Warren Buffett's Live Lunch Interview on CNBC
24 Jun 2009 04:05 PM ET
Warren Buffett appeared live on CNBC with Becky Quick today, Wednesday, June 24, 2009.
Buffett told us the economy is in a "shambles" with no signs of a recovery anytime soon. He also criticized Apple for not disclosing earlier that CEO Steve Jobs had received a liver transplant.
This is a complete transcript of their conversation:
BECKY QUICK: We are here at Smith & Wollensky where Warren Buffett is paying off last year's winner for this auction. This is, right now there's another auction underway. And this is the tenth year in a row he's been doing this. Warren, we want to thank you very much for joining us.
WARREN BUFFETT: It's a pleasure.
BECKY: You've been doing this for 10 years, raising money for the Glide Foundation. Why the Glide Foundation?
BUFFETT: I think it's probably as remarkable a social organization as there is in the country, and it's run by Cecil Williams, who, for 45 years, has taken people that have hit bottom and said, 'You're still a worthwhile individual and we're going to do what we can for you in terms of housing, medicine, vocational training and you're going to become the kind of person that you can become.' He believes in people and he carries it out every day and I've never found a more effective place at lifting people from bottom.
BECKY: This year's winner, last year's winner showing up today, Zhao Danyang, who is someone who paid 2.1 million dollars. That's a remarkable amount of money that's out there. Last year, obviously, the markets were in a very different place than they are this year. The auction is underway. I know the bidding goes through Sunday. (Note: Bidding actually ends this coming Friday at 10p ET). Do you think someone can bid as much as you saw last year?
BUFFETT: (Laughs.) Well it surprised me last year. They have qualified a number of bidders that are good for very big figures. They make sure of that beforehand. So we'll see what happens. (Laughs.) Two-point-one million is a pretty good number to shoot for. I hope I don't have to leave a 10 percent tip at the end of the lunch. (Laughs.)
BECKY: The last time we sat down to talk to you was on May 4, and at that point you told us that you think we're in an economic war right now. How much progress do you think we've made in that war?
BUFFETT: Well, it's been pretty flat. I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we've had no bounce. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But in terms of the economy coming back, it takes a while. There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while. In the (Berkshire Hathaway) annual report, I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true.
BECKY: We hear people on our air all the time who talk about the 'green shoots' that they're seeing. Are you seeing any of those green shoots?
BUFFETT: (Laughs.) I looked. I wasn't seeing anything. I had a cataract operation on my left eye about a month ago and I thought maybe now I'll be able to see green shoots. We're not seeing them. Whether it's retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we've never seen it for a simple thing like electricity. So it hasn't happened yet. It will happen. I want to emphasize that. But it hasn't happened yet.
BECKY: Earlier this year you also told us that you think Washington and the Obama administration should be paying attention to jobs, that's the number one, jobs and the economy is the number one, the number two, and the number three job that they should be doing. Has there been progress made at all on that front?
BUFFETT: Well, they're doing thing but they take awhile to have an effect. They're doing things on a lot of fronts. But you can't produce a baby in one month by getting nine women pregnant, you know. (Laughs.) It just doesn't work that way. So you can be throwing things at the economy and they will have an impact, but they haven't had much impact yet. And unemployment will go high and it will lag the turn up of the economy.
BECKY: But has Washington done enough that you think they can turn their sights to other problems that exist?
BUFFETT: Well, they've turned their sights to other problems, but this problem is not yet solved. And it's the most important problem we have.
BECKY: It continues to be? You don't think any of the urgency has come away?
BUFFETT: No, I don't think the urgency has come away. The urgency has moved away from a total meltdown of the financial sector which we faced last fall. I've never seen anything like that. But I would give enormous credit to the people there. (Federal Reserve Chairman) Bernanke did a fabulous job. We were right at the point where people lost faith in money-market funds, when commercial paper stopped being issued. People would be having a problem meeting their payroll, very big companies, if that hadn't gotten addressed very quickly. And I give credit to people for doing that. So that part, we've moved past that particular period. We haven't got the economy going again.
BECKY: You mentioned that you think Ben Bernanke did a good job. Today is an FOMC meeting day. We're going to be hearing more about that at 2:15 today. Do you think Ben Bernanke should be reappointed to a second term?
BUFFETT: I don't see how you could do better. Yeah. He has taken decisive action at a time when really decisive action was needed, and extraordinary action, things that we hadn't done before. If he hadn't of done -- I give the Bush administration credit on this. (Former Treasury Secretary) Hank Paulson. They don't do everything perfectly. Nobody does. And we were getting balls thrown at your head by the hour. You're going to make some mistakes. But they got us through a period that, if we had different people in those jobs, I'm not so sure we would have gotten through.
BECKY: Well now you do have different people on those jobs. You have (National Economic Council Director) Larry Summers, who is advising the president. You have (Treasury Secretary) Tim Geithner who's there. You have Ben Bernanke. What do you think of the troika today?
BUFFETT: I think you've got three very, the people you named are very, very good. And I think Bernanke is very much the key. The Fed came through for us.
BECKY: You haven't commented since the Obama administration rolled out these new regulatory overhaul plans that they've been looking at. What do you think overall about it? There's a consumer protection agency that's involved with this. There's a lot of other different arenas. But is this the right, is this a step in the right direction?
BUFFETT: We'll see how the statute reads. But basically we got way overleveraged in the financial arena. And the American public got overleveraged too. We do need something to address that. We do need something to address institutions where the wrong incentives are in place so that their personal incentives are at real variance with what our national incentives should be. We need something to make sure we don't get into the situation again that we were in last September. And leverage is a big key to it. Now that's a huge problem to attack and how it's written and how it's administered is not an easy job.
BECKY: Can you lay that down as a rule? Should it be that you can't be levered more than 10-to-1? You can't be leveraged up more than 20-to-1? How do you figure out?
BUFFETT: And it's very difficult. And you can't lay down a rule like that, unfortunately. Because just through derivatives you can have an enormous amount of leverage that doesn't show and you can have an inter-connectedness that causes one domino to hit the next. It is not a simple problem. You don't just write down leverage of 10 or 20 to one or something of the sort. There's all kinds of different leverage. You can leverage against home mortgages with big down payments and that will be relatively safe. You can leverage against somebody else who's leveraged and you've got troubles getting compounded. So it's not a simple problem but it is an important problem.
BECKY: Is it one that can be tackled? Is there a solution, a potential solution?
BUFFETT: It's not easy. It's not easy. You need somebody - you need reasonable rules, and you need a very, very good administrator or group of administrators doing it. It's not an easy problem. People like to go to excesses. And the incentives are, in a market system, to overshoot. And it's happened over the years. America's genius has not been in avoiding problems, it's been in surmounting them once they happen. And fortunately, you know, we've come through again on that.
BECKY: So you're not saying it's an impossible task but it doesn't sound like you're very hopeful we can prevent something like this from happening again?
BUFFETT: I think that what started out with a tulip, maybe four-hundred years ago, and continued through the South Sea Bubble and all of those sorts of things, it's in human nature to go to excess. And it's very hard, in a country of 300-million people and a 14-trillion dollar GDP and all of that, to set up a set of rules that will prevent excesses in a market system. But I think there can be improvements made and I think that's what we're shooting for.
BECKY: When we sat down with you here last year, you said inflation was a very big worry for you. What do you see today? Do you worry about inflation or deflation?
BUFFETT: Well, I don't worry about deflation at all. We won't see deflation in any significant amount in your lifetime, which is more relevant than my lifetime. We've taken action in fighting the economic war that we face that certainly sows the seeds of substantial inflation down the road. Not in the next six months or year or two years, but we have done things that raise the probability of really high rates of inflation at some point. We're flooding the system with dollars. We're monitizing debt. We're doing all the things that lead to that. Now those are appropriate things to do. Our economy was like a fellow going down in quicksand last September and up to his shoulders, and somebody tosses a rope. You can tie it around and yank him out with a truck, you may dislocate a couple of shoulders but it's still pays to get him out. And we may dislocate the economy in certain ways. There's really no choice. But we could see a lot of inflation.
BECKY: You mentioned that the financial system was in tatters just last year. It's turned around quite a bit. In fact, some of the big banks have been paying back TARP money, or have made plans to pay back that TARP money. One of your big investments, though, Wells Fargo , has not. Does that put Wells Fargo at a disadvantage?
BUFFETT: Well, it doesn't put them at a disadvantage with the person on the street that's putting in deposits. And they've got the widest spreads, really, in terms of interest income of anybody. But I'm sure they would like to get out of TARP. There's been unanimity among the people in the TARP plan that they want to get out as fast as possible, so I'm sure they'd like to get out at Wells. But from my standpoint, the earning power of Wells is dramatic with or without the TARP money.
BECKY: So, with or without, it doesn't matter to you as an investor?
BUFFETT: It doesn't really, no, no. I wish they didn't have the warrants outstanding that came with the TARP money because that's a call on the future profits of it, but the government set the terms on it. They just signed a blank piece of paper.
BECKY: Over the last few days, Steve Jobs and Apple's board have gotten a lot of attention because of the disclosure, or lack of disclosure of the liver transplant that he had while he was out. You're someone who has also gotten some criticism about your succession plans. What do you think about how the Apple board went about it and do you think that criticism there has been fair?
BUFFETT: Well, I think it probably has. I think if I have any serious illness, or something coming up of an important nature, an operation or anything like that, I think the thing to do is just tell the American, the Berkshire shareholders about it. I work for 'em. Some people might think I'm important to the company. Certainly Steve Jobs is important to Apple. So it's a material fact. Whether he is facing serious surgery or not is a material fact. Whether I'm facing serious surgery is a material fact. Whether (General Electric CEO) Jeff Immelt is, I mean, so I think that's important to get out. They're going to find out about it anyway so I don't see a big privacy issue or anything of the sort.
BECKY: Just this past week, the Class B shares of Berkshire were able to start trading options on them. What happened? Why did you do that and what's it mean?
BUFFETT: They didn't ask me.
BECKY: What does it mean for the stock though?
BUFFETT: Well, it means people can speculate on it instead of invest in it and I'm basically not for it. We have the lowest turnover of any stock in the New York Stock Exchange by far. We've got more real owners. People buy our stock to own a piece of the business. The people that buy puts or calls, or sell puts or calls, are just betting on what it's going to do in the short term. So it's no plus to us. It is no big minus either. I don't think there will be a lot of trading in it.
BECKY: It doesn't bother you?
BUFFETT: No. If I had my choice it wouldn't happen, but it doesn't bother me.
BECKY: You know, cap and trade is something we talked about when we spoke with you back in May as well. And you raised some of the issues and concerns you have about cap and trade. It does look like it is still on the agenda for right now. So is health care. Does it concern you to see Washington, Congress and the administration, moving on some of these big initiatives while you're still concerned about the economy?
BUFFETT: Well, I think if they're important issues and they get well thought out solutions. It is important that we move on carbon emissions. It's important we move on health care. But I don't think they should be jammed through in a hurry. But those are issues that should be addressed by America. But I do think the economy is number one.
BECKY: You said you didn't like cap and trade especially in this economy though, because it puts a tax on people.
BUFFETT: I think if you get into the way it was written, it's a huge tax and there's no sense calling it anything else. I mean, it is a tax. And it's a fairly regressive tax. If we buy permits, essentially, at our utilities, that goes right into the bills of the utility customers and an awful lot of people in Iowa, in Oregon, and Utah, and places where we are, very poor people are going to pay a lot more money for electricity. So I think that can be improved.
BECKY: And finally, the last question. You've written about the economy and where you see the stock market in the past. You wrote an op-ed for the New York Times. How are your thoughts on where the stock market stands right now compared to where you saw it then?
BUFFETT: Well, I think it's attractive over the next ten years compared to alternatives. If your alternative is buying some fixed-dollar investment, I think inflation will eat away at that. I think it's almost certain over a ten-year period that equities will do better than fixed-dollar investments. So, if people are keeping their money in cash and getting virtually nothing for it they may feel comfortable, but it will be very expensive for them over time.
http://www.cnbc.com/id/31526815
Thursday, June 25, 2009
Thursday, June 4, 2009
Fund Managers can become farmers: Jim Rogers
Fund Managers can become farmers: Jim Rogers
4 Jun 2009, 0005 hrs IST, ET Bureau
Even if you are outright bearish, don't short the market. Stocks could touch crazy levels, but they may be in currencies which are worthless.
Indeed, a sovereign default and currency turmoil could rattle world markets in a year or two. In a chat with ET, global investor Jim Rogers says cotton, silver and sugar can be hot picks. Read on.
At one stage we were inundated with gloomy forecasts, which were further reinforced by the IMF and World Bank. And then suddenly stocks surged — something most were not prepared for. How risky is the market today?
Central banks all over the world have printed huge amounts of money, and the real economy is not strong enough for all this money to be absorbed... so, it's going into stocks and real assets such as commodities. It's a mistake what they are doing. It's giving short-term pleasure, but there's long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road.
The American bond market is already beginning to go down dramatically as people realise that the American government has to sell huge amount of bonds, and secondly, there is going to be inflation, serious inflation, as it was always in the past when you had governments printing huge amounts of money.
Stocks are rising even as fiscal deficit is widening. Somewhere it has to snap...
It's going to snap. Later this year, next year, we are going to have currency problems, maybe even a currency crisis. I don't know with which currency — maybe with the pound sterling, maybe with the US dollar, who knows. It maybe with something none of us have at the moment. When you have a currency crisis, stocks will be affected, many things will be affected. It is not sound, what's happening out there in the world.
In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end.
They are doing many of the same mistakes now. What's different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time.
What do you do? No politically-elected government can afford so much pain, unemployment and hardships...
America could have. America just had an election. The guy was elected in November and he could have come in the beginning of a four-year term and said the guys before me were hopeless idiots. They ruined things. We have to solve this problem. We have to take some pains now. But don't worry, we will get through this pain, and in two to three years or four years, things would be fine. And he could have been re-elected.
If the pain comes in 2010, 2011 or 2012, there will be nobody he can blame. Especially, if things go bad later, the opposition will say, wait a minute, 2009 looked good. The next guy is going to say you did it... But you are right. It's very difficult for an elected government. You have a newly-elected government in India. Whenever you have a new government they can take some of the pain.
You recently said that you would invest in China and Sri Lanka but not in India. Aren’t you betting on the new government in India?
I was trying to make a point that if anyone wants to invest in this particular part of the world, the best place would be Sri Lanka. Because it looks like the 30-year war is coming to an end.
Throughout history, if you go to a place after the war ends you usually find everything as very cheap, everyone is demoralised, people are just depressed and there are enormous opportunities if you have energy.
In my view, investing in Sri Lanka in May 2009 is probably a better bet than Pakistan, Bangladesh, India or some of the other countries nearby. Let's hope the new Indian government does something. I have heard wonderful things from Indian politicians for 40 years.
And rarely do they produce. It's not the first time that the Congress party has been in the power. If they mean it, India's going to be one of the greatest development stories in the next 20 years. But I don’t know if they mean it.
What kind of reforms?
Why isn't the currency convertible, why isn't foreign capital encouraged, why isn't foreign expertise encouraged, why is it so protectionist? Why are farmers only allowed to own five hectares? India should be the greatest farming nation in the world. You have the soil, the weather, you have everything and yet an Indian farmer can own only five hectares.
How can an Indian farmer compete with a guy in Ireland who can own 1,000 hectares or a guy in Brazil who can own 5,000 hectares? Smart people don't become farmers. Because what's the future? Whenever prices start going up, Indian politicians ban futures trading, as if futures trading makes prices go up. It's the craziest and the most absurd thing in the whole world. Prices go up because there is a reason for prices to go up.
Last year you were buying only Chinese stocks. Why?
The market collapsed in October-November. That's when I bought more Chinese shares. I have not bought any Chinese shares since then. I have not bought shares anywhere in the world since then. My way of participating in what's going on now is to buy commodities.
In my view, commodities are the only place where fundamentals are improving. Farmers can't get loans for fertilisers now, even though inventories of food are the lowest in decades. Nobody can get a loan to open a mine. So, you will have supplies of everything continuing to decline.
What else are you looking at while investing?
There are some industries in India that would do exceedingly well in the next few years, one of which is water. You have a horrible water problem. China also has a horrible water problem. So, I bought water companies in China. There are some great opportunities if America falls off the face of the earth. China is spending hundreds of billions of dollars to solve the agricultural problem.
So, I am buying agricultural stocks and water stocks in China. There are other industries in India which have a great future. I am very bullish on Indian tourism. Wherever I go for speeches around the world I tell people, if you have to go to one country in your lifetime, you should go to India.
Your government is going to re-build the military, they say. So, there's going to be great opportunities here. Also, they may build the infrastructure. So, I see many opportunities in India.
The possibility of a sovereign default in the developed world could further depress sentiments. You think it’s possible?
In 1918, the UK was the richest and the most powerful country in the world. Within one generation it was in shambles, within two-and-a-half generations it defaulted. The UK defaulted in 1970s and had to be bailed out by the IMF. Many of the countries in the developed world are in serious trouble right now.
Iceland has already defaulted. I think there could be a currency crisis because of sovereign debt problems later this year, next year or 2011. Developed nations have defaulted before. Remember the Asian crisis. It was a default of one kind or the other. It has happened before and it will happen again.
Are you worried about any particular market or region?
I am glad that I have no investments in the UK. Neither long, nor short. I am convinced that it’s in trouble. I am worried about the US. I have sold nearly all of my US dollars. I always had some as I am an American citizen. But I see serious problems developing there. Those two of the big developed countries are the ones that I see with the most likely problems.
But the problem is that it never works that way. Everybody is sitting here watching the UK and US and it may happen in say Portugal or some place we haven’t thought of and it will come suddenly to surprise us all.
If US unemployment touches the 10%-mark, it would further impact retail sales. How bad could this be for Asia?
Let's pick on China for a minute. If you sell to Wal-Mart in the US and if you are a Chinese supplier you know there is a problem. And you are going to be suffering. Any company that deals with the West is going to have problems. On the other hand, companies that are in the water-treatment business in Asia will care less if the West disappears. They are too busy making money, too busy going to work everyday.
What kind of commodities will smart money chase? Can money be made in crude?
I own gold but think silver is better right now. Natural gas is cheaper than oil right now, but I own them all. If you want to buy crude, you should probably buy cotton. Because all farmers in the US are planting corn to turn into energy. That means they are not going to plant any cotton. The best way to play crude oil is to buy cotton.
Right now, there are huge subsidies around the world for farmers to plant corn, maize, for instance, so that they can be converted into energy. If energy prices go higher, there will be even more of that.
If everybody plants his fields with soya, corn or palm oil to turn it into oil or energy then no one is going to plant cotton.
And you can make a lot more money in cotton than oil. Between oil and gold, buy cotton. Between oil and gold buy silver. The other way to invest in oil is to buy sugar as everybody is converting a lot of sugar into energy.
Silver is so much cheaper on a historic basis. And gold is near its all-time high. Silver is 75% below its all-time high. So, I would suspect that silver and cotton are going to do better than gold and oil.
Global population is close to its peak and genetically-modified crops will increase productivity. What makes you so bullish on agriculture?
It doesn't matter. The world has been consuming more than it produced. Food inventories are at a multi-decade low. And we haven't had any bad weather. We had isolated cases of droughts and things. That may never happen again. But if it does, the prices of food would go through the roof.
If there is climate change taking place, the best way to participate is through agriculture or through agriculture products. There are many positive things happening. Right now, there is a shortage of everything in agriculture — seeds, fertilisers, tractors, tractor tyres. We have a shortage of farmers because farming has been a horrible business for the past 30 years.
What kind of a market are you witnessing now?
It's a bear market rally. I was going to say I don't think S&P 500 will see new highs. But I have to quickly temper that by saying against the dollar because the S&P 500 could triple from here if they print enough money and the value of the US dollar collapses, then S&P could go to 50,000, Dow Jones can go to 1,00,000.
Which is one reason why I am not shorting stocks right now. Because there is a possibility of this sort of a thing. There is a possibility that stocks could go through unheard of levels, but would be in worthless currency.
That naturally brings us to the debate on a new international reserve currency
Several countries have raised the issue once again. The US dollar is terribly flawed right now. Something has to be done to the US dollar and something will be done just as something was done about the pound sterling. After World War II, people stopped using the pound sterling and converted to the dollar for many reasons. Something's going to be done about the dollar.
We are much closer to be doing something about it or will be forced to do something about it. India was forced to change in 1991 and the world will be forced to change the currency situation in the foreseeable future.
There is already an underlying fear that this mountain of cash will chase assets and eventually force central banks to mop up liquidity. How do you think this would play out?
I know they all say, 'Don't worry, we will reverse gears and take the excess liquidity out in time.' I don't believe them for a minute. No one has ever done it that way. When central bankers started trying to, it caused so much pain that they quickly reversed or have got rid of that central banker and put somebody else in.
I just don't think they could do it. That's why I am worried about the bond market and the inflation. If all central banks do it together, that's going to lead to higher unemployment, riots in the streets, civil unrests.
Your track record as an investor has been more than impressive. But in todays market can you replicate your performance of the past 20 years?
One can. I probably cannot as I am not spending enough time at it. But it can be done. There are going to be people who we will read about in 20 years having made legendary fortunes starting now. In the 1930s, there were people who built huge fortunes and laid the foundations like Templeton.
He started in the 1930s. He saw opportunities and took advantage. These are people who saw great advantages and opportunities in the 1930s, acted and became fantastic successes. There may be somebody out there now. I don’t know who she is. Maybe she is in Brazil, China or India.
What will you tell a confused fund manager who seeks your advice?
Become a farmer. The world has tens of thousands of hotshot fund managers right now. If I am correct, the financial community is not going to be a great place to be in for the next 30 years. We have many periods in history when financial people were in charge, we had many periods when people who produced real goods were in charge — miners, farmers, etc.
The world, in my view, is changing and is shifting away from the financial types to producers of real goods, and this is going to last for several decades as it always has. This may sound strange but it always happens this way. Ten years from now, it may be farmers who will drive the Lamborghinis and the stock brokers will drive tractors or taxis at best.
http://economictimes.indiatimes.com/articleshow/4610704.cms?prtpage=1
4 Jun 2009, 0005 hrs IST, ET Bureau
Even if you are outright bearish, don't short the market. Stocks could touch crazy levels, but they may be in currencies which are worthless.
Indeed, a sovereign default and currency turmoil could rattle world markets in a year or two. In a chat with ET, global investor Jim Rogers says cotton, silver and sugar can be hot picks. Read on.
At one stage we were inundated with gloomy forecasts, which were further reinforced by the IMF and World Bank. And then suddenly stocks surged — something most were not prepared for. How risky is the market today?
Central banks all over the world have printed huge amounts of money, and the real economy is not strong enough for all this money to be absorbed... so, it's going into stocks and real assets such as commodities. It's a mistake what they are doing. It's giving short-term pleasure, but there's long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road.
The American bond market is already beginning to go down dramatically as people realise that the American government has to sell huge amount of bonds, and secondly, there is going to be inflation, serious inflation, as it was always in the past when you had governments printing huge amounts of money.
Stocks are rising even as fiscal deficit is widening. Somewhere it has to snap...
It's going to snap. Later this year, next year, we are going to have currency problems, maybe even a currency crisis. I don't know with which currency — maybe with the pound sterling, maybe with the US dollar, who knows. It maybe with something none of us have at the moment. When you have a currency crisis, stocks will be affected, many things will be affected. It is not sound, what's happening out there in the world.
In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end.
They are doing many of the same mistakes now. What's different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time.
What do you do? No politically-elected government can afford so much pain, unemployment and hardships...
America could have. America just had an election. The guy was elected in November and he could have come in the beginning of a four-year term and said the guys before me were hopeless idiots. They ruined things. We have to solve this problem. We have to take some pains now. But don't worry, we will get through this pain, and in two to three years or four years, things would be fine. And he could have been re-elected.
If the pain comes in 2010, 2011 or 2012, there will be nobody he can blame. Especially, if things go bad later, the opposition will say, wait a minute, 2009 looked good. The next guy is going to say you did it... But you are right. It's very difficult for an elected government. You have a newly-elected government in India. Whenever you have a new government they can take some of the pain.
You recently said that you would invest in China and Sri Lanka but not in India. Aren’t you betting on the new government in India?
I was trying to make a point that if anyone wants to invest in this particular part of the world, the best place would be Sri Lanka. Because it looks like the 30-year war is coming to an end.
Throughout history, if you go to a place after the war ends you usually find everything as very cheap, everyone is demoralised, people are just depressed and there are enormous opportunities if you have energy.
In my view, investing in Sri Lanka in May 2009 is probably a better bet than Pakistan, Bangladesh, India or some of the other countries nearby. Let's hope the new Indian government does something. I have heard wonderful things from Indian politicians for 40 years.
And rarely do they produce. It's not the first time that the Congress party has been in the power. If they mean it, India's going to be one of the greatest development stories in the next 20 years. But I don’t know if they mean it.
What kind of reforms?
Why isn't the currency convertible, why isn't foreign capital encouraged, why isn't foreign expertise encouraged, why is it so protectionist? Why are farmers only allowed to own five hectares? India should be the greatest farming nation in the world. You have the soil, the weather, you have everything and yet an Indian farmer can own only five hectares.
How can an Indian farmer compete with a guy in Ireland who can own 1,000 hectares or a guy in Brazil who can own 5,000 hectares? Smart people don't become farmers. Because what's the future? Whenever prices start going up, Indian politicians ban futures trading, as if futures trading makes prices go up. It's the craziest and the most absurd thing in the whole world. Prices go up because there is a reason for prices to go up.
Last year you were buying only Chinese stocks. Why?
The market collapsed in October-November. That's when I bought more Chinese shares. I have not bought any Chinese shares since then. I have not bought shares anywhere in the world since then. My way of participating in what's going on now is to buy commodities.
In my view, commodities are the only place where fundamentals are improving. Farmers can't get loans for fertilisers now, even though inventories of food are the lowest in decades. Nobody can get a loan to open a mine. So, you will have supplies of everything continuing to decline.
What else are you looking at while investing?
There are some industries in India that would do exceedingly well in the next few years, one of which is water. You have a horrible water problem. China also has a horrible water problem. So, I bought water companies in China. There are some great opportunities if America falls off the face of the earth. China is spending hundreds of billions of dollars to solve the agricultural problem.
So, I am buying agricultural stocks and water stocks in China. There are other industries in India which have a great future. I am very bullish on Indian tourism. Wherever I go for speeches around the world I tell people, if you have to go to one country in your lifetime, you should go to India.
Your government is going to re-build the military, they say. So, there's going to be great opportunities here. Also, they may build the infrastructure. So, I see many opportunities in India.
The possibility of a sovereign default in the developed world could further depress sentiments. You think it’s possible?
In 1918, the UK was the richest and the most powerful country in the world. Within one generation it was in shambles, within two-and-a-half generations it defaulted. The UK defaulted in 1970s and had to be bailed out by the IMF. Many of the countries in the developed world are in serious trouble right now.
Iceland has already defaulted. I think there could be a currency crisis because of sovereign debt problems later this year, next year or 2011. Developed nations have defaulted before. Remember the Asian crisis. It was a default of one kind or the other. It has happened before and it will happen again.
Are you worried about any particular market or region?
I am glad that I have no investments in the UK. Neither long, nor short. I am convinced that it’s in trouble. I am worried about the US. I have sold nearly all of my US dollars. I always had some as I am an American citizen. But I see serious problems developing there. Those two of the big developed countries are the ones that I see with the most likely problems.
But the problem is that it never works that way. Everybody is sitting here watching the UK and US and it may happen in say Portugal or some place we haven’t thought of and it will come suddenly to surprise us all.
If US unemployment touches the 10%-mark, it would further impact retail sales. How bad could this be for Asia?
Let's pick on China for a minute. If you sell to Wal-Mart in the US and if you are a Chinese supplier you know there is a problem. And you are going to be suffering. Any company that deals with the West is going to have problems. On the other hand, companies that are in the water-treatment business in Asia will care less if the West disappears. They are too busy making money, too busy going to work everyday.
What kind of commodities will smart money chase? Can money be made in crude?
I own gold but think silver is better right now. Natural gas is cheaper than oil right now, but I own them all. If you want to buy crude, you should probably buy cotton. Because all farmers in the US are planting corn to turn into energy. That means they are not going to plant any cotton. The best way to play crude oil is to buy cotton.
Right now, there are huge subsidies around the world for farmers to plant corn, maize, for instance, so that they can be converted into energy. If energy prices go higher, there will be even more of that.
If everybody plants his fields with soya, corn or palm oil to turn it into oil or energy then no one is going to plant cotton.
And you can make a lot more money in cotton than oil. Between oil and gold, buy cotton. Between oil and gold buy silver. The other way to invest in oil is to buy sugar as everybody is converting a lot of sugar into energy.
Silver is so much cheaper on a historic basis. And gold is near its all-time high. Silver is 75% below its all-time high. So, I would suspect that silver and cotton are going to do better than gold and oil.
Global population is close to its peak and genetically-modified crops will increase productivity. What makes you so bullish on agriculture?
It doesn't matter. The world has been consuming more than it produced. Food inventories are at a multi-decade low. And we haven't had any bad weather. We had isolated cases of droughts and things. That may never happen again. But if it does, the prices of food would go through the roof.
If there is climate change taking place, the best way to participate is through agriculture or through agriculture products. There are many positive things happening. Right now, there is a shortage of everything in agriculture — seeds, fertilisers, tractors, tractor tyres. We have a shortage of farmers because farming has been a horrible business for the past 30 years.
What kind of a market are you witnessing now?
It's a bear market rally. I was going to say I don't think S&P 500 will see new highs. But I have to quickly temper that by saying against the dollar because the S&P 500 could triple from here if they print enough money and the value of the US dollar collapses, then S&P could go to 50,000, Dow Jones can go to 1,00,000.
Which is one reason why I am not shorting stocks right now. Because there is a possibility of this sort of a thing. There is a possibility that stocks could go through unheard of levels, but would be in worthless currency.
That naturally brings us to the debate on a new international reserve currency
Several countries have raised the issue once again. The US dollar is terribly flawed right now. Something has to be done to the US dollar and something will be done just as something was done about the pound sterling. After World War II, people stopped using the pound sterling and converted to the dollar for many reasons. Something's going to be done about the dollar.
We are much closer to be doing something about it or will be forced to do something about it. India was forced to change in 1991 and the world will be forced to change the currency situation in the foreseeable future.
There is already an underlying fear that this mountain of cash will chase assets and eventually force central banks to mop up liquidity. How do you think this would play out?
I know they all say, 'Don't worry, we will reverse gears and take the excess liquidity out in time.' I don't believe them for a minute. No one has ever done it that way. When central bankers started trying to, it caused so much pain that they quickly reversed or have got rid of that central banker and put somebody else in.
I just don't think they could do it. That's why I am worried about the bond market and the inflation. If all central banks do it together, that's going to lead to higher unemployment, riots in the streets, civil unrests.
Your track record as an investor has been more than impressive. But in todays market can you replicate your performance of the past 20 years?
One can. I probably cannot as I am not spending enough time at it. But it can be done. There are going to be people who we will read about in 20 years having made legendary fortunes starting now. In the 1930s, there were people who built huge fortunes and laid the foundations like Templeton.
He started in the 1930s. He saw opportunities and took advantage. These are people who saw great advantages and opportunities in the 1930s, acted and became fantastic successes. There may be somebody out there now. I don’t know who she is. Maybe she is in Brazil, China or India.
What will you tell a confused fund manager who seeks your advice?
Become a farmer. The world has tens of thousands of hotshot fund managers right now. If I am correct, the financial community is not going to be a great place to be in for the next 30 years. We have many periods in history when financial people were in charge, we had many periods when people who produced real goods were in charge — miners, farmers, etc.
The world, in my view, is changing and is shifting away from the financial types to producers of real goods, and this is going to last for several decades as it always has. This may sound strange but it always happens this way. Ten years from now, it may be farmers who will drive the Lamborghinis and the stock brokers will drive tractors or taxis at best.
http://economictimes.indiatimes.com/articleshow/4610704.cms?prtpage=1
Wednesday, May 13, 2009
Soros says economic downward trend easing
Soros says economic downward trend easing
Mon May 11, 2009 3:10am EDT
BERLIN, May 11 (Reuters) - The downward trend in the financial crisis is easing and national economic stimulus packages are starting to work, billionaire investor George Soros was quoted as saying by a German newspaper on Monday.
Soros also told the Frankfurter Allgemeine Zeitung daily that Asia would be the first region to pull out of the crisis and China was set to overtake the United States as the engine of world growth.
"The economic freefall has been stopped, the collapse of the financial system averted. National economic stimulus programmes are starting to take effect. The downward dynamic is easing," Soros told the newspaper.
"I expect the recovery to make up for around half of the downturn we have had and then to move into stagnation," Soros said. "Asia will be first to find out of the crisis, but America is also currently doing that."
Soros said the U.S. dollar was already weak, adding: "I don't expect the dollar to lose much value against the euro, on the contrary."
Soros said the financial crisis had shown that it was a big advantage for weak countries to be part of the euro system.
"But the crisis should motivate Germany as the strongest country to make proposals for a more efficient euro system. I am missing leadership from the German government on this," Soros said.
http://www.reuters.com/article/marketsNews/idUSLB65783520090511
Mon May 11, 2009 3:10am EDT
BERLIN, May 11 (Reuters) - The downward trend in the financial crisis is easing and national economic stimulus packages are starting to work, billionaire investor George Soros was quoted as saying by a German newspaper on Monday.
Soros also told the Frankfurter Allgemeine Zeitung daily that Asia would be the first region to pull out of the crisis and China was set to overtake the United States as the engine of world growth.
"The economic freefall has been stopped, the collapse of the financial system averted. National economic stimulus programmes are starting to take effect. The downward dynamic is easing," Soros told the newspaper.
"I expect the recovery to make up for around half of the downturn we have had and then to move into stagnation," Soros said. "Asia will be first to find out of the crisis, but America is also currently doing that."
Soros said the U.S. dollar was already weak, adding: "I don't expect the dollar to lose much value against the euro, on the contrary."
Soros said the financial crisis had shown that it was a big advantage for weak countries to be part of the euro system.
"But the crisis should motivate Germany as the strongest country to make proposals for a more efficient euro system. I am missing leadership from the German government on this," Soros said.
http://www.reuters.com/article/marketsNews/idUSLB65783520090511
Thursday, April 16, 2009
Soros says U.S. faces "lasting slowdown"
Soros says U.S. faces "lasting slowdown"
Mon Apr 6, 2009 6:31pm EDT
By Jennifer Ablan and Daniel Burns
NEW YORK (Reuters) - The U.S. economy is in for a "lasting slowdown" and could face a Japanese-style period of relatively low growth with the added problem of high inflation, billionaire investor George Soros said on Monday.
Soros told Reuters Financial Television that rescuing U.S. banks could turn them into "zombies" that suck the lifeblood of the economy, prolonging the economic slowdown.
"I don't expect the U.S. economy to recover in the third or fourth quarter so I think we are in for a pretty lasting slowdown," Soros said, adding that in 2010 there might be "something" in terms of U.S. growth.
Most economists expect the U.S. economy to stop contracting in the third quarter and resume growing in the fourth quarter, according to a latest monthly poll of forecasts by Reuters.
The recovery will look like "an inverted square root sign," Soros said: "You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shape recovery or anything like that. You settle down -- step down."
In the fourth quarter, the U.S. economy contracted at a 6.3 percent annualized rate, and economists think the first quarter's slide will be at least as severe, if not worse.
Healing the banking system, which is "basically insolvent," and housing markets is crucial to recovery, Soros said.
The public-private investment funds -- unveiled by the Treasury last month to get bad debts off bank balance sheets -- are going to work but won't be enough to recapitalize the banks so they are able to or willing to provide credit, he said.
Even a steep yield curve won't generate enough profits to keep the banks out of their vulnerable situation.
"What we have created now is a situation where the banks who will be able to earn their way out of a hole, but by doing that, they are going to weigh on the economy.
"Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive."
Soros, whose latest book, "The Crash of 2008 and What it Means," has made prescient calls during the credit crisis.
A year ago, he told Reuters that global losses were likely to top $1 trillion. U.S. and European banks have recorded more than $700 billion in losses and write-downs, as of February 5, 2009, according to Reuters data.
DOLLAR IS VULNERABLE
Soros said the "stress tests" of banks being conducted by Treasury, to determine their financial resilience, could be a precursor to a more successful recapitalization of the banks.
He also said the U.S. dollar is under selling pressure and one day could be replaced as a world reserve currency, possibly by the International Monetary Fund's Special Drawing Rights, a currency basket comprising dollars, euros, yen and sterling.
"I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992.
"Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end."
Soros said there was a risk of a "tipping point" for the dollar which would see it slump, triggering higher interest rates and choking growth.
"This leads you to what used to be stagflation -- stop, go. And I think that is what's probably in store, rather than... hyperinflation."
China recently proposed greater use of SDRs, possibly as an eventual global reserve currency.
"In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge -- you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said.
U.S. consumer spending has to fall to 60 percent of gross domestic product, compared two-thirds now, he continued.
China will emerge first from recession, probably this year, and will lead global growth in 2010, Soros added.
World policymakers are "actually beginning to catch up" with the crisis and efforts to fix structural problems in the financial system, he said referring to last week's meeting of leaders of G20 countries.
Turning to Europe, the euro has been "a tremendous advantage" to countries that use it, adding there's "no question of a weaker country dropping out," Soros said.
More funds for the IMF will help it stabilize struggling Eastern Europe but the Baltic states still face "serious problems" and Ukraine is not far from default, he warned.
Widespread use of credit default swaps has worsened the risks for Europe, he said, though he added that Germany, the euro zone's biggest economy, is becoming more open to offering help. "Germany, which has been the most reserved about being the deep pocket of the rest of Europe, has recognized that it too has a responsibility toward the new member states."
Germany has been one of the most reluctant major economies to meet U.S. calls for more fiscal stimulus spending to boost the global economy and fight the financial crisis.
http://www.reuters.com/article/newsOne/idUSTRE53537D20090406
Mon Apr 6, 2009 6:31pm EDT
By Jennifer Ablan and Daniel Burns
NEW YORK (Reuters) - The U.S. economy is in for a "lasting slowdown" and could face a Japanese-style period of relatively low growth with the added problem of high inflation, billionaire investor George Soros said on Monday.
Soros told Reuters Financial Television that rescuing U.S. banks could turn them into "zombies" that suck the lifeblood of the economy, prolonging the economic slowdown.
"I don't expect the U.S. economy to recover in the third or fourth quarter so I think we are in for a pretty lasting slowdown," Soros said, adding that in 2010 there might be "something" in terms of U.S. growth.
Most economists expect the U.S. economy to stop contracting in the third quarter and resume growing in the fourth quarter, according to a latest monthly poll of forecasts by Reuters.
The recovery will look like "an inverted square root sign," Soros said: "You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shape recovery or anything like that. You settle down -- step down."
In the fourth quarter, the U.S. economy contracted at a 6.3 percent annualized rate, and economists think the first quarter's slide will be at least as severe, if not worse.
Healing the banking system, which is "basically insolvent," and housing markets is crucial to recovery, Soros said.
The public-private investment funds -- unveiled by the Treasury last month to get bad debts off bank balance sheets -- are going to work but won't be enough to recapitalize the banks so they are able to or willing to provide credit, he said.
Even a steep yield curve won't generate enough profits to keep the banks out of their vulnerable situation.
"What we have created now is a situation where the banks who will be able to earn their way out of a hole, but by doing that, they are going to weigh on the economy.
"Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive."
Soros, whose latest book, "The Crash of 2008 and What it Means," has made prescient calls during the credit crisis.
A year ago, he told Reuters that global losses were likely to top $1 trillion. U.S. and European banks have recorded more than $700 billion in losses and write-downs, as of February 5, 2009, according to Reuters data.
DOLLAR IS VULNERABLE
Soros said the "stress tests" of banks being conducted by Treasury, to determine their financial resilience, could be a precursor to a more successful recapitalization of the banks.
He also said the U.S. dollar is under selling pressure and one day could be replaced as a world reserve currency, possibly by the International Monetary Fund's Special Drawing Rights, a currency basket comprising dollars, euros, yen and sterling.
"I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992.
"Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end."
Soros said there was a risk of a "tipping point" for the dollar which would see it slump, triggering higher interest rates and choking growth.
"This leads you to what used to be stagflation -- stop, go. And I think that is what's probably in store, rather than... hyperinflation."
China recently proposed greater use of SDRs, possibly as an eventual global reserve currency.
"In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge -- you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said.
U.S. consumer spending has to fall to 60 percent of gross domestic product, compared two-thirds now, he continued.
China will emerge first from recession, probably this year, and will lead global growth in 2010, Soros added.
World policymakers are "actually beginning to catch up" with the crisis and efforts to fix structural problems in the financial system, he said referring to last week's meeting of leaders of G20 countries.
Turning to Europe, the euro has been "a tremendous advantage" to countries that use it, adding there's "no question of a weaker country dropping out," Soros said.
More funds for the IMF will help it stabilize struggling Eastern Europe but the Baltic states still face "serious problems" and Ukraine is not far from default, he warned.
Widespread use of credit default swaps has worsened the risks for Europe, he said, though he added that Germany, the euro zone's biggest economy, is becoming more open to offering help. "Germany, which has been the most reserved about being the deep pocket of the rest of Europe, has recognized that it too has a responsibility toward the new member states."
Germany has been one of the most reluctant major economies to meet U.S. calls for more fiscal stimulus spending to boost the global economy and fight the financial crisis.
http://www.reuters.com/article/newsOne/idUSTRE53537D20090406
Wednesday, April 8, 2009
Soros Says Gain in U.S. Stocks Is ‘Bear-Market Rally
Soros Says Gain in U.S. Stocks Is ‘Bear-Market Rally
By Saijel Kishan and Kathleen Hays
April 7 (Bloomberg) -- George Soros, the billionaire hedge- fund manager who made money last year while most peers suffered losses, said the four-week rally in U.S. stocks isn’t the start of a bull market because the economy is still shrinking.
“It’s a bear-market rally because we have not yet turned the economy around,” Soros, 78, said in an interview yesterday with Bloomberg Television, referring to the recent rebound in stock prices. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”
The Standard & Poor’s 500 Index of largest U.S. companies has climbed 21 percent since March 9 on optimism the worst of the 16-month U.S. recession is over. The economy continues to contract, and there’s a risk the U.S. falls into a depression, Soros said.
“As long as we deal with this in a multilateral and more or less coordinated way, I think we’ll get through,” said Soros, whose Quantum Endowment Fund rose 8 percent last year, compared with the average 19 percent decline of hedge funds tracked by Chicago-based Hedge Fund Research Inc.
Marc Faber, managing director of Hong Kong-based Marc Faber Ltd. and publisher of the Gloom, Boom and Doom Report, said in a separate Bloomberg TV interview today that the S&P 500 may drop as much as 10 percent before resuming gains.
Views on Obama
Soros gave a mostly positive review of the President Barack Obama’s administration.
“He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market,” said Soros, who has published an updated paperback version of his book “The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means” (Scribe Publications, 2009). “Unfortunately, there’s just a little bit too much continuity with the previous administration.”
Soros said the U.S. housing market hasn’t bottomed, even as transactions in states such as California have increased.
“There are some signs of hitting bottom, but we are not there yet,” he said. “A lot has been done to forestall foreclosures.”
U.S. stocks declined for the first time in five days yesterday on concern that government measures to shore up banks may not help as much as estimated by analysts and loan losses will exceed levels from the Great Depression. The S&P 500 today fell 2.4 percent to 815.55, adding to yesterday’s 0.83 percent drop.
‘Zombie’ Banks
Soros said the banking system is “seriously under water” with banks on “life support.”
“They are weighed down by a lot of bad assets, which are still declining in value,” he said in the interview in his New York office. “The amount is difficult to estimate, but I think it’s in the region of maybe a trillion-and-a-half dollars.”
Soros said the change to fair-value accounting rules will keep troubled banks in business, stalling a U.S. recovery.
“This is part of the muddling-through scenario where we are going to keep zombie banks alive,” Soros said. “It’s going to sap the energies of the economy.”
The Financial Accounting Standards Board relaxed so-called mark-to-market rules last week, allowing banks to use “significant” judgment in gauging prices of some investments on their books. While analysts said the measure may reduce writedowns and boost net income, investor advocates and accounting-industry groups said it will help financial institutions hide their true health.
Bank Nationalization
The “bugaboo of nationalizing banks,” which the Obama administration wants to avoid, means “we are nationalizing only one side of the balance sheet,” Soros said. “We gradually take over the deficits on the balance sheet. But we aren’t actually going to benefit from the banks recovering.”
Money being injected into banks under government rescue programs should be used to finance new lending, according to Soros. He said he participated in HSBC Holdings Plc’s rights offer, which raised about $19.1 billion.
Soros’s firm oversees $21 billion. Its Quantum Endowment Fund rose 5.2 percent this year through February, data compiled by Bloomberg show. Soros ranked last year as the industry’s fourth-highest paid hedge fund manager, earning about $1.1 billion, according to Institutional Investor’s Alpha magazine.
Hedge funds should be regulated like other financial firms, Soros said. It would be appropriate for authorities to monitor positions to see whether managers have “excessive exposure,” he said.
Hedge-Fund Regulation
The Group of 20 leaders said last week they would extend oversight to all financial institutions deemed vital to global financial stability, including “systemically important” hedge funds. U.S. Treasury Secretary Timothy Geithner said last month he wants to bring hedge funds, private-equity firms and derivatives markets under federal supervision for the first time.
“The hedge funds that have used excessive leverage have actually failed or are on the way out, so I don’t think this is going to do any damage or hurt the hedge funds except for the fact that they have to fill out more forms,” Soros said.
“Recognizing that markets are inherently unstable does require a different kind of regulation than we had in the past,” he said.
Soros Fund Management LLC was fined 489 million forint ($2.2 million) last month for attempting to manipulate the share price of OTP Bank Nyrt., Hungary’s largest bank, the country’s financial regulator said.
Hungarian Ruling
The Soros fund attempted on Oct. 9 to “send out false or misleading signals about a security’s supply and demand or its share price” and short sold OTP shares, the regulator, known as PSZAF, said in a statement late yesterday. The short selling caused the shares to drop 14 percent in the final 30 minutes of trade, the regulator said. Soros apologized for the trade and said the fund had started an internal investigation.
Hungarian-born Soros gained fame in the 1990s when he broke the Bank of England’s defense of the pound and drove the currency from Europe’s system of linked exchange rates. He also successfully bet that Germany’s mark would appreciate after the collapse of the Berlin Wall in 1989 and Japanese stocks would start to fall in the same year.
Soros said China’s economic growth will accelerate before the end of the year.
“They have a pretty big stimulus package,” he said. “They are going to use more, because not being a democracy, the leadership knows that their very survival, the avoidance of social unrest, requires them to generate growth.”
Brazil to China
China’s economy grew 6.8 percent in the fourth quarter from the same period a year earlier, lagging the 9 percent expansion in all of 2008 and 13 percent in 2007. Industrial output growth slowed, forcing thousands of factories to close and leaving about 20 million migrant workers jobless.
Brazil’s economy will resume growth “relatively soon,” helped by Chinese demand for iron ore and soybeans, Soros said.
“I think Brazil actually, together with China, will be among the recovering countries,” he said. “The outlook for Brazil is better than for most other countries.”
To contact the reporter on this story: Kathleen Hays in New York at khays4@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNR3f9WE2L9s
mms://media2.bloomberg.com/cache/vrNyQYkxiMmg.asf
08/04/2009 tjhinkh
China will come out of recession at the end of the year.
Instead of giving credit to America, China will now give credit to Africa and Latin America.
Already China signed a credit swap agreement with Argentina.
America will have less deficit and save more as China is not funding US deficit anymore.
When world economy recover, oil will rise to USD70. Cost to develop oil is around USD70.
Brazil will develop deep sea oil drilling and oil in the Artic will be developed.
Brazil will come out of recession relatively soon.
By Saijel Kishan and Kathleen Hays
April 7 (Bloomberg) -- George Soros, the billionaire hedge- fund manager who made money last year while most peers suffered losses, said the four-week rally in U.S. stocks isn’t the start of a bull market because the economy is still shrinking.
“It’s a bear-market rally because we have not yet turned the economy around,” Soros, 78, said in an interview yesterday with Bloomberg Television, referring to the recent rebound in stock prices. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”
The Standard & Poor’s 500 Index of largest U.S. companies has climbed 21 percent since March 9 on optimism the worst of the 16-month U.S. recession is over. The economy continues to contract, and there’s a risk the U.S. falls into a depression, Soros said.
“As long as we deal with this in a multilateral and more or less coordinated way, I think we’ll get through,” said Soros, whose Quantum Endowment Fund rose 8 percent last year, compared with the average 19 percent decline of hedge funds tracked by Chicago-based Hedge Fund Research Inc.
Marc Faber, managing director of Hong Kong-based Marc Faber Ltd. and publisher of the Gloom, Boom and Doom Report, said in a separate Bloomberg TV interview today that the S&P 500 may drop as much as 10 percent before resuming gains.
Views on Obama
Soros gave a mostly positive review of the President Barack Obama’s administration.
“He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market,” said Soros, who has published an updated paperback version of his book “The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means” (Scribe Publications, 2009). “Unfortunately, there’s just a little bit too much continuity with the previous administration.”
Soros said the U.S. housing market hasn’t bottomed, even as transactions in states such as California have increased.
“There are some signs of hitting bottom, but we are not there yet,” he said. “A lot has been done to forestall foreclosures.”
U.S. stocks declined for the first time in five days yesterday on concern that government measures to shore up banks may not help as much as estimated by analysts and loan losses will exceed levels from the Great Depression. The S&P 500 today fell 2.4 percent to 815.55, adding to yesterday’s 0.83 percent drop.
‘Zombie’ Banks
Soros said the banking system is “seriously under water” with banks on “life support.”
“They are weighed down by a lot of bad assets, which are still declining in value,” he said in the interview in his New York office. “The amount is difficult to estimate, but I think it’s in the region of maybe a trillion-and-a-half dollars.”
Soros said the change to fair-value accounting rules will keep troubled banks in business, stalling a U.S. recovery.
“This is part of the muddling-through scenario where we are going to keep zombie banks alive,” Soros said. “It’s going to sap the energies of the economy.”
The Financial Accounting Standards Board relaxed so-called mark-to-market rules last week, allowing banks to use “significant” judgment in gauging prices of some investments on their books. While analysts said the measure may reduce writedowns and boost net income, investor advocates and accounting-industry groups said it will help financial institutions hide their true health.
Bank Nationalization
The “bugaboo of nationalizing banks,” which the Obama administration wants to avoid, means “we are nationalizing only one side of the balance sheet,” Soros said. “We gradually take over the deficits on the balance sheet. But we aren’t actually going to benefit from the banks recovering.”
Money being injected into banks under government rescue programs should be used to finance new lending, according to Soros. He said he participated in HSBC Holdings Plc’s rights offer, which raised about $19.1 billion.
Soros’s firm oversees $21 billion. Its Quantum Endowment Fund rose 5.2 percent this year through February, data compiled by Bloomberg show. Soros ranked last year as the industry’s fourth-highest paid hedge fund manager, earning about $1.1 billion, according to Institutional Investor’s Alpha magazine.
Hedge funds should be regulated like other financial firms, Soros said. It would be appropriate for authorities to monitor positions to see whether managers have “excessive exposure,” he said.
Hedge-Fund Regulation
The Group of 20 leaders said last week they would extend oversight to all financial institutions deemed vital to global financial stability, including “systemically important” hedge funds. U.S. Treasury Secretary Timothy Geithner said last month he wants to bring hedge funds, private-equity firms and derivatives markets under federal supervision for the first time.
“The hedge funds that have used excessive leverage have actually failed or are on the way out, so I don’t think this is going to do any damage or hurt the hedge funds except for the fact that they have to fill out more forms,” Soros said.
“Recognizing that markets are inherently unstable does require a different kind of regulation than we had in the past,” he said.
Soros Fund Management LLC was fined 489 million forint ($2.2 million) last month for attempting to manipulate the share price of OTP Bank Nyrt., Hungary’s largest bank, the country’s financial regulator said.
Hungarian Ruling
The Soros fund attempted on Oct. 9 to “send out false or misleading signals about a security’s supply and demand or its share price” and short sold OTP shares, the regulator, known as PSZAF, said in a statement late yesterday. The short selling caused the shares to drop 14 percent in the final 30 minutes of trade, the regulator said. Soros apologized for the trade and said the fund had started an internal investigation.
Hungarian-born Soros gained fame in the 1990s when he broke the Bank of England’s defense of the pound and drove the currency from Europe’s system of linked exchange rates. He also successfully bet that Germany’s mark would appreciate after the collapse of the Berlin Wall in 1989 and Japanese stocks would start to fall in the same year.
Soros said China’s economic growth will accelerate before the end of the year.
“They have a pretty big stimulus package,” he said. “They are going to use more, because not being a democracy, the leadership knows that their very survival, the avoidance of social unrest, requires them to generate growth.”
Brazil to China
China’s economy grew 6.8 percent in the fourth quarter from the same period a year earlier, lagging the 9 percent expansion in all of 2008 and 13 percent in 2007. Industrial output growth slowed, forcing thousands of factories to close and leaving about 20 million migrant workers jobless.
Brazil’s economy will resume growth “relatively soon,” helped by Chinese demand for iron ore and soybeans, Soros said.
“I think Brazil actually, together with China, will be among the recovering countries,” he said. “The outlook for Brazil is better than for most other countries.”
To contact the reporter on this story: Kathleen Hays in New York at khays4@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNR3f9WE2L9s
mms://media2.bloomberg.com/cache/vrNyQYkxiMmg.asf
08/04/2009 tjhinkh
China will come out of recession at the end of the year.
Instead of giving credit to America, China will now give credit to Africa and Latin America.
Already China signed a credit swap agreement with Argentina.
America will have less deficit and save more as China is not funding US deficit anymore.
When world economy recover, oil will rise to USD70. Cost to develop oil is around USD70.
Brazil will develop deep sea oil drilling and oil in the Artic will be developed.
Brazil will come out of recession relatively soon.
Monday, April 6, 2009
Soros calls G20 deal "a turning point"
Soros calls G20 deal "a turning point"
Fri Apr 3, 2009 12:11am BST
LONDON (Reuters) - Billionaire investor George Soros on Thursday said G20 leaders had taken decisive action to combat the worst economic crisis since the Great Depression of the 1930s was a success.
"This could well be a turning point because the authorities got together and they have taken the steps," Soros said in an interview on BBC television.
The investor, who said last week that the G20 meeting in London would be a "make or break event" for global markets, added: "I think it has definitely made it."
World leaders clinched a $1.1 trillion (747 billion pound) deal to boost the global economy and said financial rules would be tightened to prevent a repeat of the crisis.
Hungarian-born Soros said the leaders had "anticipated there is a very serious problem facing the developing world."
"If it hadn't been addressed today, we would have another very serious deterioration in what I call the periphery countries, including Eastern Europe. They have definitely prevented it by the measures they have taken," he said.
http://uk.reuters.com/article/UKNews1/idUKTRE53188N20090402
http://news.bbc.co.uk/1/hi/programmes/newsnight/7981506.stm
http://www.youtube.com/watch?v=h2zLNZyqFAc
http://www.cnbc.com/id/30024970
Fri Apr 3, 2009 12:11am BST
LONDON (Reuters) - Billionaire investor George Soros on Thursday said G20 leaders had taken decisive action to combat the worst economic crisis since the Great Depression of the 1930s was a success.
"This could well be a turning point because the authorities got together and they have taken the steps," Soros said in an interview on BBC television.
The investor, who said last week that the G20 meeting in London would be a "make or break event" for global markets, added: "I think it has definitely made it."
World leaders clinched a $1.1 trillion (747 billion pound) deal to boost the global economy and said financial rules would be tightened to prevent a repeat of the crisis.
Hungarian-born Soros said the leaders had "anticipated there is a very serious problem facing the developing world."
"If it hadn't been addressed today, we would have another very serious deterioration in what I call the periphery countries, including Eastern Europe. They have definitely prevented it by the measures they have taken," he said.
http://uk.reuters.com/article/UKNews1/idUKTRE53188N20090402
http://news.bbc.co.uk/1/hi/programmes/newsnight/7981506.stm
http://www.youtube.com/watch?v=h2zLNZyqFAc
http://www.cnbc.com/id/30024970
Wednesday, April 1, 2009
George Soros: Britain may have to seek IMF rescue
George Soros: Britain may have to seek IMF rescue
March 28, 2009
Alice Thomson, Rachel Sylvester and Philip Webster
Britain may have to go to the IMF for a huge financial bailout, the influential investor George Soros warns today.
The man who made $1 billion on Black Wednesday in 1992 told The Times that Britain was particularly vulnerable to the economic crisis.
Mr Soros – speaking days after an auction of government bonds failed for the first time in 14 years, ringing alarm bells about Britain’s ability to fund its growing debts – said that Gordon Brown might have to go begging for billions of pounds in international aid. He also warned that next week’s G20 summit in London was the last chance to avert a full-scale depression that could prove worse than that in the 1930s.
“You have a problem that the banking system is bigger than the economy . . . so for Britain to absorb it alone would really pile up the debt,” he said. Asked about the chances of Britain having to seek help from the International Monetary Fund, he said that if the banking system continued to collapse, it was “a possibility”. At this stage, he added, it was “not a likelihood”.
He was not optimistic about the G20 meeting, saying the odds were that it would fail because there were so many differences of opinion. The price could be years of economic devastation worse than the Great Depression. “It is really a make-or-break occasion.”
It would be a disaster if the meeting were allowed to turn into a talking shop, he said. “It’s not enough to state general principles. You’ve got to come up with practical measures that are going to provide protection to the developing world, periphery countries, against a storm that originated from the centre, against a calamity that is not of their own making.”
He spoke amid more gloom over the British economy after official figures showed that output shrank by a worse-than-expected 1.6 per cent in the final three months of 2008. It was the biggest fall since April-June 1980.
Mr Soros refused to blame Mr Brown for failing to prevent the crisis. “He underestimated the severity of the problem but so did most people. Part of the perceived role of a leader is to cheerlead so you can’t really blame him for that.”
Britain has not sought IMF help since 1976 when, with inflation approaching 27 per cent, Denis Healey, then the Chancellor, applied for a loan, shredding confidence in the Labour Government
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5989746.ece
March 28, 2009
Alice Thomson, Rachel Sylvester and Philip Webster
Britain may have to go to the IMF for a huge financial bailout, the influential investor George Soros warns today.
The man who made $1 billion on Black Wednesday in 1992 told The Times that Britain was particularly vulnerable to the economic crisis.
Mr Soros – speaking days after an auction of government bonds failed for the first time in 14 years, ringing alarm bells about Britain’s ability to fund its growing debts – said that Gordon Brown might have to go begging for billions of pounds in international aid. He also warned that next week’s G20 summit in London was the last chance to avert a full-scale depression that could prove worse than that in the 1930s.
“You have a problem that the banking system is bigger than the economy . . . so for Britain to absorb it alone would really pile up the debt,” he said. Asked about the chances of Britain having to seek help from the International Monetary Fund, he said that if the banking system continued to collapse, it was “a possibility”. At this stage, he added, it was “not a likelihood”.
He was not optimistic about the G20 meeting, saying the odds were that it would fail because there were so many differences of opinion. The price could be years of economic devastation worse than the Great Depression. “It is really a make-or-break occasion.”
It would be a disaster if the meeting were allowed to turn into a talking shop, he said. “It’s not enough to state general principles. You’ve got to come up with practical measures that are going to provide protection to the developing world, periphery countries, against a storm that originated from the centre, against a calamity that is not of their own making.”
He spoke amid more gloom over the British economy after official figures showed that output shrank by a worse-than-expected 1.6 per cent in the final three months of 2008. It was the biggest fall since April-June 1980.
Mr Soros refused to blame Mr Brown for failing to prevent the crisis. “He underestimated the severity of the problem but so did most people. Part of the perceived role of a leader is to cheerlead so you can’t really blame him for that.”
Britain has not sought IMF help since 1976 when, with inflation approaching 27 per cent, Denis Healey, then the Chancellor, applied for a loan, shredding confidence in the Labour Government
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5989746.ece
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