By William Patalon III
Executive Editor
Money Morning/The Money Map Report
Renowned investor George Soros said Friday the world financial system has effectively disintegrated, and thereās no near-term bottom to this financial crisis in sight.
Speaking at a dinner at Columbia University, Soros actually compared the current situation to the breakup of the Soviet Union, and said that the whipsaw effects of the crisis are actually more severe than the Great Depression.
"We witnessed the collapse of the financial system," Soros told his audience. āIt was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."
He said the bankruptcy of. Lehman Brothers Holdings Inc. (OTC: LEHMQ) in September marked a turning point in the functioning of the market system.
His comments echoed those made earlier at the same conference by former U.S. Federal Reserve Chairman Paul A. Volcker, who is now a top adviser to U.S. President Barack Obama. Volcker said that overseas industrial production was declining even more rapidly than it was in the United States, which is itself under severe strain.
"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker said.
Market Matters
Nothing has been able to get this economy (and stock market) back on track. Congress passes ā and President Barack Obama signs ā a near-$900 billion stimulus package and the U.S. Federal Reserve revises (negatively) its economic outlook for the remainder of 2009. Major financial institutions get significant (bailout) assistance from the government and Bank of America Corp.ās (BAC) chief is subpoenaed for misleading investors over Merrill Lynch & Co. Inc.ās (MER) (excessive) bonuses.
Automakers beg Congress for (and receive) a bailout of their own and General Motors Corp. (GM) and Chrysler LLC come back for even more as part of their restructuring plans.Ā Investors try to look past the unscrupulous practices of Madoff and the U.S. Securities and Exchange Commission (SEC) brings suit against billionaire Alan Stanfordās global enterprises over an apparent $8 billion fraud through its high-yielding CDs (with Venezuelans particularly hard hit).
Stanford Financial manages assets of $50 billion in 140 countries, with the primary bank operations in question based in Antigua.Ā With the Dow Jones Industrial Average hitting a six-year low and falling below the perceived floor set in November, investors are left scratching their heads.
So much for the āchallengingā times setting a tone for bipartisanship in Washington.Ā As the stimulus package passed with only token Republican support in the Senate, its party leader called it "a missed opportunity, one for which our children and grandchildren will pay a hefty price."Ā He then revealed that not one House member even took the time to read the bill.Ā The Obama administration also announced a plan to help millions of homeowners avoid foreclosure, while attempting to stabilize the housing market (to the tune of another $275 billion).Ā As long as the Treasuryās checkbook is out, GM wants another $16 billion and Chrysler could live a few more days with an additional $2 billion.Ā
Oil rose (briefly) late in the week as the U.S. Department of Energy revealed a surprising decline in crude inventories and a slight increase in the demand for gas now that prices at the pumps have fallen below $2 a gallon and stayed for a while.
After taking the Dow down more than 300 points following Presidentsā Day, nervous investors sold all the way to a new six-year low and the worst week for equities since October.
Financials continued to be hammered as talks of bank nationalization picked up steam.Ā Global stock markets followed suit with Japanās Topix closing at a 20-year low.Ā Ā With investors shunning equities of all shapes and sizes (and U.S. Treasuries offering little in the way of returns), gold became the safe-haven recipient and futures climbed above $1,000 an ounce.Ā For now, investors just talk of āvalues,ā āopportunities,ā ārallies,ā and ārebounds,ā but few seem willing to follow-through with any real buying.
Market/ Index | Year Close (2008) | Qtr Close (12/31/08) | Previous Week | Current Week | YTD Change |
Dow Jones Industrial | 8,776.39 | 8,776.39 | 7,850.41 | 7,365.67 | -16.07% |
NASDAQ | 1,577.03 | 1,577.03 | 1,534.36 | 1,441.23 | -8.61% |
S&P 500 | 903.25 | 903.25 | 826.84 | 770.05 | -14.75% |
Russell 2000 | 499.45 | 499.45 | 448.36 | 410.96 | -17.72% |
Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
10 yr Treasury (Yield) | 2.24% | 2.24% | 2.88% | 2.77% | +53 bps |
Economically Speaking
With U.S. Federal Reserve Chairman Ben S. Bernanke and friends trying any and all tricks in their arsenal to jumpstart the economy, the central bank chief admitted that the efforts to date have resulted in very limited successes.Ā The Fed negatively revised its outlook for the remainder of the year and now projects that unemployment could reach 8.8% and the GDP may shrink by as much as 1.3% in 2009.Ā Meanwhile, our global trading partners are struggling with problems of their own.Ā Japanās economy experienced its worst quarter in almost 35 years as its manufacturers suffered through substantially declining demand for their goods.Ā
The domestic economic data confirmed that the Fedās new (weaker) projections may be right on target.Ā Housing starts in January fell by almost 15% and activity now stands 56% below the pace of construction last year.Ā Industrial production tumbled more than expected last month, and automakers face even more shutdowns as part of their recently proposed restructuring plans.
The labor market remained incredibly weak as new jobless claims rose again in the most recent release and the number of workers receiving unemployment benefits for over a week stood around a record high 5 million people.Ā On the inflation front, the cries of deflation can be put on hold for the time being.Ā Both the producer price index (PPI ā wholesale) and the consumer price index (CPI ā retail) experienced their biggest gains since July 2008, as energy prices actually rose last month.
Still, consumer prices remained flat (no real increase) on an annual basis, the lowest level of price change since August 1955.
Weekly Economic Calendar
Date | Release | Comments |
February 16 | Presidentsā Day | Markets closed |
February 18 | Housing Starts (01/09) | 7th straight monthly decline |
Ā | Industrial Production (01/09) | Larger than expected decline in January (& revised Dec.) |
February 19 | PPI (01/09) | Biggest increase since July 2008 |
Ā | Initial Jobless Claims (02/14/09) | 4th straight record-setting week |
Ā | Leading Indicators (01/09) | Surprising jump in index |
February 20 | CPI (01/09) | Annual rate of inflation falls to 55 year low |
The Week Ahead | Ā | Ā |
February 24 | Consumer Confidence (02/09) | Ā |
February 25 | Existing Home Sales (01/09) | Ā |
February 26 | Durable Goods Orders (01/09) | Ā |
Ā | Initial Jobless Claims (02/21/09) | Ā |
Ā | New Home Sales (01/09) | Ā |
February 27 | GDP ā 4th quarter | Ā |
News and Related Story Links:
- Money Morning News:
Stanford Scandal Ignites Bank Runs in Latin America. - Miami Herald:
Billionaire Stanford's troubles cause a tropical headache on Antigua. - Reuters:
Soros sees no bottom for world financial "collapse.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.
I generally like your suggestions and the way you analyse and make evrything so simple. May I please request you to explain me why gold-oil ratio is not in their historical average of 12-14 and what are the consequences?
Interesting that Soros would be speaking out about more gloom and doom coming our way – since he's significantly responsible for our current situation. Soros was "grooming" Obama monetarily for his role as CIC from the mid-80s, investing millions in Obama's rise to power. Soros got what he paid for when Obama walked into the White House. It would seem that this crisis we as a nation now face is, also, some part of his diabolical scheme. Either that or he's just plain stupid…which I doubt. Misguided, yes – but not stupid.
in glancing over the article to predict such demise- how can you advertize the next great oit boom on the same page–is this service just another catch all net.
Hi George!
Well, it's been about 20 years, and we're both grey heads now, but you clearly haven't lost your touch. You still manipulate the ignorant and credible press to to talk the market into your shorts. Tell us George: boxers or briefs?
Frankly, I could care less what this "Super Socialist" thinks about anything. He is a disgrace to our country!!
"He (its ((Republican)) party leader) then revealed that not one House member even took the time to read the bill." Like they had a chance to choose to read 1074 pages in a few hours! Your writer is being misleading and shows an unwarranted anti-Republican bias!
I'll be re-evaluating my new subscription if more balance isn't exhibited.
George,
Don't think of what others say as you are correct. One has to only view the larger picture of the U.S. lack of manufacturing along with upside down wages and realize that this is truly the disintegration of the economic system that we have all become too accustomed to. The administration is more or less merely addressing cash flow rather than economics which is suppose to be in searh of a cure – not some superficial bandaid. These under financed cash flow measures will only came back to haunt us even more. But once again this is but one person's opinion – based on fact and past performance.
Gene Cerko
It is very clear to see how closely money and politics are co-mingled. Republicans want to blame everybody but themselves and threaten to cancel subscriptions to any media that points a finger their way. They don't want to recall 12 years of do-nothing, incompetent, cronyist, isolationism that brought the nation's business to a standstill circa 1920-32. They want to forget the voodoo deregulation dances of Reaganomics and another 12 years of incompetence that lead to the Savings and Loan collapse. It's typical of Republicanism to create a mess and then complain as other people go about cleaning it up!
It all makes intersting reading but a word to the wise 'this too shall pass!'
Humans are resilient and will adopt and survive. Americans are creative and will over come.
Mark my word , next year all this doom and gloom will be forgotten.
If you want to take chance and make some money , good for you.
When the brightest are turned into financial engineers instead of inventors of real products,
When actors and the ball player are held in greater esteem than the doctors and teachers,
When we elect idiots to office that foster these values, because they are funded by them
Then people like Soros can talk their book and get everyone to believe they are sooth sayers of the future.
Tomorrow most will go to work and the system will eventually correct itself.
I listen with open ears and an open mind ready to make my own decisions on this one.
– Jay Salvati
George,
Where were you two years ago when I was predicting this current Depression (yes I used the d word) and talking about most everything we our now witnessing? You need to go back to Economics 101. The stock market always bottoms before the economy. It did in November of 1932 even as the economy was still sinking into Depression. It also bottomed in May of 1974 right in the middle of the recession. I could give you many more examples, but I'm sure you get the picture.
Of course, stocks could go lower, but they are obviously very close to a bottom. Don't blame me George if you miss this bottom….
[…] "We witnessed the collapse of the financial system," Soros told his audience. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom." […]
[…] "We witnessed the collapse of the financial system," Soros told his audience. “It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom." […]
I do not believe that US Economy can go dumps just a few Investment Bankers had been irresponsible to create funny products for self benefit. Just see the infrastructure, the great manufacturing industries, the mineral resources, its army, technology, clout in World Politics, great understanding of the world situation(except ofcourse its being taken for a ride by the cunning Paks) etc. US and thus world economy will recover(like a auto battery going dead when you put the headlines on overnight and then becomes okay once recharged) with a couple of jump starts and recherges. US citizens should become more responsible if not already. Human endevour over the ages has been always to devise wayouts for all calamities
[…] the bears aren’t hibernating: Once you claw away the apparent good news, you’ll find some troubling numbers, they say. For […]