Here guys, we will see additional market declines after brief rebound so be
careful just hang on tight! This is according to our Master Guru--- George
Soros, believe it or not, just wanna share and don't wanna to be "Sponge" just
absorbed everything without share :)
Rgds,
Soros Sees Additional Market Declines After Reprieve (Update1)
By Katherine Burton
April 3 (Bloomberg) -- Billionaire George Soros called the current financial
crisis the worst since the Great Depression and said markets will fall more
this year after a brief rebound.
``We had a good bottom,'' Soros said yesterday in an interview in New York,
referring to the rally in stocks and the dollar after JPMorgan Chase & Co.
agreed to buy Bear Stearns Cos. on March 17. ``This will probably not prove to
be the final bottom,'' he said, adding the rebound may last six weeks to three
months as the U.S. moves closer to a recession.
Last summer, worried about market disruptions that started with rising
subprime-mortgage defaults, Soros, 77, returned to a more active role in
managing the $17 billion Quantum Endowment Fund, whose profits pay for his
philanthropic projects. Quantum returned an average of 30 percent a year before
Soros started using outside managers in 2000 for much of his money.
He also decided to write a book, his 10th, ``The New Paradigm for Financial
Markets'' (Public Affairs, 2008). Released today online, the book explains the
causes of the current meltdown, a crisis he says has been in the making since
1980, and the trades he put in place this year to protect his wealth, much of
it in Quantum.
Soros has bet on declines in the dollar, 10-year Treasuries and U.S. and
European stocks this year. He expected foreign currencies to rise, as well as
Chinese and Indian equities. The latter bet helped Quantum return 32 percent in
2007. Quantum's returns this year have ranged from up 3 percent to down 3
percent.
`Heightened Uncertainty'
The euro has climbed 7.5 percent against the dollar this year and the
Japanese yen has gained 9.1 percent. These and other currencies may continue to
strengthen, he said.
``There is an increasing unwillingness to hold dollars, though there's a lack
of suitable alternatives,'' he said. ``It's a period of heightened
uncertainty.''
Federal Reserve officials dropped their benchmark interest rate 2 percentage
points this year to 2.25 percent, and Soros doesn't see that they can lower the
rate much further, given the weak dollar.
``We are close to the limit,'' he said.
New York Federal Reserve Bank President Timothy Geithner said today capital
markets are still ``substantially impaired'' and policy makers and financial
industry leaders must ``act forcefully'' to stem the crisis.
As for his wagers on developing markets, Soros hasn't abandoned his holdings
in India, even with the 22 percent drop in the benchmark Indian index this
year.
``The fundamentals remain good,'' he said. He is less certain about what will
happen to Chinese H shares, which trade in Hong Kong. They've fallen 18.5
percent this year.
Credit-Default Swaps
Credit default swaps -- a way to bet on the creditworthiness of a company --
may be the next crisis area because the market is unregulated, and it's
impossible to know whether counterparties can meet their obligations in the
event of a bond default. The market has a notional value of about $45 trillion
-- or about half the total wealth of U.S. households.
Soros recommends the creation of an exchange with a sound capital structure
and strict margin requirements, where current and future contracts could be
traded.
The cause of the current troubles dates back to 1980, when U.S. President
Ronald Reagan and U.K. Prime Minister Margaret Thatcher came to power, Soros
said. It was during this time that borrowing ballooned and regulation of banks
and financial markets became less stringent.
Avoiding a `Super-Bubble'
These leaders, Soros said, believed that markets are self- correcting,
meaning that if prices get out of whack, they will eventually revert to
historical norms. Instead, this laissez- faire attitude created the current
housing bubble, which in turn led to the seizing up of credit markets and the
demise of Bear Stearns, Soros said.
To avoid a super-bubble in the future, Soros said banks must control their
own borrowing. They must also curtail lending to clients such as hedge funds by
demanding greater collateral and margin requirements on loans.
Asked if such moves would make it impossible to achieve returns like those of
his pre-2000 days, Soros laughed.
``Since I'm designing these regulations, they would not hurt me,'' he said.
``We made direction bets but we haven't used leverage'' like the $25-to-$1
borrowing that brought down John Meriwether's Long-Term Capital Management LLC
in 1998.
To contact the reporter on this story: Katherine Burton in New York at [EMAIL
PROTECTED]
Last Updated: April 3, 2008 11:40 EDT
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