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SNB CHF Blog: A beleaguered central bank in the dangerous world of global macro and euro crisis

SNB CHF Blog: An economic encyclopedia on the Swiss safe-haven and its central bank written by an association of independent financial advisers.

Swiss Price Inflation: CPI 0.2% y/y, Swiss HICP: +0.2% y/y  Money inflation (M3) 7.7% y/y
Other HICPs Y/Y: Eurozone 1.1 0.9%, 0.7%, 0.5%   France: 1.0 0.8% 0.8%,  Italy: 1.2 0.8 0.7%, 0.5% 0.4%, Spain: 0.5 0.3%, 0.2%, 0.0%, 0.2%, Germany:1.4% 1.3% 1.2%1.1%0.6% (sources inflation.eu,  Eurostat and investing.com)


Our Core Thesis: European leaders have successfully implemented austerity, disallowed notorious wage increases in the periphery and nearly introduced deflation. Inflation differences between the euro zone and Switzerland will decrease to zero, Swiss CPI inflation might even be higher in some years. The CHF real eff. FX rate overvaluation talk disregards completely the continuous immigration into Switzerland. Therefore EUR/CHF will remain close to 1.20. Risk-off flows will not leave Switzerland, but they will be converted into risk-on flows (stocks and real estate) thanks to immigration, higher Swiss GDP growth and relatively weak Swiss wage hikes. In particular, in the housing sector these flows will build up wrong resource allocations. In some years stronger global growth and high German wage increases will boost inflation in Germany and partially in Switzerland but Southern Europe will still struggle. By tradition, Germans will move funds into Switzerland in order to protect them from inflation and the ECB. At that moment the SNB will need to hike interest rates - before or in line with the ECB. The Swiss "Soros moment" will arrive and the EUR/CHF will fall under 1.20. The consequence for monetary policy will be:
  1. Either the SNB fights inflation and the Swiss real estate bubble, allows a CHF appreciation and sells reserves below the price of EUR/CHF 1.20 or
  2. Switzerland accepts higher inflation and consequently gives up its competitive advantage in lower inflation and lower borrowing rates. The latter scenario was excluded by the SNB's Thomas Jordan already in 1999 when he pledged against a euro membership. The SNB mandate explicitly disallows inflation.
The first scenario, namely that the SNB sells reserves below EUR/CHF 1.20 is therefore the only feasible solution. Whether the SNB suffers a big loss depends on the income it can generate in the meantime. In regular posts we show how the Swiss CPI comes closer and closer to euro zone inflation. One day, maybe in 10 or 20 years, the Swiss franc will depreciate more strongly, but this will be only after the bust of the Swiss real estate bubble.


Permanent link to this article: http://snbchf.com/


Contrarian Investment, FX Rates and the Misleading Concept Called GDP

We extended and improved our existing post to contrarian investing. It was published on Seeking Alpha. We are pleased that it was awarded the Editor’s Pick.
Gross Domestic Product(ion) is (or has become) a measurement of activity and consumption, but not of capital accumulation and production.
In many cases, GDP growth is negatively correlated to saving. Higher savings (aka austerity) leads to lower GDP growth today, but to higher GDP in the future. In its worst case, GDP growth could be completely based on credit, eliminating the capital basis of a country (example Greece).
FX rates are less driven by GDP but by savings and investments, in particular on the corporate side, by investors and micro-economic indicators.
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Will the Dollar Appreciate on higher U.S. Savings and a Smaller Trade Deficit?

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Swiss CPI vs. Euro zone July 2013

Inflation Difference between Eurozone and Switzerland Narrows to 0.3%

According to Swiss Statistics the inflation rate has risen to 0.2% y/y – as for both the Swiss CPI standard and the European HICP standard. Given that the euro zone HICP is now at 0.5%, this implies that Swiss inflation is only 0.3% behind the one in the euro zone. Still in February 2012, the difference was 3.7%.   …

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Bundesbank Balance Sheet  2011

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Target2 May 2014

Negative Rates for Bundesbank TARGET2 Surplus?

The ECB surprised with negative rates on excess reserves, on the deposit facility and even on TARGET2. We clarify whether the Bundesbank, as a member of the euro system, must pay negative interest rates on its huge TARGET2 surplus.   It has been a quite discussed item in the blogosphere: Is the Bundesbank obliged to pay …

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Euro Downtalk

ECB Measures Background: How to Reduce German Competitiveness and Talk down the Euro

In our view, the ECB measures of June 2014 want to increase German lending, spending, salaries and inflation. Finally they target a reduction of German competitiveness. The ECB wanted to talk down the euro but will not succeed. We explain why the measure are bullish for the euro. We expect EUR/USD of 1.40 in the …

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Global Inflation

Global Inflation Spikes Up, Are You Sure About What You Are Doing Mr Draghi?

  The European Central Bank (ECB) has the habit of reacting late. As seen in July 2008 and July 2011, the ECB is often the last major central bank to hike rates. They hike rates at the moment when others prepare for a recession or a significant slowing. Currently we are witnessing the opposite movement: The world is getting …

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SNB Follows ECB? Pictet’s Negative SNB Interest Call

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EU Sceptical Parties in Europe

Euro and EU sceptical Parties in EU 2014 Elections: The Economic Danger Is Left not Right

  The tendency of the European parliament elections seems to be that in the Northern countries rather right-wing parties obtain more votes, like British UKIP, German AFD, Danish People’s Party, Austrian FPÖ or Sweden Democrats. In the austerity countries the left-wing movements are getting stronger and stronger, led by SYRIZA in Greece and Sinn Fein …

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Don’t Worry, Inflation Will Come Back! It is already there; just not where you live !

We name the main drivers of disinflation and the downwards manipulators of the CPI: Markets, central banks, investors, governments, statisticians, ageing, entrepreneurs, global competition, technology and last but least the euro. Despite that downwards-manipulation we realized that inflation is there, just not where you might live! Related posts: Swiss Yes To Referendum Against Mass Immigration …

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