I love the moment when Soros told Druckenmiller to go for the jugular and lever up the short of the British pound. It’s unfortunate that it turned into meme because it’s easy to miss the “conviction stack” that this generational trade was built on. 
“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
“What is most interesting to me about the breaking of the pound was the combination of Druckenmiller’s gamesmanship – Stan really understands risk/rewards — and George’s ability to size trades.” Scott Bessent
* It started with fundamental research.
* They found a ‘Soros special’ of impending regime * change.
* Soros had knew the key players intimately.
* They identified an extreme asymmetry.
* Finally, their 'bankroll' allowed them to be the bully at the table and affect the odds.
* They found a ‘Soros special’ of impending regime * change.
* Soros had knew the key players intimately.
* They identified an extreme asymmetry.
* Finally, their 'bankroll' allowed them to be the bully at the table and affect the odds.
"We did a lot of bottom-up research. Stan and George believed that if you can find out what’s going on at a micro level, you can figure out the big picture.”
“According to my theory, every exchange rate regime is flawed. There was a latent flaw in the ERM as well, but it became blatant only as a consequence of the reunification... That threw the ERM, which had been operating near equilibrium, into dynamic disequilibrium.”
"The Bundesbank was fighting for its institutional survival."
"I got my first hint from Bundesbank President Schlesinger in a speech. I asked him after the speech whether he liked the ECU as a currency... he would have preferred it if it were called the mark. I got the message.”
"I got my first hint from Bundesbank President Schlesinger in a speech. I asked him after the speech whether he liked the ECU as a currency... he would have preferred it if it were called the mark. I got the message.”
“What could you gain on the trade?” Druckenmiller asked.
“You’d probably make fifteen or twenty percent,” Johnson answered.
“How likely is that to happen?” Druckenmiller pressed.
“On a three-month time frame,” Johnson said, “about ninety percent.”
“Oh my God,” Druckenmiller said.
“You’d probably make fifteen or twenty percent,” Johnson answered.
“How likely is that to happen?” Druckenmiller pressed.
“On a three-month time frame,” Johnson said, “about ninety percent.”
“Oh my God,” Druckenmiller said.
When there was no catalyst, Druckenmiller took a $1.5bn "flyer"
"I didn’t see immediate catalysts, but I knew there were potential tremors growing. Sometimes that’s what you’ll do. Partly because you think it’s going to work eventually, but also because it makes you watch it.”
"I didn’t see immediate catalysts, but I knew there were potential tremors growing. Sometimes that’s what you’ll do. Partly because you think it’s going to work eventually, but also because it makes you watch it.”
“I don’t want to talk about it cavalierly, but it was like an intellectual position for me to put on. . . . If it had been something where we could have lost fifteen percent, it would have been very big. But I just couldn’t see that happening.”
What if, in this particular instance, taking on leverage to short more didn’t increase the risk but instead decreased the risk by making the devaluation more likely. What if Soros and Druckenmiller (and others in the trade) had a poker stack big enough to bully the other player?
Only at the last moment, when Schlesinger’s comments about a ‘broad realignment’ hit the tape, did they start selling with both hands.
Soros to Byron Wien: "the trouble with you is that you go to work every day and you think that because you go to work every day, you should do something. And you do something every day and you don't realize when it's a special day."
https://twitter.com/neckarvalue/status/997279880491491333
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