George Soros is in the chair this week for FT.com’s View from the Top interview.
The infamous investor lays the recent bout of market turbulence firmly at the carry trade’s door: “I think there are several factors but, very important, is the carry trade, the fact that the yen is basically interest free and a lot of money is coming from borrowing and a lot of Japanese money going abroad. And the yen was weakening so a lot of people got into that trade and there’s a little bit of a shake-up going on.”
“The appreciation of the yen shows that there is a shake-out. Now, behind it you have got the slowdown in the US economy, the housing situation where you haven’t yet seen the total effect of the slowdown. It’s still halfway through. So will that actually result in a significant slowdown in consumer spending? That is yet to be seen because you have had mortgage equity withdrawals of nearly $900bn a year. Now it has fallen to $300bn and it basically will disappear. And that will affect consumer spending.
“Now, as the US slows down, the emerging markets are still going very strong, China and India, so you will actually go back to a more balanced economy with more growth abroad and correcting the deficit. But that will see less liquidity in the market because it’s really the trading balance creating the same trillion dollars of Chinese reserves and similar amounts in other countries. That has actually fed this global liquidity splurge.”
The good news: “It [the drawing up of liquidity] will have an effect on the market and I don’t think that we are in any way nearer a crash. But it’s a warning crack.”
Read the full transcript.
