Is Soros “Talking His Own Book”?

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?

British Pound vs $US along with Euro vs $US

British Pound vs $US along with Euro vs $US

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 £ & €

British Pound in Euros

British Pound in Euros

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…

Michael Spence

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.

In Conclusion

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.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Political Current Events, Stock Charts and tagged , , , , , . Bookmark the permalink.

10 Responses to Is Soros “Talking His Own Book”?

  1. omanuel says:

    When this “house of cards collapses” the world will be without leaders.

  2. omanuel says:

    Is there any chance you or your readers could attend the GeoEthics Conference in London on 8-9 Sept 2016?

    My paper is a tribute to my mentor, Paul Kazuo Kuroda (1917-2001):

    Click to access Solar_Energy_Earth_Climate.pdf

    Hope to see you in London.

  3. E.M.Smith says:

    I can’t make it to London, as much as I would like to.

    No job and no money beyond basics.


    Yellen, Fed Chair, in congressional testimony, was asked about Brithish news characterizing her position on Brexit as a “warning” and she backpedaled the statement. Essentially recasting it as not advice for the British, but a statement of thngs might change so Fed needs to be aware of it (more or less, but in confusing Fed Speak…).

    It was fun to watch Sen. Cotton? obliquely ask if she was advising the British and her specifically disclaim any desire to influence the vote. Then walk back the ‘advice’…

  4. BobN says:

    I like your trade – Good Luck

    Soros is an evil man and he is training his sons to operate the same way.

  5. omanuel says:

    Yellen et al. are struggling to hide reality.

  6. Paul, Somerset says:

    Soros’s shorting of the pound in 1992 had nothing to do with socialism damaging the currency. It happened in the second of two decades of Conservative rule. He did it because Europhile elements in the Conservative government had taken the Pound into the European Exchange Rate Mechanism (the predecessor of the Euro) at a level which could not be defended on economic grounds. The wiki sums it up:
    “In the months leading up to Black Wednesday, George Soros, the Hungarian-born American investor, had been building a huge short position in pounds sterling that would become immensely profitable if the pound fell below the lower band of the ERM. Soros recognized the unfavourable position at which the United Kingdom joined the ERM, believing that the rate at which the United Kingdom was brought into the Exchange Rate Mechanism was too high, their inflation was also much too high (triple the German rate), and British interest rates were hurting their asset prices.”

    Funnily enough Black Wednesday changed my life in a way I could never have foreseen.,The colossal but fruitless rises in UK interest rates to defend the Pound resulted in a crash in property prices. In the depths of the subsequent wreckage I was able to use cash to buy a decent house with a bit of land that would otherwise have been inconceivable for someone of my background. It turned out to be the one and only time in my life where society rewarded me for being a cautious saver rather than a compulsive borrower.

  7. E.M.Smith says:

    Unfortunately, I don’t have a reference to hand, only a memory of a Soros interview with him saying that Social Programs were unsustainable. Frankly, at the moment. I don’t really care enough to chase down the social program burden in the UK in the late ’80s to ’90s (whoever was in charge).

  8. R. Shearer says:

    By most accounts, polling is too close to call but if Soros is going to cover, then the pound ought to rise immediately or soon after the vote.

  9. richard ilfeld says:

    Hey EM, what is unsustainable is a sound currency. Now, from a personal point of view, I have no influence because thee and me are most likely equally poor. My hedge against inflation is a few extra cans of soup in the garage and a little extra fertilizer on the garden. But aside from fluctuation due to political idiocy of one kind of another, the long term trend is clearly visible: default via inflation. The need to spend far beyond any possible revenue stream is virtually cast in concrete in all welfare states. It is worse, of course where government employment is the highest since the lack of productivity one gets from government types makes it impossible to catch up. In an economy with still a spark of life, however, there may be assets that can be encouraged to rescue a bankrupt society.

    in or around 1980, interest rates were 20 plus percent. The risk of social bankruptcy exceed the comfort of a government continuing to pay its bills by printing money. Rather than being Weimared, we were Volkerized.

    When Social security, pensions, welfare, entitlements , defense, and paying the bureaucracy are all competing for the same dollar, we may finally turn to actually encouraging business as the way to increase the size of the pie. We have the additional opportunity that a sound non-government currency may exist to help things along — its as hard to tax and regulate transactions outside the dollar system as it is barter.

    The cheapest long term energy, when price tops green suicide, is probably coal, follwed by fracked gas. We can easily serve ourselves and export in plenty. Efficient farmers with government suport of marketing rather than opposition to it can feed the world. A guy or gal with an idea can turn in into a production line in days sans regulation — the benefits of empty industrial space and a Grainger in every town are significant as are assets available as surplus for ten cents on the dollar.

    A non regulated and non permitted economy will find a way to grow. Here in central Florida, the green shoots are showing in spite of the heavy government applications of economic roundup. As soon as one exits the city limits one finds the taco trucks, flea markets, shade tree mechanics, and pickup truck produce sales that indicate signs of entrepreneurial life. It’s not exactly black market, but there is a lot of off-the-books business here.

    Free from both rule and subsidy, the confluence of opportunity, hunger, and lack of subsidy will likely produce a vibrant economy, though not feed the unproductive elites as well. I would suggest the off-the-books economy outlined above is accumulating modest amounts of capital be not being overtaxed — perhaps they don’t even file.

    The social disruption is not likely to be fun. but America can survive

  10. Oliver Manuel says:

    If BrExit succeeds, the “house of cards” will will probably go into free fall collapse and take “97% consensus science” down with it.

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