NY Times, April 11, 2008
The Face of a Prophet
By LOUISE STORY
George Soros will not go quietly.
At the age of 77, Mr. Soros, one the world’s most successful investors
and richest men, leapt out of retirement last summer to safeguard his
fortune and legacy. Alarmed by the unfolding crisis in the financial
markets, he once again began trading for his giant hedge fund — and won
big while so many others lost.
Mr. Soros has always been a controversial figure. But he is becoming
more so with a new, dire forecast for the world economy. Last week he
rushed out a book, his 10th, warning that the financial pain has only
just begun.
“I consider this the biggest financial crisis of my lifetime,” Mr. Soros
said during an interview Monday in his office overlooking Central Park.
A “superbubble” that has been swelling for a quarter of a century is
finally bursting, he said.
Mr. Soros, whose daring, controversial trades came to symbolize global
capitalism in the 1990s, is now busy promoting his book, “The New
Paradigm for Financial Markets,” which goes on sale next month.
And yet this is not the first time that Mr. Soros has prophesied doom.
In 1998, he published a book predicting a global economic collapse that
never came.
Mr. Soros thinks that this time he is right. Now in his eighth decade,
he yearns to be remembered not only as a great trader but also as a
great thinker. The market theory he has promoted for two decades and
espoused most of his life — something he calls “reflexivity” — is still
dismissed by many economists. The idea is that people’s biases and
actions can affect the direction of the underlying economy, undermining
the conventional theory that markets tend toward some sort of equilibrium.
Mr. Soros said all aspects of his life — finance, philanthropy, even
politics — are driven by reflexivity, which has to do with the feedback
loop between people’s understanding of reality and their own actions.
Society as a whole could learn from his theory, he said. “To make a
contribution to our understanding of reality would be my greatest
accomplishment,” he said.
Mr. Soros has been worrying about the fragile state of the markets for
years. But last summer, at a luncheon at his home in Southampton with 20
prominent financiers, he struck an unusually bearish note.
“The mood of the group was generally gloomy, but George said we were
going into a serious recession,” said Byron Wien, the chief investment
strategist of Pequot Capital, a hedge fund.
Mr. Soros was one of only two people there who predicted the American
economy was headed for a recession, he said.
Shortly after that luncheon Mr. Soros began meeting with hedge fund
managers like John Paulson, who was early to predict a crisis in the
housing market. He interrogated his portfolio managers and external
hedge funds that manage his fund’s money, and he took on new positions
to hedge where they might have gone wrong. His last-minute strategies
contributed to a 32 percent return — or roughly $4 billion for the year.
The more Mr. Soros learned about the crisis, the more certain he became
that he should rebroadcast his theories. In the book, Mr. Soros, a
fierce critic of the Bush administration, faults regulators for allowing
the buildup of the housing and mortgage bubbles. He envisions a time,
not so distant, when the dollar is no longer the world’s main currency
and people will have a harder time borrowing money.
Mr. Soros hopes his theories will finally win the respect he craves.
But, ever the trader, he hedges his bets. “I may well be proven wrong,”
he said. “I would say that I’m the boy who cried wolf three times.”
Many of the people Mr. Soros wants to influence may view him with
skepticism, in part because of how he made his fortune. In 1992, his
fund famously bet against the British pound and helped force the British
government to devalue the currency. Five years later, he bet — correctly
— that Thailand would be forced to devalue its currency, the baht. The
resulting bitterness toward him among Thais was such that Mr. Soros
canceled a trip to the country in 2001, fearing for his safety.
Asked if it bothers him that people accuse him of causing economic pain,
his blue eyes dart around the room. “Yes, it does, actually yes,” he said.
Asked if those people are right to blame him, he says, “Well no, not
entirely.”
No single investor can move a currency, he said. “Markets move
currencies, so what happened with the British pound would have happened
whether I was born or not, so therefore I take no responsibility.”
Mr. Soros, came of age in Nazi-occupied Hungary and has for decades
longed to write a masterpiece that might put him among thinkers like
Hegel or Keynes, said Michael T. Kaufman, who wrote a book about Mr.
Soros. “He spent years writing papers and letters to people, but
everyone ignored him,” Mr. Kaufman said.
But when Mr. Soros became rich, people began listening. He also started
giving large sums to charities, and in Eastern Europe, as the Soviet
Union crumbled, he distributed copy machines to encourage free speech in
his native Hungary. So generous was Mr. Soros with his money that
“Sorosovat” became a new verb in Russian, loosely meaning to apply for a
grant.
He continues to be one of the top givers to charities around the world,
and has given more than $5 billion away through his foundations.
Yet even Mr. Soros acknowledges that many economists still slight his
theories.
“I am known as a hedge fund manager and I am known as a philanthropist,
and it’s very hard for, say, academics to accept that a hedge fund
manager may actually have something to say about economics,” Mr. Soros
said. “So that has been difficult for me to overcome.”
But Joseph E. Stiglitz, a professor at Columbia who won the Nobel for
economics in 2001, said Mr. Soros might still meet success. “With a
slightly different vocabulary these ideas, I think, are going to become
more and more part of the center,” said Mr. Stiglitz, a longtime friend
of Mr. Soros.
Mr. Soros’s firm, Soros Fund Management, has been through several
turbulent years. Stanley Druckenmiller, his longtime No. 2, left in
2000, in part because he was tired of the constant media attention Mr.
Soros attracted. (Mr. Soros credits Mr. Druckenmiller for the winning
gamble on the British pound, saying he added the encouragement to bet
more money on the trade.)
Several outside investors also left, and Mr. Soros overhauled the
company as more of a wealth management tool for his own family and
related charities. Mr. Soros said in 2000 that he no longer desired
returns like the 30.5 percent his fund returned on average, after
management fees, from 1969 to 2000.
In 2004, Mr. Soros tapped his oldest son, Robert, to become the chief
investment officer, despite Robert’s reluctance.
At that time, Mr. Soros, was busy trying to turn public opinion against
President Bush. He donated $27 million to anti-Bush organizations and
traveled the country speaking out against the president. This time
around, he is less involved. He endorsed Senator Barack Obama but kept
his distance from the campaign trail.
Robert Soros, 44, who once claimed his father based his trades not on
grand theories like reflexivity but rather on his back pain, never
shared his father’s enthusiasm for the markets. “When you’re a
billionaire’s son, you’re less hungry than when you’re a Hungarian
immigrant,” one former Soros Fund Management executive said.
Even so, the Soros fund performed well under the younger Soros, and as
recently as last June, it was up 10 percent for the year, according to a
letter to investors. At the end of July, Robert stepped down from his
head investment role, just before his father returned to trading. Robert
and his brother Jonathan remain deputy co-chairmen, under their father,
the chairman of the fund.
This week, Mr. Wien illustrated the knack of Mr. Soros for timing with
an old story. In 1995, Mr. Soros asked Mr. Wien why he bothered going to
work every day. Why not go to work only on days when there is something
to do?
“I said, ‘George, one of the differences between you and me is you know
when those days are, and I don’t,’” Mr. Wien said.
_______________________________________________
pen-l mailing list
[email protected]
https://lists.csuchico.edu/mailman/listinfo/pen-l
