Monthly Archives: January 2015

Volatility in the aftermath of the SNB decision to lift FX floor on EURCHF

The following two charts illustrate the increased volatility that can be observed since the SNB decision was taken to cancel the floor on EURCHF. Even though the two charts are intraday charts of January 27th 2015. Chart 2 shows that after 9am CET the FX rate is suddenly extremely volatile. At the same the chart 1 shows that the SMI moved up as the CHF strengthend and then also weakened when the EURCHF reversed.

Today the EURCHF FX rate may also have been influenced by the decision of UBS to inform all their institutional clients, that they will have to pay interest on their balances in CHF. Paying banks to look after money. Interesting times!

Here a comment from Rabobanks senior currency strategist:

EUR/CHF – desperately seeking traction
EUR/CHF has traded as high as the 1.0380 area this morning, the firmest level since January 15 which was the day the SNB stepped away from the EUR/CHF1.20 floor. The respite for the CHF coincides with comments from SNB vice president Danthine who reiterates that the SNB is willing to intervene in the market to offset CHF strength. These comments are well timed and may have exaggerated the move higher in EUR/CHF this morning. For the most part, however, the move higher in EUR/CHF appears to be a reaction to short-covering in the EUR ahead of this week’s FOMC. […]

[…] If the SNB are intervening in the market, it would achieve greatest ‘bang for its buck’ by accentuating an existing trend. A less hawkish Fed this week and an adjustment higher in the EUR/USD would potentially allow the SNB a little more traction in moving the EUR/CHF cross rate higher. That said, the SNB would be battling against a very dovish ECB. We see the potential for EUR/CHF to stabilise in the 1.02 area on a 3 mth view, but concede that the outlook for EUR/CHF is still very fluid.


Chart 1: SMI intraday 09.00-12.00 CETequity-volatility

Chart 2: FX intraday 00.00-12.00 CETfx-volatility



Update: January 29th

Here some more graphs of the EURCHF FX rate. Three interesting points in time. This looks like planned intervention. The 9am to 11am time window is often very volatile. If I remember correctly the EURCHF acted in a similar way back wen SNB was intervening around 1.50. It happened in jolts and will affect players on margin. Long term unleveraged players less prone to intervention – or may even be attracted to take other side…

EURCHF-SNB-Intervention-2015-2 EURCHF-SNB-Intervention-2015

Swiss Winners of the SNB Decision January 15th; Phoenix Mecano

If you’re interested in which companies are not suffering as a result of the SNB decision, here’s one:

Phoenix Mecano has lost just 1% as of today (Jan 20th) vs the SMI drop of ~12% (figure 1). If you were to just look at figure 2, showing Phoenix Mecano revenue by country, and knowing the company is Switzerland based, you would assume that they were going to suffer due to the fact that such a huge part of revenue is in Germany. But, as can be seen from figure 3 with the employee location, just a fraction of their employees are located in Switzerland. Many are in Germany, Middle East / Far East, Rest of World. So this is one company that will not suffer from costs rising in Switzerland on a relative comparison.

Figure 1: Phoenix Mecano vs SMI pricesmi-vs-phoenix-mecano-snb-decision-chart-graph

Figure 2: Gross sales by regionphoenix-mecano-gross-sales-by-region-graph-chart-2013

Figure 3: Employees by regionphoenix-mecano-employees-by-region-2013

Price Level Divergence Examples Switzerland vs Germany

Today I was once again hit by how much different the swiss price level is compared to Germany. Take the example of the company Gross Baumaterial AG which trades in building materials. Then compare it with the germany company Toom Baumarkt in Konstanz (swiss-german border). Notice any differences? It seems crossing the german border makes a product +100% more expensive.

Graph 1: Gross Baumaterial AG – Werbefax 044 500 92 02  17.1.2015SNB_Swiss_Price_Level_3_Baumaterial

Graph 2: Toom Baumarkt (Konstanz) Deutschland EUR Prices valid from 03.01.2015-10.01.2015SNB_Swiss_Price_Level_1_Baumaterial

Swissquote Website At Maximum (or Overloaded) since EURCHF Cap-Drop Decision by SNB

I also noticed this first hand in the last two days:

While other media sites were coping well with high visitor flows, the Swissquote website was extremley slow or not spitting out quotes. At some points going into time-out mode.

Today the proof their system was maxed-out and not ready for such a surge in information demand:


The disturbing thing in Switzerland is, there’s not really any other site that is so user-friendly. From an customer/prospect point of view the information product Swissquote has to offer with regard to clarity, speed, overview, order book depth, volume and most active information has been unmatched in the last 10 years (with exception of Bloomberg, Reuters and the like terminals of course).

Even though sites like SIX Swiss Exchange spent a fortune on creating a new website a few years back, the user-friendliness just isn’t there. It’s not made for traders, nor for casual investors who want to quickly check the market volume, most active, read news.

Hell, some banks still show you there previous days closing price when you ENTER AN ORDER. Totally unbelievable. It should be minimum standard to show an order book to anyone entering an equity order. Everyone always talking about high standards and expertise in Switzerland really needs to get a grip with the fact that the take-up of technology is slow in most banks when it comes to trading. I still have to call in to place an SMI-future order for one client with one bank. Pre-2000 style.

Could SNB neutralise ECBs QE programme? (at least partially)

Considering that the SNB has such vast amounts of bonds from EU members and obviously isn’t comfortable with the rumoured details of the ECB QE programme (just like the German Bundesbank coincidentaly), one could argue that they will be selling bonds, reducing risk as soon as the ECB QE programme is announced (or even before).

Now the interesting question is, considering the size of the SNB balance sheet, and their large holdings: To what extent will they neutralise the ECB QE programme. How many german bonds will they sell. How much of their substantial other EUR denominated bond portfolio. As their P&L bleeds, will they also be able to take profits on their US Equity – and equity holdings worldwide – and what impact will that have.

If the ECB is that last central bank buying, implementing QE, there must be some chance that they will be left standing when the central bank QE music ends. From a Swiss perspective, it may be a godsend that the SNB is among the first to reverse QE (indirectly).

Should HSBC strategists be correct with their target of EURCHF 0.92 in 12 months, the SMI could see another 5-10% drop, even after the 9% and 5% on January 15th and 16th respectively.

Below the most active and biggest losers in the swiss market yesterday (Jan 16th 2015, day 2 after the SNB shocker)

Table 1: Most Volume


Table 2: Biggest losers


Interesting; Nestlé is buying back shares on the so-called 2nd line for pension funds. The financial wizards in their treasury seem to believe that overshooting is occuring.


SNB successfully front-running ECB Printing Press

Luckily the SNB has given up the EURCHF exchange rate of 1.20.

Many market participants believe they had to preempt the next wave of speculation (pressure on swiss franc) that would have occured with the impending ECB decision to buy government bonds in the former ‘PIGS’. Also see this comment on reuters: It came a week before the European Central Bank is expected to unveil a massive bond-buying program that might have forced the SNB to intervene repeatedly to defend the cap.

Also as Barclays noted: The SNB decision was taken a week before the ECB policy decision and one day after the European Court of Justice’s opinion on the ECB’s OMT, paving the way for the ECB to announce sovereign QE at next week’s GC meeting. 

It can be interesting to look back in several months, years and see which stocks were most heavily traded, biggest losers on a historic day like today. That’s why I attach the following three screenshots to this post:

swiss-central-bank-move-jan-15th-2015 swiss-central-bank-move-jan-15th-2015_2 swiss-central-bank-move-jan-15th-2015_3

Closing prices:

swiss-central-bank-move-jan-15th-2015_4 swiss-central-bank-move-jan-15th-2015_5


Screenshots all from Swissquote website. Fair usage; educational purposes.

What your bank advisor should have to show you when proposing new investments

As I pointed out this post about self-serving advice from ‘Megabanks‘ it is important to check what your advisor, client relationship manager, private banker is actually proposing.

1) What will the one-off cost be of the proposed transactions (transaction costs). My point: Show me the exact figure in currency. I want to know how much of my annual/semi-annual/quarterly lunch or dinner with my banker is being paid for by the recommended changes.

2) What will the fee paid yearly by each investment product be to the issuer and/or agent (and one of the things to watch here: structured products that aren’t legally a fund, and therefor don’t show a breakdown of fees, kickbacks etc). My point: Show me the recurring fees, show me in percentage terms and currency (nominal).

3) What impact if any will the investment proposal, if executed, have on the profitability of you as a client to the advisor. ‘Megabanks’ know to the basis point (bp = 0.01%) how much you are generating for them in absolute and/or percentage (bps) terms. Most investment proposals I see for existing clients at ‘Megabanks’ are full of switches from one big brand name to another, switches into their own products (structured or funds).

I reckon in more than 9 out 10 cases the costs will not justify the action taken.

Regarding point 2) it’s important to realise that ‘Megabanks’ are still advising clients to buy their products (structured or funds) and not stating what this will cost the client in a clear and upfront manner (one off, yearly).

As I showed in the example of the prospect being told to switch out of single stocks into products of the ‘Megabank’, the advice given meant more income for the advisors employer (and therefor directly or indirectly for the advisor). The information is buried deep, in what is more or less a book (if an investment proposal has 50 pages!). When the client takes his decision he definitely will not have a mental overview of costs. This is where indepenent investment advisors on a flat fee or hourly fee can really save the customer money, by showing him alternative ways to achieve the desired risk exposure.

What can you takeaway: It can be worth paying a lawyer to check your contracts and it can also very well be worth an independent investment adivsor analysing your portfolio, your current advisors recommendations/proposals either on an hourly fee or flat fee basis.

A bank is going to try and make 10’000.- or more out of you every year, if you have 1’000’000 with them. I see it as my job with some mandates to push this much lower. As any reader of “A Random Walk Down Wall Street” will know, there is a small probability any advice you receive from ‘Megabank’ regarding switching will earn you more money than a passive approach.

I as an independent investment advisor don’t need to be bothered about if a client is active or not. I need to earn my money by saving the client being overactive, paying to high fees. So I protect the client from his emotions to some extent and equally important from advice  others may be giving him.

Risk Management: Megabanks Wealth Management Advice Still Dangerous / Toxic for Clients

I was recently shown an investment proposal by a prospect that shocked me. It was produced in October 2014! The prospects ‘Megabank’ advisor had proposed he sell around 15 of his current single stock holdings, representing around about 25% of his portfolio.

This is what they proposed do to with the money generated through the sales: Of ~CHF 1.1m they wanted to channel over 800k into their own products.

Description CHF %
New Purchases
Megabank Fund – Global Income 234’340 21.46%
Megabank – ETF SMIM 188’067 17.22%
Megabank Fund – Mid Cap USA 182’468 16.71%
Megabank Fund – Emerging Markets Rising Giants 206’420 18.90%
An oil company 90’657 8.30%
A chemical company 88’273 8.08%
A luxury goods company 43’329 3.97%
An oil company 58’463 5.35%
Total 1’092’017
Megabanks Products 811’295 74.29%

Note that the ‘Megabanks’ products represented close to 3/4 of all proposed changes. Only 1/4 of that was intended for the low cost ETF.

All the ‘Megabank’ products except the ETF were ones that paid the ‘Megabank’ advisor close to 1% in yearly fees and had a TER (total expense ratio) of close to 2%. This information was of course buried deep on pages 30-50 of the proposal and spread over several pages.

Now, having studied portfolio theory it’s clear that the advice given, would have had no diversification value at all if implemeted.  As the portfolio was already well diversified the additional value of the actively managed funds (comprised of many stocks) would have a negligeable affect on market risk.

The only advantage of the portfolio changes would have been to the ‘Megabank’ bottom line. As long as I see advice like the above being given out, I know that independent wealth management and independent advisors have a very bright future as they can highlight these, to put it bluntly, robbery attempts. Such proposals give the term bank robber a new meaning. Also hearing the prospects surprise at my summary, the clear black on white table including the switching costs and ongoing costs (not depicted above) reinforced my belief that independent advice is so valuable.

Unless, and this is very important: The ‘Megabanks’ and/or politicians and regulators can influence a) legislation making it more and more expensive (time consuming) to fullfill many rules & regulations that add no value to customers.  b) legislation that forces independent wealth manages to have at least 4-5 employees. c) make it expensive for independent asset managers to do business as they often need a recognised brand name custodian bank (a ‘Megabank’). d) most ‘Megabanks’ make it attractive for the independent wealth managers to have most or all their clients with just them by imposing high minimum assets under management rules.

Thankfully I am currently working with some banks that offer reasonable rates. But they are very rare and often fees need to be renegociated on a regular basis. This job of hard negociating with absolutely no emotional or financial ties is another thing I find is of added value to customers (who often can’t be bothered to argue with their banks customer relationship manager).