Jim Rogers Increases His Bets Against Investment Banks

Famed investor Jim Rogers has been down on the investment banking industry for some time, and thinks there is even more reason to be negative, as a Bloomberg story reports. However, I think George Soros would take exception to the characterization of Rogers as “co-founder” of Quantum. Rogers most assuredly worked for Soros.

Note that we have argued that investment banks are at risk of becoming sufficiently impaired to have larger consequences for the financial system. It takes a lesser degree of conviction to merely dislike their stocks.

From Bloomberg:

Jim Rogers, co-founder of the Quantum Hedge Fund with billionaire George Soros, boosted his bets against U.S. securities firms because of their salary “excesses” and money-losing investments.

Rogers said he increased his year-old short positions in the past six weeks in U.S. investment banks, using exchange-traded funds and bets against individual companies he declined to name. Stocks in the industry, which pays too much in bonuses, may fall as much as 70 percent in a bear market, he said.

“You see 29-year-olds on Wall Street making $10 million to $20 million a year, and they think it’s normal,” Rogers, 65, said in an interview in London today. “There have been lots of excesses,” said Rogers, chairman of Beeland Interests Inc.

The top five U.S. securities firms will probably earn a combined $29.3 billion this year, according to analysts surveyed by Bloomberg, breaking a three-year record streak after Merrill Lynch & Co. reported a $2.2 billion third-quarter loss. Goldman Sachs Group Inc., Morgan Stanley, Merrill, Lehman Brothers Holdings Inc. and Bear Stearns Cos. earned $30.7 billion last year, three times more than their profit in 2002.

Goldman Sachs, Wall Street’s most-profitable securities firm, said Sept. 20 that it set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of the year, topping the record amount for all of last year.

A month later, Merrill Lynch reported its biggest quarterly loss amid $8.4 billion of writedowns for subprime mortgages, asset-backed bonds and bad loans. The 12-member AMEX Securities Broker/Dealer Index has fallen 13 percent since the start of June, while the Standard & Poor’s 500 Index was little changed.

“Who knows how bad the balance sheets are,” Rogers said. “They took on gigantic amounts of bad paper.”….

Rogers said he made the investments using his own money. He declined to say how much he oversees.

The slump in the U.S. housing market “still has a long way to go” before recovering, he said. “Market excesses don’t clear themselves out in just four or five months; they take years.”

In keeping, Jeff Matthews gives us Stan O’Neal’s recent golf record.

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  1. Anonymous

    I saw the video interview on ft.com with Rogers and frankly I was repulsed. It wasn’t his calls, which I’m indifferent to, but his values. Sitting in his Chinese mansion, declaring that China was the best run economy in the world, and when the ft.com interviewer asked him if Tiananmen Square showed a well-run economy, he had the nerve to compare this dictatorship favorably with the American democracy of a century ago. Where is China on the path to democracy? Nowhere, folks.

    Here’s a fellow who has made his billions off of a financial system birthed in liberal democracy, and he’s ready to chuck it, for the more billions that Chinese dictators will throw him.

    If this is America’s ruling financial elite, they deserve to be run out on a rail.

    Such a fellow as Rogers will never depend on a rule of law, because the gangster rule of money runs in his favor. That doesn’t mean the rest of us (ask the Chinese participants in those 70,000 protests last year) don’t need one.

    For shame!!!!!

  2. Yves Smith

    I am not defending Rogers’ values (it was pretty widely understood that he was teaching at Columbia not out of any interest in educating the next generation, but to pick up young women).

    But the comparison to America of one hundred years ago is less flattering to China than you might think. And the question was ambiguous: it linked Tiananmen Square with the economy. The British aristocracy, and business-minded Americans like Joe Kennedy were initially very taken with Nazi Germany. Authoritarian governments can run more efficiently than democracies, particularly if their societies lack strong social values around individualism.

    Back to America a century ago. We had no product safety laws to speak of, widely adulterated meat, no worker safety regulations, and an economy run by the super rich (recall the need for, and opposition to, Teddy Roosevelt’s trust busting). In many cities, political machines such as New York’s Tammany Hall made individual votes irrelevant. Jim Crow laws kept many blacks in the South from voting.

    Back to Rogers. I’d like to be an expat too these days, but in China? A country full of pollution and extremes of poverty and wealth, where he has zero hope at his age of becoming fluent in the language? And where the government might just decide to repatriate assets, like his house? It may be a great investment bet, but you’d be nuts to spend more than three-four months a year there doing research (I am sorry if I offend any readers, but I am speaking from the perspective of being an American. One lives a pretty weird life in an expat colony in a country where you don’t speak the native tongue).

    But then again, maybe I don’t value having cheap servants as much as he does.

  3. Anonymous

    First, i am not so sure whether Mr Rogers buying any property in China.

    The 1989 Tiananmen Square incident is the main reason why china is opening up. The chinese government know that they need to do something to the economy. The Chinese Civil War, 1945-49 and the Cultural Revolution Decade, 1966-76 has resulted the dead of 50 million chinese.

    Finally, in the past if there are any protest in china, troops will be sent in to suppress the demostration. These days, the media will be scolding the local officials.

    China is a 1.3 billion population country, things has to be change gradually or else it can become very unstable.

    Whether Tiananmen Square incident is the right or wrong, let the historian decide. This is already the past.

  4. Anonymous

    Not to be disagreeable, but I stand by my point above, that it is insulting, ludicrous, offensive, to compare the China of today favorably as a system of government to the USA of 100 years ago, when the issue is democratic government and values.

    What country had a product safety system 100 years ago? How did those innovations get pioneered? In the back and forth of a rough and tumble democracy. Those systems of law and rights developed in the bosoms of liberal democracies. To argue that because they hadn’t yet been perfected 100 years ago in those democracies and that somehow should shield China from criticism is utterly specious. To argue that the American democracy of 100 years ago excuses China’s totalitarianism is absurd.

    America was clearly on a path of democratic human rights, working out the meaning and extent of those rights in a society whose revolution was based on those rights. For heaven’s sake – yes there was Jim Crow, but we’d just fought the Civil War. Not for financial gain. Nor for corporate “interests”. To free the slaves and preserve the Union. By the way, until Cambodia, the Civil War was the conflict in all of human history in which the largest per cent of the citizenry died. Those folks died to advance human rights and American democracy.

    I for one foresee trouble if the globalizers and financiers push the system and example of China on those of us who are already giving up security, pensions, wage increases as those very same financiers send their factories to China.

    And then to have one such as Rogers unselfconsciously push the Chinese model in western media is utterly offensive.

    I think this is an obvious point. The fact that it is so obscured is testimony to our compromised media: one excuse after another for China, because elites make money there. What does that mean? That the real opinion of the people of this country is being shunted aside – a dangerous path!!!!!

  5. burnside

    I’ll take Rogers’ views into consideration any day when they treat investment strategy or market insight. He is an accomplished and demonstrably a successful entrepreneur.

    His views on socio-political matters are his own affair. He has not to my knowledge claimed expertise in those subjects. It’s not uninteresting to hear his opinion of China. Surely the man is entitled to voice his opinion?

  6. Anonymous

    Me thinks some of you flag-waivers protest too much. In the US 100 years ago, women couldn’t vote. And the Supreme Court decided “separate but equal” was the law of the land.

    Save the bullshit holier-than-thou flag-waiving for your GOP pep rallies.

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