Soros says "The economic freefall has been stopped"
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