Warnings from George Soros and Jim Rogers

Soros: Germany’s heading into depression

Europe’s recession will intensify and spread to Germany, the euro zone’s largest economy, within six months, said George Soros, chairman of Soros Fund Management.

Marketwatch,

10 September, 2012

“The policy of fiscal retrenchment in the midst of rising unemployment is pro-cyclical and pushing Europe into a deeper and longer depression,” Soros said in prepared remarks for a Monday speech in Berlin. “That is no longer a forecast; it is an observation. The German public doesn’t yet feel it and doesn’t quite believe it. But it is all too real in the periphery and it will reach Germany in the next six months or so.”

As French President François Hollande unveils a raft of austerity measures, including a controversial tax on the rich, fears of an exodus of the country's rich are fanned as LVMH chief Bernard Arnault says he’s seeking Belgian citizenship.

Emblematic of that, Germany’s unemployment rate was just 5.5% in July, compared with 23% or higher in Greece and Spain, according to Eurostat, the European Union’s statistics agency.

Germany needs to abandon its demands for austerity in other countries and embrace the continued fiscal unification of the region or leave the euro zone itself, Soros said.

Soros also said it would be preferable for Germany to stay in the euro zone and work to boost growth, activate a debt-reduction fund and guarantee common bonds.

“It would be by far the best for all concerned if Germany stayed in the euro. If not, it would be best if Germany and other like-mined creditor countries withdrew from the euro in a negotiated separation,” Soros said, according to his prepared remarks. See related blog post on Soros’s late-June rebuke of Germany’s debt-crisis approach and related story on Soros’s contention that Europe had three months, as of June, to address the crisis .

Soros’s latest comments come two days before a much-anticipated German Constitutional Court ruling on the legitimacy of the European Stability Mechanism, the euro zone’s permanent bailout fund.

Euro Zone Will Pay ‘Terrible Price’: Jim Rogers

A “terrible price” will be paid for the euro zone crisis eventually, whether the European Central Bank (ECB) embarks on mass bond purchases or not, Jim Rogers, investor and co-founder of the Quantum Fund with George Soros, told CNBC Monday.

CNBC,

10 September, 2012

Rogers said: “These guys have been saying the same old garbage for a long time. It’s not a game-changer – it’s good for the market for maybe a month. The debt keeps going higher and higher and eventually we’ll all going to pay a terrible price.”

He warned that the market rally, which many have seen as an opportunity to get back into riskier assets, would only be a short-term rebound.

“It’s not an opportunity to make money for me. This is not good for the market and it’s not going to last. Every three or four months they (euro [EUR=X 1.2768 0.0011 (+0.09%) ] zone politicians) have a summit and they say: Ok guys, everything is ok now. The market goes up. But we’re getting a little tired of this and the market is getting a little tired of this,” Rogers argued.

There should be some opportunity to make money in the short term, Peter Toogood, director of investment, Old Broad Street Research, said.

“There is a little window for risk trade – not a sustainable one, but there’s some stability to the short-term outlook,” he argued. He pointed out that ECB President Mario Draghi “has already been expanding the balance sheet through disguises.”

Some point out that the ECB will hold off on the bond-buying program – known as Outright Monetary Transactions (OMT) – which will raise its balance sheet, until there are much firmer conditions imposed. This makes it less like classic inflationary money printing.

Carl Weinberg, chief economist, High Frequency Economics, said that he doesn’t think the ECB will print money in Europe any time soon.

“We’re going to have the same old, same old all over again. It’s just another twist on the same old story, but right now they’re not doing anything,” he said.

“Draghi couldn’t get past the Germans for an inch if he didn’t agree to sterilize the proceeds.”

Opinion is also divided on how the potential to buy (rephrase?) huge tranches of the bonds of shakier economies, to try and keep their borrowing costs at sustainable levels, will affect the commodities markets.

Weinberg pointed out that the OMT plans are probably on too small a scale to affect the commodity markets long term. While they have been described as “unlimited”, countries which apply for the assistance have to meet certain conditions for their budget and fiscal reform.

Rogers, famed as a long-term commodities bull, said there was no reason to correct this stance.

“The bull market in commodities will end some day – but some day is a long way away,” he said.

“Commodities have been correcting for a while. Now everybody knows they’re throwing money into the market, and history tells you that when they do this the way to protect yourself is to own real assets whether it’s silver or rice. If the world economy gets better, I own commodities because there’s shortages developing. If it doesn’t they’re (central banks) all going to print money. It’s the wrong thing to do, but it’s all they know to do.”