The Newest Dominoes to Fall from the Swiss Franc Revaluation
The “Body Count” is Piling Up
My friends, it hasn’t even been a week since the Swiss National Bank(SNB) dropped their monetary nuke on Europe, and already, we’ve seen multiple casualties across the board. Of course, the first ones we heard of, were the smallest and most obvious: the large banks and FX brokerages, who were almost all short the Swiss Franc.
A short list of just a few of those FX players(that we know of) are:
Interactive Brokers- Loss: $120 million
Alpari UK- Loss: $225 million
Barclays- Loss: “tens of millions” of dollars
Citigroup Inc.- Loss: $150 to 200 million
Deutsche Bank AG- Loss: $150 million
FXCM Inc.- Loss: (at least $300 million: the size of the bailout they received)
Comac Capital LLP- Loss:(unknown but severe)
Discover Capital Management LLC- Loss:(unknown but severe)
Credit Suisse Group AG- Loss:(unknown but severe)
Saxo Bank- Loss:(unknown but severe)
Everest Capital’s Global Fund- Loss: (“almost all” of its $830 million in assets)
That’s nearly a cool 2 billion buckaroos, just right there, from those who admit the extent of their losses! Rest assured, this isn’t an exhaustive or extensive list, either! This is just a short list of a few parties who lost, but you get the idea: from TBTF banks, to currency brokerages, to hedge funds…that red that you see flowing isn’t just from their balance sheets!
Big deal, Watchman! So some banks lost a couple billion dollars!! That’s peanuts! These kinds of losses have happened before, why should any of us be concerned about this?
Oh, my gloriously-obtuse friend, if you thought that somehow the losses from this secret, undisclosed move would be limited to just currency brokerages…you’ve got another thing coming.
Mortgage Dominos are Going Down
The housing markets in Europe(as here) already had more than its own share of problems, but once again, just when folks thought it was safe to come out and play in the real estate playground….
Their portfolios took a sledge hammer to the kidney.
I expected this to affect mortgages, but I didn’t expect this next country’s market to be the very first one to cry “Uncle!”
For Poland, of all places, has been ravaged by this surprise currency revaluation! It turns out that for well over half a million mortgage holders in Poland, this 20%+ surge in the Franc, has affected their mortgage payments since they were denominated in Swiss currency.
Imagine your own mortgage situation, for a moment. Times are pretty tight already, right? Think about how large of a drain on your paycheck and budget that monthly mortgage payment already is to you. Yet, thankfully, somehow you’ve managed to keep up with that payment, secure your living quarters, month to month, and still have enough to eat, and all your expenses taken care of. Sure life can be stressful, but you’ve been able to deal with it. After all:
You may not be getting rich….but you’re getting by.
Yet, now imagine, that you wake up, go down to your bank to pay off that mortgage, and the person behind the counter tells you, “I’m sorry, but this Zloty payment is not nearly enough. Currently, you now have to cough 20% more on this payment than you did last month!”
What would you do?! You’ve already budgeted everything, and there isn’t a single cent to spare! Where on earth are you going to get that extra cash? Do you do something drastic? Do you hold a garage sale for many items you never intended to part with? Ask a family member for a loan, or worse, go to a loan shark company for an advance on your next paycheck?
Do you give some blood plasma for cash? Do you cut off and sell your hair(if you’re a lady)?
Do you raid your Polish pension account? “No”, you think, “the government already took half my entire pension just a few years ago….I can’t afford to borrow from what’s left!”
You know, though, that whatever you do to get through the month, that you can’t probably repeat it next month. You’ll probably have to get a 2nd(or 3rd) job. Immediately.
This dire picture is what several million Polish citizens are facing right now…
And to think, it’s all because you can now basically trade one of these little puppies for the other:
It’s the “little things” in life, that usually end up mattering most, isn’t it?
It is quickly turning into a desperate situation. In, fact it’s so bad, that the Polish government is starting to call for a bailout of sorts, for the families affected by this Swiss Franc revaluation. Yet, the Polish Central Bank is balking at bailing them out.
Watchman, why wouldn’t they be willing to bail them out?
Ah, my friend, it’s not simply because of the cost associated to the government there, but because the European elites know that this same sort of traumatic mortgage pain is likely soon to be felt all over Europe, and in much larger countries! Going through with a mortgage bailout, creates the moral hazard of having to bail all the rest of them out as well.
After all, this same sort of mortgage pain is already being felt in Hungary too, since many mortgages there were denominated in Swiss Francs. Just think though, these are the “smaller” European economies.
What about the French, Italian, or German mortgages which were also denominated in Francs? You’ve gotta know there’s a great many of them, perhaps millions of them. Who’s gonna bail all of them out? That’s going to be some serious cash! This has the potential to turn into a full-on, housing crisis, in a pinch.
Wow, Watchman, this whole Franc thing really has caused some trouble!
Not so fast! If you thought that FX bleeding, or bushel-baskets of delinquent mortgages were full extent of the consequences, think again…
The Next Victim
Because the next domino that’s already visibly wobbling is:
Yes, the Currency Domino! I’m not merely talking about Francs or Euros, either. Remember, there are a good many countries in Europe, who have relatively stable currencies, some of which are still pegged to the Euro. For those folks, their troubles are just beginning!
Now that the Swiss have told the world that they’re no longer willing or able to peg to the Euro, millions of people holding Euros, are now looking to put their cash somewhere….anywhere else! This is putting even further pressure on those other stable, European currencies to “put up or shut up” regarding their peg! Currencies just like the Danish Krone, for example.
As their Krone has now soared to 10 year highs against the Euro, in recent days, these poor folks now find themselves between a rock and a hard place. After all, they have a trade surplus, not a large one, mind you, but a surplus nonetheless. What are they supposed to do now?
Do they cut the chord to the Euro, and risk becoming “the new Franc”? Do they sacrifice their export market short term, for longer term benefit? Or do they succumb to political(and banking) pressures, and double down on failure, to keep the increasingly expensive, financial, umbilical chord to greater Europe?
Sadly, for now, it appears that their establishment has chosen to keep the peg. They’ve also, insanely, lowered their already negative interest rates, to even deeper negative levels. In other words, they’d rather prop up European banks, than stand up for their savers, their retirees, their pensioners, and just their citizenry as a whole. Well done, geniuses!
For heaven’s sake, if the banking powerhouse of Switzerland(whose population and GDP are both 50%+ larger than Denmark’s) thought they could no longer affordably print up enough Francs to soak up the excess Euros being created….then what, pray tell, makes tiny Denmark think they can viably do so? Beware though, this arrangement will not last either.
It isn’t just the currencies pegged to the Euro which have a problem though. Even weaker currencies, which aren’t pegged to the Euro could be the next one finding themselves as a “safe haven”.
Mark my words, weaker currencies like the Polish Zloty, the Czech Koruna, or even the Hungarian Forint, could wake up one morning to find themselves the newest “safe haven currency”, simply because……they’re not the Euro(or pegged to it)!
Watchman, that’s unthinkable! It’s absurd to say things like that.
My friend, just 2 short weeks ago, the Swiss de-pegging was likewise…..”unthinkable”:
But it happened.
Do not underestimate the power of unbridled panic, in chaotic situations. Large people groups tend to do very unwise things, when in the vice-like grip of their worst fears.
The fear in the E.U. is spreading, and spreading fast, make no mistake. From a widespread economic slow-down, brought on by ill-advised sanctions against Russia, to full-on bank runs in Greece, to saber thrusts of overnight currency revaluations….
Folks are starting to wonder if they will be the next victim!
Countries, like the Czech Republic, who once rushed to become an E.U. currency member….have now indefinitely halted this process. Even countries like Iceland, who once dreamed of having those hot little Euro notes in their hands, have now(after looking upon the carnage within the E.U. roster) formally bid adieu to the whole notion!
The fall-out from the Swiss move will continue to reverberate. The ripples will grow louder, larger, and more complex. The question is, what derivative markets were roiled, and what payouts will be triggered, either directly or indirectly, from it?
No wonder Germany is double-timing their gold repatriation efforts! Germany, after all, really is the Euro! They’ve always been the economic engine big enough to power the rest of the more fragile members through previous crises. They’ve been the largest party responsible for footing the “bail-out bills”.
These are extraordinary times! The dominoes have been set in motion. They are falling!
Be smarter than those who’ve not yet opted out of the system: be your own “bank”, but please don’t treat any fiat, debt-based currency out there, as a “safe haven”. There is no safe haven debt-note from any central bank, anywhere. Period!
Be wiser than that: consider buying some silver and gold! If you’ve already got some, great! Consider buying more! Ownership of a gold or silver financial fortress will shield you to such an extent, that you’ll actually be able to look out upon the carnage, rather than personally experience much of it yourself.
The financial elites have now taken the entire world financial system to the edge of the great abyss. All it will take now is a friendly nudge! As unpleasant as it will be, to be a spectator of the dominoes which are about to go down across the planet… it will be far worse to be a domino yourself.
Be smart, and kindly excuse yourself from being a victim of this process to the greatest extent that you can.
Be a spectator, not a domino.
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