CNBC Europe also interviewed George Soros. I do not know if it was a function of manipulation or the US reporter not asking the right questions or what, but the CNBC Europe interview was much better and delved into what he is really thinking about and chances are a recession in the US in 2007 is not that high on his list.
This is dark stuff and I am not defending him in any way for his political views, I am just relaying this because it is what he is thinking about and I think it noteworthy. You may also notice that some of it ties in with what I have been writing about for a while. My time scale is much longer than his though.
He feels that there are a lot very serious problems looming for the US and those problems are being ignored at the Davos shindig. He referred to the mood in Davos as feel good and even complacent.
This biggest risk to the world economy, in his opinion, is the politics of the world order of US dominance. He feels that the US embarked on a self-defeating course after September 11 and starting a war on terror. He feels the US is losing power to a greater extent than he previously thought.
He feels that we are on a collision course with Iran over nuclear capability which, bigger picture, is about energy. He believes energy is an incentive for people that want to cause trouble as has been the case in Venezuela, Nigeria, Russia and Iran, among other places.
Interviewer Steve Sedgwick asked if we are talking about an end of empire for the US and could not China pick up the slack. He did not answer that one directly but he did say that hopefully the US recognizes the errors it has been making and can change course. He feels too much too soon in China could be a problem for China's own good. He did not really define his China point beyond those comments.
That was it, you can disagree with any of his thoughts, of course, but please don't shoot the messenger.
I have been writing for months about this new century belonging to someone else, probably China or India. I think his time table for changes in the world order is much faster than the way I think it will work out.
I clearly buy into the world order changing. I am not as pessimistic about the near term consequence as I think Mr. Soros is. No matter where you stand on the issue I think prudent risk and portfolio management requires you to have a good understanding of this argument and a game plan of some sort if this starts to play out.
More often than not, the worst case scenario does not happen. But for all anyone knows it could be worse that even Soros expects.
Wikinvest Wire
29 comments:
Not arguing whether there will be a change in the new world order also and agree with the diversification but:
As Europe's power changed or in effect they lost power, did it have material impact on the performance of their economy / stock markets?
If China or India increase their global political power, does this help their economy or stock markets?
If the US totally screws up it's politial power globally, how does this effect the profits of it's companies?
I'm just wondering if there really is a direct correlation between global power and direct economic benefit.
There are a lot of variables. A reader emailed me that he believed that World Wars I & II both came with the transition from UK to US. The social toll there was very big.
Your question about profits, I think, is a bottom up view. I tend to be more top down. If a transition from the US to some other country is difficult (take that however you think it relevant) we may have economic problems, weak currency etc. Finding good domestic stocks in that environment would be very hard to do.
I am not buying into the gloomiest part of the scenario. I just expect underperformance at home, better performnace abroad and milder economic cycles in both directions.
Soros agrees with me on housing, or I agree with him. LOL.. Nice to see I am not an a island with that opinion. Keep that cash handy cause we are going to have the deals of a life time very soon in the U.S. real estate market.
I think Soros' comments are completely political. He will say whatever he can to make the administration look bad---or to scare people.
George,
I would not disagree with you. However for as often as CNBC is show his snippet with Becky it is reasonable to assume they want viewers to know what he is thinking.
If so why editorialize him in this manner?
Mr. Soros continues to talk his agenda. It is past time to ignore him.
I would also say, that the agenda of Mr. Soros and that of CNBC would be the same.
Roger,
What's your opinion about 4 funds that I have been looking at; EUROX U.S. Global Investors Eastern Europe and TREMX T. Rowe Price Em Eur & Mediterranean and MINDX Matthews India Fund and MAKOX Matthews Korea Fund?? What's your view on all and would you recommend them in a portfolio that needed some foreign investments? Also do you see the markets that these funds invest in doing better then the U.S. market in the next year or so??
To the mutual fund question,
It is very difficult to apply foward looking analysis to an OEF. You have no idea what the manager might do.
I buy into eastern europe in a big way. I have disclosed EWO as a holding and another bank clients and I own has 400 branches in Poland. The fund you ask about for this region has captured the reegion very well. I see no reason for that to change but I don't know to what it extent it is or is not he best.
The fund with middle east exposure. This has been a hot area but is WILDLY volatile. Palestine was up 300% last year and looks to be down about 30% this month. Hot potato.
I am a big fan of India, a lot of clients own a CEF. My stronger belief in India and China has kept me out of Korea, which had a great year last year that I missed.
Hard to believe anyone would think it useful to publicly assert on an investing board that a commentator of Soros' influence should be ignored because his putative 'political agenda' appears unappetizing. Who gives a hoot what his 'agenda' is – show me a major owner of capital who doesn’t have one (search Bill Cara’s web site for his take on “The Gnomes” for the gist of this). The fact that their agendas are usually indirectly expressed through whatever politician or think-tank they’ve bought only makes it appear that Soros is even less concerned about the opinion of us small fry than most of them probably are (shrug).
The real question is whether Soros is knowledgeable about markets and macroeconomic factors (he certainly is) and whether, once the wheat is suitably separated from the chaff, his comments could point to a potential investment theme. That seems possible (have to think about it some more) but, off-the-cuff, if he is right that 'trouble makers' in Venezuela, Nigeria, Russia, Iran etc. might start playing the energy card in a more heavy handed manner, possibily because they believe the U.S. has become too weakened geopolitically to prevent them, then there are some consequences worthy of exploration. For example, as Barry Ritholtz has commented (http://bigpicture.typepad.com/comments/2006/01/hot_or_not_sect.html), the economies and equity markets of developed countries seem to have adapted remarkably well to high energy prices but if oil goes above $70/bbl serious instabilities are likely to result.
Now what sectors might profit from that and might there be a way to play them while adequately controlling risk (the chance that the play is wrong)? Now there's the question.
RW
Roger,
Bottom line with the market at 10,900 would you wait for a pull back to buy into either the Eastern Europe, Korea or India funds or in the scheme of things it doesn't matter? Do you think getting into either of these funds now after the are all up 50% or more in the last year is prudent??I know no one can time the market, but do you see this as a time to jump in or a time to wait and see? I know I'm putting you on the spot, but......
RW, great comment. Thank you
As for being put on the spot?
I view emerging markets as an asset class not exposure means a lack of diverisification (IMO).
If I implement a portfolio tomorrow it would have emerging market exposure. I think the theme has plenty of legs. Any time I have answered this question I always say the same thing. I would not hesitate to buy today because I think I know where the next 50% is. I do not know where the next 10% is.
Given the low correlation if emerging does poorly I am inclined to think domestic does well.
The perspective I bring to this is that I own emerging to enhance domestic. Client money is 6%-7% in emerging.
I think that it's prudent to consider the "cost" of growth - i.e. how quickly are earnings in these markets growing compared to their pe ratios. For instance, the US market with an average pe of about 19 looks expensive considering its' earnings growth rate of 10% or less.
By comparison, many emerging markets have both attractive growth rates with attractive pe valuations. See one of the few articles I was able to find comparing pe and project growth rates (as forward pe's), at:
http://www.rediff.com/money/2005/oct/31spec1.htm
I wish there was more eft analysis of this nature.
Jay Walker
Jay,
thanks for the link. I am not sure that p/e ratios have such a great track record for accurate predictions.
That certainly holds up in the US and while i have not studied every foreign market, it also holds up for a lot them.
P/E ratios are a great help in valuing a company vs a competitor.
I agree Roger. However, low pe ratios in conjuction with high earnings growth ratios remains, by the studies I recall, the best method of consistently outperforming the market.
Jay Walker
PS,
That's why I bought Russia, Korea and Brazil, late last year. PEs all below 10, and projected earnings growth rates between 11-17%. That's why those three comprise 30% of my total portfolio.
Cheers,
Jay
I appreciate all the comments. I would surmise that most people to include Roger {??} beleive that the best funds to look at would be Korea, India and Eastern Europe and that 2006 should be a good year for each market? I just hate going into a fund that is already up 50%+ the year before and already up 10% in the first 4 weeks of this year as is the case with each of the funds I mentioned in my 4:12 P.M. post. Thoughts??
The countries that are fighting the Islamic Extremists, namely the US, Europe, Israel, etc. will need to pay a terror dividend. The cost for security is high in the form of defense and homeland security spending. Countries that don't have that expense will have an advantage. Since 9/11 and the Republicans (in my opinion) mistaken invasion of Iraq, the US cost for the war and security will be huge. It is for that reason that a lot of my investments are in safer parts of the world such as Asia, Latin America, Canada, etc. and in the commodities that will increase in price creating wider margins for those companies in those businesses. That is why I am overweight oil, raw materials, precious metals, etc. Because of this my portfolio has done very well and I expect it to do well by investing in countries where there is a peace dividend and/or an energy/materials/metals advantage.
I understand, but it bothers me to buy in on a fund in this case 2 or 3 that have seen 50%+ increases in last year.Feel like I'm buying after the take off. Most people on this board would agree that investing up to 30% of portfolio in Eastern Europe, India and Korea is a good move at this time??
I think you need to think about your 30% a bit more carefully. For me, I'm comfortable with the 30%, but many people would chose much less for emerging markets (Roger says he has his clients 6-7% in emerging markets). Although the markets I chose to invest in had very good rises last year, I'm not picking them for that reason (ie "momentum").
I don't like momentum buying and personally got burned by buying the NASDAQ index near the height, and riding it down to a >50% loss. Ouch! I would have been better off paying attention to the fundamentals then, ie a PE ratio for the NASDAQ ("QQQ") of then, I understand, greater than 50. Very few stocks and markets turn out well then.
I'd suggest that looking for low pe markets with reasonable to higher earnings growth is a better strategy. To my understanding, the Eastern European markets aren't too pricey (pe 12 or so for many), with moderate earnings growth. India seems pricey to me, in comparison to some of the others that are around, ie Korea, Brazil, Russia, and some others. According to an article here - http://www.rediff.com/getahead/2006/jan/03bull.htm - India has a pe of 17 - which seems high for a juvenile, narrow market, with good, but not fabulous (ie 15% growth) growth rate. The article in fact suggests that India is one of the most expensive emerging markets right now. For that reason, I would, personally, be cautious of investing in India right now.
Like Warren Buffett says, you can pay too much for even great companies that make your return unsatisfactory: I assume the same thing goes for any particular market segment and theme.
Moreover, I am picking my 30% because to me, it represents a sufficiently broad spectrum of growth, at a modest price and with an overall reasonable risk level.
I am thinking that a 30% return might be possible on these markets, if the pe ratio simply expands to match the average emerging market pe, and the continues matching the earnings growth. But even if that doesn't happen, I think I have enough diversification, low enough risk profile and sufficient growth potential to be happy with my investment.
I hope this helps you ...
Jay Walker
Roger and bloggers,
I see your points on India and Jay's feeling about only 6% or so in emerging. I think this fund would be right, except it is at it's 52 week high and I hate buying at the high. What's everyone's feel on this:U.S. Global Investors Eastern Europe (EUROX)?? It's up 65% in the last year, invest in Eastern Europe and is 5 star rated. Like I said do you wait for a 5% drop or so then buy or does that not happen and you get nothing??? Thoughts??
If you care more about where it has been than where it is going I would urge you to adjust your thinking.
If you are more inclined to take Jay Walker's weight in emerging you need to do the type of homework he has obviously done.
OK......I actually agree with analysis on India maybe being highly priced at this point. Korea seems to be a great market for CONTINUED growth in stock market as does Eastern Europe. I would surmise that everyone would agree that we can expect high returns in these markets for the next year at least?? I know I'm beating a dead horse, but my favorite Eastern European fund {U.S. Global Investors Eastern Europe-EUROX) is up 65% in the last year. Is it smart to jump now or wait for pullback or does everyone feel that this is a good point to jump???
ANON,
I agree with Roger - rather than focussing on the increase/decrease of last year, you need to think about where that investment stands NOW.
In other words, does it have good earnings growth potential and is it reasonably priced. You can never really be a good investor by looking in the rear view mirror.
So stop worrying about buying on a "pullback" and consider its value and growth profile now. Then decide whether to buy it or not - basically, you need to ignore whatever happened to it last year (whether that was good or bad).
How this applies in my own investing is that over the last year, I have bought stocks and ETFs that have both been at the top of their charts, and also at the bottom; I have had quite satisfactory results with both "types". Successful investors generally ignore "the chart" and concentrate on the future prospects of their investment.
Hope this helps ...
Jay Walker
RW,
You should care about Soros' agenda when reading his investment commentaries, because OF his agenda he SAYS the US is weaker "geopolitically". This is a political statement, not an investment idea.
He has proven he will do almost ANYTHING he can to go against the current administration, including saying things seemingly about investing, pointed at Washington.
g
Roger, excellent blog. Soros is rich but that doesn't make him or any other person who happens to have gotten lucky relevant. I don't bother watching any of those crap business channels any more because they are also irrelevant.
Some thoughts regarding China/India. India is over-populated, has done nothing to change that condition, has nowhere to expand, nor any power to make expansion possible. India will implode on its own population within the next 10 to 20 years. Follow the energy curve on this one - they have none, must spend lots to get what they get, and will be left out in the cold if the energy producers go to a euro based reserve currency.
China has acted to control its population, has room to expand, is acting to produce its own energy and is putting contracts in place with energy producers to ensure their future. We overlook at our peril the possibility that Iran or North Korea will call on China to "protect" them from our aggression.
If I look back through history to before the US, before Europe, even before India I find China. If I look forward in my magical crystal ball I find China.
Consequently the place for potentially wildly profitable albeit highly speculative investment seems to me to be China.
That was true hundreds of years ago when the UK "found" Hong Kong and will remain true for hundreds of years to come.
I am an American of Eastern European descent. The last place I would invest is in Eastern Europe. Probably the most corrupt region of the world (after the U.S. Congress that is).
Martin,
Firs, Soros is just like anyone else except he has a lot of money. He's a blow hard!! 2nd - Eastern Europe has shown gains in excess of 50% for the last few years and appears to be maintaing that this year. Korea is also a BIG growth area as is China.I would think all 3 areas are good going forward. The one question that none of us knows is when does it become over-bought? When is the time to buy? When is the run up over?? If all sectors stay peaceful I would think all can continue to have 35% increases in values in 2006.
For the people who want to invest in emerging markets, it seems to be that the best way to get into those markets safely is buy investing in large multinational's/foreign companies that do buisness in those regions.
To me that seems like ETF's like PID and KIE are a good way to get involved in these markets. As a set of global natural resources play's the iShare's Canada/Australia, and the ETF IGE, could be a good play on the natural resources that China/India will need in the future.
I strongly disagree with Soros politics and not coincidentally disagree with many of his predictions. While I agree that the U.S. market is expensive and the dollar will be facing a headwind in 2006, that is short term stuff.
Long term, are you kidding me? After 9/11, Afghanistan, Iraq, Enron/Worldcom, Sarbox, Katrina, and massive uncertainty, our economy has adapted and grown. Our institutions and our rule of law are the strongest in the world, and that is the source of our strength. It is NOT that we are smarter or better educated (good Lord, no) but that our political-economic system is second to none, and is getting better faster than anyone else in the developed world. Europe is gentrifying and dying and has growing racial issues not to mention their expensive social infrastructure. China is growing rapidly, but transitioning from agrarian to industrial is much different than industrial to service/information (China had some 70-80,000 protests and demonstrations last year, mostly against corruption in government). If they don't go open system democratic, the inefficiencies inherent in their system will kill the growth. India is a basket case with brilliant people and great software engineers but still a basket case (the caste system is one of the worst ideas of mankind - it is institutional slavery with no one to blame but your previous self).
So if Soros wants to bet against the U.S. long term, great - I would love to help take his money. But, having missed the interview, where does he go long term? What is working better? And finally, does anyone have links to good articles on Soros and how he made his money? I would like to know more about him just to understand where he is coming from.
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