On July 21, 2011 a mystery investor made a $1 billion bet on the United States credit rating being downgraded, according to ETF Daily News. For some reason this has been ignored by the media and politicians.
Someone dropped a bomb on the bond market Thursday – a $1 billion Armageddon trade betting the United States will lose its AAA credit rating.
In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world.
The massive trade wasn’t placed in bonds themselves; it was placed in the futures market.
The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01.
The value of the trade was about $850 million dollars. In simple terms, if that was a direct bond buy, no one would be talking about it.
However, with the use of futures, you have to have margin capacity behind the trade. That means with a single push of a button someone was willing to commit more than $1 billion of real capital to this trade with expectations of a 10-to-1 return ratio.
You only do this if you see an edge.This means someone is confident that the United States is either going to default or is going to lose its AAA rating. That someone is willing to bet the proverbial farm that U.S. interest rates will be going up. …
The author of the article believes someone in Washington leaked information to the mystery investor. He also noted that there are very few people or investment groups out there with the capital to make such an investment.
The Daily Mail speculates that the investor, who could see a 1,000 per cent return after the S&P downgrade, was George Soros, or someone even closer to the administration.
The link has been made to Mr Soros in part because he has been tied to President Obama’s administration since 2008, reported The Examiner.
He also recently stopped managing money for outside investors, meaning he is under less scrutiny from the Securities and Exchange Commision
But the mystery bet could easily have been made by another trader with similar resources, despite Mr Soros’s links with the Obama administration.
The bet also raises questions of whether President Obama and Treasury Secretary Timothy Geithner knew that a downgrade was on the cards.
Mr Geithner said in April there was ‘no risk’ of a downgrade – but the government now appears annoyed, not surprised, by last week’s decision.
He has since slammed S&P for showing ‘terrible judgment’ in their decision and a ‘stunning lack of knowledge’ of U.S. fiscal budget maths.
While the identity of the ‘mystery investor’ remains unknown, many indicators do point to George Soros as the principal benefactor. First, Soros has been tied to the Obama administration since the 2008 elections. In February of this year in fact, a Soros investment fund profited well on President Obama’s new green energy policies. Secondly, right about the exact same time as the $1 Billion bet took place on the US credit rating downgrade, Soros made public the move to divest his management fund of outside investors, and quietly go private. This move allows him to make trades and investments without being required to notify the SEC under the new Dodd-Frank act passed in Congress last year.
Of course, this mystery bet could have been made by any Hedge Fund that followed Soro’s course of action, and went private on their own. However, very few people have the inside contacts with the Treasury Department and Obama administration that Soros does, and the historical evidence does point strongly to this bet being one that he has done in the past. …
Since American news outlets are ignoring this story, most people probably know nothing about it. I didn’t until someone emailed me the link to the first article linked above. I hate conspiracy theories, but as far as Soros is concerned, he took down the British Pound, so what’s to keep him from taking down America?
Update: Don Surber: “If it was Soros, he earned it. Look at all the work he did to put in someone dumber-than-Geithner into the Oval Office.”
Speaking of Geithner, I saw a headline earlier saying he was not going to resign to maintain “continuity.” Um, why on earth would we want to continue this economic nightmare? Continuity is the last thing we need right now.
Memeorandum now has a thread and linked.
Update: The Other McCain linked – thanks!
Update: The Camp of the Saints linked – thanks!