World financial markets crave certainty and seek gradual, steady, and predictable solutions to monetary bumps (or mountains) in the road. But, on January 15th, the Swiss government made an unexpected move – announcing it would no longer “peg” its currency, the Swiss Franc, to the Euro. A mild panic ensued in the financial markets.
And, on the heels of that announcement, the Swiss government just became the first country to sell $242 million worth of negative yield 10-year bonds – signaling a lack of confidence that the inter-connected economies of the Euro zone will be growing in the short term.
In addition, the Swiss National Bank (SNB) recently instituted negative deposit rates on some accounts – essentially charging depositors a fee for the safety and privilege of keeping their money on account at the SNB.
The Swiss have long been considered the “smart money” – intelligent, connected in ways most cannot imagine, and often acting before a crisis by leveraging powerful, relevant, and non-public information.
These moves come as the Euro zone faces massive debt; certain economies are teetering on collapse (Greece); and there have been no substantial governmental structural spending reforms (Greece, Spain, Italy, Portugal). Massive, unsustainable spending continues in nearly all industrialized countries – looking more and more like ponzi schemes than fiscal prudence.
What do the recent series of unexpected financial moves signal from the Swiss? No one knows with absolute certainty, but it’s clear the signals are not positive.
Keep an eye on this going forward…