Thursday, January 22, 2015

Swiss Franc News

I don't like repeating myself, but the recent Swiss Franc News justifies duplication here, after last month's collapse of the Ruble.

Currencies are not supposed to move like this:

The Swiss Franc was pegged to the Euro.  They un-pegged this month after the European Central Bank announced that they would start their own Quantitative Easing (QE).  QE adds to the money supply, diluting said money supply, causing inflation and is intended to artificially benefit the economy.

QE in the States has led to roughly a 6% loss of purchasing power.  Or, another way to say it, QE has led to [an unofficial] 6% inflation.  Doug Ross recently shared a list of items and their rate of inflation.

In a complete surprise to apparently everyone, many who lost tens of millions, the Swiss decided to de-link their currency to the Euro.

European Central Bank President, Mario Draghi (above), announced today that the European Central Bank will print 60 Billion Euros per month.  It is an announcement of failure. 

MarketWatch (with video):

The 60 billion euros a month in bond purchases, equal to 1.1 trillion euros between March and September of next year, is bigger than had been telegraphed by news reports a day earlier.
I've been disappointed in the news coverage of this move.  98% of the commentary from the Swiss decision to un-peg from the Euro has been noise.  Yes, Swiss exporters will be hurt after their currency strengthens 30% in a day.  Yes, central banks must adjust their policies and future intentions because of the Swiss move.  But ask yourself "why?"  Why is it bad that exporters suffer when their currency is less artificial now than it was a month ago?  Why is is bad that central bankers must adjust to a dynamic, changing environment?  Why should one central banker care about what another central banker does - if their system isn't rigged?

What has been hard to find is the logic - and beautiful exquisite truth - behind the Swiss move.  Primarily, they aren't hitching their wagon to a sinking ship.  


The only article that I found that speaks from this perspective was at ZeroHedge (also the source of the graph above):  Thank the SNB for the Truth
So thank you, Switzerland! It's nice to get a little peek at how things are supposed to work.
A little background on this: Germany's Angela Merkel told Obama to pound sand back in 2009 when he told her the best way to improve Europe's economy was to print money.  She knew money supply dilution was counter-productive and destructive to the long-term health of the European economy.

Or, at least she did.

Because nothing happens with the Euro unless Germany approves.  Germany is the cornerstone of the European economy.  It has to do with that whole stereotype work ethic, dynamic and efficiency thing.

USA Today, June 25, 2009:  Obama, Merkel to meet under cloud of disagreement
. . . German briefers said Merkel will be looking for agreement on an "exit strategy," a means of moving toward long-term fixes of the global regulatory system and away from short-term crisis management.

Earlier in the year, she criticized Obama's decision to throw money at the problem as a rescue measure while paying less attention to improving the regulatory system that let the crisis run out of control in the first place.
I have another video planned on the topic of precious metals.  Gold is up roughly $120/oz (>10%) in just the past couple weeks.  And silver seems to go up 1-3% every day.  There are those 'doom and gloomers' out there taking credit for calling this, and I plan to address their claims in the upcoming video.  In short, anybody can look like a genius if they start yelling "BUY!" after a commodity or other security drops 40+%.  Others are saying "I told you so" about the current financial crisis.  They are right - but they were calling it 5 years ago.  Then 4 years ago.  Then 3 years ago.  And so on.  In hindsight, the correct advice at the beginning of an seemingly endless QE would have been: "Buy stocks."  That is the exact opposite of what the "experts" advised.  Stay tuned...

More about today's news at ZeroHedge:

Mario Draghi Unveils €60 Billion Per Month QE Through September 2016 With Partial Risk-Sharing: Live Conference Webcast

The Gloves Come Off: Germany Says Grexit "Manageable" As Tsipras Demands Greek Debt Writeoff

Here Are The Negatives In Today's ECB QE Announcement

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