George Dorgan's posts listings

The 2015 Update: Risks on the Rising SNB Money Supply

We explain the risks on the rising money supply in Switzerland. We distinguish between broad money supply (M1-M3) and narrow money supply (M0). Both are rising quickly.

Permanent link to this article: http://snbchf.com/snb/money-m3-credit-growth-risks/

Q2 2015: Swiss GDP up 0.2%, Strong Rise of Investments on Equipment, Consumption Lags Again

Swiss GDP increased by 0.2% q/q and by 1.2% y/y. Once again, investments on equipment and software (+3.6%) was one of the main drivers. For many economists investment on equipment and software is the most desired GDP growth component.

Permanent link to this article: http://snbchf.com/swiss-macro/q2-2015-swiss-gdp-investments/

Swiss GDP 2014 +1.9%. Trade Surplus Contributed More than Half, Consumption Lagged

According to the figures of Swiss Statistics, the Swiss trade surplus rose by 10.4% in 2014. Therefore its contribution to the 2014 real GDP is higher than 50%. Private consumption lagged compared to the other components of Gross Domestic Product.

Permanent link to this article: http://snbchf.com/swiss-macro/swiss-gdp-2014-trade-surplus/

Latest SNB Intervention Update: Weekly Sight Deposits

Weekly update on SNB interventions: Sight deposits are debt for the central bank, while FX positions are assets. An increase of sight deposits implies an SNB interventions and implicitly more debt. Our regular table on sight deposits now additionally contains the speculative the CFTC positons.

Permanent link to this article: http://snbchf.com/snb/history-of-snb-sight-deposits/

China in Continuous PPI Deflation and No Depression In Sight?

Both Chinese PMI and the producer price index (PPI) are in deflation since 2012. This opens a lot of questions about the sustainability of Chinese economic growth, but also about the certain economic theories that consider deflation as a precursor of depression, as it did in the early 1930s. China’s speed of economic growth simply slows, recently to 7%, according to China statistics “China’s Economy Showed Moderate but Steady Growth”.

Permanent link to this article: http://snbchf.com/global-macro/china-ppi-deflation/

China: Best way to manipulate GDP is to lower inflation

Many claim that China manipulates its economic data. We explain why the best way not to get caught is to lower the GDP deflator, as lower inflation helps to increase real GDP. Lombard Street Research assumes that Chinese officials followed that approach.

Permanent link to this article: http://snbchf.com/global-macro/china-manipulate-gdp-lower-inflation/

Lessons from History: The Volcker Moment and the First Cap on CHF

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Permanent link to this article: http://snbchf.com/chf/chf-history/volcker-first-chf-cap/

Purchasing Power Parity, REER: Is CHF Overvalued? (July 2015 update)

After the strong revaluation of the Swiss franc in recent years, some economists, like the ones at the Swiss National Bank (SNB), claim that the franc is overvalued. Many use misleading Purchasing Power Parity (PPP) measures like the Big Mac index, the OECD index or the PPP based on consumer prices for computing fair values.
The second big mistake is to compute the Real Effective Exchange Rate (REER) with the wrong “base year”, i.e. to assume that in 1999 the CHF was correctly valued. The third error is to ignore massive Swiss current account surpluses, helped by high savings and by immigration of cheaper highly qualified personnel. Both help to reduce unit labor costs and achieve productivity gains. Eventually the ex-post FX evaluation based of capital flows in the balance of payments should clearly take precedence against the ex-ante FX evaluations REER and PPP, that are obviously misleading for the franc.

Permanent link to this article: http://snbchf.com/chf/purchasing-power-parity-chf-overvalued/

CHF

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

SNB

SNBCHF.com most important posts about the Swiss National Bank

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

Swiss National Bank: Extended Losses from 50% to 60% of Owners’ Equity

The latest data show that the Swiss National Bank (SNB) has extended its losses to 60% owners’ equity. By end of June, the capital is less than 34 billion CHF, as compared to 86 billion in December 2014. This implies a half-year loss of more than 50 billion CHF or 60%. The loss of capital is now 10% higher than it was in May 2015.

Permanent link to this article: http://snbchf.com/snb/balance-sheet-owners-equity/

What Drives Government Bond Yields?

For us the five major drivers of government bond yields are:
Inflation expectations and inflation: The by far most important criterion. High inflation expectations must be compensated via higher bond yields. The main driver behind inflation expectations is the wage development, this is the form of inflation that typically persists. Price inflation follows inflation expectations with a certain lag.
Wealth: The higher the wealth of a country, the lower the bond yields. Wealth is typically increased by high savings.
Regular and irregular influences on bond yields by central banks: Regular: Central banks buy government bonds, in particular in US Dollars, the world reserve currency. Irregular: Central banks buy bonds of their own government and depress yields – the “quantitative easing”.

If a country has relatively low wealth then foreigners must help with the purchase of bonds and the following factors become relevant:
Foreign debt relative to GDP: Foreign bond holders want higher yields against risks (e.g. currency risks) of holding foreign assets.
The net international investment position (5a) and change in this position, namely the current account balance (5b).

Permanent link to this article: http://snbchf.com/markets/government-bond-yields/

Swiss National Bank: Composition of Reserves and Investment Strategy

We regularly publish the SNB asset structure by currency, rating & duration. They shall be a template for the tactical asset allocation along these dimensions for other conservative asset managers – CHF holdings certainly excluded because the SNB nearly exclusively buys foreign assets.

Permanent link to this article: http://snbchf.com/snb/composition-reserves/

The Euro Glut: The Summer 2015 Update

Deutsche Bank’s George Saravelos was one of the first to use the term “euro glut”. He anticipated a massive capital outflow from Europe that countered the huge European current account surplus. The Euro glut also led to the end of the EUR/CHF peg. Reasons are missing investment opportunities in Europe despite the high savings rate.

Permanent link to this article: http://snbchf.com/monetary-fiscal-policy/euro-glut-update/

9. The Holy Grail of Long-Term Currency Movements: Crowther’s Balances and Imbalances of Payments

The former chief editor of “The Economist” Geoffrey Crowther published a great work on the development of balance of payments and current accounts over the long-term. It divides development into six phases, which are analogous to Shakespeare’s seven phases of life.
The seven stages are:
Young debtor nation, Mature debtor nation, Debt repayment nation, Young creditor nation, Mature creditor nation, Credit disposition /Asset Liquidation nation and the back to start stage

Permanent link to this article: http://snbchf.com/fx-theory/crowthers-balances-imbalances-payments/

Development of European Bond Yields

Permanent link to this article: http://snbchf.com/markets/european-bond-yields/

Q1/2015: Swiss Real GDP Rises by 15% … in Euro Terms

George Dorgan shows that Gross Domestic Product (GDP) is a measurement in the local currency. Effectively, Swiss real GDP rose by 15% in Euro terms, but fell slightly in CHF. He also emphasizes that Switzerland needs a big rebalancing of its economy, away from exports towards consumption. The Swiss National Bank was right to remove the euro peg. The move towards consumption is only possible when the Swiss franc is stronger because consumers will profit on it.

Permanent link to this article: http://snbchf.com/swiss-macro/swiss-real-gdp-euro-terms/

The two phases of CHF appreciation

We show the two phases or “two innings” of Swiss franc appreciation: The risk aversion game and the inflation game.
With the weakening of emerging markets and the strengthening of the United States in 2013/2014, the Swiss National Bank (SNB) had won the first battle in the war against financial market, the “risk aversion game”, the first inning in two-part match. Risk aversion is lower because the United States recovered with weaker oil prices.
The “inflation game” started earlier than we expected, at least in the eyes of the Swiss National Bank, namely in January 2015. They anticipate higher inflation that will come with rising wages in the United States and Germany.

Permanent link to this article: http://snbchf.com/chf/2-phases-swiss-franc-appreciation/

The History of the Swiss Franc

Permanent link to this article: http://snbchf.com/chf/chf-history/

Swiss Franc History: The Gold Standard and Bretton Woods

In this post we will show the history of the Swiss Franc until 1971, a monetary era driven by the gold standard and the Bretton Woods period, both periods with nearly fixed exchange rates.

Permanent link to this article: http://snbchf.com/chf/chf-history/gold-standard-bretton-woods/

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