Soros Warns of Market Crash

Railway porter-turned-billionaire financier George Soros delivered a stark warning that the financial world is on the wrong track and that it may be hurtling towards an even bigger boom and bust than in the credit crisis.

The man who ‘broke’ the Bank of England (and who is still able to earn a cool $3.3 billion in a year) said the same strategy of borrowing and spending that had got us out of the Asian crisis could shunt the financial world towards another crisis unless tough lessons are learned.

Soros, who worked as a porter to pay for his studies at the London School of Economics after emigrating from Hungary, warned the financial world to heed the lesson that modern economics had got it wrong and that markets are not inherently stable.

“The success in bailing out the system on the previous occasion led to a superbubble, except that in 2008 we used the same methods,” he told a meeting hosted by The Economist at the City of London’s modern and impressive Haberdashers’ Hall.

“Unless we learn the lessons, that markets are inherently unstable and that stability needs to the objective of public policy, we are facing a yet larger bubble.

“We have added to the leverage by replacing private credit with sovereign credit and increasing national debt by a significant amount.”

One crumb of comfort could be the 10-year period between the 1998 Asian crisis and the 2008 credit crisis. If the pattern is repeated, it should at least mean we have another eight years to go before the next crash.

Soros: Greece Still Faces the Danger of a “Death Spiral”

(Bloomberg) -- Greece still faces the danger of a “death spiral” because the cost of borrowing in the euro region’s rescue package is too expensive, billionaire investor George Soros said.

“While it’s better than what the market is currently willing to offer, it’s still rather high,” Soros said at an event in London late yesterday organized by the Economist magazine. “It is a question of solvency. If you start charging very high rates as the market does in anticipation of solvency then that pushes you into insolvency.”

Euro region finance ministers on April 11 offered Greece a 30 billion-euro ($41 billion) aid package which would give it three-year loans at 5 percent if it can’t raise money in capital markets. Greece auctioned Treasury bills yesterday for the first time since the rescue bid, drawing more demand than at a previous sale.

“Concessional rates” of borrowing aid would help Greece “fulfill their target,” Soros said. “If they don’t, they have then to tighten even further, then your tax receipts go down and the economy goes further into tanking and then you go into a death spiral. That is the danger that is still remaining.”

Greek bonds fell for a second day today, pushing the yield on the country’s 2-year debt up 57 basis points to 6.9 percent as of 3:28 p.m. London time.

The extra yield investors demand to hold the country’s 2- year notes instead of German notes of equivalent maturity, rose 55 basis points to 568 basis points, according to generic Bloomberg prices.

“The argument for political will to bail out Greece” was that “the consequences of Greece leaving the euro would be the disintegration of the euro,” Soros said. “The disintegration of the euro would take a very long way toward the disintegration of the European Union.

Soros Fund Management LLC manages about $25 billion. Soros said yesterday that “I’m no longer running the fund.”

Soros More Than Doubled Gold ETF Stake in 4th Quarter

(Bloomberg) -- Billionaire George Soros’s Soros Fund Management LLC more than doubled its holding in the biggest gold exchange-traded fund in the fourth quarter after bullion advanced 8.9 percent to a record.

The $25 billion New York-based firm became the fourth- largest holder in the SPDR Gold Trust, adding 3.728 million shares valued at $421 million, according to a filing with the U.S. Securities and Exchange Commission yesterday. Its investment was worth about $663 million, the fund’s largest single investment, as of Dec. 31.

Soros joined China Investment Corp. and central banks including those in China and India in acquiring gold. China Investment, the $300 billion sovereign wealth fund based in Beijing, took a 1.45 million-share stake in the SPDR Gold Trust worth $155.6 million, according to a SEC 13F filing posted on Feb. 5.

“The dollar is weak and people are just shifting their money into a safer haven,” Tetsuya Yoshii, vice president for derivative products at Mizuho Corporate Bank Ltd., said from Tokyo today. “Central banks are adding gold to their reserves and we’re going to see more people adding gold to their investment portfolio as they shift into safer stuff.”

Gold for immediate delivery traded little changed at $1,118.35 an ounce at 2:48 p.m. in Singapore. It rose for a ninth straight year in 2009, reaching a record $1,226.56 an ounce on Dec. 3, as the dollar dropped 4.2 percent against a basket of six major currencies.

‘Ultimate Bubble’

India bought 200 metric tons from the International Monetary Fund in October, while China’s holdings have expanded 76 percent to 1,054 tons since 2003, it said in April.

SEC filings are done quarterly, with a 45-day lag, so Soros could have sold some or all of the position since then. Soros, speaking last month at the World Economic Forum in Davos, called gold the “ultimate asset bubble” and said the price could tumble, according to a report in the U.K.’s Daily Telegraph newspaper.

Money managers who oversee more than $100 million in equities must file a Form 13F listing their U.S.-traded stocks, options and convertible bonds. The filings don’t show non-U.S. securities or how much cash the firms hold.

Michael Vachon, a spokesman for Soros, declined to comment on Soros’s investments.

Assets held by the SPDR Gold Trust have expanded 2.2 percent this year after surging 24 percent in 2009. They stood at 1,109.42 metric tons yesterday.

Institutional investor Paulson & Co. held the largest number of shares in the fund as of Dec. 31, with 8.65 percent, or 31.5 million shares.

Gold demand grew 2.6 percent in the fourth quarter from the previous three months as investment and jewelry consumption climbed amid record prices, the World Gold Council said in a report today. Global consumption increased to 819.7 metric tons as prices averaged 15 percent more than the third quarter, the London-based industry group said.