Soros Explains The Credit Crisis
Michael Maiello, 05.27.08, 1:07 PM ET
The New Paradigm for Financial Markets: The Credit Crisis of 2008 And What It Means by George Soros ($23, Public Affairs, 2008).
With his near real-time critique of the credit crisis, George Soros has saved financial historians a lot of work. If he's right, the summer of 2007 and all of 2008 will be the topic of many an academic paper, much like how Ben Bernanke made a career out of studying the Great Depression. Soros sees this as a monumental time. It's not just a bursting housing bubble, he says. It's the end of a quarter-century of credit-driven economic expansion. We're in a whole new world.
Up until August 2007, Soros had mostly farmed out management of his hedge fund to outsiders so that he could devote his time to philanthropy, philosophy and politics. The first troubles in subprime spurred Soros back into the markets. This time his goal wasn't so much to find the next billion-dollar trade but to preserve the wealth of his foundations.
This market has been so tough that it's vexed even Soros. His book offers a broad trading diary from January 2008 through the end of March, when The New Paradigm went to the printer. Soros' investment plan was to "short U.S. and European stocks, U.S. 10-year government bonds and the U.S. dollar; long Chinese, Indian and Gulf States stocks and non-U.S. currencies."
On March 10, he noted that commodities were stronger than he thought they'd be, that the Federal Reserve acted more aggressively than he'd anticipated and that the Indian and Chinese stock markets, not quite decoupled from the U.S. economy, took major hits. On March 16, he observed that "The panic is palpable," and bought into ailing Bear Stearns (nyse: BSC - news - people ), expecting some return on a Federal Reserve brokered auction of the company. He got burned admitting that, "We forgot to take into account that Bear is disliked by the establishment, and the Fed would use the occasion to deal with a moral hazard by punishing shareholders."
For those who might be confused by Soros' analysis there, Bill Miller, manager of the Legg Mason Value Trust explains: "Bear had been very aggressive in seizing the capital of Askin Capital in 1994 and precipitating its failure. In 1998 it opted out of rescuing Long Term Capital Management. That's the kind of thing where, if you're Merrill, Citigroup or the Fed, you remember." Miller also bought shares in Bear, for the same reasons Soros did.
The trading diary ends with Soros losing money. While he wishes he could have reached a more triumphant ending, he notes that the result "may be more appropriate for the purposes of the book."
Indeed, it is. While Soros is investing actively again, he's really using the market as a laboratory where he can test his philosophical ideas, especially the notion of reflexivity--that no market participant can ever have perfect knowledge because their beliefs, and the beliefs of others, effect and distort the markets. Because investors tend to herd--they buy things that are going up and sell things that are going down--markets are constantly beset by bubbles. Irrationality reigns supreme.
Soros was once a student of the philosopher Karl Popper, who spent most of his time studying science. Popper came to the conclusion that all scientific statements must be falsifiable and that no scientific theory is ever absolutely true. They are just able to withstand people's attempts to prove them wrong. So long as a theory isn't falsified, it's as good as true. But we're 100% certain about nothing.
The turmoils we see in the markets reflect the turmoils of human thought. The implications of this go far beyond investing. It means that market fundamentalism, the idea that markets are always self-correcting and don't need regulation, is just wrong. Markets are flawed because they reflect human delusions of certainty. Banks make money by issuing loans. If they want to make more money, they need to issue more loans. Absent regulation to stop them, the banks will issue new loans in new ways. They rationalize the risk away by building models based on past experience. The risk models say that the loans are safe. The flaw? All of these new loans fuel an unprecedented housing bubble that the risk models, which are backward looking, can't account for. All of these new loans also create new levels of debt, also unprecedented in history. So the risk models, once again, miss them.
It's time, says Soros, to bring back some of the regulations that were put in place after the Great Depression and then eroded in the decades that followed. Leverage and credit creation, he says, need to be reigned in. Regulators need to start looking to control asset bubbles as they manage the economy for the more usual goals of full employment and price stability.
Soros sees a new economy, indeed a new world order emerging. If the U.S. leaves its fate to the whims of flawed markets, it will lose much of its worldwide influence. Without the dollar as the reserve currency of first choice, the U.S. really has nothing but military supremacy in order to defend its position in the world, and even that, says Soros, has been undermined by the debacle in Iraq.
Soros' message for citizens, investors, politicians and regulators is to approach this new economy and new political order with humility. Be flexible and never dogmatic. Strive to find truth while realizing it's unattainable. It's false certainty that trips us up, in both investing and life.
http://www.forbes.com/opinions/2008/05/27/credit-crisis-soros-oped-books-cz_mm_0527bookreview.html?feed=rss_opinions&partner=lingospot
28/08/2008 tjhinkh:
Have a look at the last paragraph. It's worth to take note.
Thursday, August 28, 2008
Monday, August 25, 2008
India has most beautiful women & worst Politicains
India has most beautiful women & worst politicians
2008-08-23 10:15:00
Early last year, when the United States' economy was getting overheated and signs of recession were showing, investing legend Jim Rogers did the unthinkable: He sold his Manhattan home, bought a house in upmarket Singapore and settled there with his family. Yes, when you have lots of money, you have the options of settling down anywhere you want, agrees Rogers, who became a Wall Street legend when he and George Soros founded the Quantum Fund.
During the next 10 years, the portfolio gained 4200%, making him the best known commodities investor in the world. In 1998, he launched the Rogers International Commodity Index, a composite, US dollar-based, total return index, designed to meet the need for consistent investing in a broad-based international vehicle. The Index represents the value of a basket of commodities consumed in the global economy, ranging from agricultural to energy to metal products.
These days Rogers, an avid watcher of global economy, is mixing work with relaxation in Singapore. “I am keenly watching countries like China and India, where there are great opportunities. This is going to be Asia's century. But I must tell you China's growth will be the most fascinating. I am just upset with India because the government there wants to ban commodity Futures trading. It is crazy,” he says. Rogers settles for an exclusive interview with Commodity Online Group Editorial Director George Iype.
Excerpts from the interview:
Let us start with your favourite subject, commodities. You have always been bullish on commodities. What is happening with commodities these days?
• Well, commodities are in a boom market these days. The bull market in commodities has a long way to go. Some commodities are consolidating right now, in anticipation for the next move up. Some like crude oil are in all time high. You know in commodities market, some go up and some come down. But I tell you the boom market in commodities is a long way to go.
How long?
• I don't know; it could be 10 to 20 years. But I tell you it is going to be exciting years ahead for commodities because of several reasons. Lots of lands are getting cultivated across the world. People are getting serious about the opportunities in the agricultural market. Something good is going to happen in the boom market. And the boom market will end some day. But that some day is a long way from now. If there is a world-wide economic breakdown, it will affect the markets. But even then commodities are going to be a better place to be in than stocks and bonds.
Where is crude oil going these days?
• Oh, crude oil is going crazy high. You know if somebody discovers some new crude oil fields, that would be good for the world. But the crude oil price is going to go very high, and will remain high for the next few years until new supplies come in. The fact is that there is no new crude oil in the world now.
You mean to say crude oil price is going up thanks to shortage of supply. Or is it because of speculation?
• If it is because of speculation, then when the oil price is too high, the people with oil will drown the speculators. You know it is just a stupid accusation. If people have oil, do you think speculators could have driven the prices too high like this? No. People are spreading all kinds of speculative stories that oil price is going up thanks to speculation. The truth of the matter is that there is so much shortage of oil in the world. The shortage of oil in physical market is higher than in the Futures market.
That is the reason for the high crude oil prices. Those who blame speculators for high oil prices, I would like to remind them that in Futures market every time somebody buys the oil, every time the speculators buy oil, the speculators also sell the oil. The US government data says that there are more speculators on the sell side than on the buy side in crude oil these days.
Speculators are getting killed these days; they are losing money heavily these days. They are selling in panic these days. But they are right in selling because there is no oil to hold on. I wish someone saves the speculators who are selling. The fact is that there is no oil for delivery and speculators know that they are not sitting on oil.
What is your take on the global economy? US is under recession spell and the global financial markets are in jitters these days.
• The US has been in recession for some time now. You know this is the worst recession that we have had may be since the World War II. And it is going to continue for sometime now. Recession has already affected some parts of global economy. It will continue to affect more parts of global economy. America is in a mess. American government keeps making mistakes. The US Federal Reserve has been printing money, and has been committing serious mistakes. This is going to make the spell of recession more longer. And this is going to the longest recession that we ever had.
High oil prices, inflation, food prices etc have hit countries like India very hard. How should counties like India tackle the situation?
• Inflation affects everyone. Not just India. We pay the same price for copper. Copper price is the same in Australia, Germany and the US and India. India is not getting any worse than other countries. Except for the fact that the Indian government spends periodically more money in controlling inflation. The problem with India is that your politicians are worse than American politicians. You know Indian politicians believe and argue that the cause for inflation is commodities trading. How absurd is that.
Recently India banned Futures trading in some commodities like rice, wheat, rubber, potato etc to control price rise and inflation.
• It is the same tactic that politicians have done for hundreds of years everywhere in the world. Politicians would blame for anything wrong on three groups of people. They blame financiers/financial types. They blame foreigners: It is always good to blame foreigners. And they blame the Press. They blame you guys for commodity inflation in India. If the Press is not writing about inflation, we would not have a problem, politicians would say. It is absolutely insanity.
India banned Futures trading in some commodities without any logic or reasoning and study. And it has not done anything good for commodities in India or in the rest of the world. The commodity prices are still up and up. India needs to understand that there is no easy solution to high prices. As prices go up, people use less of anything and people would continue to produce more and that has always been there in the boom market. I read that India produces lots of foodgrains and do not have storage facilities and tonnes of rice and wheat are destroyed in public sector storage facilities.
How sad it is. It is terrible thing to happen. So let India do things to protect commodities rather than ban Futures trading in them. By banning commodities in boom market, the Indian government is making things worse. Look at China. The Chinese instituted price controls. Price controls have been around for thousands of years. They always make things worse. If you tell somebody that rice is only Rs 2, you have no other ways.
If you tell a farmer that you can sell rice only for Rs 2, he will tell I am not going to produce any more rice. Farming is hard work. I cannot make any money with price controls by producing and selling rice for Rs 2. So then you have less rice and shortage of rice. Even Romans had price controls, it never worked. So the Indian government is making things worse for India. It has been making things worse for the people in the last 50 or 60 years.
Some politicians in India blame commodity Futures trading as the reason for price rise; inflation is a big political issue in India.
•By banning commodity Futures, food prices would not go down. Because people sell in any prices they want to in Futures. So banning Futures is a senseless decision. In commodities market, we know what the price of wheat is. There is a public price for wheat according to demand and supply world over. So India banning Futures does not have any effect on wheat market. Indian government instead of being transparent and serious is creating lots of black market by banning Futures trading. It is going to make lots of people desperate. Politicians have been doing the same thing for many years, all over the world. Not just in India. It is worst for all of us.
What is the reason for the global food crisis now?
• The number of hectares of global wheat farming has declined over the years. The inventories of food are in the lowers ebb now in the last 50-60 years. In the last 30 years, farming has been in a terrible state. There is a terrible shortage of farmers now across the world. Young people do not go for farming. They study computers and get jobs. All the farmers in the world are old now. They are all men. Young people do not go to farms these days because farming is a hard physical job.
Seeds, fertilizers, tractors…there is a shortage for these stuff. We have a shortage of even tractor tyres now. That is the reason why we have shortage of food and there is a food crisis. It is not again speculators who have created the food shortage. Speculators take delivery of wheat. They don't hoard wheat; it is the government that is hoarding wheat. It is the governments that are making the prices higher. Argentina says you cannot export wheat. A lot of counties say you cannot export wheat. The governments should call farmers to produce more and invite more people to farming by offering incentives.
When farming is coming down, governments like in India are trying to introduce price control mechanisms and bring down prices, and ban Futures. So things are getting worse. Things will be bad if it goes like this way. The food crisis will get worse, if countries act like this way. There will come a time when people will not get enough food. They are going to starve. The world is going through several weather problems. There will be droughts. So things are getting worse for farmers. I promise politicians who rule us are not going to go to the fields and cultivate. Do you think your politicians will go to the fields and work hard till evening to raise more rice? No way.
US President George Bush recently commented that it is the large population in countries like India and China that are causing the food shortage and crisis.
• I don't agree. Look how things are blown out of proportion by politicians. Why can't the people in Asia eat and live happily? Is it the prerogative of the US that only they should eat? There are three billion people in Asia. Thirty yeas ago Mao Tse-Tung was still running China. Thirty years ago Indira Gandhi was running India. Vietnam was destroyed. Now there are three billion people in Asia, working hard, saving and investing. They want to eat more and they should. There is nothing wrong in that. Why should the developed world say that you should not eat? That is discrimination. I hope Asia continues to consume more so that their standards of living would go higher. All the western politicians who say that Asia should not eat more, let them go to the fields and work hard and produce more wheat, rice and maize so that food prices do not go higher.
Do you think India and China are driving the global commodities prices?
• Not just India and China. Most countries are driving the global commodities prices. America consumes lots of sugar, wheat and petrol. Europe does, everybody does. If America stops using petrol, there will be lots of petrol available in the world. If Europe stops eating wheat, there will be lots of wheat available. So what I want to say is that everyone is driving the global commodities prices. Everyone in the world is driving the demand for everything.
Which is the commodity you are most bullish on these days? Gold or Crude Oil?
• I am not particularly bullish on a commodity. I am in fact bullish on all commodities. I am not a good market timer. I am a very good or a very bad sure time trader. So I have no idea. I own all the commodities. I go to commodities based on historic fundamentals.
You recently said that it is the right time to invest in agri-commodities. Is there great investing opportunities in agri-commodities?
• I have bought into agri-commodities recently. I am an admirer of agri-commodities, and I hope there are great investing opportunities there. I make plenty of mistakes. But I try to buy commodities cheap. And agri-commodities are cheap and thus hold great investing potential.
What do you think of Indian stock market? Is it overheated and overpriced?
• It was certainly overheated, and that is why it has come down crashing recently. I am not a good judge of the Indian stock markets. Sometimes I get the Indian stock markets exactly right. Sometimes I get it exactly wrong. So I am not a good judge. So, I would not buy Indian stocks because it is too high. And your government continues to do stupid things like don't trade in commodities. So if I am a foreigner I cannot invest in Indian commodities. It is sad. Vietnam recently said all the problems is because of importing gold. So don't import gold. So Vietnamese cannot import gold.
Most astonishing thing. So governments keep doing these kinds of things. Vietnam said their problems are because people have been buying gold. Come on, how crazy can you go? Don't worry; politicians can go crazy at any lengths. You know America said there were weapons of mass destruction in Iraq. There were not. They spent hundreds of thousands of billions and killed tens of thousands of people to find those weapons. So politicians do a lot of crazy things.
Among the three emerging nations, Russia, India and China, which one would you rate first as an investment destination?
• China, of course.
Why not India? Can you compare China with India?
• Indians have the worst bureaucracy in the world. India learned bureaucracy from the British. Indian bureaucracy has remained stagnant. Just stagnant. They do what they think only. There is no proper education, no infrastructure in India. It is the most wonderful country in the world. I admire India's diversity. I tell my friends, if you can only visit one country in your life time, go to India. India is an amazing country.
But as a place for investment? Oh, no, I would think twice. Even Indians who have been doing great business elsewhere in the world, and when they go back to India to do business, it has not been a good experience for them. Many of them get out of the business and go back to other countries to do business.
You have driven through India?
• I have driven through India a couple of times extensively. In 1988 and 2001. It was spectacular; it was wonderful. I loved it. I love traveling across any place. You learn a lot about that place while traveling. The highway from Kolkata to Mumbai should be one of the greatest highways in the world. But the Indian infrastructure development is so bad, that it took seven days for me to cover Mumbai and Kolkata highway. But everyday in India was an adventure, which I loved. Yes, it is a great place to travel. But if you looking for efficiency and investment, it is not the right place yet.
So it is better to go to China?
• Yeah, in China, a truck driver travels 70 km an hour average. China has the best roads in the world. On the Mumbai-Kolkata road, a truck driver goes 20 km an hour. That shows the efficiency between the nations. To cross state boarders in India, it is a nightmare. In China, it is all great. In China, they do what they say. In India, the government says lots of things, and they do not do it. Yes, smart Indians make lots of money. There are several success stories in India. India has the most beautiful women in the world, but has the worst politicians and bureaucrats.
http://www.commodityonline.com/news/India-has-most-beautiful-women--worst-netas-11296-2-1.html
25/08/2008
tjhinkh: Politicin do the most absurd things. They do not know market.
But what they do ipact many people. According to Jim Indian politician is the
worst.
2008-08-23 10:15:00
Early last year, when the United States' economy was getting overheated and signs of recession were showing, investing legend Jim Rogers did the unthinkable: He sold his Manhattan home, bought a house in upmarket Singapore and settled there with his family. Yes, when you have lots of money, you have the options of settling down anywhere you want, agrees Rogers, who became a Wall Street legend when he and George Soros founded the Quantum Fund.
During the next 10 years, the portfolio gained 4200%, making him the best known commodities investor in the world. In 1998, he launched the Rogers International Commodity Index, a composite, US dollar-based, total return index, designed to meet the need for consistent investing in a broad-based international vehicle. The Index represents the value of a basket of commodities consumed in the global economy, ranging from agricultural to energy to metal products.
These days Rogers, an avid watcher of global economy, is mixing work with relaxation in Singapore. “I am keenly watching countries like China and India, where there are great opportunities. This is going to be Asia's century. But I must tell you China's growth will be the most fascinating. I am just upset with India because the government there wants to ban commodity Futures trading. It is crazy,” he says. Rogers settles for an exclusive interview with Commodity Online Group Editorial Director George Iype.
Excerpts from the interview:
Let us start with your favourite subject, commodities. You have always been bullish on commodities. What is happening with commodities these days?
• Well, commodities are in a boom market these days. The bull market in commodities has a long way to go. Some commodities are consolidating right now, in anticipation for the next move up. Some like crude oil are in all time high. You know in commodities market, some go up and some come down. But I tell you the boom market in commodities is a long way to go.
How long?
• I don't know; it could be 10 to 20 years. But I tell you it is going to be exciting years ahead for commodities because of several reasons. Lots of lands are getting cultivated across the world. People are getting serious about the opportunities in the agricultural market. Something good is going to happen in the boom market. And the boom market will end some day. But that some day is a long way from now. If there is a world-wide economic breakdown, it will affect the markets. But even then commodities are going to be a better place to be in than stocks and bonds.
Where is crude oil going these days?
• Oh, crude oil is going crazy high. You know if somebody discovers some new crude oil fields, that would be good for the world. But the crude oil price is going to go very high, and will remain high for the next few years until new supplies come in. The fact is that there is no new crude oil in the world now.
You mean to say crude oil price is going up thanks to shortage of supply. Or is it because of speculation?
• If it is because of speculation, then when the oil price is too high, the people with oil will drown the speculators. You know it is just a stupid accusation. If people have oil, do you think speculators could have driven the prices too high like this? No. People are spreading all kinds of speculative stories that oil price is going up thanks to speculation. The truth of the matter is that there is so much shortage of oil in the world. The shortage of oil in physical market is higher than in the Futures market.
That is the reason for the high crude oil prices. Those who blame speculators for high oil prices, I would like to remind them that in Futures market every time somebody buys the oil, every time the speculators buy oil, the speculators also sell the oil. The US government data says that there are more speculators on the sell side than on the buy side in crude oil these days.
Speculators are getting killed these days; they are losing money heavily these days. They are selling in panic these days. But they are right in selling because there is no oil to hold on. I wish someone saves the speculators who are selling. The fact is that there is no oil for delivery and speculators know that they are not sitting on oil.
What is your take on the global economy? US is under recession spell and the global financial markets are in jitters these days.
• The US has been in recession for some time now. You know this is the worst recession that we have had may be since the World War II. And it is going to continue for sometime now. Recession has already affected some parts of global economy. It will continue to affect more parts of global economy. America is in a mess. American government keeps making mistakes. The US Federal Reserve has been printing money, and has been committing serious mistakes. This is going to make the spell of recession more longer. And this is going to the longest recession that we ever had.
High oil prices, inflation, food prices etc have hit countries like India very hard. How should counties like India tackle the situation?
• Inflation affects everyone. Not just India. We pay the same price for copper. Copper price is the same in Australia, Germany and the US and India. India is not getting any worse than other countries. Except for the fact that the Indian government spends periodically more money in controlling inflation. The problem with India is that your politicians are worse than American politicians. You know Indian politicians believe and argue that the cause for inflation is commodities trading. How absurd is that.
Recently India banned Futures trading in some commodities like rice, wheat, rubber, potato etc to control price rise and inflation.
• It is the same tactic that politicians have done for hundreds of years everywhere in the world. Politicians would blame for anything wrong on three groups of people. They blame financiers/financial types. They blame foreigners: It is always good to blame foreigners. And they blame the Press. They blame you guys for commodity inflation in India. If the Press is not writing about inflation, we would not have a problem, politicians would say. It is absolutely insanity.
India banned Futures trading in some commodities without any logic or reasoning and study. And it has not done anything good for commodities in India or in the rest of the world. The commodity prices are still up and up. India needs to understand that there is no easy solution to high prices. As prices go up, people use less of anything and people would continue to produce more and that has always been there in the boom market. I read that India produces lots of foodgrains and do not have storage facilities and tonnes of rice and wheat are destroyed in public sector storage facilities.
How sad it is. It is terrible thing to happen. So let India do things to protect commodities rather than ban Futures trading in them. By banning commodities in boom market, the Indian government is making things worse. Look at China. The Chinese instituted price controls. Price controls have been around for thousands of years. They always make things worse. If you tell somebody that rice is only Rs 2, you have no other ways.
If you tell a farmer that you can sell rice only for Rs 2, he will tell I am not going to produce any more rice. Farming is hard work. I cannot make any money with price controls by producing and selling rice for Rs 2. So then you have less rice and shortage of rice. Even Romans had price controls, it never worked. So the Indian government is making things worse for India. It has been making things worse for the people in the last 50 or 60 years.
Some politicians in India blame commodity Futures trading as the reason for price rise; inflation is a big political issue in India.
•By banning commodity Futures, food prices would not go down. Because people sell in any prices they want to in Futures. So banning Futures is a senseless decision. In commodities market, we know what the price of wheat is. There is a public price for wheat according to demand and supply world over. So India banning Futures does not have any effect on wheat market. Indian government instead of being transparent and serious is creating lots of black market by banning Futures trading. It is going to make lots of people desperate. Politicians have been doing the same thing for many years, all over the world. Not just in India. It is worst for all of us.
What is the reason for the global food crisis now?
• The number of hectares of global wheat farming has declined over the years. The inventories of food are in the lowers ebb now in the last 50-60 years. In the last 30 years, farming has been in a terrible state. There is a terrible shortage of farmers now across the world. Young people do not go for farming. They study computers and get jobs. All the farmers in the world are old now. They are all men. Young people do not go to farms these days because farming is a hard physical job.
Seeds, fertilizers, tractors…there is a shortage for these stuff. We have a shortage of even tractor tyres now. That is the reason why we have shortage of food and there is a food crisis. It is not again speculators who have created the food shortage. Speculators take delivery of wheat. They don't hoard wheat; it is the government that is hoarding wheat. It is the governments that are making the prices higher. Argentina says you cannot export wheat. A lot of counties say you cannot export wheat. The governments should call farmers to produce more and invite more people to farming by offering incentives.
When farming is coming down, governments like in India are trying to introduce price control mechanisms and bring down prices, and ban Futures. So things are getting worse. Things will be bad if it goes like this way. The food crisis will get worse, if countries act like this way. There will come a time when people will not get enough food. They are going to starve. The world is going through several weather problems. There will be droughts. So things are getting worse for farmers. I promise politicians who rule us are not going to go to the fields and cultivate. Do you think your politicians will go to the fields and work hard till evening to raise more rice? No way.
US President George Bush recently commented that it is the large population in countries like India and China that are causing the food shortage and crisis.
• I don't agree. Look how things are blown out of proportion by politicians. Why can't the people in Asia eat and live happily? Is it the prerogative of the US that only they should eat? There are three billion people in Asia. Thirty yeas ago Mao Tse-Tung was still running China. Thirty years ago Indira Gandhi was running India. Vietnam was destroyed. Now there are three billion people in Asia, working hard, saving and investing. They want to eat more and they should. There is nothing wrong in that. Why should the developed world say that you should not eat? That is discrimination. I hope Asia continues to consume more so that their standards of living would go higher. All the western politicians who say that Asia should not eat more, let them go to the fields and work hard and produce more wheat, rice and maize so that food prices do not go higher.
Do you think India and China are driving the global commodities prices?
• Not just India and China. Most countries are driving the global commodities prices. America consumes lots of sugar, wheat and petrol. Europe does, everybody does. If America stops using petrol, there will be lots of petrol available in the world. If Europe stops eating wheat, there will be lots of wheat available. So what I want to say is that everyone is driving the global commodities prices. Everyone in the world is driving the demand for everything.
Which is the commodity you are most bullish on these days? Gold or Crude Oil?
• I am not particularly bullish on a commodity. I am in fact bullish on all commodities. I am not a good market timer. I am a very good or a very bad sure time trader. So I have no idea. I own all the commodities. I go to commodities based on historic fundamentals.
You recently said that it is the right time to invest in agri-commodities. Is there great investing opportunities in agri-commodities?
• I have bought into agri-commodities recently. I am an admirer of agri-commodities, and I hope there are great investing opportunities there. I make plenty of mistakes. But I try to buy commodities cheap. And agri-commodities are cheap and thus hold great investing potential.
What do you think of Indian stock market? Is it overheated and overpriced?
• It was certainly overheated, and that is why it has come down crashing recently. I am not a good judge of the Indian stock markets. Sometimes I get the Indian stock markets exactly right. Sometimes I get it exactly wrong. So I am not a good judge. So, I would not buy Indian stocks because it is too high. And your government continues to do stupid things like don't trade in commodities. So if I am a foreigner I cannot invest in Indian commodities. It is sad. Vietnam recently said all the problems is because of importing gold. So don't import gold. So Vietnamese cannot import gold.
Most astonishing thing. So governments keep doing these kinds of things. Vietnam said their problems are because people have been buying gold. Come on, how crazy can you go? Don't worry; politicians can go crazy at any lengths. You know America said there were weapons of mass destruction in Iraq. There were not. They spent hundreds of thousands of billions and killed tens of thousands of people to find those weapons. So politicians do a lot of crazy things.
Among the three emerging nations, Russia, India and China, which one would you rate first as an investment destination?
• China, of course.
Why not India? Can you compare China with India?
• Indians have the worst bureaucracy in the world. India learned bureaucracy from the British. Indian bureaucracy has remained stagnant. Just stagnant. They do what they think only. There is no proper education, no infrastructure in India. It is the most wonderful country in the world. I admire India's diversity. I tell my friends, if you can only visit one country in your life time, go to India. India is an amazing country.
But as a place for investment? Oh, no, I would think twice. Even Indians who have been doing great business elsewhere in the world, and when they go back to India to do business, it has not been a good experience for them. Many of them get out of the business and go back to other countries to do business.
You have driven through India?
• I have driven through India a couple of times extensively. In 1988 and 2001. It was spectacular; it was wonderful. I loved it. I love traveling across any place. You learn a lot about that place while traveling. The highway from Kolkata to Mumbai should be one of the greatest highways in the world. But the Indian infrastructure development is so bad, that it took seven days for me to cover Mumbai and Kolkata highway. But everyday in India was an adventure, which I loved. Yes, it is a great place to travel. But if you looking for efficiency and investment, it is not the right place yet.
So it is better to go to China?
• Yeah, in China, a truck driver travels 70 km an hour average. China has the best roads in the world. On the Mumbai-Kolkata road, a truck driver goes 20 km an hour. That shows the efficiency between the nations. To cross state boarders in India, it is a nightmare. In China, it is all great. In China, they do what they say. In India, the government says lots of things, and they do not do it. Yes, smart Indians make lots of money. There are several success stories in India. India has the most beautiful women in the world, but has the worst politicians and bureaucrats.
http://www.commodityonline.com/news/India-has-most-beautiful-women--worst-netas-11296-2-1.html
25/08/2008
tjhinkh: Politicin do the most absurd things. They do not know market.
But what they do ipact many people. According to Jim Indian politician is the
worst.
Thursday, August 21, 2008
Jim Rogers Continues to View China as the World’s Best Long-Term Profit Play
Wednesday, August 20th, 2008
Exclusive Interview: Jim Rogers Continues to View China as the World’s Best Long-Term Profit Play
[The Second of Two Parts.]Keith Fitz-GeraldInvestment DirectorMoney Morning/The Money Map Report
VANCOUVER, B.C. - Despite its many problems, China remains such a strong long-term profit play that giving up on that country now would be like selling all your U.S. stocks at the start of the 1900s - before America created massive wealth by evolving into a world superpower, global investing guru Jim Rogers said in an exclusive interview with Money Morning.
"I have never sold any of my Chinese companies," Rogers said. "You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% - so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908."
During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:
The anti-travel policies China has put in place to reduce gridlock and slash pollution during the Summer Olympic Games may actually have created a "bottom" in China stocks - possibly creating a great entry point for long-term investors.
The 34-day worldwide Olympic torch relay leading up to the opening ceremonies likely re-awakened China’s deeply felt nationalism - which will be key as that country strives to build demand for its domestically produced products.
And noted that the country must still deal with such problems as pollution, rising inflation and an overheated economy.
A long-time China bull, Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.
It was after Rogers "retired" in 1980 that the investing masses first really got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the recently released "A Bull in China." He also made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent to everyone else, and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.
Rogers’ candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are some of the highlights from the exclusive interview we had with the author and investor, who now makes his regular home in Singapore:
Keith Fitz-Gerald (Q): There’s a lot of talk that the Chinese will use the Olympics to launch a new wave of nationalism and to move ahead. Are the Olympic Games as relevant as some people think?
Jim Rogers: They’ve already got tremendous nationalism. But the international reactions about Tibet and the Olympic torchbearers re-awakened it.
FPRIVATE
And the politicians, of course, need it because they’ve got their own problems with inflation and overheating and [pollution and] the rest of it. So, like politicians throughout history, they fan it - do their best to say: Hell, it’s not our problem. It’s the evil farmers. It’s the French. See that store over there: It’s their fault. It’s the Americans."
So that is happening, anyway.
As far as the Olympics themselves, they’re irrelevant.
America had the Olympics in ‘96 and it had no effect on the American economy - before or after. Some people in Atlanta were affected before and after. And some people who were involved with the Olympics were affected before and after.
America at that time had 270 million people. China’s got five times as many people, and it’s a much bigger country geographically.
Sydney, Australia had the 2000 Olympics. It had virtually no effect on the Sydney, or on the Australian economy - even though Australia had 18 million people. It’s tiny … nothing. Yes, it had an effect on some people.
Greece, in 2004, had the Olympics. You haven’t heard stories of a major collapse or a major revival of Greece in 2005, because the fact is that the Games didn’t have much of an effect - not a noticeable effect, anyway. It had spot effects only, so I ignore the Olympics as far as the Chinese economy - and its stock market - is concerned.
(Q): Are you still bullish on China?
Rogers: Oh, yeah. I never sold anything in China. In fact, I bought more. I bought Chinese Airlines (PINK: CHAWF) last week. I flew one coming here. Maybe I made a mistake [with the investment], because it was emptier than I thought it would be.
(Q): Any thoughts why?
Rogers: One thing, you know, is that China’s made it extremely difficult to get a visa right now. In the past, it’s been hard to get a seat because Chinese airlines were so full. On this flight there were empty seats.
That brought home to me that they are cutting back enormously on visas right now. Discouraging travel, trying to clean the air, trying to protect against somebody blowing up the Forbidden City, et cetera. So the fact that planes are empty right now may be smarter than I thought.
Maybe I did get the bottom on the airlines, because if they are going to reissue the visas again, after all this, after September [after the Olympic Games have concluded], then the planes are going to fill up pretty quickly again. I would have picked the stock up at a bottom.
(Q): Yes.
Rogers: Anyway I’m still around China. I have never sold any of my Chinese companies. You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% - so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.
News and Related Story Links:
Money Morning Exclusive Jim Rogers Interview From Vancouver (Part I): Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years.
Money Morning Exclusive Jim Rogers Interview From Singapore (Part I): Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve.
Money Morning Exclusive Interview From Singapore (Part II): Jim Rogers: China’s Economic Advance is All But Unstoppable
Wikipedia: The Forbidden City.
Official Web Site: Beijing Summer Olympics.
Wikipedia: The Great Depression.
http://www.moneymorning.com/2008/08/20/jim-rogers-interview/
21/08/2008
Jim talks about the Olympics. Olympics has no effect on the economy.
For this Olympics, market id down due to Chinese governement policy of reducing half the cars
on the road. Reduce Visa numbers to curb the number of people visiting China. Jim thought
that this might be the bottom in Chinese Shares.
Exclusive Interview: Jim Rogers Continues to View China as the World’s Best Long-Term Profit Play
[The Second of Two Parts.]Keith Fitz-GeraldInvestment DirectorMoney Morning/The Money Map Report
VANCOUVER, B.C. - Despite its many problems, China remains such a strong long-term profit play that giving up on that country now would be like selling all your U.S. stocks at the start of the 1900s - before America created massive wealth by evolving into a world superpower, global investing guru Jim Rogers said in an exclusive interview with Money Morning.
"I have never sold any of my Chinese companies," Rogers said. "You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% - so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908."
During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:
The anti-travel policies China has put in place to reduce gridlock and slash pollution during the Summer Olympic Games may actually have created a "bottom" in China stocks - possibly creating a great entry point for long-term investors.
The 34-day worldwide Olympic torch relay leading up to the opening ceremonies likely re-awakened China’s deeply felt nationalism - which will be key as that country strives to build demand for its domestically produced products.
And noted that the country must still deal with such problems as pollution, rising inflation and an overheated economy.
A long-time China bull, Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.
It was after Rogers "retired" in 1980 that the investing masses first really got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the recently released "A Bull in China." He also made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent to everyone else, and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.
Rogers’ candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are some of the highlights from the exclusive interview we had with the author and investor, who now makes his regular home in Singapore:
Keith Fitz-Gerald (Q): There’s a lot of talk that the Chinese will use the Olympics to launch a new wave of nationalism and to move ahead. Are the Olympic Games as relevant as some people think?
Jim Rogers: They’ve already got tremendous nationalism. But the international reactions about Tibet and the Olympic torchbearers re-awakened it.
FPRIVATE
And the politicians, of course, need it because they’ve got their own problems with inflation and overheating and [pollution and] the rest of it. So, like politicians throughout history, they fan it - do their best to say: Hell, it’s not our problem. It’s the evil farmers. It’s the French. See that store over there: It’s their fault. It’s the Americans."
So that is happening, anyway.
As far as the Olympics themselves, they’re irrelevant.
America had the Olympics in ‘96 and it had no effect on the American economy - before or after. Some people in Atlanta were affected before and after. And some people who were involved with the Olympics were affected before and after.
America at that time had 270 million people. China’s got five times as many people, and it’s a much bigger country geographically.
Sydney, Australia had the 2000 Olympics. It had virtually no effect on the Sydney, or on the Australian economy - even though Australia had 18 million people. It’s tiny … nothing. Yes, it had an effect on some people.
Greece, in 2004, had the Olympics. You haven’t heard stories of a major collapse or a major revival of Greece in 2005, because the fact is that the Games didn’t have much of an effect - not a noticeable effect, anyway. It had spot effects only, so I ignore the Olympics as far as the Chinese economy - and its stock market - is concerned.
(Q): Are you still bullish on China?
Rogers: Oh, yeah. I never sold anything in China. In fact, I bought more. I bought Chinese Airlines (PINK: CHAWF) last week. I flew one coming here. Maybe I made a mistake [with the investment], because it was emptier than I thought it would be.
(Q): Any thoughts why?
Rogers: One thing, you know, is that China’s made it extremely difficult to get a visa right now. In the past, it’s been hard to get a seat because Chinese airlines were so full. On this flight there were empty seats.
That brought home to me that they are cutting back enormously on visas right now. Discouraging travel, trying to clean the air, trying to protect against somebody blowing up the Forbidden City, et cetera. So the fact that planes are empty right now may be smarter than I thought.
Maybe I did get the bottom on the airlines, because if they are going to reissue the visas again, after all this, after September [after the Olympic Games have concluded], then the planes are going to fill up pretty quickly again. I would have picked the stock up at a bottom.
(Q): Yes.
Rogers: Anyway I’m still around China. I have never sold any of my Chinese companies. You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% - so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.
News and Related Story Links:
Money Morning Exclusive Jim Rogers Interview From Vancouver (Part I): Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years.
Money Morning Exclusive Jim Rogers Interview From Singapore (Part I): Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve.
Money Morning Exclusive Interview From Singapore (Part II): Jim Rogers: China’s Economic Advance is All But Unstoppable
Wikipedia: The Forbidden City.
Official Web Site: Beijing Summer Olympics.
Wikipedia: The Great Depression.
http://www.moneymorning.com/2008/08/20/jim-rogers-interview/
21/08/2008
Jim talks about the Olympics. Olympics has no effect on the economy.
For this Olympics, market id down due to Chinese governement policy of reducing half the cars
on the road. Reduce Visa numbers to curb the number of people visiting China. Jim thought
that this might be the bottom in Chinese Shares.
Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years
Tuesday, August 19th, 2008
Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years
[The First of Two Parts.]
Keith Fitz-GeraldInvestment DirectorMoney Morning/The Money Map Report
VANCOUVER, B.C. – The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.
Indeed, the U.S. financial debacle is now so ingrained – and a so-called "Super Crash" so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.
The end of this crisis "is a long way away," Rogers said. "In fact, it may not be in our lifetimes."
During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:
U.S. Federal Reserve Chairman Ben S. Bernanke should "resign" for the bailout deals he’s handed out as he’s tried to battle this credit crisis.
That the U.S. national debt – the roughly $5 trillion held by the public– essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.
That U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.
And that the average American has no idea just how bad this financial crisis is going to get.
"The next shock is going to be bigger and bigger, still," Rogers said. "The shocks keep getting bigger because we keep propping things up … [and] bailing everyone out."
Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.
It was after Rogers "retired" in 1980 that the investing masses got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the recently released "A Bull in China." And he made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.
Rogers’ candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are some of the highlights from the exclusive interview we had with the author and investor, who now makes his home in Singapore:
Keith Fitz-Gerald (Q): Looks like the financial train wreck we talked about earlier this year is happening.
Jim Rogers: There was a train wreck, yes. Two or three – more than one, as you know. [U.S. Federal Reserve Chairman Ben S.] Bernanke and his boys both came to the rescue. Which is going to cover things up for a while. And then I don’t know how long the rally will last and then we’ll be off to the races again. Whether the rally lasts six days or six weeks, I don’t know. I wish I did know that sort of thing, but I never do.
(Q):What would Chairman Bernanke have to do to "get it right?"
Rogers: Resign.
(Q): Is there anything else that you think he could do that would be correct other than let these things fail?
Rogers: Well, at this stage, it doesn’t seem like he can do it. He could raise interest rates – which he should do, anyway. Somebody should. The market’s going to do it whether he does it or not, eventually.
The problem is that he’s got all that garbage on his balance sheet now. He has $400 billion of questionable assets owing to the feds on his balance sheet. I mean, he could try to reverse that. He could raise interest rates. Yeah, that’s what he could do. That would help. It would cause a shock to the system, but if we don’t have the shock now, the shock’s going to be much worse later on. Every shock, so far, has been worse than the last shock. Bear-Stearns [now part of JP Morgan Chase & Co. (JPM)] was one thing and then it’s Fannie Mae (FNM), you know, and now Freddie Mac (FRE).
The next shock’s going to be even bigger still. So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management. They’ve been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the "dot-com bubble" shock, so I guess Bernanke could try to start reversing some of this stuff.
But he has to not just reverse it – he’d have to increase interest rates a lot to make up for it and that’s not going to solve the problem either, because the basic problems are that America’s got a horrible tax system, it’s got litigation right, left, and center, it’s got horrible education system, you know, and it’s got many, many, many [other] problems that are going to take a while to resolve. If he did at least turn things around – turn some of these policies around – we would have a sharp drop, but at least it would clean out some of the excesses and the system could turn around and start doing better.
But this is academic – he’s not going to do it. But again the best thing for him would be to abolish the Federal Reserve and resign. That’ll be the best solution. Is he going to do that? No, of course not. He still thinks he knows what he’s doing.
(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn’t know anything’s wrong – that anything’s happening. Is that still the case?
Rogers:Yes.
(Q): What would you tell the "Average Joe" in no-nonsense terms?
Rogers: I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.
Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.
I don’t know why it doesn’t sink in. People have other things on their minds, or don’t want to be bothered. Too complicated, or whatever.
I’m sure when the [British Empire] declined there were many people who rang the bell and said: "Guys, we’re making too many mistakes here in the U.K." And nobody listened until it was too late.
When Spain was in decline, when Rome was in decline, I’m sure there were people who noticed that things were going wrong.
(Q): Many experts don’t agree with – at the very least don’t understand – the Fed’s current strategies. How can our leaders think they’re making the right choices? What do you think?
Rogers: Bernanke is a very-narrow-gauged guy. He’s spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.
Bernanke was [on the record as saying] that there is no problem with housing in America. There’s no problem in housing finance. I mean this was like in 2006 or 2005.
(Q): Right.
Rogers: He is the Federal Reserve and the Federal Reserve more than anybody is supposed to be regulating these [financial institutions], so they should have the inside scoop, if nothing else.
(Q): That’s problematic.
Rogers: It’s mind-boggling. Here’s a man who doesn’t understand the market, who doesn’t understand economics – basic economics. His intellectual career’s been spent on the narrow-gauge study of printing money. That’s all he knows.
Yes, he’s got a PhD, which says economics on it, but economics can be one of 200 different narrow fields. And his is printing money, which he’s good at, we know. We’ve learned that he’s ready, willing and able to step in and bail out everybody.
There’s this worry [whenever you have a major financial institution that looks ready to fail] that, "Oh my God, we’re going to go down, and if we go down, the whole system goes down."
This is nothing new. Whole systems have been taken down before. We’ve had it happen plenty of times.
(Q): History is littered with failed financial institutions.
Rogers: I know. It’s not as though this is the first time it’s ever happened. But since [Chairman Bernanke’s] whole career is about printing money and studying the Depression, he says: "Okay, got to print some more money. Got to save the day." And, of course, that’s when he gets himself in deeper, because the first time you print it, you prop up Institution X, [but] then you got to worry about institution Y and Z.
(Q): And now we’ve got a dangerous precedent.
Rogers: That’s exactly right. And when the next guy calls him up, he’s going to bail him out, too.
(Q): What do you think [former Fed Chairman] Paul Volcker thinks about all this?
Rogers: Well, Volcker has said it’s certainly beyond the scope of central banking, as he understands central banking.
(Q): That’s pretty darn clear.
Rogers: Volcker’s been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker. We’ve had couple in our history: Volcker and William McChesney Martin were two.
You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in. McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party’s out of control.
(Q): This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?
Rogers: Yes. We had two central banks that disappeared for whatever reason. This one’s going to disappear, too, I say.
(Q): Throughout your career you’ve had a much-fabled ability to spot unique points in history – inflection points, if you will. Points when, as you put it, somebody puts money in the corner at which you then simply pick up.
Rogers: That’s the way to invest, as far as I’m concerned.
(Q): So conceivably, history would show that the highest returns go to those who invest when there’s blood in the streets, even if it’s their own.
Rogers: Right.
(Q): Is there a point in time or something you’re looking for that will signal that the U.S. economy has reached the inflection point in this crisis?
Rogers: Well, yeah, but it’s a long way away. In fact, it may not be in our lifetimes. Of course I covered my shorts – my financial shorts. Not all of them, but most of them last week.
So, if you’re talking about a temporary inflection point, we may have hit it.
If you look back at previous countries that have declined, you almost always see exchange controls – all sorts of controls – before failure. America is already doing some of that. America, for example, wouldn’t let the Chinese buy the oil company, wouldn’t let the [Dubai firm] buy the ports, et cetera.
But I’m really talking about full-fledged, all-out exchange controls. That would certainly be a sign, but usually exchange controls are not the end of the story. Historically, they’re somewhere during the decline. Then the politicians bring in exchange controls and then things get worse from there before they bottom.
Before World War II, Japan’s yen was two to the dollar. After they lost the war, the yen was 500 to the dollar. That’s a collapse. That was also a bottom.
These are not predictions for the U.S., but I’m just saying that things have to usually get pretty, pretty, pretty, pretty bad.
It was similar in the United Kingdom. In 1918, the U.K. was the richest, most powerful country in the world. It had just won the First World War, et cetera. By 1939, it had exchange controls and this is in just one generation. And strict exchange controls. They in fact made it an act of treason for people to use anything except the pound sterling in settling debts.
(Q): Treason? Wow, I didn’t know that.
Rogers: Yes…an act of treason. It used to be that people could use anything they wanted as money. Gold or other metals. Banks would issue their own currencies. Anything. You could even use other people’s currencies.
Things were so bad in the U.K. in the 1930s they made it an act of treason to use anything except sterling and then by ’39 they had full-exchange controls. And then, of course, they had the war and that disaster. It was a disaster before the war. The war just exacerbated the problems. And by the mid-70s, the U.K. was bankrupt. They could not sell long-term government bonds. Remember, this is a country that two generations or three generations before had been the richest most powerful country in the world.
Now the only thing that saved the U.K. was the North Sea oil fields, even though Prime Minister Margaret Thatcher likes to take credit, but Margaret Thatcher has good PR. Margaret Thatcher came into office in 1979 and North Sea oil started flowing. And the U.K. suddenly had a huge balance-of-payment surplus.
You know, even if Mother Teresa had come in [as prime minister] in ’79, or Joseph Stalin, or whomever had come in 1979 – you know, Jimmy Carter, George Bush, whomever – it still would’ve been great.
You give me the largest oil field in the world and I’ll show you a good time, too. That’s what happened.
(Q): What if Thatcher had never come to power?
Rogers: Who knows, because the U.K. was in such disastrous straits when she came in. And that’s why she came to power…because it was such a disaster. I’m sure she would’ve made things better, but short of all that oil, the situation would’ve continued to decline.
So it may not be in our lifetimes that we’ll see the bottom, just given the U.K.’s history, for instance.
(Q): That’s going to be terrifying for individual investors to think about.
Rogers: Yeah. But remember that America had such a magnificent and gigantic position of dominance that deterioration will take time. You know, you don’t just change that in a decade or two. It takes a lot of hard work by a lot of incompetent people to change the situation. The U.K. situation I just explained…that decline was over 40 or 50 years, but they had so much money they could have continued to spiral downward for a long time.
Even Zimbabwe, you know, took 10 or 15 years to really get going into it’s collapse, but Robert Mugabe came into power in 1980 and, as recently as 1995, things still looked good for Zimbabwe. But now, of course, it’s a major disaster.
That’s one of the advantages of Singapore. The place has an astonishing amount of wealth and only 4 million people. So even if it started squandering it in 2008, which they may be, it’s going to take them forever to do so.
(Q): Is there a specific signal that this is "over?"
Rogers: Sure…when our entire U.S. cabinet has Swiss bank accounts. Linked inside bank accounts. When that happens, we’ll know we’re getting close because they’ll do it even after it’s illegal – after America’s put in the exchange controls.
(Q): They’ll move their own money.
Rogers: Yeah, because you look at people like the Israelis and the Argentineans and people who have had exchange controls – the politicians usually figured it out and have taken care of themselves on the side.
(Q): We saw that in South Africa and other countries, for example, as people tried to get their money out.
Rogers: Everybody figures it out, eventually, including the politicians. They say: "You know, others can’t do this, but it’s alright for us." Those days will come. I guess when all the congressmen have foreign bank accounts, we’ll be at the bottom.
But we’ve got a long way to go, yet
News and Related Story Links:
Money Morning Exclusive Jim Rogers Interview From Singapore (Part I): Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve.
Money Morning Exclusive Interview From Singapore (Part II):Jim Rogers: China’s Economic Advance is All But Unstoppable.
Wikipedia:Long-Term Capital Management.
CBS News:Dubai Firm Outlines Port Sales Plan.
Wikipedia:The Dot-Com Bubble.
The San Diego Union Tribune:Chinese Thwarted on Unocal Deal.
Wikipedia:The Great Depression.
Wikipedia:Paul Volcker.
Money Morning Financial Commentary:(Jimmy) Rogers and Me: The Latest Wisdom From a Global Investing Guru.
Wikipedia:North Sea Oil.
Wikipedia:U.S. Public Debt.
http://www.moneymorning.com/2008/08/19/jim-rogers/
21/08/2008
Jim thinks that exchange control will happen in America and when politician has a swiss bank account, then the end of the credit crisis.
Jim also talk about UK in the 1970. Talks about Margaret Thatcher.
Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years
[The First of Two Parts.]
Keith Fitz-GeraldInvestment DirectorMoney Morning/The Money Map Report
VANCOUVER, B.C. – The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.
Indeed, the U.S. financial debacle is now so ingrained – and a so-called "Super Crash" so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.
The end of this crisis "is a long way away," Rogers said. "In fact, it may not be in our lifetimes."
During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:
U.S. Federal Reserve Chairman Ben S. Bernanke should "resign" for the bailout deals he’s handed out as he’s tried to battle this credit crisis.
That the U.S. national debt – the roughly $5 trillion held by the public– essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.
That U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.
And that the average American has no idea just how bad this financial crisis is going to get.
"The next shock is going to be bigger and bigger, still," Rogers said. "The shocks keep getting bigger because we keep propping things up … [and] bailing everyone out."
Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.
It was after Rogers "retired" in 1980 that the investing masses got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the recently released "A Bull in China." And he made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.
Rogers’ candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are some of the highlights from the exclusive interview we had with the author and investor, who now makes his home in Singapore:
Keith Fitz-Gerald (Q): Looks like the financial train wreck we talked about earlier this year is happening.
Jim Rogers: There was a train wreck, yes. Two or three – more than one, as you know. [U.S. Federal Reserve Chairman Ben S.] Bernanke and his boys both came to the rescue. Which is going to cover things up for a while. And then I don’t know how long the rally will last and then we’ll be off to the races again. Whether the rally lasts six days or six weeks, I don’t know. I wish I did know that sort of thing, but I never do.
(Q):What would Chairman Bernanke have to do to "get it right?"
Rogers: Resign.
(Q): Is there anything else that you think he could do that would be correct other than let these things fail?
Rogers: Well, at this stage, it doesn’t seem like he can do it. He could raise interest rates – which he should do, anyway. Somebody should. The market’s going to do it whether he does it or not, eventually.
The problem is that he’s got all that garbage on his balance sheet now. He has $400 billion of questionable assets owing to the feds on his balance sheet. I mean, he could try to reverse that. He could raise interest rates. Yeah, that’s what he could do. That would help. It would cause a shock to the system, but if we don’t have the shock now, the shock’s going to be much worse later on. Every shock, so far, has been worse than the last shock. Bear-Stearns [now part of JP Morgan Chase & Co. (JPM)] was one thing and then it’s Fannie Mae (FNM), you know, and now Freddie Mac (FRE).
The next shock’s going to be even bigger still. So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management. They’ve been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the "dot-com bubble" shock, so I guess Bernanke could try to start reversing some of this stuff.
But he has to not just reverse it – he’d have to increase interest rates a lot to make up for it and that’s not going to solve the problem either, because the basic problems are that America’s got a horrible tax system, it’s got litigation right, left, and center, it’s got horrible education system, you know, and it’s got many, many, many [other] problems that are going to take a while to resolve. If he did at least turn things around – turn some of these policies around – we would have a sharp drop, but at least it would clean out some of the excesses and the system could turn around and start doing better.
But this is academic – he’s not going to do it. But again the best thing for him would be to abolish the Federal Reserve and resign. That’ll be the best solution. Is he going to do that? No, of course not. He still thinks he knows what he’s doing.
(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn’t know anything’s wrong – that anything’s happening. Is that still the case?
Rogers:Yes.
(Q): What would you tell the "Average Joe" in no-nonsense terms?
Rogers: I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.
Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.
I don’t know why it doesn’t sink in. People have other things on their minds, or don’t want to be bothered. Too complicated, or whatever.
I’m sure when the [British Empire] declined there were many people who rang the bell and said: "Guys, we’re making too many mistakes here in the U.K." And nobody listened until it was too late.
When Spain was in decline, when Rome was in decline, I’m sure there were people who noticed that things were going wrong.
(Q): Many experts don’t agree with – at the very least don’t understand – the Fed’s current strategies. How can our leaders think they’re making the right choices? What do you think?
Rogers: Bernanke is a very-narrow-gauged guy. He’s spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.
Bernanke was [on the record as saying] that there is no problem with housing in America. There’s no problem in housing finance. I mean this was like in 2006 or 2005.
(Q): Right.
Rogers: He is the Federal Reserve and the Federal Reserve more than anybody is supposed to be regulating these [financial institutions], so they should have the inside scoop, if nothing else.
(Q): That’s problematic.
Rogers: It’s mind-boggling. Here’s a man who doesn’t understand the market, who doesn’t understand economics – basic economics. His intellectual career’s been spent on the narrow-gauge study of printing money. That’s all he knows.
Yes, he’s got a PhD, which says economics on it, but economics can be one of 200 different narrow fields. And his is printing money, which he’s good at, we know. We’ve learned that he’s ready, willing and able to step in and bail out everybody.
There’s this worry [whenever you have a major financial institution that looks ready to fail] that, "Oh my God, we’re going to go down, and if we go down, the whole system goes down."
This is nothing new. Whole systems have been taken down before. We’ve had it happen plenty of times.
(Q): History is littered with failed financial institutions.
Rogers: I know. It’s not as though this is the first time it’s ever happened. But since [Chairman Bernanke’s] whole career is about printing money and studying the Depression, he says: "Okay, got to print some more money. Got to save the day." And, of course, that’s when he gets himself in deeper, because the first time you print it, you prop up Institution X, [but] then you got to worry about institution Y and Z.
(Q): And now we’ve got a dangerous precedent.
Rogers: That’s exactly right. And when the next guy calls him up, he’s going to bail him out, too.
(Q): What do you think [former Fed Chairman] Paul Volcker thinks about all this?
Rogers: Well, Volcker has said it’s certainly beyond the scope of central banking, as he understands central banking.
(Q): That’s pretty darn clear.
Rogers: Volcker’s been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker. We’ve had couple in our history: Volcker and William McChesney Martin were two.
You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in. McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party’s out of control.
(Q): This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?
Rogers: Yes. We had two central banks that disappeared for whatever reason. This one’s going to disappear, too, I say.
(Q): Throughout your career you’ve had a much-fabled ability to spot unique points in history – inflection points, if you will. Points when, as you put it, somebody puts money in the corner at which you then simply pick up.
Rogers: That’s the way to invest, as far as I’m concerned.
(Q): So conceivably, history would show that the highest returns go to those who invest when there’s blood in the streets, even if it’s their own.
Rogers: Right.
(Q): Is there a point in time or something you’re looking for that will signal that the U.S. economy has reached the inflection point in this crisis?
Rogers: Well, yeah, but it’s a long way away. In fact, it may not be in our lifetimes. Of course I covered my shorts – my financial shorts. Not all of them, but most of them last week.
So, if you’re talking about a temporary inflection point, we may have hit it.
If you look back at previous countries that have declined, you almost always see exchange controls – all sorts of controls – before failure. America is already doing some of that. America, for example, wouldn’t let the Chinese buy the oil company, wouldn’t let the [Dubai firm] buy the ports, et cetera.
But I’m really talking about full-fledged, all-out exchange controls. That would certainly be a sign, but usually exchange controls are not the end of the story. Historically, they’re somewhere during the decline. Then the politicians bring in exchange controls and then things get worse from there before they bottom.
Before World War II, Japan’s yen was two to the dollar. After they lost the war, the yen was 500 to the dollar. That’s a collapse. That was also a bottom.
These are not predictions for the U.S., but I’m just saying that things have to usually get pretty, pretty, pretty, pretty bad.
It was similar in the United Kingdom. In 1918, the U.K. was the richest, most powerful country in the world. It had just won the First World War, et cetera. By 1939, it had exchange controls and this is in just one generation. And strict exchange controls. They in fact made it an act of treason for people to use anything except the pound sterling in settling debts.
(Q): Treason? Wow, I didn’t know that.
Rogers: Yes…an act of treason. It used to be that people could use anything they wanted as money. Gold or other metals. Banks would issue their own currencies. Anything. You could even use other people’s currencies.
Things were so bad in the U.K. in the 1930s they made it an act of treason to use anything except sterling and then by ’39 they had full-exchange controls. And then, of course, they had the war and that disaster. It was a disaster before the war. The war just exacerbated the problems. And by the mid-70s, the U.K. was bankrupt. They could not sell long-term government bonds. Remember, this is a country that two generations or three generations before had been the richest most powerful country in the world.
Now the only thing that saved the U.K. was the North Sea oil fields, even though Prime Minister Margaret Thatcher likes to take credit, but Margaret Thatcher has good PR. Margaret Thatcher came into office in 1979 and North Sea oil started flowing. And the U.K. suddenly had a huge balance-of-payment surplus.
You know, even if Mother Teresa had come in [as prime minister] in ’79, or Joseph Stalin, or whomever had come in 1979 – you know, Jimmy Carter, George Bush, whomever – it still would’ve been great.
You give me the largest oil field in the world and I’ll show you a good time, too. That’s what happened.
(Q): What if Thatcher had never come to power?
Rogers: Who knows, because the U.K. was in such disastrous straits when she came in. And that’s why she came to power…because it was such a disaster. I’m sure she would’ve made things better, but short of all that oil, the situation would’ve continued to decline.
So it may not be in our lifetimes that we’ll see the bottom, just given the U.K.’s history, for instance.
(Q): That’s going to be terrifying for individual investors to think about.
Rogers: Yeah. But remember that America had such a magnificent and gigantic position of dominance that deterioration will take time. You know, you don’t just change that in a decade or two. It takes a lot of hard work by a lot of incompetent people to change the situation. The U.K. situation I just explained…that decline was over 40 or 50 years, but they had so much money they could have continued to spiral downward for a long time.
Even Zimbabwe, you know, took 10 or 15 years to really get going into it’s collapse, but Robert Mugabe came into power in 1980 and, as recently as 1995, things still looked good for Zimbabwe. But now, of course, it’s a major disaster.
That’s one of the advantages of Singapore. The place has an astonishing amount of wealth and only 4 million people. So even if it started squandering it in 2008, which they may be, it’s going to take them forever to do so.
(Q): Is there a specific signal that this is "over?"
Rogers: Sure…when our entire U.S. cabinet has Swiss bank accounts. Linked inside bank accounts. When that happens, we’ll know we’re getting close because they’ll do it even after it’s illegal – after America’s put in the exchange controls.
(Q): They’ll move their own money.
Rogers: Yeah, because you look at people like the Israelis and the Argentineans and people who have had exchange controls – the politicians usually figured it out and have taken care of themselves on the side.
(Q): We saw that in South Africa and other countries, for example, as people tried to get their money out.
Rogers: Everybody figures it out, eventually, including the politicians. They say: "You know, others can’t do this, but it’s alright for us." Those days will come. I guess when all the congressmen have foreign bank accounts, we’ll be at the bottom.
But we’ve got a long way to go, yet
News and Related Story Links:
Money Morning Exclusive Jim Rogers Interview From Singapore (Part I): Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve.
Money Morning Exclusive Interview From Singapore (Part II):Jim Rogers: China’s Economic Advance is All But Unstoppable.
Wikipedia:Long-Term Capital Management.
CBS News:Dubai Firm Outlines Port Sales Plan.
Wikipedia:The Dot-Com Bubble.
The San Diego Union Tribune:Chinese Thwarted on Unocal Deal.
Wikipedia:The Great Depression.
Wikipedia:Paul Volcker.
Money Morning Financial Commentary:(Jimmy) Rogers and Me: The Latest Wisdom From a Global Investing Guru.
Wikipedia:North Sea Oil.
Wikipedia:U.S. Public Debt.
http://www.moneymorning.com/2008/08/19/jim-rogers/
21/08/2008
Jim thinks that exchange control will happen in America and when politician has a swiss bank account, then the end of the credit crisis.
Jim also talk about UK in the 1970. Talks about Margaret Thatcher.
Monday, August 18, 2008
Soros boosts Lehman stake to 9.5 mln shares-filing
UPDATE 1-Soros boosts Lehman stake to 9.5 mln shares-filing
Thu Aug 14, 2008 6:16pm EDT
WASHINGTON, Aug 14 (Reuters) - Billionaire investor George Soros hiked his stake in Wall Street firm Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) to 9.5 million shares as of June 30 from 10,000 shares, according to a U.S. regulatory filing on Thursday.
Soros disclosed the quarter-over-quarter increase in a filing with the Securities and Exchange Commission.
Soros raised his stake in Lehman ahead of a turbulent month for the investment bank, whose shares plunged in mid-July amid a broader sell-off in financials sparked by concern about government-backed mortgage companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz).
Lehman shares rose 63 cents, or 4.1 percent, to close at $16.20 before the news. They are down 18 percent since the end of June and off 75 percent so far this year.
A Lehman Brothers spokesman declined to comment. Officials at Soros' fund could not immediately be reached.
Based on Lehman's share count in its most recent quarterly filing, the 9.5 million shares would be equivalent to a 1.4 percent stake. (Reporting by John Poirier, editing by Mark Porter and Phil Berlowitz)
http://www.reuters.com/article/marketsNews/idINN1449757120080814?rpc=44&sp=true
Thu Aug 14, 2008 6:16pm EDT
WASHINGTON, Aug 14 (Reuters) - Billionaire investor George Soros hiked his stake in Wall Street firm Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) to 9.5 million shares as of June 30 from 10,000 shares, according to a U.S. regulatory filing on Thursday.
Soros disclosed the quarter-over-quarter increase in a filing with the Securities and Exchange Commission.
Soros raised his stake in Lehman ahead of a turbulent month for the investment bank, whose shares plunged in mid-July amid a broader sell-off in financials sparked by concern about government-backed mortgage companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz).
Lehman shares rose 63 cents, or 4.1 percent, to close at $16.20 before the news. They are down 18 percent since the end of June and off 75 percent so far this year.
A Lehman Brothers spokesman declined to comment. Officials at Soros' fund could not immediately be reached.
Based on Lehman's share count in its most recent quarterly filing, the 9.5 million shares would be equivalent to a 1.4 percent stake. (Reporting by John Poirier, editing by Mark Porter and Phil Berlowitz)
http://www.reuters.com/article/marketsNews/idINN1449757120080814?rpc=44&sp=true
Don't lose heart on plunging commodities: Rogers
Don't lose heart on plunging commodities: Rogers
2008-08-16 08:45:00
Commodity OnlineMUMBAI: Commodity prices are plunging every day led by the free fall of the hot commodities like crude oil and gold. But don't lose heart on commodities and panic because this is how market behaves, says investing legend Jim Rogers.
Rogers told Commodity Online: "All markets all over the world in all asset classes have corrections all the time. That is how markets work."
Rogers, the best known global guru on commodities, said the commodities market is these days hit by the prospects of growth slowdown in countries like China and and the large-scame economic pessimism in the US and Europe.
On Friday, crude oil prices plunged further to $112.39 a barrel on the New York Mercantile Exchange. In the last one month, crude oil has lost nearly $45. It had reached an all-time high of $147.27 a barrel on July 11. The dollar rose to 110.44 yen, the euro fell to $1.4670 and the pound dropped to $1.8628.
Gold for December delivery dropped $28.90 to $785.60 an ounce on Friday on the New York Mercantile Exchange. Silver for December delivery plummeted $1.33 to $12.90 an ounce on the Nymex, while September copper fell 1.25 cents to $3.2925 a pound.
Rogers said that one reason for the decline in commodities prices is the strengthening dollar index. "Naturally, dollar-based commodities like metals, gold, silver, copper and platinum and several agricultural commodities have been falling. But I would say this is how market operates. So dont lose heart on commodities," he added.
http://www.commodityonline.com/news/Dont-lose-heart-on-plunging-commodities-Rogers-11140-3-1.html
2008-08-16 08:45:00
Commodity OnlineMUMBAI: Commodity prices are plunging every day led by the free fall of the hot commodities like crude oil and gold. But don't lose heart on commodities and panic because this is how market behaves, says investing legend Jim Rogers.
Rogers told Commodity Online: "All markets all over the world in all asset classes have corrections all the time. That is how markets work."
Rogers, the best known global guru on commodities, said the commodities market is these days hit by the prospects of growth slowdown in countries like China and and the large-scame economic pessimism in the US and Europe.
On Friday, crude oil prices plunged further to $112.39 a barrel on the New York Mercantile Exchange. In the last one month, crude oil has lost nearly $45. It had reached an all-time high of $147.27 a barrel on July 11. The dollar rose to 110.44 yen, the euro fell to $1.4670 and the pound dropped to $1.8628.
Gold for December delivery dropped $28.90 to $785.60 an ounce on Friday on the New York Mercantile Exchange. Silver for December delivery plummeted $1.33 to $12.90 an ounce on the Nymex, while September copper fell 1.25 cents to $3.2925 a pound.
Rogers said that one reason for the decline in commodities prices is the strengthening dollar index. "Naturally, dollar-based commodities like metals, gold, silver, copper and platinum and several agricultural commodities have been falling. But I would say this is how market operates. So dont lose heart on commodities," he added.
http://www.commodityonline.com/news/Dont-lose-heart-on-plunging-commodities-Rogers-11140-3-1.html
Thursday, August 14, 2008
A Danish fix for the US mortgage crisis
A Danish fix for the US mortgage crisis
By George Soros
Published: August 11 2008 19:21 Last updated: August 11 2008 19:21
The recent compromise struck between the Treasury and Democrats in Congress on the fate of Fannie Mae and Freddie Mac, the government-sponsored mortgage guarantors, constitutes the worst of all possible worlds. The Treasury offered a blank cheque to come to the rescue, if necessary, but the managements of both companies were kept in place. They know that their survival depends on not drawing on that blank cheque. They will therefore do everything in their power to reduce the need for any new equity capital that would be dilutive. In short, as privately owned but undercapitalised financial institutions, the GSEs cannot fulfil their stated mission of providing stability, liquidity and affordability to the nation’s housing finance system.
In presentations to investors, which followed big quarterly losses, the GSEs said they would curtail purchases of mortgages and might shrink their holdings to preserve capital. They highlighted that fees from their insurance guarantee business had nearly doubled. They also improved the quality of new loans by focusing on borrowers with higher-quality credit, who put down greater down payments. This means that the GSEs have significantly increased the cost of mortgages and tightened lending standards.
EDITOR’S CHOICEIn depth: Freddie and Fannie - Aug-08Video: Francesco Guerrera on Fannie Mae - Aug-08Fannie Mae loses $2.3bn and cuts dividend - Aug-08Chris Giles: One way to heat up house prices - Aug-07Lex: Fred bare - Aug-06AIG and Freddie damp recovery hopes - Aug-07The problems in the banking system have left the two GSEs as the only game in town in the mortgage market. Their market share of new mortgages has doubled over the past year and is now close to 80 per cent. Much of the balance is accounted for by the Federal Housing Administration, a fully guaranteed government agency. As the two companies fight for survival and try to reduce their need for new capital, the availability and cost of mortgages in the US suffer. Coming at a time when the supply of houses is swollen by a rising tide of foreclosures, this is a recipe for disaster. House prices have already fallen sharply and will continue to fall unless mortgages are made available on more favourable terms to a broader group of people.
This compromise, or stalemate, practically ensures that house prices will overshoot on the downside. That, in turn, renders the policies of the GSEs self-defeating as lower house prices increase their losses and push them further into insolvency. The GSE crisis has merely been postponed, at a cost of making the housing crisis more severe.
Confidence in GSE-backed bonds has been shaken. The stocks remain under pressure. Markets are forcing officials to come up with a better solution. We need to recognise that the business model of the GSEs is fatally flawed. They are public/private partnerships in which the risks are borne by the public sector while profits accrue to the private sector: management and shareholders. The companies have been plagued by accounting problems and other irregularities; their managements have spent enormous sums lobbying Capitol Hill. This is not a business model that deserves to be perpetuated.
Fortunately, alternatives are available. Hank Paulson, the Treasury secretary, has suggested the use of covered bonds, a mortgage-financing vehicle popular in Europe. I would recommend the system of mortgage credit used in Denmark, where loan-to-value ratios and underwriting standards are strictly enforced by a single, strong regulator. These mortgages are transformed into instantly tradable bonds. Cover for the bonds is provided by both the mortgages and the credit of the financial institutions issuing them. The mortgages remain on the balance sheets of the issuers, eliminating the moral hazard inherent in the US system, which is based on earning fees from selling them on to the market.
The standardisation of mortgages in the Danish system promotes transparency and liquidity. Householders can prepay their mortgages at any time by buying the bonds. Since house values and bond prices tend to move in unison this arrangement reduces the danger of householders’ equity falling into negative territory. For the issuing banks, owning these bonds carries lower capital requirements so the bonds sell at a premium to ordinary covered bonds. This system has survived and provided affordable home mortgages since its creation shortly after the great Copenhagen fire of 1795.
I pioneered the introduction of the Danish system in Mexico with the support of Paul O’Neill, when he was Treasury secretary. With modification, it offers a long-term solution to providing affordable mortgages in the US.
The writer, author of The New Paradigm for Financial Markets, is chairman of Soros Fund Management, which has held and continues to hold short positions in GSEs
http://www.ft.com/cms/s/0/ac770b58-67aa-11dd-8d3b-0000779fd18c.html?nclick_check=1
tjhinkh: Soros calls for covered bonds for martgages. This would reduce the equity falling into negative.
By George Soros
Published: August 11 2008 19:21 Last updated: August 11 2008 19:21
The recent compromise struck between the Treasury and Democrats in Congress on the fate of Fannie Mae and Freddie Mac, the government-sponsored mortgage guarantors, constitutes the worst of all possible worlds. The Treasury offered a blank cheque to come to the rescue, if necessary, but the managements of both companies were kept in place. They know that their survival depends on not drawing on that blank cheque. They will therefore do everything in their power to reduce the need for any new equity capital that would be dilutive. In short, as privately owned but undercapitalised financial institutions, the GSEs cannot fulfil their stated mission of providing stability, liquidity and affordability to the nation’s housing finance system.
In presentations to investors, which followed big quarterly losses, the GSEs said they would curtail purchases of mortgages and might shrink their holdings to preserve capital. They highlighted that fees from their insurance guarantee business had nearly doubled. They also improved the quality of new loans by focusing on borrowers with higher-quality credit, who put down greater down payments. This means that the GSEs have significantly increased the cost of mortgages and tightened lending standards.
EDITOR’S CHOICEIn depth: Freddie and Fannie - Aug-08Video: Francesco Guerrera on Fannie Mae - Aug-08Fannie Mae loses $2.3bn and cuts dividend - Aug-08Chris Giles: One way to heat up house prices - Aug-07Lex: Fred bare - Aug-06AIG and Freddie damp recovery hopes - Aug-07The problems in the banking system have left the two GSEs as the only game in town in the mortgage market. Their market share of new mortgages has doubled over the past year and is now close to 80 per cent. Much of the balance is accounted for by the Federal Housing Administration, a fully guaranteed government agency. As the two companies fight for survival and try to reduce their need for new capital, the availability and cost of mortgages in the US suffer. Coming at a time when the supply of houses is swollen by a rising tide of foreclosures, this is a recipe for disaster. House prices have already fallen sharply and will continue to fall unless mortgages are made available on more favourable terms to a broader group of people.
This compromise, or stalemate, practically ensures that house prices will overshoot on the downside. That, in turn, renders the policies of the GSEs self-defeating as lower house prices increase their losses and push them further into insolvency. The GSE crisis has merely been postponed, at a cost of making the housing crisis more severe.
Confidence in GSE-backed bonds has been shaken. The stocks remain under pressure. Markets are forcing officials to come up with a better solution. We need to recognise that the business model of the GSEs is fatally flawed. They are public/private partnerships in which the risks are borne by the public sector while profits accrue to the private sector: management and shareholders. The companies have been plagued by accounting problems and other irregularities; their managements have spent enormous sums lobbying Capitol Hill. This is not a business model that deserves to be perpetuated.
Fortunately, alternatives are available. Hank Paulson, the Treasury secretary, has suggested the use of covered bonds, a mortgage-financing vehicle popular in Europe. I would recommend the system of mortgage credit used in Denmark, where loan-to-value ratios and underwriting standards are strictly enforced by a single, strong regulator. These mortgages are transformed into instantly tradable bonds. Cover for the bonds is provided by both the mortgages and the credit of the financial institutions issuing them. The mortgages remain on the balance sheets of the issuers, eliminating the moral hazard inherent in the US system, which is based on earning fees from selling them on to the market.
The standardisation of mortgages in the Danish system promotes transparency and liquidity. Householders can prepay their mortgages at any time by buying the bonds. Since house values and bond prices tend to move in unison this arrangement reduces the danger of householders’ equity falling into negative territory. For the issuing banks, owning these bonds carries lower capital requirements so the bonds sell at a premium to ordinary covered bonds. This system has survived and provided affordable home mortgages since its creation shortly after the great Copenhagen fire of 1795.
I pioneered the introduction of the Danish system in Mexico with the support of Paul O’Neill, when he was Treasury secretary. With modification, it offers a long-term solution to providing affordable mortgages in the US.
The writer, author of The New Paradigm for Financial Markets, is chairman of Soros Fund Management, which has held and continues to hold short positions in GSEs
http://www.ft.com/cms/s/0/ac770b58-67aa-11dd-8d3b-0000779fd18c.html?nclick_check=1
tjhinkh: Soros calls for covered bonds for martgages. This would reduce the equity falling into negative.
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