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What Would Jim Rogers Do?

by: Tim Iacono October 10, 2008    

Tim Iacono

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Jim Rogers was on Bloomberg this morning. When pressed for solutions to the current crisis (rather than critiques of its handling so far), he had some interesting comments.

IMAGEClick to play in a new window

This discussion really strikes at the heart of the current dilemma - do you try to lessen the impact of the current meltdown in an attempt to insure you'll avoid another Great Depression, or, do you just let markets do what they want to do and then pick up the pieces and start over?

Slower with less pain or fast and painful? Obviously, Rogers favors the latter:

I would tell you what has always worked throughout history and I'll tell you what has always not worked.

The Japanese tried this in the 90s, they kept putting band-aids on and they wouldn't let people fail. You remember the term "zombie" companies, "zombie" banks? Well it's eighteen years later and the Japanese stock market is still down over 75 percent. They talk about the 90s as a lost decade.

America tried it in the 70s - they wouldn't let anybody fail. We had one of the worst economic decades in American history - high interest rates, high inflation, a collapsing currency. It didn't work.

Korea in the 90s, took a hit. They had a horrible two or three years but, since then, they've been one of the most rapidly growing economies in the world. The Russians took a horrible hit - since then, they've been one of the most rapidly growing economies in the world.

This is not politics, this is not philosophy. I'm telling you what has worked throughout history and what has not worked throughout history.

Look it up.

When asked about letting banks collapse one by one, this reply came:

Let 'em fail two by two or three by three. I mean, what is this? Banks have been failing since the beginning of time and they're probably going to fail again until the end of time.

The way it's always worked successfully has been, let the incompetent fail and the competent people - banks, mainly in this case - take over the incompetent banks and everybody starts over.

Yeah, you have a very bad year or two but we've had the worst excesses in the credit market we've had in world history. Never before in world history have people been able to buy a house with no money down, and many of them bought four or five houses with no money down and no jobs, and then the bankers were saying, "This is fun, let's do it with car loans, student loans, credit card loans".

We've had horrible excesses -this has to be cleaned out.

He also noted that the current recession is going to be the worst since World War II.

The video is in high demand at the moment, so good luck getting it to play.

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This article has 4 comments:

  •  
    Oct 11 06:46 PM
    Yes, I admit that Jim Rogers influenced my portfolio holdings, but I think I have finally realized that this "guru" is nothing more than a lucky guy at the track. I saw Jeff Gendell, my previous favorite guru, get nailed 65% to the downside this year, while Ken Heebner continues to watch his CGM Funds sink. The seemingly bullet-proof T. Boone Pickens, lost $1B on the long-side of oil, after convincing everyone that we'd see <insert large number> before we'd see <insert small number> for a barrel of oil, until he finally had to stop in September 2008. Now he's seen an alternative energy rider in the TARP bill that completely ignores wind energy, almost as if paying him back for the media campaign he's waged.

    And here's Singapore resident Jim Rogers, telling me what? Who cares....
    Reply
  •  
    Oct 11 07:51 PM
    I admit, I listen to Jim Rogers too. He has a commodoties fund so I wonder if sometime he is touting it, but he generally appears to be speaking his mind, right or wrong. Also, he admits to being a terrible market timer and never makes short term predictions. Like Buffet, he takes the long view.

    I listen to a lot of these guys and piece my own view together. However, I am coming to the same conclusion as BxCap above: A lot of these so called experts are getting had lately. Boone has lost all credibility on recent calls. Jim Cramer called a bottom a few weeks back and then went on last week and told folks to sell if their time horizon was less than five years.

    I am starting to trust my own instincts more and more and generally distrustful of the short term!
    Reply
  •  
    Oct 12 08:39 AM
    Jim Rogers has a point there, see the historical precedents where it worked and where it didn't. Bailout does not seem to be the solution, nature's way of survival of the fittest [banks] may be more appropriate. Excesses has to be clean out. There is just no easy way out, either a slow debt cancer to be worked off or a car crash to clean out the system.
    Reply
  •  
    Oct 12 02:00 PM
    Jim’s simplistic argument is that Bernanke and Paulsen are incompetent and the Fed’s printing presses are out of control which will lead to hyperinflation down the road. At time he sounds almost hysterical, leading me to believe that he’s on the wrong side of quite a few investments.

    For people like Jim, I’ve yet to see any of them even acknowledge the other side of the monetary dynamic, which is that the great credit superbubble has burst. How can we have hyperinflation when trillions of dollars in asset classes are being destroyed and trillions more in credit is being unwound? Yes, there currently is a ridicules amount of liquidity, but even so ,who’s lending, who’s borrowing, and how many businesses are even expanding? Not many. I’ve yet to see people like Jim even acknowledge that this counter-dynamic even exists.
    Reply
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