Yesterday, CNN Money ran a Money magazine interview of legendary investor George Soros by managing editor Eric Schurenberg. Warnings about a financial crisis dominated the conversation with the Chairman of Soros Fund Management, LLC. Notable excerpts from the interview included:

MONEY: In your 50 years in finance you’ve seen any number of crises. Why is this so bad?
SOROS: Because two bubbles are deflating at once. There’s the collapse of housing prices, of course. On top of that there’s the end of what I call the superboom of credit expansion that has been going on for 25 years. That was made possible by a stable global financial system in which the dollar was the world’s primary currency. Now, for many reasons, the system is in question and nothing has taken its place. That has created great uncertainty.
MONEY: And for us regular people it means…?
SOROS: The days of rapid financial wealth creation are over. We’re now in a period of wealth destruction. It is going to be very hard to preserve your wealth in these circumstances.

MONEY: Can’t the Fed just bail us out again?
SOROS: The Fed’s first duty is to prevent the financial system from collapsing. It’s shown it can do that, and the markets are breathing a sigh of relief. But we can’t avoid the fallout in the real economy. We’re facing not only recession but also inflation and a flight from the dollar. To fight recession, the Fed needs to increase the money supply, but that only makes the dollar weaker and inflation worse. That’s why I think this crisis is so serious. The Fed’s power to intervene is limited.

MONEY: Where is your money now?
SOROS: Mostly in my endowment fund, a good portion of which I had farmed out to other money managers. When I saw what I considered the most serious financial crisis of my lifetime, I came out of retirement and set up an account to hedge their positions.
MONEY: How?
SOROS: I went short [bet against] the dollar, U.S. and European stocks and Treasury bonds. I went long [invested in] emerging markets. That worked last year, but this year bonds kept going up and emerging markets down. So I’m about even.
MONEY: Should Money readers do the same?
SOROS: You’d have to be pretty nimble. I think most investors would be best off in safe, inflation-indexed Treasuries, even though they’re quite expensive now.

Source:

“Soros: Global investing’s godfather”
Eric Schurenberg
CNN Money, May 14, 2008

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