SOROS ALERT Soros 'speculating against dollar'

THE INDEPENDENT UK ^ | 28 November 2003 | Philip Thornton and Michael Jivkov

[Liz]

Pound surges to five-year high against US currency.

Buffett also said to be betting against greenback

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The pound surged against the dollar yesterday amid speculation that Warren Buffett and George Soros, the world's most famous speculators, are betting the US currency will plummet.

Sterling powered to a five-year high against the dollar for a second day as concerns over the US current account deficit continued to outweigh evidence of a rebounding economy.

Traders believe selling the dollar is a one-way bet, and some latched on to rumours that speculators were building "short" positions on the dollar - betting it will tumble in the coming months.

One hedge fund manager, who asked not to be named, said: "I have heard that both Soros and Buffett are shorting the dollar. There's a growing belief on Wall Street that the dollar is looking like a one-way bet downwards."

A spokesman for Mr Soros, who famously "broke" the Bank of England when the pound crashed out of the exchange rate mechanism a decade ago, said he never commented on speculation. Mr Buffett was unavailable for comment.

The surge in the pound to $1.7155, its strongest level since October 1998, was boosted after Merrill Lynch forecast the dollar would plunge a further 8 per cent by the end of next year.

Demand for the dollar has waned on concern the country will not attract enough capital to fund its record current account deficit, which is expected to break through 5 per cent of GDP this year.

In a massive revision to its forecast issued on the eve of yesterday's Thanksgiving holiday, Merrill Lynch said the pound would hit $1.85 - which would be its highest level since 1992.

The blue chip Wall Street bank said sterling would rise on signs of returning economic strength, rising interest rates and hope that the Government won't raise taxes before a 2005 election. But it warned that the surge in the pound would be short-lived as the concerns overhanging the UK - from a budget deficit, huge consumer indebtedness and a tight labour market - would come home to roost.

"Bubble trouble currencies such as the pound should continue to do well for now," it said. "But upsides in the currencies in these regions should end next year as tighter conditions threaten to burst credit bubbles and shape market expectations of lower rates."

Merrill Lynch expects the dollar to tumble to $1.33 against the euro, a drop of 12 per cent from yesterday's $1.19 value. But it cut its forecast for the euro to surge to 80p against the pound - a level that would smooth sterling's entry into the single currency - to 73p.

A surge in the pound against the dollar will be a boon for British tourists but could cause headaches for both businesses and the Bank of England.

Khuram Chaudhry, a strategist at Merrill Lynch, said: "UK investors may find company sales exposure to the US unfavourable in this scenario.A stronger domestic currency is likely to mean the Bank is less likely to raise interest rates aggressively." David Bloom, a global economist at HSBC who does not see the pound going much above $1.70, said any spike in the pound would be short-lived. "If you want to sell the dollar because you believe in the structural problems such as the current account deficit then you buy the pound but there's a downside because the UK is also looking a trade deficit, an indebted economy," he said.

"If you think those factors will cause the dollar to fall then the pound should fall as well."

He said the main beneficiary should be the euro, which has smaller deficits - despite the high-profile row over the stability and growth pact. He said HSBC was sticking with its historic forecast for a dollar-euro rate of $1.35.

Mr Bloom warned that if the pound were to fall it could tumble even further than the dollar as there would be little interest from other countries to prop it up.

[Liz]

EXCERPT: One hedge fund manager, who asked not to be named, said: "I have heard that both Soros and Buffett are shorting the dollar. There's a growing belief on Wall Street that the dollar is looking like a one-way bet downwards."

[samtheman]

Good news for the economic recovery in the USA. Weak dollar means more tourism and more exports. More fuel added to the fire of recent high-growth-numbers.

Soros and Buffet are working overtime to re-elect Bush.

Thanks, guys.

[Fracas]

This might be a good time to remind everyone that Jim Smith, a regular guest on Cavuto's Saturday show, is the former partner of Soros. Smith has been consistently anti-war and negative on the dollar.

How nice that the President risks life and limb to meet the troops in Baghdad, while Soros does yeoman work to damage our economy so he can personally profit and give the money to the Dems. Is this a great country, or what?

[Liz]

The price of freedom is eternal vigilance.

I just "hope and pray" Soros is not doing anything illegal (snicker).

[Einigkeit_Recht_Freiheit]

while Soros does yeoman work to damage our economy ....
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First of all currency markets are so complicated that unless you have a PhD in economics, you should hold your tongue.

Secondly, there is a great deal of debate even among noble prize winners with multiple PhDs as to the actual effects of the rise or fall of a currency. Yes, it does make exports cheaper and imports more expensive in the short term, but in terms of long-term interest rates it probably has no effect. Moreover, long-term avergaes tend to favour purchasing price parity. Plus, the US current account deficit virtually requires a temporarily weaker currency. The key is a gradual decline, not a crash.

Lastly, even if Soros switched every single cent he had out of dollars and into a different currency, his actual net worth would make negligible impact on the hundereds of billions of dollars that are bought and sold daily. The only thing he is capable of doing as a highly respected investor is to push or pull the electronic masses in one direction or another.

The man moved his money out of dollars long ago and is now fanning the flames to get the mindless investing sheep to increase his profit for him. All it takes are a few well placed words.

Just for the record, I am paid in Euros, so I think this is great! Everything is 20 percent off in the US.

[CROSSHIGHWAYMAN]

I hope these anti-American yellow-bellied spineless swine lose BIG TIME!!!!!!!!!

[adam_az]

However...

Weakening US dollar deflates the value of foreign investment in the US. One of the major factors for US economic growth in the past has been the strong dollar policy, which attracted massive amounts of foreign investment, ie capital inflow.

[gaspar]

If Merrill Lynch is predicting that the dollar will depreciate to 1.33 vs. the Euro and that the pound will soon hit 1.85, you can almost take it to the bank that such a thing will not happen. Merrill's track record in international trading is execrable.

[sharkhawk]

To put it another way. The Dims largest contributors are working to weaken the US economy, to give there puppets something, anything to run against Bush. I mean why would they have any reason to prop up the Euro?
The deficit?
France and Germany have just blown the whole fiscal sanity measures mandated when the Euro replaced their currencies. Their deficits, and national debts as a percentage of GDP, are much greater than that of the US, and with their social security and welfare systems even more out of whack than ours, there is no hope for any recovery
Economic Growth?
No country in Europe, except maybe Ireland and some of the Eastern European nations have a growth rate passing 2%.
Soros and Buffett are doing this for one reason and one reason only. To try to tank the US economy before the 2004 elections, and the Republicans need to get the word out.

[I_Love_My_Husband]

I think since Soros is a citizen of the USA that the President and the BCIS revoke his citizenship and freeze his assets for being Anti-American. You know when you become a citizen of the USA you take an oath to protect the country. He has broken that oath. Therefore he's a traitor.

[samtheman]

Right now what we need is people who are willing to Buy America. A weaker dollar helps that.

[E. Pluribus Unum]

Speculators can lose big.

Soros broke would be such a funny sight.

[adam_az]

Investing in US business is another way of buying American, the kind that creates much more employment and impacts the economy in a greater fashion.

It's why Soros is trying to inhibit it...

Because he will do anything to make Bush lose the next election.

Soros isn't an idiot. Just a badguy.

[razorback-bert]

Ping and run, will check back tomorrow.

[texasbluebell]

I just "hope and pray" Soros is not doing anything illegal (snicker).

When I saw this article, it reminded me of those "unknown" investors who shorted airline stocks, and who knows what else, just before the 911 attacks.

I wonder now again who they were...