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Will Soros be right about 2010 after getting 2009 wrong?

with 2 comments

George Soros remains the master-of-the-universe among hedge fund managers with the most consistently brilliant ability to second guess markets. But he failed to anticipate the extent of the stock market rally in 2009 like many other commentators.

It would be unwise, however, to dismiss this market genius on the strength of one mistiming of markets. It could be that he is still largely right in thinking this a bear market rally, albeit with a longer and stronger upside than expected.

Double-dip recession

In a year-end article Mr. Soros says: ‘Unfortunately the recovery is liable to run out of steam, and may even be followed by a second economic downturn, although I am not sure whether this will occur in 2010 or 2011’.

The master notes that the global financial crisis has been handled by governments with guarantees, and that this marks the ‘end of an era’ for markets, adding: ‘the growing belief that the global financial system has escaped collapse, and that we are slowly returning to business as usual, is a grave misinterpretation of the current situation. Humpty Dumpty cannot be put together again’.

His fear is that the new financial status quo is now so dominated by individual governments and that ‘this give rise to what may be called financial protectionism which threatens to disrupt and perhaps destroy global financial markets’.

It is certainly easy to see that lending to Dubai, for example, has been damaged by the recent crisis, and that finance for another building boom is not likely to emerge from outside the UAE.

Financial protectionism

Mr. Soros thinks the next challenge for governments is to agree a framework for regulating global financial markets because the recent crisis has shown that these markets cannot be trusted to regulate themselves. Financial protectionism could be the modern equivalent of the trade protectionism of the 1930s, he argues.

If so then it is hard to see where the political will is coming from to make this happen. Bankers seem only too keen to get back to the old status quo and safeguard their bonuses, indeed that is all that seems to motivate many of them. Meanwhile, politicians are their equal in self-interest and far less knowledgeable about markets.

That tends to support Mr. Soros’s view that this is a case of crisis interrupted rather than crisis solved. But even this genius is hedging his bets for 2010. Mere mortals should bow to his greater wisdom.

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Written by Peter Cooper

December 26, 2009 at 9:38 am

2 Responses

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  1. Debt. A four letter word obsenity. Governments and people are addicted to it in the Western world, and their affiliates, like the Middle East.
    Soros is right. The worst is yet to come for debtor nations and individuals.

    clr

    December 28, 2009 at 6:56 am

  2. Soros didn’t believe that ‘helicopter Ben’ Bernanke would keep that instant money falling out of the Fed for as long as he thinks it takes to stimulate the stock market, and build public confidence in an attempt to increase consumption.
    But Soros knows that, like drug use, eventually the bad side effects start to show up. And when the drugs run out, the withdrawal syndrome can be very unpleasant, and depends on the extent and duration of drug use. We can only hope that Ben doesn’t get the economy too hooked on his free samples.

    Bill Simpson in Slidell

    December 26, 2009 at 3:57 pm


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