Is the Euro Headed For a Fall?
Kurt Brouwer June 2nd, 2008
Source: Wikipedia
Pensions Picking Dollars, Shorted By Hedge Funds (Bloomberg, June 2, 2008, Bo Nielsen & Anchalee Worrachate)
Whenever pension funds, mutual funds and insurance companies decide they should own dollar assets that are out of favor with hedge funds, the hedge funds lose.
Institutional investors bought more dollars than they’ve sold this year, according to State Street Corp. and Bank of New York Mellon Corp., the largest money managers for institutions. That’s significant because speculators such as hedge funds raised bets against the greenback by 36 percent, data from the Commodity Futures Trading Commission in Washington show.
History indicates institutional investors may be on to something. The dollar gained in 71 percent of the quarters over the past decade when they were net buyers, according to Boston- based State Street. They bought more than they sold in all of the quarters when, like now, benchmark interest rates were below inflation and the current account deficit, the broadest measure of trade, exceeded 3 percent of the economy.
“The dollar can do quite well in this slow-growth environment,” said Richard Batty, global investment strategist at Standard Life Investments in Edinburgh, a mutual and pension fund that manages the equivalent of $283 billion. “We’ve had for some time a positive position on the U.S. dollar.”
After falling to a 13-year low of 78.993 in March, the dollar has gained 2.5 percent to 80.993, according to a trade- weighted index maintained by the Federal Reserve that includes the euro and yen. It has rallied 3 percent versus the euro to $1.5527 since hitting a record low of $1.6019 on April 22.
`Next to Capitulate’
Dollar buying among institutional investors from mid-March has been twice as strong as the 12-month average, according to Bank of New York Mellon, which has $23 trillion under custody. That coincides with the Fed’s bail-out of Bear Stearns Cos., a move that signaled that the central bank wasn’t going to let a securities firm fail and drag down the economy.
“Institutional investors have been gradually building a long-dollar position,” said Michael Metcalfe, the London-based head of macro strategy at State Street, which has $14 trillion under custody. “It reflects a belief that the dollar will rebound. Bearish currency speculators will be the next to capitulate.”…
Interesting piece from Bloomberg [emphasis added above].
Pension plans versus hedge funds. Should be very interesting. Pension plans have far greater assets and they can afford to be patient. Hedge funds tend to be more aggressive and they are faster-moving. This may be a re-run of the tortoise versus the rabbit.
- Geopolitics , Investing , Money , Retirement
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