Billionaire George Soros: Bubbles Perculating; Food Commodities Crisis in Emerging Markets; Demand Elasticity of Oil

George Soros, in his current book, The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means, states that the world is in the worst financial crisis since the 1930s. We're still in the stages of deleveraging after a quarter century of credit expansion. Though he believes regulation is necessary to keep the bubbly froth off commodity prices, he's not really quite sure how much there should be either from government or within the industry.  There is a lag effect as to when people will start to feel the fallout. Much of that capital has rotated in to commodities.  His testimony before the U.S. Congress in May reflected themes from his book. He mentions the credit crisis as being part of a super bubble economy that started in the 1980s, at the same time, he stresses that within commodities, there are still strong underlying reasons for prices to be as high as they are...only the froth is added by speculators.

• Institutional investment in essential products, like food and oil is reminiscent to what happened in 1987 when institutions bought portfolio insurance. It was the Tulipmania of that era. Everybody jumped on the wagon and created a crash. With or without increased regulation for stocks, we're entering into a time period where the outcome for stocks isn't good.b

• The dollar has weakened and it has had a twofold affect.  It exported the recessionary forces from the U.S. to the rest of the world. That has added one percent to the U.S. GNP, which is a positive outcome.The weak dollar is also importing inflation - goods cost more at stores.  There is no real alternative to the dollar and so there has been a general flight from currencies, which has contributed to the commodities boom. The dollar will no longer be the unquestioned reserve currency.  It will, though, still be the most widely used currency according to Soros, but it will depend more on the willingness of the rest of the world to hold dollar reserves.

• That limits the Fed's ability to lower interest rates. If the U.S. continued lowering interest rates beyond this, the dollar would suffer further decline, so you can't go anywhere in that direction.

There is a very strong fundamental trend in place for a continual increase in oil prices, but also, there is a "froth super-imposed" on the fundamental trend. Institution market buying commodity indexes only has distorted the upward move into hyperbole.  That makes it a difficult environment to navigate for both investments and trading. He is in favor of fine tuning regulations and not necessarily adding more regulation e.g. more bureaucracy and the attendant slowness of response time to anything.