Swiss franc scraps euro peg

purch

Generali wrote: »

The only people going bust will be some hedgies and a few bucket shops that deserve to be regulated out of existence anyway.

The Spivs you mean.

To be in a position where a large number of "clients" have lost far more than their deposit, and probably far more than they can afford should wake a few regulators up.

The huge rise of private individuals "trading" in Forex, and thinking they have stumbled upon a foolproof no lose formula has been worrying. Hopefully this will have woken them up to understand that it's a bit more complicated than they thought.

IronWolf

purch wrote: »

The Spivs you mean.

To be in a position where a large number of "clients" have lost far more than their deposit, and probably far more than they can afford should wake a few regulators up.

The huge rise of private individuals "trading" in Forex, and thinking they have stumbled upon a foolproof no lose formula has been worrying. Hopefully this will have woken them up to understand that it's a bit more complicated than they thought.

Indeed, check out this guy on social trading network Zulutrade



Anyone copying his trades would have had a nasty shock

buglawton

I think this social network trading idea - copy your own trades from a trading leader - is bound to lead to a disaster for some. Even if you can copy from Warren Buffet himself.

This is because it involves a feedback loop. So if enough people copy a leader, the prices will get distorted by the very act of trade mimicking... until there's some sort of tipping point crash.

worldtraveller

IronWolf wrote: »

Indeed, check out this guy on social trading network Zulutrade

Anyone copying his trades would have had a nasty shock

Do I feel sorry for them? No, of course not! Why should I? You pays your money and you takes your choice!

Crashy_Time

Generali wrote: »

The losses are in the hundreds of millions, that is not an existentialist problem to a large bank.

The only people going bust will be some hedgies and a few bucket shops that deserve to be regulated out of existence anyway.

If countries start un-pegging their currency from the euro, could it lead to the US raising rates?

Thrugelmir

Crashy_Time wrote: »

If countries start un-pegging their currency from the euro, could it lead to the US raising rates?

The US is likely to lead the way in any event.

Generali

Crashy_Time wrote: »

If countries start un-pegging their currency from the euro, could it lead to the US raising rates?

I can't think of any other currencies that are formally pegged to the Euro except the CAR Franc. There are probably a few other little ones like Cape Verde or something.

The US has always been of the opinion (as in the famous quote), "It may be our currency but it's your problem", i.e. they will not set their monetary policy in the interests of anyone except the Americans.

The Fed will increase rates at some point simply because they are so low. When that point arrives is anyone's guess really. Maybe when unemployment heads closer to 5% or the participation rate hits 65/66/67% (pick whatever arbitrary number suits) or the M3 secret squirrel measure of the money supply increases by x% p.a..

The market seems to think that moment will be 12-18 months away but the market has thought that ever since rates hit these lows. My guess, FWIW, is that rates will go higher, faster than many expect in the UK. A normal level of base rate in the UK = nominal GDP growth, say 5% in normal times = inflation + 2.5%. I can think of no good reason to think that has changed hugely. Yes, higher debt will make people more sensitive to interest rate changes but probably not as sensitive as people think. Credit card interest rates are generally very insensitive to base rate changes, unsecured debt tends to be at a fixed rate. It's only really mortgages that move with base rates and even then, banks are taking a much larger margin over the base rate than normal so I'd expect margin compression to mitigate against base rate changes, partially at least.

I do think that some chaos is likely as the Fed increases rates but if there's any sign of it in the US, the Fed will snap interest rates straight back down again. We live in interesting times however, dislocations in commodities markets and the CHF are very much linked to QE ending in the US and QE starting in the EU.

Generali

Ah yes, just remembered that the Danish Krone is also attached to the Euro. Not a significant currency in the grand scheme of things but lots of people betting it will appreciated in value now I suspect.

buglawton

The £ is at risk of becoming even more of a safe haven currency than it is already. We are actually in a similar boat to the Swiss and need to control the value of the £ downwards. Negative base rate for the UK, anyone?

Generali

buglawton wrote: »

The £ is at risk of becoming even more of a safe haven currency than it is already. We are actually in a similar boat to the Swiss and need to control the value of the £ downwards. Negative base rate for the UK, anyone?

The point of the Swiss's actions are that once the ECB starts QE you can't but unlimited quantities of EUR any more.

Negative 'base rates' are quite technical as you can't have an actual negative base rate as all that happens is people and institutions hold cash instead.

I don't pretend to understand this all properly myself (yet) but from my limited understanding the SNB has put a negative interest rate onto 'sight deposits' at the Central Bank. That in turn (I think) limits the quantity of deposits banks can take as they have to hold reserves against those deposits at a negative interest rate.

So yes, possibly a negative base rate for the UK. It will have a limited impact on lending rates but possibly (probably) an impact on savings rates, such as they are.