At a speech Tuesday night at SMU, Treasury Secretary Scott Bessent threatened currency traders to bet against him on the , claiming,
I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do … And you can bet against me if you want.
While Bessent aimed his threatening comments at yen currency traders, the media is taking notice and presuming the words were also directed at the US Treasury markets.
Interestingly, Bessent’s verbal and physical market interventions fly in the face of recent commentary from his old boss, famed investor Stanley Druckenmiller, and Fed Chair Warsh. In our summary of Druckenmiller’s editorial (Druckenmiller Has A Warning: Don’t Mess With Markets), he argues the is “the only fiscal disciplinarian the U.S. has left,” and that “every basis point of artificial yield suppression is a subsidy to procrastination.” Fed Chair Warsh has limited forward guidance to better hear the bond market’s message. Bessent’s threatening “I am the house” makes it clear he intends to defend a price rather than let market levels prevail. This runs opposite to Warsh and Druckenmiller’s views.
There’s a real irony here, as we elaborate in a section below. Bessent helped George Soros bet against the Bank of England’s currency peg in 1992, earning them roughly $1 billion in profits.
Bessent, Druckenmiller And Soros Bet Against The House
Bessent’s threatening traders that “I am the house now” is paradoxical. In September 1992, a young 29-year-old Bessent headed the George Soros Fund Management’s London office. At the time, the Bank of England (BOE) pledged to peg the pound inside a narrow band against the German mark. Most UK mortgages had variable rates, meaning defending the pound with higher interest rates would devastate British homeowners and the economy. Thus, instead of raising rates to defend its currency, the BOE opted to defend it in the markets. Bessent, believing that the BOE could not counter market forces, convinced George Soros to bet against the pound. Stanley Druckenmiller, then Soros’s chief strategist, backed the trade too.
Bessent, Soros, and Druckenmiller were right. Currency traders sold/shorted more pounds than the BOE could buy, forcing Britain out of the European Exchange Rate Mechanism (ERM) on what became known as Black Wednesday. It is estimated that the trade earned Soros’s fund over $1 billion, and Soros has since been known as “the man who broke the Bank of England.“
Bessent returned to Soros as the chief investment officer from 2011 to 2015. During this period, he successfully bet against the yen, the same currency he’s now defending as Treasury Secretary.
It’s ironic that Bessent made millions exploiting two central banks defending an unsustainable price and is now on the other side of that trade, as he threatens to defend the yen and implicitly US Treasury yields.
Tweet of the Day
