Switzerland faces deflation [SoberLook]

From http://soberlook.com/

Back in February the interim chairman of the Swiss National Bank Thomas Jordan expressed concerns about risks of deflation in Switzerland. With the Eurozone being Switzerland’s largest trading partner, he was quite concerned.

Reuters: – “If the risk scenario of a further escalation of the debt crisis were to materialize, economic activity in Switzerland would suffer a much more pronounced slowdown than just described,” he said in a speech at a business event. “Such a development would lead to a severe risk of deflation.”

Jordan was right. Switzerland is now in the midst of what could become a prolonged deflationary environment as can be seen from the CPI numbers.

Switzerland CPI

Similarly the PPI number that came out this morning was negative 2.3%, as wholesale prices stay stubbornly below last year’s.

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Eurozone citizens moving billions to Switzerland [SoberLook]

From soberlook.com

Bloomberg/BW: – Switzerland saw its foreign currency reserves balloon by 66.2 billion Swiss francs ($69.5 billion) over the past month as the country’s central bank spent heavily to prevent its currency from appreciating against the euro, according to data released Thursday.

The franc is considered a safe haven for investors concerned about the euro-zone debt crisis.

The Swiss National Bank held foreign currency reserves worth 303.8 billion francs in May, an increase of 28 percent from the 237.6 billion francs in April.

“A large part of the increase in foreign currency reserves between the end of April and the end of May can be traced to the purchase of foreign currency to enforce the minimum exchange rate,” said SNB spokeswoman Silvia Oppliger.

Indeed we had a big spike in foreign currency reserves of the Swiss National Bank in May.

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Capital Controls Coming to Greece and Switzerland [Zerohedge]

A few weeks ago I wrote about my conversation with a friend in Athens  (Link). At the time, he believed that the June 17 election would bring a different result than the May 6 election disaster – the catalyst for change being the fear of leaving the Euro. So far he has been proven right. So I called to get an update.

 

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BK – It seems you might be right. The polls from Greece this weekend have given the European markets a lift today. Do you still believe that the centrist parties will win sufficient votes to form a coalition government and avoid a catastrophe?

Athens – Only a fucking idiot would invest money based on these polls.

BK – Are the polls not correct?

Athens – The European leaders have scared the Greeks with their talk about throwing Greece to the wolves. So yes, I think that the fringe on the extreme left and right will not get as many votes as they did on May 6. But Syriza (anti-bailout) has gained votes. The election is a complete crapshoot.

It may not matter. It’s not certain that Greece can make it to June 17 without a crisis.

BK – Explain that.

Athens – There is no money left in Greece. In the first two weeks of June, the government and the banks will face a huge cash squeeze. Everyday more money leaves as depositors withdraw cash and transfer money out of the country.

It’s clear to everyone who lives here. Greeks are not stupid. Either exchange controls happen before the election, or they happen immediately after. The election will not change that either way.

BK – What do you mean by “exchange controls?”

Athens – A ban on money transfers out of the country. Limits on the amount of cash that can be withdrawn from a bank or ATM.

BK – What are the odds that this happens before June 17?

Athens – The election is now twenty days away. For Greece that is a very long time. If the Europeans wanted to send a message to Greece, they would stop the emergency lending. So I would say it’s 50-50 that we see some measures before the election .

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The Midas Touch – Swiss style [golemxiv]

From golemxiv.co.uk

Another update from Switzerland.

Sometimes people forget the point of the story of King Midas.  And by forgetting, they make  the same mistake as Midas. How often have you heard someone say, “He has the Midas touch you know”,  meaning he’s rich and knows how to get  richer. Whereas the story of Midas is how once the king had the ‘gift’ of being able to turn whatever he touched into gold, it killed him because everything he tried to eat or drink also turned to gold.

And that is what is begining to happen to Switzerland. Just as with King Midas there may be some unforseen consequences to having the Midas Touch.

You might think that Switzerland of all countries must be riding high. After all Switzerland and its currency are seen as safe havens and so money has flowed there in rivers. It is an open secret that wealthier Greeks, Spaniards and Italians have been spiriting their wealth out of their own nations to hide it away in Swizterland. Capital flight from all parts of Europe to Switzerland is hardly news.

How could this be a bad thing for the Swiss? Indded for a long time it didn’t seem as if it could be. The problems were all on the shoulders of those outside Switzerland, in the countries from whence the money was bleeding. For countries like Hungary, Romania and others like Poland the problem was that many people in those countries had taken out mortgages and other debts (corporate and municipal debt as well) in Swiss francs because at the time they did so, the rate was atractively low. But the more capital has flown from those countries and Europe in general to Switzerland the more the value of the Swiss franc has risen relative to all the other currencies. And those were and still are the currencies with which people are trying to pay back their swiss franc denominated loans.

Given that story you would expect the problem to be in Hungary Romania and elsewhere but not in Switzerland. The problem would be for the people who took out the loans and for the banks who made the loans and were now facing massive losses on them. And those banks were not so much Swiss as Austrian, Italian (UniCredit) and most of Greece’s banks.

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