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Jim Rogers Doesn’t Mince Words About the Crisis

http://www.businessweek.c…22017811535.htm

The title of this interview with Maria Bartiromo is dead-on as billionaire investor Jim Rogers speaks the hard truth about what has happened and should happen on Wall Street as well as what he sees coming down the pipeline.

Rogers’ comments are brief, succulent and refreshing — so much so that they make me wonder why we don’t hear these things from the other members of the billionaire club. By way of poignant comparison (Soros co-founded the Quantum Fund with Rogers), George Soros’ flip-flopping in recent weeks makes him come off as a sort of Elmer Fudd (See George Soros finally gets it). What is going on? Why is Rogers so cocksure of himself? Why is he so brutally honest?

One argument is that Rogers, like many other commodity bulls, is just talking his book. And even though talking your book doesn’t make you wrong, it inevitably makes you biased.

I think there’s a bigger reason Jim Rogers is being so frank. He can afford to be. Compare him with Warren Buffett or George Soros, two other wizened investors who are considered go-to gurus on the economy. Both of these guys* are hugely invested in the United States both financially and politically. Meanwhile, Rogers sold-out his house in New York and seems to have moved most of his investments into real assets (Agriculture, metals, etc.) and China. Jim Rogers has protected his wealth and situated himself for economic turmoil!

He has no reason to be afraid of telling the truth. Let the banks go bankrupt. Call out the CEOs who made millions while destroying their companies!

It really doesn’t matter that he’s talking his book when he’s right, does it?

The full interview isn’t long, but my favorite parts are snipped below. For all the folks out there (like us) who held out and didn’t buy a house in the boom, can I get an “Amen!?” How about the ones who didn’t buy into the bull market bull and went short only to get wiped clean by Fed market intervention?

Thank you, Jim!

What do you think of the government’s response to the economic crisis?

JIM ROGERS: Terrible. They’re making it worse. It’s pretty embarrassing for President Obama, who doesn’t seem to have a clue what’s going on—which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama’s chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.

So what should they be doing?

What would I like to see happen? I’d like to see them let these people go bankrupt, let the [banks] go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn’t go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: “Well, too bad for you. We don’t care if you did it right or not, we’re going to bail out the 100,000 or 200,000 who did it wrong.” I mean, this is outrageous economics, and it’s terrible morality.

What about Citigroup (C)? What about the car companies?

They should be allowed to go bankrupt. Why should American taxpayers put up billions to save a few car companies? They made the mistakes! We didn’t make the mistakes! I’m sure they’ll give them the money, but I’m telling you, it’s a mistake. It’s a horrible mistake.

I totally understand what you’re saying, but the banks are under massive pressure.

They all took huge, huge profits. Who was the head of Citigroup? Chuck Prince? I mean, how many hundreds of millions of dollars did Prince take out of the company? How many hundreds of millions of dollars did other Citibank execs take out of the company? Wall Street has paid something like $40 billion or $50 billion in bonuses in the past decade. Who was that guy who was the head of Merrill Lynch (MERR)?

Stan O’Neal?

Right, Stan O’Neal. He got $150 million for leaving, even though he ruined the company. Look at the guy at Fannie Mae (FNM), Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac (FRE) alone did nothing but pure fraudulent accounting year after year, and yet that guy’s walking around with millions of dollars. What the hell kind of system is this?

Which commodities are worth buying or holding on to?

I recently bought more of all of them. But I really think agriculture is going to be the best place to be. Agriculture’s been a horrible business for 30 years. For decades the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things [will be on top]. You’re going to see stockbrokers driving taxis. The smart ones will learn to drive tractors, because they’ll be working for the farmers. It’s going to be the 29-year-old farmers who have the Lamborghinis. So you should find yourself a nice farmer and hook up with him or her, because that’s where the money’s going to be in the next couple of decades.

*I’m uncertain as to how Soros’ portfolio weighs out though he’s certainly made some bad bets in the recent market crash (See stockpickr)

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Fannie Mae Rescue Hindered as Asians Seek Guarantee

http://www.bloomberg.com/…_DcY&refer=home

This strikes me as being incredibly naive of the Asians. Do they really think it matters if the U.S. explicitly guarantees the mortgage-backed securities of Fannie and Freddie? The U.S. can always run the printing presses. They should be more concerned (and I know the Chinese government is concerned based on recent comments) the U.S. government destroys the value of the dollar and obliterates their dollar-denominated holdings. .

Put another way, there’s no free dessert, nor can you have your cake and eat it, too.

Below are the relevant quotes from Bloomberg:

Asian investors won’t buy debt and mortgage-backed securities from Fannie Mae and Freddie Mac until they carry explicit U.S. guarantees, similar to those given on bonds issued by Bank of America Corp. or Citigroup Inc.

The risks are too great without a pledge that the U.S. will repay the debt no matter what, according to Hideo Shimomura, chief fund investor in Tokyo for Mitsubishi UFJ Asset Management Co., and other bondholders and analysts in Japan, China and South Korea interviewed by Bloomberg. …

[Shimomura continues] “there is still a concern that there is no guarantee” from the government, said Shimomura, who oversees $4 billion in non-yen bonds for the arm of Japan’s largest bank.

“Looking at the risk, they’re not so attractive,” he said. “We need a guarantee before we’ll buy.”

I’m reminded of the scene in Tommy Boy where the protagonist, Tommy Callahan, makes a sale by speaking truth about guarantees:

Tommy: Let’s think about this for a sec, Ted, why would somebody put a guarantee on a box? Hmmm, very interesting.
Ted Nelson, Customer: Go on, I’m listening.
Tommy: Here’s the way I see it, Ted. Guy puts a fancy guarantee on a box ’cause he wants you to fell all warm and toasty inside.
Ted Nelson, Customer: Yeah, makes a man feel good.
Tommy: ‘Course it does. Why shouldn’t it? Ya figure you put that little box under your pillow at night, the Guarantee Fairy might come by and leave a quarter, am I right, Ted?
[chuckles until he sees that Ted is not laughing too]
Ted Nelson, Customer: [impatiently] What’s your point?
Tommy: The point is, how do you know the fairy isn’t a crazy glue sniffer? “Building model airplanes” says the little fairy; well, we’re not buying it. He sneaks into your house once, that’s all it takes. The next thing you know, there’s money missing off the dresser, and your daughter’s knocked up. I seen it a hundred times.
Ted Nelson, Customer: But why do they put a guarantee on the box?
Tommy: Because they know all they sold ya was a guaranteed piece of shit. That’s all it is, isn’t it? Hey, if you want me to take a dump in a box and mark it guaranteed, I will. I got spare time. But for now, for your customer’s sake, for your daughter’s sake, ya might wanna think about buying a quality product from me.
Ted Nelson, Customer: [pause] Okay, I’ll buy from you.
Tommy: Well, that’s…
Tommy, Richard Hayden: …What?

Cross-posted (well, sort of) to IEHI.

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China Feasts on Miners as “Bank of Last Resort”

http://www.bloomberg.com/…VMA&refer=home#

What’s China to do with their $2 trillion in reserves (world’s largest)? Spend it, of course. And what better place to spend that money than on real assets?

An interesting, if not predictable (to some), development.

Wuhan Iron & Steel Group and Jiangsu Shagang Group Co., China’s third- and fifth-largest steelmakers, are shopping for iron ore mining stakes in Australia and Brazil, executives said in interviews.

“We are evaluating and selecting” candidates in Australia and Brazil, said Shen Wenrong, Jiangsu-based Shagang’s chairman. “Going overseas is the government policy, so I believe we will get financing from Chinese banks.” Wuhan spokesman Bai Fang said his company is “looking for opportunities” amid lower acquisition costs for iron ore assets in Australia and “won’t rule out other countries.”

The world’s top metal user, China has agreed to acquire $22 billion worth of commodity assets this year after a 70 percent drop in metals and oil since July ended a six-year boom in raw materials. With U.S. and Australian banks still hesitant to lend, Rio Tinto Group and OZ Minerals Ltd., laboring under combined debt of $40 billion, agreed this month to sell stakes to Aluminum Corp. of China and China Minmetals Corp., respectively.

“China has turned out to be the bank of last resort,” said Glyn Lawcock, head of resources research at UBS AG in Sydney. “China is a net importer of copper, bauxite, alumina, nickel, zircon, uranium. China is looking for ways to secure supply of these raw materials.”