Legendary investor George Soros says the stock market is trapped in a Fed-fueled liquidity bubble

• The stock market's rally is trapped in a Federal Reserve-formed liquidity bubble, the billionaire investor George Soros said in an interview with the Italian newspaper La Repubblica.
• Valuations rest on hopes for another fiscal stimulus bill and President Donald Trump announcing a coronavirus vaccine before Election Day, Soros said.
• The legendary investor advised investors to assume fallibility and reflexivity in markets, as participants' worldviews "are always incomplete and distorted."
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The Federal Reserve's monetary relief flooded markets with liquidity, but prices now rest on shaky foundations, according to the billionaire investor George Soros.

Stocks' lofty valuations are underpinned by hopes for another round of fiscal stimulus and the expectation that President Donald Trump will announce a reliable coronavirus vaccine before the presidential election, Soros said in an interview with the Italian newspaper La Repubblica published on Tuesday. The next spending bill would need to eclipse the $2.2 trillion Cares Act to meet investors' expectations, he added.

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Concerns about the Fed's actions forming a market bubble "hit the mark," Soros said, adding that the central bank had been "more successful" than Trump in buttressing markets.

While Soros no longer plays the market, he shared some tips for those navigating the volatile landscape. The interplay between thought and reality is crucial, Soros said, as the market acts as "a testing ground" for balancing the two. Investors must assume fallibility in the market, as participants' worldviews "are always incomplete and distorted," he said.

Reflexivity, or the assumption that "distorted views lead to inappropriate actions," is Soros' second key to success, he said.

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Soros said he sees the US as better equipped than Europe to handle the coronavirus pandemic's economic fallout, despite Trump's leadership remaining "very dangerous." The president is "fighting for his survival" and "will do everything to stay in power," the investor said.

Still, Soros said he expected Trump's time in office to be "a transitory phenomenon, hopefully ending in November."

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