iftttwall

From Jeremy Grantham of GMO

Timing Bear Markets

My personal view is that the Greenspan-Bernanke regime of excessive stimulus, now administered by Yellen, will proceed as usual, and that the path of least resistance, for the market will be up. I believe that it would take a severe economic shock to outweigh the effect of the Fed’s relentless pushing of the market. Look at the market’s continued advance despite almost universal disappointment in economic growth. Exhibit 3 shows the economic forecasts for major economic countries made a year ago by the IMF compared to what actually happened. Only Japan was a modest pleasant surprise at 0.7% ahead of forecast and the U.K. and Switzerland scraped home by the skin of their teeth. Everyone else fell short. There have been few such occasions when such broad disappointment with economic growth still allowed the U.S. and most other major economies to make material upward moves in their stock markets. It is yet another testimonial to the global reach of the Fed’s stimulus of equities (as was the very substantial decline in emerging market equities on just talk of tapering!)

In equities there are few signs yet of a traditional bubble. In the U.S. individuals are not yet consistent buyers of mutual funds. Over lunch I am still looking at Patriots’ highlights and not the CNBC talking heads recommending Pumatech or whatever they were in 1999. There are no wonderful and infl uential theories as to why the P/E structure should be much higher today as there were in Japan in 1989 or in the U.S. in 2000, with Greenspan’s theory of the internet driving away the dark clouds of ignorance and ushering in an era of permanently higher P/Es. (There is only Jeremy Siegel doing his usual, apparently inexhaustible thing of explaining why the market is actually cheap: in 2000 we tangled over the market’s P/E of 30 to 35, which, with arcane and ingenious adjustments, for him did not portend disaster. This time it is unprecedented margins, usually the most dependably mean reverting of all fi nancial series, which are apparently now normal.) By June this year, markets felt relatively quiet and under the surface there was still a considerable undertow of risk aversion in the institutions. The Russell 2000 and the GMO High Quality universe were both just level with the S&P, all up 16%. Normally we would have expected the Russell to outperform handsomely. However, since then speculation has perked up so that today, the broad U.S. market is up 20% and the Russell 2000 is a more typical six points ahead while stocks in the GMO High Quality universe are several points behind. We have also had a sharp and unexpected uptick in parts of the IPO market in the U.S., so I would think that we are probably in the slow build-up to something interesting – a badly overpriced market and bubble conditions.

My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up. And then we will have the third in the series of serious market busts since 1999 and presumably Greenspan, Bernanke, Yellen, et al. will rest happy, for surely they must expect something like this outcome given their experience. And we the people, of course, will get what we deserve. We acclaimed the original perpetrator of this ill-fated plan – Greenspan – to be the great Maestro, in a general orgy of boot licking. His faithful acolyte, Bernanke, was reappointed by a democratic president and generally lauded for doing (I admit) a perfectly serviceable job of rallying the troops in a crash that absolutely would not have occurred without the dangerous experiments in deregulation and no regulation (of the subprime instruments, for example) of his and his predecessor’s policy. At this rate, one day we will praise Yellen (or a similar successor) for helping out adequately in the wreckage of the next utterly unnecessary financial and asset class failure. Deregulation was eventually a disappointment even to Greenspan, shocked at the bad behavior of fi nancial leaders who, incomprehensibly to him, were not even attempting to maximize long-term risk-adjusted profits. Indeed, instead of the “price discovery” so central to modern economic theory we had “greed discovery.”

(Memo: “price discovery” is the process that happens in an open and competitive and unregulated market, where the interplay of supply, demand, and cost structures determines the effi cient price. “Greed discovery” is the process by which a vastly and unnecessarily complicated fi nancial system is exploited by expert insiders. These insiders have far more knowledge than the lambs – formerly known as clients – and without adequate regulations the lambs are defleeced in a surge of “rent seeking.”)

In the meantime investors should be aware that the U.S. market is already badly overpriced – indeed, we believe it is priced to deliver negative real returns over seven years – and that most foreign markets having moved up rapidly this summer are also overpriced but less so. In our view, prudent investors should already be reducing their equity bets and their risk level in general. One of the more painful lessons in investing is that the prudent investor (or “value investor” if you prefer) almost invariably must forego plenty of fun at the top end of markets. This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that’s life. And with a Fed like ours it’s probably what we deserve.

Inconvenient Conclusion

Be prudent and you’ll probably forego gains. Be risky and you’ll probably make some more money, but you may be bushwhacked and, if you are, your excuses will look thin. Your call. We of course are making our call.

Postscript 1

What can go wrong for the market? There is a slow and for me rather sinister slowing down of economic growth, most obviously in Europe but also globally, that could at worst overwhelm even the Fed. The general lack of fiscal stimulus globally and the almost precipitous decline in the U.S. Federal deficit in particular do not help. What are the odds in the next two years? Perhaps one in four.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0pBQ_weTHcU/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Why has this doomed model of overbuilding and poaching sales become so dominant? Look no farther than the cheap-money policies of the Federal Reserve.

The rising Gross Domestic Product (GDP) and other simulacra of "growth" are masking the real model of growth in America: overbuilding and poaching, as in poaching customers and sales from competitors.

No matter how many outlets a company has, there's always room for a few hundred more somewhere. Now that there's a Starbucks on every corner, you might think the opportunities for expansion are limited. No way–now there are Starbucks in bookstores, Safeway supermarkets, subway stations (BART), etc.

Not only is there a coffee outlet of some sort everywhere you look (hey, how about a Starbucks in every Home Depot?), Starbucks is getting into everybody else's business as well–even occasionally hawking music CDs, for example, at least until CD sales plummeted to the point it wasn't worth poaching the declining sales.

Dollar stores are proliferating at a phenomenal rate, as are drug stores in various sizes and iterations–all aimed at poaching customers from WalMart and Target. There is a certain irony in this, as WalMart and Target expanded rapidly by poaching customers from the entire spectrum of retail competitors–supermarkets, department stores, drug stores, sporting goods, and so on.

Everybody's getting into everybody else's business. If there is a profit to be made, suddenly every gas station mini-mart is stocking the line of goods, as are dollar stores and drug stores coast-to-coast.

In the department store/luxury outlet space, the scrimmage for the top 10% and "aspirational" consumers is fierce. Macys, Nordstrom, et al. successfully poached the upper-middle class and "aspirational" consumers with credit (if they could buy luxury brands with discretionary cash, they wouldn't be aspiring to look wealthy, they would bewealthy) from mid-range retailers such as Sears and J.C. Penny.

Countless catalog retailers have opened discount outlets while still poaching customers from other bricks-and-mortar retailers with blizzards of catalogs pitching "crazy low prices" to the marginalized middle class who cannot afford luxury outlets but seek brands above the WalMart level.

Look no further than the enormous success of surf-watersports brands as evidence that an "active youth" brand can sell millions of units to paunchy shark-bait couch potatoes, effectively poaching customers from other sectors on the middle-class retail spectrum.

Specialty retailers are busy poaching customers from competitors, and if that fails then they merge. Witness the absurdly overcapacity office supply space. The fleeting success of BBQ World quickly spawns BBQ Galaxy and BBQ Universe, a manic cycle of overbuilding/poaching that ends in ruination of all three retailers, which then merge and close hundreds of (mostly empty) stores.

That is the operative model of "growth" in America: rapid expansion/overbuilding in pursuit of poaching customers from existing competitors, a strategy that leads to massive overcapacity/redundancy and declining profits that then leads to mergers and shuttering hundreds of redundant outlets.

This overbuilding is especially nonsensical given that the "Brown Truck Store" delivers virtually anything you want to your doorstep: The Inevitable Decline of Retail(September 19, 2012).

Why has this doomed model of overbuilding and poaching become so dominant?Look no farther than the cheap-money policies of the Federal Reserve: Take It To The Bank (The Burning Platform):

This is another classic case of mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity. Cheap money leads to bad investments. I’m all for competition between drug store chains and banks. I have my pick of multiple stores close to my house. There are clearly too many stores competing for a dwindling number of customers, with a dwindling supply of disposable income.

If this is the engine of "growth" in America, a period of degrowth will be needed to clear the system of unprofitable deadwood and Fed-incentivized malinvestment.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ZoBSHJXRaAk/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Why has this doomed model of overbuilding and poaching sales become so dominant? Look no farther than the cheap-money policies of the Federal Reserve.

The rising Gross Domestic Product (GDP) and other simulacra of "growth" are masking the real model of growth in America: overbuilding and poaching, as in poaching customers and sales from competitors.

No matter how many outlets a company has, there's always room for a few hundred more somewhere. Now that there's a Starbucks on every corner, you might think the opportunities for expansion are limited. No way–now there are Starbucks in bookstores, Safeway supermarkets, subway stations (BART), etc.

Not only is there a coffee outlet of some sort everywhere you look (hey, how about a Starbucks in every Home Depot?), Starbucks is getting into everybody else's business as well–even occasionally hawking music CDs, for example, at least until CD sales plummeted to the point it wasn't worth poaching the declining sales.

Dollar stores are proliferating at a phenomenal rate, as are drug stores in various sizes and iterations–all aimed at poaching customers from WalMart and Target. There is a certain irony in this, as WalMart and Target expanded rapidly by poaching customers from the entire spectrum of retail competitors–supermarkets, department stores, drug stores, sporting goods, and so on.

Everybody's getting into everybody else's business. If there is a profit to be made, suddenly every gas station mini-mart is stocking the line of goods, as are dollar stores and drug stores coast-to-coast.

In the department store/luxury outlet space, the scrimmage for the top 10% and "aspirational" consumers is fierce. Macys, Nordstrom, et al. successfully poached the upper-middle class and "aspirational" consumers with credit (if they could buy luxury brands with discretionary cash, they wouldn't be aspiring to look wealthy, they would bewealthy) from mid-range retailers such as Sears and J.C. Penny.

Countless catalog retailers have opened discount outlets while still poaching customers from other bricks-and-mortar retailers with blizzards of catalogs pitching "crazy low prices" to the marginalized middle class who cannot afford luxury outlets but seek brands above the WalMart level.

Look no further than the enormous success of surf-watersports brands as evidence that an "active youth" brand can sell millions of units to paunchy shark-bait couch potatoes, effectively poaching customers from other sectors on the middle-class retail spectrum.

Specialty retailers are busy poaching customers from competitors, and if that fails then they merge. Witness the absurdly overcapacity office supply space. The fleeting success of BBQ World quickly spawns BBQ Galaxy and BBQ Universe, a manic cycle of overbuilding/poaching that ends in ruination of all three retailers, which then merge and close hundreds of (mostly empty) stores.

That is the operative model of "growth" in America: rapid expansion/overbuilding in pursuit of poaching customers from existing competitors, a strategy that leads to massive overcapacity/redundancy and declining profits that then leads to mergers and shuttering hundreds of redundant outlets.

This overbuilding is especially nonsensical given that the "Brown Truck Store" delivers virtually anything you want to your doorstep: The Inevitable Decline of Retail(September 19, 2012).

Why has this doomed model of overbuilding and poaching become so dominant?Look no farther than the cheap-money policies of the Federal Reserve: Take It To The Bank (The Burning Platform):

This is another classic case of mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity. Cheap money leads to bad investments. I’m all for competition between drug store chains and banks. I have my pick of multiple stores close to my house. There are clearly too many stores competing for a dwindling number of customers, with a dwindling supply of disposable income.

If this is the engine of "growth" in America, a period of degrowth will be needed to clear the system of unprofitable deadwood and Fed-incentivized malinvestment.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ZoBSHJXRaAk/story01.htm Tyler Durden

Jim Rogers hope-driven wish is that the politicians were smart enough at some point to say (to the central bankers), "we've got to stop this, this is going to be bad." He adds, on the incoming QEeen, "she’s not going to stop it, first of all she doesn't believe in stopping it, she thinks printing money is good." However, Rogers warns in this excellent interview with Birch Gold, "eventually the markets will just say, "We're not going to play this game anymore", and we'll have a serious collapse." The world is blinded by central bank liquidity, and as Rogers somewhat mockingly notes "if everybody says the sky is blue, I urge you to look out the window and see if it's blue because I have found that most people won't even bother to look out the window…" Rogers concludes, "everybody should own some precious metals as an insurance policy," because as he ominously warns, when 'it' collapses, "there will be big change.

 

 

 

Transcript (via Birch Gold Group) 

Rachel Mills, Birch Gold Group (BGG): This is Rachel Mills for Birch Gold, and I am very pleased to be joined today by Jim Rogers, legendary investor. Thank you so much Jim for joining me.

Jim Rogers: I am delighted to be here Rachel.

BGG: So today I wanted to talk a little about stock market highs and Quantitative Easing and inflation and a little bit of Federal Reserve and when is the taper is going to happen and currency wars. But there is one question that I don’t have to ask you, which you get asked a lot, I know, and that is what your secret to being so prescient in the marketplace?

“…if everybody says the sky is blue, I at least urge you to go and look out the window and see if it’s blue because I have found that most people won’t even bother to look out the window…”

JR: As far as I know, I’m not quite sure. I do know that I have learned over the years, always, when nearly everybody is thinking the same way that means somebody’s not thinking that means we got to start thinking about it and see if there’s not another way, another approach. Because if everybody says the sky is blue, I at least urge you to go and look out the window and see if it’s blue because I have found that most people won’t even bother to look out the window. If they see on the television or in the newspaper or something that everybody says the sky is blue, I at least urge them to look out the window. I find that most people don’t want to do their homework, that’s the first problem that many people have, is just doing simple homework.

“…no matter what we all know today, it’s not going to be true in 10 or 15 years…”

Second, I have learned that if everybody says the sky is blue and I go and look out the window and see that it is blue, I have also learned that, well wait a minute, if everybody knows the sky is blue, is that going to change? Now that everybody knows something, is it time to start thinking about “Well maybe tomorrow the sky will not be blue?” And again, most people say “Well everybody knows the sky is blue and that’s all we need to know.” No, it’s not all you need to know because another thing I have learned in my life is that no matter what we all know today, it’s not going to be true in 10 or 15 years. You pick any year in history and go back and then look to see what everybody thought was true in that year, 15 years later the world had changed enormously. Enormously. And yet in that particular year everybody was convinced that this is the way the world was. Pick 1900, 1930, 1950, any year you want to pick, and you will see that 15 years later, the world was totally, totally different from what everybody thought it was at that time.

So I have learned, for whatever reason, to know that change is coming, to know to think against the crowd, that the crowd is nearly always wrong and to try to think for myself. Now, I certainly make plenty of mistakes and have made plenty of mistakes in my life, but these are some of the things that I have learned, to try to think around the corner, try to think to the future if you want to be successful.

BGG: Yeah that’s right. And I read somewhere, tell me if this is true, that you were shorting real estate in 2006?

JR: Yes, yes, 2006, 2007, 2008. Yes, yes. I was short Fannie Mae, I was short all of the investment banks. I was short all the banks.

BGG: And I bet, were people rolling their eyes at you, were they laughing at you?

Photo: www.telegraph.co.uk

JR: Oh very much so. I went on television quite a lot in those days saying it’s crazy. And I was on CNBC and I explained that I was short Fannie Mae and had been short Fannie Mae and Fannie Mae finally started to collapse. And the lady said to me, “Well it’s your fault that Fannie Mae is going down, it’s the short sellers that are causing problems with Fannie Mae.” And I explained to her, “Listen lady, if you really think that short sellers are making Fannie Mae collapse, you better get another job, because that’s not the way the world works.” Short sellers do not make Fannie Mae go from $70 to $0, I assure you, the only thing that can make that happen is serious fundamental problems. So yes, everybody knew I was nuts back in those days!

And then, they started blaming it on me and on the short sellers, all of the problems. Nobody likes to take responsibility for their mistakes, certainly not politicians, but it was clear that first they laugh at you, then they ridicule you and say it’s your fault and blame it on you. Eventually they all say, “Oh, well we knew that. We thought of it ourselves! We knew that Fannie Mae was a fraud.” But that’s a difficult and sometimes painful process.

BGG: Sounds like they were attributing more power to you than you actually have!

JR: It’d be wonderful if all I had to do was sell something short and it would go down. Unfortunately it usually goes up when I sell it short, my timing is usually pretty wrong.

BGG: I want to talk a little bit about currencies. It seems that all the major countries in the world are in this race to the bottom to devalue their currency relative to all the others to appease their export industry. Meanwhile, workers and savers are getting killed by the cost of living increases that this is causing. Do you have any observations or predictions about how this currency war is going to end, or can it continue somehow indefinitely? And who wins in a currency race to the bottom?

“Eventually the markets will just say, ‘We’re not going to play this game anymore’, and we’ll have a serious collapse.”

JR: Well, the first thing you need to know is that nobody ever wins a trade war, a currency war, which is just another kind of trade war. Everybody loses in the end, some may temporarily come out ahead but it’s temporary if nothing else. As you have pointed out, the cost of living of many people is going up, and it certainly is, my gosh, in Japan you have a currency that’s down 25% in a year. Well I assure you the Japanese are feeling that because everything that Japan imports has gone up fairly substantially AND even the things that they don’t import are up because the Japanese manufacturers and the Japanese producers can raise prices because they don’t have to worry about competing with the foreigners any more.

“We’ve got to stop this, this is going to be bad.”

So we’re all losing in currency wars. How long can it go on? Well, it can go on as long as politicians can continue to print money. The problem is, of course, eventually the markets will just say, “We’re not going to play this game anymore” and we’ll have a serious collapse. You and I can print money all day long, but at some point, you, I and everybody else is going to say, “Wait a minute, guys, this money is getting worse and worse and more and more worthless, so why don’t we stop playing this game?” I wish the politicians were smart enough at some point to say, “We’ve got to stop this, this is going to be bad.”

But unfortunately they never have, and probably never will. Mr. Bernanke is certainly not going to stop it, because he doesn’t want to go down in history as causing the collapse. Mrs. Yellen, when she comes in, she’s not going to stop it, first of all she doesn’t believe in stopping it, she thinks printing money is good. And she knows – I hope she’s smart enough to know – that if she stops, oh my gosh, it’s going to collapse. So she’s not going to stop. Nobody wants to go down as causing the collapse of the world. So I’m afraid this is going to go on until the market eventually says to them, “Okay, enough is enough,” we have a big collapse and then they’re all thrown out and we can start over.

“Eventually they will try to cut [QE], it will finally cause the collapse, at that point we will have a big change, because they will throw them out, whether it’s the politicians or the central bankers or whoever.”

BGG: Wow, that’s a painful scenario actually. Do you think there is any chance that Larry Summers would have stopped Quantitative Easing at all?

JR: Well, first of all it’s irrelevant because he’s not going to be Federal Reserve Chairman. Second, even if he started, you know, if somebody came in and said, “Okay, we’ve got a terrible problem, we’ve made horrible mistakes, now let’s change things.” And even if everybody in the world said, “You know, he’s right, we’ve got to do something” and they started, well, within a few months or a year or two, the pain would be pretty horrible and then everybody’s going to say, “Well we didn’t know the pain was going to be this bad, this is not what we signed up for.” And then the guy would either be thrown out or assassinated or who knows what!

BGG: Oh yeah, they would blame everything on whoever stopped the party.

JR: Yeah. At first they say “It’s fine, we want to do it”, but once the pain comes, the pain is going to get pretty serious. We had Mr. Volcker who came in, was told “stop the madness” back in the 1970s and he did. Well, Jimmy Carter got thrown out, because he was who had told him to do that, because the pain was so bad. Reagan of course thought it was wonderful, that pain was taking place because that got him elected. And it was help to clean up the problems. That’s what happens, you cause the pain and they throw you out.

BGG: So, you don’t think there is any way they’re gonna make good on their threats or promises to taper?

Photo: www.jimrogersinvestments.com

JR: They might, no I don’t. They might start, as I said, somewhere along the line they’re going to start doing it. But when the pain gets pretty serious, the lady or the person or whoever it is, is going to have real problems. Let’s say that in 2015, Yellen says, “We’ve got to stop this” and they start stopping it, well, at that point it’s going to be pretty serious for the parties in power and they’re going to get thrown out and the next guys will continue to taper because, as I’ve said, they got power because of the tapering and the problems, and they’ll clean up the problems.

But that’s the only way that you’re going to see it stop someday. The market is just going to say, “We don’t want to play.” That’s what happened with Jimmy Carter when he was in, everything was collapsing: bond yields were falling apart, you know, inflation was everywhere. “Thank you Mr. Carter, we don’t want to play this game anymore. It’s absurd.”

BGG: What tip-offs are you looking for for where the top of the market is and when would you start to see the collapse coming? Are there signs that you’re looking for?

JR: Well, I wish I was that smart or it was that easy. Back in the late 1970s, Mr. Volcker was told and he came in and said: “I am going to kill inflation because Mr. Carter has told me to.” And Mr. Carter was very clear that he had to stop inflation. I doubt if we’ll have that kind of scenario again but we would think, we would hope, that the Federal Reserve will announce, you know, that they publish their numbers so we can all see what’s happening. At the moment they are buying a trillion dollars a year – that’s a trillion with a “T” – of assets. Eventually we will see that they stop that if they do or slow it down.

What will probably happen is that they will slow it down at first to see what happens, and if things aren’t too bad at first – and they probably won’t be too bad at first – well what is likely to happen is they will slow it down, things will drop, and then they will rally and the Federal Reserve will say “Hey, this is not so bad, we can do it.” And they’ll cut some more. Things will drop again and then rally, because it will take a while for people to really believe how bad it can get, or will get. And so eventually they will try to cut [QE], it will finally cause the collapse, at that point we will have a big change, because they will throw them out, whether it’s the politicians or the central bankers or whoever … will continue because they like it, they got the job because of the collapse and then we’ll finally start over. But it may be really painful in the meantime.

“I’ve owned gold for many years, I’ve never sold any gold and I can’t imagine I ever will sell gold in my life because it is somewhat of an insurance policy.”

BGG: Sure. And when we do begin the process of starting over, whenever that happens, it will be really good to have something substantial, something real, something other than paper in your portfolio. And that’s what Birch Gold is trying to help people figuring out how to do. So, we’ve always said that precious metals are a type of insurance for the long term. I read in your interview in Barrons that you are holding gold right now and expecting maybe a buying opportunity to come up. Do you still feel that way?

JR: Yes, I’ve owned gold for many years, I’ve never sold any gold and I can’t imagine I ever will sell gold in my life because it is somewhat of an insurance policy. I hope that my daughters own my gold someday, I mean I owned gold, I’ve never sold any gold and if gold comes down and I expect it to go down, doesn’t mean it will, I’ll buy more. I’m certainly not going to sell.

“Everybody should own some precious metals as an insurance policy. So if they don’t have any right now, I would urge them to go buy something.”

BGG: Right. So what advice would you give someone who as of yet has no precious metals in their portfolio right now?

JR: Well, everybody should own some precious metals as an insurance policy. So if they don’t have any right now, I would urge them to go buy something, buy themselves a gold coin if nothing else, and see that it’s not going to hurt. It won’t hurt you to buy the first gold coin, the first silver coin, and from that you start accumulating as your own situation dictates.

First, do your homework, don’t buy gold because you heard me say it or even because you hear you say it. But if people don’t own they should start after they have done their homework. And then they will probably, if they do their homework, most people will then realize, “Oh my gosh, I better have insurance, and gold and silver may get me through serious problems ahead.”

BGG: Yeah. How do you feel about silver? Do you favor silver over gold? How do you feel?

JR: Well, silver is historically down 60% from its all-time highs, so yes, I would prefer silver at the moment because gold is down only what, 30 or 40% from its all-time highs.

BGG: Well, thank you so much for talking with me today. I think we will leave it there. Thank you so much, Jim Rogers.

JR: Thank you Rachel, anytime. Let’s do it again.

BGG: I would love to.

JR: Bye bye.

BGG : Bye, thank you!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XhOgPYyvzcw/story01.htm Tyler Durden

Jim Rogers hope-driven wish is that the politicians were smart enough at some point to say (to the central bankers), "we've got to stop this, this is going to be bad." He adds, on the incoming QEeen, "she’s not going to stop it, first of all she doesn't believe in stopping it, she thinks printing money is good." However, Rogers warns in this excellent interview with Birch Gold, "eventually the markets will just say, "We're not going to play this game anymore", and we'll have a serious collapse." The world is blinded by central bank liquidity, and as Rogers somewhat mockingly notes "if everybody says the sky is blue, I urge you to look out the window and see if it's blue because I have found that most people won't even bother to look out the window…" Rogers concludes, "everybody should own some precious metals as an insurance policy," because as he ominously warns, when 'it' collapses, "there will be big change.

 

 

 

Transcript (via Birch Gold Group) 

Rachel Mills, Birch Gold Group (BGG): This is Rachel Mills for Birch Gold, and I am very pleased to be joined today by Jim Rogers, legendary investor. Thank you so much Jim for joining me.

Jim Rogers: I am delighted to be here Rachel.

BGG: So today I wanted to talk a little about stock market highs and Quantitative Easing and inflation and a little bit of Federal Reserve and when is the taper is going to happen and currency wars. But there is one question that I don’t have to ask you, which you get asked a lot, I know, and that is what your secret to being so prescient in the marketplace?

“…if everybody says the sky is blue, I at least urge you to go and look out the window and see if it’s blue because I have found that most people won’t even bother to look out the window…”

JR: As far as I know, I’m not quite sure. I do know that I have learned over the years, always, when nearly everybody is thinking the same way that means somebody’s not thinking that means we got to start thinking about it and see if there’s not another way, another approach. Because if everybody says the sky is blue, I at least urge you to go and look out the window and see if it’s blue because I have found that most people won’t even bother to look out the window. If they see on the television or in the newspaper or something that everybody says the sky is blue, I at least urge them to look out the window. I find that most people don’t want to do their homework, that’s the first problem that many people have, is just doing simple homework.

“…no matter what we all know today, it’s not going to be true in 10 or 15 years…”

Second, I have learned that if everybody says the sky is blue and I go and look out the window and see that it is blue, I have also learned that, well wait a minute, if everybody knows the sky is blue, is that going to change? Now that everybody knows something, is it time to start thinking about “Well maybe tomorrow the sky will not be blue?” And again, most people say “Well everybody knows the sky is blue and that’s all we need to know.” No, it’s not all you need to know because another thing I have learned in my life is that no matter what we all know today, it’s not going to be true in 10 or 15 years. You pick any year in history and go back and then look to see what everybody thought was true in that year, 15 years later the world had changed enormously. Enormously. And yet in that particular year everybody was convinced that this is the way the world was. Pick 1900, 1930, 1950, any year you want to pick, and you will see that 15 years later, the world was totally, totally different from what everybody thought it was at that time.

So I have learned, for whatever reason, to know that change is coming, to know to think against the crowd, that the crowd is nearly always wrong and to try to think for myself. Now, I certainly make plenty of mistakes and have made plenty of mistakes in my life, but these are some of the things that I have learned, to try to think around the corner, try to think to the future if you want to be successful.

BGG: Yeah that’s right. And I read somewhere, tell me if this is true, that you were shorting real estate in 2006?

JR: Yes, yes, 2006, 2007, 2008. Yes, yes. I was short Fannie Mae, I was short all of the investment banks. I was short all the banks.

BGG: And I bet, were people rolling their eyes at you, were they laughing at you?

Photo: www.telegraph.co.uk

JR: Oh very much so. I went on television quite a lot in those days saying it’s crazy. And I was on CNBC and I explained that I was short Fannie Mae and had been short Fannie Mae and Fannie Mae finally started to collapse. And the lady said to me, “Well it’s your fault that Fannie Mae is going down, it’s the short sellers that are causing problems with Fannie Mae.” And I explained to her, “Listen lady, if you really think that short sellers are making Fannie Mae collapse, you better get another job, because that’s not the way the world works.” Short sellers do not make Fannie Mae go from $70 to $0, I assure you, the only thing that can make that happen is serious fundamental problems. So yes, everybody knew I was nuts back in those days!

And then, they started blaming it on me and on the short sellers, all of the problems. Nobody likes to take responsibility for their mistakes, certainly not politicians, but it was clear that first they laugh at you, then they ridicule you and say it’s your fault and blame it on you. Eventually they all say, “Oh, well we knew that. We thought of it ourselves! We knew that Fannie Mae was a fraud.” But that’s a difficult and sometimes painful process.

BGG: Sounds like they were attributing more power to you than you actually have!

JR: It’d be wonderful if all I had to do was sell something short and it would go down. Unfortunately it usually goes up when I sell it short, my timing is usually pretty wrong.

BGG: I want to talk a little bit about currencies. It seems that all the major countries in the world are in this race to the bottom to devalue their currency relative to all the others to appease their export industry. Meanwhile, workers and savers are
getting killed by the cost of living increases that this is causing. Do you have any observations or predictions about how this currency war is going to end, or can it continue somehow indefinitely? And who wins in a currency race to the bottom?

“Eventually the markets will just say, ‘We’re not going to play this game anymore’, and we’ll have a serious collapse.”

JR: Well, the first thing you need to know is that nobody ever wins a trade war, a currency war, which is just another kind of trade war. Everybody loses in the end, some may temporarily come out ahead but it’s temporary if nothing else. As you have pointed out, the cost of living of many people is going up, and it certainly is, my gosh, in Japan you have a currency that’s down 25% in a year. Well I assure you the Japanese are feeling that because everything that Japan imports has gone up fairly substantially AND even the things that they don’t import are up because the Japanese manufacturers and the Japanese producers can raise prices because they don’t have to worry about competing with the foreigners any more.

“We’ve got to stop this, this is going to be bad.”

So we’re all losing in currency wars. How long can it go on? Well, it can go on as long as politicians can continue to print money. The problem is, of course, eventually the markets will just say, “We’re not going to play this game anymore” and we’ll have a serious collapse. You and I can print money all day long, but at some point, you, I and everybody else is going to say, “Wait a minute, guys, this money is getting worse and worse and more and more worthless, so why don’t we stop playing this game?” I wish the politicians were smart enough at some point to say, “We’ve got to stop this, this is going to be bad.”

But unfortunately they never have, and probably never will. Mr. Bernanke is certainly not going to stop it, because he doesn’t want to go down in history as causing the collapse. Mrs. Yellen, when she comes in, she’s not going to stop it, first of all she doesn’t believe in stopping it, she thinks printing money is good. And she knows – I hope she’s smart enough to know – that if she stops, oh my gosh, it’s going to collapse. So she’s not going to stop. Nobody wants to go down as causing the collapse of the world. So I’m afraid this is going to go on until the market eventually says to them, “Okay, enough is enough,” we have a big collapse and then they’re all thrown out and we can start over.

“Eventually they will try to cut [QE], it will finally cause the collapse, at that point we will have a big change, because they will throw them out, whether it’s the politicians or the central bankers or whoever.”

BGG: Wow, that’s a painful scenario actually. Do you think there is any chance that Larry Summers would have stopped Quantitative Easing at all?

JR: Well, first of all it’s irrelevant because he’s not going to be Federal Reserve Chairman. Second, even if he started, you know, if somebody came in and said, “Okay, we’ve got a terrible problem, we’ve made horrible mistakes, now let’s change things.” And even if everybody in the world said, “You know, he’s right, we’ve got to do something” and they started, well, within a few months or a year or two, the pain would be pretty horrible and then everybody’s going to say, “Well we didn’t know the pain was going to be this bad, this is not what we signed up for.” And then the guy would either be thrown out or assassinated or who knows what!

BGG: Oh yeah, they would blame everything on whoever stopped the party.

JR: Yeah. At first they say “It’s fine, we want to do it”, but once the pain comes, the pain is going to get pretty serious. We had Mr. Volcker who came in, was told “stop the madness” back in the 1970s and he did. Well, Jimmy Carter got thrown out, because he was who had told him to do that, because the pain was so bad. Reagan of course thought it was wonderful, that pain was taking place because that got him elected. And it was help to clean up the problems. That’s what happens, you cause the pain and they throw you out.

BGG: So, you don’t think there is any way they’re gonna make good on their threats or promises to taper?

Photo: www.jimrogersinvestments.com

JR: They might, no I don’t. They might start, as I said, somewhere along the line they’re going to start doing it. But when the pain gets pretty serious, the lady or the person or whoever it is, is going to have real problems. Let’s say that in 2015, Yellen says, “We’ve got to stop this” and they start stopping it, well, at that point it’s going to be pretty serious for the parties in power and they’re going to get thrown out and the next guys will continue to taper because, as I’ve said, they got power because of the tapering and the problems, and they’ll clean up the problems.

But that’s the only way that you’re going to see it stop someday. The market is just going to say, “We don’t want to play.” That’s what happened with Jimmy Carter when he was in, everything was collapsing: bond yields were falling apart, you know, inflation was everywhere. “Thank you Mr. Carter, we don’t want to play this game anymore. It’s absurd.”

BGG: What tip-offs are you looking for for where the top of the market is and when would you start to see the collapse coming? Are there signs that you’re looking for?

JR: Well, I wish I was that smart or it was that easy. Back in the late 1970s, Mr. Volcker was told and he came in and said: “I am going to kill inflation because Mr. Carter has told me to.” And Mr. Carter was very clear that he had to stop inflation. I doubt if we’ll have that kind of scenario again but we would think, we would hope, that the Federal Reserve will announce, you know, that they publish their numbers so we can all see what’s happening. At the moment they are buying a trillion dollars a year – that’s a trillion with a “T” – of assets. Eventually we will see that they stop that if they do or slow it down.

What will probably happen is that they will slow it down at first to see what happens, and if things aren’t too bad at first – and they probably won’t be too bad at first – well what is likely to happen is they will slow it down, things will drop, and then they will rally and the Federal Reserve will say “Hey, this is not so bad, we can do it.” And they’ll cut some more. Things will drop
again and then rally, because it will take a while for people to really believe how bad it can get, or will get. And so eventually they will try to cut [QE], it will finally cause the collapse, at that point we will have a big change, because they will throw them out, whether it’s the politicians or the central bankers or whoever … will continue because they like it, they got the job because of the collapse and then we’ll finally start over. But it may be really painful in the meantime.

“I’ve owned gold for many years, I’ve never sold any gold and I can’t imagine I ever will sell gold in my life because it is somewhat of an insurance policy.”

BGG: Sure. And when we do begin the process of starting over, whenever that happens, it will be really good to have something substantial, something real, something other than paper in your portfolio. And that’s what Birch Gold is trying to help people figuring out how to do. So, we’ve always said that precious metals are a type of insurance for the long term. I read in your interview in Barrons that you are holding gold right now and expecting maybe a buying opportunity to come up. Do you still feel that way?

JR: Yes, I’ve owned gold for many years, I’ve never sold any gold and I can’t imagine I ever will sell gold in my life because it is somewhat of an insurance policy. I hope that my daughters own my gold someday, I mean I owned gold, I’ve never sold any gold and if gold comes down and I expect it to go down, doesn’t mean it will, I’ll buy more. I’m certainly not going to sell.

“Everybody should own some precious metals as an insurance policy. So if they don’t have any right now, I would urge them to go buy something.”

BGG: Right. So what advice would you give someone who as of yet has no precious metals in their portfolio right now?

JR: Well, everybody should own some precious metals as an insurance policy. So if they don’t have any right now, I would urge them to go buy something, buy themselves a gold coin if nothing else, and see that it’s not going to hurt. It won’t hurt you to buy the first gold coin, the first silver coin, and from that you start accumulating as your own situation dictates.

First, do your homework, don’t buy gold because you heard me say it or even because you hear you say it. But if people don’t own they should start after they have done their homework. And then they will probably, if they do their homework, most people will then realize, “Oh my gosh, I better have insurance, and gold and silver may get me through serious problems ahead.”

BGG: Yeah. How do you feel about silver? Do you favor silver over gold? How do you feel?

JR: Well, silver is historically down 60% from its all-time highs, so yes, I would prefer silver at the moment because gold is down only what, 30 or 40% from its all-time highs.

BGG: Well, thank you so much for talking with me today. I think we will leave it there. Thank you so much, Jim Rogers.

JR: Thank you Rachel, anytime. Let’s do it again.

BGG: I would love to.

JR: Bye bye.

BGG : Bye, thank you!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XhOgPYyvzcw/story01.htm Tyler Durden

USDJPY and Nikkei futures don’t know what to make of tonight’s data. Is it bad enough that we buy stocks (sell JPY) on the basis that Abe and Kuroda will have to do more or is it so bad that it ‘proves’ no matter what they do, the gig is up. It seems, by the reaction the latter as Japan’s trade balance collapses to the 3rd worst on record. Exports rose 18.6% (more than expected) but it is the imports that soared higher (26.1% vs 19.0% expectations) on the back of surging fuel costs. So, Abe got his inflation – on the cost push side (crushing margins) and not the animal-spirit-competitive exuberance demand-pull side. Perhaps it is time to rename it Abe-wrong-ics. Of course, we await Goldman’s blessing of the number as just wait one more quarter for the J-curve to turn up on this devaluation cycle… we wait patiently…

 

 

Seems like bad news is not good news in Japan…

 

as the slow painful detah of nation needing energy (of course) and having to pay for it in a currency that is increasingly worth-less (or worthless)…

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ECGrbYFsj58/story01.htm Tyler Durden

USDJPY and Nikkei futures don’t know what to make of tonight’s data. Is it bad enough that we buy stocks (sell JPY) on the basis that Abe and Kuroda will have to do more or is it so bad that it ‘proves’ no matter what they do, the gig is up. It seems, by the reaction the latter as Japan’s trade balance collapses to the 3rd worst on record. Exports rose 18.6% (more than expected) but it is the imports that soared higher (26.1% vs 19.0% expectations) on the back of surging fuel costs. So, Abe got his inflation – on the cost push side (crushing margins) and not the animal-spirit-competitive exuberance demand-pull side. Perhaps it is time to rename it Abe-wrong-ics. Of course, we await Goldman’s blessing of the number as just wait one more quarter for the J-curve to turn up on this devaluation cycle… we wait patiently…

 

 

Seems like bad news is not good news in Japan…

 

as the slow painful detah of nation needing energy (of course) and having to pay for it in a currency that is increasingly worth-less (or worthless)…

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ECGrbYFsj58/story01.htm Tyler Durden

If you are still of the belief that the stock “market” is a market of stocks idiosyncratically valued based on the aggregate of investors weighted expectations of future earnings potential, we highly recommend you look away from the chart below. If, however, like Rick Santelli’s “something is wrong” comment or Carl Icahn’s “it’s all a mirage” perspective, you have some doubts, take a glimpse at the ‘fundamental’ reality you are betting your retirement on…

 

(h/t @Not_Jim_Cramer)

and as we noted earlier – this is with a falling USD… what happens (as with Europe) when the USD ramps next – on the back of another “Whatever it takes” moment from the ECB?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/dz7YExiOCxk/story01.htm Tyler Durden