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...how Soros made $1.5 billion in just a single month by betting the British pound and several other European currencies were priced too richly against the German deutsche mark. ...
... Soros played a complex game. Here’s how it went. Soros expected the following: the breakdown of the ERM and a substantial realignment of European currencies; a dramatic drop in European interest rates; a decline for European stock markets.
So, rather than simply shorting the weak currencies, he also placed simultaneous bets on interest rates and securities markets that would be affected by the currency realignments.
In carrying out this operation, Soros and his aides sold short sterling to the tune of about $ 7 billion, bought the mark to the tune of $ 6 billion and, to a lesser extent, bought the French franc. As a parallel play they bought as much as $ 500 million worth of British stocks even while they were shorting sterling, figuring that equities often rise after a currency devalues. Soros also went long German and French bonds, while shorting those countries’ equities. Soros’ reasoning on the French and German markets was that upward valuation was bad for equities but was good for bonds because it would lead to lower interest rates.
“When the Italians finally devalued the lira and the Germans lowered rates slightly,” says the Soros spokesman, “it was almost like we’d been preparing for an exam for six months and now were finally taking our test.”
After the lira was battered, Soros read that Helmut Schlesinger, president of the Bundesbank, had openly stated that Germany’s central bank would not go to the wall for the pound. Soros has said that he saw this as a “clarion call for everyone to get out of sterling.”
Because of his strong credit, Soros was able to maintain all these positions with just $ 1 billion in collateral. He was margined to the eyebrows, but he wasn’t really gambling. “The profits that people like Soros recently made seem astronomical,” says Gilbert de Botton, chief of London’s $ 5-billion-plus (assets) Global Asset Management. “But do not rap them on the knuckles on one of the few occasions where they actually could make money. Even the pros have lost their shirts from time to time because of the absolute power of the central banks.”
Soros knew this, but all his experience, all his instincts told him that this time he was betting with odds overwhelmingly in his favor.
Here’s how his leveraged positions worked out: The pound dropped 10%, the mark and franc both rose roughly 7%, the London stock market gained 7%, German and French bonds were up about 3% apiece, and the German and French stock markets briefly rallied, but basically remained flat.
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http://www.forbes.com/sites/stevesc...lashback-george-soros-british-pound-euro-ecb/
, and you hate it so much (b/c of past colonialism of your own country, lost opportunities etc...).