In this video, Jim Rogers is much more than a little salty. My impression is that the news commentators are looking at him with a great deal of skepticism and smirking. I’ll admit that Roger’s presentation of his case was far from eloquent, but the man has a lot of cycles under his belt. That in itself, deserves significant weight in my opinion. I seriously doubt the commentators were meaningfully exposed to the markets in either 1987, 2000, or 2009 as Rogers was.
For a very long time, market participants have relied upon paradigms that offered a false sense of security. That security has been based upon either the belief that liquidity will be abundant or that there is protection using the law of large numbers (statistics). Historical market downturns have clearly shown the fallacy of this thinking time and time again.
Statistics are a great concept until you carefully "look behind the curtain". Remember mortgage backed securities and collateralized mortgage obligations? “The mix of securities in the product will protect investors!” Like data processing, garbage in garbage out applies. Worse still is when a large portion of the market begins to rely on this thought process.
Whenever liquidity is great, most everyone is complacent. What's to worry about? There is lots of liquidity! Well....liquidity is great when a market is balanced between buyers and sellers. But…., when everyone wants to "get out the door", it dries up like the Sahara Desert. Remember portfolio insurance in 1987 and derivatives in 2009? Who was there to buy when everyone wanted to sell?
A large majority of market participants - individual and professionals alike - are now heavily exposed to ETF's and index funds. Sure, they say, "We can sell them quickly if the market tanks! We're protected by liquidity and statistics." Selling mortgage backed securities, derivatives, market baskets, equities, or whatever can be almost impossible when most of the crowd wants to sell.
With the amount of activity in ETF's and index funds now, these investments present an immense macroeconomic risks. In the future, nervous investors who scramble to sell quickly will push markets down drastically. The firms responsible for keeping the ETF in line with a basket of securities will struggle to align EFT prices with their component securities. This will likely cause a self-sustaining downward market drop as fear grips sellers.
Like Rogers, this scenario worries me. For younger investors who haven't seen this process in action yet, it sure isn’t pretty. You better be out the door first (Wishful thinking!) or be prepared to hold significantly depreciated securities for a long time. A long time could means years, not a day, a week, a month or a single year. The only other choice would be to take a huge financial blow to liquidate!
Jim Rogers is definitely a salty dog, but he has seen it before. Take heed of his seasoned viewpoint and be prepared.
People always laugh or are skeptical when someone offers bad news in the middle of a raging party. Then....they get somber and become a little more educated. Every true long-term investor eventually learns this lesson,
Be safe, be smart, be prepared, be well read and be successful!
