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Soros says "The economic freefall has been stopped"

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May 11, 2009 – Comments (18)

 

I need to begin by saying that I am not the biggest George Soros fan in the world.  I didn't love his latest book, The New Paradigm for Financial Markets.  I thought that it was somewhat repetitive and that didn't like the fact that he acts as though he's the smartest person to ever walk the face of the Earth for coming up with his pet reflexivity theory.  Having said that:

A) He has a point about reflexivity.  Negative and positive trends do have a way of feeding upon themselves and getting out of control.

B) He's obviously very smart and he has been a very successful investor so his thoughts on the global economy are worth taking note of.

What I find interesting is that Mr. Soros has turned significantly less bearish lately.  He was quoted as saying the following to a German newspaper today:

The economic freefall has been stopped, the collapse of the financial system averted. National economic stimulus programs are starting to take effect. The downward dynamic is easing...

I expect the recovery to make up for around half of the downturn we have had and then to move into stagnation...

Asia will be first to find out of the crisis, but America is also currently doing that...

I don't expect the dollar to lose much value against the euro, on the contrary.

Interesting stuff.  Is he talking his book and looking to play a bounce in the markets or does he really believe this?  It's tough to say. 

His statement is actually very similar to what I have been writing lately.  Things are bad and they will continue get worse, just at a slower pace.  Eventually we will hit a bottom.  However, we are not returning to the level of profitability and economic growth that everyone viewed as "normal" in several years ago.  We haven't solved a lot of the problems that the U.S. economy has.  People and the government are still awash in debt, we're still too dependent upon consumer spending, Baby Boomers are passing their prime spending years, a lot of wealth has been destroyed, unemployment is still high and headed higher, etc...  Growth is going to be slower going forward, but I really truly believe that we are not all doomed either.

I actually find it refreshing to see some people looking for as the annoying description goes "green shoots."  Bill Ackman had a great quote on CNBC this morning.  Ackman certainly is not perfect and I think that he's wasting his time in with Target (TGT) right now, but he had a point when he said something along the lines that if everyone in the world was like Nouriel Rubini we'd all be doomed.

Negative news feeds upon itself.  It scares consumers and causes them to spend less than they normally would, which causes a U.S. economy which is too heavily dependent upon consumer spending to get worse, which causes consumers to hunker down even more, which causes the economy to get worse, and so on, and so on, and so on...

Like many people in CAPS, I know what really going on with the economy, jobs, etc...  I constantly challenge myself to look past the headlines and see what sort of shape the economy is really in.  As long as you and I know what's really happening, why not welcome as much positive talk about the economy as possible in the media?  I actually view anything that can raise consumer confidence as a good thing.

I believe that stocks are overvalued right now.  People who are buying companies at this point think that we are returning to the "normal" level of unsustainable margins and growth that we had experienced for a number of years.  Eventually they'll find out that we're not, but I also have seen the pace of the decline in the economy slowing a little. 

For all of our sakes, I hope that this continues and that we eventually find a bottom some time in 2010 that we can at least sit on for a while.  I envision an "L" shaped or a "U" shaped recovery once a bottom is reached where people who have purchased dividend paying preferred / common stock and bonds will be paid and people who are looking for growth and capital gains will be disappointed.

If you purchase an investment that has a fixed rate of return, like a bond, just make sure to be conservative with your maturities.  Don't purchase bonds that mature too far in the future.  Interest rates are unbelievably low right now.  There's no doubt that they're eventually headed higher.

Soros says economic downward trend easing: report

Deej

18 Comments – Post Your Own

#1) On May 11, 2009 at 11:09 AM, alstry (35.36) wrote:

Seriously Deej,

Have you ever been to one of Nuriel's parties?....there is no one on Wall Street that has more hotter looking women in attendance than rockin Roubini.  If that is we are all doomed......doom me baby.

Next...who you gonna believe....I guy that looks like Rodney Dangerfield.....or Big Al????

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#2) On May 11, 2009 at 11:14 AM, Deepfryer (27.72) wrote:

Good article. The only thing I don't like is the quote by Ackman. And to be honest, your predictions sound just as pessimistic (or should I say realistic), as Roubini's. If everyone was more like him the world would be a better place.

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#3) On May 11, 2009 at 11:20 AM, portefeuille (99.60) wrote:

the Soros interview

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#4) On May 11, 2009 at 11:23 AM, kdakota630 (29.59) wrote:

What I find interesting is that Mr. Soros has turned significantly less bearish lately.

Agreed.  I'm not in the mood to look at the moment, but I could've sworn I saw a number of videos and quotes posted recently from George Soros predicting economic collapse, and only like maybe 4-6 weeks ago.

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#5) On May 11, 2009 at 11:28 AM, portefeuille (99.60) wrote:

Ist die Besserung nachhaltig?

Ich erwarte, dass die Erholung etwa die Hälfte des vorherigen Abschwungs wettmacht und dann in eine Stagnation übergeht. Asien wird als Erstes aus der Krise finden, aber auch Amerika ist gerade dabei. Gleichwohl wird China die Vereinigten Staaten als Motor der Weltwirtschaft ablösen.

That is again his "inverted square root sign" prediction:

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."

(taken from here, see comment #14 here)

 

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#6) On May 11, 2009 at 11:34 AM, outoffocus (23.03) wrote:

Sounds like a contrarian indicator to me.   Soro's sudden change of heart sounds more like bear capitulation rather than true belief in economic recovery.  I'm not a big fan of Soro's because, if I'm not mistaken, he believes in government bailouts.

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#7) On May 11, 2009 at 11:43 AM, drummnutt (< 20) wrote:

GREAT post. I admire a fool who can take a lot of seemingly conflicting data, join the dots and sketch out a realistic picture in a balanced way! Excellent work.

1 rec (plus 20 desired recs).

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#8) On May 11, 2009 at 11:55 AM, TMFDeej (99.42) wrote:

Thanks Deepfryer.  I actually don't have a problem with Roubini.  To be honest, I probably like him better than I like Ackman.  He certainly can party harder :).

Rather than a dig at Roubini, which I suppose it was, I appreciate Ackman's quote for the idea behind it...if everyone is bearish then it will become a self-fulfilling prophesy.

After months and months of negativity, it's nice to see some optimism out there.  I know that much of it is misguided, but as long as you and I know that, who cares what the average Joe believes if it helps us get out of this rut ;).

Deej

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#9) On May 11, 2009 at 12:13 PM, Deepfryer (27.72) wrote:

I agree.

And I want to say, it's a little unfair when everyone bashes Obama for trying to say optimistic things about the economy... that's his job, people! Give the man a break!

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#10) On May 11, 2009 at 12:21 PM, dbjella (< 20) wrote:

Deej

It scares consumers and causes them to spend less than they normally would, which causes a U.S. economy which is too heavily dependent upon consumer spending to get worse, which causes consumers to hunker down even more, which causes the economy to get worse, and so on, and so on, and so on...

What else should an economy be based on beside consumer spending?

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#11) On May 11, 2009 at 12:27 PM, motleyanimal (85.49) wrote:

Predicting a recovery that will produce of years of slow growth is not a very exciting prospect, certainly not as newsworthy as the end of days, economic apocalypse some have been trying to sell us.

It's hardly worth even a single exclamation point. But, let's see how it would look anyway.

YEARS OF SLOW GROWTH DON'T THREATEN WORLD ECONOMY !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

BORING STABILITY ROCKS WALL STREET TRADERS !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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#12) On May 11, 2009 at 1:11 PM, TMFDeej (99.42) wrote:

Hi dbjella.  Ideally an economy should be based upon producing things that people what to buy...particularly people abroad. 

The U.S. consumes a lot, but produces very little in terms of real, tangible things.  Instead of adding value, for years we have been using leverage and financial smoke and mirrors to create the illusion of productivity, spending some of the money that we made from doing so on massages, fancy coffee, and financial advice domestically while sending the bulk of it abroad for tangible goods.  That's the problem.

Deej

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#13) On May 12, 2009 at 1:28 AM, Bays (30.12) wrote:

rec for the picture

 

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#14) On May 12, 2009 at 1:53 AM, automaticaev (< 20) wrote:

duh thats why the democrats played this is almost as bad as the great depression lines.  The worse they could make the economy get the more likely they are to get elected.  I used to have a job like that where everyone tried to make everyone look worse thus getting themselves to look better. 

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#15) On May 12, 2009 at 2:09 AM, uclayoda87 (29.24) wrote:

 TMFDeej

The U.S. consumes a lot, but produces very little in terms of real, tangible things.  Instead of adding value, for years we have been using leverage and financial smoke and mirrors to create the illusion of productivity, spending some of the money that we made from doing so on massages, fancy coffee, and financial advice domestically while sending the bulk of it abroad for tangible goods.  That's the problem.

Is this a quote from Peter Schiff?  It sound like a quote from Peter Schiff!

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#16) On May 12, 2009 at 3:16 AM, starbucks4ever (97.92) wrote:

What Soros really thinks is a big secret...

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#17) On May 12, 2009 at 5:01 AM, minduza (< 20) wrote:

I would add: Where Soros invests is even bigger secret. He is probably saying one thing and is doing another

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#18) On May 14, 2009 at 1:58 PM, DamnYouGreenspan (< 20) wrote:

Lol, at the bears. They get pissed when someone smart isn't predicting collapse for once.

I WANT MY FOOD RIOTS!!!!!!!!!!!!!!!!! 

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