In a world that some believe is dominated by “fake news”, it should come as no surprise that others are claiming that the financial “sky” is about to fall. One recent example of such a prediction can be seen in the observations of American businessman and entrepreneur Jim Rogers. In a recent interview, he stated that the “worst crash in our lifetime” could be just around the corner. Should we be worried and should investors be running for the proverbial hills? To answer these questions, it is important to look at Mr. Rogers’ history and what we should watch for in the months to come.
Who is Jim Rogers?
Born in 1942, Jim Rogers is an American financial guru primarily famous for creating the Rogers International Community Index. However, he is also known for making many guest appearances on American news networks such as Fox News and CNBC.
To appreciate his stance on the markets at present, it’s also important to appreciate some of what he has said in the past. During a commencement speech at Balliol College in Oxford, he told students to avoid careers in finance and instead choose agriculture. In 2012, he famously predicted that stockbrokers would soon be driving taxis. So, is there any credence in his current predictions?
Why is He Claiming that the Markets will Crash?
One of the main reasons why Mr. Rogers is predicting a global economic crash is that he believes the currently levels of debt are unsustainable. Some of his key points involved the fact that the balance sheets of the Federal Reserve are five times as large as they were prior to the 2008 crash and that China is grappling with levels of unsustainable debt.
While he highlighted spiraling levels of debt in some countries, it is interesting to note that he was rather vague when pressed further. He was quoted as saying:
“Always happens when we’re not looking. I don’t know”
While there is indeed a certain amount of validity in the observation that Chinese levels of debt may not be sustainable for long periods of time, could this truly lead to a global financial meltdown? Mr. Rogers seems to think so (although he has been claiming that the worst financial crisis would soon hit for the past 30 years).
Are They Likely to Crash?
The likelihood of a crash is much slimmer than in the past, if nothing else than arising from the fact that memories of the 2008 crisis are still fresh in the minds of the banks and investors alike. Further regulations have been put into place and we are not seeing the warning signs of potential insolvency as were witnessed nearly a decade ago.
Michael Hewson, chief analyst at CMC Markets said in a commentary “Due to the amount of political uncertainty being generated on both sides of the Channel, both sides dance on the edge of the volcano.”
What Should We Look Out for How Can We Prepare?
Like any crash, one of the first warning signs will likely be less liquidity in the markets. The predominant Libor interest rates should also be noted, as a sudden rise could indicate that banks are hesitant to lend to other financial institutions. As a result, we would likely witness a downturn in benchmark indices such as the Dow Jones, the S&P 500 and the FTSE 100. Investors would soon begin selling their shares and if it indeed came to this point, there would be reason to worry.
Preparation simply involves keeping one eye on the latest financial news, one eye on economic and political news and both on the value of any holdings within a given portfolio. Of course, diversification is always prudent during uncertain times. Those who are overly concerned may be wise to allocate a greater portion of their funds into risk-averse sectors such as commodities or treasuries.
Although the dire predictions of Jim Rogers may not necessarily come to pass, it is always wise to appreciate the viewpoints of experienced investors.