Soros Says Commodity `Bubble\' Still in `Growth Phase\'

Date: Thursday, April 17, 2008
Author: Saijel Kishan and John Rega, Bloomberg

Billionaire George Soros said the boom in commodities is still in a ``growth phase'' after prices for oil, wheat and gold rose to records.

``You have a generalized commodity bubble due to commodities having become an asset class that institutions use to an increasing extent,'' Soros said today at an event sponsored by the Centre for European Policy Studies in Brussels. ``On top of that you have specific factors that create the relative shortage of oil and, now, also food.''

Commodities are in their seventh year of gains, with oil rising to a record $115.54 a barrel today as the dollar plunged to an all-time low against the euro. Rice has more than doubled in a year, while corn has advanced 68 percent and wheat 92 percent. Investments in commodities rose by more than a fifth in the first quarter to $400 billion, Citigroup Inc. said April 7.

Commodities have outpaced stocks and bonds this year, spurring pension funds and other investors to increase holdings in wheat, gold, copper and tin, which climbed to a record.

The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities has returned 20 percent this year, while the Standard & Poor's 500 Index of stocks has fallen 7.3 percent. U.S. Treasuries have returned investors 3 percent, according to Merrill Lynch & Co. indexes.

Soros's comments echo those of Jim Rogers, a fellow founder of the Quantum Hedge Fund in the 1970s. Rogers is best known for being a commodities bull since the late 1990s, before the market started to rally in 2001. His Rogers International Commodity Index has more than quadrupled since its start in 1998.

Credit Losses

The world's largest banks and securities firms have reported more than $245 billion of writedowns and credit losses since the start of last year. Bear Stearns Cos. last month collapsed after losing the confidence of lenders and clients amid the spreading crisis, leading to a planned purchase by JPMorgan Chase & Co.

``The whole world is facing a very serious financial crisis,'' Soros said. ``I call it the most serious financial crisis of our lifetime and the financial system is seriously disrupted.''

A week ago, Soros said the seizure in global credit markets caused by the subprime collapse will get worse before it gets better. He told reporters on a teleconference that regulators and the U.S. administration ``failed to perform their job.''

He said today that because authorities know how to respond to avert financial collapse, ``there's no question of a replay of the 1930s.''

Soros, 77, earned an estimated $2.9 billion last year, ranking second after John Paulson, founder of New York-based Paulson & Co., according to Institutional Investor's Alpha Magazine.

To contact the reporter on this story: Saijel Kishan in London at skishan@bloomberg.net; John Rega in Brussels at jrega@bloomberg.net.