$11,589.01?… Ask The Swiss!

$11,589.01?… Ask The Swiss!

27-01-18 10:54:00,

Authored by Kevin Muir via The Macro Tourist blog,


That’s the US dollar amount of American stocks the Swiss National Bank owns on behalf of every man, woman and child in Switzerland. Let that sink in.

A Central Bank has taken on itself to expand its balance sheet and invest in the proceeds, not in gold, nor sovereign debt – heck not even in corporate bonds. Nope, the SNB has taken it upon itself to “invest” that money in another country’s most risky part of the capital structure – equity.

And don’t think it’s a small number. It’s almost $100 billion US dollars.

In a strange twist of fate, the Swiss National Bank is not only Switzerland’s Central Bank, but also a publicly traded security. I know, it makes little sense, but in this day and age, what does? Anyways, the financial community is all abuzz with SNB’s rocket ship chart formation.

The SNB’s equity price market capitalization is only 584 million CHF, so when you consider that the S&P 500 is up almost 6% since the start of the year, and that the SNB owns $100 billion of stocks which are up $6 billion USD during the last two months, maybe it makes sense to take a punt of buying some SNB equity. Now, who really knows how to value this security? Those gains should accrue to Swiss citizens as opposed to SNB equity holders, but it’s easy to understand the excitement.

The real problem

It’s all fun and good to speculate on the SNB equity price, but I am more interested in what the SNB’s behaviour means for the global markets going forward.

The real problem is that a Central Bank just monetized their balance sheet against another country’s equity market, and instead of getting punished for this reckless behaviour, the markets are celebrating the Swiss good fortune. And I ask you – have you ever seen Central Bankers not behave like a bunch of antelopes on the Serengeti? It is an amazingly disturbing precedent.

The Swiss National Bank has gone down a rabbit hole from which it will be extremely difficult to surface.

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