WHO’S JIM ROGERS?
He's a legendary investor, one of the pioneers in the Wall Street hedge fund industry. In the 1970s, he and billionaire George Soros founded the Quantum Fund hedge fund. Their performance was 4200% returns in 10 years while S&P 500 returns was only about 47%.
WHAT IS HIS OUTLOOK OF THE WORLD ECONOMIES AND FINANCIAL MARKETS IN THE NEXT FEW YEARS? WHY?
1. There will be a bear market coming soon. That bear market will be very SEVERE, much more than the 2008 housing bubble, 2000 dotcom bubble and 1987 20%-in-one-day crash. It's imminent within the time frame of 2 years.
Why?
The main reason is that the world debt levels are too high now. They are much higher than that of the 2008 housing bubble. In history, financial crises are almost always debt crises.
World debt/GDP 2007 before the housing market collapse: 195%
World debt/GDP 2021: 317%, more than 1.5x higher than the 2007 level.
To understand more easily the unsustainability of this high debt level, let’s take a look at an example at a personal level. Assume that your income is $100,000/year or $8,300/month. At 317% debt level of income, your debt is $317,000. Suppose your interest rate is 5%/year, which is reasonable because some years you will have higher and lower rates. Let’s say you want to pay off the debt in 10 years, both principal and interest. Your monthly payment will be $3421, which is 41% of your income. Remember that this is only to pay down your debts and you still have other living expenses like mortgage payment or rent, food, energy, transportation, healthcare, children education and entertainment etc. Do you think you can realistically pay down this debt without suffering a significantly lower living standard than you want for 10 years? Do you think you can access bank loans to buy a home or a new car with such a high level of existing debt repayment?
2. There will be a relief rally of the stock market, potentially a big rally. It will be followed by a crash and severe bear market.
Why?
Currently, there's pessimism in the markets. Usually, when everyone is worried, there will be a surprise in the other direction which is a relief rally. There could be many reasons for the rally. Some of the reasons he could think of are: peace in Ukraine, fall in commodity prices and a slowdown/reverse in the Fed rate hikes.
After the rally, a crash will happen due to the sky level debts mentioned in the point #1. Economic expansions and contractions have always happened in the modern history. The current expansion has lasted longer than normal (13 years) and it is due to revert to contraction. It’s “reversion to the mean” principle.
3. With such a scenario, opportunities will be: commodities and learning to short the stock market in the rally.
Why?
Commodities are cheap now. Prices will fall when there’s a rally in the stocks. That will be an opportunity to buy commodities because in the long run with expected high (money and credit) inflation, commodities will perform well.
For those who want to make more money, learning to short stocks before the crash will be a great tool. Shorting is a potent but difficult skill though.
Commentaires