Steen's Chronicle: Why SNB floor could be important

This chart shows why SNB new floor could be of importance. I am just back from yet another trip to Zürich and I found people EXTREMELY bullish on CHF – there is talk of corporate wanting to sell etc etc but..

 

-          SNB has ‘unlimited ability to print money’

-          SNB sees deflation – hence need to monetize

-          Bias way too strong for strong CHF  - Bigger than 95 per cent conviction

-          SNB is clearly committed and feels there is no alternative plus and this is important – they have 100 per cent political backing

 

 

 

Source: Bloomberg LLP and Saxo Bank Strategy and Research

 

 

I have two strong view for 12 month plus:

 

1.       A much stronger US Dollar  è DXY in 125 (now 75.00)

2.       A much higher EUR vs CHF è 1.40/1.5000

 

 

Scenario for much stronger US dollar:

 

Based on  too low consensus on US growth, better than ‘announced’ jobs + consumer spending data, and finally US will become competitive inside next two years on unit labor costs + fat tail risk of HIA 2 being introduce- and the all of G-20 moving to QE Extreme. (see below)

 

Scenario for much stronger EUR/CHF

 

SNB have no alternative, Switzerland going into Japanisation without “extreme measures” – major change in ‘expectation curve’ when we see 1.3000 plus people will have to cover massive EUR calls selling and finally inside next 12 month we have “resolution” on EU debt crisis.

 

 

There are really only three ways to deal with this crisis:

 

1.       Accept Crisis 2.0 – deleveraging and pain, but restructure – unlikely accepted by policy makers but likely from market position.

2.       Accept Japanisation – deflation, slow-growth and no structural changes.

3.       Go to QE Extreme – betting the ‘weather’ will improve by spending money making very gradual structural changes. The Keynesian economists/advisors again getting upper hand as they now can claim (wrongly!) that the reason we did not get back on track is because we did too little, too late – similar to Japan. This is the route G-20 will move to. I see all  major nations in QE Extreme in by half-year in 2012.

 

Greece going bankrupt is not a fat fat-tail event(Black Swan) it’s the most expected outcome ever!

 

IF – Greece leaves it will lead to major RISK-ON scenario as Europe will have regained initiative, so if Euro-zone’s next development is a break-up from the weak (Greece) then it’s good for risk – if it’s a break-out from the strong (Finland or Germany) it’s Crisis 2.0 extreme. Chances? 50/50

 

Off to Spain and the Vuelta and some facts finding,

 

Nice week-end

 

Steen

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Economist

 

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