Thursday, January 7, 2016

Soros Warns of Another 2008 Crisis?

Matt Clinch of CNBC reports, Soros: It's the 2008 crisis all over again:
Billionaire financier George Soros is warning of an impending financial markets crisis as investors around the world were roiled by turmoil in China trade for the second time this week.

Speaking at an economic forum in Sri Lanka's capital Colombo, he told an audience that China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, according to media. He added that a return to rising interest rates was proving difficult for the developing world.

The current environment reminded him of the "crisis we had in 2008," The Sunday Times in Sri Lanka reported on Thursday morning. "China has a major adjustment problem," he added, according to Bloomberg. "I would say it amounts to a crisis."

China's CSI 300 tumbled more than 7 percent in early trade Thursday, again triggering the market's circuit breaker. As well as roiling sentiment across Asia, it also battered European risk assets with the German DAX down 3.5 percent at 11 a.m. London time.

U.S. stock index futures also indicated a sharply lower open as investors focused on China's swooning currency and economic slowdown.

China, the biggest economic story of the last 30 years, has soured in the eyes of many analysts. A stock market crash that began in the country last summer has thrown the vast difficulties officials are now facing into sharp relief. A raft of data has disappointed in recent months as the country's leaders refocus the economy on consumption from manufacturing.

Analysts also point to concerns over Chinese market regulators, who they believe do not appear to have a good grasp of the market, even with the introduction of the circuit breakers. In an attempt to stabilize markets, China's securities regulator has issued new rules to restrict the number of shares major shareholders in listed companies can sell every three months to 1 percent.

Marc Ostwald, a strategist at ADM Investor Services, believes that Soros' comments — alongside a gloomy report Wednesday from the World Bank — only serve to cast a "long shadow" over global markets.

"It should be noted that the current turmoil distinguishes itself from 2008, when reckless lending, willful blindness to a mountain of credit sector risks and feckless and irresponsible regulation and supervision of markets were the causes of the crash, given that central bank policies have been encouraged and been wholly responsible for the current protracted bout of gross capital misallocation," he said in a morning note.
Anusha Ondaatjie of Bloomberg also reports, George Soros Sees Crisis in Global Markets That Echoes 2008:
Global markets are facing a crisis and investors need to be very cautious, billionaire George Soros told an economic forum in Sri Lanka on Thursday.

China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008.

Global currency, stock and commodity markets are under fire in the first week of the new year, with a sinking yuan adding to concern about the strength of China’s economy as it shifts away from investment and manufacturing toward consumption and services. Almost $2.5 trillion was wiped from the value of global equities this year through Wednesday, and losses deepened in Asia on Thursday as a plunge in Chinese equities halted trade for the rest of the day.

“China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”

Soros has warned of a 2008-like catastrophe before. On a panel in Washington in September 2011, he said the Greece-born European debt crunch was “more serious than the crisis of 2008.”


Soros, whose hedge-fund firm gained about 20 percent a year on average from 1969 to 2011, has a net worth of about $27.3 billion, according to the Bloomberg Billionaires Index. He began his career in New York City in the 1950s and gained a reputation for his investing prowess in 1992 by netting $1 billion with a bet that the U.K. would be forced to devalue the pound.

Measures of volatility are surging this year. The Chicago Board Options Exchange Volatility Index, known as the fear gauge or the VIX, is up 13 percent. The Nikkei Stock Average Volatility Index, which measures the cost of protection on Japanese shares, has climbed 43 percent in 2016 and a Merrill Lynch index of anticipated price swings in Treasury bonds rose 5.7 percent.

China’s Communist Party has pledged to increase the yuan’s convertibility by 2020 and to gradually dismantle capital controls. Weakness in the world’s second-largest economy remains even after the People’s Bank of China has cut interest rates to record lows and authorities pumped hundreds of billions of dollars into the economy. Data this week reinforced a sluggish manufacturing sector.
I wonder if George Soros read my Outlook 2016 on the deflation tsunami as well as my follow-up comment on him and the next global macro gods entitled, One Up On Soros?.

Let me briefly sum it up for all of you. The world is in a very dangerous place. With all due respect to Stanley Fisher, the Fed made a huge mistake raising rates in December and Jim Grant is right, it will be forced to backtrack. If it doesn't and continues raising rates, it will ignite a crisis in emerging markets and all but ensure a prolonged period of global debt deflation.

I just can't understand why the Fed would raise rates in an environment where global deflation is the clear and present danger. All this will do is spur the mighty greenback higher, induce a profits recession and lower U.S. import prices, effectively importing deflation to America.

We are off to a horrible start to the new year. China is melting down and investors are worried about another major yuan devaluation, which is already happening, and what this means for global deflation.

All tell you exactly what it means: lower import prices for the eurozone and the U.S., and it will force Japan, Korea and other Asian economies to react with a retaliatory devaluation of their currencies, and pretty soon we will be getting the makings of a full-blown currency war and debt deflation crisis.

Markets around the world are rightfully reacting negatively to all this. They are basically telling the Fed to "wake up and smell the coffee." The Fed and other central banks better come up with a major coordinated effort to pump enormous liquidity into the system or risk having another 2008 or something far, far worse.

Are we going to crash early in 2016? I don't think so and think there's a lot of panic and program selling going on here and that presents great opportunities for long-term investors and short-term traders.

I'm actually starting to scale into some risk assets here for a nice swing trade. Even though the charts are UGLY, something tells me these RISK OFF markets are going to reverse course quickly if the Fed and central banks surprise us with a coordinated global liquidity stimulus announcement.

Stay tuned, the deflation tsunami is coming but central banks aren't going down without a fight! As I stated in my Outlook 2016, there will be big dips and big rallies ahead so try not to lose any sleep over what Soros or other hedge fund gurus are publicly stating out there. After all, they can be saying one thing publicly and doing something else in their book.

Below, a panel on Bloomberg discusses George Soros's dire warning on markets. Contagion risks are high and I think this will force global central banks to react if things get a lot worse.

And for some good news, Richard Bernstein, Richard Bernstein Advisors CEO, says the probability of the markets ending 2016 higher is improving. Bernstein also stated that it's not all but some of the Fed's fault, saying "in an environment of global deflation and profits recession, the Fed has decided to reverse course and that is very unsettling." I couldn't agree more!



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