《The New Paradigm for financial markets》- George Soros

(Reading Group notes)

Date:07/2008

Talker: ZivYim

The reason for choosing this book.

-Macro economic

-Author

Idea from the book.

-Reflexivity

-Super-Bubble hypothesis

-Outlook for 2008

• USA

  1. 60yrs credit expansion come to the end

     1. banking system will not break down

     2. take much longer time to resume

     3. the ability of FR to lower interest rate will be constrained by the unwillingness of the rest of the world not holding dollars

     4. the desire to borrow and take risk is likely to abate

  2. Longer-lasting changes in the character of banking and investment banking.

     1. Tighter regulation

     2. If taxpayers' money is used, congress will get involved.

     3. Finance constitute less and less percentage in US. Stock market

  3. No grounds for predicting a prolonged period of credit contraction or economic decline in the world as a whole because there are countervailing forces at work.

     1. US recession itself will be cushioned by an improvement in the current account deficit.

  4. The US during bush admin. Failed to exercise proper political leadership.

     1. US ↓power and influence in the world

     2. invasion of iraq ↑oil, ↓US$

     3. recession in US andresilience of China, India, and the oil-producing countries.-> Reinforce.

     4. Significant part of monetary reserve currently held in US bond ->real assets->reinforce and extend the current commodity boom and inflation pressure.

     5. Influence of US$ ↓->old order collapse before new order come

     6. recession will be self-reinforce.

  5. Subprime

     1. 40%of the 7million subprime will default in next 2years

• Europe

  1. liable to be affected almost as badly as the US

     1. Spain

        1. own real estate bubbles

     2. UK

        1. particularly vulnerable

     3. Bank

        1. even more heavily weighed down with asset of doubtful value than american banks.

     4. Over-valuation of euro and sterling is going to hurt european economy

• Japan

  1. doing poorly

• China

  1. Bubble is in formation but in relatively early stage

     1. powerful interestes at work to keep the bubble going.

  2. Appetite for raw materials

     1. iron ore expected to rise at least 30percent next year with china as the largest customer

  3. source of capital inflow into africa

  4. major trading partner of many asian countries.

  5. renminbi to growth

     1. threat of protectionism in US and now in Europe

     2. moderate price inflation.

        1. Mainly cost by imported fuel and food

        2. Resistance to higher renminbi from agricultural sector decrease as the rise in food prices.

  6. Problems

     1. real cost of capital is already negative

        1. faster currency appreciation pushes it further into negative territory

        2. creates an asset bubble.

     2. Largest producer of greenhouse gases in the world

  7. Recession in the developed world will affect exports,

     1. but domestic economy and investments in and exports to the developing world could take up much of the slack

     2. rate of growth will slow down , but the bubble, fueled by negative real interest rates will continue to grow

     3. the stokc market may not rise , but the volume of new issues and the total size the market will continue to grow

  8. Longer-term outlook for China is highly uncertain.

• India:

  1. more positive:

     1. Democracy with the rule of law

     2. Technically easier to invest in india than china

     3. PM hurt by appreciation of the currency.

     4. Infrastructure lags far behind china,begin to pick up

     5. Capital inflow from the oil-rich gulf, which have large expatriate indian populations.

     6. Stock market vulnerable to correction.

• Gulf States:

  1. unpegging the currencies from the dollar

     1. kuwait

  2. Dissuaded form following by strong political pressure from washington.

     1. Saudi Arabia

        1. Dollar pegs, coupled with domestic inflation,have brought about negative real interest rates.

        2. Inflation, any lower of interest break the peg

-Policy recommendations

1. not only money supply , but also with credit creation

2. clearing house for credit default swaps.

-conclusion

1.Emphasize reflexivity

2.Some of the forecasts is proved wrong.

Comment:

1. It is similar to a daily rather than a theory book.And some ideas are the same as the previous bk: The alchemy of finance.

2. It give us a idea of how to face a dynamic, self-involving system: If you can't make use of it, you need to keep a distance from it, at least not to disturb it.

3.Pay attention on long lasting event and monitor it.