It really shouldn’t come as any surprise to market watchers that billionaire, philanthropist, Democratic donor, and breaker of the British pound George Soros has turned bearish on a few things.
After all, Soros’ views on the prospects for China have been well known for months. Earlier this year, Soros indicated in an interview with Bloomberg TV that he was betting against Asian currencies and further noted that China had likely already experienced the dreaded “hard landing.”
That led directly to a series of hilarious name calling by the Politburo’s mouthpiece newspapers like an “op-ed” that ran in the People’s Daily entitled “Declaring War On China’s Currency, Ha Ha.”
That literally was the name of it.
“Soros’s war on the renminbi and the Hong Kong dollar cannot possibly succeed — about this there can be no doubt.”
Sorry Beijing, “about this there is indeed some doubt,” because quite a few big name investors are lining up to place their bets against China of late and generally speaking, one of the paramount concerns centers around the country’s elephantine banking system. As Bloomberg notes, “Soros said in April that most of the money that banks in China are supplying is needed to keep bad debts and loss-making enterprises alive.”
In other words, it’s a ponzi scheme and a well-documented, government sanctioned one at that. Kyle Bass, you’ll recall, is making a larger wage on the idea that the inevitable need to capitalize the banking sector will end up draining the PBoC’s reservers.
For his part, Soros thinks capital will continue to flow out of China and he also fears political turmoil and, tacitly we suppose, social instability. Something even the Jim Cramers of the world have warned about on occasion over the past twelve or so months. Here’s what Soros told The Journal:
“China continues to suffer from capital flight and has been depleting its foreign currency reserves while other Asian countries have been accumulating foreign currency. China is facing internal conflict within its political leadership, and over the coming year this will complicate its ability to deal with financial issues.”
But Soros isn’t just worried about China. He has been, and apparently still is, concerned that Europe might simply disintegrate. “If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable.”
We don’t want to be the bearers of bad news Mr. Sorors, but “the disintegration of the European Union [was] practically unavoidable” anyway, Brexit or no Brexit.
Schengen began to breakdown in earnest in the Balkans last autumn, then came the fences, the border checks, the terror attacks, allegations of sexual assaults by migrants, etc. And to pour salt in the wound, Greece (yes, that would be broke, destitute Greece which was brought to its knees last summer by Angela Merkel and her incorrigible, if revered Finance Minister Wolfgang Schaeuble) became a chokepoint for Mid-East refugees fleeing war-torn Syria.
So what’s Soros buying? Well, in a word (or three): gold and gold miners. In order, he says “to capitalize on a bunch of big bearish investments.”
Oh, and Soros apparently also has a bearish derivatives position on US stocks. Apparently he isn’t optimistic about the perpetual buyback bid.
One thing to note here. It’s great to be somewhat agnostic when it comes to trading. You make money wherever, whenever there’s money to be made. Jack be nimble. And all of that stuff.
But you don’t break the British pound without exhibiting a keen understanding of the macro picture. That’s why, no matter how effective disciplined trading strategies can be, you absolutely must develop a keen sense for macro.
We’ve seen this over and over again whether it’s with oil markets, developments in Syria, Japanese and European politics, etc.
Of course it’s hard to know how to trade today markets. Just when you think you get a sensible take like that outlined above, you a Bloomberg headline like this:
THIRD POINT, OCH-ZIFF, SOROS SAID TALKING TO LENDINGCLUB: DJ
Perhaps we’ll just close with a quote from Soros himself given in an interview earlier this year with The NY Review Of Books:
“But it is a biased view and deliberately so. Recognizing a problem is an invitation to do something about it. That is the main lesson I learned from the formative experience of my life, in 1944, when the Nazis occupied Hungary. I might not have survived if my father hadn’t secured false identification papers for his family (and many others). He taught me that it’s much better to face harsh reality than to close your eyes to it. Once you are aware of the dangers, your chances of survival are much better if you take some risks than if you meekly follow the crowd. That is why I trained myself to look at the dark side. It has served me well in the financial markets and it is guiding me now in my political philanthropy. As long as I can find a winning strategy, however tenuous, I don’t give up. In danger lies opportunity. It’s always darkest before dawn.”
