- Jim Rogers, the chairman of Rogers Holdings, thinks a “blow-up” may be in the cards for the US stock market.
- Rogers leans on central bank and fiscal policy, along with historical precedents, in order to bolster his argument.
- Rogers says we can expect more money printing and government spending at least until the US elections in November.
- “This is insane,” Rogers says.
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“I am not very good at timing the market, but I suspect we may have a blow-up at least in the American stock market, and maybe the Japanese stock market, because of all this madness that is going on.”
That’s what Jim Rogers, the chairman of Rogers Holdings, said in an Economic Times op-ed partly titled “There will soon be a blow-up in US and, possibly, Japanese markets.”
The aforementioned “madness” Rogers refers to is none other than the confluence of unprecedented central-bank and fiscal aid. These coronavirus crisis-era measures have stoked concerns that monetary authorities are creating asset bubbles that would become vulnerable as policy support is withdrawn.
“The main thing that is going on in the world is that central banks all over the world are printing huge amounts of money and governments are borrowing and spending huge amounts of money,” he said. “This is insane.”
Here’s what the Federal Reserve has been up to since the crisis shuttered huge swaths of the US economy mid-March:
- Cut interest rates to zero
- Announced unlimited quantitative easing
- Started purchasing corporate bonds
- Announced an initiative to buy state and local bonds
As a result, the Fed’s balance sheet has ballooned to colossal proportions. Below is a snapshot of the Federal Reserve’s balance sheet. Today, it tops $7 trillion.
Source: Board of Governors of the Federal Reserve System (US)
But Rogers has danced this dance before. He has a long history on Wall Street, having cofounded the legendary Quantum Fund with billionaire investor George Soros in the 1970s.
“The end game?” he asked. “Well often in history, after a long rise in the market, it turns into a blow of bubble, especially when there is a huge amount of money that suddenly comes in.”
Today, it seems plausible that markets have met the historical precedents Rogers refers to above. Prior to the fastest bear market in history, stocks enjoyed the longest bull market on record. Now, in just a few months time, the Fed has expanded its balance sheet by approximately $3 trillion.
Although Rogers isn’t putting a timetable on the impending “blow-up,” he says we can expect more money printing and low interest rates as the US gears up for an election.
“In Washington, they are doing everything they can to get re-elected,” Rogers said.
He added, “That is what they do. They do not care about us. They do not care about our children. They care about getting elected,” he said. “So until November anyway, this is all going to continue in the US.”
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