The world’s biggest global macro hedge funds are working on plan to collapse the Danish economy sometime in 2013 by provoking an abrupt and uncontrolled rise of the Scandinavian country’s currency against the Euro and U.S. Dollar.
Denmark is a member of the European Union, but like the U.K. or Sweeden it does not use the Euro. However the country’s currency – the Danish Krone – is pegged to the Euro in an exchange rate mechanism dating from the Euro’s institution in 1999.
Since the start of the Eurozone crisis Denmark’s economy has outperformed that of its Euro Area neighbors. Under normal circumstances this would cause Danish interest rates and the Danish Krone to rise. But because of the currency peg interest rates are unable to adjust and the Krone is relegated to trading within an extremely narrow trading band.
Investors who are desperately looking for an alternative to the Euro in which to park their money would stand to greatly benefit if the central bank abandoned the peg and allowed the Krone to appreciate – an event currency traders are already predicting.
Greenwich Woods II
Representatives of the world’s powerful hedge funds met in the U.S. town of Greenwich, CT over the weekend to discuss a coordinated strategy for profiting from the Danish situation. The Daily Currant spoke exclusively to a participant in the meeting who explained that the funds plan to use currency options to gain a leveraged long position in Krone, then pour hot money into the currency in hopes of making it too expensive for Denmark’s central bank to maintain the peg. Once the peg is broken the options should multiply in value as the currency rises.
“The bonuses from the Danish collapse are going to be huge”
The plan is similar the the infamous “Black Wednesday” scheme in 1992 when global macro pioneer George Soros made over a billion dollars in one day after his short positions in pound sterling forced the U.K. government to abandon its peg to other European currencies and drop its plans to join the Euro. But in the Danish case the speculators will be betting on a rise in the target country’s currency, rather than a fall.
Denmark’s position as a stable European economy that does not use the Euro draws paralells to Switzerland, whose currency has also been under unwanted upward pressure in recent years. Investors seeking a safe haven from the Eurozone crisis have poured money into Swiss Francs forcing the Swiss central bank to institute their own peg to the Euro in an attempt to calm speculation.
Our source explains, however, that a coordinated effort to break the Swiss peg would be too difficult. “Breaking the Swiss peg is tough. It’s a much bigger economy with a much more powerful central bank. But Denmark is a very small country. There is less liquidity in its currency market. A concerted effort to break the Krone’s peg would doubtless succeed”
Although some economists have argued that in the long run Denmark may be better off either breaking the beg or else become a full member of the Euro, in the short to medium term currency instability is likely to significantly harm the economy.
“It will be chaos in the markets. Exporters have priced in the Euro’s continued weakness against the dollar. They aren’t prepared for a strong Krone that trades independently of the Euro.” says a leading Danish economist.
He estimates that exports will collapse, unemployment will rise, incomes will stagnate, and millions of people will be forced onto welfare rolls, further straining government finances.
The news is not all gloom and doom, however. High end real estate agents in the Tribecca and SoHo neighboorhoods of New York City and the Kensington and Chealsea areas of London are already preparing for the coming boom in home buying. “The bonuses from the Danish collapse are going to be huge. We need to be ready when key personnel want to buy their 5 or 6 million dollar homes.”