Thursday, January 5, 2012

Inside Her Trading

Last August, the Swiss franc was incredibly strong compared to the US dollar. You could buy one dollar with less than 80 cents of a Swiss franc.

"This massive growth of the franc is not sustainable," Dad would say, claiming it was the product of speculation and not the result of economic fundamentals.

"Let's buy a bunch of dollars with our francs," I yipped. "We can always use the dollars stateside to buy my Dr. Hill's Science Plan dog food, which is cheaper west of the Atlantic pond," I added.

Sure enough, I never got around to buying dollars with our francs. Then, on September 6, the Swiss National Bank announced that they were putting the brakes on the Swiss franc by setting a minimum exchange rate with the Euro. The Swiss franc immediately plummeted about 10% compared to pretty much all other major currencies, including the good ol' US dollar. Overnight, you needed almost 90 cents of a Swiss franc to buy one greenback.

Suppose I had bought 10,000 dollars in August. That would have cost me 8,000 francs. After the announcement on September 6, my 10,000 dollars would have been worth 9,000 francs, with a net gain of about 1,000 francs. That buys a whole lot of dog food. But I didn't do any of this funny-money stuff, because I didn't really know what was going on.

I think that Mr. Philipp M. Hildebrand and his wife Kashya, on the other hand, knew very well what was going on. Mr. Hildebrand is the Chairman of the Swiss National Bank. Think of him as the Ben Bernanke of the Alps.

Apparently, Mrs. Hildebrand bought half a million dollars in August and sold her dollars shortly after Mr. Hildebrand's announcement in September that he was putting the brakes on the Swiss franc. Do the math, and the profit exceeds 50,000 Swiss francs (more than 50,000 dollars at today's rate). Now, that buys a lot of dog food.

Mrs. Hildebrand claims that because the dollar was dirt cheap, her actions make sense, and you can't argue with her on that one. The US dollar was dirt cheap. But now Mr. and Mrs. Hildebrand are being accused of insider trading.

I'd like to point out, in all fairness, that the driving force behind the attack on Mr. Hildebrand is an ultra-conservative character by the name of Christoph Blocher. According to Mr. Blocher's weekly magazine Die Weltwoche, Mr. Hildebrand--not his wife--is behind the foreign currency transactions. Mr. Blocher is an eccentric millionaire politician who rose to international fame because of his party's xenophobic electoral ads.

Now I can't help but wondering how much Mr. Blocher made between August and September. I suspect his dogs have a great big stash of insider dog food, and they'll be eating lots of it.


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