# The Gnomes of Zurich, they haven't gone away you know.



## cremeegg (16 Dec 2021)

When I was a student The Gnomes of Zurich were major players in the world of finance. Basically the bond markets were said to be the real power in the world, more powerful than corporations or governments. Governments who didn't tame inflation were quickly brought to heel. The UK was forced to take a loan from the IMF. A major reason for the UK joining the EEC was to escape the economic malaise which was to cause this bailout.

During the boom years up to 2006 money was freely available and we heard little of them. In the crash of 2007, governments took the helm and the Gnomes were denied their place at the table. Mario Draghi said he would do whatever it took and they were scared off, or just outspent.

They have been silent now for many years, but now the UK has left the EU, and the Gnomes are active again. Currently they are eating Turkey, ( there must be great profits to be made there for currency speculators at the moment) but soon the will be looking for other fare. I suspect the UK will be back on he menu and the more they eat the more they grow. Who knows where their gaze will fall then.


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## Purple (17 Dec 2021)

And a happy Christmas to you too @cremeegg. Thanks for cheering me up


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## RichInSpirit (17 Dec 2021)

Is Santa Clause related to these Gnomes?


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## odyssey06 (17 Dec 2021)

RichInSpirit said:


> Is Santa Clause related to these Gnomes?


They seem to be more related to Grinches. Or Scrooge pre-conversion.

What's happening with Turkey (the non dinner variety)? What did Erdogan do that left them vulnerable to Gnomic speculation?

I read this article but not much the wiser...
_His popularity waning amid pandemic-induced hardship, Erdogan has forced Turkey into a high-risk economic experiment. He’s leaned on the central bank to slash the cost of borrowing in search of the sunlit uplands of greater investment and better jobs, and lashed out at the power wielded by global finance... It’s his version of the path to export-driven riches followed in the past by some nations in Asia. Yet for now, the president’s divergence from orthodox economics is leaving people poorer -- wiping more than 50% from the value of the lira currency this year and sending prices spiraling.  _


			Bloomberg - Are you a robot?


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## cremeegg (17 Dec 2021)

odyssey06 said:


> What's happening with Turkey (the non dinner variety)? What did Erdogan do that left them vulnerable to Gnomic speculation?


For decades Turkey prospered by opening its markets and but when that process began to decline the Turkish government began to support its people's standard of living and its own vanity projects by, in effect printing money.

This has undermined confidence in the currency, which has fallen by approx half since Jan. That means all its imports are twice as expensive as they were.

Rather than face up to its difficulties and get its house in order, the Turkish government is cutting interest rates.

The central bank is running out of foreign reserves and its cost of borrowing is 22% over 10 years at present. The Gnomes of Zurich are refusing to lend except at very high rates. 

Speculators smell blood and can sell or short the lira/turkish assets in the sure knowledge that they will continue to weaken until there is a political crises and change. Think of the day George Soros made a billion against sterling.

The Turkish economy has been spectacularly badly managed recently and they deserve what they get, yes I pity the poor who will suffer, though they have been strongly supportive of the regime which created this mess like I pity brexiteers, genuinely but recognising that they have been authors of their own misfortune. 

Closer to home the UK has been engaged in a similar course of action, i.e. printing obey to support living standards, though in a much less excessive way, think low interest rates and increased public spending. Though starting from a much stronger position, with Brexit markets are beginning to doubt Britain. This has forced an increase in rates before other major currencies. UK 10 year borrowing costs are 0.8%

When and not if in my opinion markets force Turkey into default, emboldened by those profits they will be looking for other targets. I don't think that the UK will be next, but I wouldn't invest in sterling.

UK borrowing costs at 0.8% may seem low and of course by historical standards they are, but Ireland's borrowing costs are half that at 0.4%

My prediction, there will be a crises in Turkey in 2022, Britain will have an attack of the vapours and either sterling will fall or interest rates will rise significantly.

While our own case is stronger, Britain doing badly is not good for us, economically or more worryingly politically.


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## Pinoy adventure (17 Dec 2021)

Would it be advisable too snap up at cheap apartment in turkey these days ??


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## cremeegg (17 Dec 2021)

Pinoy adventure said:


> Would it be advisable too snap up at cheap apartment in turkey these days ??


Well firstly don't make decisions based on opinions of anonymous internet posters, i.e. me.

It's an interesting question. As a speculation I would say no, the transaction costs of buying and selling property are significant. Also the risks as a foreigner of being ripped off would put me off.

However if you want an apartment in the sun, decide what price you would like to pay for that, not based on asking prices or prices in other countries, just on what would be worth to you based on your cash available and income and just how much you would like to have an apartment in the sun, €60k, €100k, €120k. Then see if you can buy that apartment in Turkey for less than that. It's more likely to be available now in Turkey than it was last year or than it is in Spain.

Of course if there is a political crisis in Turkey maybe they will turn even more religious and ban sunbathing. I do think there will be a crisis and who knows what that might lead to.


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## Jim2007 (17 Dec 2021)

Pinoy adventure said:


> Would it be advisable too snap up at cheap apartment in turkey these days ??


Well we Swiss bankers have a saying: never invest where the olives grow....


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## TLO (20 Dec 2021)

cremeegg said:


> Closer to home the UK has been engaged in a similar course of action, i.e. printing obey to support living standards


The Bank of England is not alone when it comes to buying it's own governments bonds.  The ECB and the Federal Reserve have been doing it too, thus keeping interest rates artificially low.  It's taken a while, but inflation has picked up and risks becoming embedded.  It's going to be a delicate balancing act as central banks try to tame inflation without provoking a recession.  

As for the Gnomes, they might pick on the UK and GBP, but taking on something the size of the Fed or the ECB risks causing them indigestion.


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## Jim2007 (20 Dec 2021)

TLO said:


> The Bank of England is not alone when it comes to buying it's own governments bonds.  The ECB and the Federal Reserve have been doing it too, thus keeping interest rates artificially low.  It's taken a while, but inflation has picked up and risks becoming embedded.  It's going to be a delicate balancing act as central banks try to tame inflation without provoking a recession.
> 
> As for the Gnomes, they might pick on the UK and GBP, but taking on something the size of the Fed or the ECB risks causing them indigestion.



The SNB is ranked third in the world in terms of over all reserves, it hold over 1k tones of gold alone.  So we do have sufficient depth of reserves to take on the ECB or the FED when required. We currently hold Euro bonds equivalent to the deficit of the 8 biggest Euro Group countries.  The bank has also admitted to having conducted market operations in defense of Irish Euro bonds several times as it holds a significant block of Irish bonds.


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## cremeegg (20 Dec 2021)

TLO said:


> As for the Gnomes, they might pick on the UK and GBP, but taking on something the size of the Fed or the ECB risks causing them indigestion.





Jim2007 said:


> The SNB is ranked third in the world in terms of over all reserves, it hold over 1k tones of gold alone.


I don't think that the phrase 'Gnomes of Zurich' refers to the SNB which I am sure would never speculate with a view to undermining another countries currency (would it ?) but rather to private bankers who speculate in sovereign bonds for profit and have been known to not only speculate on currency and gilt falls but to actively try to cause them.


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## RetirementPlan (21 Dec 2021)

cremeegg said:


> I don't think that the phrase 'Gnomes of Zurich' refers to the SNB which I am sure would never speculate with a view to undermining another countries currency (would it ?) but rather to private bankers who speculate in sovereign bonds for profit and have been known to not only speculate on currency and gilt falls but to actively try to cause them.


Would one of the Gnomes be, or have been, an Irishman from Limerick direction based out there?


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## cremeegg (21 Dec 2021)

RetirementPlan said:


> Would one of the Gnomes be, or have been, an Irishman from Limerick direction based out there?


The leprechaun who actually does have a pot of gold.


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## Jim2007 (22 Dec 2021)

cremeegg said:


> I don't think that the phrase 'Gnomes of Zurich' refers to the SNB which I am sure would never speculate with a view to undermining another countries currency (would it ?) but rather to private bankers who speculate in sovereign bonds for profit and have been known to not only speculate on currency and gilt falls but to actively try to cause them.



Private Swiss bankers do not speculate with the banks money and not even very often with their own money either.  Private banking is about collecting very large fees from very rich clients.  The entry fee is usually around 7 CHF million on deposit.

UBS, Credit Swiss and to a lesser extent Vontobel, Julius Baer and even the SNB have investment arms that trade in various financial instruments, but very rarely on their own behave.  And most of the SNB board and senior management are ex Gnomes if you want to call them that.

Most of the stuff that is written about the Gnomes of Zurich is fantasy,  Swiss banking just does not work that way.  There are however many *unregulated*  private investment vehicles that do engage in such high risk activities.   The Swiss attitude to that is: you are an adult responsible for your own decisions.  If you stick your finger in that kind of thing and get it cut off you will get not sympathy from the Swiss authorities.


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## cremeegg (27 Dec 2021)

The Turkish Central Bank intervened last week to support the Lira, reversing the losses of the last 6 weeks or so to bring it back to mid November levels. i.e. 11 TL to 1 USD.

This is the Turkish equivalent of Mario Draghi's 'whatever it takes', while the speculators backed down in the face of Draghi's determination and the strength of the ECB, I suspect the rally in the Lira will be short lived. The Turkish CB has limited resources to support the currency.
According to the Central Bank of Turkey: Foreign Exchange Reserves in Turkey decreased to 78370 USD Million in December 17 from 84150 USD Million in the previous week.​Of course Turkey will no doubt try to draw in the ECB to support it. Send some more Syrian refugees to Greece perhaps.


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## cremeegg (12 Jul 2022)

The Turkish Lira is now 18 to the USD.

The pound sterling has fallen from $1.34 around Christmas, to $ 1.19 now. 

Interest rates around the world are rising. 
The speculators are smelling blood.


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## cremeegg (29 Sep 2022)

While Turkey has managed to maintain a stable exchange rate since Christmas, their strategic importance given the situation in Ukraine cannot have hurt, the UK has moved into the firing line.

The pound is down, it is $1.11 now, more a steady fall than a slump, the recent Truss budget was not as damaging as the headlines suggested, but still harmful, the B of E had to bail out pensions and 10 year Treasury bonds are  4.13%, Ireland's equivalent is 2.38%, and all self inflicted.

There will be a run on the pound before this is all over.


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## Purple (30 Sep 2022)

cremeegg said:


> While Turkey has managed to maintain a stable exchange rate since Christmas, their strategic importance given the situation in Ukraine cannot have hurt, the UK has moved into the firing line.
> 
> The pound is down, it is $1.11 now, more a steady fall than a slump, the recent Truss budget was not as damaging as the headlines suggested, but still harmful, the B of E had to bail out pensions and 10 year Treasury bonds are  4.13%, Ireland's equivalent is 2.38%, and all self inflicted.
> 
> There will be a run on the pound before this is all over.


The Financial Times is utterly scathing of Truss's "mini" budget.


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