Be scared

George Soros: Apocalypse Then and Apocalypse Now

Over the last three to four years, the United States has been enjoying a somewhat solid and gradual economic recovery. For most people in the U.S., the dark days from late 2008 to late 2011 spanned the worst period of the Great American Recession and the Global Financial Crisis, but what about the rest of the world?

It so happens that not all global markets have recovered in the same fashion as Wall Street. The European banking system, for example, never quite snapped out of the debt crisis created by sovereign default, and turmoil in the Asian markets could create a systemic effect that may prompt a dreaded domino effect. At least this is what billionaire investor, philanthropist and political activist George Soros believes.

In early January 2016, active traders who subscribe to Bloomberg terminals noticed an ominous article by Anusha Ondaatjie and Adam Haigh about what George Soros thinks is happening to global markets. Speaking before an audience gathered in the capital of Sri Lanka, Soros told investors that they should be very cautious and vigilant in what he considers to be a time of economic crisis.

Soros believes that current conditions are similar to 2008 on various levels, and thus they warrant concern. Before Soros walked to the podium in Colombo, global markets failed to impress anyone in the New Year. Two items of major concern were: China’s currency plunging to levels that its own central bank has been unable to contain and investors’ reaction to the U.S. Federal Reserve decision to raise interest rates for the first time in many years.

Should investors be concerned about Soros’ gloomy forecast? The short answer is yes; Soros is someone who clearly understands markets at the macroeconomic level. In 2011, Soros firmly predicted the debt crisis of the European banking system, and institutional investors certainly listened. So far, investors seem to be paying attention to Soros once again, particularly in Shanghai and London, where major stock indices have taken considerable hits.

It may be too early to tell whether Soros is right insofar as the coming financial crisis being as severe as that of 2008; after all, the economy of the United States holds promise for the near future with a recovering housing market. Still, many investors are certainly going to take his advice to heart and lower their exposure to Asian markets. The effects of capital flight in China could trigger a widespread economic slowdown because such are the effect of globalization in the 21st century.