Posts filed under “Federal Reserve”

Switzerland

Switzerland
David R. Kotok
January 15, 2015

 

 

Switzerland’s abrupt removal of the cap on the Swiss franc’s value against the euro does nothing to alter our outlook for both US interest rates and US stock markets. Subsequent commentaries will discuss the international aspects and those portfolios. Emails this morning from clients and consultants have been focused on the US market.

Simply put, the interest rates on Swiss riskless government debt are now near zero, whether it is a one-day or ten-year instrument. Until the policy change, Switzerland was pegging the franc at 1.2 to the euro. Now it is at parity. Overnight the Swiss currency gained approximately 17% against the euro.

If you are going to Switzerland for the Davos meeting, everything will cost you more. If you are Swiss and leaving Switzerland to avoid the Davos meeting, everything will cost you less.

There is not a lot of trade impact on the US from the Swiss policy change. Swiss watches will be more expensive. Some very specialized medical devices will, too.

But Switzerland immediate neighbors are countries in the Eurozone. The franc’s contiguous boundaries are with the euro. Switzerland’s central bank worried about inflows of hot money from Russia, either directly or via the euro. Think of it this way: yesterday a Moscow-based oligarch could move money from ruble to euro. Then he could move it from euro to Swiss franc, and the Swiss government and Swiss National Bank would maintain a 1.2 currency peg.

That is now over. The game has changed.

For the US to have another major, reliable, sovereign nation trading near zero on its 10-year government bond only puts more downward pressure on global interest rates. Switzerland joins the ranks of Japan, Germany, and others where a riskless 10-year bond is below 1% and close to zero.

Translate all of that into the valuation of financial assets, particularly those in the US, and there is only one outcome. The general trend remains toward higher asset prices while US interest rates remain very low.

~~~

David R. Kotok, Chairman and Chief Investment Officer

 

Category: Federal Reserve, Think Tank

Category: Bailouts, Federal Reserve, Regulation, Think Tank

1% on 10-year Note?

1% on 10-year Note? David R. Kotok Cumberland Advisors, January 13, 2015         “What if the Fed doesn’t raise rates at all this year? There’s certainly a good amount of volatility possible with the ECB meeting Jan 22, the Greek election Jan 25, and the FOMC announcement Jan 28.” – Don Rissmiller,…Read More

Category: Federal Reserve, Fixed Income/Interest Rates

Draghi? Draghi. Draghi!

Draghi? Draghi. Draghi! David R. Kotok January 3, 2015     A German newspaper reports Mario Draghi’s denial of interest in Italian politics as a major story, which then makes its way to the financial news in the US.  Really? First, it is appropriate for the president of the European Central Bank to say that…Read More

Category: Federal Reserve, Think Tank

Although U.S. investors continue to tap foreign financial markets for “safe” assets, we show that the type of foreign financial debt that fills this portfolio niche post-crisis is quite different than pre-crisis. Post-crisis, we find that U.S. investors have replaced offshore-issued structured securities with high-grade U.S. dollar-denominated financial debt issued from a small group of…Read More

Category: Federal Reserve, Think Tank

Financial Stability and Central Bank Governance

Category: Bailouts, Federal Reserve, Think Tank

Whence Comes Central Bank Terms “Dove & Hawk” ?

Of doves, hawks and Mary Poppins

Category: Federal Reserve, Video

Dear Federal Reserve

Dear Federal Reserve: As we approach your last get together of the year I first want to wish you all great holidays and a happy and healthy new year. I also want to extend my utmost respect for the time you have given to public service in your contribution of what is the Federal Reserve…Read More

Category: Federal Reserve, Think Tank

The U.S. Economy Upshifts

  “Read narrowly, the results show that some survey data suggesting weak post-Thanksgiving Black Friday sales was misleading at best.” — New York Times   No, this isn’t going to be a victory lap about the National Retail Federation and its always-wrong forecasts about holiday retail sales (that annual chest-pounding comes in January). Rather, this…Read More

Category: Economy, Federal Reserve, Fixed Income/Interest Rates, Investing

The Fed Spectrometer

  Federal Reserve Hawks vs Doves   click for ginormous infographic Source: Bloomberg Briefs   Text only version is here  

Category: Federal Reserve, Fixed Income/Interest Rates