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How to Lose $143 Billion Trading Stocks

Now here’s the headline!

Swiss National Bank loses nearly $143 billion in first nine months

Reuters reported the Q3 result last week, in which Switzerland’s publicly traded central bank (SNB) suffered its largest loss in its 115-year history. The news release reads beyond belief, not because of the unprecedented amount of value that was lost, but just how nonchalantly this legal counterfeiting ring is being downplayed.

The loss … was slightly more than the annual economic output of Morocco ($132 billion), but the central bank does not face bankruptcy thanks to its ability to create money.

Justification for the SNB owning stocks has always been the same:

The SNB made a loss of 141 billion francs from its foreign-currency positions as the bonds and stocks bought during its campaign to stem the appreciation of the safe-haven franc slid in value.

As the story goes, the Swiss Franc is too high. To weaken their currency, the SNB must print money. And because money must go somewhere, they’ve found it best to put it towards owning US equities.

Mainstream economists seldom consider ideas such as the universal application of an economic theory. If this stock purchase to weaken the Franc was a good idea, then the Fed should do the same and own $10 billion of Apple shares, giving the Fed a healthy dividend, as stated above: “thanks to its ability to create money.”

And then shouldn’t Canada’s central bank do the same? I.e., inflating their currency so much to help boost exports, as is often cited as the reason to depreciate currency.

Few, if any, mainstream economists appear bothered by having a central bank intervene in the stock market. UBS economists, Alessandro Bee, did not address this concern, but dismissed the capital destruction entirely, opting to try to explain how:

These losses may sound like a lot, but the SNB is not a normal company.

He went on to say that “normal bankruptcy rules” need not apply to the SNB.

A finance director of a Swiss Canton, Heinz Taennler, was quoted similarly reassuring that losing $143 billion wasn’t as bad it sounds:

The SNB is not a normal bank, it’s a central bank which has other tasks such as price stability and protecting the Swiss economy.

As for any comment on the $143 billion loss, none was given. But SNB Vice Chairman Martin Schlegal noted that a negative equity position wouldn’t change much of anything… After all, bankruptcy is difficult when you can create an infinite amount of cash.

The Vice Chairman was quoted:

We can pursue our tasks and fulfill our mandate even with negative equity capital… Nevertheless, it is important that we have enough equity. It helps the credibility of a central bank if it is well capitalized.

Must be nice to be a central bank! But not all that glitters is gold. The current dividend payout on each Swiss National Bank share (currently trading at $4,250 USD) is only 0.36%; hardly enough to keep up with any measurement of (price) inflation that  central banks are causing at the moment.

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