What The Outcome Of The Referendum Means For Gold, CHF And SNB
- Swiss referendums: The Swiss rejected three proposals: An immigration cap ("Ecopop"), an abolishment of tax advantages for rich foreigners and the gold initiative.
- We explain what the outcome means for gold, the Swiss National Bank and the Swiss franc.
- The next economic cycle should be driven by stronger wage growth in Germany and in the U.S.
- The major enemy of the SNB will become inflation caused by rising Swiss asset prices and rents and from inflation spill-overs from Germany and the U.S.
Why Was The Gold Price So Low In 1999/2000?
- To find further explanations as to why the gold price was weak in the late 1990s, we analyze sector balances.
- Private spending and private debt went in two different directions: heavy debt increases in the U.S. against austerity abroad.
- This combination fostered GDP growth in the US, but weakened it in other countries. Real interest rates were positive.
- The markets thought that debt-financed growth could continue for years; they created the dot com bubble on top of it that strengthened technology and the related currency, the dollar.
- This rare situation led to excessively weak oil and gold prices, but it was only a temporary and irrational movement.
Low Income Voters In Favor Of The Swiss Gold Initiative, High-Income Voters Against It
- According to the latest polls, 38% of voters would support the Swiss gold initiative and 47% are against it.
- The previous poll,recognized as more reliable, showed 45% pro gold and 38% against.
- A win for 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, and this explains their voting intentions.
The Dollar, The ISM, Buy American And Irrational Exuberance
- In this Cross Asset Global Macro Analysis we list our reasons for the current dollar strength.
- The main causes are ECB's euro "downtalk," tight monetary policy in Emerging Markets, and rising savings of the aging populations. This leads to weak global spending and growth.
- With the help of Fed-financed higher asset prices and falling gasoline prices, Americans feel more wealthy and finally "Buy American."
- Another reason is that FX traders and investors try to imitate the late 1990's irrational exuberance.
The Best Contrarian Macro Investment: Russia?
- We name thirteen macro-economic reasons why Russia is currently the best place for contrarian investments.
- Russia has maybe the world's best central banker that fights high pay rises with tight monetary policy and potentially with higher unemployment.
- Even if the current situation could trigger a somewhat harder landing; an end to the credit and housing boom is beneficiary for the country. Russian households are finally saving more.
- Thanks to oil and gas sales and slower consumer spending, the Russian current account surplus will continue to be highly positive and prevent a stronger hard landing.
- Russia has low debt and a massive foreign currency reserves that permit to influence the ruble exchange rate.
Swiss National Bank Q2 2014 Results: Draghi's Weak Euro Policy A Nice Gift For The Bank, For Now
- The ECB commitment to a weak euro and the maintenance of ultra-low interest rates was a nice (temporary?) gift for the Swiss National Bank.
- The bank earned nearly 12 billion francs in Q2 2014.
- Positive contributions from all its investments, from currencies, bonds, equities and gold.
- Sight deposits and total SNB debt, however, have been rising again since June.
FX Rates, Contrarian Investment And The Misleading Concept Called GDP
- 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.".
A Little History Of Wages, Inflation, Treasuries And The Fed - And What We Learn From It
- 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.
- Rising wages in EM may soon narrow their competitive advantage against the U.S. and Europe. Our secular stagnation may be shorter than expected.
The Most Important Questions For The Swiss National Bank Meeting
- For the upcoming SNB monetary policy assessment meeting we answer the following questions:
- Why is Swiss inflation so low? Will EUR/CHF appreciate?
- Why are Swiss short-term money market rates negative? How long will Swiss negative rate pressures continue?
- Will the SNB set negative rates on banks' excess reserves?
- Why had the SNB minimum euro exchange rate policy been successful and will it be successful in the future?
New ECB Measures: How To Reduce German Competitiveness And Talk Down The Euro
- In our view, the ECB measures of June 2014 want to increase German lending, spending, salaries and inflation. Finally they target a reduction of German competitiveness.
- The ECB wanted to talk down the euro, but will not succeed.
- We explain why the measures are bullish for the euro. We expect EUR/USD of 1.40 in the coming months, once traders forget Draghi's euro down-talk.
- With EUR/USD 1.40 German competitiveness is reduced via the currency, unfortunately, only at the global scale.
The Swiss Franc, Pseudo-Mathematics And Financial Charlatanism
- Research from most banks regularly suggests that both euro and dollar will appreciate against the Swiss franc in the future.
- We think that this research is often based on "pseudo-mathematics" and "financial charlatanism." New academic research confirms our view.
- The real question as for CHF is "Can the persistent Swiss current account surpluses be neutralized by capital account outflows?"
- Each argument that CHF must depreciate is often based on a very simplified view on currency drivers, on only one piece of the balance of payments.
- Yes To A Swiss Referendum Against Mass Immigration Is A Yes To Higher Salaries And Inflation
- The Fed Will Remain Gold's Strongest Supporter For Years
- The Euro Is Poised For A Steady Rise, Expect 1.50 In 2 To 4 Years
- GDP Details Compared: Switzerland, U.K., U.S., Germany, Australia And Japan
- The Great Disinflation Continues, How Wonderful!
- An Analysis Of Last Week's Chinese Data Dump And Its Global Implications
- Why There Won't Be A Strong Dollar Even If The Financial Establishment Thinks So
- Strong Dollar: The Parallels Between Now, The 1980s And 1998-2002 - Part 1: Austerity
- Excessive Money Supply: Switzerland Could Follow In Spain's And Ireland's Footsteps
- The End Of Swiss Deflation
- Explaining Price Movements In FX Rates Based On Fundamentals
- The 5 Main Factors That Determine FX Rates
- Which Of the 6 Fundamental Factors For Gold And Silver Are Still Positive? Which Are Not?
- The 6 Major Fundamental Factors That Determine Gold And Silver Prices
- Comparing Bank Of Japan's Old And New Monetary Easing Efforts
- Why The Yen Is Now Fairly Valued, Dollar Back As Preferred Funding Currency
- Comparing Trade Balances With FX Rates: Will The European Miracle End?
- This Is Not The Great American Recovery, But Possibly The Japanese One
- Losses On Gold Positions And Other Economic Data The Swiss National Bank Will Not Like
- Outlook On SNB Monetary Policy Assessment Meeting
- All You Ever Wanted To Know About The Swiss Trade Surplus