Rogers warns world economy will face worst crisis yet
Legendary investor Jim Rogers poses at Yale-NUS College in Singapore in February 2014. / Courtesy of Jim Rogers
- US economy likely to slip into recession in a year
- Greenspan, Bernanke, Yellen hit for creating debt bubble
By Kim Jae-kyoung
SINGAPORE ― The global financial market is expected to face its worst-ever crisis in the coming years as a consequence of policy failure and lack of morality among investors, according to legendary investor Jim Rogers.
He expects that economic turmoil caused by snowballing debt all around the world will send the financial market to rock bottom this time, forcing many governments and companies into bankruptcy.
“We are going to have serious problems in 2016 and 2017. It will be worse than 2008,” Rogers, chairman of Rogers Holdings, said in a recent interview with The Korea Times at his residence in Singapore.
“I expect markets to collapse like they did in 2008. It started in the middle of 2014 and that has been going worse and worse. I don’t know when the market will hit rock bottom but probably next year will be the worst.”
Rogers, who co-founded the Quantum Fund with George Soros, forecast that it will take a long time to recover from the painful and difficult financial disaster.
“We need to clean out the system. There is a huge amount of debt and money printing built up over the past 40 years. The sooner we clean out the mistakes, the sooner and better we start over,” he said.
Rogers said that situation is much worse now than in 2008, when the epicenter of the crisis was the U.S. But this time the crisis will be uibiquitous, he said, expecting that major economies, including the U.S., Japan and Europe, will all suffer further setbacks.
“It’s going to be the U.S. again because America is the largest debtor nation,” he said, “but this time, Portugal is going to go bankrupt, Italy is going to go bankrupt and the U.K. is going to collapse. It’s going to happen in a lot of places.”
Debt hangover across the globe is holding back the whole economy, he said.
“The debt was not much higher everywhere in the world in 2008. Then much of Asia and China had a lot of money saved up for a rainy day. They started spending when it started raining,” he said.
“But China has a lot of debt itself now. Singapore is not in as good shape as it was in 2008 and 2009. Korea has a lot of debt. Even Asia is not able to help as it did last time. So the problem is going to be much worse.”
Rogers, who moved to Singapore several years ago, cited the “market breadth” of the New York Stock Exchange (NYSE) as a key indicator of the upcoming market collapse.
“In 2015, twice as many stocks in NYSE were down as up. The average was flat but that was only because of nine or 10 big companies. They kept the averages up,” he said.
Market breadth gauges the direction of the market by analyzing the number of shares advancing relative to the number declining. Positive breadth occurs when more firms are moving higher than are moving lower, and vice versa.
“The average is different from breadth. Breadth started deteriorating in the middle of 2014. It has been going down for 18 months because investors know something is wrong and they are taking their money out. Markets are frequently smarter than all of us,” he said.
The multimillionaire investor pointed out that central banks’ artificial, unconventional measures ― quantitative easing and zero or negative interest rates ― have made things worse, destroying market systems. He forecast the U.S. Fed will print more money and cut interest rates further.
“No matter what measures you use worldwide, we won’t have a proper recovery because it has been artificial. It’s based on a gigantic amount of money printing and debt spending all over the word, especially in the U.S.,” he said.
“Since the system was not able to clean itself and since it’s all artificial, we are facing a serious problem. In the U.S. we have economic recession every four to seven years and we are going to have one.”
The bestselling author of a wide range of books focused on business and travel explained that the global economy has not had a proper collapse or market revival as central banks don’t allow people to fail and let the system clean up and start over.
“They have tried to stop collapse several times and they have stopped it. They are going to try to stop it this time and we will have a few rallies but basically we are coming to the end and it’s going to be very serious,” he said.
“So this is a terrible system economically, and terrible morality. But they don’t care about morality.”
The following is an excerpt from the interview.
Q: How should the world cope with the upcoming challenge? What kind of measures should governments take to head off the worst?
A
: There is nothing we can do at this time. The only solution is to let them fail and start over. U.S. Federal Reserve Chairwoman Janet Yellen said that’s not a solution. She says, “Don’t worry, I can stop them. I can solve the problem by printing a lot of money and borrowing a lot of money.” Then she said to you, “Everything would be okay because we are growing fast and we are going to pay off all debt. The system will clean and start over and everybody will be okay.” Her way has never happened in history. It won’t happen this time either.
In America in the early 1920s, we had a problem like this. The government balanced the budget and raised the interest rate. That is the exact opposite of what the U.S. government is doing now. We had a horrible two years. Then we had the best economic decades in American history.
This next collapse is going to be the one that wipes out many institutions and governments in countries. Or this collapse is going to come but they (central banks) will print more money and get it through. If that happens, the next one will be the very end. I suspect this one will be the end because this will probably lead to bankruptcies.
Q: You have been critical about central banks
’ monetary policies. Can you explain why?
: Central banks have kept interest rates artificially low at the level we have never had in history. It is destroying the way the system works. You and I were taught to save our money and invest for the future. Many people are taught that. All of those people are wiped out and destroyed because they are earning nothing on their savings. Insurance companies, pension plans and trust companies and many people are being wiped out all over the world. That is one of the reasons we are suffering. History shows when you are wiped out on savings invested for the future, it usually leads to horrible social problems.
Central banks should have stopped credit-easing campaigns 10 years ago. If your roof is leaking, you can just go and put a pot underneath. But it’s better to go up there and solve the problem rather than just let it drip and build up and build up.
People in Washington said that the solution is more debt but I see no way that this will end the disaster. The longer you delay it the worse the disaster will be. We have to wait and see but there is no way that we can end this disaster without a big mess.
Q: Who should be held most accountable for the ongoing economic turmoil
: Alan Greenspan, Ben Bernanke, Janet Yellen all should be held accountable for this mess. Greenspan is the main problem. He is the one who began the problem. Bernanke and Yellen have added to the problem. They don’t know what they are doing.
It’s an economic crisis caused by a political crisis. Politicians and central banks say, “Don’t worry, don’t worry. We will go borrow more money and print more money.” And they worked and kept trying, and there were rallies because they kept printing money and cutting rates.
The way it is supposed to work is that people get into trouble, they fail, confident people come in and take over the assets, reorganize and start over. That was never allowed to happen in Japan, and this is not being allowed to happen in the West now. And what happened in the West was that they came in and took the assets from confident people, gave them to unconfident people, and said to the unconfident people, “Okay, you stay in business and you compete with confident people with their money.”
Q: What kind of measures should Korea take to overcome challenges and join the league of advanced economies?
: All you have to do is to take down the demilitarized zone. Stop spending money on defense. You had those war games every year for 50 years. If you stop the war games for one year and send a signal to North Korea, maybe the North, at least the kid (Kim Jung-un) wants peace. Why is he opening a ski resort? Why is he opening a bicycle tour? Cancel the war games one year and see what happens.
Q: What do you think of President Park Geun-hye
’s decision to shut down the Gaesong Industrial Complex?
: I am a fan of President Park Geun-hye more than any other politicians but that was a mistake if you ask me. When she closed the complex, I was surprised. That was pretty negative for South Koreans. I know she has an election in April. It is one of a few times I thought she was making a mistake.
Q: Can you make some recommendations for investors? What would you buy in this volatile market?
: You should learn how to sell short. I’m not buying anything at the moment. I’m looking for things to sell short. There will be some rallies when central banks try to do something but those rallies will peter out eventually.
I’m not buying gold at the moment. If you look at markets previous difficult times, 2008 for instance, gold collapsed. Everything collapsed. Silver would be better if it goes down.
I would like to find maybe a currency to invest in. The currency turmoil usually leads people to putting their money in what they think is a safe haven. They think the U.S. dollar is a safe haven. But it’s not. I don’t have anything to buy right now. I’m not rushing out to buy anything because I expect difficult times.
Q: China is entering a critical phase in its transition into a new growth model from manufacturing to a consumption- and service-oriented one. How do you perceive the change?
A:
China is making a natural evolution as Korea, Singapore and America made before. This is the way economies develop. China is certainly in that way.
The China slowdown, at this point, is coming from everywhere. It is because of its customers. This problem started in the U.S. Japan is in recession. Much of Europe is in recession. When your customers have problems, you have problems, too. This is not coming from China. China is a victim.
The biggest risk for China is debt, shadow banking system and the collapse of the American economy, the biggest customer. There is shadow banking now in China that did not exist 15 years ago. You will see bankruptcies in China. China has said that they will let people go bankrupt this time.
Q: What do you think of Abenomics? What is your take on the Bank of Japan
’s negative interest rate policy?
: Japan is in recession. Abenomics has not worked. Debt has gone higher and the currency has gone down. This is not a policy that would work and it is short-term panacea. The negative interest rate policy is lunacy. It hasn’t worked anywhere in Europe where millions of people are living under negative interest rates now.
In the early 1990s Japanese had problems like this. They refused to let people fail. Because nobody failed they had a lost decade and had another lost decade. Japanese stocks are now around 60 percent from its all-time high 26 years ago because they never let the system fail and clean out.