George vs. George

BY SAM WILLIAMS

[This is a pre-edited draft of a business story that appeared under the headline "Bush-Whacking" in the New York Post, November 16, 2003.]

When George Soros talks, do currency markets still listen?

The speculator credited with breaking the Bank of England in 1992 and accused by outgoing Malaysian Prime Minister Mahathir Mohammad of triggering the Southeast Asian currency crisis of 1997 has been shorting the dollar against other major currencies since at least the spring.

Now, he's backing up that bearishness with a book critical of the Bush Administration's fiscal and foreign policies. Drawing it's title from a March, 2003 essay published on the eve of the Iraq invasion, "The Bubble of American Supremacy" hits bookstores in January. An excerpt published in The Atlantic Monthly hits newsstands later this month.

"America, under Bush is a danger to the world," the Hungarian-born financier-slash-liberal philanthropist told the Washington Post on Wednesday. "And I'm willing to put my money where my mouth is."

For political readers, Soros's new book looks to be the latest in a series of political sideswipes at the Bush Administration. For business readers, however, it carries an added whiff of intrigue. Like a daytrader who sells short and then rushes to the chatrooms to badmouth a company, Soros's public displays of pessimism seem unusually well-timed.

Judging by the dollar's performance this week, the pessimism seems to be catching. Following a three-week rally on positive economic signals, the dollar slumped this week against both the euro and yen, with the sharpest decline occuring on Wednesday.

"It was free arena to punish the dollar this week," says Bank of America's senior currency strategist Fatih Yilmah, noting the lack of economic data. "Somebody was just looking for an excuse."

Though no longer in direct management of the Quantum Fund, the hedge fund that has provided a channel for his speculative invesments since 1969, Soros did oversee a management shakeup there three years ago. Since then, the financier has taken a more vocal position on the dollar's prospects, opining that the greenback "topped" during the technology bubble in a Sept. 2002 interview with CNBC's Maria Bartiromo.

In a May 20 interview with the same network, Soros went even further. He revealed that he personally had taken a short position against he dollar, pitting it against rival currencies and gold as soon as U.S. Treasury Secretary John Snow began soft-pedaling the dollar's weakness this spring.

"I listen to what the Secretary of the Treasury is telling me," Soros said.

Since then, rising U.S. equity markets have put the brakes on the dollar's spring freefall as foreign investors have raced to get back into dollar-backed U.S. securities. That rebound seems to have run its course, however. The federal government's projected $480 billion deficit for fiscal year 2004 has retaken its position as a core concern for many dollar traders.

"You don't have to be bearish on the U.S. economy to be bearish on the U.S. dollar," notes Adam Cole, senior currency strategist for Credit Agricole. "I think the U.S. economy will continue to outperform the rest of the world, but I don't think that's enough to cover the current accounts deficit."

Cole is skeptical that a single financier, even one as legendary as Soros, could trigger a major run on the dollar's value. The dollar's massive liquidity makes it all but impossible to corner large-scale currency holders as Soros and his fellow speculators did in the weeks leading up to the Bank of England's 1992 devaluation of the British pound.

That tidy squeeze play netted Soros more than $1 billion in a single day's trading according to currency market legend.

Still, with U.S. projecting record deficits and China and Japan both holding massive dollar stores to keep their own currencies undervalued, Cole and other currency strategists are in general agreement: The dollar's value is going to go down before it comes back up.

"For the dollar to stand still, the U.S. needs to suck in $500 billion of (additional) capital over the next year," says Cole. "I think doing that requires more than just strong economic growth."

Soros spokesman Michael Vachon says it's a mistake to read anything other than a political critique into his boss's upcoming book.

"There is no connection between the political views expressed by Mr. Soros in the upcoming book and any business positions currently held by Mr. Soros," Vachon says. "I don't think I can make that any clearer."