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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.
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