What Soros Sees Ahead
By Maria Bartiromo
George Soros has made billions by anticipating tectonic shifts in financial markets. So with roughly $1.5 trillion in market value wiped out since early May, who better to talk with than the billionaire financier? Soros was more interested in discussing his new book, The Age of Fallibility, than the market meltdown. But I made him talk money anyway.
There is so much anxiety over the global market sell-off. What's going on?
There has been a reduction in liquidity. The Japanese central bank in particular has reduced excess liquidity from 32 trillion yen to less than 10 trillion yen, and this has led to an unwinding globally of the carry trade. [For example, borrowing yen at 0% interest, converting to dollars, and buying an interest-bearing instrument.] It is also the excessive leverage of hedge funds. That is unraveling, too. What is unpredictable is how far it all will go.
Is the bull run in commodities over?
What we are seeing is the unraveling of speculative positions. You have occasional parabolic patterns in commodities. That usually ends in a reversal.
What's your view of the overall U.S. economy?
The economy is still strong, with some inflationary pressures. That is obliging the Fed to continue tightening even though it anticipates an eventual slowdown, as I do. Market declines are usually followed by a slowdown.
Where is the most vulnerability?
The consumer, because the consumer has a negative savings rate. The consumer also has been benefiting from the double-digit rise in house prices, and that is coming to an end.
Are there too many hedge funds today? Some say there is a bubble vs. when you founded Soros Fund Management.
I think there will be a weeding out and an impact to the markets. That is what is happening now.
Should hedge funds be more closely regulated?
I don't exclude the need for [more] regulation.
One of your most famous trades was in 1992 when you made a $1 billion bet against the pound. Is there any currency today that you would bet against that aggressively?
No, that was a special situation.
Does that mean you are buying dollars?
So many people know you as a great financier and an aggressive trader. Why have you become so political?
I was a human being before I became a hedge fund manager.
Your book is unusually harsh on President Bush. At one point you write: "The Bush Administration and the Nazi and Communist regimes all engaged in the politics of fear." Do you really believe the Administration is a threat to democracy?
Yes, I really do believe that, and that is why I got involved in politics. By claiming to engage in a war against an unknown enemy that will never disappear...President Bush has appropriated excessive powers for the executive branch...undermining the division of powers that have been the mainstay of our democracy. In addition, he succeeded for a while in making any criticism of his policies appear as if it was unpatriotic. That undermines the first principle of an open society: critical thinking.
How do we make an honorable exit from Iraq that doesn't send it into a more intense spiral of death and destruction?
That is the quandary, because we cannot simply pull out. We need to do it in an orderly manner. That requires a political settlement between the factions...with adequate protection for other minorities like the Turkman. There is a big Turkman community, and Turkey could be drawn in if they are not protected.
Your book dwells on the negative: What's wrong with America, the world order, the global energy crisis. Don't you run the risk of being perceived as a very wealthy Chicken Little?
I do. But I contend that we have become a feel-good society unwilling to face harsh reality. As a result, reality has become increasingly threatening.
Maria Bartiromo is the host of CNBC's Closing Bell