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Durudarshan - Investment Analysis

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The Swissie

Posted on February 21, 2015 at 6:23 AM Comments comments (2)
The decoupling of the peg between the Swissie and the Euro has been described as 'unprecedented'.
Once pegged at 1.20, the decoupling saw the value gain by about 30 percent, the biggest profit a currency has seen in the last eight decades. 

Swiss exporters were hit on the stock exchange, assuming their trade will suffer as the strong Swissie makes Tobelrone and Nestle and other delicious Swiss products more expensive around the world, and don't people just love those unique concoctions.  The Swiss stock market wiped out $100 billion in value, but it would be safe to assume that the thirty percent increase of the currency in one day has seen the national coffers of the SNB gain very substantially.  At the expense of the Dollar, Pound and Yen in particular.  The Swiss are having a rich feast.

The move was made in anticipation of the ECB starting printing money, or increasing the quanta.  This should inform the markets that the much awaited and anticipated European Bank stimulus is bound to start very soon.  I have been guessing it would be latest by end of February.

An ECB stimulus would be prudent and necessary, although Germany is not too happy about it.  Of course, the strong German economy doesn't need a stimulus for itself, although it may be argued that a little boost to their coffers won't do any harm.  To the contrary, the recent drop of 5.6% in the industrial production caused by cancellation of orders against Russia due to the sanctions may be rebalanced by exports to other nations and sooner, to pull the sector out of a temporary blip. 

Rumours are that the ECB stimulus could be to the order of One Trillion.  That would be a modest figure, considering just a few years ago they were talking of some 'vehicle' of Six Trillion, with Dexia Bank being reinflated as the primary vehicle and holding  organisation.  A modest Trillion Euros will not do harm.  In fact, the current needs of France and Italy could be immediately fulfilled, as well as that of other Euro Area nations.  I last calculated on the back of an envelope some figures, 100 each for the Big Four economies, and 28 Billion each for the rest.  Now with Lithuania using Euros instead of their Litas, and Greece deciding on a Grexit around 26th January, it remains to be seen what amounts would be appropriate.  Anyhow, Greece is a medium sized country, and maybe for them a special figure could be 50 Billion, if they remain in the same bouquet of flowers as the other European nations.  And why not? - our Greek friends should celebrate with retsina and ouzo and paklava, with their economy having improved so much.  A little bit more would be great for them.  Spain of course is going really strong, and the tide is turning, now they seem to have a strategy for creating more jobs and expanding their productivity and creativity.

In the meantime, the US Debt Ceiling raise of 110 billion per month to September 2015, and the Japanese stimulus of $85 billion per month (foreseeably for the next four years under Mr Abe), and the recently announced boost of $1Trillion for the Chinese domestic expansion, should see jobs being maintained and created in these nations and around the world.  That is my reading of it.  Expansion of the capital base in the Euro Area is both prudent and necessary (and overdue) and will put a sweet halo on Europe.

And I don't see the Euro weakening after the Stimulus.  It will mean a strong currency, reliably serving the nations who have adopted the Euro as their Mother Currency.  Once it is formally put into being, the stimulus will bring additional cheer in Europe, with the stockmarkets very probably going up.  (Caveat, you can speculate entirely at your own risk, my assessment is on the pure logic of what may result).

Let me know your views, as you sip some hot chocolate or some wine.


Kind regards,
Duru-darshan.


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