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Hedge funds seek to cash in on euro’s Greek tragedy

Text by News Wires

Latest update : 2010-02-27

A group of hedge funds have launched significant bearish (negative) trades against the euro, the WSJ reported, essentially betting on the euro's decline. One hedge fund manager reportedly said, "This is an opportunity... to make a lot of money".

AFP - A group of hedge funds have launched big bearish bets against the euro, with some speculating the single European unit will fall to parity with the dollar, the Wall Street Journal reported Friday.

The euro, which traded at 1.51 dollars in December, has been hovering around 1.35 dollars with market sentiment for it dampened largely by the debt crisis centering around Greece.

The Journal said the large bets emerged following an exclusive "idea dinner" earlier this month that included hedge-fund titans SAC Capital Advisors LP and Soros Fund Management LLC.

During the dinner, hosted by a boutique investment bank at a private townhouse in Manhattan, a small group of all-star hedge fund managers argued that the euro is likely to fall to equal on an exchange basis with the dollar, the newspaper quoted people close to the situation as saying.

The paper said the elite traders' bearish bets, reminiscent of the trading action at the height of the US financial crisis, had added to the selling pressure on the currency, and to the pressure on the European Union to stem the Greek debt crisis.

The US crisis, which shook the foundation of the financial industry and plunged the world's largest economy into its worst recession in decades, hit peak levels in late 2008 with the collapse of giant investment bank Lehman Brothers.

At that time major hedge fund managers, such as Greenlight Capital chief David Einhorn, who also was at this month's euro-dominated dinner, determined that the fortunes of Lehman and other firms were dim and bet heavily against their securities, accelerating their fall, the Journal said.

"This is an opportunity... to make a lot of money," the Journal quoted Hans Hufschmid, a former senior Salomon Brothers executive who now runs GlobeOp Financial Services SA, as saying.

GlobeOp is a hedge fund administrator in London and New York.

An SAC manager, Aaron Cowen, who pitched the group on the bearish bet, said he viewed all possible outcomes relating to the Greek debt crisis as negative for the euro, people familiar with the matter said, according to the Journal.

SAC's trading position on the euro is unclear.

George Soros, head of his 27 billion dollar asset fund, warned last weekend that if the EU did not fix its finances, "the euro may fall apart."

Date created : 2010-02-27

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