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Era of George Soros ... is over. (An article)



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Era of George Soros and Macro Investors Is Over:
                     Matthew Lynn
                     By Matthew Lynn

                     London, June 21 (Bloomberg) -- When an illustrious 
warrior departs the field of
                     battle, it sometimes signals victory, sometimes 
exhaustion. In the case of
                     George Soros, who has reigned supreme over the 
financial markets for more than
                     two decades, it means the end of an era.

                     Throughout history, investors have essentially fallen 
into two basic camps, macro
                     investors and micro investors. Macro investors, like 
Soros, make money
                     speculating on the fates of currencies and nations, or 
the outcome of battles and
                     wars.

                     Micro investors, by contrast, make money speculating 
on the rise of new
                     companies and industries. They focus on the small 
picture; macro investors look
                     at the big picture.

                     Different eras favor different style of investment. 
Nathan Rothschild, for example,
                     famously made money from trading on the outcome of the 
Battle of Waterloo
                     (though he took the precaution of making sure he knew 
the outcome before
                     anyone else).

                     John Pierpont Morgan Sr., by contrast, made his money 
from speculating in the
                     booming industries of late 19th century America. The 
railroads were his great
                     arena, though he also played a role in the creation of 
companies such as US
                     Steel and American Telephone & Telegraph.

                     Morgan sometimes dabbled in macro plays -- he lent the 
French $10 million
                     during their war with Prussia. But the contrast 
between a man such as
                     Rothschild and a man such as Morgan tells us that 
sometime between the first
                     and the second half of their century the climate 
changed, from favoring macro
                     investors to favoring micro investors.

                     Punctuation Mark

                     It could be that the same thing is happening today -- 
and that the end of George
                     Soros's career is one of those events that punctuates 
a trend that has been
                     strengthening for several years.

                     Soros certainly belongs in the same investment league 
as Rothschild and
                     Morgan: he is one of the few capitalists today whose 
name will be toyed with by
                     historians in the 22nd century. Last week, Soros 
effectively wound up his career
                     as a money manager, stating that his remaining funds 
would now mainly manage
                     his own fortune, with no aim more ambitious than 
keeping track of the market.

                     His firm, which once controlled $22 billion, is now 
down to about $11 billion, and
                     new investors will effectively be advised to go 
elsewhere. Soros is out of the
                     game.

                     ``We went into the new economy but we overstayed our 
welcome,'' said Soros,
                     following the announcement of the reorganisation of 
his funds. ``The bubble has
                     been pricked and many of the stocks will never come 
back.''

                     He concluded, ``I don't think I should get back into 
the ring now.''

                     Tiger Lays Down Clubs

                     That extraordinary statement amounts to an admission 
that Soros no longer
                     understands the markets nor what makes them work. That 
is analogous to
                     Zinedine Zidane walking out of the French football 
team, complaining he no
                     longer understood any of this soccer stuff nor did he 
feel he any longer had
                     anything to contribute to the game. Or Tiger Woods 
laying down his golf clubs,
                     saying he could no longer figure out how you get that 
little white ball into the
                     hole.

                     At his peak, Soros understood the markets better than 
anyone else, and while it
                     might be true that he has wearied of the game, it 
might also be true that the
                     markets have changed. Other great investors, after 
all, have also stepped out of
                     the ring. Julian Robertson of Tiger Management has 
wound down his fund, and
                     Warren Buffett is no longer the force that he was.

                     The big change in the markets, some people say, is 
that they've gone haywire;
                     rational valuations have long since been abandoned in 
a bubble of new economy
                     flim-flam. In an irrational world, rational men can't 
be expected to operate any
                     more.

                     Although that could be true, it might also be the case 
the markets have changed
                     in a different way, from the macro to the micro. Think 
about where Soros and his
                     compatriots in the hedge fund industry made their 
money. It was bets on huge
                     geo-political events, such as the departure of the 
British pound from Europe's
                     exchange-rate mechanism, the rise of the deutsche mark 
after the fall of the
                     Berlin Wall, or the collapse of the Japanese stock and 
property markets through
                     the 1990s. Those were all wagers on history, in the 
style of a great macro
                     investor.

                     New Heroes

                     Now the emerging crop of investment heroes are the 
venture capitalists, whose
                     fortunes are being built by breathing life into new 
and radical technologies.

                     Great investors seek out places of maximum turbulence; 
it's amid chaos, change
                     and uncertainty that the most fabulous fortunes are 
made (and, of course, lost).
                     In the quarter century between the Vietnam War and the 
mid-1990s, the big
                     changes were all geo- political; with the demise of 
Bretton Woods, the global
                     monetary system collapsed, inflation raged, the Cold 
War reached its peak, then
                     ended. That was a world in which Nathan Rothschild 
would have felt able to make
                     a secure living.

                     That era looks to have passed. The world now is more 
stable than at any time
                     since the nineteenth century. America is the dominant 
power. Europe is at
                     peace. Currencies are consolidating into three stable 
blocks. And yet there is
                     also rapid technological change. That has left the 
macro investor with the little to
                     do. And it has created a world in which an investor 
such as J.P. Morgan would
                     have felt quite at home.

                     There are still great fortunes to be made by great 
investors. Soros and the macro
                     investors just don't know where to find them any more.