The world is a crazy-ass place. Every day, all day, we get slammed with zillions of bits of information and our little monkey brains, which evolved to keep us alive just long enough to fuck and create the next generation of fuckers, just can’t keep up. So to make sense of the shit, we tell ourselves stories, cheat-sheet versions of reality to make the shit simple so we can pass the test and live another day. And when enough people buy into the story, the story starts to influence reality and it starts a feedback loop that continues until reality intervenes. But the stories are never real. Reality is fucking infinite-K HD and we can’t even see past the color red. We don’t have the hardware or software to process the shit. But what we can know for sure is when we are wrong. Wrong pops the bubble, it curb-stomps our stories. People tell stories until reality proves us wrong. That’s the law of the jungle, and if you want to survive in the jungle, a mans got to have a code.
George Soros has a code. He developed it growing up as the child of the wars in Europe. He wanted to be a philosopher but he couldn’t cut it so he decided to make money instead. And he knew all about stories. He saw the European governments telling stories that didn’t come close to jiving with reality, but they had the guns and guns are really helpful when you want someone to believe a bullshit story. In fact, the Europeans got so good at telling stories with guns (and before that swords and before that clubs and before that stones) that that’s pretty much all they did for 12,000 years. But reality is a bitch and at some point, reality convinced them to change it up a bit. So in the late 80’s they figured, let’s make love not war. Instead of killing each other, let’s enter into a European monetary orgy. Everyone loves a party and everyone really loves a party in Europe. So they agreed to tie their currencies together to form a monetary love-fest for a few years, with the goal of eventually interbreeding and forming one big happy family.
But that’s a little tricky, because currencies are freely traded and if Germany ties it’s currency to the English pound, they need to know the limeys won’t drink too much and not show up for work the next day. Because if they don’t work, people won’t believe their money story and that would fuck the party up. If they wanna play, they gotta pay.
But the English were like, chill Klaus. We got crumpets and they are selling like crazy. So much so, that we promise you no matter what happens, we will not let the pound go below 2.7 German Mark (the then current exchange rate). And just so you know, we are the motherfuckers who lend the money to the crumpet bakers, so as long as the money is flowing, we sell crumpets and you get your money. To the Germans, this seemed sensible and so they called the girls, popped the bubbly and got the party started.
But the English needed flour to make their crumpets, and they got that from the Americans. And the flour sellers in America wanted cash money for their flour because they had buyers for their shit in America and Japan, so they told the English, we ain’t buying this whole euro orgy thing. If you want our flour, we are raising prices to hedge the risk that your little euro-orgy goes all Fyre Festival on us. And fuck if this wasn’t a problem for England. If the Americans weren’t willing to pay the current rate for the pound, it was gonna sink unless the English government either started buying shitloads of pounds on the open market to prop up the currency, or raise interest rates. If they raised rates, the crumpet makers couldn’t make a profit to pay back their loans and buy flour. If the English government bought the pound on the open market, they needed real cash money to buy pounds (their foreign currency reserves), and they didn’t have a lot of that. Fuck.
While this was all going on, Soros is chillin in his office in NY and just watching all this go down. He knew a story when he saw one. Tying rocks together doesn’t make them float, no matter how you spin it. He knew the brits only had a couple dozen billion in reserves and he also knew if they raised rates, they fucked their economy. It was a one way bet and if he could call them on the story, it would start a cycle. “Markets can influence events that they anticipate”.
So in August of 1992 he goes short the pound and being the whores we are, the rest of the market jumps in for the ride, pushing British money to the breaking point vs. the Germany mark. Seeing the trend form, on September 16th, while Europe slept, Soros sells every pound he could get his hands on, increasing his short to $1.5B. In the morning, the English government wakes up in their silk pajamas to find their country bleeding out so they call for their drivers, head to London and started buying pounds at a rate that hit $2B/hour. But it was too late. The new story replaced the old story and the pound just keeps on dropping. The politicians in England no longer had guns to enforce the story but they still has interest rates so ordered up a full frontal attack, boosting rates from 10% to 12% to 15% in one day. But the pound still drops. By noon, Soros catches wind of a rumor that the German Bundesbank favors devaluation of the pound to stop the bleeding and he knows it’s done and goes for the “jugular”, amassing a short position of $10B. England doesn’t have the reserves to cover and they fucking fold and Soros reached over too scoop up the pot. Total, over $1B.
“There is no point in being confidant and having a small position”.
True that.
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