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BL: Euro Plan ‘B’ Currency Would Save Greece, Hedge Manager Says

By Tom Cahill

April 29 (Bloomberg) -- An alternative to the euro is needed to let Greece and other European nations devalue their way to financial health, according to Sudeep Singh, a hedge fund manager who has traded in emerging markets for 17 years.

European nations are constrained by the euro because they can’t reduce the costs of their goods and services with a cheaper currency, part of the solution in at least five major emerging-market crises that Singh said he’s traded through. The credit ratings of Spain and Portugal were cut this week amid concern Greece’s difficulty to pay its debt will spill over to Spanish and Portuguese markets.

Europe should split the euro into two classes to provide an alternative to struggling nations, said Singh, 41. He proposes calling the new currency the “sestertii” after the Roman Empire coin once used across southern Europe.

“You have to view this crisis through an emerging-market prism, where we’ve seen this movie before,” said Singh, a veteran of hedge fund firms Caxton Associates LLC and SAC Capital Advisors LP, who this month started a new hedge fund firm in London called Redux Research Ltd. “In every other emerging-market crisis there’s been a currency devaluation, a debt restructuring and tighter new fiscal policy. Greece and the others can’t become competitive without a cheaper currency.”

Singh this month started the Matrix Redux Emerging Markets Fund in a joint venture with Matrix Group Ltd. The fund, and a separate managed account for emerging-markets foreign exchange he’s run since 2007, will use London-based Matrix’s infrastructure, operations, compliance and sales, becoming the fifth hedge fund offering from Matrix, which manages about 3 billion pounds ($4.6 billion).

Tequila Crisis

Singh started his career in 1993 in emerging-market proprietary trading for JP Morgan, experiencing the so-called Tequila crisis sparked by Mexico’s currency devaluation in 1994. He said Europe’s current credit crisis bears similarities with that one and others since in Russia, Argentina and Brazil.

Measures those nations put in place have left them on better financial footing than their developed-market peers, he said.

“Ask yourself the Rip Van Winkle question of what you would want to own before you went to sleep for 20 years,” said Singh, who ran money for Sigma Capital, the European arm of Stephen Cohen’s SAC Capital, and was formerly senior portfolio manager for emerging markets for Bruce Kovner’s Caxton in London. “Would you rather have Brazilian 20-year bonds denominated in real or Portuguese 20-year bonds denominated in euro?”

One-Year Low

The euro fell to a one-year low of $1.31 yesterday in New York, down from 2009’s high of $1.51 on Nov. 25 as German Chancellor Angela Merkel said in Berlin the “stability of the euro zone” was at stake if a 45 billion-euro ($59 billion) loan package for Greece orchestrated by the International Monetary Fund can’t be delivered soon.

Singh isn’t alone in expecting the euro be altered before the crisis ends.

Nouriel Roubini, the New York University professor who forecast the U.S. recession more than a year before it began, said yesterday Greece “could eventually be forced to get out” of the 16-nation euro region. That would lead to a decline in the euro and make it “less of a liquid currency,” he said in a Bloomberg Television interview. While a smaller euro zone “makes sense,” he said, “it could be very messy.”

Eric Busay, a manager of currencies and international bonds in Sacramento at the California Public Employees’ Retirement System, the largest U.S. public pension, with $202 billion under management, said in a Bloomberg interview today the makeup of the euro zone is “being brought into question.”

‘Screaming Differences’

“There are differences, and screaming differences, that have now been shown between the regions of the euro-zone,” he said.

An expulsion of Greece from the euro area is legally impossible, Axel Weber, Bundesbank president and European Central Bank council member, said in an interview with the German Bild newspaper published today.

Replacing the European common currency that’s been in place since 1999 is getting less far-fetched, Singh said.

“There’s probably a 30 percent likelihood now, but that’s rising every minute,” said Singh, who grew up in Rochester, New York. “Europe is far closer to a tipping point than the world realizes.”

To contact the reporter on this story: Tom Cahill in London at [e-mail]

Last Updated: April 29, 2010 07:33 EDT