Quote of the Day: The crisis of government paternalism

This “crisis” of government paternalism was accelerated by monetary and related interventionist policies in the United States and Europe that produced another “boom-bust” cycle in the first decade of the 21^st century. It has had all of the hallmarks of the type of business cycle that the Austrians—and especially, Hayek—had explained decades earlier. Financial markets were awash with loanable funds made possible due to aggressive monetary expansion by central banks; interest rates were artificially pushed far below any market-based level; business investment borrowing, home borrowing, and consumer credit borrowing were far in excess of actual savings rates able to sustain them.

The capital, resources, and labor of society were misallocated and misdirected into various directions throughout these economies, all of which was going to necessitate a significant “adjustment” period when the “bubbles” of the boom finally burst. But rather than allowing the required adjustments and reallocations of capital and labor, and accepting that government welfare and related spending had to be permanently reduced or eliminated, governments have resisted these needed changes.

In many countries, the presumed “austerity” policies have really involved little or no reduction in the levels of government spending and redistribution, but noticeable increases in taxes. “Austerity” means squeezing the private sector to maintain a blotted government sector. The implicit psychology of many in Europe and the United States is that if the current crisis can “somehow” be gotten over, then the trend line of intrusive and growing government spending of past decades can be returned to in the future.

This is from Austrian economic professor and former President of Foundation for Economic Freedom Richard M Ebeling in an interview with the Austrian Economics Center (AEC).  This crisis of paternalism has spread to Asia.

Expect the War on Bitcoin to Spread to Gold and Silver

All governments hate competition, especially when it comes to money. Thus they will work to subvert any threat on their monopoly hold on money.

Sovereign Man’s Simon Black writes:

It was just last week in the Land of the Free that a Federal judge declared Bitcoin to be a currency.

And almost immediately after, the SEC announced ‘investigations’ into the digital currency.

(You remember the SEC, the guys who are tasked with protecting the public from dodgy investments… yet they routinely give their blessing to the likes of Madoff, Enron, toxic mortgage bonds, etc.)

This seems to have started a chain reaction.

Yesterday the German government took formal steps to recognize Bitcoin as form of ‘private money’, and subsequently rolled out steps to tax it.

TRUTH: These moves have nothing to do with consumer protection. Or raising tax revenue, for that matter.

What they’re really trying to do is send a clear message– if you use Bitcoin, there will be consequences.

This isn’t even really about Bitcoin. The big picture issue is that governments are scared to death of currency alternatives catching fire.

With so much debt and monetary stress in the global economy, it’s becoming increasingly clear by the day that the current fiat experiment is in serious trouble.

The only reason it still works is because (a) people continue to have confidence in the system, and (b) there really is no mainstream alternative to holding paper currency.

This last fact is paramount. If a viable currency alternative were introduced that became mainstream and popular, governments would no longer be able to perpetrate the fraudulent monetary system. The game would be up.

Consequently, they have a huge incentive to stomp out any currency alternative at the first sign of going mainstream.

Bitcoin is one such currency alternative that has started to creep into the mainstream press. As such, Western governments are now working diligently to eliminate its appeal as quickly as possible.

I expect they’ll use similar tactics down the road with precious metals.

Though the market for gold is so much larger, it is still widely viewed by the majority of investors as a ‘commodity’, not money… and certainly not a currency alternative.

People typically speculate in gold hoping to sell at a higher nominal price, thus generating a return in paper currency terms.

But this is starting to change.

Right now we’re in an accumulation and education phase. As more people begin losing confidence in the system, the benefits of holding physical gold instead of paper are becoming more clear to the public.

Meanwhile, people are starting to accumulate their first, small positions in gold and silver.

Eventually, though, as the unwinding of this central banking fiat system accelerates, we’ll hit another phase in which precious metals become a medium of exchange.

I’ve seen this already in a number of countries around the world, particularly in Asia. People trade gold for land, silver for food, etc.

But the concept will become more mainstream in the West, and we’ll see a number of signs.

For example, all the “we BUY gold” stores will start advertising “we SELL gold”. Gold and silver will be written into summer blockbuster films. Certain consumer goods will be quoted in grams or miligrams of gold.

It’s at this point that the concept of precious metals as a currency alternative will enter the cultural psyche.

And you can be sure that governments will use these exact same tactics to eliminate this threat… because there’s really no limit to how far they’ll go to protect their fraud and keep the party going just a little bit longer.

They’ll ‘investigate’ gold, if such a thing is even possible. Uncle Sam will sick the SEC and IRS on gold, claiming tax evasion, terrorist financing, and investment fraud.

And they’ll make a big fuss about gold-related taxes, going so far as to declare massive windfall profits taxes, or even imposing a ‘precious metals wealth tax’ that penalizes anyone holding gold.

This is one of the strongest reasons to hold gold overseas, locked away in a stable jurisdiction out of their control. And when set up properly, such holdings are completely private and non-reportable.

Well the war on gold has been an ongoing thing. India’s broadening assault on gold signifies as a premier example.

The War on Bitcoin has also become global. An Australian bank recently closed a bitcoin payment processor, and Thailand’s central bank has imposed a preliminary blanket ban on bitcoin “because of a lack of existing laws that dealt with the relatively new realm of anonymous, cryptographically protected digital currencies”.

The good news is that in some emerging markets like Kenya, bitcoin have served the interests of the informal and unbanked sector, where in combination with mobile banking (M Pesa), one third of Kenyans now have bitcoin wallets or have access to bitcoins.

Yet if the bond market carnage continues that could usher in another global crisis then expect the war on alternative currencies as gold, bitcoins and even cash to intensify.

Boom Bust Cycles: The Skyscraper Curse in Emerging Markets (and the Philippines)

The New York Times associates the skyscraper curse in Emerging Markets with the prospects of bursting bubbles.

In a city where skyscrapers sprout like weeds, none grew as high as the Sapphire tower in Istanbul.

Today, it stands as a symbol of how far the mighty may fall.

Like a vast majority of new buildings that have blanketed the Istanbul hills in recent years, the Sapphire — at 856 feet it is the tallest in Turkey and among the loftiest in Europe — was built on the back of cheap loans, in dollars, that have flooded Turkey and other fast-growing markets like Brazil, India and South Korea. The money began to flow when the Federal Reserve and other major central banks cut interest rates to the bone in 2009 and cranked up the printing presses in a bid to spur recovery in the United States and other advanced industrial nations.

But now, with expectations mounting that the Federal Reserve, led by its departing chairman Ben S. Bernanke, may soon begin to tighten its monetary spigot, Istanbul’s skyline could well be a harbinger of an emerging-market bust brought on by unpaid loans, weakening currencies, and, eventually, the possible failure of developers and banks.

The artificial boom spurred by easy money had mainly been boosting egos and the ambitions of politicians and more importantly inflates the wallets of the politically connected… (bold mine)

Goldman Sachs is forecasting a dollar-lira rate of 2.2, representing a 15 percent mini-devaluation from the current level of 1.95. “The Turkish economic miracle was built on liquidity and a massive appreciation of the Turkish lira,” said Atilla Yesilada, an economist at Global Source partners in Istanbul, who has lived through Turkey’s previous financial crashes in 1994 and 2001.

These loans — many of them relatively short term — also highlight a recurring characteristic of the emerging-market growth boom: the powerful nexus between ambitious governments eager to promote high-profile investments and politically connected business groups ready to take on such projects.

The Sapphire tower in Turkey is a perfect example in this regard.

The 54-floor tower, which received a ceremonial baptism from Prime Minister Erdogan when it opened in early 2011, is the signature property of the Kiler Group, one of the many construction-themed conglomerates that have achieved extraordinary success since Mr. Erdogan came to power in 2003. Like Mr. Erdogan, whose family comes from the northern Black Sea region, these businessmen hail from Turkey’s conservative Islamist provinces.

Since most people see only the visible, the mushrooming grandiose projects have broadly been misinterpreted as signs of prosperity by the public and by experts who mistakes interpreting statistics as economics.

But all these have been an illusion, as the great leader of Austrian school of economics Ludwig von Mises warned,

Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand.

Well, Turkey’s case where central bank easy money policies redistributes wealth in favor of the cronies and the political class are really subsidies that comes at the expense of society. This has been no different than the Philippines. 

The Philippines has its own race to build the tallest skyscraper version which is seen by the mainstream as signs of “this time is different” boom.

Here are the 10 top ten list of tallest completed buildings in the Philippines as compiled by Wikipedia.org

I wrote about the ASEAN skyscraper curse which may herald a regional crisis here.

The ongoing tightening of money, via the bond vigilantes has hardly been due to the Fed’s tapering, but about the unsustainability of the current debt financed bubbles. The continuity of the global bond market rout will expose on the fragilities brought about by massive capital misallocations that would lead to a systemic bust.  

And as anticipated, Emerging markets have been showing the way.

ASEAN Equity Market Meltdown in Pictures

Here are the updated ugly graphs conveying the damage wrought by the global bond vigilantes on ASEAN equity markets.

The breakdown of Indonesian bellwether (IDDOW) appears to have ushered in a full blown bear market 

Thailand’s SET’s head and shoulder breakdown reinforces the downside ‘toppish’ action

Malaysia’s (MYDOW) trend break accentuates the actions of the former two.

The Philippine Phisix has been out of picture given two days of suspended trading due to floods and today’s public holiday

Nonetheless here is the Phisix US (New York) traded ETF proxy, the EPHE, also on a short term head and shoulder breakdown. The bigger head and shoulders I didn’t include.

The bear market signals in ASEAN equity markets appear to be converging and strengthening.

And I may add this conspicuous rounded top by Singapore’s STI

Read my earlier explanations on the ASEAN meltdown here, here, (and my warnings) here and here

Caveat emptor

Asia Slump: Has Capital Been Flowing Back to the US?

Part of the bond vigilante dynamic has been contributed by the growing risk aversion of foreigners in holding US assets. 

Last weekend I pointed out of the record selling of US treasuries by foreigners last June. But it seems that foreigners also sold US stocks and refrained from buying other US assets such as corporate debt and agency bonds.

More stunning detailed international capital flow data from Dr Ed Yardeni:

The US Treasury released data last Thursday tracking international capital flows for the US through June. The outflows out of US securities was shocking. Especially troubling was the amount of US Treasuries sold by foreigners. Their outflows exceeded those from US bond funds. Of course, some of the outflows from the bond funds could be attributable to foreign investors. Nevertheless, the data suggest that foreign investors may have been more spooked by the Fed’s tapering talk in May and June than domestic investors.

As the US federal deficits have swelled, the US government has become more dependent on the kindness of strangers. Apparently, they are losing their interest in helping us out with our debts. Consider the following TIC data:

(1) Total securities. During June, foreigners sold $934.1 billion (annualized) in US Treasury bills, notes, and bonds; Agency bonds; corporate bonds; and US equities (Fig. 1). Over the past three months, the annualized net capital outflows from these securities was $462.8 billion (Fig. 2).

(2) Treasury notes & bonds. During June, the net outflows from US Treasury notes and bonds was $489.2 billion (annualized). The annualized rate out of these securities over the past three months was $271.1 billion.

(3) US equities. Over the past three months through June, foreigners have also been net sellers of US equities totaling $97.1 billion at an annual rate.

(4) Agency & corporate bonds. Foreigners haven’t been selling US Agency and corporate bonds, but they haven’t been buying them either.

While it may be true that Japanese investors may have reversed coursed and bought US treasuries in early August, this may (or may not) be an isolated event. 

However coming across an article suggesting the opposite “Capital Flows Back to U.S. as Markets Slump Across Asia”…makes me scratch my head. 

The ongoing UST meltdown, whose percentage change seem to signify a 5 or more sigma (fat tailed) event, appears to have diffused into the US stock markets (Dow Industrials INDU S&P 500 SPX, Nasdaq IXIC)

The signals from the markets hardly supports of the view that capital flows have been turning net positive for the US even as Asia slumps. 

Perhaps people are turning more into holding cash and gold.

ASEAN Meltdown: Indonesia’s JCI in Bear Market, Thailand’s SET and Malaysia’s KLSE Clobbered

When I wrote, “And if rising UST yields have indeed been reflecting on growing scarcity of the quantity of US dollar relative to her non-reserve currency trading partners such as ASEAN, then higher yields would likewise imply pressure on the currencies, and similarly but not contemporaneous, on prices of financial assets…”, I meant that the impact from rising bond yields or interest rates will not be the same for each markets, in terms of timing and scale. This also means that the turbulence emanating from the raging bond vigilantes will intensify and spread.

Such dynamic seem to hit not only ASEAN, but the rest of Asia. The region’s markets had mostly been in red today. 

With today’s 3.21% rout, the Indonesia’s JCI has technically entered the bear market (20% threshold) territory.  Among the ASEAN 4, the JCI follows the Philippine Phisix as having touched the bear market zone. The Philippines reached the bear market last June but has bounced back.

And what seems as difference between JCI and the Phisix is that in the Philippines there has been a massive denial by the public of the existence of the bear market out of the devotion to "this time is different" mantra. 

Meanwhile, the JCI fell by as much as 5.5% intraday before bouncing back.

Despite the JCI’s substantial intraday recovery from the troughs, the Indonesian currency the rupiah (USD IDR) slumped and closed at the lowest level of the day.

Mainstream media attempts to shift the blame on Indonesia’s plight to the surging current account deficits. The reality is that such deficits are only symptoms of Indonesia’s systemic bubbles which appears to be imploding, aggravated by the bond vigilantes.

Thailand’s SET also closed sharply lower, but not as much as yesterday’s 3.27% dive.

Like the JCI, the SET gradually chipped off the early losses which peaked at about 3% intraday.

Thailand reportedly has fallen into a recession during the second quarter.

The currency the baht (USD BHT) also closed lower today

Malaysia’s KLCI which seemed as the most resilient among the four ASEAN giants, appears to have finally been affected by the contagion. The KLCI suffered substantial 1.85% loss today.

Malaysia's currency the ringgit (USD-MYR) has initially been sold off but recovered by the late session to close the day marginally lower.

Meanwhile I read a belated news report where the influential association (cartel??) of financial institutions, the Institute of International Finance (IIF) expects the Philippine central bank to tighten soon in order to “keep” the economy from “overheating”. Overheating is a euphemism for credit bubble.

The report quoted a BSP official warning that “a protracted period of high M3 growth may pose risks to the Philippine economy if it leads to higher inflation.”

First this looks like part of the signaling channel used by central banks to condition the market’s expectations.

Next, the BSP, on its own, will not tighten. Instead the market has already been tightening. Bank loans have been slowing down from the start of the year, which extrapolates to a peaking of M3, as I previously pointed out. The diminishing pace of bank lending will reflect on the future data of monetary growth conditions that will also be reflected as slower statistical economic growth. The BSP thus will react to the market rather than influence them

Such slowdown has already been manifested by the Philippine financial markets. And rising US bond yields has only been exacerbating these conditions. 

The Philippine peso (USD-Php) was significantly lower in the global spot currency markets, despite today’s extended flood and weather related suspension of school and offices.

It would be interesting to see how the Phisix will react  during the resumption of trade this Thursday, especially if ASEAN and global markets continue to bleed. Will the Philippines be lucky enough to escape the two day carnage?

Although perhaps given the oversold conditions of the equity markets of Indonesia and Thailand, a relief rally could be expected tomorrow or soon, possibly underpinned by a sharp rally in 10 year US Treasury notes (or steep fall in yields) as of this writing.

Meanwhile except for Indonesia, ASEAN bonds has been minimally affected by the current rout thus far. But it would naïve to believe that such conditions will remain. In the Philippines, media and BSP officials has already been insinuating or implicitly conditioning the public of a prospective “tightening”. This means bonds are the next line in the bond vigilante instigated temblor.

Caveat emptor.

Quote of the Day: The divergence between voting and emigration

To rationalize the divergence between voting and emigration, you need something like Brennan and Lomasky's expressive voting theory.  The essence of the theory: When people decide how to vote, their main goal is to express their support for what sounds good.  When people decide where to live, however, they focus on practicalities, not symbolism.

How can the two differ?  The probability of decisiveness.  When you vote, the chance that you tip the outcome is near 0%, so you might as well just scream about your identity.  When you move, in contrast, the chance that you tip the outcome is near 100%, so you'd better consider cost and convenience.

(italics original)

This is from author economic professor and blogger Bryan Caplan at the Econolog

No Trading Today, Philippine ETF down 3% in New York

I have been informed that stock market trading has been suspended anew today. 

So we will not see how the local market will react to 1) the bloodbath on two of our ASEAN neighbors and 2) the more moderate selloff in both Europe and the US.

And tomorrow is a public holiday here. 

Nevertheless had there been trading today, the Phisix is likely to shadow the New York ETF counterpart, the EPHE (iShares MSCI Philippines), which closed 3% down last night.

The EPHE and the Phisix has a very tight correlation. I superimposed the PSEC and the EPHE in the above chart

But this would be counterfactual thinking, because we will never know. Again trading is suspended today.

What matters now is if there will be a follow-on selloff in the Indonesian and Thai stocks.

Above is an update of the Thai SET chart

And the updated Indonesian Dow Jones Indonesia index (charts from stockcharts.com)

If the Indonesian-Thai stock market meltdown continues and if global stock market selloff will extend in the coming sessions, then it is a wonder how these accumulated pressures will be ventilated on the Phisix Thursday.

Let me just repeat what I said last night

Has Typhoon Maring or Tropical Storm Trami been a blessing in disguise for Philippine stocks? Or will we see a belated sympathy move tomorrow similar to June 14th? (edited to add: instead of tomorrow make it Thursday—Benson) Or will Philippine stocks resonate with Malaysia's mitigated loss? Or will Philippine stocks defy the contagion out of "this time is different"?

Indonesia’s JCI Crushed 5.6%, Thailand’s SET Slammed 3.27%

Well my allegorical ink from last night’s outlook has hardly dried…

Here is what I wrote:

And if rising UST yields have indeed been reflecting on growing scarcity of the quantity of US dollar relative to her non-reserve currency trading partners such as ASEAN, then higher yields would likewise imply pressure on the currencies, and similarly but not contemporaneous, on prices of financial assets…

While so far, Asia and other Emerging Markets appear to be the most vulnerable, should bond yields continue to soar, which implies of amplified volatility on the bond markets and eventually interest rate markets, the impact from such lethal one-two punch will spread and intensify.

This makes global risks assets increasingly vulnerable to black swans (low probability-high impact events) accidents.

Financial market black swan apparently buffeted 2 ASEAN equity markets today.

I even talked about their gloomy charts

Indonesia’s JCI endured a terrifying 5.6% dive!

The JCI broke major support levels and is about 3% away from the 20% bear market threshold (charts and data from Bloomberg)

Indonesia’s rupiah (USD-IDR) has also been smashed (chart from XE.com)

Remember, Indonesia used to be the darling of emerging markets having seen a flurry of credit rating upgrades in 2002-2011. 

To quote this Wall Street Journal article...

Indonesia – not long ago a golden boy of emerging markets – is struggling to combat the triple threat of slowing growth, rising inflation and an exodus of foreign exchange that is slamming the county’s currency.

Today Indonesia looks like the canary in the coalmine for ASEAN. As I have been saying credit rating upgrades seem like a kiss of death.

Meanwhile Thailand’s SET appears to have sympathized with Indonesia…

The SETI plunged by a ghastly 3.27%...

The Thai equity benchmark is now about 2.4% away from the June Bernanke taper low. (chart from Bloomberg)

The Thai currency (USD-THB) the baht has also been walloped. (XE.com)

Malaysia’s KLSE partly felt the heat, the benchmark fell by .55%.

While stock market losses were a lot subdued compared to Indonesia and Thailand, the ringgit (USD-MYR) has also been thumped.

Philippine financial markets has been suspended today due to floods brought by Typhoon Maring or Tropical Storm Trami

Nonetheless the currency spot markets reveals that the Peso (USD-Peso) has also been swamped.

Has Typhoon Maring or Tropical Storm Trami been a blessing in disguise for Philippine stocks? Or will we see a belated sympathy move tomorrow similar to June 14th? Or will Philippine stocks resonate with Malaysia's mitigated loss? Or will Philippine stocks defy the contagion out of "this time is different"?

As of this writing, yields of 10 year UST has been significantly up from Friday’s close (chart from investing.com)

If the selling downpour in Indonesia and Thailand continues, then this may well be the second round of the May-June Taper meltdown--ASEAN version.

Interesting times indeed. Caveat emptor

On China’s Bank Based ‘Silent Stimulus’

I have long been suspecting that the Chinese government has been implementing a stealth stimulus. 

For example here is what I wrote last May

The reality is that the Chinese government has already launched a stealth stimulus since last year.

This can be seen in the continuing credit growth in the Chinese banking sector as seen from ‘the chart from Dr. Ed Yardeni.

Most of the pick up in credit growth I believe has been directed to State Owned Enterprises (SOE). One must realize that Chinese economy remains heavily politicized where many firms are wards of the government. So Chinese policies can be coursed through them without official admission.

Forbes columnist Gordon Chang fills in the blanks

Beijing is funneling the “silent stimulus” through two state banks. CDB, as China Development Bank is known, will make large infrastructure loans to three provinces, Hebei, Jiangsu, and Qinghai.

Hebei will use loan proceeds for slum renewal and an airport zone, and Jiangsu’s funds will go to urban infrastructure and the province’s regional transport network. The money for Qinghai is for roads, railways, and waterways. Hong Kong’s South China Morning Post called the agreements“the latest sign of an effort by Beijing to prop up growth with targeted bursts of lending.”

The lender, which directly reports to the State Council, entered into memoranda of understanding with the three provinces. The agreement with Hebei was signed on the 9^th of this month, and it appears the other two were inked at about the same time.

Moreover, Agricultural Bank of China , one of the country’s Big Four, signed a loan agreement with the Shanghai city government on the 6th of this month. The 250 billion yuan proceeds will be used to establish the first “Hong Kong-like free-trade zone” in China and build Shanghai Disneyland.  Analysts were surprised by the size of the loan—12.5% of the city’s GDP for 2012—and by the fact that the municipality, ranked a province, itself borrowed the money. Premier Li is said to have been personally involved in the making of the loan to what is often called China’s largest city.

More on the bank channeled stimulus:

Yet on-the-ground observers report that the central government has been flooding the economy with money, at least since early July. J Capital Research’s Anne Stevenson-Yang notes that Beijing has been injecting stimulus through China’s five largest commercial banks. “I don’t think the debate is even about whether or not to stimulate: it’s all about what type of spending to engage in,” writes Yang, who often spots Chinese economic trends first. “There is a genuine acceleration in infrastructure spending and many announcements about how the government will accelerate ‘slum renovation,’ water projects, and roads.” She points out there has also been an obvious increase in some of the riskiest loans, those to local government financing vehicles, the notorious LGFVs.

The stimulus-on-the-quiet program is already having an effect. For example, the amount of steel for infrastructure overtook steel used in housing recently, an indication that government stimulus—not property construction—is now driving growth.

Like all politicians, the current administration seems focused on the approval generating short term measures aimed at attaining statistical growth goals. It’s all about preservation and expansion of political power and their attendant privileges. In short, political self-interests.

The difference in the stimulus has been in the constituents implementing such programs and the beneficiaries

Yet whatever gains from the stealth or ‘silent’ stimulus will be temporary.

The side effect will be the continued ballooning of systemic debt (charts from WSJ-Zero Hedge) that has been channeled through a massive property bubble. This bubble continues to inflate today in the face of rising interest rates 

Politicians have made the world increasingly fragile and vulnerable to black swans.

George Soros Hedges Portfolio with a Huge Bet Against the S&P 500

From the Businessinsider:

Billionaire George Soros' family office hedge fund, Soros Fund Management, filed its 13F quarterly report with the Securities and Exchange Commission yesterday.

As Marketwatch reporter Barbara Kollmeyer points out, one interesting highlight from Soros' filing is that he bought a bunch of puts on the SPDR S&P 500 ETF in Q2.

It's his biggest holding in the filing.

During the second quarter ended June 30, Soros held 26,157 shares of SPDR S&P 500 and call options on 143,600 shares and put options on 7,802,400 shares in the ETF.

via SEC

In the first quarter ended March 31, Soros held 17,065 shares and puts on 2,618,700 shares of SPDR S&P 500 ETF. 

What's so significant about this move is that puts are used for a downside bet.

It appears that Soros has placed a large bet through S&P 500 puts, basically giving him the right, but not the obligation, to sell them in the future. 

So if the S&P 500, or the ETF which tracks the S&P 500 goes down, Soros will profit handsomely.  

Then again, Soros also bought 66,800 shares of Apple (a major component in the S&P) and he owns a bunch of other stocks.  So buying S&P 500 puts can also act as a hedge. 

Billionaire and market savant George Soros may have indeed hedged his portfolio with a huge bet against the S&P 500 despite having several long positions on many individual stocks.

The action of George Soros reflects on the predicament of investors today. One can hardly take on a purely naked ‘long’ or naked ‘short’ position on the markets.

Being naked 'long' subjects one to the risks of boom-bust cycles from government policies. This I believe represents the Soros- short position

Naked 'short', on the other hand, subjects investors to the anti-shorting policies by governments. Governments has channeled these indirectly through monetary policies (QE and ZIRP) and directly via regulatory bans.

Yes, all these QE-ZIRP stuff have been meant to boost asset prices to keep both the government and their central bank-banking appendages afloat via stealth transfer from society to them or Financial Repression.

So Mr. Soros has long positions in many stocks such as Apple, Google, Johnson and Johnson, JC Penny and etc…

George Soros seems to have emptied his direct gold holdings (signs are that he converted them to physical holdings) but remains heavy on the mines Newmont Mining, Goldcorp and Barrick Gold.

This segment of gold related holdings by MR. Soros reveal of his hedge against government inflationism.

The Soros portfolio exhibits how one should deal with today's highly politicized markets.