Swiss Franc Collapse Drives Macro Millionaires to New All Time High

Sept. 7, 2011 - PRLog -- I often get up at 3:00 am and check my positions, attempting to determine if I deserve another two hours of sleep or not. When I checked the Swiss franc futures trading overnight, it showed a straight line down 12 handles, from $1.28 to $1.16. I thought “This can’t be right”, and that the software had gone haywire once again.

Then I checked my inbox. There were pages and pages of messages from European readers saying “congratulations” on my Swiss franc short. Then I found the email that I was looking for, an alert from Reuters trumpeting that the Swiss National Bank had pegged their currency to the Euro at a conversion rate of €1.20. The Swiss franc reacted by immediately crashing 10% against the US dollar. One of the largest long positions in the financial markets had just been vaporized.

Other flight to safety assets were trashed as well. The long Treasury bond quickly gave back two points in the futures market. Gold plunged $80, then made back half. Could the Swiss move herald the beginning of a global “RISK OFF” TRADE? As British Prime Minister, Winston Churchill, said in 1942, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

I had been expecting something imminent from the Swiss Authorities in my August 29 piece “Time to Dump the Swiss Franc ” , and my August 31 article, “The Greek Assist on My Swiss Franc Short.” What really shocked me was that the normally conservative, staid, and cautious Central bankers in Bern had elected for the nuclear option.

In my 44 years in the foreign exchange market, this is the first time that I have seen a country switch its currency from free floating to quasi fixed. In one fell swoop, the Swiss have converted their currency from a bastion of safety as solid as the granite of the Matterhorn, to a patient in intensive care on the verge of going into a coma. They are hitching their wagon to the Euro just as it is about to run over a cliff. Now Europe’s banking crisis and sovereign debt disaster is Switzerland’s. They have just taken ownership and shall suffer the pains and travails that come with it. A much weaker currency is the assured result.

It was one of the sharpest one day moves in the history of the foreign exchange markets. One harks back to 1992, when George Soros famously broke the Bank of England, sending the pound plummeting. Even that affair was spread over several weeks. You really have to go back to the Nixon shock in 1971, when a president beleaguered by a losing war in Vietnam moved to take the US off the gold standard, to find moves of similar magnitude.

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