Soro's Solution

In December we took a look at the dire predicament Greece is in and pondered what the outcome may be under different scenarios.

As promised in http://www.fxstrategy.com/articles/fundamental-articles/pondering-greek-tragedy-98.html this article takes a look at the ever thinking and forever interesting George Soros has to say on the matter of Greece and the Euro zone.

While Soros does not posses a crystal ball (even though he often lectures as though he does) he has certainly proved himself an astute currency trader and a knowledgeable and profitable speculator. For these reasons the team here at FX Strategy always takes an interest in any insights we can garner from Soros for use in our own FX Strategies.

To begin with, Soros is deeply troubled by the prospect of a Eurozone split and of countries abandoning the EUR- he thinks the current situation is more toxic and dangerous than the crash of 2008. He is critical of the Greece rescue package as not going far enough to convince markets that it will ultimately be successful.

He singles out Germany as being the only viable leader to sort out the mess (he blames Germany for letting the euro-crisis get so dire as well). He suggests that it is necessary further austerity to reduce the imbalances between creditor and debtor nations. Soros believes that even “a disorderly default or exit from the eurozone, even by a small country like Greece, would precipitate a banking crisis comparable to the on e that caused the great depression”. Basically Soros doesn’t believe it is an option to break up the EUR as the feedback effects and financial calamity would be too great to bear!

Interestingly Soros sees the EUR as central to the potential disaster. Whereby if the EUR currency were to break down it would lead to a break up of the EU rather than the other way around.

So with all this doom and gloom what do you do? Firstly, Soros is rightly concerned about the outcomes if default and a break up occur. He’s a smart insightful operator so to protect against the possibility of this scenario we think it wise to consider an FX Strategy that looks to the safe haven currencies (we’ll be looking more closely at safe haven currencies in the next few weeks). Secondly, given how monumental a break up envisioned by Soros would be on the eurozone we do take some comfort in mankind’s ability to ultimately overcome disasters and carry on! Indeed in this case we think at the 11^th hour the politicians would sort out some sort of muddle through rescue package again.

At FX Strategy we are expecting high levels of volatility in FX markets in the months ahead and none more so than in EUR pairings.