WSJ Interview: George Soros
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
~~~
Saturday, June 21, 2008 | 09:38 AM | Permalink
| Comments (34)
| TrackBack (0)
add to de.li.cious | 
digg this! | 
add to technorati | 
email this post
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e553656c538833
Listed below are links to weblogs that reference WSJ Interview: George Soros:
Comments
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.
Posted by: cinefoz | Jun 21, 2008 9:59:19 AM
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...."
Posted by: ECONOMISTA NON GRATA | Jun 21, 2008 10:12:08 AM
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.
Posted by: Joe | Jun 21, 2008 10:23:45 AM
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.
Posted by: Mr Reality | Jun 21, 2008 10:26:04 AM
Hey Joe,
OMG -- that is freakin hysterical
Posted by: Barry Ritholtz | Jun 21, 2008 10:36:21 AM
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).
Posted by: techy | Jun 21, 2008 10:47:50 AM
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.
Posted by: cinefoz | Jun 21, 2008 11:18:29 AM
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.
Posted by: zackattack | Jun 21, 2008 12:07:13 PM
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).
Posted by: Mark E Hoffer | Jun 21, 2008 12:23:05 PM
☺☺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.
Posted by: DownSouth | Jun 21, 2008 12:25:00 PM
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.
Posted by: tranchefoot | Jun 21, 2008 12:25:50 PM
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."
Posted by: DownSouth | Jun 21, 2008 12:32:36 PM
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
Posted by: drey | Jun 21, 2008 12:36:33 PM
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.
Posted by: cinefoz | Jun 21, 2008 12:38:28 PM
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.
Posted by: cinefoz | Jun 21, 2008 12:41:05 PM
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?
Posted by: Big E | Jun 21, 2008 1:00:53 PM
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 : www.theoildrum.com.
Posted by: Judy | Jun 21, 2008 1:06:16 PM
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").
Posted by: BG | Jun 21, 2008 1:14:05 PM
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.
Posted by: ali_m | Jun 21, 2008 1:18:56 PM
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.
Posted by: BG | Jun 21, 2008 1:37:55 PM
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.
Posted by: cinefoz | Jun 21, 2008 1:42:00 PM
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)
Posted by: ali_m | Jun 21, 2008 1:49:21 PM
☺☺"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.
Posted by: DownSouth | Jun 21, 2008 1:50:06 PM
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..
Posted by: Mark E Hoffer | Jun 21, 2008 1:53:47 PM
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.
Posted by: Jim P | Jun 21, 2008 3:36:07 PM
