well, how do you think all CBs across the whole wide world manage their reserves? It makes all the sense in the world to invest the foreign ccy they end up with (EUR) in liquid, relatively safe, interest-bearing instruments, such as government bonds. EUR and "the other stuff" they buy are, essentially, one and the same.

As to the free mkt, I agree, the idiocy will stop and people will come to their senses. They'll realize that there's very little reason to buy Swiss franc.

 

[wackypete2]

Huh? They buy Euro's to prop it up and then sell them again to buy other suff? Doesn't make a whole lot of sense but I'm not going to argue...whatever...the free market will win in the end.

They're not trying to prop up the euro. They are trying to prevent the Swiss Franc from getting too strong against the euro via buying the eur/chf pair . They can print and sell francs until there are no more trees left. They then end up with excess euros, and Martinghoul has stated what they do with them.

Peter

 

[scose-no-doubt]

Martinghoul, do central banks generally enter markets themselves of do they push their orders through commercial banks?

 

[Martinghoul]

Martinghoul, do central banks generally enter markets themselves of do they push their orders through commercial banks?

I am not sure I understand the distinction, tbh. CBs have execution desks who talk to the mkt-makers at (investment) banks to get their stuff done. So I guess it's both.

 

[scose-no-doubt]

Was just wondering if the MM's get a heads up to cover their ar5es before intervention and the like.

 

[wackypete2]

I believe Fed POMO operations are announced and scheduled so everyone knows. No doubt a FEW MM's get some sort of favorable treatment though.

The fed has an operations trading desk based at their New York branch to buy and sell bonds with banks.

There is also the fed's (secret) PPT, whereby they buy stock market index futures when the market is crashing heavily. This is done indirectly though Goldman Sachs and JP Morgan. Both banks don't get any direct reimbursement but it's pretty much a fact that they get favorable treatment with respect to regulations and taxes well above and beyond any other banks. Of course all this is ALLEGED only.

Peter

 

[new_trader]

They're not trying to prop up the euro. They are trying to prevent the Swiss Franc from getting too strong against the euro via buying the eur/chf pair . They can print and sell francs until there are no more trees left. They then end up with excess euros, and Martinghoul has stated what they do with them.

Peter

That is a distinction without a difference. They are doing what the Chinese are doing with the renminbi/USD aren't they? They are 'pegging' their currency by printing Renminbi and buying USD to prop it up...vendor financing the US consumer in other words. And what is the consequence? They are importing all the inflation that the US is creating. The Swiss are doing the same and in the end, like the Chinese will eventually be forced to do, they will abandon the pegging lunacy and let their currency appreciate.

 

[Martinghoul]

Was just wondering if the MM's get a heads up to cover their ar5es before intervention and the like.

Well, this isn't an intervention per se. More like the CB digesting the results of the intervention. This normally happens slowly, over a long period, so there's really no reason for the MMs to get panicky. It's the sort of flow that happens in the mkt day in, day out.

 

[Martinghoul]

That is a distinction without a difference. They are doing what the Chinese are doing with the renminbi/USD aren't they? They are 'pegging' their currency by printing Renminbi and buying USD to prop it up...vendor financing the US consumer in other words. And what is the consequence? They are importing all the inflation that the US is creating. The Swiss are doing the same and in the end, like the Chinese will eventually be forced to do, they will abandon the pegging lunacy and let their currency appreciate.

The Swiss are doing the same what? They are importing inflation that the Europeans are creating? The Swill should let their ccy appreciate? Are you quite sure about this? At any rate, didn't I ask you kindly to respond to my questions about exactly this on another thread? You never bothered to respond and yet here you are, making rather silly statements.

 

[new_trader]

The Swiss are doing the same what? They are importing inflation that the Europeans are creating? The Swill should let their ccy appreciate? Are you quite sure about this? At any rate, didn't I ask you kindly to respond to my questions about exactly this on another thread? You never bothered to respond and yet here you are, making rather silly statements.

"Silly statements" is always the best you can do. They are doing the same ie/ InfIating their money supply. I didn't say they will 'let' their currency appreciate on it's own, they will be forced into it by the free market. Central Banks and Governments have a long history of failure when it comes to price fixing. I know you disagree, you believe that CB and Governments are skilled at tweaking their Rube Goldberg systems to achieve exactly what they want...we will see.

 

[Martinghoul]

"Silly statements" is always the best you can do. I didn't say they will 'let' their currency appreciate on it's own, they will be forced into it by the free market. Central Banks and Governments have a long history of failure when it comes to price fixing. I know you disagree, you believe that CB and Governments are skilled at tweaking their Rube Goldberg systems to achieve exactly what they want...we will see.

I use "silly statements" solely because you just keep saying the same things without being willing to respond to some very specific questions/arguments that I have asked/made a number of times. That's what makes your statements silly, not their content per se.

As to the free mkt etc, we've had this discussion as well. It's ironic that you conveniently ignore the fact that the "free mkt", as you define it, has a long history of failure when it comes to pricing. So it's not really a choice you offer; it's neither here nor there.

 

[new_trader]

I use "silly statements" solely because you just keep saying the same things without being willing to respond to some very specific questions/arguments that I have asked/made a number of times. That's what makes your statements silly, not their content per se.

As to the free mkt etc, we've had this discussion as well. It's ironic that you conveniently ignore the fact that the "free mkt", as you define it, has a long history of failure when it comes to pricing. So it's not really a choice you offer; it's neither here nor there.

I'm not sure why you say I never respond. I say the same thing because history has proven the same thing has happened time and again whereas you seem to be in the "things are different this time" camp.

I don't conveniently ignore anything, the free market fails when the Government interferes. It seems our view of history is different.