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...a sweatshop of moxie

Saturday, February 21, 2009

Canny Comment

One of the best comments on the current economic situation is via Daily Pundit. The blogger had wondered out loud about George Soros:

I wonder what this predatory vulture of a wrecker is shorting now?

To which one commenter replied that bankers are suffering from "Visigoth Syndrome" (heh), fearful of being sacked and left ravaged.

The cheerfully named Pink Pig replied (interestingly enough, Geithner's role was very much on my mind, after having watched Frontline's segment on the "Meltdown" this week):

"The Visigoths didn’t sack Rome. The Vandals (Alaric) sacked Rome, in 411 AD. And no, Rome was only sacked once. It collapsed in 476 AD, and the Visigoths took over. Nowadays, we call them Europeans.

Soros doesn’t need to short anything. He already sold out his equity holdings for megabucks early last year. I might watch out, though, if I cared about the Euro. Forex forwards are almost an exact replica of the underlying money markets (they have to be, because of arbitrage). The dollar and pound are paying a much lower interest rate these days than the Euro, but it would be fair to say that it is the Euro that is out of line. Eventually, Euro interest rates have to drop, which will also cause the Euro to tank with respect to the dollar and pound. The US 30-year bond is now trading about 40 basis points above the 30-year swap market (i.e the eurodollar market). I’ve never seen this before, and it has to change. I saw no stronger evidence that Geithner was a nitwit than when he claimed that the money market dollar was rated too highly against the US Treasury. Sorry, but it’s the other way round (unless, like other nitwits, you are only interested in the short term). If you were to build a financial model on the single premise that the US government was clueless, you’d make a fortune.

If in fact, US swap rates rise while the corresponding Euro rates drop, then the Euro will plunge against the dollar. Soros, who whatever his politics is no idiot when it comes to the financial markets, may bet this correctly, and if he does (either by shorting the Euro or buying the dollar), then he will be even richer.

Personally, I think it’s a nobrainer. I just wish I had the kind of money that Soros has."

Paging Dust Bunny Queen.

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