The Swiss central bank is now the eighth largest investor in publicly traded shares of Facebook following the Swiss Central Bank Buying Spree.
Switzerland’s central bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg, part of a mushrooming stock portfolio that is likely to grow yet further.
The tech giant’s founder and CEO has other ways to control his company: Zuckerberg holds most of his stake in a different class of stock. Nevertheless this example illustrates how the Swiss National Bank has become a multi-billion-dollar equity investor due to its campaign to hold down the Swiss franc.
It is now the world’s eighth-biggest public investor, data from the Official Monetary and Financial Institutions Forum show. While most analysts think the strategy is sound, this does expose the SNB to stock market risks that the likes of the European Central Bank and U.S. Federal Reserve avoid.
“The SNB is in a bit of a corner, they have acquired a lot of foreign currency as part of their efforts to weaken the franc and they have to invest it somewhere,” said Alessandro Bee, an economist at UBS. “The bond market is drying up and so they are going increasingly for equities.”
The SNB’s balance sheet is now proportionately the biggest of any leading central bank. On top of that, its stock portfolio has risen at roughly twice the rate of the overall balance sheet as it diversifies its holdings.
In the last 12 months the SNB’s equity holdings have surged 41 percent to around 127 billion francs, according to Reuters calculations. Part of this is due to stocks increasing in value despite losses in recent months, as well as new purchases.
The SNB has also diversified across stock markets. The United States is its favoured location, with its holdings on Wall Street jumping to nearly $62 billion at the end of June from $38.6 billion a year earlier, according to a Securities and Exchange Commission filing.
The SNB has increased its stakes in all of its top 10 U.S. holdings this year, while many big institutional investors have been reducing much of theirs. For example the SNB’s stake in Apple increased by 1.07 million shares in the second quarter, while Invesco sold 9.53 million shares and Fidelity sold 9.23 million in the iPhone maker, according to SEC filings.
FRANCS FROM THIN AIR
The SNB does not comment on the details of its strategy, but says it does not pick stocks, investing instead in companies according to their weight in various indices.
“The SNB creates Swiss francs out of thin Alpine air,” said James Grant, publisher of Grant’s Interest Rate Observer, a U.S. financial markets journal.
- “It’s a diversification strategy for them and it is harder to find investment opportunities,” said Alexander Koch, head of macroeconomics at Bank Raiffeisen in Zurich. “With the ultra-low interest rates environment currently there is a very high risk that the prices of bonds can fluctuate more than equities.”
- “It makes sense for the SNB to do this, and I could imagine them to increase the amount of shares they hold in the future even further,” said Koch. “They could even go up to 50 percent of their holdings.”
- Nannette Hechler-Fayd’herbe, head of investment strategy at Credit Suisse, said that the risks attached to the SNB’s investment portfolio were “absolutely manageable”. Diversifying its holdings was more important than any temporary setbacks in global equities, she added.
Supposedly buying shares of corporations makes perfect sense. And the risks are manageable.
If the central bank really wants to weaken the Franc and cause inflation, I can help. I will even give the bank a money back guarantee.
This is all I ask: Give me $129 billion and I promise to waste $128 billion of it, quickly. If that fails to do the trick, then I request $129 billion per month, until I succeed.
For my humanitarian efforts, all I want is a one time payment of $1 billion in gold at today’s prices. Should my plan not deliver the desired inflation within two years, I would gladly refund my $1 billion fee.
Mike “Mish” Shedlock
Central Gangster said:
So yeah, help to blow up the asset bubble by creating francs (maybe it would be better if more effort was devoted to creating franks?) out of thin air and pumping up an already overvalued bunch of stocks with the money. And investors everywhere will follow suit because “Facebook is going up!” and there is no other place to put their money. Yeah, this is all gonna end well.
Equity can be negative when it comes to value…
There is a point where silver oil and soft commodities in the USA become so cheap that interest rates on physical US cash dollars suddenly soar. Why would a Bank choose debt over silver? Silver is a monetary asset…so having its price fall is great news for a Bank…especially relative to the price of gold.
There was a time when US Banks printed their own money actually there was so much silver sloshing around.
Per Desteen said:
Swiss or Carribean account?
Jon Sellers said:
Um, so what’s to stop the SNB from printing up $1 trillion dollars worth of franks and buying Apple outright? Or Exxon? isn’t this exactly what central banks should be barred from doing?
Stuki Moi said:
The only thing preventing them from doing so, is the need to maintain the illusion that the world we live in, remains something other than a totalitarian Ponzi, with no foundation, no fundament, no values, no future and no value whatsoever.
Tony Bennett said:
Talk about entertainment
Swiss CB buys Apple lock, stock, and barrel … and announces moving entire operation to Switzerland … and fedgov’s “huh, what?” reaction …
“Um, so what’s to stop the SNB from printing up $1 trillion dollars worth of franks and buying Apple outright? ”
Assuming they want a functional currency, the same thing that prevented Zimbabwe from owning the world: exchange rates.
US stocks are not bought with francs, yen, yuan, euros, etc. They are bought with dollars.
The Swiss aren’t as dumb as the Greeks look.
The Swiss could buy up the global corporate network w/ fiat currency and when it begins to collapse demand a bailout from America and the IMS. Oh, they’ll get it too. Make no mistake about it.
Is UBS still one of the banks of choice for rich Americans to hide their loot from the IRS? Did the US government ever threaten to pull the UBS’ charter and ban them from banking on US soil? ha. Figure the odds.
My guess is that the more things have changed the more they’ve stayed the same.
“I would gladly pay you tomorrow, for a hamburger today”
The SNB is doing exactly what people should do – park their money in large corps that have never defaulted, unlike bankrupt govt’s with nothing backing their debt. As far as FB goes as an investment, they are as valuable as the NSA data confiscation, which should have the plug pulled. Gold can be confiscated and cannot pass through the metal detector
With so much invested in FB stock, SNB will never let the stock price fall. If it ever falls, they can go back on a buying spree to keep the stock up. Tomorrow, some jackass analyst will use this information to raise the target price on FB stock to 300$. Expect Bloomberg to do the court jester dance even as Suck and friends coordinate another positive press release.
Have you invested all of your retirements in FB yet? 🙂
Pin Wheel said:
Stock buying by Central Banks has created a 40% premium in developed world stock markets relative to measures of traditional valuation according to a recent study by Deutsche Bank.
The Bank of Japan is the majority stock holder in 475 of Japan’s largest corporations.
To your point, markets have been monetized by central banks and can now never go down thanks to massive invention waiting in the wings. Also important to note that CBs will never sell their shares so a public market exists only the fringes. That’s why today’s markets have more or less flatlined in a narrow range on very little volume.
This topic is the only relevant one in terms of “business news” since there is no longer any other story that can move the markets for more than day. Witness Brexit and the What Ever it Takes rescue measures. The Wall Street Journal, Bloomberg and CNBC can close their doors because the great game is over. Only when the CBs stop buying can the market go down, and why would they do that?
This is the long awaited helicopter money dropped very precisely on the those owning financial assets.
I honestly can’t see how or when this ends. In practice it can’t so it won’t. I guess the Swiss could start a shooting war with the EU for taxing Apple over Ireland. Now public companies have backers packing real heat.
Brian E Considine (@e_considine) said:
“This is all I ask: Give me $129 billion and I promise to waste $128 billion of it, quickly. If that fails to do the trick, then I request $129 billion per month, until I succeed.”
Of course a central bank wants to buy an asset rather than just drop money in the hands of people is that if they discover down the line inflation is increasing it would be nice to pull that money out of the economy.
With bonds there’s two easy ways to do that. First you can just sit and wait, when the bond matures the bond turns into cash which the Central Bank can just receive and destroy. Or you can sell the bond in the market and get the market price. You can do that any time but since prices go up and down if prices are down the Central Bank will get less cash back.
Stocks do sometimes pay dividends but that’s usually not a lot of money, the only way to get the cash back is to sell the shares and since shares go up and down there’s a risk you could have huge inflation but stock prices are low so you can’t pull money out of the economy.
This is supposedly the ‘risk’. My take is it’s kind of hard to see how you could have inflation picking up but stock prices falling at the same time. The ‘risk’ seems very small.
My take is it’s kind of hard to see how you could have inflation picking up but stock prices falling at the same time. The ‘risk’ seems very small.
Please take a look at stagflation charts
Brian E Considine (@e_considine) said:
Eyeballing http://www.usinflationcalculator.com/inflation/historical-inflation-rates/ 1979, 80 and 81 seem to be exceptionally bad years for inflation. 3 years of consecutive double digit inflation in the US.
Looking at http://www.multpl.com/s-p-500-historical-prices/table/by-year
The S&P 500 could be had for 99 on 1/1/79. By 1/1/81 it was 133. Is there some other ‘stagflation period’ you’re thinking of?
Conceptually it seems unlikely. If you have 10% inflation then that means a company that is earning $100 in profit today will be earning $110 in profit a year from now. If all remains equal then that company’s stock price has to rise if its P/E ratio is to remain the same.
Remember the ‘risk’ here we are talking about is not that the Central Bank may lose money. Who care if they do? They can print money after all and it’s not like they have a huge payroll to meet. It’s that the CB will want to pull cash it created out of the economy but discover the stock it purchased for $100B is now only worth $1B so selling it only pulls $1B out of the economy leaving the other $99B to create inflation.
If in 79 the Fed had purchased some S&P 500 shares it could have easily sold them during the ‘stagflation’ period for as much or more than it paid for them.
“Is there some other ‘stagflation period’ you’re thinking of?”
The stock market took a beating in the middle 70s as inflation rose.
” If you have 10% inflation then that means a company that is earning $100 in profit today will be earning $110 in profit a year from now. ”
No, it doesn’t. Inflation as currently measured reflects a basket of consumer goods. It says nothing about what profits will be, as they depend heavily upon labor and producer goods costs relative to selling prices.
“Remember the ‘risk’ here we are talking about is not that the Central Bank may lose money. Who care if they do? They can print money after all and it’s not like they have a huge payroll to meet.”
The CB cares very much what its assets are worth as they are how they control the money supply. Assuming they will always want inflation is the error here. They can print money but they can’t print assets to sell back into the market if the need to reduce the MS arises.
Brian E Considine (@e_considine) said:
True but if you look at the 70’s the market ranged pretty tight. S&P ranged from around 70 to as high as 118. If the bank had been buying shares during that period it probably would have sold them for as much as it paid or more, the one exceptionally low dip was not during a period of very high inflation.
Ron J said:
Nannette Hechler-Fayd’herbe, head of investment strategy at Credit Suisse, said that the risks attached to the SNB’s investment portfolio were “absolutely manageable”.
Like the peg on the Swiss franc was absolutely manageable?
The peg was very manageable until it wasn’t
I have been suggesting for ages that for the SNB to reduce the value of the franc, all they need to do is actually just print CHF and buy physical gold from abroad and import it into Switzerland.
I just do not understand why they do not do it. It will soon sort out the shenanigans going on around the world.
Any reason why that would not work ?