Wednesday, February 18, 2009

George Soros 2008 Investment Year

In an article in FT on January 28, 2009, George Soros outlined how his 2008 investment year went.

***Problems facing Obama are even greater than FDR. Total credit outstanding was 160% of GDP in 1929 going to 260% in 1932. We entered the crash in 2008 at 365%, which he thinks will go to 500%

***Although he was positioned reasonably well going in 2008, his thesis of decoupling between developed and developing markets cost him dearly

***Indian and Chinese stocks were hit even harder than U.S. and Europe. He lost more in India than he made the year before. His Chinese manager did relatively better through good stock selection, but he was also helped by the renminbi appreciation

***He had to push himself very hard to make up for the India and China losses from external managers in his macro-account. This had the draw-back that he over-traded as his positions were too large for the increasingly volatile markets

***He could not go against the market in a big way due to his size, so he had to try to catch minor moves

***It also made it difficult for him maintain his short positions. Although he has a lot of experience, he got caught several times and largely missed the crashes in October and November

***On the long side he stuck to his guns and lost an enormous amount of money. Example is Petrobras

***He was able to get out of CVRD, a Brazilian iron ore producer, in time for the end of commodity bubble, but he didn’t short the commodities directly because of his previous difficult experience trading them

***He was slow to recognize the reversal of the dollar and gave back a big chunk of his profits

***His new CIO did well in the UK where he bet against the sterling vs. euro and that short-term interest rates would decline. He also made money going long credit after the collapse

***Eventually he understood the dollar’s rise was a flight to quality during the financial system disruption, not a fundamental move. This insight enabled him to bet against the dollar at the end of 2008 and make money

***He ended the year almost making his 10% minimal return goal after spending most of the year in negative territory

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