Way back in 1996, when I contributed some of my radical notions to a mentor's bi-weekly called Grant's Interest Rate Observer, Jim wrote a wonderful book titled The Trouble with Prosperity (A Contrarian's guide to Boom, Bust and Speculation.) I would be fibbing if I didn't say that the book influenced me deeply. Jim and I don't talk much anymore but its a perfect day to acknowledge his spot on call last Autumn on the "white-flagging" by the SNB. Jim suggested buying 6 month option protection on a rising "Swissie" for cents on the dollar. For those not "ISDA members with a TBTF bank relationship" he liked - as is his thing - buying gold.
For delusional, older, semi-bitter futures traders, like moi, today's SNB action (and the probable action of Jan 22 at the ECB) is another glaring example of the Failure of Openness when implementing monetary policy. Today is a Euro-cross trader's Oct 15. Market participants are merely making logical large scale bets on the openly broadcast narrative of their respective CB. in the glory days gone by, a large Hedgie (say Soros) might have hastened the surrender with a brazen bet. No longer. Color coded Eurodollar players spent months last Summer adjusting to the Fed's nudging only to see the positioning "Crash up" in their collective gaping maws. Euro-crossers, verbally green-lighted by the powers that be, loaded up on inter-governmental sanctioned competitive monetary hot potato. And today? BOOM
Our suggestion has been, remains and hopes to become the abandonment of CB openness around the globe. Could this be the first step back to the old way? Maybe, doubtful. I still recall the dismissive look Andrew Ross Sorkin gave me during a commercial break when I voiced this opinion several years ago. The Fed Watching Community has not been thinned by the CBs statements and pressers. An army of reporters are at the ready to tell us what we've just been informed of. And yet....the losses and position blow ups continue to mount.
The diluted efficacy of policy action remains our biggest critique of "Openness." "Surprise and Do More" is "Shock and Awe" for central banking. The SNB stepped back in that direction today. We constantly remind our customers- "No one has EVER exited." Take heart in the notion - at least for now - that the Fed is still handing $!00B/quarter to the Treasury Dept. The red P/L at the SNB led to waving the white flag today.