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It’s War?.

  • Written by Syndicated Publisher No Comments Comments
    September 8, 2011

    Whenever something of significance happens in the financial world I struggle to answer the question, “Why now?” There can be clues to markets if that question is answered accurately. If nothing else, it puts things in their proper perspective. I’ve been wondering about the timing of the big move by the SNB all day. 

    It’s not often a major central bank devalues the currency by 10%. It’s not as if this development is not without significant risks to the Swiss people and in particular, the SNB. It’s been suggested to me that the SNB has no risk; that they can print Francs in any amount necessary. Trillions is not a problem. That’s not the case at all.

    One of the biggest risks the Swiss face on this is from the rest of the EU. If you were looking for a textbook definition of a “Beggar My Neighbor” policy, this would be it.

    So, why Tuesday; after a long holiday weekend in the USA? I am wondering if it has to with this angle of the story:

    Swiss Banks Seek Negotiated Tax Settlement Amid Reports of U.S. ‘Ultimatum’ on Details


    U.S. Deputy Attorney General James Cole wrote a letter Aug. 31 to the Swiss government insisting that Swiss authorities hand over information on hidden U.S. funds in the country bySept. 6.


    The letter specifically targeted Credit Suisse, the country’s second largest bank, as well as nine other private and regional banks.

    I don’t argue so much with the US position on this. But consider the implication if you were the Swiss government. The big bad USA takes out its big guns and threatens to fire at poor little Switzerland. They threaten the mother of them all, Credit Suisse. They threaten the smaller banks too.

    How would you feel if someone pushed you around like that? No one likes to get pushed. Generally the proper response to pushing, is to push back just as hard in another direction. 

    Today is September 6th. IMHO it’s not a coincidence that the SNB took a monetary action the same day that the USA had a drop dead date for the Swiss banks.

    My question is, “Who was firing a warning shot?” Was it the Swiss? Or was it the US DOJ? Both?

    If you think that the timing of both of these issues just happened by accident to fall on this day, I have a bridge to sell you.Everything is connected. Someday we may learn of the facts in this matter. Someone will write a book, or, better yet, there will be a leak. It will come out.

    We may have today witnessed the first real cannon shots fired in a global economic war. The muse of history will be that those cannon shots came from the Swiss; the one country that has refused to go to war for the last 200 years. This war is not about principals, land or resources. This one’s about money and wealth. It could get just as nasty as any of the other wars we stumble into.

    From Bruce Krasting: It’s War?.

    Images: Flickr (licence attribution)

    About The Author – Bruce Krasting

    I worked on Wall Street for twenty five years. This blog is my take on the financial issues of the day. I was an FX trader during the early days of the ‘snake’ and the EMS. Derivatives on currencies were new then. I was part of that. That was with Citi. Later I worked for Drexel and got to understand a bit about balance sheet structure and corporate bonds from Mike Milken. I was involved with a Macro hedge fund later. That worked out all right, but it is not an easy road. There was one tough week and I thought, “Maybe I should do something else for a year or two.” That was fifteen years ago. I love the markets. How they weave together. For twenty five years I woke up thinking, “What am I going to do today to make some money in the market”. I don’t do that any longer. But I miss it.