George Dorgan

George Dorgan

George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.

Articles by George Dorgan

Weekly SNB Intervention Update: Sight Deposits and Speculative Position

snb intervention, chairman philipp hildebrand

FX: As usual the SNB monetary assessment was less dovish than traders expected. The EUR/CHF fell to 1.0930 again after touching 1.10. Sight Deposits: + 0.9 bn. per week. The SNB intervened at levels that are too high. Speculative Position: The net long CHF position remained stable against USD. But many traders are closing their long EUR positions, against USD and potentially CHF.

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Swiss Exports + 7.0 percent YoY, Imports +8.4 percent. Trade Surplus +3 bn CHF, Exporters Increase Prices

Swiss exports and imports, seasonally adjusted (in bn CHF)

We do not like Purchasing Power or Real Effective Exchange Rate (REER) as measurement for currencies. For us, the trade balance decides if a currency is overvalued. Only the trade balance can express productivity increases, while REER assumes constant productivity in comparison to trade partners.
In August 2016, Swiss exports were up 7.0% YoY (in real terms: + 1.2%) and imports 8.4% YoY (in real terms: + 5.1%).

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Speculators continue reducing Euro shorts

Commitment of Traders September 17 2016

Speculators are reducing their net short Euro positions, since Draghi’s comments on inflation. Apparently not only against the dollar but also against the Swiss Franc. This also means that the euro zone may be target real money (like purchases of stocks, real estate and bonds) instead of Switzerland.

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SNB Balance Sheet Now Over 100% GDP

Central Bank Balance Sheet - click to enlarge.

Since 2008 the balance sheet of the Swiss National Bank has risen from 28% to 102% of Swiss GDP. Balance sheets of other central banks have strongly risen, too. But there is one big difference: The risk for the SNB is far higher, the SNB nearly exclusively possesses assets denominated in volatile foreign currency.

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Swiss Exports + 7.9 percent YoY, Imports +11.8 percent. Trade Surplus +2.9 bn CHF, Exporters Increase Prices

Swiss exports and imports, seasonally adjusted (in bn CHF)

We do not like Purchasing Power or Real Effective Exchange Rate (REER). For us, the trade balance decides if a currency is overvalued. Only the trade balance can express productivity increases, while REER assumes constant productivity in comparison to neighbours. In July 2016, Swiss Exports were up 7.9% YoY (in real terms: + 2.4%) and imports 11.8% YoY (in real terms: + 8.2%). Exporters could even raise prices, as we see in the difference between nominal and real.

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Oil Supply Globally: Market Price Compared to Production Costs

Oil Production Costs Shale Oil Sands Oil Conventional

Mainstream media often speaks of the great shale gas/oil revolution and how it makes the United States more productive and a net exporter of oil. We wanted to go into more details,we compare oil production costs for US shale and global oil producers. As reason for the cheap oil we see the combination of two effects:

Demand: Cheap US money supported a Chinese investment boom in factories and housing until 2012. The over-investment phase is followed by lower demand growth.
Supply: The Arab countries need to maintain their social welfare systems, increased production, and – more or less deliberately – kicked high-cost fracking companies out of the market.

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Great Graphic: The Decline in Durable Goods Prices

prices.PNG

This economic graph is maybe the most important in the last decade.  Service prices are rising, while goods prices have steadily fallen. The main reason for us is the possibility to outsource big parts of the durables supply-chain to China and East Asia. This is where productivity growth happens. Prices of services, however, are ever increasing. …

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Household Savings Rate Compared

2015 OECD Low Savers

GDP growth is a bad economic measure. GDP growth in the form of consumption-driven (hyper-) activity (aka Bawerk’s “GDC” Gross Domestic Consumption) must finally lead to a depreciating currency, inflation, falling government bond prices and wealth in real terms. Instead, GDP should be driven by investment and the consequent improvements in productivity.

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The relationship between CHF and gold

Gold-vs.-USD-CHF

Many people think that Switzerland is related to gold due to its inflation-hedging safe-haven status. Historically this is true. With rising U.S. inflation in the 1970s gold appreciated to record-highs. So did the German Mark and even more the Swiss franc, that maintained low inflation levels.

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FX Daily, July 05: Sterling Hammered to New Lows, Yen Pops, SNB intervenes

poundhammered.jpg

The British pound has been hammered to fresh lows just above $1.3115. The euro is moving toward GBP0.8500. The immediate catalyst is three-fold. First, one of the UK’s largest property funds has moved to prevent retail liquidation. Second, the BOE reversed an earlier decision on the capital buffer for banks, which is tantamount to easing policy by boosting the banks’ lending capability by as much as GBP150 bln.

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FX Daily, July 01: Markets Head Quietly into the Weekend

U.S. Manufacturing PMI

EUR/CHF finished the week after Brexit with slight improvement of 0.18%. The scare mongering by the Swiss media was misplaced. The euro even recovered from a dip after BoE governor Carney’s comments on Thursday. We do not see strong SNB interventions at this elevated price level. We judged that the interventions happened below 1.08.

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Brexit and what it means for the Bank of England

Carney Bank of England Well Prepared For Brexit

If you’d asked any observer four or five years ago which country would be the first to leave the European Union, few would have guessed it would be the UK. Of all the countries in the EU, the UK is probably the one with the least to gain from meaningful changes in its economic relationships with its neighbours.

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Purchasing Power Parity, REER: Swiss Franc Overvalued?

PPI reduces overvaluation April 2015 B

Most 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”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.

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FX Daily, June 21: CHF Strongest Currency Again

20160622 MS

The Swiss Franc was the strongest currency. The euro fell from 1.0877 to 1.0808. Two fundamental reasons:
Speculator anticipate that German investors buy Swiss francs in response to the court decision in favor of the OMT and the positive ZEW.

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FX Daily, June 20: Brexit not the main Swiss Franc Driver

Brexit-Swiss-franc

Recently I enumerated the different drivers for the continuing strength of the franc. Most commentators mentioned Brexit fears, but I insisted on the low rate and yield environment in the United States after the last Non-Farm Payroll report and the FOMC.
Today’s jump in sterling confirmed my view. This anticipation of an Anti-Brexit vote was not followed by a franc decline against USD. This also implies that a Brexit will not entrench a huge strengthening of the franc.

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FX Daily, June 3: FX Market Shocked by Non-Farm Payrolls

Fx daily rates june 3

Massive surprise in the US job report was reflected in currency rates. The EUR/CHF surprisingly increased, despite weak US data. This reflects the fact that the ECB is currently considered the most dovish central bank. The dollar lost 2% against the yen, 1.6% against the euro and 1.3% vs. the Swiss franc.

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Swiss GDP Q1/2016, more Insights

YoY Growth Swiss GDP

Q/Q GDP growth: +0.1%, YoY GDP growth: +0.7%.
Until 2014, Swiss GDP was driven by net exports: Exports were rising more quickly than imports, which improved GDP.
Positive change in the trade balance in goods: +8.1% YoY exports, +1.4% YoY imports in Q1/2016.
Negative change in the trade balance for services: export +2.0%, import +6.7% YoY
In 2015 and in Q1/2016 the main GDP drivers were consumption (+1.3% YoY in Q1/2016) and investment (+2.1%).
Government consumption and inventories lagged in Q1/2016, they dragged down GDP to 0.1% QoQ.

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BSI: The End of a Swiss Private Bank

BSI_501

Authorities in Switzerland and Singapore are punishing BSI, the private bank based in the Ticino region of Switzerland, for alleged money-laundering offenses, shutting their activities in Singapore and seizing part of its profits.

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Ten Most Expensive Countries for Healthcare in the World

Health costs Life expectancy Obesity

The United States spends 17% of GDP for health care, compared to around 10% in many other advanced economies. Thanks to rising health care costs, GDP growth was higher in the U.S. in recent years. The question is if this kind of GDP growth enriches the whole population or only the privileged.

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Swiss National Bank: Composition of Reserves (Assets) and Investment Strategy

Balance-Sheet-SNB-Simplified2

The Q1/2016 update on the SNB investment strategy and its assets.
The Swiss National Bank is a passive conservative investor. As opposed to other investors, the exposure in currencies is as important as the strategic asset allocation according asset classes (bonds, equities, cash, real estate). The importance of currencies is one reason why the SNB is often called a hedge fund, the second the volatility of gains and losses.

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April 2016: SNB running suicide again?

snb intervention, chairman philipp hildebrand

Speculative position: Speculators are even longer CHF (against USD): +9410x 125K contracts.
Sight Deposits: SNB intervenes for 6.4 bln. CHF in only three weeks. Sight deposits (aka debt) are rising by nearly 1% per month, this is 10% per year. The SNB can never achieve such a yield on investment, her yield is between 1 and 2 percent. Is the bank running suicide again?

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History of Bank of Japan Interventions

Bank-of-Japan-Balance-Sheet-Graph-LIABILITIES

We show the history of Japanese FX interventions. The Japanese only intervened when the USD/JPY was under 80. Therefore the 2016 FX intervention threads at 108 are ridiculous.
As opposed to the Swiss National Bank, the Japanese only talk, they do not fight.

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March 2016: Highest SNB Interventions since January 2015

snb intervention, chairman philipp hildebrand

Speculative position: Strong shift to CHF long: +4967x 125K contracts after the Fed reduced their expectations of rate hikes for this year. …………Sight Deposits: SNB intervenes for 6.1 bln. CHF during the month of March. This is the higest level since January 2016. ……….FX: EUR/CHF steady slightly over 1.09. As I expected last week, the EUR/CHF …

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SNB Monetary Policy Assessment and Critique

SNB negative rates

We examine the SNB monetary assessment statement of March 17 and the Swiss economy. We explain why negative rates may be a “toothless measure” if a central bank wants to weaken a currency. They have rather an inexpected consequence, they slow down GDP growth, in particular for banks and pension funds.

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SNB Reduced Loss from 50 Billion in June to 23 Billion

Losses Swiss National Bank

According to the latest news release, the Swiss National Bank expects an annual loss of 23 billion CHF, after reporting a loss of 50 billion at the end of June. Primarily thanks to the stronger dollar, the SNB was able to achieve unrealized gains of 27 billion CHF in the second half. This reduced her annual loss to 23 billion. With its rate hike, Fed is helping the SNB: the dollar has appreciated by 6% since July.

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Swiss GDP and Swiss Franc Shock Propaganda

Swiss consumption to GDP

For George Dorgan the “Swiss Franc Shock” celebrated by the Swiss press did not affect the Net Exports component of Swiss GDP, but it rather suppressed growth in consumption. Therefore the Swiss economy could not replace lost export jobs by new jobs in the internal economy.

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Weak CHF during the Fat Years of the Joseph Cycle

Joseph Cycles Pharao

In December 2015, the seven year Joseph cycle ended with a Fed rate hike. These lean years of the Joseph cycle started in December 2008 when the Fed lowered rates to the current level. We think that in the next seven year cycle, even the risk-averse Swiss investors will buy more foreign assets, not only the central bank and speculators. Different crises have passed in the three parts of the world, the U.S. subprime, the euro crisis and the Emerging Markets crisis. The last one culminated in the Russia crisis and the end of the peg in January 2015. At the CFA Society in summer 2014, I predicted the end of the EUR/CHF peg. This time, however, I foresee a weaker Swiss franc

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China in Continuous PPI Deflation and No Depression In Sight?

Producer Prices China June 2015

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”.

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What Drives Government Bond Yields?

Private, Financial, Government Bond Debt

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).

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The Euro Glut: The Summer 2015 Update

EuroGlut2

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.

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SNB interventions June 2015

Balance Sheet SNB Simplified2

Latest update for June 2015: The pace of SNB intervention is slowing. Sight deposits, the indicator for SNB interventions, rise by 0.5 billion francs per week.
April and May: Sight deposits rise by 1.5 billion CHF per week. Thanks to this intervention the SNB is able to maintain the EUR/CHF around 1.0450.

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

Swiss Final Consumption to GDP

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.

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The two phases of CHF appreciation… and what is in between

2 Innings

We show the two phases or “two innings” of Swiss franc appreciation: The risk aversion phase and the high inflation phase.
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.

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(11) The Euro is Poised for a Rise, Expect $1.50 in 2 to 4 Years

euro 1.50, usd

We present twelve reasons that could sustain a further euro appreciation to $1.40 or even 1.50 in the upcoming two to four years. The main one is that Germans are net global creditors and Americans net debtors. This is reflected in fiscal and monetary policy and in investors’ behaviour. The post was written in December 2013, but the arguments are still valid today and will continue to be valid in the future.

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Ex-Post FX Evaluation: Is the Swiss Capital Account Able to Neutralise the Persistent Current Account Surpluses?

Net International Investment Position in % of GDP Switzerland United States

(post written originally in March 2013)
We reckon that the Swiss National Bank (SNB) will have issues maintaining the EUR/CHF floor in the longer term, because the expected yields on Swiss investments abroad will not be sufficiently higher than the yield on investments in Switzerland. Because of this insufficient risk-reward relationship, outflows in the capital account of the Swiss balance of payments will not cover the persistent Swiss current account surpluses. Only strong outflows in the capital account may lead to a carry trade that may make SNB interventions obsolete.
We judge that the balance of payments model is the only useful ex-ante estimation and ex-post FX rate valuation.
Other ex-ante FX estimations like the Real Effective Exchange Rate for the Swiss franc need to be rejected.

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Rising Sight Deposits at SNB Means Rising SNB Debt

Assets Liabilities

Money creation and sight deposits may have two points of view:
1. The central bank creates money – i.e. the SNB decides to increase sight deposits when it does currency interventions
2. Commercial banks create money – inflows in CHF on Swiss bank accounts make those banks increase their “sight deposits at the SNB. If inflows in CHF are higher than outflows then CHF must rise, unless the central bank does currency interventions.
We will present both alternatives.

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SNB’s IMF data

IMF

This IMF data on the SNB website shows SNB Forex and gold reserves in the last month. It is so-called “IMF Special Data Dissemination Standard (SNB Data)”

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The Swiss Political Compass

political spectrum ch

Libertarians close to UP Schweiz (Swiss independent party) ridiculed the Green Liberal Party, GLP and the Pirate Party as being in favor of the state and left-wing, hence not libertarian. George Dorgan suggests that both GLP and the Pirate Pirate are pretty close to UP, hence all three are libertarian parties. He thinks that the discussion if one is “Left” or “Right” needs to be left out completely, when we speak about liberty.

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(1) What Determines FX Rates?

Indian Rupee and Renmimbi against EUR

The effects of so-called “currency wars” and other central bank actions are small compared to the long-term impact made by these five catalysts, which include credit cycles, trade balance, differences in economic growth, and more.

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Marc Meyer

Marc Meyer

The best posts by Marc Meyer, the biggest and most influential enemy of the Swiss National Bank. He regularly published in German on InsideParadeplatz.ch

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(2.7) The Most Complete Real Effective FX Rate Comparison

bruegel effective exchange

In August 2013 the Bruegel blog offered one of the best comparison of long-term real effective exchange rates (REER). The data is CPI based and therefore not as good as the producer price index (PPI) that reflects tradable goods better.
However the data is huge with three different sources – BIS, World Bank, Eurostat, OECD and Bruegel. The data indicates how the real value of the currencies of China and many other Emerging Markets (EM) have improved against 1995. In order fulfill basic needs like food, transportation and housing, this expansion required more and more commodities. By consequence the commodity producers Canada, Australia, New Zealand, Russia, Brazil and OPEC countries but also less known oil producers like Angola, Guatemala, Honduras, Sudan went into a boom.

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New Swiss Gold Initiative Getting Attention When Parallel Currencies Might Challenge Swiss Franc

Goldfranken

In Switzerland the ordinary people have started several initiatives to protect their savings against the establishment. After the first gold referendum failed in November 2014, a new gold initiative is trying to introduce a gold-backed Swiss currency, as parallel currency or investment vehicle.
With the end of the EUR/CHF peg and the apparent risks caused by the SNB, the importance of the Gold Franc initiative has increased. Different groups want to introduce parallel currencies in addition to the Swiss franc. CHF is based on fractional reserve banking and, according to the critics, its quantity is increasing too rapidly.
A sound money initiative (German “Vollgeld”) wants to abolish fractional reserve banking, while the new gold franc initiative desires a gold-backed currency. Already now, the so-called WIR money (“Our Money”) is a local currency created during the Great Depression. “WIR money” allows borrowing and lending, in particular for real estate. It is fully backed by commodities, like real estate. By law, parallel currencies, like WIR money, are not legal tenders. Due to a lack of convertibility into foreign currency, WIR money trades at a slight discount to the Swiss franc. This, however, might change when the SNB gets further into negative equity.
In the following we will compare the two gold initiatives.

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(5) The Balance of Payments Model

Eurozone July 2012 Balance of Payments

The Balance of Payments is the sum of current and capital account. The Balance of Payments model states that a currency appreciate when the Balance of Payments is positive. We give an explanation in around 400 words, that clarifies the relationships.

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(5.1) FX Theory: The Trade Surplus and the Real Exchange Rate Mean Reversion

Trade and Current Account Deficit United States 1980-2012

George Dorgan explains why currencies of countries with trade surpluses must appreciate over the long-term. Thanks to these surpluses, inflation and costs of companies rise more slowly than in other countries. In Forex a mean reversion does not exist, but only an inflation-adjusted reversion to the mean: a real exchange rate mean reversion or in short the “real mean reversion.”

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(7) FX Theory: The Asset Market Model

Correlation Treasuries vs. Yen

The Asset Market Model implies that a currency will be in higher demand and should appreciate in value, if the flow of funds into financial market of the country such as equity and bonds markets increase.

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(12) FX Rates, Contrarian Investments and the Misleading Concept Called GDP

contrarian

We extended our existing post to contrarian investing. It was published on Seeking Alpha and 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.
In addition to micro-economic indicators like price to cash flow or price to book ratio, the saving rate is the best macro-economic indicator of the investment style called “contrarian investing.”

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(14) Best Trading Tips

Entwicklung-DEMUSD

Read our contrarian insights: We provide regularly contrarian indications to technical Forex movements. Trade after work and do not look at markets during the day, third read scary facts about stops.

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CHF Is No Safe-Haven, but a Safe Proxy for Global Economic Growth

Global Economy Shares

In our view the Swiss franc is not a pure Safe-Haven, but a “Safe Proxy for Global Economic Growth”. Global investors want to participate via the purchase of safe Swiss multi-nationals in global growth. This means inflows into Swiss franc denominated assets. Together with the big Swiss trade surplus, this implies a stronger franc. China stands for global economy, its slowing growth has a negative influence on the profits of Swiss multi-nationals and is therefore negative for the franc.

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What Caused The Swiss Financial Tsunami? Three Reasons, One Trigger, One Chain Reaction

Munch

In this post we give our (Swiss) view for the financial tsunami on January 15.
The SNB has preferred its secondary mandate, namely financial stability, and the elimination of risks on its own balance sheet caused by ECB QE.
It will not obey its primary target, price inflation, for the next three to five years. While in the mid-term (5 -10 years) inflation should move up.
Differing perceptions between Switzerland and the Anglophone world about “price stability in the medium and long-term” is the second explanation for the financial tsunami.
The massive trade surplus of 10% of GDP is the third reason.

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9) Markets

stock-market

We are currently looking for an curator of this category. The aim is explain how to obtain sustainably nice returns on stocks and bonds. The focus here should be also on global macro. Sustainability is key: “buy today and sell far in the future”, for example when you get retired. Publicity for own books or publication is allowed.

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Quantitative Easing, its Indicators and the Swiss Franc

bernanke gold chf, dollar

The main drivers of demand for Swiss francs are the euro crisis and, even more, the behavior of American investors, who go out of the dollar in the fear of bad US economic data and/or Quantitative Easing (QE). Risk-friendly investors move into risky assets like stocks or currencies of emerging markets, while risk-averse investors fear inflation and buy inflation-resistant assets like Swiss francs.

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German Home Prices Quickly Narrowing Gap against France – 2014 Update

german home prices

European national central banks released European household wealth reports in Spring 2013. According to that data, “median” German households were far poorer than many of their European counterparts. Based on 2012/2013 data we compared apartment prices and discovered that French prices were strongly overvalued or German ones undervalued.
We wanted to know if this is still the case in 2014 and integrated our 2012/2013 data with the one of 2014. We discovered that German home prices are quickly recovering their delay against French ones. Hence German wealth is ticking up again.

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Happy Xmas Lars von Trier

Handel Lascia ch’io pianga_

Dear friends and readers, Christmas is family time. But since my blog is contrarian, you read here a contrarian family post by one my idols, Lars von Trier. I just want to thank all my loyal readers and followers for following and commenting on my blog and any discussion on Twitter. Since the blog is driven by …

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Swiss Gold Referendum: Results and Analysis

results gold referendum

In a referendum, the Swiss had to decide about:
1) Ecopop, an ecological-political movement that wants to limit immigration to 0.2% of the population.
2) Abolishment of tax advantages for rich foreigners.
3) A gold initiative.
All three initiatives were rejected, the gold initiative by 78%.
George Dorgan summarizes the outcome. He explains what it means for gold, CHF and the SNB. He argues that the next economic cycle will be driven by stronger wage growth in Germany and in the United States. He argues that in some years time the major enemy of the SNB will become inflation that is caused by rising Swiss asset prices and rents and from inflation spill-overs from Germany and the U.S.

The SNB will finally react according to the proposal raised by Prof. Janssen, a major supporter of the gold initiative: with a managed currency appreciation.

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Heterodox Economic Theories and GDP

Heterodox economic theories focus on the human desires to spend, to save, to obtain credit in order to anticipate spending and future earnings, to increase or to reduce debt or even to deplete existing savings, on human behaviour. Those theories neither think that humans are rational nor that markets are efficient.

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Why was the gold price so low in 1999/2000?

Domestic Private Surplus, Govt Surplus

To find further explanations as to why the gold price was weak in the late 1990s we analyze sector balances. Effectively private spending and private debt went in two different directions: a heavy increase in private spending and debt in the US against less growth in private spending and less debt in the rest of world. This combination fostered GDP growth in the US and weakened it in other countries. Real interest rates were positive. Markets thought that the debt-financed growth could continue for years; they created the dot com bubble on top of it that strengthened technology stocks and the related currency, the dollar. This rare situation led to excessively weak oil and gold prices.

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History of SNB Interventions

SNB Assets vs. Liabilities source UBS with EUR/CHF FX rate

High inflows of around 400 billion francs between 2009 and 2012 in the Swiss balance of payments could only be countered with an increase in reserve assets and interventions by the Swiss National Bank. This number is far higher than the one seen during the collapse of the Bretton Woods system, when the ten times bigger Germany had to buy reserves for 71 billion German Marks (at the time around 56 billion CHF). We look at the detailed history of these interventions.

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Vier Meinungsgruppen im Schweizer Goldreferendum, eine Übersicht

arena srf

Das Thema der “Abstimmungs-Arena” im Schweizer Fernsehen war „Gefährdet die Gold-Initiative die Handlungsfreiheit der SNB“? Dieser Blog versucht zu vermitteln, dass die SNB ihre Handlungsfreiheit im Sinne der Einhaltung der Preisstabilität schon im September 2011 verloren hat, als sie den Euro-Mindestkurs einführte.

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Sept 2014, George Dorgan at the CFA Society: The Black Swan Slides

cfa society

George Dorgan held a presentation at the CFA society in Zurich on September 1. The subjects of his speech were:
Reasons why the EUR/CHF exchange rate will fall under 1.20 once the deflationary pressures in Europe have ended
The missing link in the CFA program between its chapters on micro-economy, macro and currencies
Does history repeat? From Bretton Woods to Bretton Woods 2 and its slow end. Why the unexpected, the black swan happens more often than you think.
The slow end of Bretton Woods 2: rise and fall of the global carry trade and debt-driven growth
The contention that the Swiss franc must depreciate is often based on a simplified view on currency drivers and on “solely” one piece of the balance of payments. An evaluation must take place in full assessment of all drivers.

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Swiss Gold Referendum: Opinion Polls

Swiss Gold Referendum by Income

According to the latest polls 38% of voters would support the Swiss gold initiative, 47% are against it. The previous poll, recognized as more reliable, showed 45% pro gold and 38% against.
A win of the initiative would most probably imply a breakdown of the EUR/CHF floor.
According to the polls, low income groups are in favor. Effectively their purchasing power would increase when the CHF appreciates.
High income earners and stock owners are rather against it. If CHF improves Swiss stocks could collapse; this explains their voting intentions.

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Swiss Gold Referendum and SNB’s Opinion: An Exchange of Arguments

swiss gold

Already in 2013, the Swiss National Bank (SNB) spoke out against the gold initiative and revealed that the Swiss gold is stored mostly in Switzerland and 20% in the UK and 10% in Canada. There is no Swiss gold in the United States according to SNB chairman Jordan. In this post we provide an exchange of Jordan’s arguments against the ones of the gold initiative. We also state our view that is not as strict as the one of the referendum proponents.

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A Little History of Wages, Inflation, Treasuries and the Fed – And What We Learn from it

Fed Hikes Rates Against Wages

On this page we show that
Inflation expectations and wages drive the behaviour of the Fed and Treasury bond yields.
Excessive wage increases lead to recessions, more or less voluntarily caused by central bank tightening
Central banks pin down the short end of the yield curve, while financial-market participants price longer-dated yields
Some Emerging Markets seem to copy strong wage increases and inflation that we lived in the 1970s
Quickly rising higher wages in emerging markets may narrow their competitive advantage against the U.S. and Europe
Therefore the “secular stagnation” might not be so long as expected.

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Swiss Franc and Swiss Economy: The Overview Questions

pictet long-term graph eur/chf, real trade

Before the upcoming SNB monetary policy assessment meeting on June 19th, rumors started the SNB could follow the ECB and set negative rates on banks’ excess reserves. We would like to deliver the whole background, starting with the question why Swiss inflation has been so low in the past and why CHF always appreciated.

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Stock Indices and Exposure to Emerging Markets

ftse evenues em

Monetary policy is and remains tight in Emerging Markets, in particular since many of their currencies collapsed in summer 2013. This created inflation and led to lower spending. We want to find out which stock indices in the developed world have which exposure to Emerging Markets.

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Über den Niedergang der FAZ und des deutschen Journalismus

niedergang faz

Das deutsche Zeitungswesen ist gleichgeschaltet und schreibt und kopiert die gleiche Propaganda, egal ob FAZ, n-tv.de, Spiegel, Süddeutsche, Focus oder das Staatsfernsehen (ARD & ZDF). Seiten wie compact online, Cicero, Deutsche Wirtschaftsnachrichten des Kopp Verlag sind aber dann wieder zu polarisierend. Es fehlt eine Zeitung von Qualität, die wirklich neutral informatiert und Meinungen vergleicht.
Es bleiben nur das Handelsblatt und die Schweizer Weltwoche als relativ neutrale Medien. Die Zeit ist noch einigermassen ertragbar.
Der Herausgeber des Handelsblatt hat in “Der Irrweg des Westens (Ложный путь Запада)” die Propaganda der Mainstreammedien kritisiert, ohne auf die stark polarierende Sicht von Compact “Querdenker jenseits von Links und Rechts” zu schwenken. Wahrscheinlich als Reaktion dazu hat die Frankfurter Allgemeine Zeitung (FAZ) anfgefangen über sich selbst zu reflektieren
Ich persönlich lese mittlerweile mehr die FAZ-Kommentare, da diese häufig eine bessere Qualität haben als der FAZ-Artikel selbst. Ein Auszug.

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Net National Savings Rate, the Best Alternative Indicator to GDP Growth

savings

For us the Net National Savings Rate is the best alternative indictator to GDP growth. The Net National Savings Rate (NNSR) is rather positively correlated with the change in wealth, with the establishment of future productive capacity, the price of government bonds and currency valuations. The relationship of GDP growth to those four criteria, however, is often a negative correlation.

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Malaysian MH17: Ukrainian&Western Propaganda against Russian Propaganda. Who is Best?

MH 17 flight

strong suspicion that Ukrainian air control deliberately facilitated and enabled the shot-down. Combining Western and Ukrainian propaganda with pro-Russian propaganda helps. In each piece of “manufactured or exaggerated news” there might be a bit of truth. Still there is only one party to this conflict that has to gain from a deliberate blowing up of MH17, this is not Russia or the so-called “Donezk People’s Republic”.

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Will the Dollar Appreciate on higher U.S. Savings and a Smaller Trade Deficit?

industrial production

In summer 2013, even the sceptical and “gold-friendly” economist John Mauldin followed the mainstream thinking that fracking and other technology could reduce OPEC’s and the Chinese advantage in global trade and reduce the U.S. trade deficit. Recently both claims got refuted: the first with WTI crude oil prices rising to nearly 108$ despite enhanced supply. Detailed data showed that rising U.S. industrial production was not caused by more manufacturing but by mining and the oil industry. We think that any way the U.S. current account deficit could effectively shrink. The reason, however, is that the savings rate of Americans could rise further and the balance sheet recession continue. Traditionally currencies appreciate with higher savings (in local currency) and depreciate with more spending.

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Business Cycles

fed hikes rates wages

The typical backstops of all improvements in business cycles are high oil prices and inflation. Inflation is mostly caused by local effects.

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Swiss Franc History, 2000-2007: The sale of the Swiss gold reserves

gold price vs. snb reserves 1

A critical Swiss Franc History: Between 2000 and 2007, the SNB made the Swiss cantons happy and delivered some billions of francs to prop up their finances. The gains were unfortunately not caused by strong asset management capabilities, but mostly due to gold price improvements and gold sales at quite cheap prices.

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Swiss Franc History: Volcker Shock, Oil Glut and the Breakdown of Gold and Emerging Markets

gold inflation

After the Volcker moment or sometimes called “Volcker shock”, commodity prices plunged, the gold price collapsed. Thanks to additional supply, e.g. from Northsea oil, a so-called oil glut appeared. After the increase of debt in the 1970s, some economies in Southern America collapsed. The major reason was Volcker’s tight monetary policy with high interest rates and the dependency on US funds. Global economic growth remained lack-lustre during these years.

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The Swiss Radical Libertarian Party “UP Schweiz” Is Born

up schweiz

On June 18th, 2014, the new radical libertarian party UP!, “Unabhängige Partei”, Independent Party was founded. The party is co-headed by the former head of the Swiss young liberals, Brenda Mäder, the former head of the young liberals St. Gallen Simon Scherrer and Silvan Amberg, the former leader of FDP’s homosexual association. The FDP is losing some of their brightest minds.

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Germany: Last European Country with Lots of Cash Under Matresses

Money under German Matresses

In June 2014, the ECB decided to introduce negative rates on the excess reserves of banks. We explain that German banks had already removed most excess liquidity before the ECB meeting of June 2014, and they will continue to do so. Hence hardly any German bank will pay negative rates after the recent ECB decisions at that meeting.

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SNB Bills, Chinese Repos and Reverse Repos

A repo provides liquidity to banks while the reserve repos aims to reduce liquidity and reduce inflation. In 2011, the SNB used SNB bills and reverse repos to reduce inflationary pressure. SNB bills are short-term bonds that pay a certain interest.

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Is the SNB Intervening Again?

snb intervention, chairman philipp hildebrand

Update March 21, 2014: Total SNB sight deposits increased to 367.8 bln. CHF, but flows reverted a bit. Foreign banks and “non-banks” reduced their CHF exposure at the SNB to 50.8 bln, possibly converting a part of the difference into USD. Dollars are more useful when sanctions will hurt both Russian and German firms. On …

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The IMF Assessment for Switzerland and our Critique

international monetary fund

In the 2014 assessment for Switzerland by the International Monetary Fund several sentences caught our eyes; we will contrast them with our recent critique. The most important one was that for the IMF is only “moderately overvalued”, this would have no negative effect for exporters.

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Krimkonflikt: Über die Gleichschaltung der deutschen Medien

nato expansion endangers russia

Der Propagandakrieg in Russland, in den USA und insbesondere in Deutschland und auch in der Schweiz geht weiter. Russische Medien trichtern den Menschen ein, dass eine riesige Flüchtlingswelle von Russen aus der Ukraine stattfindet. Deutsche Medien sind gleichgeschaltet: von links (TAZ, Spiegel, Stern) bis rechts (FAZ, n-tv.de und Welt) trichtern sie den Deutschen ein, dass …

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George Dorgan at Swiss Young Liberals: Slides

On Friday the 7th of February at 19.00, George Dorgan is presenting his outlook on the Swiss Franc. He explains if and when the Swiss National Bank is able to generate profits again. Moreover he discusses the influence of the two referendums “Save Our Swiss Gold” and “Against Mass Immigration” on the Swiss Franc and …

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Pros and Cons of the Swiss Countercyclical Capital Buffer

emu vs. swiss m3 credit, exceeds eurozone

Switzerland is currently living in a big real estate boom. The bubble bursting would imply that banks’ collateral in the form of real estate falls in value. Therefore the banks’ assets might fall because many home buyers might not be able to repay their mortgage.  If a real estate bubble pops, then banks should be better capitalized to absorb such a shock. Therefore the Swiss National Bank introduced macro-prudential measures, like the so-called “counter-cyclical capital buffer” (CCB).

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SNB Balance Sheet Expansion

snb balance sheet expansion

Since 2008 the balance sheet of the Swiss National Bank is 280% higher, this is the equivalent of 60% of Swiss GDP. So did most other central banks, too. But there is one big difference: The risk for the SNB is far higher, the SNB nearly exclusively possesses assets denominated in volatile foreign currency.

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The Fed Will Remain Gold’s Strongest Supporter For Years

bernanke gold chf, dollar

In the early 1980s the Fed stopped the wage-price spiral and destroyed the gold price. Today main-stream economists have discovered that rising company profits compared to stagnating wages could an issue for the U.S. economy. For us this implies that the ultimate Fed goal will be to increase wages and inflation. Consequently the Fed has become the biggest supporter of gold and silver prices.

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An Upcoming Italian Success Story?

Labor Participation Rate Australia Canada Italy Germany USA France

Higher exports show that Italy’s economy is trying to become a new German Companies seem to hide their competitiveness. A question remains: Will Italian companies really invest in Italy and create jobs?

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Fundamentals,FX,Gold and CHF:Week November 18 to November 22

FX Price Movements November 11 to November 15 2013

Fundamentals with highest importance: The HSBC Flash Purchasing Manager Index (PMI) for China weakened from 50.8 to 50.4. In particular, new export orders, output prices and employment started to decrease again, while output increased. The preliminary Markit manufacturing PMI for the United States edged up to 54.3 (vs. 52.3 expected), a 9-month high after the …

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ECB rate cut creates complex situation for SNB

icon_biggrin

Says Thomas Jordan.
Need to wait to assess impact of ECB rate cut
Wasn’t totally surprised by the cut
Interest rates will remain low in Switzerland
Low rates may lead to property bubble risk which SNB will respond to if necessary
SNB monitoring property market which is already in difficult situation
I did wonder about the lack of movement in EUR/CHF yesterday considering that nearly every other euro pair took a hit. It’s either become the forgotten currency or there’s some sneaky SNB support that comes in on risk events.

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Fast CHF and Gold Price Movements

ifogermany

Our CHF and Gold News Bar on our home page explains daily CHF and gold price movements based on the most important fundamental indicators in a few sentences. Keep in mind that the only Swiss fundamental data that is able to move the CHF must come from the SNB and from Swiss inflation data – …

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Fundamentals, FX, Gold and CHF: Week October 21 to 25

House Prices against income China US Britain

Major Fundamental Events The week contained a lot of important fundamental events, in particular Non-Farm Payrolls and preliminary “flash” PMI readings.   Highest importance for FX rates Non-Farm Payrolls (NFPs) weakened to 148K, private NFPs to 126K, both against 180K expected. Especially the private NFPs were disappointing. The decrease in the unemployment rate from 7.3% …

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8a) Italy and the Euro Exit

Beppe Grillo

Italy, other peripheral economies and later France will follow Japan for a decade or more of balance sheet recession: stagnant wages, falling real estate prices and a reduction of private debt.

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Five myths about libertarians

    Five myths about libertarians The specter of libertarianism is haunting America. Advocates of sharply reducing the government’s size, scope and spending are raising big bucks from GOP donors, trying to steal the mantle of populism, being blamed for the demise of Detroit and even getting caught in the middle of a battle for …

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SNB Q2/2013 Composition of Reserves

snb q1-q4 currency breakdown

We regularly publish the SNB asset structure by currency, rating & duration, they might be a template for the tactical asset allocation in these dimensions (CHF certainly excluded) for other fixed income and/or rather conservative asset managers. here the newest data Total Balance Sheet and Liabilities The total balance sheet size decreased from 511 bln. …

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Debt Reduction, the new Financial Cycle, an Important Driver of EUR/CHF

Swiss Debt and Deficit to GDP

In this analysis we describe why the long-lasting financial cycle of debt reduction is one key driver of the EUR/CHF exchange rate. We claim that EUR/CHF can rise more strongly only when the competitiveness of the European periphery increases. When this happens, then debt will be reduced and both public and private deficit spending will stop.

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The End of Swiss Deflation

Swiss CPI Eurozone Comparison June 2013

The yearly change of the Swiss consumer price index has risen from -0.5% to -0.1%, the end of deflation is near. Swiss inflation measured with the European standard HICP has even improved to +0.2% y/y. Details

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Zillow CEO: If You Can, Sell Your U.S. Home Now

Zillow

Via CNBC   Against the backdrop of increasing home prices and the prospect of much higher mortgage rates, it’s a “great time” to sell, Spencer Rascoff, CEO of online real estate marketplace Zillow, told CNBC on Thursday. That is, if you can find a place to buy, he added. “As mortgage rates inevitably come from …

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Democracies Like Bubbles, Totalitarian Regimes Hate Them

Totalitarians

Totalitarian regimes, like China, fear bubbles and revolutions. Strangely, these regimes help to prevent asset bubbles, and the resulting unequal distribution of wealth between rich asset owners and the poor without assets. Today’s FT article shows how Chinese authorities fear the bubble and the revolution. China cash crunch deepens as PBOC withholds funding Short-term interbank …

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Adam Smith Institute: Could Deflation Be Salvation?

Imagine wages and factor prices are stable.  Hence deflation means productivity growth: Higher quantities bought for a lower price. Low inflation or even deflation is the Swiss success story for decades and the success story for the United States recently. The Pigou effect seems to be saving the US economy, just as it did in …

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The Cyclical and Exchange-Rate Induced Chinese Slowing

Fixed Investments as part GDP

We believe in the Chinese economy, but it has just gone into a cyclical and a exchange-rate induced slowing. Any Cassandra views like recently by Charles Dumas, chief strategist of Lombard Research, but also some of Richard Koo’s earlier views, that there will be a burst of the Chinese housing bubble, are exaggerated. Markets Insight: …

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SNB to Follow the Bank of Japan? Part1

ISM Manufacturing Non-Manufacturing May 2013 YoY

Questions to George Dorgan Is there any chance that the SNB or other central banks could follow the BOJ and just depreciate the currency? George Dorgan: What did the BoJ do? Monetary easing and talk down the yen in a mercantilist style. A central bank is able to talk down a currency only if there …

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The Swiss Trade Surplus: A Really Global Economy

Swiss Trade Balance April2013

  The Swiss trade balance for goods clearly indicates its global orientation. Switzerland has a trade surplus with the US, Canada, the UK and many emerging markets. Swiss exports are mostly luxury products and pharmaceuticals. The total surplus for the 4 first months in 2013 was 7.7 billion CHF, about 1.2% of GDP, annualized around …

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GDP Comparison BRICS Developed Markets

Beautiful charts by Goldman’s Jim O’Neill that help to understand the former and future growth of different emerging, “growth markets”, the BRICS. We criticise his partially over-optimistic views.

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The Great “American” Divide

Corporate Profits against US GDP Growth

Disconnect between Wall Street and Main Street. While asset prices are inflated by continued Fed interventions, boosting profits widening the wealth gap between the top 20% of Americans and the rest.

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Global Purchasing Manager Indices

Global PMIs December 3, 2012

Manufacturing Purchasing Manager Indices (PMIs) are considered to be the leading and most important economic indicators.   August 2013 Update Emerging markets: Years of strong increases in wages combined with tapering fears have taken its toll: Higher costs and lower investment capital available. EM Companies have issues in coping with developed economies. Some of them …

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Swiss Economic Indicators, March 2013

GDP KOF Wages CPI PPI Trade Balance Consumption SECO Industrial Production Construction

  Switzerland continues to see a robust economy, even if the leading KOF indicator fell to 0.99 after highs of 1.68 in September. On other side, real and nominal wages continue to increase. As opposed to the KOF value, the UBS consumption indicator is rising. This shows that the internal economy is able to balance …

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Cyprus: The initial compromise and reactions

Cyprus Haircut

The initial compromise The Cyprus compromise combines a 10 billion € bailout with European, basically German tax-payers money, that also obliges rich account owners (9.9% levy) – rich Russians and Brits – and poorer account owners (6.75% levy) – Cypriot tax-payers money – to take part in the deal. Initial reactions from Zerohedge over Keynesian mainstream …

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Das beeindruckende Comeback Berlusconis.

roger-koeppel-ist-weltwoche-verleger-

Wir sind beeindruckt von dem Leitartikel der Weltwoche, der doch ganz unserem Gedankengut entsprochen hat. Der deutsche Kanzlerkandidat Steinbrück hat der deutschen Demokratieverachtung und EU-treuen Überheblichkeit dann noch das i-Tüpfelchen hinzugefügt. “Zwei Clowns haben gewonnen.“   Von Roger Köppel, Die Weltwoche Demokratie ist, wenn es anders herauskommt, als Meinungsführer, Journalisten und tonangebende Politiker gedacht haben. …

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Über die Arroganz und Demokratiefeindlichkeit der deutschen und Schweizer Medien

2238433059

Deutsche und Schweizer Medien sind oft vereint mit den Europäischen Leadern, Deutschen Exporteuren und den Finanzmärkten im Kampf gegen den gemeinsamen Feind, Silvio Berlusconi, das Enfant Terrible, das Gegenteil der Schweizer Bescheidenheit- und “Bloss nicht zu laut”-Etikette. Berlusconi soll Schuld sein am Abstieg Italiens seit den 90igern, obwohl auch die Linke mit Romani Prodi zweimal …

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SNB Liabilities (deposits & bank notes) at New Record High

Printing Press

SNB sight deposits are rising again, by 700 million CHF in one week. But the amount of cash in form of bank notes and coins has risen by 10% since September. It seems that the central bank is now not only virtually printing (via sight deposits) but also physically. SNB liabilities reached a new record high. Details

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Switzerland’s Slow Way to Inflation

Swiss CPI Inflation January 2013

UPDATE February 2013 inflation data: The inflation figures for February showed the upwards movement we expected. On monthly basis inflation rose by 0.3%. The Swiss CPI is getting closer and closer to the one of the euro zone.   We explain the January 2013 data on Swiss inflation and indicate which components drive the consumer …

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SNB Sight Deposits Rise by 100 Million CHF, Week January28

SMI vs DAX January 2013

While FX traders and some hedge funds are long EUR/CHF and some short covering happened, sight deposits show a different picture. They rise again, this time with 100 million francs (see details) in one week. Risk-off investors are not convinced yet that the euro crisis is finished, while other investors keep profit of the rising SMI and Swiss real estate prices.

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Global Purchasing Manager Indices, Update January 25

Global PMIs December 3, 2012

Manufacturing PMIs are considered to be the leading and most important economic indicators.  After a strong slowing in summer 2012 and the Fed’s QE3, this is the fourth month of improvements in global PMIs   January 25th Expansion-contraction ratio: There are 15 countries that show values above 50 and 14 with values under 50. Positive-negative-change ratio: …

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FX Theory: The Balance of Payments Model Explained in 400 Words

Balance of Payments

The balance of payments leads to many confusions because definitions vary. For example, the IMF’s definition is different from the usual or historical definition. Secondly, the relationship between the balance of payments and reserve assets is difficult to grasp, especially in the IMF definition. Thirdly the origin of “errors and omissions” is often unclear. Therefore …

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Quantitative Easing, Gold and the Swiss Franc

Quantitative Easing Mechanisms

The main drivers of demand for Swiss francs are the euro crisis, but even more, the behavior of American investors, who go out of the dollar in the fear of further bad US economic data and of Quantitative Easing. This will push down the dollar, and safe-havens like the CHF, gold or the Japanese Yen up. …

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Global Purchasing Manager Indices, Update December 17

Global PMIs December 3, 2012

Manufacturing PMIs are considered to be the leading and most important economic indicators.  Since the Fed’s QE3, this is the third month of improvements in global PMIs after a strong slowing in summer 2012.   January 25th Expansion-contraction ratio: There are as many countries that show values above 50 as under 50. Positive-negative-change ratio: 18 countries …

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The Upcoming Spanish Lost Decade(s)

Spain protests

To us, the big theatre surrounding Greece was just a preview of a much bigger crisis that will happen in the coming years in Spain, the upcoming Spanish lost decade(s). Greece was an absolutely desperate case; therefore, everything was quick. It took just two years till we arrived at the official sector participation and yearly German transfer …

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About the Impossibilities of the Common-Currency-Recession-Austerity Cycle

charles wyplosz

Charles Wyplosz, Professor of International Economics, Graduate Institute, Geneva repeats our arguments in “Who says No to Austerity, Says Yes to the Northern Euro about the impossibility of getting out of the common currency – recession – austerity – cycle.  Similar as we do, he proposes a public debt haircut, an end of austerity and a decentralization of remaining debt. We go one step further, we want to break not only austerity but also the current form of the common currency. Read more on Prof. Wyplosz entry on VOX.

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Main US Economic Indicators

US Recession Indicators Concurrent Indicators

The four best “recession” indicators, in form of coincident economic indicators, can be seen at Doug Short/Advisor Perspectives Update September 2013   Update December 21th, 2012   We observe the following: US indicators point upwards, when the rest of the world is slowing. After capital left many emerging markets and Europe, this capital helps the United States …

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Who is the Biggest Debt Time Bomb: Japan, France, the UK or the United States?

picture 3

Some must reads: According to the Economist the biggest time bomb in the euro zone crisis is France.

We wonder why the United States and Britain, that have same weak trade balances, the same weak competitiveness and a debt overhang, shouldn’t have a problem?

Just because France must do austerity according to the German Fiscal Compact wish, and the US and Britain do not need to do this?

Or like Ray Dalio called it, are the US and Britain doing a beautiful deleveraging? Or is financial repression and accumulation of debt a real danger?

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SNB Monetary Policy Assessment Outlook

Growth Differential CH Eurozone UBS

On Thursday, December 13th, 2012, at 09.30 CET, the Swiss National Bank (SNB) holds its quarterly monetary policy assessment meeting. As we explained in the “drivers of Swiss inflation” post, inflation pressures will remain subdued for the next 2-3 years, because the effects of the quick rise of the franc and weakening global growth need to …

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Robert Mundell: Why Libertarians Must Love the Euro

portrait5

The idea that the euro has “failed” is dangerously naive. The euro is doing exactly what its progenitor planned for it to do. According to Robert Mundell, the creator of the Optimum Currency Zone concept, the euro would really do its work when crises hit. Removing Keynesian monetary and fiscal juice to pull a nation out of recession. More about this evil genius on Guardian.

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Unicredit: Both Italy and Britain Should Play in the Southern Euro League, Germany in the Northern

erik nielsen Unicredit

The must read “Italy is a better bond bet than Britain” on the Financial Times. Unicredit CEO Nielsen implicitly confirms our latest post on global and European imbalances that can be solved only with a Northern Euro and our post why the UK needs to be downgraded similar as France. Both the UK and Italy have the same weak current account, weak investment position and slow growth. They should play together in the Southern euro league.

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Ist der Franken überbewertet? Kaufkraftparitäten

  Nach dem starken Anstieg des Frankens in den letzten Jahren, sagten Ökonomen wie O’Neilly von Goldman Sachs oder die der Schweizerischen Nationalbank (SNB), dass die Schweizer Währung überbewertet wäre. Einige benutzen den “Big Mac Index”, den OECD-Kaufkraftsparitätsindex oder Kaufkraftparitäten auf der Basis von Konsumentenpreisen als Beweis. Wir zeigen, dass aber nur die Kaufkraftparität aufgrund von …

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Seasonal Factors on Oil

spot crude by month subsamples

Evidence from simple tests supports perhaps some belief that crude oil tends to have strong and weak months of the year, Q4 is often the weakest quarter and Q1 and Q2 the best.

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SNB Sight Deposits Week November 23

snb liabilities ubs

Total sight deposits at the SNB rose by nearly 1 billion to 374 bn francs in the week ending on November 23th. “Other sight deposits”, the ones of foreign banks and Swiss companies, fell by one billion francs, but the ones of local institutes increased  by nearly 2 billion francs.

See full detail on our explanation, historical and our expected development of these SNB monetary data.

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Details zum neuen Piratenpartei Wirtschaftsprogramm #BPT122

logo piratenpartei deutschland

Der Bundesparteitag der Piratenpartei Deutschland, ist für jeden, der auf Basisdemokratie setzt, ein sehr aufregender Anlass für jeden, auch wenn die Ziele der Partei sich nicht unbedingt mit den eigenen politischen Zielen decken.
Die Piratenpartei Deutschland ist eine basisdemokratische Denkfabrik, ganz im Gegensatz zu vielen anderen Parteien, die von einer parteipolitischen Oligarchie, Lobbyisten der Wirtschaft und der Medienlandschaft beherrscht werden.

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Who’s the Next Downgrade Domino to Fall?…The UK?

UK Risk of Default BBC

Who Downgrades France MUST downgrade the UK, too   After Moody’s downgraded France, we are waiting the next major sovereign to suffer the same fate. According to the must-read interactive graph on the BBC, France now has a medium risk of default, but the UK is still in risk status “low”.   According to the BBC, each citizen …

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SNB Sight Deposits Week November 16

snb reserves vs. eur/chf usd gold

Total sight deposits at the SNB rose by 0.5 billion to a total of 373 bn. francs in the week ending on November 16th. “Other sight deposits”, the ones of foreign banks and Swiss companies, fell by 600 million francs, but the ones of local institutes increased by more than 1 billion francs.
See full detail on our explanation, historical and our expected development of these SNB monetary data.

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Before getting too excited about the IEA’s forecast of US oil production leadership…

US Oil Independence

Saxo Bank, recently called for quitting long Gold and “being scared” trades.

For them shale gas & oil is the game changer for the United States. It should make the US the leader for global growth in the next years. The International Energy Association (IEA) declared that the US would be energy-independent by 2030.

Today a nice article about the history of wrong IEA forecasts came out:

Before getting too excited about the IEA’s forecast of US oil production leadership…

Moreover environmentalists do not stop to protest against the fracking techniques.

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Warum uns das demokratische Prinzip in eine Sackgasse führt

Andreas Toegel

Der „In-einer-Demokratie-herrscht-das-Volk“-Mythos wäre durch nichts nachhaltiger zu entzaubern gewesen als durch den seit Jahren aufgeführten Eiertanz um Griechenland- und Eurorettung, durchgeführt durch eine Bankenoligarchie, die dem unwissenden Bürger immer wieder mit Endzeitdrohungen kommt, sollte das kleine Griechenland die Eurozone verlassen. Die Endzeit erreichen wir nun, weil sich die Deutschen vor lauter Angst vor ESM und Target2 weigern zu konsumieren.

 

Buchempfehlung: „Wenn die Demokratie zusammenbricht“

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Global Purchasing Manager Indices, Update December 10

Global PMIs December 3, 2012

  Manufacturing PMIs are considered to be the most leading and important economic indicators. Jim O’Neill, Chairman of Goldman Sachs Asset Management, believes the PMI numbers are among the most reliable economic indicators in the world.  BlackRock’s Russ Koesterich thinks it’s one of the most underrated indicators. Global Purchasing Manager Indices for the manufacturing industry   December 3, 2012 …

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Die Wiederwahl Obamas bedeutet nichts Gutes für die Schweiz

Obama

  Barack Obama war und ist der präferierte Kandidat vieler Schweizer. Obama scheint der Mann von Welt zu sein, während vom konservativen Mitt Romney eher feindselige Politik gegen Russland, China und Iran zu erwarten ist. Daher sind die Neutralität- und Frieden-liebenden Schweizer eher auf Obamas Seite. Aber auch wirtschaftspolitisch scheinen viele Eidgenossen Obama zu mögen. …

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Swiss and German Economic Indicators, Update November 1

Swiss & German Economic Indicators, August 2012

Euro Crisis Has Affected Germany, Switzerland Still Immune    Most Recent Events The Swiss SVME PMI has risen from 43.9 to 46.1. This PMI  is dominated by machinery, metallurgical and electric equipment exporters organized in the Swissmem organization. As opposed to the chemical industry, they were not innovative enough to adapt to the stronger franc; but …

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SNB Monetary Data Week October 26

swiss m1 vs. gdp and credit 2008-2012

Seasonal effects, the good months for the SNB and the US economy, but weaker ones for emerging markets and Switzerland Despite the seasonal effects between October and March, the SNB is not able to sell currency reserves consistently. Traditionally the USD gets stronger and stocks rise over the autumn months till January. This year’s stocks appreciation was possibly already anticipated …

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Euro Crisis Has Affected Germany, Switzerland Still Immune

Swiss & German Economic Indicators, August 2012

Swiss and German Economic Indicators, October 2012   Both Swiss and German economic indicators show continued signs of stability, but the German situation has become worse and might affect the Swiss. Especially low unemployment, rising real wages and strong trade balances are signs of robustness. Despite that, Germany’s industrial production is weaker than last year, …

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Who Has Got the Problem? Europe or Japan?

Japan

A couple of months ago the euro traded close to EUR/USD 1.20 and the whole world was betting on its breakdown. Once the euro downtrend ended thanks to QE3, OMT and euro zone current account surpluses, the common currency did not stop to appreciate against the yen and reached levels of EUR/JPY 104 and above. …

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SNB Monetary Data Week October 19

Swiss Trade Balance by regions English

Seasonal effects, the good months for the SNB and the US economy, but weaker ones for emerging markets and Switzerland Given that the seasonal effects between October to March have started, the SNB might be able to sell some currency reserves. Traditionally both the USD gets stronger and stocks rise over the autumn months till January. This year’s stocks appreciation was …

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Again Flawed Data for Jobs

job fair 200

Some ten days ago, we examined in detail why the monthly job data was no conspiracy as Jack Welch maintained, but  simply flawed. Similarly as  David Rosenberg we said that the way the BLS obtains data for the household survey was error-prone. Gluskin Sheff’s David Rosenberg That the 7.8 percent jobless rate takes it to the …

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SNB Monetary Data Week October 12

Stock market performance per quarter

Seasonal effects, the good months for the SNB and the US economy, but weaker ones for emerging markets and Switzerland, have started Given that the seasonal effects between October to March have started, the SNB might be able to sell some currency reserves. Traditionally both the USD gets stronger and stocks rise over the autumn months till January. This year’s stocks …

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IMF Data: SNB Forex Reserves and Gold in September 2012

Reserves-End-September

This link  on the SNB website shows the data the central bank provides to the International Monetary Fund (IMF). It shows the SNB Forex and gold reserves in the last month. It is so-called “IMF Special Data Dissemination Standard (SNB Data)” It is released together with the international investment position, some monetary aggregates and the balance of payments two weeks after …

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SNB Monetary Data Week October 5

Stock market performance per quarter

Seasonal effects, the good months for the SNB and the US economy, but weaker ones for emerging markets and Switzerland, have started Given that the seasonal effects between October to March have started, the SNB might be able to sell some currency reserves. Traditionally the United States and the USD dollar become stronger and stocks rise over the autumn months …

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Marc Faber argues against Jim Rogers

Marc Faber vs. Jim Rogers

  The most famous investors Marc Faber and Jim Rogers were in a common interview on CNBC. Marc Faber is of our position, whereas Jim Rogers is still bullish on commodities.   Marc points out that China’s bench mark stock index the Shanghai Stock Exchange Composite Index was at 6100 in 2007 even as it …

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SNB Monetary Data Week of September 28

snb -expansion

Seasonal effects, the good months for the SNB and the US economy, but weaker ones for emerging markets and Switzerland, have started Given that the seasonal effects between October to March have started, the SNB might be able to sell some currency reserves. Traditionally the United States and the USD dollar become stronger over the autumn months till …

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Order the Full Report on the S&P Critique

snb purchases adjusted

  In the full report we explain in detail how one can analyze the balance sheet of the Swiss National Bank (SNB) based on several sources of information, for example the monthly bulletin, which shows the changes of the SNB balance sheet and the quarterly distribution of the SNB assets including the information about FX …

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Can The SNB Make Profit On Currency Reserves ?

Money Market Funds Risk Aversion

  Abstract We determine the main criteria with which markets evaluate currency prices. We focus on explaining the differences between the carry trade era (or like Ben Barnanke called it “The Great Moderation”) and the period after the financial crisis. Our research shows that each one of the following three main preconditions must be fulfilled, …

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Die drei wichtigsten Bedingungen, so dass die Nationalbank die Währungsreserven abbauen kann

    Die grossen Schweizer Franken-Mythen: Die SNB kann Gewinne durch die Währungsreserven erzielen   Letzten Sonntag behauptete der frühere Nationalbank-Direktor Niklaus Blattner in der Sonntagszeitung: “Nach der Ankündigung von EZB-Direktor Mario Draghi kann kein Zweifel mehr bestehen, dass der Euro fortbestehen und Griechenland in der Währungsunion bleiben wird.” Draghi, Direktor der Europäischen Zentralbank (EZB), …

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Eurobonds, fiscal or banking union are all pure utopia

Eurobonds dare pure utopia SNBCHF.COM

Germany’s stance in the euro crisis: More than ESM will not be possible for many years updated on August 31, 2012   German politicians and the German Bundesbank believe that the Euro crisis can be only solved by supply side reforms as formulated in the Euro Plus Pact, reforms that were already successfully introduced during the Thatcher/Reagan era in the …

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Brad DeLong on Jackson Hole and Quantitative Easing

Brad DeLong Daedalus

  Berkeley Professor Brad DeLong has delivered a nice allegorical entry in his type pad on a quick Quantitative Easing. Letting speak old greek mythological figures he hides his personal opinion. A half now completely written platonic dialogue on what the Federal Reserve is Doing — or not Doing — Right Now DeLong explains the …

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8) Euro Crisis and Euro Macro

eurocrisis

We are currently looking for a curator that takes over the euro macro category. The Euro Crisis and its Reasons, details and chronology, German economists ,Eurobonds, fiscal or banking union,Who Says No to Austerity, Says Yes to the Northern Euro Ways to the Northern Euro

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Otmar Issing’s new book on the euro crisis

Issing Book

  We well remember when the über-bailouter of the Financial Times Wolfgang Münchau claimed that except some old economy professors like Otmar Issing nobody in Germany would like to abolish the euro. According to Münchau the euro can be saved only via a fiscal and a banking union. The response to Münchau’s post could be …

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Global PMIs Contracting More – Are Stocks Overvalued?

Global PMIs July 2012

updated August 05,2012 We publish a detailed analysis of global PMIs and compare them with the main risk indicators S&P500, Copper, Brent and AUD/USD some days after most PMIs came out. Abstract: Thanks to positive US consumer confidence, stock markets are highly valued, whereas the Purchasing Manager Indices (PMIs) for the manufacturing industry are contracting …

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Globale Einkaufsmanager-Indizes per 5.August 2012. Sind die Aktienmärkte überbewertet ?

Dank der seit dem Winter immer noch positiven amerikanischen Konsumentenstimmung, steigen die Aktienmärkte weiter, während die Einkaufsmanager-Indizes der Fertigungswirtschaft sich schon seit 3 Monaten abwärts bewegen. Wie kommt dass die Aktienmärkte heute wesentlich höher als im September 2011 stehen, obwohl die Konjunkturdaten, insbesondere in der Fertigungswirtschaft wesentlich schlechtere Zahlen als damals liefern ? Dies obwohl …

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SNB Zwischenbericht 2. Quartal 2012: Nationalbank möglicherweise mit mehr als 10 Milliarden Gewinn

jordan vs. ackermann was it a pyhrrus Victory ? snb results q2/2012

  Am 31. Juli um 7.30 Uhr wird die Schweizerische Nationalbank (SNB) den Zwischenbericht für das zweite Quartal 2012 herausgeben. Wir offerieren unseren Lesern schon jetzt eine Schätzung.  Wir rechnen mit einem Gewinn von 10,65 Milliarden CHF dank der starken Erhöhung der Devisenreserven in den Monaten Mai und Juni und der Abschwächung des Franken gegenüber dem US-Dollar, …

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Der italienische Euro-Austritt: Warum er in 2-3 Jahren kommen kann und warum er Italien helfen wird

Berlusconi Ruby

Silvio Berlusconi ist “endlich” zurück und Kandidat seines “Polo della Liberia (PDL) für die Wahlen 2013. Premierminister Monti, der nicht vom Volk, sondern von den Finanzeliten gewählt wurde, soll bis zum Frühjahr 2013 regieren, könnte aber aber auch früher zurücktreten. Aufgrund einer Umfrage im Juni würde die Anti-Euro-Bewegung “5 Stelle” 20,6% in Wahlen erhalten, Berlusconi’s …

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The End of Swiss and Japanese Deflation

Deflation Japan USA

At a time of speculations about global deflation, we show an interesting and very different aspect. Our CPI and wage data comparison among different developed countries, shows that Switzerland and Japan will see both inflation, whereas other countries like Australia will see disinflation.

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Update vom Deutschen Verfassungsgericht 11. Juli

esm bundesverfassungsgericht 2

Deutsches Verfassungsgericht braucht 3 Monate für seinen Eilentscheid, der nun eine halbe Hauptsachenentscheidung ist. Die Wahl im Gericht zwischen der system-relevanten Bank ESM und dem “Herausschmeissen” der Südländer aus dem Euro und vieles aus dem Verfassungsgericht.

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Only 17% of German voters in favor of Eurobonds

Europa ist wenn Deutschland zahlt

  Voters are strongly against many other European utopias The newest poll of the Forsa institute, here in the left-wing Stern and the conservative Welt, shows that Germans are strongly against Eurobonds and many more European “utopias”, as we called it. The German chancellor Angela Merkel recently connected her life with the fulfillment of the voters wish to …

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EUR/CHF, A History of Interventions: What markets say, June 2012

genius

SNB In A Bind With Euro Holdings Today’s reserve data showed skyrocketing reserves at the Swiss National Bank as they defend the EUR/CHF floor. Reserves were at 365B francs at the end of Q2 compared to 245B at the end of March, with all the growth coming in the final two months of the quarter … Continue reading »

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Is the SNB prepared for the black swan ?

Black Swan

Will the SNB printing policy lead to inflation and a housing bust when Germany leaves the Euro ? Recently the voices for a German euro exit have become louder and louder. The most recent voice comes from Biderman , the FT says that the rise of German Bunds holds the secret how the eurozone crisis will …

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Some of our Twitter followers

Marc Faber 3

Here a quick list of some of our Twitter followers:

Marc Faber Blog @marcfaberblog FOLLOWS YOU
Marc Faber is an investor and economist known for his spot-on assessment of the world economy. He also manages his own investment company, Marc Faber Limited.· http://marcfaberblog.com
economie_suisse ‏@economie_suisse FOLLOWS YOU
La principale organisation faîtière de l’économie suisse

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Quantitative Easing Indicators, June 2012

5 year FAV Credit Suisse

The main drivers for demand for Swiss francs are the Euro crisis, but even more the behavior of American investors, who go out of the dollar in the fear of further bad US economic data and in the fear of Quantitative Easing. This will push down the dollar and safe-havens like the CHF, gold or the …

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The “Sell in May, come back in October” effect and its equivalent for the SNB

Sell in May, Come back in October

  The “Sell in May, come back in October” effect It is the same seasonal anomaly nearly every year: The statistically flawed (see here and here) Non-Farm Payrolls (NFP) report delivers some good winter readings with 200K new jobs, this time additionally fuelled by a weather effect; biased data that let hard-core Keynesian policy makers doubt Okun’s law. Consequently the stock markets rally …

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The latest bubble: Real estate in Russia

Global House Prices

Still a draft, From Barnaul, Siberia, Russia Inna, 28, is a high-school teacher, she has one child. Her monthly salary is 8’500 Russian Rubel, about 257 USD. Similarly as many state employees her salary is very low. Recently the state doubled the salary of policemen and soldiers from 20’000 RUB to 40’000 RUB. A main …

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EUR/CHF, A History of Interventions: May 2012

5-24 eurchf

FT A Wee Bit Late To The Party… Notices Europeans have been buying Swiss francs and dollars. Who knew? By Jamie Coleman  || May 30, 2012 at 19:43 GMT AUD/USD, NZD/USD Dragged Higher As EUR Recovers As Gerry mentioned earlier, the talk of a rescue fund for EZ banks seems to have set off some short covering …

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