Some large hedge funds started to make bearish bets against the euro, which reminds trading activity at the peak of the financial crisis in the United States.
Great rates occurred at the meetings, such "ideological dinner, which was held earlier this month, brought together such hedge fund giants such as SAC Capital Advisors LP and Soros Fund Management LLC. How to tell people close to the event, during a dinner organized by a small investment bank in a private townhouse in Manhattan, a small group of "star" managers of hedge funds, agreed that the euro could fall to parity with the dollar.
George Soros (George Soros), under which the $ 27 billion of assets, has publicly warned last week that if the EU does not mend its financial situation, the euro will collapse.
Currency pairs signaled that the major financial players are ready to make a few bets to attract a wider boundaries fluctuations in the market. Euro, which traded at $ 1.51 in December, is now trading at $ 1.35. Given that traders use leverage, often borrowing 20 times your investment, increasing profits and losses, the movement of the euro to $ 1 may be a career trade. If investors invest $ 5 million to open a deal at $ 100 million, 5% price movement in the right direction doubles their initial investment.
"This is an opportunity to make a lot of money," - says Hans Huvshmid (Hans Hufschmid), the former head of Salomon Brothers, who now runs GlobeOp Financial Services SA, a hedge fund in London and New York.
It is impossible to calculate exactly the effects of bear bets made by the elite traders, but they were added to the influx of offers for sale of foreign currency, and thus pressed the European Union in order to stop the Greek debt crisis.
There is nothing reprehensible in the fact that hedge funds do the same kind of transactions, if regulators do not deem it a conspiracy. Regulators do not think that all transactions are necessarily such a character.
While small meetings, hedge funds can discuss similar transactions that may affect each other, as do those who have been criticized by some investors and banks in 2008. Once, large managers of hedge funds such as Greenlight Capital Inc., Whose president is David Einhorn (David Einhorn), also attended this month at a dinner and convinced that the fate of Lehman Brothers Holdings and other companies was vague, put more extent against these securities, thereby accelerating their collapse.
David Einhorn, president of Greenlight Capital
Manager SAC, Souen Aaron (Aaron Cowen), hath a group of bearish bets, said he had seen all the possible outcomes related to the Greek crisis, in a negative light for the euro, as handed people familiar with the matter. SAC's position relative to the euro is still not clear.
George Soros, head of hedge fund, under the management of the $ 27 billion, has publicly warned last week that if the EU fails to remedy the financial situation of the euro could collapse. " A spokesman Soros Fund Management, he refused to comment on his words for this article.
Ministry of Finance of Greece refused to comment. A spokesman for the European Commission said he could not comment on rumors in the market, adding that the EU executive body will seek to develop rules to tighten regulation and risk.
Some traders suggest that the euro is fully depreciate in the same way as the British pound in 1992 against the backdrop of major bear bets made by Soros. In this famous transaction, which led to a profit of $ 1 billion, all action-oriented Soros, which pushed the cost of a pound so low that Britain was forced to withdraw from the European Exchange Rate Mechanism, as a result, the pound has fallen even more sharply. Euro - this is a very large market, which operates at least $ 1.2 trillion daily trading volume, dwarfing the daily trading volume per pound in 1992.
Again, derivatives known as credit default swaps have played an important part in the current trading system. Some of the largest hedge funds, including Paulson & Co., Administering $ 32 billion, bought these swaps, which, as traders said, serve as insurance against failure to comply with Greece's sovereign debt. Traders perceive higher credit-default swaps as the warning signs of potential default.
Since December, the value of such swaps more than doubled, causing concern among investors about the Greek default. Paulson has opened a huge bear position in Europe, people familiar with the situation, including swaps, which will be paid if Greece will refuse to pay the debt within 5 years.
As they say, at a time when Paulson closed this position and took the opposite position in the rates, he left the firm in bull positions. In his statement, Paulson declined to comment on "individual items", saying that "does not seek to manipulate the securities or destabilize the securities in any markets."
At the end of last year, hedge funds have bought swaps insuring the debts of Portugal, Italy, Greece and Spain, and began to make bearish bets on the euro-debt. More recently, hedge funds sold these swaps to banks seeking to "hedge" or protect the savings of European government bonds - traders said.
Last year, the total value of the swap, insuring the Greek credit default doubled to $ 84.8 billion, according to the Depository Trust & Clearing Corp. However, the net amount that would actually pays the seller in case of default, grew modestly over the same period, having increased by only 4% to $ 8.9 billion, according to data DTCC. This suggests that banks and others bought and sold approximately equal number of swaps to hedge their positions, traders said.
Big bets against Europe in these days lose their importance for the vast foreign exchange markets, which offer many ways to trade. Attention has focused on the euro on December 4, when the currency fell by 1.5% in response to a report on employment in the United States, which supported the dollar.
In the period between 9 - December 11, some large European and American banks marked the bearish bets on the euro, buying a one-year put option on the euro. These options entitle the holder to sell investments at a certain price at a specified date.
Soon, the euro has begun to press. Currency fell another 1.3% on December 16, when the Standard & Poor's downgraded the rating of the Greek sovereign debt. At this stage, some investors, including asset manager BlackRockInc. made bearish bets on the euro, believing that the situation could not support a sustained level at which the euro was trading earlier, and that the recovery in Europe would slow U.S. recovery - according to the views of the same people who are close to the heart of the matter.
Concern about Greece strengthened on Jan. 20, when investors began to fear that the country will not be able to refinance its huge debt, which led to the fact that the euro fell further by 1.3%.
January 22 Greece said that the planned sale of five-year bonds worth 8 billion euros in the coming days. To get ahead of the speculators, Greek advisers in the investment bank's liabilities that can be allocated to hedge funds - said a person familiar with the sale.
By January 28 the cost of new bonds decreased by 3.5%, leaving investors disappointed.
28 and 29 January analysts from Goldman Sachs Group Inc. sent a group of investors in a trip to meet with banks in Greece. The group included about a dozen different fund managers, say eyewitnesses, including the managers of the Chicago hedge-fund giant Citadel Investment Group, New York hedge fund, Eton Park Capital Management and Paulson, who sent two officers, said people who were there. Eton Park (Eton Park) had no comment.
During his meeting with Greek Deputy Finance Minister and the leaders of the National Bank of Greece, representatives of other banks and some investors have raised sharp questions about the state of the economy - according to the same people.
On the "ideological dinner" on February 8, organized Monness, Crespi, Hardt & Co., Small research and brokerage firms, three portfolio managers said on investment topics related to European debt crisis. During dinner in a private townhouse in Manhattan, during which served fried in a lemon chicken and filet mignon, manager of Soros predicted that interest rates will rise.
Donald Morgan, head of hedge fund Brigade Capital, told delegates that in his opinion, the Greek debt - these are the first chips in a domino whose fall would affect U.S. companies, municipalities, and Treasury securities. Einhorn, meanwhile, who was among the first and most vocal "bears" on Lehman, said that he is inclined to the bullish bets on gold due to inflation fears. Einhorn declined to comment on.
A week later, after supper, the most recent data, the size of the bear's rates against the euro rose to a record level of 60,000 futures contracts, which was the highest since 1999, according to Morgan Stanley. The data represent the volume of futures contracts that pay off if the euro falls to a specific level in the future.
Three days later, after dinner, another wave hit the euro, the currency dropping below $ 1.36. In a special order last week, traders from Goldman, Bank of America Corp. 'S Merrill Lynch unit, and Barclays Bank PLC have helped individual investors to place bearish bets on the euro - traders said.
Trade attracted low-cost contract, which provides the owner with a big payout if the euro fall to parity with the dollar during the year. This type of "low-risk" trade, is known so because the probability of the euro-dollar parity is low and similar contracts provide insurance against the fact that if the euro that will happen sometime during the year, the investor will receive decent compensation.
Price for the current rate is about 7% of the total amount that can be paid in case of parity. Thus, for an investor making a $ 1 million bid, the cost will be $ 70,000. This means that at present the likelihood that the parity will be achieved is 14:1. In November, the chances were 33:1, said the man, who is familiar with contract pricing.
The Wall Street Journal
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