
Soros: "superbubble" that has been swelling for a quarter of a century is finally bursting - nickb
http://dealbook.blogs.nytimes.com/2008/04/11/george-soros-the-face-of-a-prophet/
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zkinion
I loved reading some of his books like Alchemy of Finance, and Soros on Soros.

The ironic thing is he speaks a lot about reflexivity, where market's
participants views on an outcome actually end up affecting that outcome
itself.

~~~
kingkongrevenge
This is the fundamental insight of the Austrian school of economics.
Economists had fixated on finding predictable mathematical relationships
between observable macroeconomic variables: Laffer curve, Phillips curve, etc.
Mises said that ultimately the economy can not be modeled from data because
human behavior is too dynamic.

History has proven him correct. The econometric discoveries once heralded as
potential "laws" of macroeconomics have all faired poorly against the data
over time. His own insights derived from praxeology have held up well.

This failure of econometrics is at the root of the current crisis. All the
model based derivative valuations and risk management tools worked ... until
they didn't. Same thing with the LTCM crisis. You just can't substitute
regression analysis for thinking.

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mdemare
This article from the economist has more meat:
[http://www.economist.com/finance/displaystory.cfm?story_id=1...](http://www.economist.com/finance/displaystory.cfm?story_id=10992042)

~~~
mdemare
Money quotes:

"Essentially, it says that financial markets have built-in biases which have
an impact not only on prices but also, in extreme times, the fundamentals
themselves. In such moments, market events affect as well as reflect supply
and demand."

"But this crisis is profoundly different from its predecessors, he argues—at
least, all those since the Depression—because two bubbles are coinciding: a
“straightforward” one in housing, pumped up by low interest rates in the wake
of the dotcom collapse; and a longer-term, more complicated “super-bubble” fed
by globalisation, deregulation and decades of credit expansion, which is
taking in commodities, currencies and more besides."

“[S]hort US and European stocks, US ten-year government bonds, and the US
dollar; long Chinese, Indian and Gulf States stocks and non-US currencies.”

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yters
I always took it for granted economists believed people's attitude had a
significant influence on the market. In fact, this is probably why they say
the opposite, so people don't go crazy. Similar to how telling people they
don't have free will makes them more complacent.

Interesting how the feedback loop goes both ways so reality resembles what
people say. An argument can seem self fulfilling.

However, this is not po-mo in the sense that reality is what people think it
is, though, because people don't really lose their free will.

~~~
nostrademons
"In the short run, the stock market is a voting machine. In the long run, it's
a weighing machine." -- Benjamin Graham

There's quite a lot of evidence that people's attitude affects the economy _in
the short run_. The whole investing discipline of technical analysis rests on
this, as do the schools of Keynesianism and Austrian macroeconomics.

But in the long run, people's basics needs always win out. You may believe
that prices are going to fall and so it's better to spend your money later
rather than sooner, but eventually you still have to eat. Or you might figure
that stock prices are falling, yet companies are now spinning off so much in
dividends that it's worth investing just for the dividend stream. These
effects tend to put a floor (or ceiling, for bubbles) on any short-term
psychological movements.

The tricky part is figuring out where the short term meets the long term. If
people could do that reliably, they'd be millionaires in short order. But it's
very difficult to time the point where "Everybody else expects prices to go
down, so they will" meets "But they're really low, so the fundamentals look
too good to pass up."

~~~
yters
That works as long as a panic attack doesn't cause any kind of irreperable
systemic shock. But I guess such a thing is unlikely. Such an event would have
to be worldwide, otherwise the equilibrium you mention results.

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startingup
I basically agree with the Soros thesis. The fact that it has dire
implications for many of us should not blind us to the reality of an out-of-
whack global economy. To give one indication of the scale of imbalance, global
reserves of dollars has gone up several fold, to $5+ trillion in the past few
years. This is about the clearest evidence of the US devaluing its reserve
currency status, through excess issuance of paper claims on itself.

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patrickg-zill
Wouldn't another explanation for a bubble in housing be the demographics
behind the baby boomers selling their homes and moving into retirement
communities, or even (I am not gloating) starting to die?

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mnemonicsloth
"Why current event X supports my politics"

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wallflower
T. Boone Pickens, an oil-made billionaire, has been saying that daily global
oil production has peaked. He's been right (and made hundreds of millions off
his predictions) before.

Transcript of Steve Forbes and T. Boone Pickens Debate Peak Oil [DOC]
<http://tinyurl.com/6lqtgu>

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henning
How to sell books: attach vague, untestable doomsday claims to it.

~~~
nickb
The direct income that he'll receive from this book won't even register as a
tenth of a percent on his income statement. So clearly, he's not doing it for
pure sensationalism. I actually think he believes what he's saying.

~~~
mynameishere
_The direct income that he'll receive from this book_

Two commenters now seem to think that Soros wants to sell books for money. No,
he's going for his shot of glory--the guy who predicted the apocolypse.
Trouble is, everyone's doing that lately...

~~~
timr
He's going a lot further than the rest: acknowledging that the fundamental
driver of economic growth for the past few decades (cheap money) is
unsustainable.

Most people are predicting bad things about the housing market and the credit
system, but stopping short of analyzing the implications; Soros is one of the
few people taking the next logical step.

~~~
trevelyan
It's worse than that.

Soros is saying that "cheap money" in the US has been caused by a ponzi-scheme
in US asset markets. Capital inflows pushed up prices and attracted more
investment, which pushed up prices and attracted more investment... Now that
people are taking money out prices will fall and obliterate a lot of wealth
that exists only on paper.

There's no question that what he's describing has happened. The real
uncertainty is over the scale. This could be very significant, or it could be
insignificant. Soros is implying that this sort of speculative investment
dominates US markets and is the reason the USD hasn't followed fundamentals
for the last ten years.

Not much mention of this in the news, but Hong Kong and Singapore have just
adjusted their basket peg to the USD. Reduced demand for USD by major debt-
holders means reduced demand for USD assets.

~~~
wallflower
Also China has hinted at using its $900bn in US Treasuries as political
ammunition

~~~
yummyfajitas
Unlikely. Debt we owe china is leverage we have over them. If they tried to
use it for political purposes, all we need to do is say "we're not paying."
For bonus points, we can also say "100% tariffs on chinese goods."

All of a sudden, $900 billion of China's assets are toast. This will hurt
their credit rating as much as ours (do they have any collateral anymore?).

Debt between nations is not the same as debt you owe to the bank.

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agentbleu
I find it astonishing that many here seem so ignorant of the looming crisis
and the consequences. In a twisted way I actually welcome the turbulence that
it will bring, many have been in recession for years, so it wont make much
difference to them, but all you who are looking forward to VC backing should
be a little more concerned. Mind you, most of the ideas that are currently
being backed seem little more than pipe dreams, and as for a 15 billion dollar
valuation of FB, I think that has some merit, of course I also predict that a
couple of years where inflation of US dollar outstrips that of zimbabway.

~~~
wanorris
Talking about a large-scale financial crisis that you have long foreseen
unlike everyone else and failing to provide any supporting evidence (or even
analysis) makes you indistinguishable from a crank. If you are not a crank,
you're going to have to provide more evidence or analysis to be taken
seriously.

~~~
david927
I've also seen it coming for a long time and can point to every friend and
relative as a reference. That whole time, for the last year and a half
especially, I was always thought to be a crank. Now that it's happening, I'm a
crank because it seems impossible to predict?

Remember, a black swan isn't unpredictable; it's only unpredictable to the
majority. The turkey spends two years thinking the butcher is the greatest guy
in the world, until the last day -- the black swan. But to the butcher, it's
not a black swan at all.

I don't know about agentbleu, but I don't have evidence to support my
conclusion. I only read the news and used Google. I assure you that Soros has
it right and this will end up being worse than the Great Depression.

~~~
davidw
1) Black swans, according to Taleb are _not predictable_. That's what he keeps
repeating. He doesn't lay any claim to superior prediction capabilities. He
merely says that they occur more often than people think, and invested
accordingly. He does mention that some are predictable for some people, but I
don't think financial markets fall into that category outside of special cases
like insider trading.

2) How can people vote up and take seriously a comment like "where inflation
of US dollar outstrips that of zimbabway." [sic] ? Do you really believe that?

I too vote: "not hacker news". Other sites have plenty of "doom! gloom!"
stories if that's your thing.

~~~
DanielBMarkham
I'd like to think that hacker news is an upbeat site. If the world catches
fire, we're the guys who will be making fire extinguishers.

Perhaps it is me, but I like to think of starting a new venture to be an
upbeat, positive, optimistic way of life. Observations about the state of the
world or the economy are interesting only so much as they fit into startup
plans, and time has shown again and again that you can run a startup in any
environment.

Just my two cents.

~~~
davidw
What seems to drive a lot of these "sky is falling" stories are people's
political or economic beliefs. "Look, Bush screwed up!", or "Ron Paul was
right!", or "Marx called it all along, capitalism is broken!". So naturally
talk soon turns to politics and economics, and you get everyone peddling their
favorite weird theory, and the net.kooks who weren't really interested in
startups or tech start popping up because they smell blood in the water.

That's _my_ two cents, and why I would nuke it, and stories like it, from
orbit - "because it's the only way to be sure":-) There are plenty of other
places to talk about stories like this.

------
attack
Not hacker news.

