Call this a belated Father’s Day or Mother’s Day gift.
In a recent interview on the state of the world markets
legendary investor Jim Rogers offered his perspective. His views are always
worth pondering.
Here are some highlights.
First, on the Federal Reserve and the bond bubble:
Mr.
Bernanke believes you can expand the central bank balance sheet infinitely, and
suffer no ill effects. Anything you do to diminish demand for the thing will
cause the price to drop. Same thing here. Bond prices will drop, which causes
interest rates to rise. We are in a global bond bubble. When it pops is
anyone’s guess. I have tried to short bonds a few times. The French tried money
printing in the 50’s, the Italians in the ‘60s. At some point, the market won’t
take it, and bond prices will go down and rates will rise. We have more money
than Bernanke and the central banks do. So at some point this will happen. …
As I
said, bond markets worldwide are in a bubble for the reasons you just stated.
Bubbles can go on and on. Hard to tell when it pops. But at some point markets
won’t take central bank policies anymore, and interest rates go up regardless
of how much bond buying they do. Market timing is tough. As for the fix income
market, I’m short junk bonds. In any market, the marginal stuff goes
first. This could precede problems with sovereign debt.
Next, Rogers offers an interesting contrary opinion on natural gas:
Regarding
natural gas, the fundamentals on the ground are not nearly as good as the hype.
The number of rigs on the ground has gone down 75% the last couple of years, as
the wells are very short-lived, and it takes an enormous amount of money to
keep them up. A number of companies have had to lower estimates of their
reserves. As for oil shale, typical wells deplete at 38 percent the first year.
Thus you need a lot of drilling, money, and a high price to keep up production
rates. All you have to do is go out in the oil patch. I believe the
investment world will be disappointed with the notion that supply is so great
that oil will collapse.
Finally, Rogers on Japan. Keep in mind that the Japanese
stock market has collapsed over the past few weeks and that Paul Krugman has
declared Prime Minister Abe to be pursuing just the right policies.
The Rogers vision:
Japan
has a very serious problem. When we look back, Mr. Abe will have ruined Japan.
Huge debt levels, horrible demographics, they won’t let in foreigners, the
population is declining. Mr. Abe comes along and says he’ll ruin the currency.
It is a disaster in the long term, and not guaranteed to work in the short term,
either.
Japan is the most interesting question's future, with the highest Debt to GNP ratio in the world, but largely owned by its elderly citizens. It's fun to say Japan's government and central banks ruined its economy, but its hard to judge without knowing the alternatives.
ReplyDeleteThe reality now seems to be we're in a "last economy standing" world, so sovereign debt is the difference, and self-determination means tomorrow you can devalue your currency and cut your losses, and move on. Publicly this won't ever be discussed, but all national economists consider this option, and I'm sure there's clear strategy plans.
Island nations in general, like UK and Japan carry the greatest risks to bad decisions. The UK would probably be worse than Japan now, if it hadn't been for North Sea oil, which is now in terminal decline.
The issues are too big for me, and I can't imagine the responsibility involved. Investors like Rogers can have opinions, but I don't think anyone knows the right answers.
I think it was in The Worldly Philosophers that I read about Keynes' speculations about "the end of growth." Expecting anything to grow forever in a finite world is not rational. Biological populations which have abundant food supply tend to populate on an increasing exponential curve. When the food supply diminishes the population collapses. This pattern is called overshoot and collapse.
ReplyDeleteGDP growth is a physical and financial process that apparently saturates, or reaches a growth limit. Japan might be studied as a case of maturing economy rather than used as a example of what went wrong.
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