George Soros’ Famous Trade

Last week I pondered Europe’s multitude of troubles and the effects it would have on the Euro currency and further whether this may offer the possibility of a profitable trade in shorting the Euro.

As promised, this week I explore investor George Soros’ famous trade made in 1992 where he shorted the Great British Pound (GBP) and walked away with a one billion US dollar profit. While there are undoubtedly many differences between these two speculations there are also important parallels to be drawn from the Global Macro Hedge Strategy that Soros employs and the current potentially profitable opportunities in shorting the Euro.

As an aside I think it is well worth following the top Global Macro Managers – including Soros, Jim Rogers, Paul Tudor and Louis Bacon as their long term track records are astounding and their thinking astute.

The 1992 trade of Soros was based on the belief that the British government would have to let the GBP devalue. This wasn’t a unique view. Many economists and commentators at the time could see the writing on the wall. However it was Soros who made the money. Fortune favours the brave- when you get it right!

There were of course less moving parts to his 1992 trade than the complexities around all the member countries in the EU today, however perhaps the most pertinent parallel is that there are so many commentators and economists today with a negative few of the Euro currency as there were back in 1992 towards the GBP. Indeed today those economists and commentators are saying everything from the EU is in for a tough few years, to countries such as Greece need to be expelled from the Euro to a complete disintegration of the Euro and default of multiple EU members including Greece, Ireland and Portugal and probably Spain.

How this plays out is interesting to ponder but impossible to precisely predict. The advantages of being able to stay in your position for a long time till your strategy plays out can be very important to achieve a profitable outcome.

Some Global Macro Food for thought.

Happy intelligent trading.

Friday Fundamentalist.