A hat tip to Dismally Dave for this Reuters interview with Jim Rogers.Jim is calling for some emerging markets to drop 50%, 80% or "collapse." He is sticking with China, which he said could go down 30-40% but he is willing to ride that down.
That type of decline could never happen.
Thinking never is probably dangerous but one thing that could be true and so be a factor going forward is how many investors are new to emerging markets and what might they do in the face of some sort of decline bigger than the one last spring.
One factor that contributed to the US tech wreck was speculation by new market participants in a hot area of the market. New market participants speculating in a hot area of the market could also describe the emerging market theme in the last few years.
I am inclined to think other markets could not cut in half so soon after the US market cut in half but as pointed out in the interview the Nikkei peaked about 10 years before the US did so maybe he is on to something.
Predicting something like that is not in my wheelhouse but I have been urging caution and moderation with emerging markets for almost a year.
18 comments:
http://www.bloomberg.com/apps/news?pid=20601009&sid=a_OKTnmeBIPs&refer=bond
Roger, I just ran across Fitch's rate cut of Iceland...link above
Thank you Leisa. USDISK looks like it is trading with a 67 handle after the news after being in the 65s earlier today. I think it was in the 67s just this week so it has been hopping around.
Things being what they are with Iceland I am not sure it makes sense to look at Iceland's current account in the same way as other countries but of course i could be very wrong and fitch could be right. Fortunately this threat is more priced in byt the market than it was a year when this all started.
Well, I don't know a thing about any of this, but given your Icelandic leanings, I wanted to point it out to you quickly.
Leisa...media bird dog.
i am not sure i follow the logic of why cannot some emerging markets get cut in half?
i did not check out the Rogers interview but i would point out that four markets in the Middle-East lost between 25 to 50% last year. Saudi market, whose economy is larger than many other emerging markets, was one of those. So was Egypt's.
my saying "could never happen" is intended sarcasm which I address in the next sentence.
It is possible, I don't think probable, not 50%, but it is possible.
sorry if that was not clear.
I always try and keep every single opportunity within the realm of possibilities. However, probabilities tend to kick in, and I think Jim is getting a bit overly pessimistic. I see some moves out with the carry unwinding and liquidity drying up. But, 80% drops in emerging markets is a tough one to visualize. Still within the real of possibilities. Just low on the probabilities.
the other day you pondered the percentage of sub-prime loans and the percentage of defaulters and their would-be effect...
Tonight i ran into this post, http://tinyurl.com/2x2c53
not sure about any of the facts in it, but the author shows how an increase of defaults can mushroom to a lot more damage.
So, is Jim Rogers the Howard Ruff of 2007?
Quite a distinction.
Haven't posted anything for a long time. Stopped for health issues, but am improving gradually and moved to Austin from the decimated midwest.
You may remember me.
My consulting work rolled off so I've spent a great more time studying the markets over the last two tears.
I just got done posting several places elsewhere, how Peter Schiff was laughed at on TV and in several appearnces. I''ve seen him live at the Money Show 3 times in the last 5 years. Batapaglia PermaBull has been converted.
Point of the post is, I think we have hit the inflection point and have configured my portfolio accordingly. I don't own 1.8% or every non-correlated. I go 33% short. DXD, MZZ, QID. Others. I think we will see at least a 20% downtuen, and more likely 30%, in what I see as a major leg C down followed by the d and e minors. Dow 7800 if we are lucky.
Depending on Uncle Ben.
Any optimism at this juncture I think needs to be bottled until it has aged "its time". And unled uncle Ben bailes us out, I think this is the big one down.
Holding all the heavy gold and silver positions I have, plus some unhedged miners, plus GDX, plus any gash is split into FXE, FXF, and FXY.
I read Roger's posts and respect him greatly. I just think he's lulled into a complacency when the order of the day is major, major defensive action.
I'd love to be eating a 'cone and worry free, but I see how I can lose or gain a lifetime's fortune in the next couple years. And I still do stop and eat a cone, but I'm not losing this one without a fight.
As Schiff says, the subprime disaster is analogous to a cancer that has spread throughout the entire body for years, but the sub-prime leisons are the first to appear. I believe the entire collapse will follow in short order, just like a terminal cancer patient.
And the Fed can't push on a string. ie, if there's no fish on the line, you can't reel one in.
We have seen the beginning of the new era. One day after Robert McHugh predicted the major sell off with his Fi-mate model.
Everything is falling into place. This is no time to be expecting an "it's different this time" scenario. I have my mental picture of the state of things and what is likely to hapen over the next 5 years, after nearly 3 years of full time study.
That "it could never happen in China" joke struck me. Similar to whether there is life in outer space. Either of the possibilities is mind boggling.
Dave B
Why would an active manager like Rogers stick with an investment (China) if they truly thought it could go down 30%-40%. Strikes me as a bit bizarre.
Dave B
You just scared the bejabers out of me!
Happy St Pat's day.
O'G
Just think how many the sky is falling voices there will be before this normal correction is over. This may take several weeks but I would expect the lows are still 4% (give or take) lower than we have already seen.
Once the sky is falling crowd hits a crescendo I will go back to being over invested.
Caution is good. The market is no sure thing. Grantham still likes the Emerging markets better than any other for the next 7 years. Go figure. As you know, being cautious o n these markets has cost you...
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=adre&time=&freq=
Dave B
You may be right. Still would you not have spoken in the same manner last summer? Would you explain your reasoning?
Roger (or others),
I might have the opportunity to ask a question to Jim Rogers at an event at the end of the month.
Is there a burning question that you like to ask? Please try to focus it on something that he could give a "insightful" answer and not waffle with general comments...
Personally, I wonder about some of the stuff coming from him...
AI
AI,
I would like to know what portion he allocates to soft commodities, China, airlines bonds and anything else he owns.
thanks
Roger,
I will try to ask that but I am not sure if he will give a straight answer on that one.
I do know he likes the agri commodities a lot (i seems to recall he like the inputs to bio-fuels as well).
Thanks,
AI
Tristaina:
I made a similar call about a year earlier and had to backpeddle after I saw the weakness never materialized.
Whether it was normal market forces, or the PPT, dunno.
The strong bull segment with nil pullbacks looks highly manipulated to me. In any case we are due for a fall to the 4 year cycle low that never happened at the time-proper 4 years, but it will happen.
IMHO now is not the time to be a hero. But I did put back on all the Oil longs and some new Gold and Silver longs. Everything else, be damned.
DB
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