Soros Loses $1 Billion Betting Against Trump, Former Partner Druckenmiller Bets With Trump, Wins

Perhaps the biggest mistake investors make is emotional attachment seeping into their analysis. This can happen to average investors as well as the world’s most accomplished. Just ask George Soros. As The Wall Street Journal first reported, one of the only hedge fund managers to ever go toe-to-toe with a central bank and come out alive lost nearly $1 billion recently betting against President-elect Donald Trump. The amount he lost on Trump was nearly equal to the amount he made on the trade of his life, a $1 billion win in 1992 “Breaking the bank of England.”

George Soros
Photo by Norway UN (New York), Flickr

Soros invests with his political leanings

After having been cautious leading up to the election — one where Soros was a staunch Hillary Clinton supporter and donated nearly $25 million to Democratic causes last year – Soros saw the Trump victory as a dramatic loss.

The hedge fund legend’s $30-billion-dollar family office bet heavily against stocks and invested long bonds once it learned of the result. After the Trump election, stocks surged nearly 5.6% and bond prices tumbled while yields on the US Ten Year Treasury note rose from near 1.8% to above 2.4% in just a month, eclipsing by a significant degree its average price volatility range.

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The diagnosed reason for the sprint higher in stocks was potential Trump tax benefits, fiscal stimulus and deregulation. Concerns regarding trade tariffs and unpredictability took a back seat.

Man who broke the Bank of England

Soros is credited with being the man who “broke the Bank of England.” He did this back in 1992 betting against the British pound resulted in the currency crashing.

The backdrop for this trade, which netted him nearly $1 billion in profit and cemented his reputation as one of the world’s greatest traders, came as the UK was enmeshed in the European Exchange Rate Mechanism (ERM). The system of pegging the British pound to the German Deutschmark was a precursor to the regional euro currency that came into existence in 1999. When the economies of Germany and the UK fundamentally diverged – a common occurrence between sovereign nations – Soros pounced.

Soros had been building a British pound short all summer, then when comments from then German central bank president Helmut Schlesinger indicated the UK currency might come under pressure, Soros went all in.

Soros engineered that trade with hedge fund manager Stanley Druckenmiller, who bet with Donald Trump after the election and reaped significant rewards.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com