Jim Rogers warns about the coming bear market, which he retreated in his latest interview could be the worst in his lifetime.
Jim Rogers co-founded the Quantum Fund with George Soros in 1973 during a devastating bear market. From then till 1980, the portfolio returned 4,200% while the S&P 500 rose 47%.
Jim Rogers is a successful veteran investor who has seen his fair share of bear markets in the past 50 years of his career.
“Jim Rogers co-founded the Quantum Fund with George Soros in 1973 during a devastating bear market. From then till 1980, the portfolio returned 4,200% while the S&P 500 rose 47%”
WEALTH TRAINING COMPANY
When Jim Rogers warns about the coming bear market, it might be prudent to take note
“The next bear market will be the worst in my lifetime” predicted Jim Rogers in an interview In October.
Jim Rogers has been bearish on the US stock market for many years and that has earned him the title of permabear on stocks.
A decade-long of massive central bank asset purchases amounting to trillions of dollars helped keep the stock bull market intact during the Great Recession of 2008 and the pandemic lockdowns.
But in early November, the Fed confirmed that it would reduce its minimum monthly asset purchases, known as quantitative easing, of $80 billion in Treasuries by $10 billion to $70 billion. Moreover, the Fed’s housing-backed securities purchases each month of 40 billion will also be reduced by $5 billion.
So, the Fed’s reduction in QE, known as tapering, begins this month in November.
The Fed’s transition towards normalizing monetary policy could mark the end of a melt-up in risk assets.
“The next bear market will be the worst in my lifetime”
WEALTH TRAINING COMPANY
Tapering gives weight to Jim Rogers warnings about the coming bear market view
To date, the stock market reaction has been muted, and we see no signs of capital rotating from risk on to risk-off assets.
In other words, the indicators are not flashing red at the time of writing this piece the US Dollar Index is 94, near its 52 weeks high but well below 104. The US 10 Year Treasury Note yield is 1.46%, which is below 2%, and Crude oil is around 82 USD a barrel.
The fear index, known as the VIX, is 17.33, which suggests no fear in the market.
Frankly, it feels somewhat surreal that the market is completely shrugging off a historic decision that the Fed will reduce QE and is tapering, albeit in small increments.
“If the Fed sticks to what it says, which is to reduce its monthly asset purchases by 15 billion USD, that is likely to have a significant headwind on the stock bull market” – Wealth Training Company
Perhaps we have seen a market delayed reaction, or maybe the Fed has yet to make the cuts.
Think about it. If the Fed sticks to what it says, which is to reduce its monthly asset purchases by 15 billion USD, that is likely to have a significant headwind on the stock bull market.
Bill Hwang’s fund blowup early this year in March resulted in Morgan Stanley dumping over $20 billion worth of equity positions in a series of block trades. The outcome was billions of dollars wiped off the value of stock prices in hours.
But the Fed is planning to unload 15 billion USD of bonds every month, starting this month in November, and stocks keep hitting record highs?
Remember the taper tantrum of 2013 when the Fed Chair announced it would reduce the pace of its bond purchases. The reaction was predictable, the 10-year treasury yield spiked, and a sharp stock sell-off followed.
If liquidity is withdrawn from the market, then typically yields rise. So, the cost of borrowing increases, and that triggers a risk-off investing environment.
So are we seeing market psychological operations being played out on investors where reality is being blurred, where left is right, and vice versa. It is a type of mind f…k.
But the reason why stocks rose was due to the Fed tapering the taper. In other words, after the Fed attempted to taper in 2013 and saw the negative outcome, the Fed did a 180 policy U-turn and went back to doing QE. What followed was QE infinity for the last 8 years. The dot plot failed attempts to normalize led to a stock market meltdown in December 2018, which was triggered by a measly 25 basis point hike from 2.25 to 2.50%.
So, we believe if the Fed sticks to its tapering in November, the melt-up in stock prices will give way to gravity.
“An electric car uses several times as much copper as a combustion engineering car, so there’s going to be a huge demand for some of these metals that we didn’t have before” – Jim Rogers
Jim Rogers warns about the coming bear market being the worst in his life might not be an exaggeration
Perhaps the taper tantrum that was seen in 2013 has yet to come.
There has been a string of warnings about the current asset bubble of everything, the latest coming from Morgan Stanley with the bank’s CIO concerned that the Fed’s policy is divorced from the fundamentals.
Even the very Fed itself has warned of the peril of risky assets that keep rising, making them more susceptible to perilous plunges if the economy takes a turn for the worse.
“Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall,” said the Fed in its twice-yearly Financial Stability Report released November.
Reading between the lines, that probably means Fed asset sales could indeed be starting in the second week of this month, November.
Jim Rogers warns about the coming bear, which could be the worst in our lifetime, but what should investors do?
Jim Rogers remains a fan of metals, particularly precious metals.
He also sees opportunity in copper, which he believes will continue to do well in mass electrification of transport.
“An electric car uses several times as much copper as a combustion engineering car, so there’s going to be a huge demand for some of these metals that we didn’t have before” said Jim Rogers.