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Extreme bear market coming, says Jim Rogers

Jim RogersWhen Jim Rogers talks, investors listen. One of the world’s most famous investors, Rogers is known for his no-nonsense style and investment wisdom. He is the author of several best-selling books, such as “Hot Commodities” and “Street Smarts: Adventures on the Road and in the Markets.” ETF.com recently spoke with Rogers about the latest financial market developments, including why he sees a big downturn taking shape in the next year or two.

 

ETF.com: You recently said you see the worst stock market correction of your lifetime coming next year. What’s going to cause that?

Jim Rogers: I can give you lots of possibilities. These things always start small and with nobody noticing.  For instance, in 2007, Iceland went bankrupt when most people didn’t know there was an Iceland, much less that it could go bankrupt. And then the next thing you knew, Bear Stearns collapsed; and then Lehman Brothers collapsed. Finally, everybody said, “Oh, there’s a problem.”

That happened slowly over a year. That’s probably what’s going to happen this time. It may have already started. There are companies going bankrupt in China. The whole banking system in Latvia collapsed recently.  Who knows what will cause it? I don’t. Rising interest rates, trade wars, real wars— many things could cause it. But it will be gradual. The worst collapse in my lifetime doesn’t happen in a day. It will evolve over a year or two.

ETF.com: Why do you think the next downturn will be so extreme?

Rogers: Historically, we’ve always had economic setbacks and bear markets. In 2008, we had a problem because of too much debt worldwide. Since then, the amount of debt has skyrocketed everywhere in the world. Why would people think the next collapse—whenever it comes—won’t be worse than the last one?  (NORM ‘n’ AL Note: Our emphasis here.)

ETF.com: How much confidence do you have in your forecast?

Rogers: I have enormous confidence. When the bear market comes, it has to be the worst in my lifetime, because the debt is much, much higher than it’s ever been in history.  Plus, there are dramatic changes taking place. Retail shops are liquidating all over the U.S.  Somebody is going to be left holding a very big bag eventually as those stores go out of business. Many pension plans are under water. The state of Illinois, Connecticut and several others are essentially bankrupt now. There are many things that are going to be very, very serious going forward.

ETF.com: How do you think investors should position themselves ahead of the downturn?

Rogers: You should only invest in things that you, yourself, know about. The worst mistake is being invested in something you don’t really know about, because when things start going wrong, you really get whipsawed and get hurt.
If you know a lot about investing, you might sell short, you might buy agriculture, or you might buy some countries that will not suffer so badly. There are ways to get through this.

ETF.com: What agricultural commodities and countries will best weather the storm?

Rogers: I would look at the ones that are the most depressed; something like sugar is probably going to come through OK just because it’s so beaten up. It’s down dramatically, more than 70% from its highs, so something like is probably going to do OK.  Russia will probably be fine, compared to most of the world, in the next bear market. Venezuela will probably do OK, only because it’s been a total disaster. Same thing with Colombia.

ETF.com: It sounds like you’re suggesting the cheapest and most depressed countries are the place to be.

Rogers: Didn’t your mother teach you to buy low and sell high? Yes, that’s what I’m saying.

ETF.com: How do you think traditional safe havens like Treasuries and gold will fare?

Rogers: The Treasury market bottomed in 1981 and has been going up ever since, until the last year or two. In other words, we had a 36-year bull market in Treasuries that’s coming to an end or may have already ended.  I wouldn’t want to put money in U.S. Treasuries, because in the past America has had multidecade bull markets and multidecade bear markets. I suspect we’re now in a multidecade bear market for Treasuries.

ETF.com: Won’t Treasuries rally if the economy and markets enter a big downturn?
Jim Rogers:
Maybe in the short term. I own a lot of U.S. dollars, but not because the U.S. dollar is sound—it’s one of the most flawed currencies in the world. But when times of turmoil come, people look for a safe haven, and many people think the U.S. dollar is a safe haven for historic and comparative reasons.  Nobody’s going to buy the euro or the pound sterling, so the U.S. dollar is probably a place to be for a while.

ETF.com: What about gold? A lot of people run into gold when the market sells off.

Rogers: I own gold, but I haven’t bought any in quite a while. If you look back at previous bear markets, usually gold gets swept up in the bear market. It has a big drop, and then it’s a great buy.  My plan—if I get it right—is when the U.S. dollar goes up and gets overpriced, gold will go down, so I’ll just switch my U.S. dollars into gold.

ETF.com: Do you own any ETFs?

Rogers: I own ETFs, including on China, Vietnam, Korea and Indonesia. ETFs are good for lazy people like me.

By the way, they’re going to make the next bear market worse because since we all own ETFs, we all own the same things—the same shares, bonds, commodities, etc. When we liquidate, the liquidation in those is going to be dramatic and painful.

 

[From an article published by ETF.com]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

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Does anybody remember what happened the last time commodity prices crashed like this?

All eyes on the US economy...It isn’t just the price of oil that is collapsing.  The last time commodity prices were this low was during the immediate aftermath of the last financial crisis.  The Bloomberg Commodity Index fell to 110.4571 on Monday – the lowest that it has been since April 2009.  Just like junk bonds, industrial commodities are a very reliable leading indicator.  In other words, prices for industrial commodities usually start to move in a particular direction before the overall economy does.  We witnessed this in the summer of 2008 when a crash in commodity prices preceded the financial crisis in the fall by a couple of months.  And right now, we are witnessing what may be another major collapse in commodity prices.  In recent weeks, the price of copper has declined substantially.  So has the price of iron ore.  So has the price of nickel.  So has the price of aluminum.  You get the idea.  So this isn’t just about oil.  This is a broad-based commodity decline, and if it continues it is really bad news for the U.S. economy.

Of course most Americans would much rather read news stories about Kim Kardashian, but what is happening to the prices of these industrial metals at the moment is actually far more important to their daily lives.  For example, when the price of iron ore goes down that is a strong indication that economic activity is slowing down.  And that is why it is so troubling that the price of iron ore has almost sunk to a five year low.  The following comes from an Australian news source

The price of iron ore has held below $US70 a tonne in overnight trade, leaving its five-year low within reach.

At the end of the latest offshore session, benchmark iron ore for immediate delivery to the port of Tianjin in China was trading at $US69.40 a tonne, down 0.4 per cent from its previous close of $US69.70 a tonne and only 2 per cent above the five-year low of $US68 reached a fortnight ago.

This week’s dip back under $US70 a tonne has followed revised forecasts from JPMorgan that suggest the commodity will average just $US67 a tonne next year, about $US20 below the investment bank’s previous expectation.

Copper is probably an even better economic indicator than iron ore is.  Economists commonly refer to it as “Dr. Copper”, and there is a really good reason for that.  Looking back over history, the price of copper often makes a significant move in one direction or the other before the economy does.  And now that the price of copper just hit the lowest level that we have seen since the last financial crash, alarm bells are going off.  The following comes from an article by CNBC contributor Ron Insana

Copper prices are now below $3 a pound and there’s an expression that “the economy is topped with a copper roof.” More simply put, copper tends to top out in price, before it becomes obvious that, in this case, the global economy is about to weaken.

So is the global economy heading for rough waters?

Could 2015 be a very rough year economically?

According to Insana, the signs are all around us…

We already have evidence that the commodity crash has ominous portents for the rest of the world:

* Japan’s recession is deeper than previously thought.

* China’s demand for basic materials, amid a glut of uneconomic construction projects, appears to be plummeting.

* Russia’s ruble has collapsed and the country is on the brink, if not already in, a recession.

* India’s economic recovery is beginning to look shaky.

* Europe’s growth rate and inflation rate, for the next two years, were just revised downward by the European Central Bank, suggesting that Europe’s economic crisis is far from over. In fact, at least one former European leader with whom I recently spoke, believes the crisis in Europe may just be in its early stages.

* Brazil and other emerging market nations are struggling with a variety of issues, from recessions at home, to the rising value of the dollar, which is complicating how emerging markets conduct economic policies at home, given how closely their currencies are tied to the greenback.

In addition, the Baltic Dry Index is now at the lowest point that we have seen at this time of the year since 2008

Simply put, with collapsing commodity prices (iron ore for instance) and massive fleets of credit-driven mal-investment-based vessels, it should surprise no one that the shipping index just plunged back below 1000, now at its lowest for this time of year since 2008. Furthermore, the seasonal bounce always seen in Q3 was among the weakest ever.

What does all of this mean? It is commonly said that those that do not learn from history are doomed to repeat it. So many of the exact same patterns that we witnessed leading up to the financial crash of 2008 are happening again. Unfortunately, very few people saw the last crash coming, and this next crash will take most Americans by surprise as well.

I have written more than 1,200 articles about the economy on my website since 2009, and right now our financial system is more primed for a crash than at any other time since I started The Economic Collapse Blog.

Hopefully we have at least a couple more months of relative stability, but without a doubt 2015 is shaping up to be the most “interesting” year that we have seen in the financial world in a very long time.

All of the signs are there.  But most people choose to believe that everything is going to be okay somehow.  When the next crash comes, those people are going to be absolutely blindsided by it.

When you see storm clouds on the horizon, the logical thing to do is to prepare.  And the number one thing that most people should be working on is an emergency fund.  So don’t be frittering your money away on frivolous things.  In the early stages of this next crisis, you are going to need money to pay the mortgage, to put food on the table and to take care of your family.

Just remember what happened back in 2008.  A lot of middle class families were living on the financial edge every month, and because they didn’t have any cushion to fall back on, millions of those families ended up losing their homes when their jobs disappeared.

You need to have an emergency fund that can cover at least six months of expenses.  You don’t want a job loss or a major emergency to put you into a situation where your family could be put out into the street.

And for those that still have lots of money invested in the stock market – I really hope that you know what you are doing.

The market giveth, and the market taketh away.  And when the market taketh away, the consequences can often be exceedingly cruel.

[by Michael Snyder, writing for The Economic Collapse Blog]

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

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