The volatility in the equity marketplace continues to be astounding in my mind. Just when we thought that all the bad news was in the marketplace, stocks go and drop another four percent or five percent in one day. Clearly, the market is not trading on anything but fear. There is no good news that will help at a time like this.
My favorite investment analyst continues to call the current trading action a “forced liquidation” and says that these gut-wrenching moves in the marketplace will last for a while longer.
Jim Rogers is still a huge commodity bull, saying that the correction in commodities is just like in equities — it is an unwinding of positions, as most global investors only want to be invested in one thing — and that is cash.
He contends that the credit crisis is actually making the fundamentals for commodity prices even stronger because miners and farmers can’t get the same access to loans. Furthermore, there is very little new equity financing taking place because of the extremely weak equity markets. This means that resources companies aren’t investing in new exploration to the same degree and that production is going to suffer in coming years. All of this, with global demand steadily increasing for agricultural and precious metal commodities.
Rogers continues to rail against the $700-billion bailout package as throwing good money after bad. His view on the matter is very simple: let the poorly managed banks and insurance companies fail. Propped-up financial institutional are going to lay off tens of thousands of people anyway. His view is that consumer deposits are protected by the government, so let the overextended banks fail and let their remaining assets be acquired by the better-managed financial institutions and let’s start the whole thing all over again.
Furthermore, the Federal Reserve is acting very selfishly by considering only the short-term economy and not the long-term picture. The Fed, Rogers argues, is printing money like mad to protect the very industries that need to be restructured. The current slowing of inflation is due to the forced liquidation of securities, and the foundation is being created by the Fed for runaway inflation over the coming years.
Rogers’ answer to this reality is to buy farm land, agriculture investments, the Swiss franc and gold. I have to say that I agree with his assessment of things. Normally, Rogers is a little early in his predictions, but clearly his view of current monetary and fiscal policy is that it is creating unintended consequences that will produce another economic “lost decade” like the one still being experienced in Japan.