Friday, June 10, 2005

Wrong and Right...

I was wrong about the Euro increasing in value relative to the US$. The past two weeks have seen this currency crater. When you screw up you need to admit it and move on. However, my observations on the US stock market were dead on. However, my ideas about the US$/Euro were wrong. Reason for the screw up was easy. I relied on conventional wisdom and did not follow the EU Constitutional Debate. The French rejection of the EU Constitution has created a crisis of confidence in the Euro. I was not looking at the possibility of politics impacting the price movement. I didn’t lose any cash, because of good risk management…but still being wrong can teach you a lesson. Here is mine…Never forget that exogenous events can and do have an impact on “rational” markets.

It is a little early to see what impact their positions are going to have on the returns of hedge funds and companies like Berkshire Hathaway. Rumor has it that many hedge funds were long the Euro and if so they got shafted. Also Buffett was publicly saying he was long the Euro. If so then the oracle from Omaha made a big mistake and his profits are going to be a lot lower…

Remember a month ago when I talked about GM? Now they are laying off 25,000 workers. That is not a very good sign. Combined with their low car sales means that this cornerstone of US manufacturing is in huge trouble. Their bonds are junk and their prospects are pretty bad. Can bankruptcy be fare behind?


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