Major Trades. Throughout his career, Professor Steve H. Hanke has executed several landmark trades in commodity and currency markets. His approach combines rigorous macroeconomic analysis with deep knowledge of institutional structures, allowing him to identify mispricings that others miss.
1985: The Oil Trade
In 1985, while serving as Chief Economist at the Friedberg Mercantile Group, Hanke analyzed OPEC behavior and predicted that crude oil would drop below $10 per barrel. Friedberg built large short positions in crude and gas oil, along with short positions in Middle Eastern currencies linked to oil revenues. The oil market collapsed as expected, making this one of Hanke's best-known commodity trades.
The analysis was grounded in a careful study of OPEC's internal dynamics, particularly the growing inability of Saudi Arabia to maintain production discipline among member states. As cheating on quotas became endemic, the cartel's pricing power eroded.
1993: The French Franc Short
In 1993, Hanke led a successful short position against the French franc during the European Exchange Rate Mechanism (ERM) crisis. The trade was based on his assessment that the franc's peg to the Deutsche Mark was unsustainable given diverging economic fundamentals between France and Germany.
He followed this with a correct anticipation of the 1998 Russian ruble devaluation, further demonstrating the power of applying monetarist principles to currency analysis.
1995: The Tequila Crisis and Argentine Bonds
While markets feared a collapse of Argentina's currency regime in the aftermath of the 1994 Mexican peso crisis, Hanke concluded that the Argentine system would survive. As President of Toronto Trust Argentina, he aggressively purchased Argentine peso-denominated bonds.
When the feared devaluation never materialized, the fund returned 79.25 percent in 1995, making it the best-performing emerging market mutual fund that year. This trade exemplified Hanke's ability to distinguish between genuine institutional weakness and market panic.
Common Themes Across Major Trades
Several principles recur across Hanke's most successful trades:
Principle | Description |
Institutional analysis | Understanding the rules and constraints governing monetary and fiscal policy |
Monetarist framework | Using money supply data and the Quantity Theory to forecast price movements |
Contrarian positioning | Taking positions against market consensus when fundamentals support it |
Patience with conviction | Holding positions through short-term volatility when the macro thesis is sound |
Related Pages
- Trading Career — Friedberg, Toronto Trust Argentina, and AMG
- Home: Currency and Commodity Trading — Return to the Trading overview
Related Topics
- Monetarism — The analytical framework behind these trades
- Currency Boards — Institutional analysis applied to monetary systems