One month ago, we first revealed that for one prominent winner from the subprime crisis, Hayman Capital's Kyle Bass, "the greatest investment opportunity right now" is to short the Chinese Yuan: as he explained "given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency." He even went so far as to give a timeframe: "we think it's going to be in the next 12-18 months."
Then, during the Davos boondoggle, none other than the man who broke the Bank of England, George Soros, noted that he too is shorting the Yuan, which in turn prompted China's communist party mouthpiece, the People's Daily to officially warn Soros to back off adding in a petulant, schoolyard bully-ish voice "You Cannot Possibly Succeed, Ha, Ha." Yes, China really said that.
Then, just last week, in a sad letter in which Bill Ackman blamed everyone and everything for his pathetic performance in 2015, most notably hedge fund herding and hotels, which he was so eager to exploit on the way up with presentation-filled idea dinners, and so eager to blame for dumping his names on the way down, we found out that Ackman had also decided to put on a Yuan devaluation trade just days before the Yuan devaluation announcement (perhaps he read our post from August 8, which said that a devaluation is imminent 3 days before it was revealed):
"Last summer, we built large notional short positions in the Chinese yuan through the purchase of puts and put spreads in order to protect the portfolio in the event of unanticipated weakness in the Chinese economy...Two days after we began to build our position in the Chinese yuan, China did a 2% surprise devaluation which substantially increased the cost of the options we had intended to continue purchasing. We continued to build the position thereafter by buying slightly more out of the money puts and selling further out of the money puts so as to keep the cost and risk/reward ratio of the position attractive."
Sadly, Ackman has still to make money on this trade.
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