George Soros, founder of $27 billion hedge fund Soros Fund Management, was on CNBC in Davos, Switzerland on 1/26/2011. Watch the interview after the jump. Here are a few quotes from the interview.
1) On U.S. States and Municipalities: "This going to be the drama of the next year or so. The State's can't run deficits. And they do have very big deficits. They can't increase taxes because that's very strongly resisted. So they'll have to cut services and also put pressure on the unions to renegotiate the deals they have. So, State's can't go bankrupt. You can't do what you could do for General Motors and get rid of the accumulated liabilities. So, how do you to do it. It's going to be a lot of pain and conflict."
[Regarding State bankruptcy, some policymakers are trying to change the Federal law. Read these posts: Is State Bankruptcy Law In Play?, First GM, now states? Pros and cons of bankruptcy. Also Illinois just raised income taxes.]
2) U.S. Stock Market/Quantitative Easing/Negative Real Interest Rates: "A year ago, lets say, you had the fear of inflation but the reality of deflation. Now the situation has changed, tipped over, because of the boom in commodities and the incipient inflation getting out of hand in China where you have very large wage increases. So you have the beginning of a wage price spiral in China. As a result, the cost of imports is going up. Which is actually very healthy because it's needed so that the burden of debt doesn't weigh so heavily. And the result is, effectively, since you still have quantitative easing, negative real interest rates, and that is of course very stimulative for the stock market.
What happens when the Fed stops buying securities, when QE2 goes away?: "Well then I think interest rates will go up and will choke off the recovery. So this is the classic stop-go phenomenon, which is better than no go at all."
These quotes are not official from a transcript. He also mentioned Europe and the Euro during the interview. According to a graphic, Soros Fund Management's top holdings were the Gold ETF (GLD), Monsanto (MON), ICG (ICO), Plains Exploration (PXP) and Teva Pharmaceutical (TEVA). Look at the SEC filing for confirmation (SEC.gov).
Source: Soros at Davos (CNBC)