naked capitalism

Anonymous says:

Marc Faber quoted Rogers to have said, “You can short GM at any price.”

Simply brilliant, but then again, you only needed to drive a GM vehicle to know that most of their cars are POS.

Anonymous says:

Yves, Jim Rogers is a FRAUD.

-I almost choked on an ice cube when I read the headline.

He’s a shameless pumper for whatever he’s promoting. If you ever headline with “JIM CRAMER PROCLAIMS BULL RUN”, I don’t know what I’ll do.

Anonymous says:

I find Rogers to be refreshing. I recall him being interviewed on Bloomberg, probably April or May, and he was talking about Citi which was then trading, I think, around 30 bucks a share. After railing for a bit about how everybody should avoid buying into the financials, even at the then depressed levels, the interviewer asked him at what point Citi might be an attractive buy. Rogers said “when it’s at 7″. Cracked me up. And it’s just about there. Nice call.

Simon says:

The real question is what central banks and politicians will do in the years to come, and that depends on the prevailing economics ideology. My impression is that this ideology will lead to massive fiscal deficits in both short and long-run, with monetization of the debt in the short-run (Fed buys up debt to keep interest rates low) in order to halt the deflationary bust, followed by sterilization in the long run (Fed sell debt to drive interest rates high) to keep inflation under control once the economy recovers. An alternative scenario would have Congress raise taxes or cut spending after the economy recovers in order to keep inflation under control, but I see that as unlikely. A doomsday scenario would have no massive budget deficit in the short-run, but rather a deflationary depression–hopefully the Republicans won’t try to gridlock things enough to bring this about.

Monetization will prevent a meltdown in asset prices in the short-run, but the subsequent sterilzation will prevent a recovery of deflated asset prices in the long-run. Asset prices (stocks, real-estate, land, commodites, bonds) will thus stay where they are for at least a decade, with the P/E ratio or its equivalent gradually declining as earnings grow in line with nominal GDP growth, but prices remaining stable. The situation will change sometime between 2020 to 2030, when a new ideological consensus is reached to the effect that the Fed or some other independent body must be given authority to raise taxes and/or cut spending, since Congress is incapable of doing this on its own. Only then will real interest rates decline again, at which point asset prices will explode on the upside. Again, this is unlikely to occur before 2020 or 2030.

Watch the long TIPS rates carefully for guideance as to where things are heading. They were over 4% in the late 1990’s, then fell to under 2%, and were recently back over 3%. I expect them to hit 4% again before we are done. Obviously, stocks should pay a real yield above the risk-free rate on TIPS, say 2% higher. Also, for various reasons, the long-term real return on stocks should be about 2% above the dividend rate, which is currently about 3%. Putting all these factors together suggests that stocks need to drop another 20% or so in real terms before we hit bottom. Real-estate and commodities have even further to fall. Demand for commodities is growing, to be sure, but supply is growing even faster, especially since technology makes it possible to substitute cheap commodities for more expensive commodities.

Cash and (for the professional only) carefully selected distress situations (junk bonds and stocks of companies facing bankruptcy) are the best place to be for now. Once they become cheap enough, quality stocks will be the best investment available.

Dave says:

“Rogers is one of the few that calls for abolishing the Federal Reserve and every time he says it, the same blank stares and deaf ears are the reactions.”

Well maybe if he had more constructive suggestions people would listen. But, yeah it’s a nice sound bite.

Anyway, so moving to state-run Singapore is the answer? Ha! what a phony.

Anonymous says:

Simon, thank you for your post. I have this feeling that a lot of money is to be made in shorting the treasury but wasn’t sure where along the yield curve to start.

One thing I don’t understand about your view is why would the Fed want to sterilize at the long end. Wouldn’t the result be the same if the Fed were to sell the same T-bills that they bought?

ndk says:

Anonymous, sterilization is usually discussed in the context of currency intervention, but it’s functionally the same when a central bank wants to drain cash from the system.

It’s the process of selling longer-dated assets in exchange for zero-maturity money. This locks money up for a time, effectively removing it from current circulation. Usually, this would be done by selling off some of the treasuries on the Fed’s own books for cash. The Fed will take the cash it receives and sit on it.

If the Fed doesn’t own enough treasuries, it might not be able to do this in large enough scale on its own. Now, the Treasury could just issue more treasuries and sell them to the Fed.

But as commentator JKH points out there, the new ability to pay arbitrary interest rates to banks on their deposits is quite similar and can be used for sterilization. The banks deposit their cash with the Fed, which locks it up, taking it out of circulation.

Steve’s response is that the big difference is maturity: these deposits are generally just overnight, while a Treasury has a much longer term, up to 30 years, but with whatever maturity the government wants. The Fed could start offering CD’s, essentially, to remove even this distinction, but they haven’t done this yet.

HTH…

steven says:

Jim bought Chinese and Taiwanese stocks a couple of months ago when the SSE was trading at 3000 and the TSEC was trading at 9000. The guy must be losing a lot of money these days.

Jojo says:

There's very good S&P 500 calculator here:

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The S&P 500 at Your Fingertips

Countless hours have been spent by stock market investors researching the historic performance of the S&P 500 stock market index but until now, they've had to slog through spreadsheets or go datamine other reams of data to be able to extract the data they're after, and that's before doing any number crunching! Now however, everything has changed because we here at Political Calculations are putting the entire encapsulated history of the S&P 500 at your fingertips!

We've taken the raw data from the sources linked above, and made it easily accessible by selecting a month and year in our tool below. The tool will provide the average index value of the S&P 500 for the given month and year, the associated dividends and earnings for that month and year, not to mention the dividend yield and the price to earnings ratio. For good measure, we threw in the value of the Consumer Price Index as well!

Link

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Anonymous says:

Simon’s comment is thought-provoking, only I lack his confidence in central banks’ ability to stabilize asset prices. That might be the only thing that helps me see eye-to-eye with Rogers on one point: quality corporate bonds pay well right now, but the big question is, will default risk decline before inflation beats them down? If so, you’ve got an exit window.