This doesn't compute. There's nothing asymmetric (from a EURCHF short point of view) about it. If the floor fails, you'll have plenty of time to get in and short EURCHF (say at 1.19) on the way down to 0. On the other hand, you could wake up one morning to find the floor has been raised to 1.25 (actually, given the political difficulty of raising the floor, I believe the SNB will go big if they do it again and raise to 1.30 or 1.35). You're standing in front of a screaming freight train to pick up a couple of pips.
+1+1 Till the time floor breaks, risk is skewed to the upside, long 1.2020 with a stop at 1.19 and profit at 1.25/1.30. R:R of 1:5 or 1:10. Also, have a sell stop at 1.19, in case floor breaches decisively, it makes sense to short it with a stop at 1.2050 say. Its a fools game to short the peg as things stand now, especially because carry is against short position. Only reason to short the peg now would be if you are a huge big hedgefund are 95%+ sure that peg is going to go down and want to have multiple billions in position to short it - it will be hard to build that kind of position once peg has given in because of the numerous stop orders in the market and thin markets that will prevail at that time. Everyone should do this trade from the long side till the time peg breaks and then from short side. One of the most juicy and easy to spot things out there.
The article merely rehashes the same old arguments - stocks are 'outstanding relative value' compared to bonds (as if this matters for absolute returns!), current forward operating PEs are extremely low, etc. etc. It's also entirely unclear to me why one should arbitrarily exclude crisis-era bank earnings from the data. No reason to do so is given. To the extent that the financial system today is a creaking, debt-laden and crisis-prone monster shot through with black-swan and contagion risks, investors should apply an extra discount to any current bank 'earnings.' After all - as we've just seen in 2008 - those earnings can vanish over a timescale of a couple months.
I never understood this type of argument. I never allow an underlying macro gut feeling dictate what trades I am allowed to enter. If a trade doesn't work out I get out at a loss, no matter how high my gut level conviction was. Either the trade works or it doesn't. What benefit do you derive from being 'convinced' of your position after you entered it?
Does anyone have more close to the ground information in the political situation there?The vast majority of politicians I see want a WEAKER currency not stronger one so I'm curious if this supposed pressure on the SNB is significant or if its coming from a few Ron Paul types If if its coming from the media or parts of the population, then its irrelevant because CBs think they are smarter than them and will have no problem ignoring them for long periods. Basic Central Banking 101
I agree, one should take that PE as it is. I calculated the numbers because I suspected he was overplaying that factor given that he did not mentioned the numbers himself. Turns out that even taking the numbers out, stocks are a bit pricey
Over the years I have probably been stopped out of two dozen or so currency positions thanks to CB intervention. None of them resembled a 'freight train' you are referring to.