1. 16:42 26Feb10 RTRS-FX COLUMN-Raiding the euro: Is the obvious, obviously right?
By Kevin Weir
NEW YORK, Feb 26 (Reuters) - Adam Smith, the father of modern economics, once
famously observed that "People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a conspiracy against the public or
in some contrivance to raise prices."
Finance ministers, central bankers, and politicians, none of whom are strangers to quiet
conversations in back rooms, appear to believe that this is particularly true in the case of
hedge fund managers.
A group of about two dozen hedge fund managers came together to talk shop at a so-
called "ideas dinner" that the Wall Street Journal noted in a story titled "Hedge Funds
Pound Euro" on Friday. The story suggested some of the world's biggest hedge funds
were coming together to lower the value of the euro.
When hedge fund managers are enjoying each other's company, they can normally
manage to not to share algorithms and trades that they believe are critical to their results.
But they will, often quite freely, trumpet the virtues of trades that they already have on
their sheets.
This is hardly conspiratorial; it's an attempt to entice others into the pond so that
positions can be exited gracefully ("on the offer", not "on the bid"), followed by a victory
lap.
It may be surprising to some, but hedge fund managers, apart from the pay stubs in
good years, are remarkably like the rest of us.
They are no doubt skewed to the right hand tail of the intensity curve, but they tend to
gather and socialize because they know each other from school (or, more likely, their
offspring's schools), or from charitable endeavors or sports, and because they share the
experiences and perspectives that breed camaraderie.
If they talk shop, it is almost certain to be about strategies and trades that are so
universally recognized as obvious that there is no possible advantage to be gained or lost
by discussing them. One example would be shorting the euro. Another would be buying
German Bunds and selling Greek government bonds.
The profit potential in these trades didn't occur because of a conspiratorial meeting
differing only in attire from the gathering of the heads of the Five Families in "The
Godfather".
Representatives of the Greek government have been at some pains to describe their
plight, and it was apparent to many well prior to the euro's advent that at some point
national fiscal policy would run afoul of a unitary currency regime.
If polled as to which brick would be the first to crumble, most might have responded
"Italy", but only because "Greece" wouldn't have come readily to mind.
It is true that hedge funds and other large institutions tend to have an informational
advantage. This isn't derived from conversations with each other, however.
Most, if not all, large hedge funds employ small armies of consultants, people equipped
with access to policymakers and other people of influence. These individuals are often
distinguished Finance and Economics professors, whose Ph.D. students go on to work in
finance ministries, central banks, and non-governmental entities.
The ties between these former students and their dissertation directors are often very
strong, and in the course of these ongoing relationships, information is occasionally

2. informally exchanged that is of considerable value to investors. Access to that
information is not cheap, but it can more than pay for itself.
When finance ministers and other officials, looking at the wreckage created by their
policies, mutter darkly about "hedge fund conspirators", it might be worth remembering
that currency markets are deep and liquid.
If the preconditions for an assault don't exist, even an enormous amount of hedge fund
cash can simply dash itself to pieces.
((New York Markets Des +1 646-223-6110)) Keywords: COLUMN/EURO
Friday, 26 February 2010 16:42:21RTRS [nN26601357] {EN}ENDS