A day after the Swiss National Bank SHOCKED the market by de-pegging the franc from the Euro, causing a 30% move in the CHF Thursday, Jay Taylor joins The Doc & Eric Dubin to break down all of the implications:
- Currency fluctuations could cause massive derivative bombs
- Why we’re witnessing the destruction of capitalism
- Jay explains why we may soon see carnage in the equity markets
- Hard to see a way out of this for the Central Bankers- THIS IS NOT GOING TO END WELL!
- Has the Swiss National Bank ended Central Bank PM Manipulation, and kicked off the 3rd stage of the secular PM bull?
The SD Weekly Metals & Markets With The Doc, Eric Dubin, and Jay Taylor is below:
Remember when the Swiss established the franc/euro peg? Gold was viciously attacked in follow-up trade as the powers that be sought to ensure as few people as possible jumped from the “safe haven” of Swiss francs into gold. It’s nice to see gold catching a strong bid in the wake of the removal of the peg – it’s almost like karma.
In addition to ending the peg, the Swiss National Bank (SNB) also ratcheted interest rates into deeper negative territory. Justifying these moves, the SNB noted in an official statement:
“The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets. This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation.”
That’s pretty much a cover story. The reality is, there are many reasons why the SNB decided it was time to ditch the peg. For starters, the operation was just too damn expensive. The SNB has been buying euros like mad in an effort to maintain the peg, exploding its balance sheet to nearly an additional 500 billion euros and on track to easily hit 600 billion this year, approaching 100% of Swiss GDP. And for what? The underlying rot of the global financial system is getting worse, with deflation expectations and systemic credit default in key sectors on the rise (e.g., energy sector; developing national sovereign debt denominated in US dollars under massive strain, etc.).
With the ECB about to make good on its pledge to launch a massive program of quantitative easing, the SNB felt it had to act. Jay and I also joked that banking is such a huge part of the Swiss economy that riding down the razor blade of euro debasement as “Super Mario” launches aggressive “money printing” isn’t exactly wise when the traditional competitive advantage of the Swiss banking industry was built on its safe haven status and the stability of the Swiss franc.
The SNB had telegraphed that it was nervous about the ECB launching aggressive QE when the SNB announced in mid December it would begin a negative interest rate regime starting Jan. 22nd — the very day the ECB will next meet to decide if it will launch QE. That was December. Within the last couple of weeks, it appears that ECB QE is a done deal and it’s really just a question of when it will be announced, and how much “printing” were talking about.
I believe it will be at least 500 billion euros and the odds are better than 70% that it will be announced next Tuesday. I noted in a previous Metals & Markets write-up that Germany would be placated. Now, we know some of the details. The ECB’s authority to buy unlimited quantities of euro zone countries’ bonds was endorsed by Europe’s highest appeals court on Wednesday. However the QE program is structured, expect to see a mechanism whereby many EU nations will be required to participate directly, with their own banking system.
That’s not going to do much for Greece. They’re broke, and the threat of a systemic bank run is rising. Greece would be wise to take a note from Iceland, flip the EU the bird and exit the euro zone. No mater what action they take, pain is a given and they might as well regain their sovereignty and unshackle their chains — because if they don’t do it, Germany and stronger Northern European nations are going to likely make that happen at some point in the future, never mind the rhetoric and propaganda to the contrary.
Ultimately, I believe the Euro in its current form will die, to be replaced by a “Northern Euro” with Germany at its core. Perhaps three to five years from that that currency could give some honest competition to gold in conventional finance circles. But the bottom-line for this year seems clear: aggressive ECB QE is coming and this time, the conditions are set for gold and silver to rise as a result. Western vault supply has been greatly depleted and unlike before, when central banks were mostly taking turns riding QE helicopters, Japan and the ECB will be in full flight, and eventually, the UK and even the US will be back in the cockpit. That’s a fundamentally different condition — massive, simultaneous QE from major central banks.
On Monday, US markets will be closed in observance of the Martin Luther King, Jr. holiday. The ECB will make it’s announcement about QEon Tuesday. The next Federal Reserve FOMC meeting will take place January 27-28. The most probable sequence we’ll likely see for volatile precious metals would to have gold and silver continuing to trade strongly higher through next week, but loosing steam towards the end of the week, and probably whacked a bit by the cartel at least once during the latter part of the week. For the time being, buying momentum is high and when we’ve seen periods like this in the past, the cartel usually will try to execute modest capping here and there, but not execute huge raids.
The upcoming week will certainly be interesting to watch!
For your weekend reading, check out Pepe Escobar’s latest, “What Game Is The House Of Saud Playing?” You can add to your list of potential black swans significant terrorist attacks against Saudi Arabia. Escobar and Michael Krieger over at Liberty Blitzkrieg understand this risk. But much of the West remains unaware of the fact that terrorist attacks against Saudi Arabia are already happening. The November 4th attack received almost no coverage in the entire Western Hemisphere, but we covered it on The News Doctors (click here).
Jay Taylor and Ron Paul Institute Executive Director Daniel McAdams released their latest geopolitics review show on Friday. Click here to check it out. Earlier in the week, David Jensen joined Jay to discuss precious metals, with particular emphasis on the LBMA and silver. Click here to access that show.
The Cambridge House conference in Vancouver next week is one of the more important conferences for the precious metals industry. Jay believes we’re going to see more M&A activity in the months ahead that will be very healthy for the industry. More insight on this should develop as the conference gets underway. If you’re planning on attending, Jay will be hosting a workshop on Jan. 18th at 1pm, Pacific Time. Click here for more information about the conference. You can learn more about Jay Taylor’s newsletter by clicking here, and his radio show by clicking here.
Have a great weekend! — Eric Dubin