This Is The Greatest Financial Market And Currency Manipulation Of All Times

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In a week that has been marked by astonishing mainstream headlines, BFI Capital’s CEO Frank Suess happened to give an outstanding interview about the outlook for global currencies, gold and manipulation in the markets.


Consider the following headlines. They may have come at an unexpected timing, in the light of the economic recovery story, but they were for sure unavoidable:

  • Federal Reserve Said to Probe Banks Over Forex Fixing (Bloomberg)
  • Deutsche, Citi feel the heat of widening FX investigation (Reuters)
  • HSBC, Citi suspend traders as FX probe deepens (Reuters)
  • Metals, Currency Rigging Is Worse Than Libor, Bafin Says (Bloomberg)

The most remarkable event of the past week was the Federal Reserve investigating whether traders at the world’s biggest banks have been rigging currency rates. According to Bloomberg, the Fed is probing whether traders shared information that may have let them manipulate prices in the $5.3 trillion-a-day foreign-exchange market for profit maximization (source).

Also during the past week, US Regulators have been examining traders at Deutsche Bank, Citigroup, and HSBC. On top of that, Germany’s top financial regulator Bafin made a public statement, warning the manipulation of currency rates and precious metals prices could be worse than the Libor-rigging scandal. Bafin confirmed its firm is investigating currency trading, joining regulators in the UK, US and Switzerland (source).

These developments are significant and could mark a tipping point. Up until now, the currency and precious metals manipulation has been a topic associated with conspiracy theorists in the corners of the blogosphere. With regard to the signs of manipulation, Bafin’s president Elke Koenig said that “It is understandable that the issue is causing such a public reaction. The financial sector is dependent on the common trust that it is efficient and at the same time, honest. The central benchmark rates seemed to be beyond any doubt, and now there is the allegation they may have been manipulated.”

The interesting fact is that this news breaks out exactly at the time when most people are being trapped into the “economic recovery” news. With the markets hanging at the lips of the central bankers, it is fair to say that “the central banks are the markets.” Frank Suess points out that, for several decades now, central banks around the world, with the US Federal Reserve in the lead, haven’t allowed business and credit cycles to happen anymore. In fact, they have been fighting consistently every sign of recession with more money, resulting in a race to the bottom of world currencies.

The effect of this on world currencies is that they are shuffling each other down in a see-saw pattern, a phenomenon that has become visible in the US dollar, the euro, the yen and the British Pound. With the US dollar in the lead, all other currencies can only follow the same path. The yen, as a text book example, has lost more than 20% against the dollar over the past year, and this is putting a lot of pressure on currencies across Asia. “We are now seeing huge capital outflows due to that from many countries in Asia. That creates investment opportunities, you can invest in the Japanese stock markets going up nicely right now as long as you hedge against the yen on the downside.”

But, in reality, we are really witnessing the greatest financial market and currency manipulation of all times, observes Frank Suess. “Central banks are just suppressing interest rates across the yield curve with the seemingly endless money supply. If you ask me which currencies are going to be devalued most considerably, I guess it is hard to find currencies that are not being devalued considerably. If you want to take advantage of currencies, you must protect yourself or benefit in that “see-saw” pattern.”

Even the Swiss franc or the Norwegian krone are pulled into this, even though fundamentally those economies are still quite strong (both economies have budget surpluses and Switzerland was again voted number one in terms of economic competitiveness by the World Economic Forum, facing only 3% unemployment). There is clearly a delinkage between fundamental and fiscal strength, even in the fundamentally strongest currencies. Therefore the large currencies with their debt problems and monetary expansion are pulling everyone down.

More specifically in Europe, where Frank Suess’ BFI Capital is based, the struggle over the euro could well reignite into a “fragmentation Europe.” At some point, it will not take that much for the debt crisis in Europe to kick back in. Investors around the world are hoping that the recovery story, which is being repeated like a mantra by central bankers, politicians, mainstream media, is going to hold. However, fundamentally, in terms of fiscal health, Europe and most other Western nations are not really in better shape than they were a few years back. “The future of the Euro could maybe be destroyed to some degree by the political tensions that you can expect to rise. Once that recovery story ends and reality kicks back in, I think the euro is anything but a blessing for the European Union.”

In that respect, it is interesting to observe the peg of the Swiss franc against the euro. In reality, the peg is actually a floor, set at 1.20. At this point the Swiss franc to Euro is about a 1.23. Policy makers have been successfully defending that floor. “I think what they will do is exactly what we just discussed. While everyone keeps on depreciating their currency, the Swiss central bank will go along with that, except if the Euro really went into a steep fall (crisis). At a certain point, the floor will break and the Swiss franc, together with some other currencies, will rapidly appreciate.”

Speaking of financial crises, shouldn’t the new regulations by the Bank for International Settlements in their Basel III initiative prevent another crisis? Frank Suess considers the new regulations more as a farce, explaining that some of the accounting rules that have been put in place really do not add too much value in that respect. For example, looking at the risk-adjusted valuation of assets on the balance sheets of banks, it appears that some of the banks today say they have a 10% capital ratio where, in fact, they are still very similar to what they had back in 2008. “The more you look into the details, the more you really see that it is a fake leaf. I wouldn’t depend on Basel III for being able to prevent a crisis”

The outlook of the ongoing currency devaluations and the signs of a failing financial system bring up the question how people can protect themselves. There is one currency that is not expected to go down, just by the mere fact that it is limited in supply. It is obviously gold. “You need to protect yourself with real assets. If you are going into gold or silver, you must be doing that with the allocated or segregated approach, not with the paper money approach. You don’t have to follow the mainstream too much, and have a hedge in place. That is where gold can play a role.”


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