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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7171)	7/23/2005 11:37:57 AM
From: Jon Koplik	Respond to of 33421

(last part of) Barrons piece -- makings of a squeeze / currencies / hedge funds / etc. .................. MONDAY, JULY 25, 2005 FUND OF INFORMATION Philadelphia Story: A Tale of Caution By JACK WILLOUGHBY THOSE WHO REMEMBER Julian Robertson, take note. Some hedge funds might suffer a similar fate from last week's revaluation of the Chinese currency, according to Mark Turner, proprietor of Pentagram Investment Partners, a Boston-based hedge fund that specializes in global capital markets. Robertson was one of the early great hedge-fund investors. His fund blew up in 1998 after he bet big against the Japanese currency in the so-called yen carry trade. The current version could potentially yield the same devastating results if the dollar continues to drop and the yen appreciates further as the result of the unpegging of the Chinese renminbi. Turner notes that some of the more cutting-edge hedge funds have altered their currency carry-trade bets and counted on continued firmness of the U.S. dollar. Remember how a few months ago people were nervous about the greenback's fate? These funds have been shorting a combination of the yen and the Swiss franc and going long the U.S. dollar to lock in the interest-rate differential. Technically, the funds borrow yen and Swiss francs, at low short-term interest rates, to buy higher-yielding and, until recently, appreciating greenbacks. Trouble is, the yen shot upward by 2.5% Thursday along with most Asian currencies in the announcement of the renminbi's float. If the dollar drops to trade in the 105-110-yen band, we could have the makings of a squeeze, with effects that can't be guessed because hedge funds use mounds of leverage. "It's really early to tell, and we won't know for the next few weeks, but there could well be a squeeze going on behind the scene in some accounts shorting the yen," recalls Turner. "Remember what happened to Julian Robertson when he got caught?" One shivers at the thought. Much will depend on how this Chinese revaluation shakes out. E-mail comments to editors@barrons.com Copyright © 2005 Dow Jones & Company, Inc. All Rights Reserved.