Understanding the SNB surrender

[tomorton]

We've all seen the turmoil (and taken some pain maybe) from the SNB's decision on Thursday. Speculation pretty quickly started to appear that the SNB must have decided it could no longer fund further efforts to cap its own currency against the EUR when the ECB pumped in QE next week. But were there any clues in advance?

It seems maybe yes. The SNB's hasty action was likely triggered by the ECJ Advocate General's legal opinion on QE the day before -
http://www.fxstreet.com/analysis/ecoweek/2015/01/16/
This must have seemed to the SNB like the fall of the last possible defence line that could have delayed QE.

The opinion itslef is here - http://curia.europa.eu/juris/docume...=EN&mode=req&dir=&occ=first&part=1&cid=467783

Despie the turgid language, its implications were already on the FT website by (apparently) 1505 on the Wednesday pm - http://blogs.ft.com/the-world/2015/01/qa-the-ecj-decision-and-qe/

So this was a great clue I (not that I saw it). What is depressing (or consolation depending on whichever way you look at it) is that the professionals out there seemed not to appreciate its significance. The EUR/CHF chart on Wednesday basically flatlines until 0930 on the Thursday morning.

How could Deutsche Bank, Barclays, Alpari, FXCM, IG, LCG and the rest have been caught so flatfooted? Why didn't they move to short the EUR and long the CHF immediately? Does this industry really understand how it itself works? Are they really employing the best analytical minds they can find? Or just salesmen and button-pushers?

 

[Solas0077]

http://www.zulutrade.com/trader/145971?t=10000

 

[tomorton]

Ouch!

 

[tomorton]

Seems like maybe one person at least warned about the Swiss peg with the EUR - Jim Rogers ('Street Smarts', 2013)

 

[Trader333]

Well if all these banks, brokers and institutions lost so much money who is it who gained ?

 

[Solas0077]

The counter-parties gained

 

[Solas0077]

I saw this article . in another forum. Best explains why forex is a losers game. Most lose slowly and the net effect is the same with what happened the other day. last time I traded forex was 5 years ago and the one time I was making money the platform froze on me and when it came back I was in the red.

 

[forker]

I saw this article . in another forum. Best explains why forex is a losers game. Most lose slowly and the net effect is the same with what happened the other day. last time I traded forex was 5 years ago and the one time I was making money the platform froze on me and when it came back I was in the red.

That guy bases his research on random heads tails entries. Not quite the same as a method that is based on factors before entry.

 

[Jack o'Clubs]

We've all seen the turmoil (and taken some pain maybe) from the SNB's decision on Thursday. Speculation pretty quickly started to appear that the SNB must have decided it could no longer fund further efforts to cap its own currency against the EUR when the ECB pumped in QE next week. But were there any clues in advance?...

In terms of clues in advance - maybe: a currency that is flat-lining against the limit set by the SNB is a fairly good clue that the Swiss bank was under a lot of pressure. Of course the currency was flat lining : that was where the SNB was dug in, fighting back against the speculators. The fact that ECB QE is coming was only going to add to that, and in the end the SNB had to cede ground in much the same way that the UK did on Black Wednesday in 1992 - in some ways the circumstances are analogous.

On risk controls at the big institutions, I disagree. Alpari blew up for reasons evident on other threads, but bucket shops like that are hardly in the same league as the big banks. For Barclays to lose less than 100m on such a huge event, similarly for Deutsche which from memory is the biggest FX dealer globally, is actually proof that their systems were working - it's the law of large numbers: 100m is immaterial to Barclays, and from what I understand it's because they've chosen to make good on customer orders they couldn't execute in the market because liquidity disappeared (it really did, it just vanished: they couldn't 'go long CHF immediately'. To go long would have meant finding a seller, there weren't any) In other words they value the customer relationships at a lot more than 100m, it was a commercial decision. I'd say the risk departments would be pretty pleased with that outcome to be honest.

 

[tar]

Hindsight analysis doesn't do anyone good , this wasn't expected at all , the SNB did emphasize over and over again that they are standing by the floor limit and even they may increase it to 1.25 or whatever . Just another insider trading case that's what we have here , wait to hear some scandals soon related to this event , mark my words .

 

[Pat494]

Should it, will it BOUNCE up next week and we will all wonder what the fuss was unless you lost your wedge.

 

[tar]

Should it, will it BOUNCE up next week and we will all wonder what the fuss was unless you lost your wedge.

IMO the CHF will bounce and will settle down in the middle ...

 

[Jack o'Clubs]

Hindsight analysis doesn't do anyone good , this wasn't expected at all , the SNB did emphasize over and over again that they are standing by the floor limit and even they may increase it to 1.25 or whatever . Just another insider trading case that's what we have here , wait to hear some scandals soon related to this event , mark my words .

These things work until they don't. In 2009 the line in the sand was 1.50, until they burned through reserves so quickly they had to abandon it. Have a look at the SNB balance sheet, it looks like the Feds, and what must have really pissed them off is that they haven't even done QE. So in other words the Swiss have expanded their balance sheet to support the coming QE of the ECB When the Germans are prevaricating about balance sheet expansion! If you want to blame anyone, it's not the Swiss for whom the dam wall just burst, blame the ECB or Germans. Oh and bucket shop FX brokers (and their regulators) who allow 200x gearing on undercapitalized asset bases.

EDIT: I just checked. On a % basis, the SNB's balance sheet has expanded more than the Fed's since 2008. Without doing QE, just trying to keep Swiss firms in business because of the ballsed-up economic policies of the EU.

 

[tar]

These things work until they don't. In 2009 the line in the sand was 1.50, until they burned through reserves so quickly they had to abandon it. Have a look at the SNB balance sheet, it looks like the Feds, and what must have really pissed them off is that they haven't even done QE. So in other words the Swiss have expanded their balance sheet to support the coming QE of the ECB When the Germans are prevaricating about balance sheet expansion! If you want to blame anyone, it's not the Swiss for whom the dam wall just burst, blame the ECB or Germans. Oh and bucket shop FX brokers (and their regulators) who allow 200x gearing on undercapitalized asset bases.

EDIT: I just checked. On a % basis, the SNB's balance sheet has expanded more than the Fed's since 2008. Without doing QE, just trying to keep Swiss firms in business because of the ballsed-up economic policies of the EU.

This is like the fed increasing their IR to 5% at the next meeting ! It is not expected , yes it is going to happen gradually eventually , but not at the next meeting , same here .
Insider trading period .

 

[Jack o'Clubs]

This is like the fed increasing their IR to 5% at the next meeting ! It is not expected , yes it is going to happen gradually eventually , but not at the next meeting , same here .
Insider trading period .

I like conspiracy theories as much as anyone, but that's just stupid. And it's nothing like the Fed increasing to 5%, the macro backdrop is entirely different. I wrote earlier this will turn out to be analogous to the UK's Black Wednesday in Sept 1992 when the BoE was forced to abandon its Euro peg. Insider trading lol.

 

[tar]

Hindsight analysis lulz !

I like conspiracy theories as much as anyone, but that's just stupid. And it's nothing like the Fed increasing to 5%, the macro backdrop is entirely different. I wrote earlier this will turn out to be analogous to the UK's Black Wednesday in Sept 1992 when the BoE was forced to abandon its Euro peg. Insider trading lol.

The increase to 5% is just an example change it to 1% or whatever. I am not arguing about the main reasons behind their decision , but rather the way they did , it is suspicious and definitely there is some sort of insider trading involved here one way or another . Again it was expected that someday they will abandon the floor duh , but not now !

"Jordan took his opportunity to land the top job at the SNB following the resignation of his predecessor, Philipp Hildebrand, in controversial circumstances. Hildebrand was forced to resign following revelations that his wife ordered $504,000 three weeks before the central bank intervened to weaken the Swiss franc. She made a profit on the sale of the dollars less than two months after the purchase. Hildebrand claimed to have no knowledge of the transaction."

 

[Forexmospherian]

I like conspiracy theories as much as anyone, but that's just stupid. And it's nothing like the Fed increasing to 5%, the macro backdrop is entirely different. I wrote earlier this will turn out to be analogous to the UK's Black Wednesday in Sept 1992 when the BoE was forced to abandon its Euro peg. Insider trading lol.

You might laugh at insider trading etc - but to me it smells of Goldman Sachs advice and yet another brilliant "set up".

Black swan events always happen exactly on the hour change or on the half hour change . Thursday 9 30 am - and no main red news on the Currency calenders and it happens a week before ECB news and 2 days after SNB saying that it part of cornerstone strategy etc and are committed etc etc.

"What goes around come around" and one day Goldman's will get stitched up like a kipper - and boy don't they deserve it ;-)

 

[Jack o'Clubs]

The increase to 5% is just an example change it to 1% or whatever. I am not arguing about the main reasons behind their decision , but rather the way they did , it is suspicious and definitely there is some sort of insider trading involved here one way or another . Again it was expected that someday they will abandon the floor duh , but not now !

"Jordan took his opportunity to land the top job at the SNB following the resignation of his predecessor, Philipp Hildebrand, in controversial circumstances. Hildebrand was forced to resign following revelations that his wife ordered $504,000 three weeks before the central bank intervened to weaken the Swiss franc. She made a profit on the sale of the dollars less than two months after the purchase. Hildebrand claimed to have no knowledge of the transaction."

Can you show me where he was prosecuted for insider trading? No, because he wasn't. From memory there was a big political angle to this as one of the opposition parties had been gunning for him for ages. He'd reported the trade at the time but it fell short on a technicality. He resigned because as a career investment banker he couldn't be arsed with the political aggro of the job and went back to the lower profile and higher pay of the private sector. The profit was about $50k. Do you really think someone would change a country's central bank policy to make $50k? Actually don't answer that you probably do...

 

[tar]

Can you show me where he was prosecuted for insider trading? No, because he wasn't. From memory there was a big political angle to this as one of the opposition parties had been gunning for him for ages. He'd reported the trade at the time but it fell short on a technicality. He resigned because as a career investment banker he couldn't be arsed with the political aggro of the job and went back to the lower profile and higher pay of the private sector. The profit was about $50k. Do you really think someone would change a country's central bank policy to make $50k? Actually don't answer that you probably do...

No i don't , but this is just the tip of the iceberg , its not about his wife making 50K or 100K ,its just a quick example to illustrate my point . Most of the insider dealing slips under the radar anyway ...
Again he didn't change his country's central bank policy to profit from it , but rather he took advantage from it - allegedly - .

 

[tomorton]

But the SNB move can't be both an foreseeable reaction to a discredited public policy (paralleling UK 's 1992 Black Wednesday) but also a secret conspiracy. The timing was unexpected (at least until the ECJ opinion the day before) but it was sudden because its not the sort of news you can gradually release.