The “Tactical” Nuclear Options(s)!
WOW! Two huge news stories within 24 hours. First, Russia decided to shut off the gas pipeline to southern Europe, next the Swiss dropped their 1.20 floor peg to the euro. The first story is absolutely huge but has been completely overshadowed by the Swiss. In my opinion, the Russian move is part of the “war” chess game, the move by the Swiss is your beginning to multiple resets leading into a complete economic and financial reset!
Let me start with Russia. They had already tightened the gas spigot to southern Europe by some 60%. This is gas which travels through the Ukraine. As of yesterday, it has been reported the flow has completely stopped. Why now you ask? Well, several “timing” reasons come to mind. First and most obvious is “it’s cold outside” as Europe is in the middle of winter. Playing the gas card now has maximum impact. Secondly and most importantly, Europe is in the process of deciding whether or not to go along with the more severe economic and financial sanctions concocted by Washington. As a side note, as if it was not very important on its own, France must decide whether or not they will deliver the 2nd Mistral warship contracted with Russia.
Shutting the gas off at this moment is Vladimir Putin telling Europe, “you are either with us or against us, make your decision and make it NOW!”. I had a very astute friend describe the situation as follows, “This move by Russia makes perfect economic sense, because Russia or anybody should NEVER reward bad behavior, and to acquiescence is always a reward. I guess that the Western government leaderships never got that memo”. He added, “the second shoe to drop will be Russia requiring payment for oil in yuan”. Also very astute but stops short of the ultimate “killer”, Mr. Putin could simply require payment in gold. This would blow the doors off of the entire Western financial system as they have already divested 100 year’s worth of gold reserves!
The second tactical nuke to hit Europe was the Swiss National Bank breaking the floor peg of 1.20 to the euro. Within minutes, the euro dropped to parity and then some. The Swiss also lowered their “negative interest rates” to -.75% from -.25% in an effort NOT to attract capital. Apparently this did not work! You can look at what the Swiss did from several angles, each one of them very negative to future world events. First, whether you like it or not, this is a very big negative vote for the Eurozone itself. The Swiss may be looking at near future current events and trying to isolate themselves. They could be looking a Mario Drahgi announcing full on monetization next week, or, they might be looking at the Greek vote and likely (in my opinion) exit from the Eurozone. In any event, their action is no vote of confidence.
Please remember, the SNB has a huge (greater than 50%) of their reserves in euros. This effectively “took a couple of toes off” as the majority of their reserves have just effectively been devalued. Their stock market opened down 15% as their foreign trade and tourism will now be damaged. The move to revalue higher will make imports much cheaper but devastate their export economy. It will actually bankrupt some exporters with skinny profit margins. Put bluntly, the Swiss can now look forward to a very steep recession if not an outright depression.
The move by the SNB viewed from a macro standpoint is also an eye opener regarding central banking and central bankers. They had previously “promised” (as recently as this past Monday) this 1.20 peg versus the euro, they have now reneged. Many European and Swiss businessmen made plans and invested money into businesses which now are untenable. Many businesses will be flat put out of business and original capital lost. “Trust” has been broken by the central bank. The obvious question is “who is next”? We here in the U.S. have been “fed” (pun intended) a continuous diet of the Fed beginning to tighten, will they retain any respect at all when another round of QE (loosening) is announced? Though this is the first instance of a central bank shocking the world, it will not be the last. These “shocks” will serve only one purpose, they will illustrate that central banks no longer are in “control”.
–As a side note and this paragraph is being inserted during my editing, Christine Lagarde of the IMF was interviewed by CNBC yesterday and admitted the Swiss move was a surprise to them. She went on to talk about the importance of “coordination and communication” between central banks. So, I guess the SNB went totally “rogue” on their decision and have acted purely out of personal preservation? I am not saying this tongue in cheek, this is exactly what the Swiss have done! This is what I have talked about all along, when the “moment” came, it would be “every man for himself” …this certainly qualifies.–
Putting these two events together, the oil shutoff and monetary shock together, I view several very obvious conclusions. Russia is “courting” Europe and “helping them” decide to abandon the U.S. and to do business eastward. The Swiss I believe are trying to insulate themselves from a breakup of the Eurozone. Standing WAY back and viewing not only the forest but all of the “forests”, this is the very public beginnings of a global reset. No matter what you want to think, the Swiss have just “reset” their entire system and currency versus the euro and thus the entire world! Yes I know, this is just one country. I am trying to tell you this may only be one country but it is the beginning reset for all countries, assets, economies and financial systems!
Before finishing, it is also important to see the reaction in the gold market. Gold has exploded $30+ higher in reaction. Gold clearly sees the Swiss action as a monetary warning sign of what is to come. What is coming is a global reset brought on by a currency and credit crisis. Gold is money. Gold is the ULTIMATE money! The Swiss franc has been seen as a “safe haven” currency. They are now “taking” more interest than they were when they first went negative. The Swiss franc is also greatly supported…by a currency which was devalued by 15% (30% at one point) overnight …which shrinks their reserve base by more than a whopping 10%! Will the world look to currencies like the Swissie or will it look to gold as a safe place to avoid the crisis and the looming reset(s)?
I think this question can be answered with another set of questions. Can the Swiss franc actually “default”? Can an ounce of gold default? Do global currencies depend on economies which may (most likely are) be leveraged too far? Switching gears with these questions, how would the Chinese answer these questions? This may be the most important question of all because the old saying “he who has the gold …makes the rules”. We know for a fact the Chinese “have the gold”. We highly suspect (via common sense evidence) that the U.S. and the West in general has offloaded much of their gold. Could China force a global reset into gold at much higher prices?
Folks, this is truly it! The Swiss have fired the opening “re set” volley! The leverage employed all throughout the West will force “sales”, and will force “purchases” of various markets, currencies, commodities, credits and “money”. Close your eyes to this at your own peril, time is now very short to secure your chair in this global game of musical chairs. Before you do sit down, make sure you are protected. Owning Precious Metals is the only sure way.
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Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration. Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.