The Trade of the Century: When George Soros Broke the British Pound

“I’ve learned many things from [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.”

Stanley Druckenmiller, 1994

* * *

In 1992, George Soros brought the Bank of England to its knees. In the process, he pocketed over a billion dollars. Making a billion dollars is by all accounts pretty cool. But demolishing the monetary system of Great Britain in a single day with an elegantly constructed bet against its currency? That’s the stuff of legends.

Though it occurred just two decades ago, Soros made his nation-shaking bet in a very different time. Back then, hedge funds hadn’t yet entered the public consciousness, restrictions on capital flowing from one country to another were just lifted, and the era of the 24-hour news cycle had just begun.

To appreciate how Soros made a fortune betting against the British pound requires some knowledge of how exchange rates between countries work, the macroeconomic tools governments use to stimulate economies, and how hedge funds make money. Our readers are invited to correct us if we stumble in explaining any of these concepts.

And so onwards with the story of how George Soros led a group of traders to break the entire foreign currency system of Great Britain—and profit handsomely at the expense of British taxpayers and others who were on the wrong side of the greatest financial bet of the 20th century.

Picking Up the Pieces in Europe

Let’s start by laying out the historical backdrop for Soros’ gambit. After Word War II, European countries wanted to integrate their economies more tightly with each other. The hope was that tighter relations would prevent catastrophic wars from breaking out every few decades and create a Pan-European market that could compete with the United States. This culminated in the European Union (EU), which didn’t assume its current form with a single currency until 1999.

A precursor to the EU was the European Exchange Rate mechanism (ERM), which was created in 1979. Countries weren’t ready to give up their national currencies, but they agreed to fix their exchange rates with each other instead of “floating” their currency and letting capital markets set the rates. Since Germany had the strongest economy in Europe, each country set their currency’s value in Deutschmarks. They agreed to maintain the exchange rate between their currency and the Deutschmark within an acceptable band of plus or minus 6% of the agreed upon rate.

With fixed exchange rates, countries can’t just “set it and forget it.” People trade currency every day, exchanging their currency to buy imports or sell exports, and the market applies pressure based on what it thinks the actual rate should be based on supply and demand for a currency. To keep the exchange rate fixed, governments need to participate in the market and nudge it in the agreed upon direction.

Governments can manage their currency in two main ways. First, they can take their reserves of foreign currency and buy up their own currency on the open market. That causes the currency to appreciate. Doing the opposite devalues the currency.

Alternatively, governments can influence exchange rates by setting interest rates. Want your currency to appreciate? Raise rates to entice people to buy your currency and lend that money at higher interest rates. Want your currency to depreciate? Cut interest rates so capital needs to go elsewhere in search of juicy profits.

Messing around with interest rates is a big deal, however, because interest rates affect the whole economy. Along with government spending, interest rates are the main lever governments can use to adjust the economy. If the country is experiencing a recession, the government might cut interest rates to spur investment and spending. If inflation is high, the government might raise rates to shrink the supply of money.

So, all this is to say that there are consequences to maintaining a fixed exchange rate. It’s an external forcing function that ties governments’ hands on monetary policy, which may limit or even contradict what they need to do to keep the domestic economy healthy.

Britain Enters the ERM

John Major, leading proponent of ERM while serving under Prime Minister Margaret Thatcher. Major was Prime Minister when the chickens came home to roost, so to speak.

In 1990, Britain was a country that arguably could use an external forcing function to tie its hands on monetary policy. Inflation was high, productivity was low, exports were uncompetitive, and no one really believed the government was capable of fixing the issues.

The Prime Minister at the time, Margaret Thatcher, had long opposed entering the ERM, insisting that the price of the pound be set by the markets. By 1990, however, Thatcher lacked the political power to oppose other members of her Conservative party who wanted to fix their exchange rates with the rest of Europe.

The decision to join the ERM was championed by John Major, who was the Chancellor of the Exchequer in Thatcher’s cabinet. In October 1990, Britain finally enter the ERM at an exchange rate of 2.95 Deutschmark (DM) for each British pound (GBP). The British government was obligated to keep the exchange rate within 2.78 DM to 3.13 DM.

Shortly thereafter, Major replaced Thatcher as the Prime Minister. The fixed exchange rate system was to be the centerpiece of his economic plan. Major thought that the ERM would serve as a sort of “autopilot” that kept the British monetary policy on proper course. The government couldn’t play with the money supply willy-nilly because its hands were tied by the exchange rate agreement.

And to a certain extent, the policy worked. Between 1990 and 1992, inflation decreased, interest rates eased, and unemployment was low by historical standards. In 1992, however, England felt the impact of a massive global recession, and unemployment spiked to 12.7% from just 7.7% two years prior.

And so we come to 1992. Ordinarily, Britain could spur investment and spending by cutting interest rates during an employment crisis. But in this case, doing so would push the pound’s value below the agreed upon amount. So while the people of Great Britain dealt with a recession, the government’s hands were tied; they’d just have to ride it out.

Meanwhile in New York City

In 1992, George Soros was 62 years old and led the Quantum Fund, a hedge fund he founded in 1970 that bet on macroeconomic trends. Soros was already a very rich guy, but he wasn’t iconically rich, or the public figure he is today.

If hedge funds have an air of mystery about them today, this was especially true in 1992—it wasn’t until then that the term even entered the popular vernacular.

Mention of the words “Hedge Fund” by Year According to Google Books

What is a hedge fund exactly? Well, the word “hedge” provides a clue to their original purpose: investing capital to make a specific bet that something will happen. Hedge funds also use financial instruments to “hedge” against other risks in order to more clearly isolate the bet that they want to make.

Here’s an example. Say you’re a hedge fund that thinks AT&T’s cell phone network stinks and you want to bet against it. You could “short” the stock (make money when the stock goes down), but the whole cell phone market is going gangbusters, so AT&T might get new customers even though it stinks. If that happens, AT&T’s stock price could go up, and you’d lose a lot of money. To “hedge” against this risk, you buy some Verizon stock as well, because more precisely, you think that AT&T is crappy relative to Verizon.

Now, if cell phone carrier stocks increase in value, you still make money in the event that Verizon goes up more than AT&T does. Conversely, if cell phone stocks go down, you still make money if AT&T’s stock goes down faster than Verizon’s does. By creating a position like this, you’ve “hedged” a lot of the more general market and industry risks away and made a very specific bet: that AT&T stinks compared to Verizon.

Another thing hedge funds do (if they’re pretty sure about their wager) is borrow funds to put even more money behind the bet. On the AT&T-Verizon trade, they might make a little bit of money on each share. But if they use mostly borrowed money, they can buy a lot of shares without fronting much capital. So if you’re really sure a bet is right, you might borrow a lot of money to enhance your payday.

A final thing to note about hedge funds is how their managers get paid. The managers are typically investing other people’s money (rich people, endowments, etc), and they receive management fees to cover the fund’s expenses; this includes a salary. The standard is about 2% of the funds under management. So if you manage a very large hedge fund in terms of the amount of money being invested, you can earn some decent income regardless of how the fund performs. But not enough to make you a billionaire.

Hedge fund managers become billionaires by placing really successful bets. Managers earn around 20% of the returns that the fund creates (assuming the fund meets some minimum benchmark). So if your fund makes a bet that produces a billion dollar return, you and your partners make at least $200 million of that. Do that for a few years, especially if you place larger and larger bets, and voila! You’re a billionaire.

So in short, hedge funds try to make isolated bets using financial instruments. They borrow money to make the potential rewards even sweeter, and hedge fund managers can make boatloads of money when they bet right. And that’s exactly what Soros and his partners were about to do.

A Mis-priced Currency Means Big Opportunity

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By the spring of 1992, just a year and a half after Britain joined the ERM, the fixed exchange rate posed a serious problem. While putting on a cheery public face, internally the Exchequer (England’s Treasury department) realized that the currency was mispriced relative to the Deutschemark. Jonathan Portes, an economist who was at the time a junior staff member there, wrote:

“In May 1992, the immediate problem was obvious. From a domestic point of view, the appropriate level of interest rates, given weak demand, was much lower than that necessary to maintain [the] sterling’s position in the ERM.  

Moreover, it was becoming increasingly clear that sterling was overvalued; even in the depths of a recession, we still had a large current account deficit [the country was importing more than it exported].

We argued that the fundamental problem was that we’d joined the ERM at the wrong rate; sterling was overvalued, meaning that we were stuck with a structural current account deficit.” 

The sterling was priced too high. The British government knew it, and the market knew it too as the pound was trading at the lower end of the agreed upon band with the Deutschemark.

What kept the pound from plummeting in value was the British government’s guarantee that it would keep the value propped up, and the market believed that it would. As long as everyone believed that England would stay indefinitely committed to buying pounds for around 2.95 Deutschemarks, the status quo was maintained.

The Flashpoint

 “Markets can influence the events that they anticipate.” 

– George Soros

Throughout the summer of 1992, the British pound held its position. That is, until Germany threw Britain under the bus and all hell broke loose.

For some time that year, German central bank officials made comments on and off the record that undermined the sterling’s strength. The British paper The Independent documents the slights:

“On 25 August, for example, Reimut Jochimsen, a Bundesbank council member, issued a speech saying that there was potential for realignment within the ERM. Sterling weakened. On 10 September, an unnamed Bundesbank official was quoted as saying that a devaluation of sterling was inevitable. The pound fell.”

The event that ultimately led to the undoing of the British pound’s fixed exchange rate was an interview with the President of the German Bundesbank, Helmut Schlesinger. Schlesinger gave the interview to the Wall Street Journal and a German newspaper. He had one condition: If they wanted to directly quote him, they had to let him review the quotes. If they only indirectly paraphrased him, no such permission was necessary.

President of the German Bundesbank, Helmut Schlesinger

That night on September 16th, 1992, the following report paraphrasing Schlesinger’s words went out over the newswires:

“The President of the Bundesbank, Professor Helmut Schlesinger, does not rule out the possibility that, even after the realignment and the cut in German interest rates, one or two currencies could come under pressure before the referendum in France. He conceded in an interview that the problems are of course not solved completely by the measures taken.”

By the morning, the report landed on George Soros’ desk. Soros and the entire financial market took this to believe that the pound sterling was one of those currencies that could “come under pressure” and be devalued.

In just one day, this seemingly innocuous, paraphrased quote would bring devastation to the Bank of England and net George Soros over a billion dollars in profit. The market ceased to believe that England would be able to maintain its current exchange rate—and that belief was all that was keeping the pound from falling.

The Trade of the Century

“There is no point in being confident and having a small position.”

– George Soros

Since August, Soros and his Quantum Fund had been building a $1.5 billion position to bet that the price of Sterling would fall. Since the British government’s full faith and credit was stating that it would not fall, this wasn’t necessarily something that was going to happen. But Stanley Druckenmiller, a senior member of the fund, saw the report from Schlesinger and immediately realized its importance.

Sebastian Mallaby’s book More Money Than God recounts the day’s events. According to Mallaby, Druckenmiller noted that their $1.5 billion bet against the pound was about to pay off and that they should consider adding to the position.

Soros retorted with a different strategy: “Go for the jugular.

If Schlesinger’s quote could be used as the catalyst for the pound to devalue, why shouldn’t today be the day it happened? Instead of slowly building up a short position against the sterling, the Quantum Fund could short sell sterling on an unprecedented scale today. Doing so would not only help hasten the tumble of the sterling, but also increase the fund’s profit.

It was this decision to “go for the jugular”  that netted Soros’s firm over a billion dollars, toppled the Bank of England’s currency regime, and ultimately led to the disgrace of the Prime Minister. It also cost the British taxpayers billions.

The man himself, George Soros. Picture from “Charlie Rose”; modified by Priceonomics.


Let’s walk through Soros’s trade to understand why it was so elegant. As we stated earlier, the trade was for the Quantum Fund to “short” the British pound, meaning they would make money if the currency’s value went down.

Now, what exactly does it mean to “short” a currency, or anything for that matter? Let’s say it’s January 2009 and you think Apple’s iPhone is over the hill and that the company’s stock price (of $90) will decline. How do you benefit from this insight?

Well, you or your broker can go to someone that owns some Apple stock and ask to borrow a single Apple stock from them. You’ll give them back the share later and of course pay them interest for the loan. But for now, you sell that stock for $90 in cash. Two days later, the stock price is $88, so you buy one share with your $90 in cash. That leaves you with $2 in profit! (Well almost two dollars—you have to pay the person who loaned you the stock two days of interest.)

But what if you didn’t sell your Apple stock when it hit $88 and instead decided to hold onto it until the stock plummeted further? Well, you’d be screwed because the stock went up from $90 to around $600; you would lose $510 on a the trade, plus interest!

If you buy a stock, the worst you can do is lose all your money. If you short a stock, your downside is limitless because the stock can always keep going up. You can possibly lose more than all your money, and that’s a very bad thing. So if you take a short position, you want to make sure your downside risk is hedged.

And what if you want to short a currency like the British pound? In this case, you’d go to a British person or company and ask to borrow money from them. They say, “Sure, here’s 100 British pounds. Just give me back the pounds in a few days with some interest, and we’ll have some tea and crumpets.” Now, you take those 100 British pounds, and you convert them into 295 Deutschemarks at the agreed upon exchange rate.

At this point, you would really like the British pound to lose value relative to the Deutschmark. Why? Because if the British pound depreciates 10%, when you convert the 295 DM back to pounds to repay the loan, you’ll have 110 pounds. You can pay back the 100 pounds and a little bit of interest, and you’ll still clear about 10 pounds in profit.

So you make money if the pound devalues. But what if the pound appreciates? You’ll lose your shirt. Therein lies the brilliance of Soros’s bet: if the pound tanked, they would make billions on their short. And if the pound increased in value? Well, that scenario was impossible because everyone knew the sterling was over priced. It already traded at the bottom of its trading band, and the only thing that kept it propped up was government intervention. There was no scenario in which the pound would appreciate.

So, either the pound would stay about the same in value (in which case Soros’s fund wouldn’t make any money, but wouldn’t lose that much money), or the pound would be devalued and the firm would make an obscene amount of money. There was no massive downside—only a massive upside.

As The Handbook of Hedge Funds puts it:

“If speculators were to break the ERM, being short the pound could turn out to be a very profitable position. Even if the devaluation did not occur, the chances of seeing the pound strengthen were small — it was more likely to stay at the bottom of its fluctuation band. The only downside for speculators was transaction costs.”

And so that morning, Soros and his fund increased their short position against the British pound from $1.5 to $10 billion. It was the perfect bet with a mitigated downside and a limitless upside. It was like betting on a coin flip, were if the coin lands on heads (the pound devalues), they make a lot of money. If the coin lands on tails (the exchange rates remained fixed), they only lose a small amount of money on loan interest. That’s the kind of bet Soros would pour money into all the day, even if he had to borrow billions.

Fighting off the Speculators

“Our total position by Black Wednesday had to be worth almost $10 billion. We planned to sell more than that. In fact, when Norman Lamont [the British finance minister] said just before the devaluation that he would borrow nearly $15 billion to defend sterling, we were amused because that was about how much we wanted to sell.”

– George Soros, 1992

As Europe slept, Soros borrowed and sold pounds from anyone that he could. The Quantum Fund’s position exceeded $10 billion shorting the pound. Other hedge funds got wind of the trade (and the report from the Bundesbank) and started following suit, also borrowing and selling pounds.

By the time London markets opened for business and British treasury officials started their day, tens of billions of pounds had been sold. The pound was dangerously close to trading below the levels mandated by the ERM.

The Bank of England was about to have a very shitty day.

British officials first responded by buying one billion pounds at 8:40 AM. The purchase had no effect on the price of the pound. The whole world was selling, and the British government didn’t have the buying power to fight it all off. It’s estimated that the British government spent £27 billion of its reserves buying up pounds to no avail.

By 9AM, finance minister Norman Lamont contacted Prime Minister John Major and told him they couldn’t possibly buy up enough pounds to keep the currency propped up. The only option left for the British government to keep their currency trading at the right level would be to increase interest rates dramatically and attract people to buy pounds. Major refused. Britain was in the midst of a recession, and increasing rates would further shrink the economy. It would be political suicide.

Blood was in the water. Global capital continued to bet against the pound. An hour and a half later, Lamont called the Prime Minister to re-plead his case. The Prime Minister relented. At 11AM, the British government announced they would increase interest rates 200 basis points, from 10% to 12%.

How did the value of the pound react to this enormous increase in interest rates? Nothing happened. The pound continued to plummet. Lamont headed to the Prime Minister’s residence to figure out how to salvage the situation, which led them to announce an interest rate increase of another 300 basis points, from 12% to 15%.

What was the effect of this rate increase on the sterling? Again, nothing. As Mallaby later documents in his book, Soros and the gang of speculators knew victory was near:

“At their desks on the other side of the Atlantic, Druckenmiller and Soros saw the rate hikes as an act of desperation by a dying man. They were a signal that the end was nigh–and that it was time for one last push to sell the life out of the British currency.”

The market expected that Britain would have to devalue its currency and that no amount of interest rate hikes or currency purchasing would change that. At this point, the sentiment that Britain would exit the ERM and devalue its currency was a self-fulfilling prophecy; if the speculators believed it enough to put their money behind it, it would eventually come true.

At 7:30 PM that night, Lamont held a news conference to announce that Britain would be exiting the ERM and floating its currency on the market. Soros and the speculators won.

The Aftermath of Black Wednesday

British financial history now refers to September 17, 1992, as “Black Wednesday;” George Soros, however, probably calls it something like “Awesome Wednesday.” Once Great Britain floated its currency, the pound fell 15% versus the Deutschmark and 25% versus the US Dollar.

If you’ll remember, Soros’s Quantum Fund had approximately $15 billion betting that the pound would fall versus other currencies. They had borrowed billions to make this trade, and they were right. Here’s what happened to the value of their fund versus the price of the pound:

Source: The Handbook of Hedge Funds


The value of the fund increased almost instantly from $15BN to $19BN when the pound floated; a few months later, the fund was worth almost $22 BN. Remember, this is a hedge fund, so Soros and his partners made at least 20% of that $7 billion upside, which is at least $1.4BN. And that, my friends, is how you become a billionaire.

The nature of Wall Street trading is that if you win big, someone else must lose big. In this case, there was an enormous wealth transfer from the British taxpayers to Soros and other hedge fund managers. The Guardian recounts:

“Jim Trott, former chief dealer for the Bank of England, described the day as “stunningly expensive”. He said that behind the scenes he bought more sterling in four hours that day than anybody had before or since. All of his purchases lost value during the day – and went down even more when the government pulled out.”

In the run up to the devaluation, the British Treasury kept spending its foreign currency on British pounds that become much less valuable after the Treasury floated the exchange rate. To maintain the fiction that the pound was properly priced, it essentially paid a dollar for something everyone knew was going to be worth three quarters. The cost to British taxpayers was estimated at roughly £3.3 billion.

Losing billions of dollars of taxpayer money is so routine for politicians that they may not lose any sleep over the matter. They do, however, care about the political implications of publicly looking like a bunch of incompetents. You can’t make multiple announcements in a single day that you’re massively hiking interest rates in the middle of a recession or completely changing how foreign currency works without giving everyone the impression that you have no idea what you’re doing.

John Major had made entering the ERM the centerpiece of his monetary policy and his plan to bring austerity to England. The events destroyed his credibility. Voters booted Major and his party from power in the next election. As it turns out, Margaret Thatcher was right: the UK had no business trying to artificially prop up its currency in an era when a handful of hedge funds could assemble more capital in a few hours than the Bank of England had at its disposal.

If you’re looking for a take away from this story, that’s one of them. The amount of money sloshing around global markets is so enormous that it can bring even the British government to its knees in one day.  Another takeaway is that regulations like this can create unexpected loopholes, and someone more clever than the politicians will eventually spot it.

But perhaps most importantly, this story shows the power of the one-sided bet. In 1992, the bet was a well-designed macroeconomic trade against fixed exchange rates, executed by George Soros and his team. If they were wrong, the downside was almost zero. But they were right, and the upside was unfathomably high.

Bets like that almost never come along, but when they do, enormous transfers of wealth take place from the sheep to the wolves.

Soros Fund Co-Founder Jim Rogers on China and Global Investment

Jim Rogers has been fascinated by China since he drove his motorcycle across the country in the 1980s. The investing legend joins Real Vision to give his view of the rising Asian superpower and, more broadly, on rising Asia in general. Rogers provides his views on the Hong Kong crisis and the simmering trade war. He also weighs in on whether the era of US dollar primacy has passed — especially now that the United States has become, in Rogers’ view, “the largest debtor nation in the history of the world.” Filmed on September 10, 2019 in Singapore.

You know the rest of the story, you know what happened there, but Mr. Trump is smarter than
history so we don’t have to worry.
Mr. Trump knows he can handle history and none of us should worry, because he’s smarter
than history.
Even though people say trade wars are bad, and often lead to shooting wars, don’t worry,
I’m smarter than history.
MATT MILSOM: He does seem to be able to just move to the next person once he’s had– go
at somebody then it slackened off, just goes to next target is going to be Europe, once
he’s done with China, even though nothing’s actually resolved.
JIM ROGERS: The problem, Matt, is that when things get bad, so far the American economy
has held up well because of a lot of money printing, out of government spending, cut
taxes, everything possible to hold up the American economy has held it up.
When things get bad in America as they will, Mr. Trump is not going to say, “It’s my fault.
I got it wrong.”
Donald Trump is going to say those evil Germans, those Koreans, those Canadians, and he’s going
to come back hard with more and more whatever you want to call it.
The situation, we’re going to have the worst bear market in my lifetime.
I can tell I’m older than you, so it’s going to be the worst in your lifetime, too.
What I suggest you do is watch Real Vision, and you’ll get educated, and you will see
how bad things are.
Then you’ll get there.
Most people will turn on the internet or turn on the TV, say, “Wow, look at this.
Things are great.”
Mr. Trump tells you every day, if you watch American TV, he will explain you things are
really, really very good.
You don’t worry.
Maybe you need somebody crying wolf, maybe you need somebody saying, “Wait a minute,
guys, wait a minute.
Look at this.”
Maybe Real Vision is the last vision for all of us.
MATT MILSOM: You think he gets back in?
JIM ROGERS: Get back into what?
MATT MILSOM: Trump 2020?
JIM ROGERS: I got to respect you, what I think it’s– I know it’s very hard to dislodge a
sitting president in America for many, many reasons.

I would suspect that’s the same to this time.
Now, we got rid of Coolidge, and Hoover.
We got rid of Hoover because the market collapsed but we don’t have much time for that because
the election is only, what, 13-14 months away now.
If the market really collapses in the next 13 or 14 months, then I would change my view,
but there are enough things he can do, which is why it’s hard to get rid of sitting presidents.
They’ll prop things up long enough to get through the election.
I would, if I were betting and I’m not a betting man, but if I were, I would bet that Trump
will be reelected.
MATT MILSOM: A lot of speculation that he might actually start to swerve the Fed and
play the currency markets himself for the Treasury.
JIM ROGERS: What, Trump will start buying what?
US dollars or renminbi?
What’s he going to buy?
MATT MILSOM: He’s going to be selling dollars.
JIM ROGERS: He could do that.
Yes, and he might.
He cannot force the Fed to do it.
No, but he could, he could browbeat him.
He can certainly force the Treasury to do that, to sell US dollars.
First of all, I’m not sure the market would put up with it, it would for a while, obviously,
it would for a while, but eventually, the market, as I said to you before, I mentioned
the market’s going to say to these guys, “We’re not going to play this game anymore.
This is an absurd, ludicrous game.
It’s never happened before.
We know it’s not going to work.
We’re not going to play anymore.”
Okay, maybe we’ll try.
I don’t think it’s enough.
Maybe it’s enough to save the election, I said to you before.
It’s so difficult to dislodge a sitting president.
There are lots of things he can do.
If he needs votes in that state, he spends a lot of money in that state.
His opponent cannot do that, the opponent can say look, what a terrible person he is.
He’s spending money in your state.
The people say, thank you, thank you spend more money in my state.
We’ll vote for you.
MATT MILSOM: He can almost play the Fed to his own fiddle, I guess at the same time.
He can blame them if it goes– JIM ROGERS: He certainly can blame them, whether he can
persuade them.
He seems to be persuading them now is another question, but sure.
That’s what I mean, if he goes in there and threatens them, or does x or does y, sure
he can.
That’s the problem when you’re the president, or the advantage when you’re the president.
MATT MILSOM: I see Powell’s having a bit more backup by myself.
I just think he’s his own guy.
Really, he’s not a PhD Economics.
He’s a– JIM ROGERS: That’s the best news.
I believe PhDs, which is bad news.
We’ll see.
MATT MILSOM: I could see that arising a bigger conflict there, you think between Powell and–
JIM ROGERS: No, I can see a huge conflict and that’s going to– the Federal Reserve,
its debt went up by five, six times in 10 years.
If I had said to you 20 years ago, a major central bank in the world is going to increase
the debt on its balance sheet by 500% in 10 years, you’re going to say, “Get out of here.
We’re not going to talk to you anymore.
You’re not even smart enough to talk on TV.
What are you talking about?”
It’s inconceivable that it could have happened, but it’s happened.
Sure, they have a problem, too.
How far can they go?
How far can any of us go?
MATT MILSOM: It surprised me the volatility’s so cheapened right now.
JIM ROGERS: The debt worldwide is the highest in world history.
Interest rates are the lowest in world history.
In 2008, we had a big debt problem.
China, which had a lot of money saves for a rainy day, started spending the money and
helped save the world, but even China now has debt.
China can’t save the world anymore.
The central bank came riding in with its printing presses, helped save the world.
That’s getting late for all the printing presses in the world.
It’s getting late in the day.
MATT MILSOM: Is the rate of change as well as a debt in China that’s extraordinary just–
JIM ROGERS: Oh, no, I know.
To repeat, ports in China has said we’ll let them go bankrupt.
I don’t think they will.
Not that they’re lying, I think they believe that they’re going to let people go bankrupt
but they haven’t had this problem in decades.
They’re bureaucrats and they’re academics, haven’t felt the pressure of people calling
up saying, “You must save Chinese civilization.
This is Chinese history, our image our integrity.”
No, they haven’t had that gigantic pressure from everybody in the country, they’re saying,
“Save Chinese civilization.”
What they really mean it save me.
They haven’t had that yet.
MATT MILSOM: Xi as a link leader seems to be much more of a Maoist than ever before,
to me.
JIM ROGERS: I’m not sure Maoist, but they’re certainly closing off in that sense.
Deng Xiaoping started opening up and Deng Xiaoping said you open the windows, you’re
going to get some flies, but you’re going to get fresh air and sunshine, and the fresh
air and the sunshine are worth the flies.
He seems to be saying we don’t want flies and the last 40 years, much of the progress
has been 18-year-olds in a garage doing crazy things on the computer.
Alibaba, Microsoft, the names go on, and on and on.
These were just kids doing wild, crazy things on the internet, which was open and free to
nearly everybody.
You start closing these things off, and it’s going to slow progress, it’s going to slow
things now, whether we like it, history is always showing that.
You close off and you go into decline.
It does seem to be happening not just in China, even in the US, but it does seem to be happening
more and more, so maybe we’re in for the dark ages again.
MATT MILSOM: I don’t know.
It’s almost that you think about where you’re going to head or what currency you need to
get into, where you’re going to be safe.
Do you know what I mean?
You start thinking about– JIM ROGERS: That’s not what I mean.
I don’t have a job.
I can’t figure out a way to save myself.
MATT MILSOM: You made the move to Asia on the back of those thoughts, I guess that that’s
going to be a Pacific centuries.
JIM ROGERS: Well, I moved here you because I know that the 20th century is Asia, 21st
century is Asia.
I wanted my children to know Asia and to speak Mandarin.
That’s the best preparation I can give them for the 21st century.
That’s why I’m here.
Of course, Asia is continuing to develop and boom and head of the rest of the world.
There is some debt in Asia, but nothing like in the West.
Most of the Western countries are really broke, especially when you pull into pension plans.
Europe’s got gigantic pension, US too, gigantic pension obligations, which they’ll never able
to [indiscernible].
Demographically, where does that end up?
JIM ROGERS: It’s already starting to ruin a lot of people.
Asia has probably– will have problems but nothing like some that are rising in the West.
I can’t bear for my kids.
MATT MILSOM: The world of agricultural investment view is still a– JIM ROGERS: Yeah, agriculture
has been a disaster for 35 years or so.
The average age of farmers in America is 58.
More people in America study public relations and study agriculture.
The highest rate of suicide in the UK is agriculture.
Of Japan, the average age of farmers is 68.
Nobody becomes a farmer, you go to Japan now, there’re huge stretches of land, they’re just
They can’t find anybody to farm them.
Farmers have died, the kids have gone to Osaka.
There’s nobody to farm that land.
If you want to be a former, go to Japan.
You can get a lot of land cheap.
That’s true.
Australia, Canada, all of these countries have very, very aged old farmers, men and
It’s millions of Indian farmers have committed suicide, as I’m sure you know.
No, no, agriculture is a disaster.
The Chinese have a word, you know the Chinese word weiji?
It means disaster and opportunity are the same and they are.
If you can survive the disaster, you’re going to make a lot of money with the opportunity.
MATT MILSOM: I guess the commodity complex per se, are softer on their knees-ish for
the last five years.
They’re actually doing okay in the States.
JIM ROGERS: Yeah, yeah.
Things like sugar, sugar is down over 80% in the last 40 years, what do you notice down
80% in the last 40 years?
My IQ.
Other than that, there’s not much that has declined, that deteriorated like some of the
agricultural products.
MATT MILSOM: Difficult bet to make given the climate change, too?
JIM ROGERS: Well, yeah, climate change is taking place, is taking place for thousands
of years.
Go back and look at trees, and soil layers and iceberg layer, we see that climate change
has always been taking place one way or the other, and it seems to be happening again.
Of course, that’s going to be great for some farmers, disastrous for other farmers.
The key is to be the farmer that it’s great for, not to be a farmer that gets wiped out
because of climate change.
The Sahara Desert, which is the size of the continent with 48 states, used to be a huge
agricultural area.
Pigs, cows, wheat, corn, everything, huge, huge.
We had climate change.
We had ecological change, you know the rest of that story.
If you were a farmer in Algeria 2000 years ago, you probably didn’t do very well.
You should have moved to Iowa 2000 years ago.
MATT MILSOM: Would it be too much to ask your asset allocation now?
JIM ROGERS: You can ask, I don’t know.
I don’t sit around.
I don’t have a committee met.
I don’t have anybody to answer to.
I know I can still pay my bills.
I do own some gold and silver.
I do own a lot of US dollars, I’ve told you about.
I’m short some junk bonds, short the ETF, Russia, China.
I don’t own a lot of shares anywhere right now.
The Japanese market, I sold out of.
I used to own a lot of Japanese shares, sold out completely.
MATT MILSOM: Why was that?
JIM ROGERS: I bought them so well.
It’s not often I get it right so I’m going to brag for a minute.
The Japanese market was very, very cheap and I started by and then the tsunami.
Remember the tsunami?
Everything collapsed, I bought a little, gone up a lot, it tripled since then.
I could see wasabi and the toll got stronger and stronger and stronger.
They’d already printed lots of money.
The central bank said we’ll print as much as we have to.
That’s what they said.
They said it out loud.
Not some crazy guy saying it.
I said what else can happen?
What else can go right?
They’ve spent a lot of money on infrastructure.
They bought a lot of securities, so I sold out.
So far, I’m right, but don’t worry, I make plenty of mistakes.
MATT MILSOM: I guess, it changed your beast, don’t even trade anymore, eh, because there’s
no float?
JIM ROGERS: Nothing to trade, why would you buy them?
Who’s going to buy them, except a central bank?
MATT MILSOM: They have to keep going?
JIM ROGERS: I told you I have.
I’m going to Japan tomorrow, there’s been a best seller saying, “A Warning to Japan.”
If they keep going– MATT MILSOM: That’s a book?
MATT MILSOM: Sorry, I didn’t know that.
JIM ROGERS: No, it’s the number one bestseller.
MATT MILSOM: Congratulations.
JIM ROGERS: I’m shocked.
I’ve made two number one bestsellers.
MATT MILSOM: What was the other one?
JIM ROGERS: I forget that, it was some Japanese.
It was something like, “A Warning to Japan.”
MATT MILSOM: But this is a specific for that market, or they were– JIM ROGERS: Two books
in Japanese.
They were translated, my English was translated into Japanese.
Two books in 2019 have been number one bestsellers by me.
This is a shock.
How could this happen?
I’m more surprised than anybody.
They called me up, that smarty say you got to come to Tokyo.
I said why?
He said your books have won bestseller.
I forgot about the book.
The book resulted from some reporters coming here and interviewing me like you.
We’re out for several hours.
I said we’re going to publish this.
Okay, go ahead.
I don’t care.
Forgot about it.
MATT MILSOM: You got a book tour now?
JIM ROGERS: Yeah, I’m leaving tomorrow.
I’m going tomorrow for a book tour in various cities of Japan, promoting, “A Warning to
MATT MILSOM: What was the essence of that?
Was that demographics or that– JIM ROGERS: If you’re 10 years old, you better get out.
If you’re 10 years old, you better get an AK47 and learn how to use it.
These are not– it’s simple.
I say to them, they will say, of course, he’s a foreigner.
Don’t worry.
The Japanese don’t like foreigners, and so they will just say, he’s a– whenever they
say they don’t like somebody, they say he’s a foreigner so you don’t have to listen to
I say to them, yeah, okay, I’m a foreigner, but this is arithmetic.
It’s addition, the debt goes up every day.
That’s simple addition and it’s subtraction, the population goes down every day.
Central bank has been printing huge amounts of money.
This is just simple addition and subtract.
Forget that I’m foreigner and for some reason, both of them became number one bestsellers.
I guess it’s because nobody in Japan ever says things like this.
I don’t know why I became, but listen, I’m shocked.
MATT MILSOM: Do you have any views on Softbank?
JIM ROGERS: So far, they’ve made a lot of money but I don’t know enough to say much
more than that.
I read that problems are developing, but I have no knowledge, enough knowledge to say
anything other than that.
MATT MILSOM: I guess WeWork is the speculation for those issues there, for the float.
JIM ROGERS: WeWork is not their only asset at Softbank.
What I read about WeWork, WeWork may be one of those things.
You remember in 1999?
I think it was called or something.
It was one of those things that was when people talk about the end of the bull market or the
signal, or the sign that it was over, that may be WeWork now.
They were printed out in 1999.
That’s the one that people often bring up, I was not sure.
I wish I had but they bring that one up.
Now, if you look at the current bull market, maybe someday in 10 years, we’re all going
to look back and say, “They rang that bell.
That bell was called WeWork.
That was the sign that we were coming to the end.”
It’s always something that people look back on that it may be WeWork.
MATT MILSOM: The amount of questioning that browned the IPO pricing makes you think that
the greater fool game may have just come to a grinding halt.
JIM ROGERS: I’ve never read the Prospectus but I’ve read a lot in the papers about the
story, the company, that IPO, the CEO, etc.
Just I’m sure you have too.
I read it and I say this is 1929, this is 1999.
This has all happened before.
MATT MILSOM: They have nines in them.
See, 1899– well, anyway, you read, I read this stuff and I’d say oh, yeah, this has
happened before.
I remember reading about things like this in previous bull markets, previous bubbles.
MATT MILSOM: What brings you to an investment then?
Is there a sector or there is an idea or somebody pitches to you?
JIM ROGERS: No, it’s usually– the nature of who I am, I’m always looking or I’m always
If I stumble on something, I’m not out looking like I used to, but if I stumbled on something,
I often do homework and then I’m in this Russian stock that I’m buying, I stumbled on it.
The more homework I do, the more I buy.
I continue but it’s usually I will stumble on something.
MATT MILSOM: Public, is it a public stock?
JIM ROGERS: Yeah, it’s a public company.
Which sector would have been?
JIM ROGERS: You’re a very good reporter, but I’m not going to tell you because if I told
you, you would know exactly what I’m buying.
I’m sure it wouldn’t be that easy to spot.
JIM ROGERS: There are plenty of disasters in Russia.
Everybody hates Russia now, so Russia’s on my list.
Anyway, I will probably buy Russian government bonds and rubles again soon.
I own Russian government bonds in rubles.
The yield is very, very high.
The ruble is hated.
The Russians are hated, et cetera.
MATT MILSOM: Any other markets that are particularly hated that you fancy?
JIM ROGERS: Well, I told you Venezuela but you and I cannot do it.
I cannot do anything in Venezuela.
Zimbabwe, I bought a few shares of Zimbabwe, some of the North Korea but that’s illegal,
I’m looking, but part of the problem is there are few markets that are hated so much.
I mean I am buying Russia, it’s still hated.
Most markets, even Germany.
Look at Germany hit peak, what, two years ago.
Been going out since but it’s not cheap.
It’s not hated.
Germany still a very large and [indiscernible] economy.
No, I don’t see many now that jumps off the page to me and says, oh my God, you got to
buy this disaster.
I would love to find something like that, but I’m too lazy.
MATT MILSOM: I’m thinking there’s probably a good places to stop.
JIM ROGERS: I’m too lazy.
Very good places to stop buying, I commend laziness to all of you.
Watch Real Vision and get lazier and lazier, and lazier.
MATT MILSOM: Jim, thanks for having us and thanks very much for coming on.
JIM ROGERS: My delight, my pleasure.

Damage Control at Facebook: 6 Takeaways From The Times’s Investigation

In fall 2016, Mark Zuckerberg, Facebook’s chief executive, was publicly declaring it a “crazy idea” that his company had played a role in deciding the election. But security experts at the company already knew otherwise.

They found signs as early as spring 2016 that Russian hackers were poking around the Facebook accounts of people linked to American presidential campaigns. Months later, they saw Russian-controlled accounts sharing information from hacked Democratic emails with reporters. Facebook accumulated evidence of Russian activity for over a year before executives opted to share what they knew with the public — and even their own board of directors.

In 2015, when the presidential candidate Donald J. Trump called for a ban of Muslim immigrants, Facebook employees and outside critics called on the company to punish Mr. Trump. Mr. Zuckerberg considered it — asking subordinates whether Mr. Trump had violated the company’s rules and whether his account should be suspended or the post removed.

But while Mr. Zuckerberg was personally offended, he deferred to subordinates who warned that penalizing Mr. Trump would set off a damaging backlash among Republicans.

Mr. Trump’s post remained up.

As criticism grew over Facebook’s belated admissions of Russian influence, the company launched a lobbying campaign — overseen by Sheryl Sandberg, the company’s chief operating officer — to combat critics and shift anger toward rival tech firms.

Facebook hired Senator Mark Warner’s former chief of staff to lobby him; Ms. Sandberg personally called Senator Amy Klobuchar to complain about her criticism. The company also deployed a public relations firm to push negative stories about its political critics and cast blame on companies like Google.

Those efforts included depicting the billionaire liberal donor George Soros as the force behind a broad anti-Facebook movement, and publishing stories praising Facebook and criticizing Google and Apple on a conservative news site.

Facebook faced worldwide outrage in March after The Times, The Observer of London and The Guardian published a joint investigation into how user data had been appropriated by Cambridge Analytica to profile American voters. But inside Facebook, executives thought they could contain the damage. The company installed a new chief of American lobbying to help quell the bipartisan anger in Congress, and it quietly shelved an internal communications campaign, called “We Get It,” meant to assure employees that the company was committed to getting back on track in 2018.

Sensing Facebook’s vulnerability, some rival tech firms in Silicon Valley sought to use the outcry to promote their own brands. After Tim Cook, Apple’s chief executive, quipped in an interview that his company did not traffic in personal data, Mr. Zuckerberg ordered his management team to use only Android phones. After all, he reasoned, the operating system had far more users than Apple’s.

Washington’s senior Democrat, Senator Chuck Schumer of New York, raised more money from Facebook employees than any other member of Congress during the 2016 election cycle — and he was there when the company needed him.

This past summer, as Facebook’s troubles mounted, Mr. Schumer confronted Mr. Warner, who by then had emerged as Facebook’s most insistent inquisitor in Congress. Back off, Mr. Schumer told Mr. Warner, and look for ways to work with Facebook, not vilify it. Lobbyists for Facebook — which also employs Mr. Schumer’s daughter — were kept abreast of Mr. Schumer’s efforts.



What Facebook Knew and Tried to Hide (28 min audio)