Something is happening to the Egyptian Pound that happened
to many currencies before it. The Pound is under attack by the speculators.
Something like this happened in recent times to Turkey ,
to Russia , to Mexico , further
down to a number of Latin American countries, and further East to a number of
Asian countries. But more tellingly, it happened to the British Pound whereupon
the speculator known as George Soros made a cool billion dollars in profit at
the expense of the Exchequer without adding to the wealth of the nation as much
as a grain of wheat, an ounce of meat or anything else.
Perhaps this is why the new governor of the Egyptian central
bank flew to London
only hours after being appointed to the post. Maybe he is there seeking to
learn how the Brits handled the situation when it happened to them. Well, to
attempt to understand something about what may happen in such a situation, we
need to expand the discussion and talk about all sorts of speculative games that
speculators play.
There are times when speculators must be thought of as
financial sharks, and there are times when they must be thought of as vultures.
The thing is that a shark is drawn to its prey when the latter gets hurt and
bleeds, thus leaves a trail in the water for the shark to follow it all the way
to the prey. As to the vulture, it can sense from high above that a potential
prey is about to succumb to an injury or to exhaustion; even to hunger or to
thirst. The vulture will wait for the prey to buckle under and when this
happens, it will swoop down on it and start to feast.
Likewise, speculators will smell the scent of blood when a
going concern gets into trouble and starts to bleed. Such concern can be a
private enterprise or a government operating with a currency of its own. Like
sharks, the speculators will swim to the prey as fast as they can and attack it
mercilessly. At other occasions, the speculators will estimate ahead of time
that a going concern is approaching the limit of its endurance. Like a vulture,
they will observe it closely and wait for it to succumb. When this happens,
they will make their move and start to feast.
This sort of drama unfolds all the time where hard assets or
financial instruments representing them are bought and sold. It happens when
the speculators who produce no wealth of any kind use the little that they
start with – be it their own assets or be it borrowed cash – and rely on the
turbulence of the marketplace to do transactions that allow them to make a gain.
Of course, they can also lose if they make the wrong bet;
which some novices do and get out of the business in a hurry. But those who
last in the business long enough to have mastered the game do very well in the
long run. They do well not only because they know how to take advantage of the
opportunities that present themselves but because they know how to create their
own opportunities.
The speculators do so by “attacking” the instruments of the
going concern. For example, if it is a company that is trading on the stock
market, the speculators would short sell the shares, a move that drops their
value – sometimes dramatically. The speculators will then buy back the shares
at a fire sale price and make a profit. This can happen to a company that is healthy
except that it was hit by something extraneous which may turn out to be real or
be a rumor. In any case the short sellers, who may have been the originators of
the rumor, will make their move and make a gain one way or the other.
At other times, a company would get into trouble because it
had “bad luck” and its shares tanked on the stock market as a result.
Eventually, the company solves its problems and gets poised to move up again
which it does to some extent. But before it reaches the level where it deserves
to be, something serious happens to the economy as a whole, and the stock
market crashes. The company shares tank again even though its fundamentals
remain solid. After a while, the economy recovers, the stock market goes
bullish but the company shares remain tanked. Why?
This happens because the speculators know that the company
shares are poised to make a dramatic move up. They are so greedy they want to
acquire as much of those shares as they can before the upward move begins. But
having sold their shares and remained without them for the duration of the bear
market, the only trick they have up their sleeve is to short sell the shares
they do not have thus scare the people who hold them and force them to sell.
When this happens, the speculators buy what is being dumped at a dirt cheap
price only to see the shares snap right back up like a slingshot. This is when
they start to sell, making a very handsome profit in the process.
And this is what the speculators have determined is
happening to the Egyptian economy at this time. They see it snap back like a
slingshot, and wish to buy as much of it as they can. For this to happen, they
want a cheap Egyptian Pound, and want the stakeholders of Egyptian assets to be
so scared as to dump at any price anything they hold. The trick they employ is
to “attack” the currency by dumping what they have (if they do) and what they
don't have (which is more likely) in the hope that they will be able to buy
back at a cheaper price.
Let us hope the governor of the Egyptian central bank will
get good advice in London .