Rogers Bets Against U.S. Investment Banks, Housing (Update1)

Rogers Bets Against U.S. Investment Banks, Housing (Update1)
By Saijel Kishan and David Clarke
Oct. 31 (Bloomberg) -- Jim Rogers, co-founder of the Quantum Hedge Fund with billionaire George Soros, boosted his bets against U.S. securities firms because of their salary ``excesses'' and money-losing investments.
Rogers said he increased his year-old short positions in the past six weeks in U.S. investment banks, using exchange-traded funds and bets against individual companies he declined to name. Stocks in the industry, which pays too much in bonuses, may fall as much as 70 percent in a bear market, he said.
``You see 29-year-olds on Wall Street making $10 million to $20 million a year, and they think it's normal,'' Rogers, 65, said in an interview in London today. ``There have been lots of excesses,'' said Rogers, chairman of Beeland Interests Inc.
The top five U.S. securities firms will probably earn a combined $29.3 billion this year, according to analysts surveyed by Bloomberg, breaking a three-year record streak after Merrill Lynch & Co. reported a $2.2 billion third-quarter loss. Goldman Sachs Group Inc., Morgan Stanley, Merrill, Lehman Brothers Holdings Inc. and Bear Stearns Cos. earned $30.7 billion last year, three times more than their profit in 2002.
Goldman Sachs, Wall Street's most-profitable securities firm, said Sept. 20 that it set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of the year, topping the record amount for all of last year.
A month later, Merrill Lynch reported its biggest quarterly loss amid $8.4 billion of writedowns for subprime mortgages, asset-backed bonds and bad loans. The 12-member AMEX Securities Broker/Dealer Index has fallen 13 percent since the start of June, while the Standard & Poor's 500 Index was little changed.
`Bad Paper'
``Who knows how bad the balance sheets are,'' Rogers said. ``They took on gigantic amounts of bad paper.''
Money managers such as Rogers take short positions by selling borrowed shares. They aim to buy them back at a lower price and pocket the difference.
Rogers said he made the investments using his own money. He declined to say how much he oversees.
The slump in the U.S. housing market ``still has a long way to go'' before recovering, he said. ``Market excesses don't clear themselves out in just four or five months; they take years.''
Sales of previously owned homes in the U.S. dropped 8 percent in September to 5.04 million, the lowest since record-keeping began in 1999, the National Association of Realtors said Oct. 24. Rogers said he started shorting U.S. home stocks three years ago.
Still, Rogers said he managed to offload his six-story townhouse in New York, which he put up for sale last year, for more than his asking price of $15 million. He declined to disclose the selling prices for the Riverside Drive property because the sale is still being processed.
`Doing Well'
``Some part of the U.S. housing market are doing well and some aren't,'' he said.
Rogers is best known for being a commodities bull since 1999, before the market started to rally in 2001. His Rogers International Commodity Index has more than quadrupled since its start in 1998, while the Dow Jones Industrial Index gained 56 percent.
``History shows that the bull market in commodities will last a long time,'' Rogers said last year. He predicted in 2005 that commodities will rally at least until 2014 and perhaps until 2022.
Rogers also has taken high-profile investment stances that didn't pan out. He said last year, for example, that India was a losing investment idea.
``I just don't think it's going to work,'' he said in a Nov. 1, 2006, interview. ``As far as investing in India as a whole, you will get wind in your face.''
Since that time, India's main stock index, the BSE Sensex, has climbed 52 percent, reaching a record high yesterday.
To contact the reporter on this story: Saijel Kishan in London at skishan@bloomberg.net
Last Updated: October 31, 2007 12:57 EDT

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