The wealthy investors who make up the peer-to-peer learning group Tiger 21 like to invite heavy hitters, such as Mohammed El-Erian, Carl Icahn and Jim Rogers, to their Headliner Lunches. In December, George Soros joined that illustrious roster, according to a statement from the group released Wednesday.
In an interview with Robert Johnson, executive director of the Institute for New Economic Thinking, Soros discussed the economy and issues affecting investments and world markets, and reacted to some members’ predictions for the year ahead.
Soros said the current economic environment “is about as serious and difficult an environment as I have experienced in my career.” The current financial crisis is a direct outgrowth of the financial crisis of 2008, he said. “In 2008, when Lehman went bankrupt, the financial system did collapse. The week between Lehman filing and the announcement of TARP were memorable days where one market after another ceased to function.”
Now the viability of sovereign debt is in question, he said. In Europe, flaws in the euro’s construction are being exposed. However, he pointed out, the euro crisis is not a currency crisis, but rather a banking crisis.
Soros emphasized that the current crisis is more severe and more lasting than the crisis in 2008. At that time, the institutions that were needed to control the situation existed, whereas in Europe today, there is a central bank but no treasury.
“When the euro was introduced, everyone knew that the treasury was missing, but there was no political will to have a fiscal union,” he said. “The leaders thought that when the time came they would have the political will to put it in place. However, there is less political will today than there was in the 1990s.”
Lacking a solution, he said, authorities are trying to buy time, but this is not working because the crisis keeps growing. “The authorities are doing what it takes to keep things together, but never more. So you actually need a continuing crisis to make what is politically impossible, possible.”
Soros also engaged in a round of “Agree or Disagree,” commenting on predictions for 2012 proffered by individual Tiger 21 members. He was asked to indicate whether he agreed with the predictions or might reject them outright. Among the eight predictions:
While he did not fully agree, he said it was not very far from impossible. However, in the case of Greece, default is more than a 50% probability. [On Thursday, Greece struck a deal to clear the way for a possible bailout.]
2) Collapse of the Chinese market.
Soros rejected this idea, but noted that the country’s housing bubble has been pricked, partly as a result of the effects of the financial crisis here spreading to China.
3) Former MF Global CEO John Corzine goes to jail under Sarbanes-Oxley.
A real possibility, according to Soros.
4) Attack on Iran–by either the U.S. or Israel.
An outside attack on Iran is very unlikely, Soros said. However, he thinks that the country’s present regime is not going to last the year.
5) Gold reaches $2,000/ounce and rises.
Soros does not think gold will reach $2,000. He said gold is the ultimate bubble; its price can go in either direction. It was the ultimate safe haven, but funds had to liquidate their positions to cover some loses in the stock market. On the other hand, Soros does not expect gold to retreat much and does not consider $1,000/ounce probable either.
6) The polarization of the top 1% and the rest of the population leads to rioting in American cities.
Soros said rioting is already happening in the U.S., but it is not getting much media coverage.
7) On President Barack Obama’s re-election chances.
Soros hedged his response, saying it depends on whom the Republicans nominate. “Obama has a slightly better chance than most people because of the totally unacceptable character of the opposition.”
8) Unemployment falling below 7.5% in U.S.
Soros does not expect employment numbers to grow, but also noted that expiring unemployment benefits will push down the overall unemployment rate.
At the end of the luncheon, Soros said, “At times like this is it more important to survive than to get rich. Since there are not many productive uses of money right now, it is time to take the long-view.” He suggested two potential plays: Think of undervalued stocks that will survive over long-term, and put the rest in cash.
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