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The Fearless Forecast: 10 Stone Cold Lead Pipe Locks for 2009 / George Soros is a liar

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August 20, 2008 – Comments (11) | RELATED TICKERS: LEH

To borrow a line from ESPN radio's Mike and Mike in the morning, these are my

Top Ten "Stone Cold Lead Pipe Locks" for Investing in 2009.

Write them down because they will come true.

1) Oil will easily average over $100/barrel for the year.

2) The U.S. dollar will resume its multi-year decline after the current bear market rally.

3) Chinese stocks on average will significantly outperform U.S. stocks.

4) Investment banks are garbage and anyone who buys stock in them at this point will be sorry.

5) The disgusting Fannie Mae and Freddie Mac fiasco will finally be brought to a painful end for current shareholders (not bond holders).

6) The U.S. economy will be a mess, with several quarters of low to negative GDP growth, but it will never completely fall off of a cliff. 

7) Despite recent sarcastic claims to the contrary, anyone who buys builder stocks in calendar year 2008 will regret doing so.

8) General Motors and Ford will not have to file for bankruptcy and their stock will bottom out late in the year, but Chrysler will cease to exist in its current form.  It will either be sold or enter a major partnership with another automaker.

9) Power companies that use anything other than coal, i.e. natural gas, wind, solar, geothermal, nuclear, will significantly outperform the S&P 500.

10) The New York Jets will make the playoffs.

I won't post any explanations about why I think these things will happen here, but I would be glad to discuss them in the comments section.

No, that's not me in this picture.

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George Soros is a liar

A couple of months ago I read George Soros' newest book "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means."  I can't say that I enjoyed it very much.  It contained a lot of theoretical psychobabble garbage on Soros' pet theory of reflexivity, but even though I didn't enjoy the way that it was written I get his point that markets are often irrational and that statistical modeling doesn't work well because investors' personal beliefs often distort the market causing them to overshoot on both the up and down side. 

Here's my problem with Soros.  In the book he calls situation that we find ourselves in “the worst financial crisis since the 1930s.”  He states that this is not just a popping of the housing bubble, but it is the end of a twenty-five year period of unprecedented credit-driven economic expansion. Yet when one looks at his current holdings (link), one of his largest positions is a stake in Lehman Brothers (LEH), which he increased by 94629.7% during the second quarter to a substantial 9,472,967 shares, nearly 8% of his total portfolio.  What?!?! 

Given the content of his recent book, I find Soros' position in Lehman absolutely mind boggling.  In the book he talks about how the markets need additional regulation and that leverage and credit creation need to be reigned in, but without these things investment banks like Lehman Brothers won't come even close to having the earnings power that they've had in the past. 

Perhaps he was just looking for a short-term bounce in financials, but the sheer size of his position here would make it a risky bet when looking for a bounce. 

Perhaps he expects Lehman to implode and for the Fed to bail it out, but one would think that any bailout of LEH would come at a much lower price per share than Soros paid, which is estimated to be $37.10 (Lehman closed yesterday at $13.07 HAHAHAHAH). 

GoruFocus does not list short positions, so perhaps Soros is short a ton of financials and he believes that Lehman is the best run of the bunch so he is using it as a pairs trade. 

I'm calling him out.  If he isn't short a ton of stuff, then he's either a liar or he now believes that everything that he wrote in his recently published book about the current situation that we find outselves in was just flat wrong.  Does anyone out there see this differently?  If so, please explain his position in Lehman to me.

Deej

11 Comments – Post Your Own

#1) On August 20, 2008 at 9:48 AM, feiled (25.82) wrote:

Ahh!  Breaking out the football references means the season is right around the corner!  Love it!  I agree with most of your points, but the jets in the playoffs??  Are you smoking out of the same pipe as Brett Fav Ra??  LOL!

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#2) On August 20, 2008 at 10:11 AM, goldminingXpert (29.46) wrote:

2,6, and 10 won't happen. Especially 10. Most of these are solid though.

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#3) On August 20, 2008 at 10:48 AM, abitare (35.58) wrote:

Good post. I like Soros, but he is complex. He is a member of the CFR, but he is not a NEOCON. Soros has spoken against the administration and the war,  but he OWNS Haliburton, (Dick Cheney's Company (HAL)? 

1) Oil will easily average over $100/barrel for the year.

No idea here, depends on the war. I see a veryrisky down side, to the point I am considering a short of oil in a risk vs reward bet.

2) The U.S. dollar will resume its multi-year decline after the current bear market rally.

Yep. fyi - UDN - ultra short dollar

3) Chinese stocks on average will significantly outperform U.S. stocks.

Not sure, but I doubt it. China had a bubble, that  has popped. Rates were raised six times, interest rates are higher in China so saving money makes more sense vs gambling in the stock market. 

4) Investment banks are garbage and anyone who buys stock in them at this point will be sorry.

Yep, I like SKF. I owned it I would like to buy some more. 

5) The disgusting Fannie Mae and Freddie Mac fiasco will finally be brought to a painful end for current shareholders (not bond holders).

Seems likely, but I fear this rumor may be wrong. THe knowledge was put onto the public from multiple channels. I fear the reversal. The GS CEO has a vested interest in making money for GS, he is running the show. 

6) The U.S. economy will be a mess, with several quarters of low to negative GDP growth, but it will never completely fall off of a cliff. 

Concur 

7) Despite recent sarcastic claims to the contrary, anyone who buys builder stocks in calendar year 2008 will regret doing so.

Likely, correct.

9) Power companies that use anything other than coal, i.e. natural gas, wind, solar, geothermal, nuclear, will significantly outperform the S&P 500.

Crowded trade, to crowded for me.

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#4) On August 20, 2008 at 11:36 AM, TMFDeej (99.32) wrote:

Thanks for the comments everyone.  I knew that I'd catch some flack for the Jets prediction, but as a long-suffering fan I can always dream can't I? :)

We'll see what happens with my calls.  At least it's fun to stick my neck out there and go on record with them.

Deej

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#5) On August 20, 2008 at 1:20 PM, eskatonic (29.18) wrote:

I'm going to address 3)

Given that from your other points the US market won't do well.

So lets look at 4 scenarios.

The Chinese market goes down more than the US.  Ouch.

The Chinese market keeps pace with the US market.  Ouch.

The Chinese market outperforms US market but still loses.  Ouch.

The Chinese market actually goes positive.  Yay!

Risk reward looks horrible for investing in China.

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#6) On August 20, 2008 at 2:23 PM, DemonDoug (73.55) wrote:

1 - yes, 2 - yes, and it will be worse than people think, 3 - I think they will outperform, but I don't know about "significantly." 4 - yes, except maybe GS because they have entire divisions that have been shorting RE and the credit markets, 5 - yes, although this may happen in 2008, 6 - yes, 7 - yes, 8 - I think there is a good chance one may go BK and be rearranged, like all the airlines that go BK and then come back to market, but you would know better than me, 9 - PBW is the clean energy ETF.  It is currently significantly underperforming the SPY in 2008 (chart).  The problem is that it's heavy on solar and if a lot of the solar companies have a significant p/e contraction there could be more room to the downside, but I do like the solar companies if you can get them on the cheap.  I don't think it's a "crowded trade" but I do think there is some overvaluing there. 10 - San Diego, Jacksonville, Pittsburgh, New England are basically locks for the playoffs.  The wild cards will come down to Cleveland, Indianapolis, Houston, Tennessee, and as outside shots you've got Oakland, Denver, Cincinnati, and Buffalo (oh yes, watch out for the Bills - they've finally got a decent QB, guys to throw to, a running game, and a D that is showing up), and then the Jets.  Good luck beating out the AFC south for that last wild card spot Deej. :P

My prediction - Chargers win the Super Bowl over the Vikings.

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#7) On August 20, 2008 at 2:45 PM, motleyanimal (81.46) wrote:

Buffalo Bills as a wild card. I agree.

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#8) On August 20, 2008 at 3:13 PM, GS751 (27.40) wrote:

You are very very wrong about Soro's and Lehman lol read the beginning of this book or one of his others and he states that he has "nothing to do with the stock picking or investment management of Soro's fund management"

 

 

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#9) On August 20, 2008 at 3:20 PM, TMFDeej (99.32) wrote:

Hey GS.  Thanks for reading.  Soros was retired from investing for a while, but he resumed control of much of his funds assets while writing The New Paradigm.  If they purchased this much LEH he had a direct hand in it.

Deej

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#10) On August 20, 2008 at 3:39 PM, Jro81 (< 20) wrote:

Your picks are all correct except 10, the Jets are at best an 8 win team .... Bills will make the playoffs !!

Jared

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#11) On August 20, 2008 at 3:44 PM, Jro81 (< 20) wrote:

To add on my last point .... The Jets spent money to upgrade their online and obviously QB .... however, they haven't build up a quality core of young players to build the team around .... Ask the Yankees how building through free agency has treated them .... I realize that Harris, Revis and Gohlsten are quality but other then that the Jets have very little young talent ...

Lastly, Brett Favre has struggled in his previous seasons before his great season last year ... I believe that he will not be able to repeat that performance in learning a new system ....

Jared

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