Interesting interview with George Soros:
WSJ: You argue that the crises we’ve experienced in the past 25 years have been, in retrospect, "testing events" that convince us the system is stable, encourage us to take even bigger risks, leading to one, cataclysmic collapse. Could this be just another testing event?
Mr. Soros: Each time the authorities saved us, that reinforced the belief that markets are self-correcting. Each time when you bail out the economy, you need to find a new motor, a new source of credit and a new instrument that allows for the credit expansion. [It’s] difficult to imagine what you can do when you are already lending effectively 100% on inflated house prices.
I have a record of crying wolf at these times. I did it first in "The Alchemy of Finance" [in 1987], then in "The Crisis of Global Capitalism" [in 1998] and now in this book. So it’s three books predicting disaster. [After] the boy cried wolf three times … the wolf really came. If we can sail through this without a recession, then the superbubble story is seriously impacted … I [will] have cried wolf again. Unfortunately, if you go into a recession, [it is not] proof of reflexivity, or vice versa.
WSJ: How is that you are rich despite your world view having been wrong so far?
Mr. Soros: I’m only rich because I know when I’m wrong.
There are no more important or truer words in trading than this: Bad trade, I was wrong, sell out the position. (That sounds strangely familiar) Soros makes it clear that he understands that quite well.
The whole interview is worth a few minutes of your precious weekend time . . .
Video
Hey Greg! Your cube’s desk looks awfully clean . . . Oh, that’s right — I almost forgot!
>
Source:
Soros, the Man Who Cries Wolf, Now Is Warning of a ‘Superbubble’
GREG IP
WSJ, June 21, 2008; Page B1
http://online.wsj.com/article/SB121400427331093457.html
~~~
He’s probably referring to the oceans of money sloshing around the world that flits from home to home, with each home crashing as soon as the flow goes to another place capable of being pumped up. As long as the money stays predominantly in paper rather than assets that add to real wealth, he is potentially correct. Additionally, the assets need to be valued fairly, and not as million dollar tulips.
The current fad is oil. The balloon will probably last until regulators and Congress blow it up. This will happen no earlier than late this year. The influence of the ocean with respect to oil is parasitic … it looks like it belongs but it really doesn’t.
The explosion will be mighty, but the recovery will be a quick bounce as soon as the cash is placed in a new self-fulfilling prophecy of an investment.
The oil bubble will be regarded as the worst financial event in the history of the world … until the next explosion somewhere else. Personally, I am wondering how the pundits and experts who all claimed that there is nothing special going on here will reply to the burst and the aftermath? I suspect they will act as pompous idiots who are shocked and surprised, and then change the subject.
What did the Zen Buddhist say to the hot dog vendor….?
“Make me one with everything….”
The hot dog vendor gave the hot dog to the Buddhist and requested two dollars in return, at which point the Buddhist gave him a twenty dollar bill and the hot dog vendor said…….
“thank you”.
The Buddhist inquired…
“Where’s my change….?”
The hot dog vendor responded….
“Change comes from within….”
I like the interview, although it would be a bit more professional if the girl sitting behind him wasn’t stuffing her face with food the whole time.
Hard to predict those black swans. As soon as you point them out they fly away. Thus leading people to think you are seeing things.
Something similar to Schrödinger’s cat perhaps?
as you observed earlier in the week – All models are wrong; some are useful.
Hey Joe,
OMG — that is freakin hysterical
Cinefoz:
when i saw oil shoot up 10% in one day, i started beleiving in the speculation theory.
but now i am having doubts about that.
speculation is usually fluid and fearful money…..it likes to go into risk…but runs at the first sight of opposition(bad publicity, bad news etc..).
OIL is now target of every government in the world except the OPEC.
and if it was speculation, the money would have been taken out of it and put some where else…rather than risk a 20% correction becauase of some new regulation.
but looks like maybe this is the real supply-demand issue.
i am not saying oil will stay at 135, and it wont go back to 100. since there are few reasons due to which oil can go down…biggest one is huge drop in demand.
but what if the supply is equal to demand of a commoditiy which is as precious as oil, and we are not able to produce any more of it. dont you think demand has to go down…and price will go up because of its usefulness.
i dont want to take any position in oil….but unless the whole world is a big conspiracy…i can say that oil will stay above 100 in near future….and unless they find a huge source…..it may go as high as 200, in the next 10 years(i am counting on oil becoming a luxury going forward and supply slowly dimnishing).
techy,
Oil is a useless product until it is converted into something that people need. Except for refiners and shippers and hedgers, and speculators and index fund operators, and commodity maniuplators, nobody on Earth uses unrefined oil for anything.
Look at the products made from oil. Are any in shortage? Have any been in shortage? Are there any allocation issues? Are there any lines of people waiting for their share? Find me a few lines and a few allocation issues and I will reconsider. Until then, I will assume you have been fooled by being worn down and misdirected.
This was a week when oil had every reason to give something back, but really didn’t.
End of the Chinese subsidies, evidence of US demand destruction, much sound and fury out of Congress, the Saudis bringing a new 300 kb/d field online, jawboning from OPEC…
And here it sits, all dumb, fat and happy at 134.
I just don’t think we’ve ever seen a bubble before in a commodity essential to the world’s continued existence.
PBR and SU both look tasty here. At the very least, it’s clear, technically, how they should be traded.
harkening back to recent posting, in the comments, of a Confucian saying, Soros would have an easier time, of being taken as an honest-broker, if he entitled his most recent tome: “The Crisis of Global Socialism”.
To give ‘Capitalism’ the rap is merely a Trojan Horse effort to usher in far more Gov’t interference in every Marketplace.
We should know him by the Politicians, worldwide, that he (has) support(s/ed).
☺☺cinefoz said: “Look at the products made from oil. Are any in shortage? Have any been in shortage? Are there any allocation issues? Are there any lines of people waiting for their share?”
Well in fact, cinefoz, there are, as this CNN video clip amply illustrates:
“http://edition.cnn.com/video/?/video/world/2008/06/20/vause.china.oil.hunt.cnn
Although this is only a 1 minute and 53 second clip, it is loaded with important information. For instance:
In China, trucks wait for hours to buy diesel.
When they finally arrive at the pump, the diesel is often rationed and they can buy only enough diesel to go 45 miles.
But much more ominous for U.S. interests is the fact that China and Venezuela have entered into an agreement to build a new refinery in China that can refine heavy, sour crude. As the video points out, the U.S. has the most sophisticated refinery system in the world. It is one of the very few countries that can refine lower-grade oils, which sell at a deep discount to light sweet crude. This gives the U.S. almost monopoly status on the purchase of this low-priced crude. But this competitive edge is soon to disappear when China’s new refinery comes on stream.
This portends only one thing for Americans–higher gasoline prices at the pump.
Are any in shortage? Have any been in shortage? Are there any allocation issues? Are there any lines of people waiting for their share? Find me a few lines and a few allocation issues and I will reconsider.
That’s the whole point of a market, isn’t it? There aren’t going to be any shortages because the market is allowed to adjust to its clearing price. There will be people priced out, sure, but not shortages.
OH, by the way cinefoz, I will take you up on your hazard to “Find me a few lines and a few allocation issues and I will reconsider.”
Barry –
Curious about what your unofficial # of visits to the site indicator may be telling you about the likelihood of an oversold bounce on Monday. My gut tells me that while this may be possible or even likely, one of these days a big distribution day will be followed by an even bigger distribution day as the bottom falls out completely and that’s when the fun will really start.
So which will it be, short term bounce or ‘look out below’? Either way the Jan/March lows will be taken out by the end of summer so I guess you can kill me fast or kill me slow…
~~~
BR: Its actually been softening this week compared to the prior few weeks — we’ve seen in the past that traffic spikes accompany bottoms.
I am not sure what this means — other than this does not have the same degree of fear we saw in prior whooshes.
http://www.sitemeter.com/?a=stats&s=sm2ritholtz&r=12
DownSouth,
Instead of scouring the world for one extreme example that does not seem to be going on anywhere else, and probably has more to do with the natural disasters in China than anything else, show some mainstream ones that provide obvious illustration of shortages and lines.
Tranchfoot, go back to school, and learn to think logically while you are at it. You make it sound like price gouging is economically sound and a normal market activity, providing you can get away with it. Being able to exploit the market because you can take advantage of unusual circumstances is not the same as shortage based pricing.
Downsouth,
BTW, did you hear the one about the price of housing is going up forever because they aren’t making any more land?
Nyuk Nyuk Nyuk.
I don’t know why people feel the need to argue that it’s ONE particular thing about these oil prices.. it seems to me it’s kind of been a “wave” of things:
1) when oil was around $60-70/barrel, and the worldwide production was kind of stagnant, along with the increased demands from CHINDIA put upward pressure on the price – not massive increases, but upward pressure.
2) As the above was happening, and Burnutty started chopping the interest rates, the price started to adjust accordingly as the dollar dropped.
3) As the price started to move upward, and the free money from the Fed started filtering in, everyone piled into oil and the price skyrocketed.
4) Throw in some terrorism/disruption premiums in and it seems to me you’ve got a pretty solid explaination for the price increases. No?
All the pronouncements about oil being a bubble are dead wrong. Even Soros said that speculation was “froth” on a peak oil-like situation. For real information on oil, go talk to some oil geologists and petroleum engineers at : http://www.theoildrum.com.
First off – Barry, thanks for the Saturday morning poop. Good stuff as always.
In regard to Soros, IMO the essence is found in the last few sentences of the track from Greg Ip. I think “Controlling the flow of credit” is the key. I, like a lot of others view capital as an ocean of dollars if you will. For a time, they are just sloshing around in search of a worthy investment. If the ocean level is low, the scrutiny given to every investment is great. If the level is near the top OR the quality of current investment opportunities is poor, less scrutiny is given to each investment.
Over the last 30 years or so, it DOES seem that when there is an abundance of money + credit availability, the flow of this capital tends to move toward the same investments that are (1) appreciating and (2) being actively pushed by the financial media.
So, it really is a self-fullfilling prophesy when a condition exist where there is ample capital + generous credit availability + a driving push by the financial community.
We really are just one of many within the herd over time. I don’t think it is much more complicated than that.
It is also amazing that over the last 30 years, there are very few occasions where margin requirements (which I view as a hardware tool) just sat idly by and was never used as a governor on a rapidly rising market. This proves that market politics gets in the way both on the upside (“let your profits run”) and on the downside (“invest for the long term”).
I think the BIGGEST issue is the possible Israeli attack on Iran. Bush checked off on this on his last visit to Israel, and there are 3 carriers in the Persian gulf. This is a mistake… it seems that all of Bush’s foreign policies are a mistake. We need to impeach this idiot before he starts WWIII. The civil war was suppose to last only 2 weeks… WWI was suppose to last for only a few months…. Vietnam was suppose to be an easy win, Iraq was to be won and stable in weeks (Cheney “Saddams military is a house of cards”)…… The cost of war is ALWAYS HIGHER THAN PEOPLE THINK… This will be a big mess….
GOD Help Us.
Ali_m,
The interesting thing here (to me) is that the latest possible date of any action is pretty much fixed. I can’t remember any event of such potential impact that was a classic “use it or lose it” kind of situation; because everybody (and I do mean everybody – globally) knows that Obama will have no part in any kind of new Middle Eastern conflict.
So, it seems to me…the direction & speed of any market deterioration is an implied signal to batten down the hatches and go defensive in all of your investments. The Party currently in Office will blame any market decline on the new Party coming in, right up to the start of THE conflict.
DownSouth,
Based on what you just wrote, oil is in shortage in China because they aren’t willing to pay market price for it, likely because they aren’t charging market prices to their citizens. They appear to believe all they want will be available if they pay market prices to oil producers. It does not look like they will be taking someone else’s oil by paying up. There appears to be enough to go around for everybody if they are willing to pay for it.
Thus, WHAT SHORTAGE????! It’s more like claiming the world is running out of Pepsi if you are the only vendor in the middle of a desert in the summer, allowing you to charge $10.00 a liter.
By inference, high oil prices are a fraud being perpetuated on the world, and there are an abundance of useful idiots willing to act as sheep and pay through the nose out of pure stupidity. They just know how to sound smart while acting stupid.
Limit the long only fund speculators, limit who is considered a valid speculator, limit the amounts that can be invested per speculator, make the entire process transparent and watch prices plummet.
BG,
this admin. seems want to go ut with a bang… rememer Bush 41 started Somalia in Oct ’92, leaving Clinton with his mess to clean up.. this admin is makin a big mess for the next admin to clean up (Obama).. and hoping he’ll get the blame for the mess…. this admin seems quite deranged and illusional… we all need to wake up and throw this ASS out before it is too late..even if Pelosi is president (Bush and Cheney must go)
☺☺”That’s the whole point of a market, isn’t it? There aren’t going to be any shortages because the market is allowed to adjust to its clearing price. There will be people priced out, sure, but not shortages.”–Posted by: tranchefoot | Jun 21, 2008 12:25:50 PM
tranchefoot, you make an interesting point.
The Chinese example shows what can happen when the government, as opposed to markets, set the price. You have lower prices, fixed by the government, but along with that you have rationing and shortages.
But this is not an isolated example.
There is something that Americans seem to be totally ignorant of, or in denial of, and that is that pure classical liberal economics and what it entails–free markets and lazaise faire–is a discredited theory, in disrepute in just about every corner of the world except the United States.
No better example of this can be found than with oil. When it comes to oil, few countries around the globe allow free markets to function. Instead, public policy is crafted to achieve some desired behavioral outcome. In China it takes the form of subsidies and rationing. In Western Europe it appears as extremely high taxes on petroleum products.
On the supply side it’s the same. All but a handful of oil-exporting countries have made it clarion that they ARE NOT going to allow markets to determine the rate at which they produce oil. Those rates will be determined by political imperatives.
My objective here is not to levy some judgment on the merits of classical liberal economics. Instead, it is merely to point out that the rest of the world already has. Americans need to wake up and smell the coffee. It’s a new world out there, and the United States no longer has the military might, the economic wherewithall or the moral/philisophical capital to impose its free market/free trade regime upon the rest of the world.
found what I was referring to, above:
As Confucius said: “The beginning of wisdom is calling things by their right names.”
Posted by: DownSouth | Jun 20, 2008 10:07:18 AM
And, ‘Judy’, sorry to burst your bubble, but ‘Peak Oil’, much like ‘Keynesian Economics’ before it, is a PR ruse to facilitate the expansion of Gov’t–it would do Bernays proud..
Am I only the tinfoil hat person who believes the government is behind the high oil prices? Is it so hard to see that they are misdirecting our attention to the speculators which I think most people see as being bogus. Bush and Cheney have a short time to get the off- shore drilling approved and are now putting on a full court press. They got the Florida gov. to change his mind overnight. I have no doubt Cheney will be paid millions soon after he leaves office to be a lobbyist or consultant to big oil. The US citizen is being sold out once again..
Our last peak oil scare was brought to us via Henry Kissinger asking OPEC for higher prices to punish a couple of small countries imposing an oil embargo on the US.
You can talk about supply and demand all you want but you never hear anybody discussing political favors.
cinefoz..
how about putting your money where your mouth is?
go ahead put a bear spread on USO(or any other oil tracking index).
i see that you can make profit by jan 2009, even if oil goes all the way to 150.
or maybe you prefer jan 2010….i think you can safely make money if oil does not go above 170.
unless of course, you maybe wrong.
for me, i think oil can be anywhere between $70-$200 by jan 2010. i dont buy the speculation theory as the only reason.
Ali_m,
If there is anything good about the current situation between Israel & Iran, it is the timing. If anything IS going to happen, it will happen before the current administration leaves Office; because if Israel ends up getting in over their heads with Iran, they will be looking for Bush to back them up.
They don’t know what Obama would do in this situation. Plus, time is moving along and there hasn’t been very much progress in avoiding this eventual outcome. This thing is coming to a head and (I think) something really will happen before 01/01/09.
Israel has done this kind of thing on two different occasions. Why would they not respond to the most threatening situation ever faced as a Nation? As in the past, Israel will again respond. They correctly feel that time is running out. And you know what? It really is. Neither Iran or Israel is blinking at this point.
Like I said earlier, I can’t remember a situation where the timeframe was so clearly defined for an event with such potential impact. Sadly, the only one that comes to mind is the Manhattan Project.
The RightWing Lukudites are dreamin’ if they think they can take out Iran’s nuclear program. Unlike Iraq, which had their nuclear reactor out in the open, Iran has their facilities scattered and far underground. I wouldn’t be surprised if some of those sites above or just below ground are decoys.
Their RightWingers are just as loony as our RightWingers. Just as utterly incompetent, and just as repeatedly wrong.
.
The current Israeli prime minister, Ehud Olmert, has no prior military experience. He is the first PM w/o any military background. All the previous prime ministers had some form of military expertise. This became a big issue during the last conflict in Lebanon. Olmert is a man mired in scandal and is in constant threat of removal. His lack of military understanding and experise was an impedimant. He is also slow and undecisive b/c of his lack of military expertise.I think he’ll screw this one up as well, just like Lebanon 2 years ago. Many people believe Hezbollah won that conflict, I think Iran will win this one as well. I’d feel better if Benjamin Netanyahu was PM.
Iran is holding elections next March… Ahmadinejad is very unpopular among the populas and the clerics… he will lose the election… Israel needs to be patient.. it is the Bushies that are drumming for another war…
Even if Iran enriches uranium it is still years away from:
1. weaponizing it… not an easy task
2. testing it.. need to test before using
3. having a capable delivery system..aka missile
4. a missile that can reach Europe and USA is not that easy… just ask the N. Korea and Libya…
5. If Iran destabilizes then an unstable Pakistan with nuclear weapons will be the regional power…where Bin Laden has taken refuge in the open.
There is plenty of time… this war will be a mistake..
I find it fascinating that most of the talk here is about oil, and some about Israel and Iran where the really big issue facing the economy and stock market long term is the deflating debt bubble. This is what Soros is referring to when he talks about the superbubble.
Hi Samuel,
there seems to be a battle btn deflationists and hyperinflationists …. I think in the era before an active FED there would be deflation in a credit bubble burst ..ie 1929… and in a world of an active FED there would be hyperinflation ie…’73-’82…. I think we’ll get both this time…. the Fed will attempt to re inflate the econ w massive liquidity, but the dollar will fall and prices will increase, especially of imports….. this leaves less disposable income to buy other things..ie durables, causing deflation of other goods… Marc Faber said it best “there will be inflation of things you buy [food and energy], and deflation of things you own [assets]”
thus hyperinflation in food and energy and deflation in bonds, stocks, real estate…
Yes, indeed, the issue is the long-term fate of the stock market. And this in the context of the difficulty imagining “what you can do when you are already lending effectively 100% on inflated house prices.”
Well, first … given extreme global economic and financial imbalances created as a function of neo-colonialism going by the name of “globalization”
… given unrestrained global credit creation capacity in an age of deregulation and wildcat financial engineering
… given the role futures markets play in setting prices for commodities essential to both life and industry
… given regulatory complicity (the CFTC in the U.S. and the FSA in the Great Britain) in allowing a greater preponderance of non-user capital flows into commodities markets (read: Index Funds)
… and last, but by no means least … given a domestic political, social, and financial environment in which capital intensive investment in life-enriching, cost-reducing, productivity-enhancing, investment-protecting physical capacity is shunned (for example, heavy crude refining, nuclear power, hydro power, water management, flood control, hydrogen production, etc.)
… the likelihood of a severe financial/economic/social shock having an adverse effect on the riskiest financial asset class of all — equities — is almost a foregone conclusion. It’s really not a question of “if,” but rather of “when.”
On this count most everyone here probably would agree with Mr. Soros’ assessment calling for a breakdown crisis.
Yet, the question is not simply how will things be righted, but, more critically, how soon.
The push for social upheaval is on. The “divide and conquer” crew — the deranged aristocracy backing the British Empire and its Tory puppets in the U.S. who have infiltrated both political parties (including personalities who run in Mr. Soros’ circle of interest; there I went and said it… Barack Obama, the new and improved Jimmy Carter, is only a “change” in color of the same old, same old, fascism with a smiling face) — is CLEARLY intent on crushing, once and for all, any hope the American System of Political Economy can pull the world back from the precipice and prevent it from falling into the abyss of scarcity, destitution and permanent war.
One need only witness how all things FDR have been both increasingly attacked and rolled back over the course of our generation.
Yet one must soon realize such courses of action reflected by FDR’s Reconstruction Finance Corporation represent both a unique manifestation of constitutional powers afforded our government and the only humane, rational solution that could possibly abate the Great Calamity Mr. Soros’ politics all too well serve to promote.
It is through the exercise of those unique powers afforded our constitutional republic that one discovers “what you can do when you are already lending effectively 100% on inflated house prices.”
Were it not for the reinvigoration of our nation’s productive capacity at the depths of the Great Depression, it is highly unlikely the stock market would have performed as swimmingly over the duration of FDR’s years in office. Furthermore, the stock market and the constitutional republic that is the United States of America might not even exist at all.
There is, even today, legislation reflective of the policy course we must take immediately if we are to avoid a Great Calamity. It is called, “The Rebuilding America’s Infrastructure Act (H.R. 3400)” and it is co-sponsored by both a House Democrat (Kucinich) and Republican (LaTourette).
This particular piece of legislation — much like FDR’s animation of the Reconstruction Finance Corporation (the RFC was created by Hoover and exclusively used to capitalize a liquidity-challenged banking system; sound familiar?) — essentially is a manifestation of an institution whose history has shown always to serve well the People of the United States and their Posterity: the Bank of the United States.
Now, some will reflexively argue government-directed credit facilitating infrastructure investment smacks of “socialism.” Yet, how can such charges be made with a straight face when a rising tide of Fascism is plainly revealed by every other alternative machination?
This includes today’s thoughtless devotion to so-called free markets … which, by the way, exist only in the mind; there is no such thing.
It also includes those proposals for “Public-Private Partnerships” put forward by the likes of California Governor Arnold, my daddy was a devout Nazi, Schwartzenegger and New York City Mayor Michael, user fees, Bloomberg.
To my way of thinking … any and all proposals going forward seeking to perpetuate a status quo that has brought us to the brink of a Great Calamity are anathema to a sound environment conducive to conscientious, long-term investing. This particularly includes those proposals put forward by Treasury Secretary Paulson seeking to cement the hegemony of Wall Street investment banking houses over the financial affairs of our nation…
I do note with diligence that George Soros failed to call the super bubble when market topped in October and not even in beginning of January.So a question to everyone who is willing to ponder is that Is that merely a case of omission or it’s a case of commission.
Answer we will find may be few months later?
ARM resets will peak in 2011 along with loan defaults which will create huge write-downs at the same time as FASBs edited 140 and 46R require the consolidation of off balance sheet liabilities and worthless assets that investors don’t truly see.
So the third time might be the charm for Soros.
These problems also correspond with the market bottom called by Martin Armstrong’s cycle theory in 2011.
Hopefully they are all wrong and our economy expands, oil falls, and we all live happily ever after, but if they are right . . . OUCH