The real reason stocks are falling

2년 전

About a year ago, an investment newsletter picked up an interesting factoid that was in the Swiss National Bank's accounts.

It turned out that the Swiss National Bank owned about $80 billion in US stocks and about $20 billion in European stocks.

How did this come about? Well, the Swiss Franc is considered "safe", so people around the world tend to sell their own currencies and buy Swiss Francs and park the money in a Swiss bank in times of uncertainty such as during the Great Financial Crisis, the eurozone crisis, the migrant crisis and the Brexit crisis. But Switzerland is only a small country with 8.3 million people. They literally can't cope with about a billion investors elsewhere buying their currency - it sends it shooting sky high which makes the real economy of Switzerland suffer.

So the Swiss National Bank printed swiss francs, and then sold them to buy dollars and euros. In other words they were trying to lean in the other direction of the investors. So as investors were selling dollars and buying CHF, the Swiss were selling CHF to buy dollars to cancel them out and prevent the Swiss franc from rising.

So far so good - but what to do with the dollars they bought? They parked some in US treasuries, and parked the rest in US stocks. As at March 2017 it owned 19 million shares in Apple, according to the Swiss National Bank account, which was about 3% of Apple shares.

However, in the last year, the Federal Reserve Bank of the USA has been increasing interest rates. Rates are now 1.75% compared to the minus 0.75% the Swiss National Bank rate. (The Swiss were so desperate to discourage people from buying Swiss Francs that they made their rates negative). This has taken the pressure off the Swiss Franc - it's attractive to hold dollars again, especially as the US economy looks like it is booming.

That means the Swiss National Bank no longer needs to print so much and sell francs for dollars. And that means they no longer have new dollars to park in US stocks.

That lack of buying pressure means that normal conditions have returned in the stock markets. There is no longer a central bank buying everything, now it's just investors and speculators. And of course investors think tech stocks are overvalued and are selling. And the price of tech stocks is going down.

When they write the history books, they'll look back on the last decade of investment as being one of the most manipulated in history.

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The markets are also falling because of trade wars. It's a cocktail of the end of QE and a new era in world trade.

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The trade war thing is interesting - in theory it shouldn't affect firms like Google or Facebook, yet those are the stocks falling the most.

I think a lot of markets are going to collapse now that QE is on it's way out. I think only the ECB and Japan are still doing QE.

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The markets in the last ten years have been the most manipulated in 200 years. So the collapse is going to be spectacular when QE stops.

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So far, the ECB and Japan are still doing QE. And Japan might never stop because their economy is stagnating due to a population reduction. So they'll be disrupting the world for a few decades to come.

I wonder what happens if the Swiss franc falls and they need to sell these stock and repatriate money to Switzerland to prop up their currency?

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Just to update on this. The Swiss franc has fallen back, but to a level the Swiss National Bank is happy with. It is only if it dives sharply from here on in they will start repatriating money from the USA.

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It's unlikely that the Swiss franc will fall given how well run Switzerland is. But yes, in theory, they could cause a global market crash just repatriating stuff for domestic reasons.

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No country stays rich forever - all it takes is one bad ruler making mistakes and the strongest states run into problems.

I am not sure I am following you. If Swiss National Bank prints more currency their currency becomes devalued. Yes, they can buy US Dollars with their newly printed currency but at a higher price than before the printing.

Also the U.S. government just stopped printing more currency of their own. China has been doing the same. I'm not really seeing how printing money is manipulation. I think your analysis has a lot of missing parts.

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The Swiss were trying to make their currency devalued. It was rising too fast because the rest of the world was buying it as a safe haven.