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Did You Know…That Central Bankers Lie?

January 21, 2015


  • On January 15, 2015 the Swiss National Bank (SNB) suspended its 3-year old commitment to the Swiss franc-Euro peg, sending the Swiss franc’s volatility above the Ruble’s! Here is what happened to investors in the formerly “solid” Swiss markets:

Swiss franc surged 39% against both Euro and USD, ending the day up 23% against Euro and 21% against USD.

Swiss equities tumbled as much as 14% before ending the day down “only” 8.7%.

For context, the equity move was equivalent to the Dow losing 2,500 points intraday and closing down “only” 1,500 points. Dramamine, anyone?

  • Merely ten days earlier, on January 5, SNB President Thomas Jordan assured the public that the peg was “absolutely central” to the SNB policy:

“”We do have very low inflation and are forecasting negative inflation for 2015, which is why the cap is absolutely central,” SNB head Thomas Jordan told SRF (Swiss TV) in an interview.” (Reuters)

  • Then, on January 15, the same Thomas Jordan announced with a straight, if reddened, face that the peg “was no longer justified”. He blamed the growing “divergencies” and alluded to the ECB’s expected Euro QE binge, against which the peg has no hope. 

“The SNB has decided to discontinue the minimum exchange rate of CHF 1.20 per euro with immediate effect… Recently, divergences between the monetary policies of the major currency areas have increased significantly a trend that is likely to become even more pronounced. In these circumstances, the SNB has concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.” (SNB)

  • SNB followed the playbook of all central banks (and governments) who lose control: the only way to preclude “fueling speculations” is to ambush the markets. Those who rely on the central bankers’ “guidance” when making investments would do well with this refresher:

“When it becomes serious, you have to lie.”

“Monetary policy is a serious issue. If we indicate possible decisions, we are fueling speculations. [...] I am for secret, dark debates.”

Jean-Claude Juncker, President of the European Commission, speaking in 2011 about the European crisis.

Bottom Line:

Despite the consensus that the Global Financial Crisis (GFC) ended years ago, it is, in fact, on-going and so are the lies.

History is clear - no price fixing cartel has survived once a member broke ranks. The SNB hasn’t just lost control, it has broken ranks with the central banking “cartel,” which runs a much larger fix - near-zero risk premiums against the toxic background of epic debts and subpar growth.

Since 2011, confidence in central banks has propelled stocks higher and gold prices lower. The SNB’s confidence-shaking surprise has marked, we believe, the end of the second phase of the GFC, during which central banks have kept a united front needed to maintain stability and fuel risk assets through price fixing, money-printing and a promise to have “investors’ back.”

All rigged games rely on confidence but what other central bankers’ lies are about to be exposed? That QE has ended? That the Fed will raise interest rates? That an orderly exit is possible? That we really can consume more than we produce in perpetuity? Really?!

This brings us to gold, which has virtually no long-term correlation to stocks and a near-perfect inverse correlation to confidence. Before the next “surprise” wreaks even more havoc, investors would benefit from reassessing their ideas about diversification and safe haven allocations.


Courtesy of Tocqueville Bullion Reserve L.P. ( )

John Hathaway, CFA, Senior Managing Director, Co-Portfolio Manager

Mr. Hathaway is a co-portfolio manager of the Tocqueville Gold Fund, as well as other investment vehicles in the Gold Equity Strategy. Mr. Hathaway also manages separately managed accounts for individual and institutional clients.  He is a member of the Investment Committee and a limited partner of Tocqueville Asset Management ( Mr. Hathaway began his career in 1970 as an Equity Analyst with Spencer Trask & Co. In 1976, he joined investment advisory firm David J. Greene & Co., where he became a partner. In 1986, he founded Hudson Capital Advisors and in 1988 became Chief Investment Officer of Oak Hall Advisors. He joined Tocqueville as a Senior Partner in 1998. Mr. Hathaway has a BA degree from Harvard College and an MBA from the University of Virginia.  

Simon A. Mikhailovich, Managing Director

Mr. Mikhailovich is a member of the TERA executive board and lead manager of TBR. Prior to co-founding TBR, Mr. Mikhailovich co-founded Eidesis Capital, a special situations asset management firm formed in 1998. Since inception, Eidesis has raised and deployed over $2.5B of capital through special opportunity funds focused on strategies in high yield corporate bonds and loans, credit derivatives, distressed CDOs and mortgage securitizations, and gold. Between 1985 and 1998, Mr. Mikhailovich was a Portfolio Manager at Falcon Asset Management overseeing private placements and alternative investments in hard assets, including direct investments in oil and gas properties, timberlands and agricultural ventures. During the early 1990s, he headed a global workouts effort responsible for the restructuring and disposition of non-core businesses in North America and Europe. Mr. Mikhailovich received a M.S. in Business (Finance) from the University of Baltimore and a B.S. from Johns Hopkins University.

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