Dow @ 1,000,000; S&P @ 50,000; "Why Not?" says Jim Rogers
June 16, 2009
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Jim Rogers is a rare breed among great investors. He is among the very few of which can be said two things:
He's made a ton of money using fundamental analysis and a long term view.
and
He understands how central banks (e.g. The Federal Reserve) impact market activity.
That is a rare combination. The same, unfortunately, can not be said of Buffett (surprising, since his father was such a strong opponent of paper money.)
"I was going to say I don't think the S&P 500 will see new highs," Rogers tells The Economic Times of India. "But I have to quickly temper that by saying against the dollar because the S&P 500 could triple from here if they print enough money and the value of U.S. dollar collapses. Then the S&P could go to 50,000, Dow Jones can go to 1 million." - NewsMax
Rogers' take on the stock market rally, the Fed, the future of the market, and his analysis of past markets is very similar to the Austrian School, Peter Schiff, and Ron Paul. It's also similar to the so-called "doom-and-gloomers" around here that get painted as cranks. However, I don't see anyone questioning Rogers' cred. It just goes to show that the media shapes most people's opinions and nobody in the media wants to hear from Jim Rogers right now.
In a previous post, and in many comments, I've discussed the idea that the market is rallying simply because the Fed expanded its balance sheet. The money had to go somewhere, and since it went to many investment bankers, I assume they pumped it into the market. This seems logical to me, but many people think that's crazy. Why would it be crazy to assume that the Fed doubling its balance sheet couldn't push the S&P up 300 points? It would be crazy to me to think that the market wouldn't react at all.
The point of this is that the government can accomplish any re-inflating of the bubble it wants... up to a point. The dollar will collapse one day - in our lifetimes - something most of us never contemplated until this past year.
The other point is that you are poorer. You may not feel poorer and you may not be able to discern the effects of your reduction in purchasing power right now, but you are definitely poorer, even if you caught the bull rally all the way up. Wealth is measured by PPM (purchasing power of the money unit). If the PPM erodes faster than you can make money, you're poorer. Plain and simple. Of course, you didn't lose as much as someone who missed the 660 --> 940 rise, so I commend you on that. But I think the doom-and-gloomers (so to say) have done pretty well over the past year as well. All of us who do our homework (whatever your style) will make some money - ever increasingly worthless money.
(The Individualist is the ultimate optimist, so to paint them as doom-and-gloomers displays tremendous ignorance about our own ability to shape the world.)
The final point is that inflation is already here. Energy prices have been rising fast in America. Gas prices are on their fastest rise ever. The market is being pumped to death. Many sectors that are closely controlled or associated with the government are seeing fast rising prices. This is predictable. Excess printing of money leads to rising prices in a step-by-step manner as the money travels through the economy. In the sectors where the money is spent first, prices will rise first. Classical economists call this the Cantillon Effect while the Austrian School calls it the Inflation Tax. Same difference.
A humorous note (well funny to me anyway): once again everyone in the media is trying to find someone to blame for rising oil prices. Now it's the investors, fault!!!!! LOL. Yep. It's not the wars or the endless printing of money. It's the investors. If we just killed them off, I guarantee prices would plummet :)
On The Possibility of Stagflation by Robert Murphy
For what it's worth, the monetary aggregate M1 (very liquid assets such as cash and checking deposits) rose by 17 percent during 2008. Remember, during the Hoover years the Fed was unable to prevent M1 from falling at a steep clip. We need to keep these differences in mind before drawing any conclusions about what happens to prices "during a depression."
One last point about deflation/inflation: If you have been reading CNBC headlines and listening to Ben Bernanke, you would get the impression that we are still experiencing "deflationary pressures" in 2009. But guess what? If you look at the non-seasonally-adjusted consumer price Index figures maintained by the BLS, you will see that from December 2008 to April 2009, prices have risen at an annualized rate of 4.3 percent. Yes, you heard right: if you throw out the "seasonal adjustments" and just look at the raw CPI figures, over the last four months the rate of price inflation is well above Bernanke's professed "comfort level."
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