Forums  > Basics  > I'm an idiot. Why is the SNB buying US stocks?  
     
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Rookie_Quant


Total Posts: 741
Joined: Jun 2004
 
Posted: 2017-09-07 17:16
I'm also bad at economics.

Buying foreign stocks can't be a policy tool, so the motivations are purely returns-based?

The JGB situation seems like an exercise in "creative" monetary policy of sorts, but fr the life of me I don't understand the Swiss case (or any of the central bank buying of foreign equities). Can someone much smarter than me please weigh in?


"These metaphors and similes aint similar to them, not at all." -Eminem

tbretagn


Total Posts: 248
Joined: Oct 2004
 
Posted: 2017-09-07 18:03
Well you diversify your reserves.
Why should you be limited to purchasing bonds with the USD you recycle?

Et meme si ce n'est pas vrai, il faut croire en l'histoire ancienne

Rookie_Quant


Total Posts: 741
Joined: Jun 2004
 
Posted: 2017-09-07 18:28
Is it diversification or risk/return seeking? All this cross-border central bank equity buying seems distorting in my brain.

"These metaphors and similes aint similar to them, not at all." -Eminem

tbretagn


Total Posts: 248
Joined: Oct 2004
 
Posted: 2017-09-07 20:12
Risk Premium over bonds. If even central banks do risk parity you'll tell me, aren't we all doomed?
But the SNB has a mandate to make money so they can deliver dividends to cantons.
As such they are more like a fund (think a weird one that can print its own assets).

Et meme si ce n'est pas vrai, il faut croire en l'histoire ancienne

goldorak


Total Posts: 986
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Posted: 2017-09-07 21:00
> the SNB has a mandate to make money so they can deliver dividends to cantons.

This is not exactly true. Yes the SNB is paying dividends to the cantons but this comes as an income to the cantons that forfeited their minting rights a long time ago.

They have no obligation to make money.

Re: stocks. Frankly speaking I would be a lot more at ease with the SNB buying 100% stocks rather than holding sovereign bonds.

If you are not living on the edge you are taking up too much space.

Rookie_Quant


Total Posts: 741
Joined: Jun 2004
 
Posted: 2017-09-07 21:54
I think it's the "weird one that can print its own assets" that has me hamstrung. I mean I understand what you are saying, but why only in the last 5-6 years? Is the difference in bond yields really that important as to start buying stocks in size?

It seems like global monetary policy is like a pecking order:

first, lower rates
then just buy bonds in the secondary market
then, if allowed, buy stocks

but buying stocks in USD isn't really a policy mechanism for the SNB, right?

"These metaphors and similes aint similar to them, not at all." -Eminem

goldorak


Total Posts: 986
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Posted: 2017-09-07 22:16
You have to park all the USD and EUR you bought indiscriminately somewhere.

Why the last 5-6 years? Probably for the same genius reasons central banks hold gold in their vaults.

Anyway, these guys are just a joke (not talking about Switzerland here), and the more they "communicate" the more they demonstrate their incompetency. Probably coming together with their economist background.


If you are not living on the edge you are taking up too much space.

Rookie_Quant


Total Posts: 741
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Posted: 2017-09-08 00:10
Do you think it's plausible that markets react (or care) when they find out the SNB, or whatever other monetary authority is buying certain assets? It's clear(er) when they are soaking up risky debt with MTM issues a la Fed MBS purchases and the like.

Maybe I just am too into disaster p0rn or whatever, but what on earth does the unwind look like when these "geniuses" need to stop issuing trillions of currency? $20 trillion in assets seems material to me.

"These metaphors and similes aint similar to them, not at all." -Eminem

JTDerp


Total Posts: 39
Joined: Nov 2013
 
Posted: 2017-09-08 05:41
But, what about the notion attributed to Marky T.

“Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it.”

With the tinfoil hat on, I speculate that they are doing the bidding of non-obvious parties while appearing oblivious to the adversities that those farther down the pyramid are having to deal with.

The clouded mind seeks; the emptied mind finds.

Cheng


Total Posts: 2831
Joined: Feb 2005
 
Posted: 2017-09-08 08:48
Do you think it's plausible that markets react (or care) when they find out the SNB

One acronym to rule them all: 13F-HR. Like every other "fund" the SNB has to publish its holdings. So this is pretty much public knowledge. I keep wondering what happens should US stocks ever go down... skipping the dividend (which for sure feels like a promised coupon to the recipient and not like something that can be skipped at will) is probably the least interesting consequence.

"He's man, he's a kid / Wanna bang with you / Headbanging man" (Grave Digger, Headbanging Man)

Martinghoul


Total Posts: 856
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Posted: 2017-09-08 11:13
There are, effectively, two separate elements to the SNB reserves. One is the traditional monetary policy-related precautionary buffer and it's smaller. The lion's share, though, is, effectively, a sovereign wealth fund, which just happens to be managed by the central bank. In that way, it's similar to Norges. So it's perfectly sensible and understandable that they would buy stocks.

Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...

Rookie_Quant


Total Posts: 741
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Posted: 2017-09-08 15:01
Cheng,

I've looked at the 13-F filings, and im finding negative market reactions to the information that the SNB is now a shareholder. I'm also noticing significant changes in correlation between purchased stocks and measures of monetary policy upon purchase.

I keep trying to figure out "why"

To the point about Norges, and other SWFs, I dont notice any such response, so there seems like at least a perceived difference between the two sources of demand for equities.

My own tinfoil hat is lined with a worry about a new contagion-type risk being induced/increased. But then again, I always wear too many such hats.

"These metaphors and similes aint similar to them, not at all." -Eminem

Cheng


Total Posts: 2831
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Posted: 2017-09-11 09:14
To hazard a guess: SWFs might be perceived as long term investors (ignore the Norges retreat from EMs for a second) whereas central banks might just be in for the fast buck (i.e. SNB will sell as soon as the CHF recovers).

"He's man, he's a kid / Wanna bang with you / Headbanging man" (Grave Digger, Headbanging Man)

Martinghoul


Total Posts: 856
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Posted: 2017-09-11 11:24
For a whole variety of reasons, I don't think that the SNB will ever sell...

I, for one, find their behavior perfectly reasonable and sensible, especially given their portfolio and their circumstances.

Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...

Cheng


Total Posts: 2831
Joined: Feb 2005
 
Posted: 2017-09-11 14:51
This will be interesting to see going forward. Especially if - heaven forbid! - stocks have not reached a permanently high plateau...

"He's man, he's a kid / Wanna bang with you / Headbanging man" (Grave Digger, Headbanging Man)

Martinghoul


Total Posts: 856
Joined: Oct 2008
 
Posted: 2017-09-11 16:30
I don't think it's going to be all that interesting, tbh...

Their portfolio, based on the latest I've seen, is 5.5% gold, 68% mostly AAA-denominated govt bonds (arnd 5y average duration, with 60% of those AAA rated) and 20% equities.

Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...

Cheng


Total Posts: 2831
Joined: Feb 2005
 
Posted: 2017-09-12 08:34
Damn it... I already put the popcorn in the microwave...

"He's man, he's a kid / Wanna bang with you / Headbanging man" (Grave Digger, Headbanging Man)

Rookie_Quant


Total Posts: 741
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Posted: 2017-09-12 17:02
If the goal was to just have a diversified market portfolio, why are CBs only now starting to ramp up stock purchases?

My popcorn has the flavor of a problem way down the line not unlike what the ECB faces with its bond buying program. Of course, the SNB isn't going to find itself without US equity shares available for purchase, but at some point, albeit admittedly far away in this example, price discovery and liquidity must be damaged somewhat.

"These metaphors and similes aint similar to them, not at all." -Eminem

tbretagn


Total Posts: 248
Joined: Oct 2004
 
Posted: 2017-09-12 17:15
@Rookie_Quant
There is a problem of capital.
If I buy a bond a 90, If I'm a CB I don't need to mark it down if it goes to 50. Because all else equal it will go to par at maturiy.
But if I buy equities at 90, nothing tells me they are not worth 0 at some stage.
The ECB capital is pretty small. As such it is not a great idea for central banks to invest in equity.
For the SNB it's a bit different, in a way they are not a traditional CB.
Also mentalities have changed. Think guys like Fischer moved the goal post of what central banks really are. Shame he's leaving the Fed.

Et meme si ce n'est pas vrai, il faut croire en l'histoire ancienne
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