Join        Login             Stock Quote
Top News :  

Houston - We Have A Problem, In Switzerland
By: Bruce Krasting   Tuesday, April 10, 2012 11:28 PM

The swaps and bond market are showing that that money is coming into the Franc in a significant way. But the EURCHF has not touched on the magical 1.2000 level and there has been no reported Swiss National Bank (SNB) intervention. This does not add up. Two possibilities:

1) Some very big (and ballsy) prop desk/ hedge fund is shorting the CHF to the market and using the negative cost of money as a carry trade to fund other investments. This is a beautiful trade as one is "guaranteed" not to lose money on the short CHF position because the SNB has "guaranteed" that the Franc will not exceed 1.2000.

While this is possible, I consider it unlikely. The negative cost of money may look attractive on paper, but there is no real guarantee from the SNB that the peg will last for the next two years. Money is cheap and available in other currencies all over the globe right now; there is no need to gamble the house to save another ½ percent on funding costs. If the peg were to break, that ½ percent savings would turn into a 20% loss. The risks and rewards of shorting the Swissie just aren't justified.

2) The SNB is involved with "sub rosa" intervention in the currency market. It may be using one or more banks (to make it look like commercial buying interest) to bid for Euros above the 1.2000 peg rate. Alternatively, the SNB may be offering EURCHF FX options to market makers.

I think #2 is happening. The SNB is quietly doing its best to avoid a visible and splashy round of intervention. If true, the SNB will have to back off in the near future and allow the Franc to trade at the 1.2000 peg. At that point it can be as aggressive as needed.

The EURCHF may be the tipping point for a new round of financial instability. I see this tipping into the dark side. I see this happening before week's end.

<< Previous Page  1
Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.