Tuesday, January 20, 2015

Amending article about Swiss National Bank losing money in gold. We said it first here on MNE.

Maybe I ought to read the comments more on my own blog.

Matt Franko brought to my attention the fact that WE at MNE were FIRST to point out that the SNB lost money on gold in 2013, It was discussed in the comments section of my blog post on January 16.

Both Cullen Roche and Business Insider put out that information on January 19 and I stupidly posted it up here even though we had been the first out with this information right here on MNE.

These other guys are reading us and not giving attribution.

Anyway, here is the link to my blog post from Friday, Jan 16. You can read the discussion in the comments. Pertinent parts are posted below.

Says they "made 38B" last year.... looks like almost all of it from their USD holdings gaining on the CHF.... (this is how they "make money"???)

BUT, says they "lost" 9B in 2013.....

"After failing to receive money for 2013, cantonal budget chiefs earlier this month urged the SNB to give them more money for 2014 to offset shortfalls in revenue from other sources."

Link given in the comments: Read.

4 comments:

Matt Franko said...

Could be this:

They made so much money in forex in 2014 that they said "Let's do that again!"

So how (to them) do they think they can do this?

They increase the penalty rate to half point more negative than the EUR and drop the peg...

thinking (to them) that the CHF will go down vs the Euro as their SNB rates would be lower at -.75 than the ECB at -.25.... and same with USD/CHF...

"conventional wisdom" being "the country with the lower rates has the weaker currency blah blah..."

Which if you would have traded on that it would have never worked...

So they remove the peg and put rates down and what happens? The CHF skyrockets! LOL!

They probably are down 40 billion CHF.... in forex losses at the SNB now.... between the USD and now the EUR...

Here from the SNB 2014 results discussion:

http://www.snb.ch/en/mmr/reference/pre_20150109/source/pre_20150109.en.pdf

"According to provisional calculations, the Swiss National Bank (SNB) will report a profit in
the order of CHF 38 billion for the 2014 financial year. The profit on foreign currency positions amounted to some CHF 34 billion. Of this, CHF 9 billion were accounted for by
interest and dividend income, CHF 13 billion by price gains and CHF 12 billion by exchange rate gains. A valuation gain of CHF 4 billion was recorded on the gold holdings.
Allocation to the provisions for currency reserves amounts to CHF 2 billion. The figure used
as a basis for determining this amount was, once again, twice the average nominal GDP growth rate. Offsetting the negative distribution reserve absorbed CHF 6.8 billion of the profit. With the remaining profit, dividend payments of CHF 15 per share, at the most, as well
as ordinary profit distributions of CHF 1 billion to the Confederation and the cantons can be
resumed. The remainder will be allocated to the distribution reserve, which will then amount
to some CHF 28 billion. The profit distribution agreement between the SNB and the Federal
Department of Finance (FDF) stipulates that a supplementary profit distribution to the
Confederation and the cantons will be triggered in the event that the distribution reserve
exceeds CHF 10 billion after the profit appropriation. The amount of the supplementary
distribution will be agreed between the SNB and the FDF. The cantons will be informed in
advance."


All of this reversed on the 15th..... So they are screwed.... it was like a 20% hit on 400B CHF of foreign reserves... who knows maybe 80B CHF hit at the SNB....

OK so what is happening, is that when they lower the policy rate, it is making their currency rally.... opposite of what (to them) they believe is supposed to happen...

So what we have to realize is that these people are probably s-ing their p's right now and want the USD to go back up or they lost all of the money they made in 2014... and then some as they dropped the peg and now are down BIG in EUR also in addition to the USD position....

So (to them) they will probably think "we have to lower rates even further!!!!!" which has the opposite effect.... which will make it worse for them....

(Warren: "no matter how much I cut off the board is still not long enough!!!")

What will help the SNB get out of this is if the Swiss exporters start to lower their prices in EUR and USDs.... ie the Swiss non-bank sector starts to lower their Swiss real terms of trade... This should help rally the EUR and the USD vs the CHF and get the SNB out of these losses....

Which I dont see happening ... YET.... reports are still that the Swiss exports are very high priced now... this has to change for CHF to start dropping... we have to start to see reports of Swiss export prices being lowered in an effort by Swiss managements to maintain market shares...

rsp,

Geoff Coventry said...

Now, if the Canton's would just put two and two together, and realize that the Swiss Gov can simply commit to providing them with an annual contribution to their budgets without pretending it somehow is earned by their central bank...perhaps the Swiss can show Europe how to fix its problems.

Neil Wilson said...

Geoff,

If you read the National Bank Act, you'll realise they have swallowed the full quantity of neo-liberal Kool-aid and then gone around and nicked everybody else's.

Michael Norman said...

And the country even held a vote to re-establish some sort of gold standard last November. So there you go.