Investors: The Euro's Going Down
If the world's savviest investors are to be believed, then the euro is in trouble. The Financial Times reports that bets against the euro have reached new heights. Investors doubt that the eurozone's debt crisis will end well.
The article says:
Traders and hedge funds have bet nearly $8bn against the euro, amassing the biggest short position in the single currency since its launch on fears of a eurozone debt crisis.
Investors increased their bets against the euro to record levels in the week to February 2, according to the latest figures from the Chicago Mercantile Exchange, which are often used as a proxy of hedge fund activity.
The build-up in net short positions represents more than 40,000 contracts traded against the single currency, equivalent to bets worth $7.6bn. It suggests that investors are losing confidence in the euro's ability to withstand any contagion from Greece's fiscal problems to other European countries.
I don't mean to say that these investors are necessarily right. They could be overly pessimistic. But to wager that magnitude of money, I would be a little surprised if these bets weren't calculated on some sound logic. That's an awful lot of money to put on a hunch.
But what it clearly shows is that foreign business will likely be even more prudent about investing in the eurozone and will require ample hedging of the currency. And as those hedges become harder to get, foreign business investment may dry up too, exacerbating the eurozone's troubles.