By William Patalon III
Money Morning/The Money Map Report
Ask investing icon Jim Rogers about the $700 billion U.S. banking bailout, and he'll tell you that it's nothing but "horrible economics."
And with good reason: Most of the major U.S. banks are already bankrupt.
"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," Rogers said in a recent teleconference at the Reuters Investment Outlook 2009 Summit. "What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent. What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."
A long-time China bull, Rogers first made a name for himself with The Quantum Fund, a hedge fund that's often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor's 500 Index climbed about 50%.
It was after Rogers "retired" in 1980 that the investing masses first really got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the recently released "A Bull in China." He also made some historic market calls: Rogers predicted China's meteoric growth a good decade before
it became apparent to everyone else, and he subsequently foretold of the powerful updraft in global commodities prices that's fueled a year-long bull market in the agriculture, energy and mining sectors.
Rogers' candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Twice last year Rogers granted exclusive interviews to Money Morning Investment Director Keith Fitz-Gerald. In one of the interviews – carried each time as two-part series in Money Morning – Rogers correctly predicted that the U.S. financial crisis was destined to get much worse before any improvement was visible.
Goldman Sachs Group Inc. (GS) analysts last week estimated that banks worldwide have incurred $850 billion of credit-related losses and write-downs since the global credit crisis began last year.
But Rogers said sound U.S. lenders remain. He said these could include banks that don't make or hold subprime mortgages, or which have high ratios of deposits to equity – "all the classic old ratios that most banks in America forgot or started ignoring because they were too old-fashioned."
Many analysts have cited the Sept. 15 bankruptcy filing by Lehman Brothers Holdings Inc. (OTC: LEHMQ) as a trigger for the soon-to-follow cratering of the U.S. stock market and accompanying worsening of the U.S. economy.
But Rogers called that idea "laughable," noting that banks have been failing for hundreds of years. And yet, he said policymakers aren't doing enough to prevent another Lehman.
"Governments are making mistakes," he said. "They're saying to all the banks, you don't have to tell us your situation. You can continue to use your balance sheet that is phony " All these guys are bankrupt, they're still worrying about their bonuses, they're still trying to pay their dividends, and the whole system is weakened."
[Editor's Note: Not many commentators can say that investing icon Jim Rogers granted them an exclusive interview. But Money Morning Investment Director Keith Fitz-Gerald can make that claim. Indeed, Fitz-Gerald interviewed the noted investor and author twice last year – once at Rogers' home in Singapore, and the second time at a financial conference in Vancouver. The stories that resulted were among the best read of last year in Money Morning. That says a lot about Fitz-Gerald's credibility. The ongoing financial crisis has changed the investing game forever, making uncertainty the norm and creating a whole set of new rules that will help determine who wins and who loses. Investors who ignore this "New Reality" will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive.
Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as "The Golden Age of Wealth Creation." But he brings more than a realization – and an understanding – to the table, here. After a decade of work, he's also developed a new computerized trading model based on a mathematical concept known as "fractals." This system allows him to predict price movements of broad indexes, or individual stocks, with a high degree of certainty. And it's particularly well suited to the kind of market we're all facing right now. Check out our latest report on these new rules, and this new market environment.]
News and Related Story Links:
Money Morning Exclusive Jim Rogers Interview From Vancouver (Part I):
Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years.
Money Morning Exclusive Jim Rogers Interview From Vancouver (Part II):
Exclusive Interview: Jim Rogers Continues to View China as the World's Best Long-Term Profit Play.
Money Morning Exclusive Jim Rogers Interview From Singapore (Part I):
Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve.
Money Morning Exclusive Interview From Singapore (Part II):
Jim Rogers: China's Economic Advance is All But Unstoppable
Money Morning Banking Bailout Investigation:
Banks That Got $188 Billion in Bailout Money This Year Paid Out $1.6 Billion to Top Execs Last Year.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.