QUITE A PICKLE - We all know full well the Swiss Franc is a safe haven currency. The trouble is - what happens to a safe haven currency that has already appreciated dramatically?.....and all this with global equities still at record highs! Sound like a scary prospect? Does to me. I'm not sure if it happens this week, this month or even this year, but when the stock market finally does start to come off, it could get ugly real fast. And when it gets ugly, a lot of the liquidation will want to flow into the Franc.
DEVASTATING - This would be absolutely devastating for a Swiss economy that wants nothing more than to see a weak currency. I think there will be opportunities over the coming weeks to buy EURCHF dips as the SNB tries to fight against these forces, and I still would be too scared trying to short this market. We did well the other week buying into a dip, and I will look for opportunities to buy again. But in the interim, let's depart from the serious and take a look at the lighter side of all this. So let me set the scene.
MACRO STRATEGIST AWAKES FROM YEARS OF COMA AND LOOKS AT EURCHF RATE
HE REFLECTS - Let's remember, the SNB had no intention or desire to see the 1.2000 EURCHF floor broken. At 1.2000 the Franc was already excessively strong. So what now? I know. I will send a letter to the SNB and let them know they should lower interest rates. Wait. They've done that. Ok, so I will tell them to lower rates to 0%. Ooopsy...they've done that too. Ok – so does this make sense? Is it possible? Let me just throw it out as an academic exercise. I will tell them to move to a...hmmm let me think about what I should call this...got it! I will recommend they move to negative interest rate policy. Hmmm..I like the idea but that's a mouthful. Ooooo..I got it...I will call it NIRP...that will work!
HE REFLECTS SOME MORE - Ok so I will send the SNB a formal email introducing NIRP. Wait..what!! It exists!! And you're telling me they've already done it? -0.75%! Oh boy. Ok so now that I have all the facts (and haven’t taken any time to think about my family or anything that really matters in life after waking up from a coma), I know what to do. I will sit down and draft a short letter to the SNB and simply advise them to implement the following program:
1) Hope the stock market never comes off...if it does...SEE 2
2) Turn to religion....if this doesn't weaken the Franc...SEE 3
3) Run for the $##@ hills!