Who shorted British pound? (Currency fell 6% in 10 days before London terror attacks)

WASHINGTON -- In the 1988 Hollywood hit "Die Hard," starring Bruce Willis, a group of "terrorists" take over a Japanese banking institution in Los Angeles, hold hostages and make demands for release of "political prisoners."

But it turns out the terrorists aren't really terrorists. They are bank robbers trying to make off with the fortune in the bank's vaults.

That is a question Scotland Yard and other law enforcement agencies are actually asking themselves following the July 7 London transit system attacks that killed 54 and injured scores more as they continue to scour the planet for evidence and additional conspirators.

Why? Because it appears some profited by short selling the British pound in the 10 days leading up to the attacks.

The pound fell about 6 percent (approximately 1.82 to 1.72) against the dollar for no apparent reason – until, of course, the terror attacks sent the British markets reeling still further.

"This was an almost unprecedented weakness and far too sharp to be a coincidence," one economist with more than 35 years of experience in the investment industry, told Joseph Farah's G2 Bulletin, the premium, online intelligence newsletter published by the founder of WND. "That is, after all, an annualized rate of loss of well over 100 percent."

The fall did not go unnoticed by investigators, who are wondering whether the terrorist masterminds behind the attacks decided to make some money on their action or whether other investors with inside information about possible attacks took advantage of that knowledge.

"Currencies of establish countries simply do not fall that fast based upon any kind of economic or financial analysis," said the economist. "Somebody – somewhere – knew something. Or maybe I should say 'somebodies.'"

Could it be the terrorists have learned to make their attacks self-funding operations?

Could it be the terrorists are actually motivated by factors other than Islamic fanaticism?

These are some of the questions law enforcement agencies are asking – but they're not really expecting to get answers.

The problem is that short selling of this kind can be done with near total anonymity.

"Trade currency futures through a Swiss or Austrian bank via an offshore company incorporated in Crete and you have a totally untraceable transaction," the economist noted. "No one will ever know who made the really big money off this situation, but I guarantee you this – someone did."

It's not the first time suspicion about terrorists – or someone – profiting from short-selling prior to an attack.

Following the Sept. 11, 2001, attacks in the U.S., David Ruder, chairman of the Securities and Exchange Commission from 1987 to 1989, raised the question of whether terrorists may have gotten away with profiting from their attacks by short-selling shares in the U.S. markets.

Then U.S. Treasury Secretary Paul O'Neill confirmed the government was investigating possible short selling, but was not optimistic those responsible would ever be found.

Short selling allows investors to bet that stocks will fall by borrowing and selling shares in the hope of buying back at a lower price.

After Sept. 11, Chicago Board Options Exchange data showed 1,575 put options purchased in United Airlines' parent company five days before the attacks. On an average day, only 390 such put options are purchased. Investors bought 2,258 put options in American Airlines parent company, compared with 220 on a typical day. Insurance and other stocks also experienced and upswing in short sales.

Investigators never revealed how much money was bet, but short sellers could have made 30 times what they invested, given the huge plunge in the stock prices of those companies.

Government investigators from around the world never learned the identity of the short sellers in 2001. And, despite vigorous efforts being made to find out who was behind the short selling of the British pound in early July, hopes are slim the culprits will be found.

Sorry, that's not so (well, one could take a 30-year time frame, in which case it might be so, but that's rather too long a view for practical trading, wouldn't you agree?)

Euro opened for trading on the 1st business day of 1999, and settled @ 117.xx (I can look it up if you insist). From then until 26 October 2000, it declined to 82.xx. From then until 30 December 2004, it moved upward vs. USD in zigs and zags, topping out at 136.59 on that date (basis March futures; spot was a bit higher).

Tonight, Sep futures are 120.76, although I hear that spot is drifting lower, presumably on declining fears that the USD cap inflow (to be announced Monday am, US time) will reach the mkt-expected levels...who the devil knows about that, eh? (g!)).

So, net-net, from Jan 1999 onward, there's been less than a 3% change in EUR/USD.

For real-time spot quotes, I can strongly recommend to you Jay Meisner's site, Global-View. Requires a free registration, but the forex forum and the real-time ticker are worth diamonds to a serious swing trader. www.global-view.com ... and follow the prompts to register and login. Click on FX+ticker to access the forum commentary AND have the ticker on-screen. N.B. the ticker on Saturdays is worthless; interbank resumes again on Sunday afternoon, US time.

As a general rule, if you have a large difference between the put open interest and the call open interest, it will go against the larger number of investors. As a hypothetical, lets say there were 20,000 puts and 5,000 calls on a certain strike price. 4 times the number of bears as bulls are making their bets. Odds are ALMOST certain the bulls will be right and the bears will loose. This is not perfect because of hedge funds and more people using options than in the old days, but still pretty reliable. As an example, I SOLD 40 JUL65 Altria(MO) puts about a week ago for 1.05-1.15, because the puts were over 30k to calls=5-6k. That told me the odds were strong that MO would end up Fri OVER $65. Sure enough, the stock fell flirting with $65 the week before, but I held firm because the ratio held firm. Thursday, the stock went up more than a buck and I was safe, because the OWNERS that bought my puts MUST end up getting zip, nada, nuttin, on expiry day. The market makers have too much to loose to let that happen.The opposite is true if calls out number the puts. The price cannot pass the call price because there is too much resistance to let that happen.

This is why most investor guru's tell you the contrarian view of things.

Ergo, if their were a disproportionate amount of puts sold before the blast and the currency went down more than expected, the fix could definitely be in by the terrorists. Markets usually are efficient and take the maximum amount of money from the maximum amount of investors. If the investors win, their is a problem that the markets will need to fix to stay in business. Kinda like the house letting the tourists win. Not gonna happen very long.

No quarrel from here, m'friend, but you and I trade different mkts. I've little practical experience with trading listed stock options, bar the occasional covered write or put sale vs cash, and I'll absolutely take your word for it regards put/call ratios and such, regarding listed stock options.

I will note this, however, for your convenience. CME/IMM oppies on BP are **SO** thin that even I, trading less than $100K capital in ccys at the moment, could move those oppies' prices pretty nastily over a day or two or three.

Altria/Philip Morris oppies, OTOH, are far more liquid -- the comparison between the two, and as regards mkt movement before or even after the 7/7 bombings, is just not valid.

Quite literally here, we have apples vs kumquats.

Good trading to you, and FReegards!

Sure. In forex trading, each currency has its own ticker symbol, just like stock shares. In mssg 25, THB = Thai Baht, IDR = Indonesian Rupiah, USD = US Dollar, EUR = Euro, CHF = Swiss Franc, JPY = Japanese Yen, ZAR = S. African Rand, GBP = British Pound, AUD = Australian Dollar.

EFB is my own little nickname for Soros, to wit, ''everyone's favourite bogeyman''.

Now, the thing to remember about forex is that everything is a **pair** of currencies: when someone says ''I'm short the ol' dollar'', as Bill Gates rather fatuously remarked early this year, what they are saying is really, ''I sold USD and bought with the proceeds some other currency (or currencies)'', or ''I sold USD for EUR and CHF'', same thing. They've (here) made a trade in the EUR/USD and USD/CHF **pairs** of currencies.

EMR, mentioned in the first pgh of #25, is a typo (should read ERM, sorry) for the old European Rate Mechanism, the predessor to the Maastricht Agreement that ultimately led to the establishment of the Euro. Most everyone knows that, in September 1992, Soros ''broke the Bank of England'', right?

As usual, what ''everyone knows'' is incorrect. The Bank of England broke itself. Soros only made a bet that it would do so, and he was, famously, quite correct, and made somewhere between $1 and $2 bio (that's billion, in forex-speak) on the deal. If you like, I'll post the details of the how and the why of this episode (pretty good story, too).

Regarding Ms. Rockefeller's trading idea, the key factor therein is the notion of capital flows (''cap flow''). These are investment sums that flow into or out of each nation, representing the currency value of purchases/sales of businesses, purchases/sales of gov't bonds, and so forth. These figures are tracked and released each quarter by, among others, Bank of New York. If at some release date the capital flow figure (the ''number'', in #25) is well above or well below what the forex mkt expects, there can and usually will be a violent short-term move in one or another pair of ccys (abbreviation for currencies), as the traders who were wrong-footed in these pairs put their positions back into a balance that suits them.

The only other term that may be unfamiliar is ''writing OOM EUR calls''. This is a type of trade in ccy options. The trader will take this action when he believes (presumably for good reason) that a given ccy will not rise vs USD past a certain point by a certain date. As we've seen over the past 5 months, EUR has not only not risen vs USD, it has dropped fairly sharply (or, said another way, the EUR/USD pair has fallen). Thus, writing OOM EUR calls on rallies (i.e. when EUR moves upward, short-term, 200-300 pips (''poiints'', 100 pips = 1 US cent)) has been quite profitable. EUR/USD has been in a firm downward trend which, imnnho, is likely not to be reversed for some time -- US short interest rates have a ways to go yet, and ECB (wups, the European Central Bank, approx. their equivalent of the Fed) won't get its thumb out and raise Euro rates...too bad for EUR/USD, eh?)

Last March, right here, I wrote a fairly long post to the effect that A) EUR/USD would be weak going into the 29 May vote on the European ''constitution'', given that polling indicated the froggies were apt to vote it down, and B) the volatility of EUR options would increase (i.e. they would become more expensive) in the same time frame and for the same reason. This view, of course, has been well borne out by events, but no credit to me at all; this was merely shooting tunafish in a barrel. An enormous number of people, and lots and lots of capital, had a huge stake in seeing that faux-''constitution'' approved as is by the froggies, and its rejection instantly scotched a whole bunch of investment in Wonderland (my nickname for the ''Eurozone''), thereby putting downward pressure on EUR vs. essentially every major ccy in the world except Swissie (forex-speak for CHF, Swiss Franc).

I hope that this post has cleared things up for you to some extent, or, in the best case, completely. Further details at your request.

FReegards!

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