Chris Lau - Seeking Alpha

Friday, March 19, 2010

Summary Notes: Conversation with George Soros


A Conversation with George Soros at HKU from JMSC HKU on Vimeo.

George Soros spoke at HK University, and fielded a number of questions from students and professionals. Soros was last covered on this blog last October.

If you want to spend even a moment this year on finance and economics, this is the one video (89 minutes) to watch. Soros provide his opinion on the current financial crisis, regulatory reform, the economy in developed countries versus developing countries, and on China.

Here are the summary notes:

About the Proposed Solutions to Current Crisis:

  • Will result in protection of system plus extra protection with Regulators part of that solution
  • Regulators are imperfect because bureaucratic and worse, they are subject to political influence
  • Imposing capital requirement justified (Volker proposal is valid)
At 49 minutes in the video, a young student told the audience and Soros he did not understand Soros' writings at age 13, at college, and now, at age 30, he still cannot understand it.

He asks Soros: "If you cannot influence the market, how do you spot turning points?"

Soros replies:

Markets move far away from equilibrium as well as towards equilibrium. When a positive feedback occurs, it is a bubble. When a negative feedback occurs, it is moving towards equilibrium.

Will market move as a bubble or to equilibrium? Greenspan saw bubble in 1996, but Soros said you cannot predict how far the bubble will go. Further, bubbles are not irrational. It is rational to participate in bubble. When bubble is mature, he sells or goes short.

Other important points:
  • An investor could have been short in 1996 but not alive (insolvent) in 2000. This follows the old adage that markets can remain irrational longer than an investor can stay solvent 
  • Soros shorted internet stocks after they fell, but had to cover because the stocks rose again
  • Conclusion: there is no recipe for getting the market right!

On China:
  • The China / Taiwan relationship is a negative sum gain right now
  • For world to be prosperous, a positive sum gain is required
Soros not a favorite for China. When he is asked his opinion on China opening up of society (culturally) to the world, his response is the following:

  • Open society through a critical process would raise prosperity
  • China developed an efficient critical process, but it is confined to the leadership
  • This leadership requires constant consultation to see what is being done wrong
  • One of the strengths of China today is leadership
  • China's leadership is self-critical and is anxious about doing the right thing
  • China needs to allow outside criticism as well
  • On the plus side, its internal critical process is efficient
Soros notes that China has emerged as a leading power in the world: it is rising while the U.S. is sinking; rest of the world turns towards positive influences.

China is the motor.

Finally,

  • the American consumer was the motor before financial crisis
  • Rest of world turning towards China
  • China must pay attention to how the world views it: it can only rise in a way where it is accepted by the world

   In response to a question on Soros causing the color revolution, his response is that it is easy to blame someone else than to look at one’s own shortcomings.

Soros is not in favor at all of revolutions, as revolutions destroy without creating a world order. He believes in critical thinking and gradually improving the order rather than revolutions.

His viewpoint on the current crises is that:
  • the Greek crisis will pass and (EU) solvency requirements will be met
  • China/India/Brazil will grow faster than the developed world
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