Jonathan Yates: Like a LeBron James dunk at the end of a fast break, the Swiss National Bank was making a point when it lifted the cap on its currency, the franc, a few weeks ago.
Soaring in value, the Swiss franc wiped out a number of individual and institutional speculators who held contrary positions. Citigroup (NYSE: C) alone is estimated to have lost $150 million. While the Swiss National Bank had several points to drive home, the main one to be garnered from this costly episode for many is that long-term investors do not have to worry about such short-term maneuvers.
Switzerland did an admirable job in shielding its move from the investment community.
For that reason, there were epic losses for many. The final tally of the carnage will never be known. Neither will the complete rationale for the lifting of the lid by the Swiss National Bank. It could have been to preempt another round of quantitative easing by another central bank, such as the ECB. Crushing those using the Swiss franc as part of a carry trade was probably another goal: no entity likes its currency being deployed in speculative measures as it mutates the value. No matter if it is a company or a country, it wants investment from those in it for the long term.
Deterring Future Speculators
Part of the motivation could have been a show of force by Bern.
Legendary investor Jim Rogers is fond of saying that a weak currency is a sign of a weak economy, which is the sign of a weak government. The Swiss franc has surged in value since the move by the Swiss government. That hurts many Swiss companies that export as a stronger currency makes the product more expensive to foreign buyers. No one will ever associate the Swiss government with weakness after the recent move to allow the Swiss franc to float.
By doing that, the Swiss government should deter future speculators too with a sense of history.
Little Impact for Long-Term Investors
For long-term investors, though, the rise in the value of the Swiss franc will have little impact when the situation sorts itself out eventually . . . which it will.