Betting on a “Currency Death Spiral”

By Greg Hunter’s  

I have been warning about a currency crisis for weeks.  It appears I am not the only one worried about a big drop in value of the dollar.  David Einhorn of Greenlight Capital is also betting on a”currency death spiral.”  Einhorn is no small player.  He runs a 5 billion dollar fund and has a habit of making big calls.  In July, Einhorn sold 4.2 million shares of a gold ETF to buy physical bullion.  Buying physical gold couldn’t be more bearish and negative.  It is also play against the dollar.  Now, he is warning of more trouble coming for some of the big players in the financial industry.  Einhorn says some big banks like Citi should be broken up so they can not cause systemic risk.  To top it off, his fund is still buying gold!   This is a story you should read and pay attention to so you can understand what is really going on.

By Alistair Barr, MarketWatch

NEW YORK (MarketWatch) — Greenlight Capital is betting on the possibility of a major currency collapse and a surge in interest rates, the hedge-fund firm’s manager David Einhorn said Monday, citing ballooning government deficits in some of the world’s most developed countries.

Einhorn, who warned about Lehman Brothers’ frailty before it collapsed last year, also said financial institutions that are deemed as “too big to fail,” such as Citigroup Inc., should be broken up. 

David Einhorn of Greenlight Capital. 

 Greenlight has been buying physical gold this year because Einhorn is concerned that efforts to save the financial system and fuel economic recovery are undermining the value of such currencies as the U.S. dollar.

On Monday, he said Greenlight has added new trades to this investment theme, buying long-dated options on much higher interest rates in Japan and other developed regions — effectively giving the firm the chance to make big profits from a jump in rates. The options, bought from major banks, are tied to interest rates four to five years out, Einhorn noted.

“Japan may already be past the point of no return,” he said during a presentation at the Value Investing Congress in New York.

 ‘Lehman shouldn’t have existed in any size to threaten the financial system.’ 

Japan’s debt is equal to 190% of the country’s gross domestic product and its government deficit will be 10% of GDP this year, according to Einhorn.

Japan has been able to borrow money at roughly 2% a year to finance these deficits, partly because the country has many savers willing to buy low-yielding government bonds. However, some of these savers may begin spending instead as they enter retirement, Einhorn argued.

“When the market refuses to refinance at cheap rates, problems emerge,” he said, adding that this could trigger a “currency death spiral.” (more from MarketWatch)


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