Juggling Dynamite

Another day, another central bank takes it in the coffers for trying to counter the formidable deflationary forces sweeping the world.  The Swiss economy is export centric (like most others) and the Swiss National Bank has been trying to stop the franc from appreciating through monetary interventions by holding a set peg of 1.20 franc per euro the past 3 years. This morning it gave up and the franc rocketed 14% higher against the Euro and the US dollar. Levered traders are being sideswiped as usual. Many people in other countries like Hungary and Poland had foolishly borrowed money, including their mortgages, in francs the past couple of years. Those debts just got a whole lot bigger to repay. Lenders will face defaults.

Not one of 22 economists surveyed by Bloomberg at the start of January saw this coming, and only four saw it happening in 2016. Global capital is flooding into the perceived “safe haven” of the strengthening franc. This means weaker demand for Swiss exports as cheaper goods from Europe (weaker euro)–along with Japan and China and plunging commodities–continue to export deflation to the world… The weight of over-consumption during the debt bubble continues to mean revert with a crushing weight on central bank ‘interventions’.

Komal Sri-Kumar, global president at Sri-Kumar Global Strategies, discusses the Swiss National Bank ending their minimum exchange rate and the impact of Europe on global interest rates. Here is a direct video link.

Needless to say, companies are unprepared for this sudden shift as well.  Swiss stocks are down 15% on the news, while Swiss Treasuries are bid even as they pay negative yields all the way to 9 years. Here is a direct video link.

Thin edge of a very big wedge here, but it’s a start.  Prosecutors are starting to make examples of the little-guy, low hanging fruit, but have so far made no effort against the massive financial firms that have virtually all been engaged in various forms of HFT manipulation.  Funny they started with a Canadian….See:  U.S. says Canadian man used high-speed trading to manipulate market.

U.S. authorities opened a new chapter in policing high-speed stock trading on Tuesday when they charged a Canadian man with fraud for manipulating stock prices through a process called “layering,” according to prosecutors.

The case is the first of its kind to be brought against a trader in the stock market, the authorities said in press releases.

Federal criminal prosecutors in New Jersey charged Aleksandr Milrud, 50, who they said was from Ontario, with one count of wire fraud and one count of conspiracy to commit securities fraud. The U.S. Securities and Exchange Commission filed a separate civil case against him. He was arrested at a home he owns near Miami and was scheduled to appear in federal magistrate court in Miami later on Tuesday.

…The first U.S. federal criminal case stemming from the practice of “spoofing” was filed on Oct. 2 against high-frequency commodities trader Michael Coscia.“

Must clean up the cesspool that public markets have been allowed to become, if we are to restore any credibility to the modern financial system.

Danielle was a guest today with Kerry Lutz on The Financial Survival Network, talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.