Has he struck it rich (again)?
Billionaire philanthropist and liberal activist George Soros has reportedly made $1 billion since November 2012 by betting against the Japanese yen, Bloomberg reports.
“The Japanese wager helped the firm return about 10 percent last year and 5 percent so far this year, said the person,” the report notes, citing a source who spoke on the condition of anonymity
“The yen has weakened 17 percent versus the dollar since about the start of the fourth quarter, the worst performance over a similar period since 1985,” the report adds.
If this report is accurate, it means Soros has once against benefited from the fall of a currency (see “Black Wednesday”).
Bloomberg’s source also claims Scott Bessent, chief investment officer at Soros Fund Management LLC, has about 10 percent of the firm’s portfolio betting on rising shares in Japan.
“Japan’s benchmark Nikkei 225 stock index has jumped about 28 percent since the end of September,” the report notes.
“Michael Vachon, a spokesman for the firm, said he couldn’t comment on the trades,” the report ads.
But let’s back up for a minute, okay?
First, it’s important to note that the Japanese government is largely responsible for the rapid devaluation of the yen.
Now we’re not alone when we say government intervention can lead to a decline in currency values. In fact, finance ministers representing the G-7 (the seven economic powers of the world) on Tuesday spoke on this exact topic, warning that exchange rates should be driven by the market — not government or central bank policies.
So let’s recap: Japan’s government is depressing the yen with stimulus (such as bond-buying programs); Soros is betting against it; Soros is reportedly winning big.
“The situation remains very serious, as related to the sovereign debt crisis. Bank recapitalization should continue, and that the European Stability Mechanism may be useful,” Soros said in an interview with Le Monde.
“It is especially important to introduce a real European control over banks, because there are too many incestuous relationships between banks and national governments. Particularly in France, with the ‘financial inspectors,’” he added.
Soros’ suggested banking union would presumably have the power to intervene to depress the euro. Considering the popularity of quantitative easing (i.e. money printing), it probably would. However, as noted by the G-7 finance ministers, this sort of action — though popular with certain governments — can cause serious damage to the value of a nation’s currency.
Surely, Soros is enough of a market pro to understand this. Is there a particular reason he’s so big on the idea?
Lastly, remember Bessent (Soros Fund Management’s CIO)? Consider the following:
Bessent worked for Soros in 1992 when Soros and his chief strategist Stan Druckenmiller made a $10 billion bet that the Bank of England would be forced to devalue the pound. That wager netted $1 billion. At the time Soros’s Quantum fund was $3.3 billion.
Bessent left the firm in 2000, and returned to be CIO in 2011.
We’ll leave you with this Soros quote from June 2012: “I am now retired, and my Quantum fund has no position in euro. But until there is no change among European leaders, if I were to invest, I would bet against the euro. Or at least, I’d bet on it.”
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Featured image courtesy Getty Images. This post has been updated.