Jim Rogers Isn't a Happy Camper

He's predicting a small slide.

Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.

"It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops. ...

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said. ...

"When markets turn from bubble to reality, a lot of people get burned."

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.

"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

When the last bubble burst in Japan, said Rogers, stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus.

"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."   





Jim is quite the Gloomy Gus, isn't he?

I am bearish. I agree with his general thesis. I'm just not sure about the apocalyptic end-game however.

Rogers predicted the boom in commodities. In that, he has been dead right.  However, he also predicted a concurrent collapse in stock prices.  In that, he has been dead wrong.

Rogers may be correct, I don't know.  However, we are all products of our environment, and Rogers came of age in the 1970s, a time of enormous economic and financial dislocation, driven primarily by consumer inflation.  During that time, commodities boomed and stocks collapsed. In his book, Hot Commodities, Rogers predicts a similar scenario playing out this and next decade.  That scenario has not occurred (so far).  Instead, commodities and stocks have both risen, along with pretty much every other asset class on the planet.

The saying is that history doesn't repeat itself, but it does rhyme.  In this case, what is different from the 1970s is what Rogers is so (correctly) bullish about, namely China.  China is having, and will have, an enormous effect on the global economy and financial markets.  In my opinion, the inclusion of China into the global economy is a massive, once in a century event, akin to the opening up of the United States in the 19th century, a topic on which I will address in the future.  (You keep saying that. - ed.

There was no China in the 1970s (figuratively).  Thus, we can look to the 1970s as a guideline, but only as a guideline, as this decade is likely to look much different than the 1970s because of China.  Of course, like the US in the 1800s, there will be all sorts of financial booms, bubbles and crashes. But expecting the outcomes of this decade to follow in line with those of four decades ago is an incomplete conclusion, in my opinion.

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