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)

George Soros finally gets it

http://optionarmageddon.m…inally-gets-it/

Rolfe over at Option Armageddon tackles George Soros amazing flip-flop from his side-pocket banking position that he publicized a bit over two weeks ago (Feb. 4).

As I commented on OA, it seems more and more true believers in the financial system are losing faith and turning into apostates. What’s interesting in Soros’ case is how dire he paints the present situation, comparing it to the collapse of the Soviet Union. Perhaps he’s not far off the mark.

Per Rolfe:

Anyway, only three weeks after arguing “side-pockets” were the magic bullet, Soros now sounds downright despondent. Reuters:

Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

“We witnessed the collapse of the financial system,” Soros said at a Columbia University dinner. “It was placed on life support, and it’s still on life support. There’s no sign that we are anywhere near a bottom.”

Three weeks ago George thought all we needed was a little financial engineering. Now he sees “no prospect” of resolution and says we’re falling like the Soviet Union. What changed? My guess is that George finally started to think outside the box; he put his big brain to work thinking about the very foundation of our economic system and realized its broken.

Why highlight this particular flip-flop with a blog post? I think it’s emblematic, and not in a good way.

I continue to be struck by the level of ignorance among our captains of industry, our leading policitians, our financial elite and, most ominously, our economic “experts.” Few appear to recognize the depth of the crisis we face. Most still aren’t prepared to ask the hard, fundamental questions about our economic system. Anyone who mentions the gold standard, for instance, is treated as a novelty.

The problem, I think, is that so many of our leaders are tied immovably to the old way of doing business. A man will make himself believe most anything if his salary depends on it. Lots of salaries are at risk, so lots of heels are digging themselves in.

Anyway, as I’ve argued for awhile, the only way to “solve” the crisis is to let asset prices fall. And that means the balance sheets on which those assets currently reside need to recognize substantial losses. Call it the “Fight Club” solution*—everyone goes back to $0. This would be highly painful for ALL Americans. But it would be most painful for those with the most to lose…

—————

*Fight Club screenplay:

JACK
…I believe the plan is to blow up the headquarters of these credit card companies and the TRW building.

STERN
Why these buildings? why credit card companies?

JACK
If you erase the debt record, we all go back to zero. It’ll create total chaos.

As I noted (H/T MVC), today happens to be Chuck Palahniuk’s, Fight Club author, birthday.