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Archive for May, 2010

The latest platinum earnings report from Goldman Sachs is one way to see the strength of Wall Street’s rebound from the financial crisis. for another, just visit the Hamptons on Long Island’s South Shore.

On a recent sunny Saturday, a Bentley and a Ferrari were parked outside the East Hampton boutique of fashion designer and new York socialite Tory Burch. inside, store manager Megan Ruddy was hustling between well-heeled customers examining $600 handbags and gold-buckled shoes.

“It’s going to be a good summer,” she said. “Everyone is sick and tired of holding on to their money.”

No place’s fate is more tied to the fortunes of Wall Street than the Hamptons, a string of beach towns frequented by bankers and hedge fund managers fleeing Manhattan’s muggy summers. The spring house-hunting season is telling, coming as it does after the banks hand out their annual bonuses, which account for the vast majority of Wall Street pay.

A year ago, with the economy depressed, the stock market in the dumps, banks still licking their wounds from mortgage-related losses and bonuses nearly cut in half, the housing market here dropped dead and a gloom permeated the beach clubs.

All that has changed. The bonuses distributed by Wall Street have rebounded sharply — and so has the Hamptons real estate market, with the average home price surging to $1.75 million early this year, up 33% from a year before, according to data compiled by appraisers Miller Samuels.

“After people got their bonuses, they said, ‘OK, things are going to be normal again,’ ” Manhattan securities lawyer Daniel Scotti said while checking out a recent open house for an estate listed at $25.9 million in the Hamptons town of Sagaponack.

With their picturesque dunes and well-tended golf courses, the Hamptons have long been the summer playground of choice for new York’s elite. Paparazzi stake out polo matches and beach parties in search of the many celebrities who keep homes in the area, including Madonna, Steven Spielberg, Martha Stewart and Jerry Seinfeld.

As such, the Hamptons would never be confused for Southern California’s Inland Empire or other areas smacked hard by the housing crash. even so, the Hamptons are still not quite back to where they were pre-crisis.

In East Hampton, the main shopping drag is still dotted with empty storefronts. The inventory of homes for sale is bigger than it was a year ago, and prices remain markedly below their 2007 peak. After Billy Joel and his third wife separated, the singer sold a house in Sagaponack this spring for $10 million, or $1.6 million less than he paid in 2007.

“Before it was all unbridled appreciation — you’d buy something for a million, and it would immediately be worth $3 million,” said Paul Brennan, who is in charge of the Hamptons area for Prudential Elliman Real Estate. “All that has stopped.”

Perhaps the biggest wild card is the stock market, the biggest source of the money that gives the Hamptons its green tint. recent volatility in the markets, combined with the European debt crisis, could end the party before it really gets going.

That said, the atmosphere is less gloomy this spring, locals agree.

“There’s a real sense of confidence — at least out here,” said Adrian Berger, a saleswoman at Tennis East on East Hampton’s main street.

A year ago, Berger said, “people got by with last year’s tennis outfit.” this year she’s seeing a renewed willingness to gear up for the courts.

Scotti, the securities lawyer, bought a property in the Hamptons in 2007, at the height of the market. when the stock market crashed, he said, he expected to wait a long time until he could sell without taking a loss. But this year, before even putting the house on the market, he was offered $2.8 million for it — several hundred thousand dollars more than he paid.

And then, when Scotti went house-hunting in March, he ended up in a bidding war with four people on a property in East Hampton on the day it was listed.

Even in the Hamptons there is a rich/poor divide of sorts, and the recovery so far appears to be one of the rich getting richer. The sharpest gains in housing prices in the last year have come at the high end of the market. at the low end — in the Hamptons that’s below $800,000 — buyers have had trouble getting mortgages approved, agents say.

“I don’t want to be a bank basher, but the banks are being very cautious about giving loans to people at that level,” said Tom Griffith, a broker at Corcoran, a Manhattan-based real estate firm with offices in the Hamptons. “I had a customer who was willing to put down 50% and the bank said no. It’s the guys with all cash who are having no trouble.”

In the bargain-basement Hamptons — north of new York 27 and thus farther from the beach — prices rose 19% from a year before, while south of the highway, the rise was 86%.

Unlike in much of the rest of the country, housing demand here stayed fairly strong right up until Lehman Bros. went bust in the fall of 2008, setting off the worst of the financial crisis. That made the subsequent real estate downturn striking, with both prices and the number of homes sold plunging.

“It made no difference what you priced your product at, there was absolutely no market,” said Alan Schmurman, a lawyer and developer. “It was as if people who had money decided to make no financial commitment because the future of financial investments was unknown.”

The change this spring was all the talk among real estate agents at a recent event in Manhattan put on by Corcoran to promote its Hamptons inventory.

Caterina Proner told of one couple who asked her to sell their home last year when the bonuses dried up. The house didn’t sell, and when bonus season came around this year they went back to Proner.

“All the sudden they are back and saying, ‘I want to keep it,’” Proner said. “A bonus means a summer house.”

nathaniel.popper@latimes.com

Hamptons again warmed by Wall Street’s glow

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Hamptons again warmed by Wall Street's glow

A lot of investors are worried about what shares of Citigroup, Inc. (NYSE:C) will do this week. It’s been a troubling few weeks for the stock, as panic gripped the market about the meltdown of the Eurozone. some of that fear has abated in recent days, but there is still a lot of underlying concern. People remember the last fiscal crisis all too well, because many are still experiencing the effects today!

But let’s face facts. Fortunes are made when stocks are beaten up and selling for a deep discount.

Human nature tells all of us to run when we see all the other people heading to the exits. no one wants to be left behind when a mass exodus occurs in a stock. but investors have to maintain level heads. Is the stock battered because of fundamentals or is it merely sentiment that’s causing the crash? If you’re pretty sure that the market is treating a stock wrong, then you have to have the guts to get in there and buy when everyone else is retreating. You need to show courage when a lesser investor is gripped by fear and is afraid of losses.

The real gains come from buying valuable stocks at all time lows and riding up to new highs. Just study the history of Warren Buffett, who is almost universally called the greatest investor that ever lived. he built his entire career on buying unpopular ‘value stocks‘ and holding them for as long as he could. he once described his ideal holding period as ‘forever.’ For those investors who think like Buffett, now is a great time to buy shares of a Big Cap value stock that could be held onto for years.

Citigroup certainly has many desirable qualities for those thinking of holding for a period of time of several years. the company has suffered a lot of setbacks in recent years and the share price reflects that sad reality. but the news is far from all bad at the company. In fact, in recent months, there have been many developments that should excite just about anyone thinking of purchasing Citigroup stock.

The Eurozone crisis is the main reason C stock dropped in recent weeks. Financials first came under fire when the Goldman Sachs scandal erupted, then got progressively worse as Greece threatened to bring down the European Union. although those are very worrisome concerns for potential Citigroup investors, a realistic review of C’s current operations would make most people comfortable that at under $4 a share a certain safety net is built into the stock.

C has issues to worry about, certainly, but the company also has a whopping $769.33 billion of cash on hand. That’s the type of checkbook balance that gives executive management a lot of flexibility.

With a book value of $5.28 a share, the risk in buying C shares at $3.74 each is very low. I understand using book value is a bit simplistic, but in this case it gives investors some idea of just how much cash is backing each share. When you consider that C has a whopping cash per share of $26.55, you start to see why buying shares in Citigroup at the current valuation is nearing ‘no-brainer‘ territory.

The stock in most companies is worth much more per share than the company is holding in cash. That signals that Citigroup could do a lot to improve its earnings power and its stock price in coming years. If the capital is allocated correctly, the value of Citigroup as a global financial brand could end up much, much higher than the current cash on hand.

But in order to find that out, it will take patience. Investors will need to buy Citigroup stock and tuck it away until enough quarters have passed that the business operations have improved dramatically and the stock is once again selling at a high multiple.

What I expect to see this week is a return to Citigroup stock of fundamental shoppers who recognize the discount. Once the bargain hunters show up, expect the momentum players to head back in and it could be a quick run back up.

If the economic news is good, then C stock could certainly benefit.

Tags: C, Citigroup, NYSE:C, Stocks

This entry was posted on Sunday, may 23rd, 2010 at 12:33 pm and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed.

Citigroup, Inc (NYSE:C) – What To Expect This Week

The congressional debate on financial reform turned a corner when Senator Reid (D-NV) filed for cloture Monday night, a move that signals the final hours of deliberation of the “Restoring American Financial Stability Act of 2010″ (S. 3217). yet the end result is far from clear. a lot can happen during these hours of debate as senators on both sides of the aisle scramble to push their amendments through at the eleventh hour.

The National Council of La Raza (NCLR) is cautiously optimistic. There is much in the bill to celebrate. For example, it includes the proposed Consumer Financial Protection Bureau (CFPB), which would be dedicated entirely to enforcing consumer protection laws. a CFPB would also keep a pulse on emerging trends of financial abuse.

There are senators, however, working hard to unravel the gains included in the bill. many of our concerns are concentrated on auto dealers. some senators are pushing to favor dealers by exempting them from the CFPB’s authority, claiming that they are not lenders or they did not cause the market crisis.

• Auto dealers are lenders. They generate the bulk of their profit from the loans they issue. their kickbacks are generally unregulated. In addition, the nature of this lending has put auto dealers in the number-one slot of Better Business Bureau complaints year after year. Studies indicate that Hispanics and Blacks are often charged as much as double the interest rate on auto loans as their White counterparts.
• Auto dealers contributed to the market crisis. Auto lending is a $350 billion business, second only to mortgage lending in size, but subject to much less oversight and accountability. Finance companies received, packaged, and sold off subprime auto loans, which imploded the market. these loans were arranged and structured by auto dealers. big auto names such as General Motors and Chrysler then propped up their businesses with taxpayer dollars. General Motors received $50.7 billion in TARP funds and Chrysler accepted $12.8 billion. Arguably, they have significantly contributed to Americans’ financial burden.

The dealers seek less accountability, but industry behavior warrants increased oversight. Car loans are an important step in a family’s path to financial success. Cars connect parents to better jobs and services and an auto loan can help build a family’s credit profile. For many low-income families, their car is their primary asset. Consumers deserve to enter a car lot knowing that the dealership is held to the same rules as the banks and credit unions against whom they compete.

We hope the Senate will stay clear of industry lobbyists and learn from the mortgage industry: no one wins when rules of the road are absent or rendered mere suggestions rather than enforceable laws. It would be irresponsible to wait for a crisis of this magnitude to develop in other parts of our financial system — auto loans being a prime example — before enacting the oversight necessary to head disaster off at the pass. with cloture at hand, the iron is hot. We hope that our senators tip the scale toward our families and establish a new era of accountability in the American financial market.

The Eleventh Hour: Don't Let Auto Dealers and Wall Street Steal Our Victory in …

There are very few names in the world of finance and investing that evoke more respect that Jim Rogers, who told Britain’s Daily Telegraph newspaper on Wednesday he was switching out of the dollar and into yen, the yuan and the Swiss franc. the veteran investor, who predicted the 1999 commodities rally, also said…

he was still bullish about surging Chinese stock markets despite worries over a bubble.

Fears are growing over the health of the U.S. economy after the fallout from the subprime mortgage market crisis and the global credit crunch it triggered.

The U.S. Federal Reserve has already slashed borrowing costs by 50 basis points to 4.75 percent to try and shore up the world’s biggest economy and is widely expected to lower interest rates again next week.

“The US economy is undoubtedly in recession,” Rogers told the Telegraph in Hong Kong in an article published on its Website.

“Many parts of industry are actually in a state worse than recession. If it were not for (Federal Reserve Chairman Ben) Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is.”

Rogers, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s, said it made sense to desert the dollar.

“All other things being equal during the next six months, that’s the way I will go,” he said. “But if the Swiss franc goes through the roof, I probably won’t put money into the Swiss franc.”

And he dismissed worries for now that surging Chinese equities had formed a bubble, according to a report posted on Reuters (www.reuters.com). the Shanghai Composite Index settled 1.2 percent higher on Wednesday at 5,843 points. this time last year the index was trading around 1,800 points. “It’s not a bubble yet — if it goes past 9,000 in January I’ll have to sell. Bubbles always end badly,” he said. “I do not want to sell Chinese stocks. I want to own them forever and I want my (four year-old:daughter to own them.”

The latest Chinese IPO, Longtop Financial Technologies Ltd. (NYSE:LFT) had a monster-good first day of trading. In fact in the last two hours of trading yesterday it was up 27%. So far on Thursday LFT has backed down around 4% on heavy volume.

If mr. Rogers likes Swiss Francs, I would think he would love gold and especially silver. as a commodities expert, he must know how under-valued gold and silver are on an inflation-adjusted basis, and that gold is renowned as the “safe haven” during tumultuous times like these. did you happen to notice how a stock like Silver Wheaton (NYSE:SLW) is doing right now? we own this stock and only wish we owned more, which is exactly what we will do if the shares happen to correct below $14.

US in Recession, China no Bubble, says Rogers

As January 20 nears, Barack Obama’s ambitions for spending on the likes of roads, bridges and jobless benefits keep growing. The latest leak puts the “stimulus” at $1 trillion over a couple of years, and the political class is embracing it as a miracle cure.

Not to spoil the party, but this is not a new idea. Keynesian “pump-priming” in a recession has often been tried, and as an economic stimulus it is overrated. The money that the government spends has to come from somewhere, which means from the private economy in higher taxes or borrowing. The public works are usually less productive than the foregone private investment.

In the Age of Obama, we seem fated to re-explain these eternal lessons. So for today we thought we’d recount the history of the last major country that tried to spend its way to “stimulus” — Japan during its “lost decade” of the 1990s. In 1992, Japanese Prime Minister Kiichi Miyazawa faced falling property prices and a stock market that had sunk 60% in three years. Mr. Miyazawa’s Liberal Democratic Party won re-election promising that Japan would spend its way to becoming a “lifestyle superpower.” The country embarked on a great Keynesian experiment:

August 1992: 10.7 trillion yen ($85 billion). Japan passed its largest-ever stimulus package to that time, with 8.6 trillion yen earmarked for public works, 1.2 trillion to expand loan quotas for small- and medium-sized businesses and 900 billion for the Japan Development Bank. The package passed in December, but investment kept falling and unemployment rose. By the end of the year, Japan’s debt-to-GDP ratio was 68.6%.

April 1993: 13.2 trillion yen. at exchange rates of the day, this was a whopping $117 billion giveaway, again mostly for public works and small businesses. Tokyo erupted into domestic politicking over election practices, the economy went sideways, and the government fell. New Prime Minister Morihiro Hosokawa floated tax cuts, deregulation and decentralization to spur growth. but as the economy worsened — inflation-adjusted GNP shrank 0.5% in the April to June quarter — the political drumbeat for handouts increased.

September 1993: 6.2 trillion yen. Mr. Hosokawa announced a compromise “smaller” stimulus of $59 billion, along with minor deregulation. He dropped plans for an income-tax cut. The stimulus included 2.9 trillion yen in low-interest home financing, one trillion yen for “social infrastructure,” and another trillion for business. The economy didn’t respond. By the end of the year, Japan’s debt-to-GDP reached 74.7%.

Is any of this beginning to sound familiar? There’s more.

February 1994: 15.3 trillion yen. this stimulus included 5.8 trillion in income-tax cuts, 7.2 trillion in public investment, 1.5 trillion for small business and employment-support, 500 billion for land purchases and 230 billion for agricultural modernization. The income tax cut was temporary, effective only for 1994. The economy stagnated and Prime Minister Hosokawa resigned amid a corruption scandal. By the end of the year, debt-to-GDP was 80.2%.

September 1995: 14.2 trillion yen. The Socialist government of Tomiichi Murayama, with a wobbly coalition, rolled out a $137 billion whopper, with 4.6 trillion in public works, 3.2 trillion for government land purchases, 1.3 trillion in business loans, and more. Mr. Murayama resigned in early 1996, and in June Prime Minister Ryutaro Hashimoto agreed to raise consumption taxes to 5% from 3%, starting in April 1997, to reduce the fiscal deficit.

In 1994 and 1995, Japan spent 3.1% and 2.9% of its annual GDP, and (helped by central bank easing) the economy did respond with modest growth for about two years. Debt-to-GDP hit 87.6%.

April 1998: 16.7 trillion yen. when growth starting slowing again, the re-elected LDP turned to old medicine: 7.7 trillion yen for public works. The $128 billion grab-bag also included 2.3 trillion for the disposal of bad loans. The government announced four trillion yen in (again) temporary income-tax cuts, spread over two years. Mr. Hashimoto resigned in July after voters registered their discontent at the polls.

November 1998: 23.9 trillion yen. Desperate to get the economy moving, Prime Minister Keizo Obuchi rolled out the country’s largest-ever stimulus, valued at $195 billion. The giveaway included 8.1 trillion yen in social public works, 5.9 trillion for business loans, one trillion for job-creation programs, 700 billion in cash handouts to 35 million households, and more. By the end of the year, debt-to-GDP hit 114.3%.

November 1999: 18 trillion yen. In a “last push,” Mr. Obuchi’s government spent 7.4 trillion yen to prop up businesses, 6.8 trillion yen for social infrastructure projects like telecommunications and environmental projects, and two trillion yen for housing loans, among other things. Debt-to-GDP reached 128.3%.

Japan’s economy grow anemically over that decade, but as the nearby chart shows, its national debt exploded. Only in this decade, with a monetary reflation and Prime Minister Junichiro Koizumi’s decision to privatize state assets and force banks to acknowledge their bad debts, did the economy recover. Yet recent governments have rolled back Mr. Koizumi’s reforms and returned to their spending habits. but Japan does have better roads.

Now we’re told that a similar spending program — a new New Deal — will revive the U.S. economy. How do you say “good luck” in Japanese?

Please add your comments to the Opinion Journal forum.

Printed in The Wall Street Journal, page A22

WSJ Keynesian Spending Failed in Japan will fail in US

“I am surprised China has not dropped more,” Jim Rogers told CNBC.com.

Asked if the US should be worried about this trend, Rogers, who does not hold US Treasurys, said: “Of course. The US should be worried about everyone lightening up – not just China.”

Source CNBC

China has sold more than 34 billion dollars of US debt holdings. Chinas military has called for the government to punish the US because of a potential meeting with the Dalai Lama. China’s holding of US Treasury bonds has tumbled, according to US Treasury data released Tuesday, after Beijing expressed concern over the swelling US deficit and amid new US-China tensions. Bill Gertz says that it is also apparent that China will not support the sanctions that the United States is putting on Iran.

Jim Rogers I am surprised China has not dropped more US Treasuries

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People are selling like crazy today in Asia. I’m not sure when this is going to end. Personally, I’m not one of the monied people out there. the markets have gone down for a year and there are all sorts of dire predictions. I heard one business person on BBC say that some people are predicting up to 50 airlines will be out of business as a result of the crisis. George Soros says this is going to get worse. I haven’t heard anything from Warren Buffet on this lately. where is it all going? Will it compound in your opinion? who can afford to buy property atthis point anyways especially all the resort properties that have been built around the world. Your thoughts?

What is your prediction for the economy for next year?

CHICAGO (Reuters) – Wal-Mart Stores Inc’s (WMT.N) quarterly results beat Wall Street expectations, as a curb on costs helped the world’s largest retailer overcome weaker U.S. same-store sales, sending shares up 3 percent.

Hot Stocks

The costs cuts on everything from labor to transportation helped the company fund “rollbacks” on prices for thousands of items in recent weeks, as it tries to hold onto customers pressured by high unemployment and rising gasoline prices.

Wal-Mart’s expenses rose 3.9 percent during the quarter, but that was well below a 5.9 percent increase in sales, helped by international markets like Brazil, China and Mexico. Sales at its U.S. discount stores open at least a year fell a worse-than-expected 1.4 percent.

“If they can leverage expenses in this environment where their (U.S.) same-store sales are so soft, imagine what can happen if they put up a 2 to 3 percent pace of same-store sales increases,” Edward Jones analyst Matt Arnold said.

For the time being, Wal-Mart paints a bleak view of its U.S. customers, saying that the use of foods stamps and other government benefits to pay for its goods is up significantly from a year earlier.

“More than ever, our customers are living paycheck-to-paycheck,” Chief Financial Officer Tom Schoewe said during a conference call with reporters.

The company reported earnings of $3.32 billion, or 88 cents a share, for the fiscal first quarter that ended April 30. that compares with $3.03 billion, or 77 cents a share, a year earlier and came in ahead of the 85 cents per share expected by analysts, according to Thomson Reuters I/B/E/S.

Highlighting the precarious state of U.S. consumers, Wal-Mart also forecast that second-quarter earnings could fall short of Wall Street estimates and said its U.S. same-store sales for the period could drop.

Within minutes of reporting results, Wal-Mart also announced a new onslaught of price cuts on groceries, offering an average discount of 30 percent for a basket of 22 top food and household products.

A SPIKE IN GASOLINE PRICES

The company said its traffic was down in the quarter, though Schoewe said the prime reason for that was because rising gasoline prices — which it estimated at up 41 percent from a year ago — were forcing shoppers to cut down on the number of trips they took to the store.

Wal-Mart has also likely lost some customers that it picked up during the recession as even slightly more affluent consumers move back to department stores and rivals like Target Corp (TGT.N), analysts said.

Target, which is scheduled to report first-quarter earnings on Wednesday, has already posted a 2.8 percent increase in same-store sales for the quarter.

“For them to note another soft quarter of traffic is not something I wanted to hear,” said Brian Sozzi, an analyst at Wall Street Strategies.

While stores in some emerging markets did well, Wal-Mart’s Asda unit in Britain posted a drop in quarterly underlying sales for the first time in four years.

Wal-Mart said it expects second-quarter earnings per share of 93 to 98 cents from continuing operations. Analysts have predicted earnings of 98 cents per share.

The company sees U.S. same-store sales, excluding fuel, up 1 percent to down 2 percent in the second quarter.

Vice Chairman Eduardo Castro-Wright, head of Wal-Mart’s U.S. division, cited heavier competition on price. he also said there was a strong correlation between same-store sales and unemployment levels.

“Stores in areas with the highest increase in unemployment are running approximately 200 basis points lower comps than those with the lowest,” Castro-Wright said.

Wal-Mart is remodeling its U.S. stores to attract more customers and is restocking about 300 grocery items that it had previously cut, in response to customer demand.

The company said it remains on track to have $13 billion to $15 billion in capital expenditures this year.

The company also said it had negative free cash flow of $1.6 billion at the end of the quarter, as inventory levels returned to more normal levels from “relatively low” amounts at the end of the last fiscal year.

Wal-Mart shares were up $1.58 at $54.31 on the New York Stock Exchange.

(Reporting by Brad Dorfman, editing by Michele Gershberg and Gerald E. McCormick, Dave Zimmerman, Phil Berlowitz)

Wal-Mart beats Street but warns on outlook

”My suggestion is that people should move to Asia, and teach their kids how to speak Chinese,” says Jim Rogers, the man who made his fortune betting against Wall Street in the 1970s. In 2007 he took his own advice, moved out of Manhattan and set up shop in Singapore. He remains bullish about China and “countries that are going to benefit from the rise of Asia, such as Australia”. Marcus Reubenstein reports.

It’s 29 degrees Celsius, humidity has just edged past 93 per cent and Jim Rogers is at home pedalling away on his exercise bike. ”That’s the tropics,” he says. ”It’s hot and it rains.” within five minutes a torrential downpour arrives to underscore his point.

His Asian admirers, of which there are many, would say he even gets the weather forecast right. Rogers does not have an iPod; instead a laptop computer is mounted on the handlebars, so he can keep an eye on the market.

In 1988 Rogers became the first Westerner, possibly the first person, to ride a motorbike across China. He did it again in 1990 and then in a car, with his wife, Paige Parker, in 1999 – on a round-the-world journey that included 5½ weeks travelling, west to east, across Australia.

”These trips brought home to me,” he says, ”that China was not a communist country. They were not horrible bloodthirsty people, they were extremely hardworking people. despite what they called themselves, they were capitalists.”

Four decades ago – in the home of modern capitalism – Rogers partnered with George Soros to establish one of the most successful hedge funds of all time. ”A couple of us started a fund and it was successful,” he says, sounding almost embarrassed about that success.

The Quantum Fund wasn’t just successful; over the decade in which Rogers was involved, the S&P 500 advanced 47 per cent – while Rogers and Soros managed returns of 4200 per cent.

”In 1974, there was something called the Nifty Fifty,” Rogers says. ”They were supposedly the 50 great stocks that would have rising earnings forever. They all sold at huge multiples of their earnings, they were just very, very expensive stocks and we shorted a lot of them.”

Rogers, who today mainly invests in commodities and currencies, again began shorting stocks about a month ago.

His assessment is that China and the US are heading in different directions. the big difference is the direction in which they’re headed.

”China is one of the best-run countries in the world right now,” he says, ”and that’s just based on results. They call themselves communists but they’re among the best capitalists in the world.”

China has many problems, he admits, including a blocked currency which has helped create an internal property bubble as increasingly wealthy investors have few options for parking their funds.

But, he argues, the problems of the US are far greater. Rogers has been a strident critic of America’s massive bailout packages, its architects and its beneficiaries.

”Karl Marx is probably dancing somewhere,” he says with a grin. ”Because, in America right now, the government owns the automobile industry, the insurance industry, the mortgage industry and the banking industry. the government suddenly owns huge parts of the American economy – that’s what Karl Marx said he wanted, and he didn’t have to fire a shot.”

As for Australia, he says: ”The only disappointment I’ve had is that your politicians are as bad as the ones in America.

If the Australian government keeps running up such gigantic debts, the lucky country is going to run out of luck.”

Rogers, who supports neither side of politics in the US, is highly critical of the Rudd government’s spending policies and sees no logic behind its decision to impose a super profits tax on the resources sector. ”Further taxing resources is not going to bring out new supply, so it will hurt us all in the long run,” he argues.

”Do you think politicians are going to find new supplies, much less develop them? If your government insists on taxing the golden goose, it should at least pay off debt so when the bad times come Australia will suffer less.”

But Rogers has praise for the Reserve Bank under its governor, Glenn Stevens. ”I wish your central bank was running the US Federal Reserve,” he says bluntly. ”Your guys have done a much better job than most other central banks. I didn’t say they’re doing a great job; still, it’s a much better job.

”They [the RBA] see what’s going on in the world. yes, they have the advantage of a strong economy, but at least they’re doing the right thing, instead of denying reality.”

And he applauds the Reserve’s tightening of monetary policy. ”If anything, I think rates should be higher because there is inflation in the world and Australia could be developing its own property bubble.”

Higher interest rates will push up the value of the Australian dollar, but Rogers says it would be foolish for policy makers to forget how the Aussie dived towards US50¢ less than a decade ago. ”If the Australian economy keeps taking on debt, the next time there’s a bear market, the Australian dollar will collapse.”

And he sees a bleak future for any currency backed by massive debts. Top of his list of bad currencies is the once mighty greenback. for which, in great part, he blames the former US Federal Reserve chairman Alan Greenspan.

”In 1998, Greenspan bailed out Long Term Capital Management [the US hedge fund with over $US5 billion in debts], then he bailed Wall Street out again in 2001 because of the dotcom bubble – the bubble he caused because he kept printing money and bailing out everybody in sight.”

Rogers points to Japan, which he argues spent two decades bailing out what he calls ”zombie banks and zombie companies”. Referencing the Nikkei Index – which peaked at about 39,000 points in 1989 and today is trading below 11,000 points – he says, flatly, ”Bailouts don’t work!”

Total US government debt is now about 90 per cent of GDP. ”Next time we have a slowdown, or a recession,” Rogers asserts, ”America has shot its wad. Ben Bernanke [the US Federal Reserve chairman] can’t keep printing money – the world is going to run out of trees at the rate he’s printing money.”

His negativity towards the British pound is based on similar concerns. He calls the euro a political currency, which the architects of the Treaty of Maastricht got right but the nations of the euro zone got wrong by ignoring their own rules.

”Greece is bankrupt,” he says, ”whether they acknowledge it or not. Greece should have been made to take its pain, otherwise it will never change. In five months, years or decades later we’re going to be having the same conversation, only worse.”

And of the euro zone’s latest bailout package? ”The idea that you can solve the problem of debt and consumption with more debt and consumption defies belief.”

ut Australia, in the short- to mid-term, should remain a land of opportunity, with plenty of opportunities on the land.

”I would urge anyone to buy a farm,” he says. ”Farming has been a horrible business for 30 years, so there’s fewer farmers and supply is under duress. at the same time all of Asia is becoming more prosperous, so you have demand going up when supply is under pressure.”

Rogers may not have too much time for our politicians, but he likes Australians and would like to see more Australians. ”If I was Australia, I’d be doing everything I could to bring in people and capital to develop the lucky country.”

As for foreign investors? ”I would give them tickets to enter, because you want capital and expertise. Australia was developed mainly by immigrants. How many fifth generation Australians do you know?”

His recipe for Australia is that it should leverage off Asian growth and stick to what it’s good at. However, he reiterates his belief Australia will not be prepared for the next economic shock and for a commodities bear market if it keeps taking on debt.

e may be one of the investment world’s best-known Sinophiles, but he’s not an apologist. ”Don’t think I have starry eyes about China. It will have a lot of setbacks along the way, as did America. Since the 19th century America’s had a horrible civil war, we had 15 depressions, we had periodic massacres in the street and, at times, very few human rights.

”Plato said in The Republic that the way societies revolve is they go from dictatorship to oligarchy, to democracy, to chaos and back to dictatorship.” China, according to Rogers, is in the early stages of oligarchy. and, America, if it’s not careful, is heading for chaos.

Last year the Chinese journalist Yang Qing spent many hours following Rogers around, interviewing him for her book The Crystal Ball, about the Rogers investment philosophy. Chinese media reports say it flew off the shelves once it hit the bookstores. Often people would buy a dozen at a time so they could distribute copies to friends and colleagues.

The book has been published only in Mandarin, so Rogers is happy to wait until his daughters, aged six and two, who are learning Chinese, are old enough to read it to him. In the meantime he sticks to his maxim. ”Most people are wrong most of the time. That’s not great insight; it’s been proved millions of times.” and on that point Rogers is certain he’s got it right.

Reserve earns praise, but not our politicians