The Vultures are Circling Around the Euro

May 23rd, 2011
| More
Contributed by: The Mad Hedge Fund Trader
It has not been a great week for the beleaguered European currency (FXE), (EUO). The chickens, no, make that vultures, are coming home to roost.

Belgian and Spanish debt has been downgraded. The UK’s debt is under review. The ratings agencies now seem to be taking aim at Italy. Perhaps the only good news for the Euro is that former IMF chief and future French presidential candidate, Dominique Strauss-Kahn, was able to post bail for his sex crimes in New York.

To understand why Italy is such a big deal, take a look at the chart below showing bank holdings of PIIGS debts. Italian bonds are far and away the most widely owned, dwarfing all other sovereign issuers combined, and their default would certainly wipe out a major portion of European bank capital. If you wonder why I am constantly asserting that European banks have a de facto negative net worth and their eventual demise with bring the death of the euro, this is a good reason.

In the meantime, hedge funds are starting to jump on the bandwagon for the Euro short play. Some two thirds of the long positions in the futures markets have been liquidated in the past ten days. We will see the next down leg for the Euro when the reminder gets dumped and the street flips to a net short. As for me, I have been short since $1.49 and am comfortable with the position. Any rally from here, and I will be quite happy to double up.
Related Article Tags: Investment Management, Fund Manager and General Financial News; Hedge Fund Resources and Featured Partner News

More Recent Headlines

Steven Cohen’s SAC Capital Management to start Quantitative Trading hedge fund

Dan Waters and Mike Kelly’s FrontPoint Partners to wind down majority of hedge funds

Bill Hwang’s Tiger Asia down 16% YTD

Timing is everything, Munib Islam Returns to Daniel Loeb’s Third Point Partners

OakTree Capital Management to go public on NYSE

Convexity Capital suffers “Disappointing” First Quarter

Carl Icahn sees large returns on Biogen Idec and Genzyme bets

John Paulson set to earn up to 78% return on investment in Lehman Brothers bonds

Daniel Chan, Former Citi Portfolio Manager, Launches Emerald Orient Investment Advisor with $25M

Renaissance Technologies’ troubled hedge funds experience Resurgence in 2011