Soros is being shown around on various news programs predicting a horrible collapse of the British Pound should the UK vote for Exit.
He is known for staying in the shadows and for shorting currencies at the same time he “talks them down” via FUD. (Fear Uncertainty Doubt). His biggest killing was in the “take down” of the British Central Bank many years ago. He bet on socialism damaging the currency, the Bank was defending the pound, and he was able to (help?) exploit a run on the pound.
His typical mode of operation is not to be highly visible, but to work through NGOs and other organizations, staying personally in the shadows.
So when I see him making big public pronouncements on a currency, with the trade catalyst just days away, it is odd. Most odd.
A couple of terms:
“Talking your own book” means that when you have a ‘book of trade’, that is, you have some ownership or position / interest in a stock, bond, whatever; you talk to media and others in such a way as to help your position make money. So you buy GE, then go on financial shows talking about how great a company GE is and how much you think it will make money. Alternatively, you could short a stock, say Exxon, then start talking up how they ought to be sued for crimes and the board are criminals waiting to be caught. For a public dealer to do that is a crime. For a private party, it isn’t a crime. Soros is not a public dealer. (“Pump and dump” is the crime of owning and selling after pumping the stock price up).
“Catalyst” is a trade term. For every trade, there is a set-up (what you do to get ready and the expected position of the trade vehicle), and then some “catalyst” that makes the trade event move, after which you exit. So lets say you think Chrysler and Fiat are going to merge. That event is the catalyst. It is the thing that will power the trade, and the thing that marks the end of the trade event, when you close out your position. You put on a trade, then close it out when the merger is announced. (“Buy the rumor, sell the news”.)
How Do Soros and the Catalyst Connect?
In the case of BrExit, the day of the vote is the catalyst. It will either be stay, or go. That will be the moment things change. When that vote is over, the catalyst has passed, and the trade is over. There may be some other trade, but it will have some other catalyst. So a short on German Wind Turbines might come up based on speculation of a catalyst of higher tariffs on import to the UK as a self-reliant agent. But that depends on the catalyst of tariffs going up, which would not happen for a long time as the exit process unfolded.
Now Soros knows all these things. He also knows that talking about a drop in the £ does him no good unless he already is short the £.
Is there evidence for a big short position in British Pounds?
This has the exchange traded funds on it, not the actual currency crosses, but the funds tend to be managed to stay the same as the currencies. Over multi-year scale, the sync will drift due to management fees if nothing else. For our purposes, they are “close enough”.
FXB is the British Pound. FXE the Euro, and FXF is the Swiss Franc.
The £ has already dropped in anticipation of the catalyst / vote.
The “setup” for a short would be the £ at normal price vs € and that moment passed 6 months ago. The setup is over, the trade is already on, and the catalyst to signal close out the trade is just 2 days away.
The FXF is on here as a baseline of sorts. The Swiss Franc tends to be very stable. What it shows is that there has been $US strength against the bundle last year. The three currencies (FXF, FXE, FXB) traded more or less together until about December of last year. Then the Euro diverged up, the £ down. IMHO, this shows a large trade being put on. Short £ long € with the catalyst being the vote.
Now notice the big jump in volume at the right end. (This is but a tiny fraction of actual currency volume… and often the less skilled as the terms are much better directly trading currencies rather than using the kludge of a currency ETF). What this shows is the recent dramatic ‘swap’ of the vote in the poles from “leave” to “stay”. It was almost time to “cover the short” via buying £ and then a surprise news event happened. Anyone “short the Pound” would be wanting to cover their shorts a bit sooner than originally planned. There are a LOT of shorts in the pound.
So is it an accident that just now Soros, the renowned currency shorter, is talking down the £ just when he would want out of a short position? Is it just possible that he is instead “talking his book” and trying to get a load of “sheep” lined up selling Pounds just when he needs to buy them to cover his short?
I don’t believe in coincidences when it comes to professional traders talking their book on global media.
In any case, trades precede the catalyst and are closed out once the catalyst passes. The pound is already down, and I’d expect short covering to drive it up, post vote, even if an Exit vote happened (that might cause a brief spike down and trigger all the short covers.)
In short, where I placing a bet, I’d bet on Soros talking his book. He wants that tail spike up in the last couple of days driven back down so he can cover his shorts as the election stress is at the peak.
Here is a smaller harder to read chart that is a direct currency cross of the £ & €
Note the “double bottom” and “failure to advance” to the downside in the last few months. Short £ vs € to me is saying “time to exit the trade”.
This “takes the dollar out” and just shows £ in € where you can easily see the £ is already down. The trades are already on, and after the vote, the shorts need to come off, which IMHO will raise the £ in Euro terms. Frankly, in a British Exit YES! vote, it is the Euro I’d expect to drop the most. Europe ends up minus one large fat economy to be plucked…
Andrew Michael Spence (born November 7, 1943, Montclair, New Jersey) is an American economist and recipient of the 2001 Nobel Memorial Prize in Economic Sciences, along with George Akerlof and Joseph E. Stiglitz, for their work on the dynamics of information flows and market development.
Was on one of the Financial News shows this morning. I think it was CNBC, but it might have been another. He basically said he didn’t expect Brexit to be that big a deal and in a very polite way said Soros was likely overstating things. IMHO that’s as close as he could come to saying “talking his own book” on a national TV show.
I’ll side with the name Economist with no dog in the fight over the known “slimy weasel trader” who likes taking the short side and manipulating political events for his gain. But that’s just my opinion. We’ll see on Friday.
So that’s my evaluation of the Soros News storming around the TV News Echo Chamber. It seems to be picked up everywhere now, and folks have an awe struck tone as they fawn over his insights as a trader… yet never question his motives nor examine his methods.
To me, it looks a lot like News Sucker Anchors being played.
One can only hope it doesn’t influence the Brexit vote too much. I really don’t like it when folks use shady means to fleece the moral and honest. We will know how this one works out if post vote, Soros shows a bib jump in net worth…
I’m not a currency trader. I mostly just use it as an occasional hedge. But, were I putting on a trade right now, that FXB chart looks firmly bottomed. The Euro out of line high compared to the FXF. I would be putting on a “long £ short € trade” right now. They ought to come back into alignment post vote. IFF it is for ‘out”, the € ought to drop. If “in”, the £ ought to rise. In either case, the pair trade ought to close the gap.
But that’s just what I’d do, and I might well be wrong.