CHF: Safe Haven or Mirage?

[Guest]

Re: CHF: Safe Haven or Mirage?

Sorry GRG55 - I think all those here affecting fashionable disillusionment" with the CHF are being altogether too sophisticated. I was rummaging around last night looking for dirt on the CHF and found references to something between 32% and 38% of gold bullion backing the full volume of their monetary aggregates. That was in 1999, with gold in the $200's range!! What is that gold stash worth today relative to the monetary aggregates?

The CHF may not be directly backed by the gold any more, but correct me if I'm wrong: does any other country in the world come within a country mile of that gold to currency aggregate ratio? Their net gold reserves are I think fifth in the world after US / Germany / Italy, and the IMF, and they are a tiny country expressed per capita to their reserves?

I continue to suspect you fashionable CHF skeptics are full of hot air on this topic. How could you overlook this? It is not just a "datum", it is in fact the WHOLE STORY. I think new iTulipers browsing around these pages would read all this guff about how "weak" the new CHF fundamentals are and wind up considerably misled. Show me one other currency in the world that anything remotely like this ratio of gold bullion backing in it's vaults relative to currency in circulation.

UBS may be mired in the same crap paper that's mired dozens of other major banks worldwide - but to suggest the Swiss Govt. is on the string for the "full extent of UBS's debts" would be merely specious. If they underwrote a huge amount of UBS's liabilities outright their gold bullion to currency ratio would STILL be higher than that of 98% of countries in the entire world.

What are you guys talking about then? You consider the hard reserves of Japan outweigh it's net monetary aggregates perhaps? No. They beguile you with abstractions instead, such as their "powerful export engine". Sometimes one can get carried away by superficial sophistications. Look at the bottom line - where the solid gold is. Swiss are in the top position for hard gold relative to paper. End of discussion.

The Swiss may be famously cautious and careful to adopt "newfangled ways of the world", but having decided some years ago that it's okay to debase their currency like everyone else, they have quickly become just as adept...:eek: All depressingly familiar, wouldn't you say?

[bam]

Re: CHF: Safe Haven or Mirage?

A year from now we'll be talking about these days as the gold bubble while trying to source cans of tuna and oatmeal.

[Guest]

Re: CHF: Safe Haven or Mirage?

Bam - Your observation is a contradiction in terms. Fundamental terms at that. Shortages you refer to go hand in hand with very high inflation. Were you not aware of that?

A year from now we'll be talking about these days as the gold bubble while trying to source cans of tuna and oatmeal.

[GRG55]

Re: CHF: Safe Haven or Mirage?

The Swiss may be famously cautious and careful to adopt "newfangled ways of the world", but having decided some years ago that it's okay to debase their currency like everyone else, they have quickly become just as adept...:eek:

...In the meantime, Zürich has begun to feel the first shock waves from the banking tsunami. Switzerland's largest city is at the mercy of its banks: For the almost 400,000 people who live there, 42,000 of their jobs come from the financial sector. Last year the finance industry paid around a third of the city's taxes.

The champagne years are over: For 2008 and the next two years the banking metropolis projects a tax shortfall of well over half a billion Swiss francs. That would put one of the richest cities in the world firmly in the red...

So how would we expect the Swiss to respond? Stalwart? Sober? Fiscally conservative?

Appears they are following to the letter the script of the US Treasury and Fed, starting with...

...Swiss Economics Minister Doris Leuthard on Thursday told a Swiss radio station that "we in no way would want one of our big banks to find itself in a serious crisis that might lead to bankruptcy. The federal government would absolutely prevent that." James Nason, spokesman for the Swiss Bankers Association, told the Associated Press on Thursday that "we don't see any sign of a banking crisis. The Swiss financial center is proving to be remarkably resilient."...

Sound familiar?

Then we have...

...Finally on Tuesday came a special meeting. The government declared itself "worried," but determined the state of the banks to be "secure overall," according to Justice Minister Eveline Widmer-Schlumpf. On Wednesday the Swiss Central Bank took part in a collective move with other central banks and lowered their prime interest rate.

Central bank calls shock interest rate cut

...The SNB had decided only last month to hold its key interest rate target at 2.75 per cent to curb inflation and was not due to meet again on the issue until December.

But it said in a statement that its priorities had recently changed.

"The global financial crisis has intensified and is having a considerable impact on the international economy.

"The Swiss economy is also affected by these developments. In view of the improved inflation outlook... the SNB is now able to loosen its monetary policy reins," the statement said...

And ultimately there is a plan B: should UBS really go under, a secret agreement would certainly come into effect and the ECB would spring to its aid. So much for Switzerland's proud independence.

All depressingly familiar, wouldn't you say?

Link to article...

Here is comes. This is why I don't own Swissies.

From the WSJ this morning...

• OCTOBER 16, 2008, 1:05 A.M. ET

UBS Raises CHF6B Capital, To Place Toxic Assets With SNB

ZURICH (Dow Jones)--Swiss banking giant UBS AG (UBS) said Thursday it will raise CHF6 billion of new capital through mandatory convertible notes, fully placed with Swiss Confederation.

The Swiss National Bank (SNB) and UBS have reached an agreement to transfer up to USD 60 billion of currently illiquid securities and other assets from UBS's balance sheet to a separate fund entity.

With this transaction, UBS caps future potential losses from these assets, secures their long-term funding, reduces its risk-weighted assets, and materially de-risks and reduces its balance sheet.

This transaction allows the SNB and shareholders of UBS to participate in the recovery potential of the entity's assets once the loan is fully repaid.

The solution significantly reduces the uncertainty for UBS shareholders and clients and contributes to the stability of the financial system by ensuring an orderly sale of these assets.

The fund will be capitalized with up to USD 6 billion of equity capital provided by UBS and a non-recourse loan in the maximum amount of USD 54 billion provided to the fund by the SNB. The entity will be controlled by the SNB. UBS will sell its equity interests to SNB for USD 1 and will have an option to repurchase the equity once the loan is fully repaid for a purchase price of USD 1 billion plus half of the equity value exceeding USD 1 billion.

To fund its equity contribution, and at the same time maintain its strong capital position, UBS can raise CHF6 billion of new capital in the form of mandatory convertible notes (MCN). The MCN has been fully placed with the Swiss Confederation...

[GRG55]

Re: CHF: Safe Haven or Mirage?

just read a piece somewhere [where, i can't remember- i read a lot] comparing switzerland and iceland. countries with overgrown banking systems with balance sheets far larger than the countries' gdp's. with recent questions about ubs, there is at least some bite here. the soundness of the big swiss banks is definitely relevant to the question of the soundness of the swiss franc.

CS is fast catching up to UBS in the slash and burn department...

Credit Suisse to Eliminate 5,300 Jobs After Losses This Quarter

Dec. 4 (Bloomberg) -- Credit Suisse Group AG, Switzerland's second-largest bank, will eliminate 5,300 jobs and scrap bonuses for its top executives after about 3 billion francs ($2.5 billion) of losses in the past two months.

The job cuts, which amount to 11 percent of the workforce, include about 3,800 at the securities unit, Zurich-based Credit Suisse said today. The 2 billion francs in savings will help it weather the ``continuing challenging market conditions,'' Chief Executive Officer Brady Dougan said in a statement...

...Following the losses at the largest Swiss banks, the nation's financial regulator said today it agreed with UBS and Credit Suisse on higher requirements on risk-weighted capital and the introduction of a leverage ratio to improve their ability to sustain losses...

...The Swiss company will ``judiciously invest in the growth of private banking globally,'' Dougan said. The business hired 370 new client advisers by the end of November, more than the targeted 330 for 2008, and had ``solid'' new asset inflows so far, Credit Suisse said...

[I cannot imagine who in their right mind would give these guys any of their money to manage :p ]

[GRG55]

Re: CHF: Safe Haven or Mirage?

Here is comes. This is why I don't own Swissies.

From the WSJ this morning...

• OCTOBER 16, 2008, 1:05 A.M. ET

UBS Raises CHF6B Capital, To Place Toxic Assets With SNB

ZURICH (Dow Jones)--Swiss banking giant UBS AG (UBS) said Thursday it will raise CHF6 billion of new capital through mandatory convertible notes, fully placed with Swiss Confederation.

The Swiss National Bank (SNB) and UBS have reached an agreement to transfer up to USD 60 billion of currently illiquid securities and other assets from UBS's balance sheet to a separate fund entity.

With this transaction, UBS caps future potential losses from these assets, secures their long-term funding, reduces its risk-weighted assets, and materially de-risks and reduces its balance sheet.

This transaction allows the SNB and shareholders of UBS to participate in the recovery potential of the entity's assets once the loan is fully repaid.

The solution significantly reduces the uncertainty for UBS shareholders and clients and contributes to the stability of the financial system by ensuring an orderly sale of these assets.

The fund will be capitalized with up to USD 6 billion of equity capital provided by UBS and a non-recourse loan in the maximum amount of USD 54 billion provided to the fund by the SNB. The entity will be controlled by the SNB. UBS will sell its equity interests to SNB for USD 1 and will have an option to repurchase the equity once the loan is fully repaid for a purchase price of USD 1 billion plus half of the equity value exceeding USD 1 billion.

To fund its equity contribution, and at the same time maintain its strong capital position, UBS can raise CHF6 billion of new capital in the form of mandatory convertible notes (MCN). The MCN has been fully placed with the Swiss Confederation...

Look what showed up today. A Swiss version of Bernanke's helicopter speech. Anybody still think the Swissie is a "safe haven"?

Hildebrand Says SNB Can Intervene in Franc Market

Jan. 22 (Bloomberg) -- Swiss National Bank Vice-President Philipp Hildebrand said policy makers are prepared to intervene in currency markets at fixed exchange rates if necessary to prevent a “renewed appreciation” of the franc...

...“With short-term rates of practically zero, the SNB can’t prevent a further appreciation in the Swiss franc through a rate cut,” Hildebrand said in a speech in St. Gallen, Switzerland late yesterday. “The SNB is able to sell unlimited Swiss francs versus another currency. In an extreme case, it can commit itself at the same time to buying unlimited currencies at a fixed- exchange rate.”...

...“A central bank is always able to increase the absolute amount of its own currency in circulation,” said Hildebrand. “Further options” for policy makers include purchasing government bonds on the secondary markets, he said, conceding that using unconventional tools “isn’t without risks.”...

...“The central bank can and will continue to provide liquidity, as much and for as long as needed,” Hildebrand said. “The SNB will continue to act in a decisive way in order to counter the effects of the economic contraction.”.

[*T*]

Re: CHF: Safe Haven or Mirage?

"Mirage" seems to be gaining the upper hand.

I told my brother to sell all his swissies last week. Problem is now what to replace it with (Sterling is not any better). He cannot buy gold in his pension fund.

Thanks for the feedback all. It has been useful.

[Shakespear]

Re: CHF: Safe Haven or Mirage?

Problem is now what to replace it with

Exactly :-)

Commodities seems to be the potential candidate. I would guess oil would be a good place to hold value.

[Andreuccio]

Re: CHF: Safe Haven or Mirage?

Exactly :-)

Commodities seems to be the potential candidate. I would guess oil would be a good place to hold value.

Except for this:

Originally Posted by GRG55

• The GCC OPEC members absolutely hate oil traders and anything that smacks of a "middleman". Aramco is cutting production in part because it will not support, with its own physical, the profits and inventory builds currently being made by traders who are playing the extraordinarily steep contango. This is a very unstable situation right now, because when the curve flattens and/or the price of temporary storage [including oil tankers] increases, this traders game is over. When that happens it may put severe downward pressure on the price of crude because of the removal of some demand for spot, and the rapid closing of futures positions further out on the curve, creating the classic avalanche of selling [which can be enough to put the curve into backwardation]. I believe this is Aramco's real concern.

[LargoWinch]

Re: CHF: Safe Haven or Mirage?

What is the point of buying other fiat currencies when we have gold and oil?

[Guest]

Re: CHF: Safe Haven or Mirage?

*T*

Anyone outside the USD zone should do quite well owning plain old gold for the next five years. What's wrong with that? I think in the GBP / EURO / Swiss Franc economic zone owning gold and the USD will be a big winner in that same span of time, with some plain old petroleum tracking stock to track what inevitably develops in energy. No one could complain about scaling into the energy portion of these assets too expensively today, no? Meanwhile, the USD in there could perform very well. Yes, you can laugh now, and yet IMO you'll recognize that it indeed came about that way regarding the USD later. I think the USD has some serious rising yet to do over the Euro - try 20% - 40% over the next 12-24 months.

"Mirage" seems to be gaining the upper hand.

I told my brother to sell all his swissies last week. Problem is now what to replace it with (Sterling is not any better). He cannot buy gold in his pension fund.

Thanks for the feedback all. It has been useful.

[*T*]

Re: CHF: Safe Haven or Mirage?

*T*

Anyone outside the USD zone should do quite well owning plain old gold for the next five years. What's wrong with that? I think in the GBP / EURO / Swiss Franc economic zone owning gold and the USD will be a big winner in that same span of time, with some plain old petroleum tracking stock to track what inevitably develops in energy. No one could complain about scaling into the energy portion of these assets too expensively today, no? Meanwhile, the USD in there could perform very well. Yes, you can laugh now, and yet IMO you'll recognize that it indeed came about that way regarding the USD later. I think the USD has some serious rising yet to do over the Euro - try 20% - 40% over the next 12-24 months.

Well I own gold but it is not an available option in my bro's pension, though he does have some mining stocks.

You may be right re. the dollar but I view that as a high-risk trade in the longer term over which he is investing.