Rogers Calls Fannie, Freddie Rescue 'Disaster' (Transcript)
July 14 (Bloomberg) -- Jim Rogers, chairman of Rogers Holdings, talks with Bloomberg's Carol Massar and Ellen Braitman from Singapore about the U.S. government's efforts to bolster Fannie Mae and Freddie Mae, the outlook for financial stocks, the dollar and commodities, and his investment strategy.
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
CAROL MASSAR, BLOOMBERG NEWS: Our next guest is the man who correctly predicted oil would reach $100 and gold $1,000. Here to join us with his outlook on energy, commodities, the dollar, the credit crisis, everything under the sun, including Fannie and Freddie, Jim Rogers, Chairman of Rogers Holdings. He comes to us from Singapore this morning.
Jim, good morning. So, what do you think about what the government is doing or proposing to do with Fannie and Freddie?
JIM ROGERS, CHAIRMAN OF ROGERS HOLDINGS: It's an unmitigated disaster. I don't know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae. I mean, what is this?
If that is what they are doing with our tax money, why don't they ask us? I didn't say, take my money, my tax money, and buy Fannie Mae. Give it back to us if that's what they are going to do with it.
And what are they doing guaranteeing their debt? The people who bought debt in Fannie Mae and Freddie Mac can read a prospectus. They can read it. It says it is not guaranteed by the government. Anybody who can read a balance sheet knew that both of those companies were a sham and they had problems.
Now, we have to bail out the Japanese? The Japanese owe hundreds of millions of dollars of this stuff and so we are going to bail out the Japanese and the Chinese and everybody else in the world? What is this?
And it ruins the Federal Reserve's balance sheet, and it makes the dollar more vulnerable, and it increases inflation, and it drives down the dollar. Other than that, good morning.
MASSAR: Good morning. All right, so where do you think - all right. You have been very critical of the Fed and certainly some of the government moves here, Jim. So where do you think this is all leading us to?
ROGERS: It is leading to more and more rampant inflation. It is leading to a decline and the eventual demise of the United States dollar. And the FDIC this weekend used 10 percent of its assets to bail out a bank.
Anybody who has got money at Bank of America better make sure they don't have over $100,000, because 10 percent of the FDIC's assets just went there this morning.
MASSAR: Jim, a viewer e-mailed me last night, actually e-mailed Bloomberg, happens to be a mortgage banker and his question was for you. He is wondering if you covered your shorts Friday, especially in Fannie Mae and Freddie Mac?
ROGERS: No, I have not covered my shorts. Obviously I should have, because you know they already are up 50 percent or something since then. If they go up a whole lot more, I will short more. They are basically insolvent. There is no question about that.
The government itself last week said the extra, the pool last week said that they are insolvent. Anybody who can read a balance sheet knows they are insolvent. So if they go up a lot, I will short more. If they go down, I will probably cover.
ELLEN BREITMAN, BLOOMBERG NEWS: Jim, it is Ellen Breitman here. I am looking at the Treasuries, which were little changed this morning. Now you have got the 10-year down 9/32s. Why are we not seeing more of a move in the Treasury market this morning? What should the investor reaction be on that front?
ROGERS: Well, I am short U.S. government bonds and I am short the long Treasuries, so for full disclosure, I think that most people are just sitting here confused and probably relieved at the moment and trying to figure out how this is going to work out.
But let me tell you how it is going to work out. It is going to mean the debt of the United States is going to be downgraded over the next few years. It means that U.S. government bonds are now going to become suspect down the line.
MASSAR: I want to go back to financials. So you mentioned Fannie and Freddie. Are you shorting most of the big names, be it Citigroup, Merrill Lynch? I mean, a lot of them are going to be reporting earnings this week or starting to, Jim. Do you not like any of the names here?
ROGERS: Carol, since I have been coming on your program, I have been short all the investment banks. I have been short Citibank, I have been short Fannie Mae, I am still short every one of them. I will cover them all some day, but some day is a long way from now.
If they rally, I will short some more. But no, why would anybody cover any of these stocks? They are all essentially in terrible, terrible financial shape.
MASSAR: You don't think we are getting to the end of this mess?
ROGERS: Well, Mr. Paulson said we have been coming to the end of it every month for the last year. I don't happen to agree with him.
MASSAR: What is your -
ROGERS: And Mr. Bernanke has also said we are coming to the end of it. Mr. Bernanke under oath told us before Congress that the housing crisis, that there was no problem in housing two years ago and three years ago. Mr. Bernanke under oath has been telling us for a while that everything is okay.
MASSAR: Jim, did we - I want to go back to Fannie and Freddie, if I may. I know I am jumping around here because there is a lot going on. I mean, did we have a choice though with Fannie and Freddie? I mean, they are responsible for what happened, the mortgages that are out there. I mean, could we have let them fail?
ROGERS: Carol, I know you always like to print money, you always like to bail out everybody in sight. But that is not the way capitalism is supposed to work. That is socialism for the rich. That is what that is. Welfare for the rich. Of course not.
Now, if we don't let Fannie Mae go broke and we are not, obviously, what is going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What is going to happen three years from now when the situation is much, much, much worse? Then somewhere along the line, the market is going to hit us and we are not going to be able to do anything if we keep bailing out everybody in sight.
The Federal Reserve has already extended its balance sheet so desperately that they have trouble.
MASSAR: So very critical, Jim, of what the government is proposing to do with Fannie and Freddie. But yet, investors seem to like it and you have got the dollar moving up, so there seems to be a lot of support out there.
ROGERS: Well, of course investors in Fannie Mae and Freddie Mac like it. The companies were going to go bankrupt if they hadn't stepped in to do something and they should have gone bankrupt, all the mistakes they made.
I would like to know why the people at Fannie Mae aren't in jail right now, the people at Freddie Mac aren't in jail.
MASSAR: But why is - Jim, why is the -
ROGERS: You know, a lot of people have gone to jail for fraud and scams.
MASSAR: Jim, why is the dollar up, though, this morning?
ROGERS: Well, I suspect it is because there is so many shorts. Everybody is negative on the dollar, including me, and whenever you have everybody on the same side of a trade, something comes along and you have a big rally. The shorts are covered. It is the way markets have worked for a few hundred years.
MASSAR: Are you still negative on the dollar at this point?
ROGERS: I just said everybody in the world is negative on the dollar, including me. So it is bound to rally, it could rally for another few weeks, few months. How do I know? I hope that if it does rally more this year that I will use that rally to get out of the rest of my U.S. dollars. The dollar is a terribly flawed currency, Carol.
MASSAR: Yes. And that is based on what - what about your expectations for interest rates around the world? I mean, there has been a bit of a debate now about what the Fed may do, but you have certainly seen governments around the globe raising rates to combat inflation. What is your outlook there?
ROGERS: Well, you are going to see higher rates. I am short United States government bonds, long bonds, because rates are going to go higher. The U.S. government says there is no inflation, but the rest - everybody else in the world knows there is inflation.
Most governments don't lie about it any more. They know they cannot lie about them. Inflation - the U.K. just a few minutes ago said they have the highest rate of inflation since 1986. Everybody does, and the U.K. is one of the governments that usually lies about it. So if they are saying it is that bad, you know it is really bad.
MASSAR: So, Jim, how do you think this is all going to be playing out? I mean, you are over there in Singapore, you are watching this. I mean, what is your expectations, first of all, for the U.S. and the economy here in the next, what, six to 12 months - and the markets, if you will?
ROGERS: Well, the United States is in a recession. It is going to be the worst recession we have had in a long time, perhaps since the Second World War, because the federal government keeps making mistakes. The central bank makes mistakes, the Treasury makes mistakes. Everybody keeps making mistakes.
It is going to be one of the worst. It is like Arthur Burns in the 1970s, he kept making mistakes and he had a horrible time. It's like the Bank of Japan in the 1990s, they kept making mistakes and in Japan, they still call up the '90s the ?Lost Decade.?
BREITMAN: Jim, it is Ellen Breitman again. I want to ask you a question I asked an earlier guest today, which is, when you look back over your entire career, how do this play out in terms of the level of history that is being made, Friday, Sunday, and today?
ROGERS: Well, it's a very good question and the answer, I don't think I want to give you the answer because you will probably cut me off the air. What is happening here is they are ruining the value of the U.S. dollar. They are ruining the Federal Reserve. They are ruining what has been one of the greatest economies in the world, bailing out everybody in sight.
This is a disaster for America. This is a disaster for the world. Ben Bernanke and Paulson are bailing out their friends on Wall Street, but there are 300 million of us Americans who are going to have to pay for this and there are six billion people in the world who are going to have to pay for this. And they are doing it with no authorization from anybody.
Paul Volcker said a couple of weeks ago that perhaps what the Federal Reserve has done is illegal. I would submit it is illegal what they have done and what they are doing. They are saddling all of us with hundreds of billions of dollars of debt that they have no authorization to do.
MASSAR: So, Jim, if this had been another industry, take your pick, I mean, look at the woes that we have seen in the housing industry, you don't think the government would have jumped in so quickly to help out?
ROGERS: Well, I have no idea. They jumped in once before and helped out Pfizer 25 years ago, 30 years ago. Who knows? Conceivably, it depends on how many votes they think they can get. If they can buy some votes and right now, they are trying to make all their friends on Wall Street happy. But that is not good for anybody else but Wall Street.
Ben Bernanke picks up the phone every time Wall Street calls. Paulson picks up the phone every time Wall Street calls. You don't see any firemen out there in Nebraska calling him up. You don't see anybody out there with a real job. You don't see any schoolteachers in Oregon calling him up. If they did, they wouldn't take the call.
But all the schoolteachers in Oregon know that prices are going through the roof. It is very difficult for them to stay alive these days and hold body and soul together. They don't care. They take the calls from Bear Stearns. They take the call from Lehman Brothers.
MASSAR: Jim, you know, you sound so negative here. I mean, in terms of the U.S., anything you like within the U.S. market?
ROGERS: Sure. There are plenty of things that you can like in the United States market. I own - I have been buying airline stocks recently. I haven't bought any in the U.S. at the moment, but I have been buying airlines around the world. I have been buying agriculture.
I mean, America is the largest producer of agricultural goods in the world. I love agriculture, I love farmers. I wish everybody else did too.
MASSAR: Speaking of farmers, we know you love commodities. What about this commodity boom? I think recently we talked to you and or I was reading something and it said that we are in the fourth inning of a baseball game. Still there, in your view?
ROGERS: Probably around the fourth inning, that sounds good enough. Maybe the fourth and a half, maybe the top or the bottom of the fifth, something like that. The commodities bull market has a long way to go.
There are going to be corrections along the way, Carol, there always are, but no, nobody has discovered any major oil field in over 40 years. There just aren't any supplies of anything.
MASSAR: Jim, what do you make though of the arguments out there about demand destruction, about a weakening global economy and that is going to start to bring down commodities. I know you talk about some near-term corrections.
So, anything out there though that will substantially drag down commodities, in your view?
ROGERS: Well, recession, if the world goes into recession, of course it is going to drag down the demand. But remember, Carol, in the 1970s we had one of the worst decades in a long time for the economy. And oil went up ten times, the oil commodity, we had one of the great bull markets of all time in commodities because supply went down faster than demand and that is what is happening now too.
Oil can go down - you know the bull market in oil started in 1999. Three times since 1999, oil has gone down over 40 percent. It wasn't the end of the bull market. It just scared the socks off everybody, including me. That can happen again, but it is not the end of the bull market.
MASSAR: So, any pullbacks for a buying opportunity, in your view, whether it is oil, whether it is grains, whether it is base metals?
ROGERS: Yes, of course. Everything. Base metals have already corrected a lot. Wheat has corrected a lot. Sugar has corrected a lot. Get yourself some sugar, take it home, take it home from your Bloomberg.
MASSAR: Let's get back to our guest, Jim Rogers, chairman of Rogers Holdings. So, Jim, got a favorite commodity at this point?
ROGERS: No, nothing really pops into my mind. Agriculture still, some of the base metals I am looking at. Some of the base metals, Dr. Nickel and Dr. Zinc saw the recession coming long before Dr. Bernanke did and they realized that there was problems. They are down 60 percent or something.
So, I am contemplating, only contemplating and only noticing that they are down. Some of these things are down a good amount.
MASSAR: What are you waiting for to buy in?
ROGERS: I don't know, some kind of signal that they have made a bottom. Some kind of panic selling, for instance. And also watching Taiwan and China on the same basis, if we could have panic selling in an old-fashioned selling climax in Taiwan or China, I would buy both of them as well.
MASSAR: You know, the CSI 300 is down 45 percent this year, the second worst performing major benchmark tracked by Bloomberg. Why are we seeing such a pullback?
ROGERS: Well, the market went up a huge amount in the previous two years and the Chinese government acknowledges that there is terrible inflation in China. They are doing their best to cut it back. They have raised interest rates seven times in the last year. They have raised reserve requirements 15 times.
The United States central bank has cut interest rates seven times. They have thrown gasoline onto a raging inflationary fire.
MASSAR: Are you selling any of your Chinese holdings?
ROGERS: No, never sold any Chinese shares. Own them all. I hope that my daughters own them some day. I think China has got a fabulous future. Selling China in 2008 would be like selling America in 1908, just as we were on the verge of becoming a fantastic, great success story.
MASSAR: So, Jim, I am guessing, and tell me if I am wrong, though, as a pullback in Chinese shares, do you see that as a buying opportunity?
ROGERS: Well, if they have a selling climax, yes. And probably the best opportunity will be Taiwan, because for the first time in my life, there is going to be peace in Taiwan. And so that whole economy, that whole nation is now going to have a dramatic change and it will be great for the world, but certainly for Taiwan.
BREITMAN: Jim, it is Ellen again. I am curious in terms of commodities, just switching back there. So much government intervention when it comes to the financials, do you think we could see any kind of government intervention when it comes to commodities or trying to talk down some of these prices?
ROGERS: Of course we can. Do you remember 1929? They passed the Smoot-Hawley Act, which led to the Great Depression, even though 1,000 economists went on record as saying you are making a terrible mistake. Politicians did it anyway.
Remember the weapons of mass destruction? We invaded Iraq because of weapons of mass destruction. Of course, politicians can do all kinds of simple, stupid things.
The IPO market has been driven out of America now because American politicians passed some absurd laws. They will probably do something. It will drive the commodities trade outside the U.S.
You know, the United States has dominated the commodities business for over 100 years. If the Congress of the United States is about to give the world on a silver platter and say; ?Here, take what you want. We are going to give you the commodities-trading business, it is going to leave America.?
At the same time, the politicians are saying pension funds can't invest in commodities. University endowments cannot invest in commodities. At a time where there is terrible inflation, they are going to say to the pension plans, you cannot protect yourselves from inflation, too bad. And I'd do that.
MASSAR: Jim, just 30-
ROGERS: It is insane, but they will do it.
MASSAR: 30 seconds left here. I know you mentioned you are kind of looking, eyeing at base metals. Anything else you think investors should be looking at, just kind of keeping on their radar, just quickly if you could?
ROGERS: Agriculture, agriculture. You should be buying agriculture. I am buying agriculture.
MASSAR: All right. We are going to leave it on that note. Jim, as always, good to get some time with you. Have a great day. Jim Rogers of Rogers Holdings.
***END OF TRANSCRIPT***
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apEivHJhf1vE
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tjhinkh: Jim still short on US financial. He looking to buy Chinese/Taiwan shares if there is a panic selling. He is looking at 1 to 6 months timeframe.
Jim also short on US bonds and Treasuries.
Friday, July 18, 2008
Gold And Oil For Soros
Gold And Oil For Soros
Wealth destruction took a day off Wednesday as illiquidity surfaced as a top issue at a major investment bank.
The market rallied in the wake of a lower oil price, Federal Reserve Chairman Ben Bernanke promised that Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) were solvent, and new rules began to lean against avaricious short-sellers of bank shares.
Undoubtedly, this spike in bank shares was due in large part to hedge funds, which began covering some of the massive short positions they've built up over the past 18 months. For example, billionaire George Soros--Croesus was told--has covered much of his shorts in financial stocks. Why chance another public policy move by regulators to shut off this automatic feeding trough?
Soros finally shorted oil at $137 a barrel and put on a long position in gold; he expects to see gold hold its ground even if oil continues to decline. In fact, the gold bug clique believes in a consistent 10-to-1 ratio for gold and oil. It holds that either gold will rise to 10 times a barrel of oil ($1,350 an ounce) or oil will fall to $96 a barrel--one-tenth the present market price of gold. Croesus was told Tuesday that statistics spanning many decades support, on average, this 10-to-1 ratio
http://www.forbes.com/opinions/2008/07/16/soros-gold-merrill-oped-cx_rl_0717croesus.html
http://www.forbes.com/video/?video=fvn/streettalk/bl_st_soros050708b&partner=contextual
tjhinkh: Soros short Oil at US$137 and long gold. He also mentioned about the bear market rally in May 2008 (refer second link). That was a correct call.
Wealth destruction took a day off Wednesday as illiquidity surfaced as a top issue at a major investment bank.
The market rallied in the wake of a lower oil price, Federal Reserve Chairman Ben Bernanke promised that Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) were solvent, and new rules began to lean against avaricious short-sellers of bank shares.
Undoubtedly, this spike in bank shares was due in large part to hedge funds, which began covering some of the massive short positions they've built up over the past 18 months. For example, billionaire George Soros--Croesus was told--has covered much of his shorts in financial stocks. Why chance another public policy move by regulators to shut off this automatic feeding trough?
Soros finally shorted oil at $137 a barrel and put on a long position in gold; he expects to see gold hold its ground even if oil continues to decline. In fact, the gold bug clique believes in a consistent 10-to-1 ratio for gold and oil. It holds that either gold will rise to 10 times a barrel of oil ($1,350 an ounce) or oil will fall to $96 a barrel--one-tenth the present market price of gold. Croesus was told Tuesday that statistics spanning many decades support, on average, this 10-to-1 ratio
http://www.forbes.com/opinions/2008/07/16/soros-gold-merrill-oped-cx_rl_0717croesus.html
http://www.forbes.com/video/?video=fvn/streettalk/bl_st_soros050708b&partner=contextual
tjhinkh: Soros short Oil at US$137 and long gold. He also mentioned about the bear market rally in May 2008 (refer second link). That was a correct call.
Wednesday, July 16, 2008
Jim Rogers: Here's What I'm Buying
Jim Rogers: Here's What I'm Buying
Jim Rogers has a sector pick -- and a major pan: The CEO of Rogers Holdings told CNBC that the government should not bail out Fannie Mae or Freddie Mac, but should let them fail.
The Treasury Department and Federal Reserve said they would bolster Fannie and Freddie with vast infusions of aid. But Rogers believes that will only prolong economic weakness, increase the budget deficit -- and destroy the effectiveness of such rescue measures when they're really needed.
"In two years or three years, when six or eight other [institutions] are failing, America won't have any more bullets left," he said.
Rogers noted that he's "been short Fannie Mae since I came here three years ago or four years ago," adding that "I'm short lots of banks."
Recommendations:
So what does the investor like?
Rogers said he was investing in airlines, which have seen tough times due to soaring fuel costs -- and fears of further increases in oil prices.
"I am buying airlines. If you fly a lot, you'll see that you can't get a seat, the rates are going higher. The capacity is going down and the demand is still there," Rogers said.
Disclosures:
Disclosures information was not immediately available for Rogers or for his firm.
http://www.cnbc.com/id/25689691
tjhinkh: Jim also mention that Asia stock market is going through what looks like a climax selling.
Jim Rogers has a sector pick -- and a major pan: The CEO of Rogers Holdings told CNBC that the government should not bail out Fannie Mae or Freddie Mac, but should let them fail.
The Treasury Department and Federal Reserve said they would bolster Fannie and Freddie with vast infusions of aid. But Rogers believes that will only prolong economic weakness, increase the budget deficit -- and destroy the effectiveness of such rescue measures when they're really needed.
"In two years or three years, when six or eight other [institutions] are failing, America won't have any more bullets left," he said.
Rogers noted that he's "been short Fannie Mae since I came here three years ago or four years ago," adding that "I'm short lots of banks."
Recommendations:
So what does the investor like?
Rogers said he was investing in airlines, which have seen tough times due to soaring fuel costs -- and fears of further increases in oil prices.
"I am buying airlines. If you fly a lot, you'll see that you can't get a seat, the rates are going higher. The capacity is going down and the demand is still there," Rogers said.
Disclosures:
Disclosures information was not immediately available for Rogers or for his firm.
http://www.cnbc.com/id/25689691
tjhinkh: Jim also mention that Asia stock market is going through what looks like a climax selling.
Tuesday, January 22, 2008
The worst market crisis in 60 yearsBy George Soros
The worst market crisis in 60 yearsBy George Soros
Published: January 22 2008 19:57 Last updated: January 22 2008 19:57
The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.
However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.
Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.
Video: George Soros at DavosThe financier speaks to Chrystia Freeland, the FT’s US managing editorEvery time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism.
Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.
Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.
The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.
Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market.
Investment banks’ commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of institutions than ever before. That made the crisis more severe than any since the second world war.
Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.
Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.
The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.
The writer is chairman of Soros Fund Management
http://www.ft.com/cms/s/0/24f73610-c91e-11dc-9807-000077b07658.html?nclick_check=1
Published: January 22 2008 19:57 Last updated: January 22 2008 19:57
The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.
However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.
Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.
Video: George Soros at DavosThe financier speaks to Chrystia Freeland, the FT’s US managing editorEvery time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism.
Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.
Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.
The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.
Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market.
Investment banks’ commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of institutions than ever before. That made the crisis more severe than any since the second world war.
Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.
Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.
The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.
The writer is chairman of Soros Fund Management
http://www.ft.com/cms/s/0/24f73610-c91e-11dc-9807-000077b07658.html?nclick_check=1
Sunday, January 13, 2008
Rogers Says U.S. to Have Worst Recession `in a While'
Rogers Says U.S. to Have Worst Recession `in a While'
By Saijel Kishan and Mark Barton
Jan. 7 (Bloomberg) -- The U.S. economy is heading for a recession that will be the worst ``in a while'' and investors should sell the dollar as global currencies weaken, investor Jim Rogers said.
``It's going to be one of the worst recessions we've had in a while because we had so many excesses going into it,'' Rogers, chairman of New York-based Rogers Holdings, said in a Bloomberg Television interview today from Singapore. ``It's going to be bad for all of us as currencies come under more and more stress and we have more inflation in the world.''
The U.S. and U.K. governments have been ``lying'' about inflation, Rogers said, adding that he's has been selling their respective currencies.
The dollar dropped for a second straight year in 2007, falling 8.3 percent on a trade-weighted basis as the collapse of the U.S. subprime-mortgage market prompted the Federal Reserve to cut interest rates three times. Rising energy and food prices have pushed up inflation in the U.S. and Europe.
``I hope by the end of this year all of my assets will be out of the U.S. dollar,'' Rogers said. ``The dollar is a currency that's terribly flawed and it's going to be under duress for many years to come.''
Rogers said in a Nov. 15 interview that investors should sell the dollar and that he expects to be rid of all his U.S. currency assets this year. He reiterated today that he's also buying the Chinese yuan and the Swiss franc as other currencies weaken.
Agricultural Commodities
Rogers, whose commodities index has more than quadrupled since 1998 when it was started, said that agriculture may be the best investment among commodities in the event of a world recession.
``If you're worried about a recession, you might think about buying agricultural commodities,'' Rogers said. ``I suspect agriculture is going to do well no matter what happens to the world economy.''
A decline in crop yields because of droughts from Ukraine to Australia, combined with rising demand for biofuels, has spurred a rally in agricultural commodities that sent wheat to a record last month and corn and soybeans to multi-year highs.
Cotton, coffee and sugar may gain the most, he said, adding that he wouldn't buy crude oil after prices rose above $100 a barrel last week, or industrial metals such as tin or lead because a slowing U.S. economy would curb demand.
Commodities are in their seventh year of gains because of a lack of investment in production capacity and rising demand from expanding economies in Asia. They have also gained as the U.S. dollar fell, making resources such as oil and wheat, which are denominated in the U.S. currency, cheaper for foreign buyers.
Rogers said commodities will gain even if the dollar declines, because of supply shortages.
``All commodities are going to be in much shorter supply for another decade,'' he said. ``So even if the dollar goes up, commodities are going to go higher.''
To contact the reporters on this story: Mark Barton in London at barton1@bloomberg.net ; Saijel Kishan in London at skishan@bloomberg.net
Last Updated: January 7, 2008 12:55 EST
http://www.bloomberg.com/apps/news?pid=20601087&sid=ayq29JCsf65c&refer=home
By Saijel Kishan and Mark Barton
Jan. 7 (Bloomberg) -- The U.S. economy is heading for a recession that will be the worst ``in a while'' and investors should sell the dollar as global currencies weaken, investor Jim Rogers said.
``It's going to be one of the worst recessions we've had in a while because we had so many excesses going into it,'' Rogers, chairman of New York-based Rogers Holdings, said in a Bloomberg Television interview today from Singapore. ``It's going to be bad for all of us as currencies come under more and more stress and we have more inflation in the world.''
The U.S. and U.K. governments have been ``lying'' about inflation, Rogers said, adding that he's has been selling their respective currencies.
The dollar dropped for a second straight year in 2007, falling 8.3 percent on a trade-weighted basis as the collapse of the U.S. subprime-mortgage market prompted the Federal Reserve to cut interest rates three times. Rising energy and food prices have pushed up inflation in the U.S. and Europe.
``I hope by the end of this year all of my assets will be out of the U.S. dollar,'' Rogers said. ``The dollar is a currency that's terribly flawed and it's going to be under duress for many years to come.''
Rogers said in a Nov. 15 interview that investors should sell the dollar and that he expects to be rid of all his U.S. currency assets this year. He reiterated today that he's also buying the Chinese yuan and the Swiss franc as other currencies weaken.
Agricultural Commodities
Rogers, whose commodities index has more than quadrupled since 1998 when it was started, said that agriculture may be the best investment among commodities in the event of a world recession.
``If you're worried about a recession, you might think about buying agricultural commodities,'' Rogers said. ``I suspect agriculture is going to do well no matter what happens to the world economy.''
A decline in crop yields because of droughts from Ukraine to Australia, combined with rising demand for biofuels, has spurred a rally in agricultural commodities that sent wheat to a record last month and corn and soybeans to multi-year highs.
Cotton, coffee and sugar may gain the most, he said, adding that he wouldn't buy crude oil after prices rose above $100 a barrel last week, or industrial metals such as tin or lead because a slowing U.S. economy would curb demand.
Commodities are in their seventh year of gains because of a lack of investment in production capacity and rising demand from expanding economies in Asia. They have also gained as the U.S. dollar fell, making resources such as oil and wheat, which are denominated in the U.S. currency, cheaper for foreign buyers.
Rogers said commodities will gain even if the dollar declines, because of supply shortages.
``All commodities are going to be in much shorter supply for another decade,'' he said. ``So even if the dollar goes up, commodities are going to go higher.''
To contact the reporters on this story: Mark Barton in London at barton1@bloomberg.net ; Saijel Kishan in London at skishan@bloomberg.net
Last Updated: January 7, 2008 12:55 EST
http://www.bloomberg.com/apps/news?pid=20601087&sid=ayq29JCsf65c&refer=home
Wednesday, November 21, 2007
Investor Jim Rogers says the buck stops here
Investor Jim Rogers says the buck stops here
Mon Nov 12, 2007 5:00am EST
By Tom Miles
HONG KONG (Reuters) - The U.S. dollar is sinking fast and investors wanting to stay afloat should clamber into a raft of commodities and benefit from the rising tide of China's economic boom, investment guru Jim Rogers said on Monday.
"I'm hoping to get all my assets out of U.S. dollars in the next few weeks or months," he told reporters in Hong Kong via a video link from Singapore. "But that will include going into commodities because that is a way out of U.S. dollars."
Rogers, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s, said the U.S. economy was already in recession, or soon would be, and the U.S. dollar would continue to have problems for years to come.
But that would not be enough to dent demand from Asia.
"Asia's now becoming its own entity. Asia is growing on its own. If you look around Asia you'll see that they're much more independent of the United States and will continue to get more independent."
Driving this bull market would be 3 billion people -- in China, India, Pakistan and Vietnam -- whose economies were at a subsistence level during the last commodities boom.
"Now, look around you. Everybody in Asia wants to live the way we live in America," said Rogers, who was launching Barclays' (BARC.L: Quote, Profile, Research) Global Commodities Delta Fund, which tracks his Rogers International Commodity Index (.RICIX: Quote, Profile, Research), in Hong Kong.
He said he'd recently been buying agricultural commodities, which he favored over metals such as tin (MSN3: Quote, Profile, Research) and lead (MPB3: Quote, Profile, Research), which were close to all-time highs.
"I think there are great opportunities in agriculture ... like sugar, which is something like 80 percent below it's all-time high, or cotton." he said.
OIL DOUBLES, CHINA BUBBLES
Another long-term winner will be crude oil because, he said, demand continues to grow but new supplies are scarce.
"Over the course of the bull market, oil has to go to $150, it has to go to $200, because nobody's been discovering oil."
But Rogers, who described himself as the world's worst short-term trader, said all big rallies suffered occasional setbacks on the way up and he wasn't making any short-term forecasts about the oil price.
And bear markets catch support on the way down, which he said might give the dollar a few footholds as it falls.
"Everyone's extremely pessimistic about the dollar, so we're bound to have a rally soon," said Rogers.
But longer-term, the picture was clear and the best currencies to buy would be the Swiss franc, Japanese yen and Chinese yuan. He said the Chinese government should make the yuan fully convertible as soon as possible.
"I would certainly suspect by 2010, if not by the Olympics next year," he said. "It's causing bubbles within the Chinese economy. It's causing inflation within China."
But he had little love for the Hong Kong dollar, which he said should disappear as soon as the yuan becomes convertible.
"If I were the Hong Kong government, I would abolish the Hong Kong dollar. There's no reason for the Hong Kong dollar. It's a historical anomaly."
(Editing by Anne Marie Roantree)
http://www.reuters.com/article/ousiv/idUSHKG9614920071112?sp=true
Mon Nov 12, 2007 5:00am EST
By Tom Miles
HONG KONG (Reuters) - The U.S. dollar is sinking fast and investors wanting to stay afloat should clamber into a raft of commodities and benefit from the rising tide of China's economic boom, investment guru Jim Rogers said on Monday.
"I'm hoping to get all my assets out of U.S. dollars in the next few weeks or months," he told reporters in Hong Kong via a video link from Singapore. "But that will include going into commodities because that is a way out of U.S. dollars."
Rogers, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s, said the U.S. economy was already in recession, or soon would be, and the U.S. dollar would continue to have problems for years to come.
But that would not be enough to dent demand from Asia.
"Asia's now becoming its own entity. Asia is growing on its own. If you look around Asia you'll see that they're much more independent of the United States and will continue to get more independent."
Driving this bull market would be 3 billion people -- in China, India, Pakistan and Vietnam -- whose economies were at a subsistence level during the last commodities boom.
"Now, look around you. Everybody in Asia wants to live the way we live in America," said Rogers, who was launching Barclays' (BARC.L: Quote, Profile, Research) Global Commodities Delta Fund, which tracks his Rogers International Commodity Index (.RICIX: Quote, Profile, Research), in Hong Kong.
He said he'd recently been buying agricultural commodities, which he favored over metals such as tin (MSN3: Quote, Profile, Research) and lead (MPB3: Quote, Profile, Research), which were close to all-time highs.
"I think there are great opportunities in agriculture ... like sugar, which is something like 80 percent below it's all-time high, or cotton." he said.
OIL DOUBLES, CHINA BUBBLES
Another long-term winner will be crude oil because, he said, demand continues to grow but new supplies are scarce.
"Over the course of the bull market, oil has to go to $150, it has to go to $200, because nobody's been discovering oil."
But Rogers, who described himself as the world's worst short-term trader, said all big rallies suffered occasional setbacks on the way up and he wasn't making any short-term forecasts about the oil price.
And bear markets catch support on the way down, which he said might give the dollar a few footholds as it falls.
"Everyone's extremely pessimistic about the dollar, so we're bound to have a rally soon," said Rogers.
But longer-term, the picture was clear and the best currencies to buy would be the Swiss franc, Japanese yen and Chinese yuan. He said the Chinese government should make the yuan fully convertible as soon as possible.
"I would certainly suspect by 2010, if not by the Olympics next year," he said. "It's causing bubbles within the Chinese economy. It's causing inflation within China."
But he had little love for the Hong Kong dollar, which he said should disappear as soon as the yuan becomes convertible.
"If I were the Hong Kong government, I would abolish the Hong Kong dollar. There's no reason for the Hong Kong dollar. It's a historical anomaly."
(Editing by Anne Marie Roantree)
http://www.reuters.com/article/ousiv/idUSHKG9614920071112?sp=true
Freddie, Fannie Shares Will Continue to Slide, Jim Rogers Says
Freddie, Fannie Shares Will Continue to Slide, Jim Rogers Says
By Jeff Kearns and Brian Sullivan
Nov. 20 (Bloomberg) -- Freddie Mac, which today dropped the most ever after posting a record loss, and rival mortgage lender Fannie Mae will continue to tumble because of bad home loans, investor Jim Rogers said.
``I'm still short those companies, they both have a long way to go as far as I'm concerned,'' Rogers said in an interview. ``Neither one has a clue what's on their balance sheets.''
Freddie Mac, the second-largest U.S. mortgage company, warned of a possible cut in the dividend and the need for additional capital. The worst housing slump in 16 years caused ``significant deterioration'' in the third quarter that will continue through year-end, Freddie Mac said after reporting a net loss of $2.02 billion, or $3.29 a share, three times what some analysts estimated.
Fannie Mae spokesman Brian Faith declined to comment on Rogers. Freddie Mac spokesman Michael Cosgrove didn't immediately respond to a request for comment.
Rogers, chairman of New York-based Beeland Interests Inc., also said he is still shorting shares of investment banks and Citigroup Inc., the largest U.S. bank by assets.
``There are huge numbers of writedowns still coming,'' Rogers said.
Rogers, who predicted the start of the global commodities rally in 1999, advised in a Nov. 5 interview with Bloomberg that investors should avoid financial stocks. In March 2006, he said Fannie Mae shares would decline.
Financial stocks in the Standard & Poor's 500 Index have tumbled 22 percent this year, the most among 10 industries. The index fell 2.9 percent to 384.50, the lowest since October 2005, as of 1:13 p.m. in New York.
Rogers co-founded the Quantum Hedge Fund with George Soros in the 1970s. He traveled the world by motorcycle and car in the 1990s researching investment ideas for his books, which include ``Adventure Capitalist'' and ``Hot Commodities.''
To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net ; Brian Sullivan in New York at bsullivan@bloomberg.net . Last Updated: November 20, 2007 13:21 EST
http://www.bloomberg.com/apps/news?pid=20601213&refer=home&sid=a2udgQaBPhYc
By Jeff Kearns and Brian Sullivan
Nov. 20 (Bloomberg) -- Freddie Mac, which today dropped the most ever after posting a record loss, and rival mortgage lender Fannie Mae will continue to tumble because of bad home loans, investor Jim Rogers said.
``I'm still short those companies, they both have a long way to go as far as I'm concerned,'' Rogers said in an interview. ``Neither one has a clue what's on their balance sheets.''
Freddie Mac, the second-largest U.S. mortgage company, warned of a possible cut in the dividend and the need for additional capital. The worst housing slump in 16 years caused ``significant deterioration'' in the third quarter that will continue through year-end, Freddie Mac said after reporting a net loss of $2.02 billion, or $3.29 a share, three times what some analysts estimated.
Fannie Mae spokesman Brian Faith declined to comment on Rogers. Freddie Mac spokesman Michael Cosgrove didn't immediately respond to a request for comment.
Rogers, chairman of New York-based Beeland Interests Inc., also said he is still shorting shares of investment banks and Citigroup Inc., the largest U.S. bank by assets.
``There are huge numbers of writedowns still coming,'' Rogers said.
Rogers, who predicted the start of the global commodities rally in 1999, advised in a Nov. 5 interview with Bloomberg that investors should avoid financial stocks. In March 2006, he said Fannie Mae shares would decline.
Financial stocks in the Standard & Poor's 500 Index have tumbled 22 percent this year, the most among 10 industries. The index fell 2.9 percent to 384.50, the lowest since October 2005, as of 1:13 p.m. in New York.
Rogers co-founded the Quantum Hedge Fund with George Soros in the 1970s. He traveled the world by motorcycle and car in the 1990s researching investment ideas for his books, which include ``Adventure Capitalist'' and ``Hot Commodities.''
To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net ; Brian Sullivan in New York at bsullivan@bloomberg.net . Last Updated: November 20, 2007 13:21 EST
http://www.bloomberg.com/apps/news?pid=20601213&refer=home&sid=a2udgQaBPhYc
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