Posted by: Dirk | September 11, 2011

The Great Expectations of Manager Magazin

“As I had grown accustomed to my expectations, I had insensibly begun to notice their effect upon myself and those around me. Their influence on my own character I disguised from my recognition as much as possible, but I knew very well that it was not all good.”

Charles Dickens, Great Expectations, beginning of chapter 34

The Manager Magazin provides us with an article named “Dax-whispering: how investors are subtly expropriated“. A glimpse into the way financial people think about out world results that is, I believe, quite alien to anyone outside the financial community. Here is the original:

Einen weiteren Fluchtweg hat die Schweizer Notenbank in dieser Woche versperrt. Anleger, die in den Schweizer Franken kaufen und auf Währungsgewinne des Franken gegenüber dem Euro setzen, haben seit dieser Woche die Schweizer Notenbank als Gegenspieler. Eine Institution, die theoretisch unbegrenzt Schweizer Franken drucken und mit dieser unbegrenzten Liquidität in Euro nominierte Anleihen kaufen kann, zum Beispiel die Bundesanleihe. Die Folge: Der Franken wertet gegenüber dem Euro nicht weiter auf, was im Sinne der Schweizer Notenbank ist.

… and this is my translation:

Another exit route was blocked by the Swiss National Bank this week. Investors buying Swiss currency hoping for an appreciation of the Swiss Franc against the euro have now the Swiss central bank as their opponent. An institution, that could in theory print unlimited amounts of Swiss francs and with this liquidity could buy euro-denominated assets, like German bunds. The result: the Swiss Franc does not appreciate vis-a-vis the euro, which is what the Swiss central bank wants.

Why is this interesting? I believe that it depicts the clash of two worlds. World number one is the “race-for-yield” financial community, which is nihilistic in its ways, as the article implies. What would have happened without Swiss central bank intervention – which is located right next to the Swiss parliament in Basel Bern, by the way – is an appreciation of the Swiss franc. Swiss enterprises, both exporters and non-exporters, have been complaining recently that the high exchange rate makes it impossible for them to compete on either domestic or foreign markets. Imports get cheaper, and exports more expensive. Here is the problem in one graph (which ends in late August – since then the CHF has fallen back; source: Yahoo Finance)
Given this background, there is a clash of financial interests with the interests of the (Swiss) public. Switzerland does not want to see its industrial base destroyed only because speculators use its currency as a hedge against further troubles in the euro zone. This, I would say, is a legitimate concern. The financial industry – as represented by the Manager Magazin – wants to earn money on “free” markets, even though they must recognize that by doing so they do great damage to the Swiss economy. The thought that their greed would damage the Swiss society, however, does not occur to the Manager Magazin.

The general topic of the article is that savers have to pay for the crisis by the low interest rates and yields that they currently get. This again is very short-sighted – take a look at those offering labour in economies like Ireland, Greece and Spain. It is up to you to judge the pain inflicted by unemployment versus the pain inflicted by low interest rates. Someone in the Manager Magazin dreamland they have not recognized that a financial crisis means that capital owners will lose some of their asset values for sure, no matter what.

It will take a while until the Great Expectations of the financial sector –  getting incredibly rich while the real economy whithers away – will be revised.


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