George Soros: The Guru Outlook

This week’s Guru Outlook takes a look inside the mind of George Soros – one of the original masters of the global macro hedge fund universe. Soros, of course, became famous for breaking the Bank of England. Soros made a spectacularly leveraged bet against the British Pound which netted him over $1B in a day.

Soros rose to recent notoriety for predicting the financial crisis. He was far more bearish than most others and appeared to have a crystal ball with a play-by-play for each step of the crisis. Like some of the gurus we’ve spoken of lately, he wasn’t bearish all the way up. Soros saw the decline in markets as a buying opportunity and has taken the liberty to make billions for his investors on both the way down and the way up.

Although Soros has turned more bullish over the course of the last 6 months he has not lost sight of the forest for the trees. Much like Jeremy Grantham, Soros believes we are confronted with massive structural long-term problems – particularly in the United States. He believes U.S. consumers are in the middle of a long-term deleveraging process and earlier this month he described the U.S. banking system as “bankrupt”. He sees very weak consumer spending and a drag from the banking sector holding down global growth for years to come.

In a recent interview, he said the market is now very overextended and at substantial risk of another downturn. But that doesn’t mean the market will turn down immediately. Soros says the market is likely to remain buoyant throughout the remainder of 2009 and will likely face its reality of weak global growth in 2010. He says the rally has been driven by the government stimulus and little else. Soros says the recent uptick in bank earnings is essentially a fraud:

“Those earnings are not the achievement of risk-takers. These are gifts, hidden gifts, from the government.”

Soros recently said the move down in the dollar was unsustainable (he obviously reads too much TPC) and that its link to the Renminbi would reduce the overall decline. Despite this, Soros is betting big on all things “real”. In particular, Soros is betting big on oil related names. Soros has over 33% of his funds invested in energy related names. He recently announced large positions in Interoil (IOC) and Headwaters (HW). Soros’ largest positions remain PetroBasiliero (PBR) and Hess (HES) which both represent over 5% of his portfolio.

Soros was also a heavy investor in convertible bonds in recent quarters. Of particular interest were semiconductor names. Soros bought large bond stakes in RF Micro Devices (RFMD), LSI (LSI), and Linear Tech (LLTC).

You can see his latest 13-f filing here for more details on specific positions.

Comments

[Living4Dividends]

"like Jeremy Grantham, Soros believes we are confronted with massive structural long-term problems – particularly in the United States. "

Soros is a smart cookie. HE made his fortune predicting currency futures. Currency futures are hard (impossible) to predict.

Alot of his success is do to brillance. But also he got very lucky !

2009 Oct 28 12:26 PM

[bob adamson]

Soros has clearly been one of the better prognosticators and the simplicity and clarity of his analysis speaks to the underlying logic of his analysis.

The market action of this week suggests that a correction in commodity prices is underway. Whether this is a mild and short lived pause in an otherwise continuation in the upward trend or a deeper and longer correction will test the accuracy of the Soros assessment; at least for the short to middle term.

2009 Oct 28 06:23 PM

[Tom B]

Until people are working again, there will be no "real" recovery. Gov't stimulus can't last forever.

2009 Oct 29 08:13 AM

[bexe]

Soros is a brilliant man and he knows the game.
There is so much fraud in the system that favors those who have the power and are in the right place to take advantage of it. Banks like Goldman is making a killing from these "gifts", as Soros calls it or namely very cheap money (TARP), and also the very sinister HFT (high frequency trading) which is computerized insider trading that happens in a nano second.

2009 Oct 29 08:35 AM

[Stephen A. Boyko]

I wrote “We’re All Screwed to provide a blueprint for fundamental change to the legacy, one-size-fits-all deterministic governance regime that would remedy capital market structural problems. Trying to have a one-size-fits-all governance, is analogous to writing one driving manual for the US and UK. In “We’re All Screwed,” I describe how to segment the market into predictable, probabilistic, and indeterminate regimes to do the right things for governance effectiveness and how to do things right for governance efficiency.

The legacy governance system for the US capital market is in disrepair. To achieve real regulatory reform, policymakers have to move beyond form to substantive issues. Unless experimentations to the legacy, one-size-fits-all deterministic regime take place, our capital market will be caught in a recursive loop of errors of commission (boom-bust bubble inefficiencies) and errors of omission (externality market inefficiencies). Such inefficiencies will eventually render our source of economic wealth ineffective.

If this happens, we’re all screwed.

Stephen A. Boyko

[e-mail]

Author of “We’re All Screwed: How Toxic Regulation Will Crush the Free Market System”
w-apublishing.com (www.w-apublishing.com/...)

Book Review: Brenda Jubin, Ph.D Thursday, October 8, 2009
readingthemarkets.blog...
Boyko, We’re All Screwed!

2009 Oct 29 09:05 AM

[kagame]

US needs startling new technological innovation to recover its economic dominance. Just think what we could have accomplished if any substantial part of that bailout and TARP stimulus was put into real industries that could produce actual products and create industrial jobs and supporting service jobs. We need more research and development! Think how bad the future will be for the US if we truly lose our innovative edge along with everything else.

2009 Oct 29 09:11 AM

[Daniel Eskin]

I certainly agree with you on Soro's intelligence. Reading his most recent book was quite a personal challenge to understand and I learned a lot. It's so agreeable that the US has long-term structure problems; it's more than a short-term thing. This is a good reminder to keep in mind compared to a lot more bullish article going on right now.

Check out my blog at www.youngandinvested.com


On Oct 29 08:35 AM bexe wrote:

> Soros is a brilliant man and he knows the game.
> There is so much fraud in the system that favors those who have the
> power and are in the right place to take advantage of it. Banks like
> Goldman is making a killing from these "gifts", as Soros calls it
> or namely very cheap money (seekingalpha.com/symbo...),
> and also the very sinister HFT (high frequency trading) which is
> computerized insider trading that happens in a nano second.

2009 Oct 29 09:16 AM

[p church]

If Soros is so smart, why is he a liberal?

2009 Oct 29 09:29 AM

[Mike from NYC]

Just imagine if the USA didn't act like the world's police force at no charge and the money invested in technology and infrastructure for the past 60 years. Just imagine if we didn't start fighting a war in Iraq against imaginary WMDs and put that $1Trillion to work in the USA.

Just imagine.

On Oct 29 09:11 AM kagame wrote:

> US needs startling new technological innovation to recover its economic
> dominance. Just think what we could have accomplished if any substantial
> part of that bailout and TARP stimulus was put into real industries
> that could produce actual products and create industrial jobs and
> supporting service jobs. We need more research and development!
> Think how bad the future will be for the US if we truly lose our
> innovative edge along with everything else.

2009 Oct 29 09:31 AM

[kmf]

Because he is so smart!
You guys should stop yelling "liberal" every time you don't agree with a person's view. You gave up communist when the Wall came down. How about "not-conservative"


On Oct 29 09:29 AM p church wrote:

> If Soros is so smart, why is he a liberal?

2009 Oct 29 09:46 AM

[sunnsea]

Yes, but only if it is MADE here not in a BRIC country.


On Oct 29 09:11 AM kagame wrote:

> US needs startling new technological innovation to recover its economic
> dominance. Just think what we could have accomplished if any substantial
> part of that bailout and TARP stimulus was put into real industries
> that could produce actual products and create industrial jobs and
> supporting service jobs. We need more research and development! Think
> how bad the future will be for the US if we truly lose our innovative
> edge along with everything else.

2009 Oct 29 09:50 AM

[sunnsea]

Agree. People who watch Fake News and listen to right-wing talk radio all day generally have a very limited vocabulary. Soros has lived under both fascism and communism. He knows a lot more about either of them then any Fake News pundit or corporate dupe teabagger.


On Oct 29 09:46 AM kmf wrote:

> Because he is so smart!
> You guys should stop yelling "liberal" every time you don't agree
> with a person's view. You gave up communist when the Wall came down.
> How about "not-conservative"

2009 Oct 29 09:54 AM

[BudH]

Soros should be recognized as the financial terrorist he has been.

2009 Oct 29 10:12 AM

[User 234289]

maybe he's smart because he's a liberal- whining is so icky


On Oct 29 09:29 AM p church wrote:

> If Soros is so smart, why is he a liberal?

2009 Oct 29 10:19 AM

[Old Wizard]

Soros is also smart enough to figure out how to pay only 15% marginal income tax rate on his earnings of well over a billion. Because he is such a contributor to the current political party in power, nobody in gov. is asking him to spread the wealth. Think of this: if he had to pay income taxes here at a marginal 35% rate, the difference would be 200m or more a year. I would like to understand the amount of money he spends annually funding liberal front organizations and liberal democratic candidates. My cut to reform the tremendous speculation and manipulation associated with oil and other commodities is to require at least 50 cents on the dollar for commodity purchases. Anyone with a large amount of capital can manipulate the commodity market by buying large amounts with relatively little cash on any rumor, real or made-up. Maybe he is a guru, but I am suspicious that he now can make his predictions come true and has learned how to play our system by controlling major media outlets, funding candidates,and front pressure groups. All this while using a loophole in our tax law to pay much less income tax. A run up in oil prices in the future is not hard to predict, when the administration refuses to back the use of natural gas-driven transportation, has no comprehensive energy policy, creates a forced march to electric cars and restricts oil and gas domestic gas and oil exploration, under the guise of global warming and environmental purity. The goals for alternate energy generation are trivial and the real impediments to these energy source insertions are environmental regulations and stalls that the gov. is doing nothing to remove. The story is much the same for nuclear power plants. How much Soros money is funding the groups who are impeding new energy sources from coming to fruition? In this environment, it's not hard to "predict" that oil and coal commodities will get more expensive. A tidbit in this vein is the Petrobras story, where Soros made a bundle, followed by our ex-im bank's 2.5 b investment which will help that state-owned company drill for oil off Brazil's coast. This somehow is ok environmentally and obviously was predictable by a guru.

2009 Oct 29 10:32 AM

[snappers]

Last forever!! Hell, thy given better than 1/3 to Acorn and the like. Show me one private sector job created out of this mess. Our unemployment numbers are straight out of the private sector. How many govt workers have been laid off to date?


On Oct 29 08:13 AM Tom B wrote:

> Until people are working again, there will be no "real" recovery.
> Gov

2009 Oct 29 11:03 AM

[joes]

In general studies have shown that liberals and progressives are smarter, here is just one example - tinyurl.com/5knb

The core difference is the idea of where the answers to the hard problems are to be found, Conservatives think that it has all been figured out already and if we find the right ancient text or history book, preferably a biography of some old white guy, the answers are there to be found.

Liberal progressive believe that what history tells you is that we need to keep evolving society, in fact according to Robert Wright, a leading modern thinker the structure of our world has favored the evolution of societies based on peace, commerce, reciprocal altruism, and mutual benefit.

Therefore figuring out new answers is more difficult and draws smarter people.

It is also why the left is harder to herd than the right, creating what appears to be chaos as opposed to the clean, lock step administration of conservative and other less tolerant government forms.


On Oct 29 09:29 AM p church wrote:

> If Soros is so smart, why is he a liberal?

2009 Oct 29 11:37 AM

[joes]

If George Soros was an true westerner, like English or Irish he would be recognized as the leading thinker of our times, his ideas of falsification and cognitive perception and material actions has made and saved me over the years.

He is vilified by the MSM and the right, and mostly ignored by the American progressives but to us Global citizens he is a hero that has donated Billions to feed, house and educate people about democracy.

2009 Oct 29 11:42 AM

[highsmith]

last i head more than 80% of the workforce is employed. you can certainly have an economic recovery with 80% capacity


On Oct 29 08:13 AM Tom B wrote:

> Until people are working again, there will be no "real" recovery.
> Gov't stimulus can't last forever.

2009 Oct 29 11:51 AM

[MayoW]

I agree that Soros is a very smart man, I disagree with the rash generalization that Liberals are smarter than Conservatives.
Show me statistics and tell me in which favor are the results skewed, I would also like the sample size, or population size and the standard deviation and variance of both, or perhaps the use of a bi-cumulative distribution on intelligence? I would hope one would not try to convince someone by using a hyper-geometric statistic, where results are almost always varied due to small sample size.

2009 Oct 29 12:49 PM