Further regarding my previous post about the Swiss move to de-peg the Swiss franc from the Euro — In John Mauldin’s Thoughts From The Frontline letter this week, he notes:

Early Thursday morning the Swiss abandoned that policy. Much of the press coverage in the (largish) wake of their surprise move has focused on the costs to banks and hedge funds around the world, but you have to realize that serious pain is being felt in Switzerland itself. Every bank and business that held non-Swiss-franc debt or investments took an immediate 15–20%+ haircut on its holdings. Swiss investors lost at least 10% on investments in their own stock market and more on shares they held in other stock markets. Forty percent of Swiss exports go to the Eurozone, and the Swiss franc is now over 30% higher than it was five years ago – with almost half that movement coming in one day. Those exporters just got hammered.

And this was not a painless policy decision for the SNB. Citibank estimates the SNB’s losses to be close to 60 billion Swiss francs.

Those are a lot of gored oxen. But keeping in mind that currency trading is at root a zero-sum game, what I want to know is — who were the big winners? For sure, there’s a chess game going on behind the scenes here. Some players knew this was coming and profited mightily from this scam.
Mauldin continues:

Just as Roberto Duran walked away from Sugar Ray Leonard at the end of the eighth round of their famous fight in 1980, telling the referee “No mas,” the SNB signaled that it had had all the pain it could deal with.

I have a great deal of respect for Mauldin’s opinions, but I’m going to have to call B.S. on that one. No way was this just a miscalculation.

Regarding the matter of the alleged magical powers of a trashed currency, later in the letter he quotes Charles Gave, in my book easily among the sharpest half dozen or so economic minds around:

[S]ince the move to floating exchange rates in 1971, the Swiss franc has risen from CHF4.3 to the US dollar to CHF0.85 and appreciated from CHF10.5 to the British pound to CHF1.5. Naturally, such a protracted revaluation has destroyed the Swiss industrial base and greatly benefited British producers [not!]. Since 1971, the bilateral ratio of industrial production has gone from 100 to 175… in favor of Switzerland.

And for most of that time Switzerland ran a current account surplus, a balanced budget, and suffered almost no unemployment . . . .

Wish we could get the geniuses in Washington to try that.

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