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The World Economic Forum

January 27, 2006


The annual World Economic Forum is going on now through the weekend in the tiny ski village of Davos, Switzerland. The gathering draws some 2,300 of the world’s elite from 89 different countries. Included in this year’s festivities are heads of state, U.S. Congressmen and Senators, Cabinet Ministers, CEOs, religious leaders, social activists, and of course some over-exposed Hollywood types. The conference is a who’s who of the best and brightest in the world (plus some politicians!).

About the smartest thing I’ve heard so far from all of the noise coming out of Davos is from billionaire hedge fund legend and philanthropist George Soros. Mr. Soros gave an interview this morning on CNBC where he talked very briefly abut his views on the U.S. economy. I found them to be compelling and perhaps worth noting. It is a view that we both share to a great degree.

Here is some of what Mr. Soros had to say: “There’s (a) problem that I think is brewing, and that is the end of the housing boom in the United States and the ability of households to spend more than they earn because the value of their house is rising. So I expect that by ‘07 there will be a significant decline in U.S. consumer spending and I don’t see what will take its place because it’s so important as a motor of the world economy,” Mr. Soros said. “Everything looks to be just hunky-dory but I don’t think the outlook for the next two years is very good,” he said. “The downside risks are bigger than the upside potential. The conference is remarkable for its complacency. It’s a bit like dancing on the Titanic. They’re having a very good time and there’s a very cheerful atmosphere.”

Mr. Soros, a known opponent of the Bush Administration, also made an interesting comment when he offered that the two biggest obstacles facing the world economy were global warming and the U.S. led war on terror.

I saw the Titanic…it was a great movie but the ending wasn’t pretty. Mr. Soros,who has predicted a recession for the U.S. economy in 2007, is absolutely correct that the U.S. consumer tiring out would be a big problem for the world economy at large. Our net savings rate as a nation is 0% and by some measures negative. The cushion is stretched. Throw on top of that all of the global unrest in the middle east and now Russia hurting energy prices and I also feel we are in for a tough stretch.


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