60 six-year old Don Brownstein was a physics professor before the late 80s hit and he became interested in finance and wrote a paper about securitizing commercial property leases.
In 1997, he founded Structured Portfolio Management, which is now a $2 billion hedge fund. And in 2007, he predicted the crisis and returned 185%.
Now, with returns of 49.5% in his and William Mok’s Structured Servicing Holdings LP fund, he’s just been named the best hedge fund manager of the year by Bloomberg Markets Magazine.
Read more about his year by clicking here >
He’s a brilliant guy, a former specialist in metaphysics and a history buff, and he’s explains how the U.S.’s trade imbalance with China impacted the crisis really well in simple terms.
Here’s how he explained it to FinAlternatives this summer.
It all started with the U.S. importing too many of China’s goods.
“Their currency, by all accounts, was being held at a level which made their goods cheap here.”
“We were giving them dollars that were only really worth 70 cents [in Chinese RMB]. So for every $1 we gave them, we should have given them $1.39. Put another way, we were selling them $1 bills for $1.39 in plasma TVs.”
“The U.S.’s trade imbalance with China became its largest “practically overnight.”
So we had China’s goods and China had our dollars.
“With their American dollars, the Chinese bought U.S. debt, allowing new mortgages to be created cheaply, at floating rates, at teaser rates for two or three years – the infamous 2/28 and 3/27 mortgages.”
So the American dream of home ownership met cheap money and the two conspired to drive housing prices – which had already been rising for decades – up even faster.
Legendary hedge fund manager Paul Tudor Jones continues the argument about the RMB/USD exchange rate in one of his recent letters to investors, in which he wrote:
The Chinese have set the RMB/USD peg artificially low, says Jones, and soon the US, the main buyer of China’s exported goods, will no longer be able to afford them.