My favorite investment analyst continues to be Jim Rogers, who started the Quantum Group of Funds with his former partner, George Soros. I admire Jim for what he’s accomplished as an investor in the stock market, as well as betting on bonds, currencies, and commodities. He’s also done a lot of other great things in his life, and all of his experiences have helped him to hone his investing skills.
He rode around the world on his motorcycle, putting him and his girlfriend into the Guinness Book of Records. Later he drove his car around the world, setting another Guinness record. Jim is now domiciled in Singapore, a city-state located in Asia between Australia and China. He firmly believes that Asia is the next “it” region for making money, and that China will soon become the most powerful country in the world.
Jim is one unhappy camper these days, and in his latest book, Street Smarts, most of his ire is directed at the Federal Reserve, Ben Bernanke, Alan Greenspan, and the inability of politicians to act in the long-term interest of Americans. He’s really upset about the Wall Street bailout during the financial crisis, alleging that the players in power used taxpayer money as their own bailout machine. It’s a great read about his life, and it’s useful for investors and speculators in the stock market or other securities. Jim even resorted to quoting the Bible regarding the huge power shifts taking place in the world. Forget business school, he says, learn how to farm.
The Federal Reserve has single-handedly forced the U.S. economy (and the stock market) into the predicament that it’s in. No other Federal Reserve chairman in recent history has been more accommodative to Wall Street and the stock market.
As Jim argues, businesses must be allowed to go bankrupt. Other corporations come in, buy up the remaining good assets, and make those businesses better. That’s free enterprise. That’s capitalism. What we have now is not free enterprise; it’s a planned economy by the government and the Federal Reserve, and they aren’t interested in the long term.
But lament all you want; even Jim recognizes that all of this is beyond our control. So as investors, we have to approach the stock market and other trades with these fundamentals in mind and plan accordingly. (See “The Best Kind of Stock to Own for the Rest of This Decade.”)
The Federal Reserve will withdraw its third round of quantitative easing (QE3) at some point. Even though the stock market will fall on the news, it’s a good thing to get the Federal Reserve out of capital markets. But what the Federal Reserve has made very clear is that it wants short-term interest rates to remain low for a considerable period of time; and while it is artificial, this is exactly what will fuel a rising stock market.
So, if you have a portfolio of blue chips, they should be appreciating in value. The stock market will keep ticking higher until there’s a shock, either from the Federal Reserve, Europe, bad financial results, or war. These are the usual suspects, and they are the regular risks.
Stock market valuations aren’t stretched by any means, and it’s up to first-quarter earnings season to prove it. I think it will be a “sell in May, and go away” type of year again. The only bubble right now is in the money supply, and its consequences, while significant, aren’t fully here yet.