Hedge fund guru shorts Wall Street

Date: Thursday, November 1, 2007
Author: David Clarke and Saijel Kishan, Bloomberg News

LONDON -- Jim Rogers, co-founder of the Quantum Hedge Fund with billionaire George Soros, has boosted his bets against U.S. securities firms because of their salary "excesses" and money-losing investments.

Mr. Rogers said he increased his year-old short positions in the past six weeks in U.S. investment banks, using exchange-traded funds and bets against individual companies he declined to name. Stocks in the industry, which pays too much in bonuses, may fall by as much as 70 per cent in a bear market, he said.

"You see 29-year-olds on Wall Street making $10-million [U.S.] to $20-million a year, and they think it's normal," Mr. Rogers, 65, and chairman of Beeland Interests Inc., said in an interview in London yesterday. "There have been lots of excesses," he said.

Goldman Sachs Group Inc., Wall Street's most profitable securities firm, said Sept. 20 that it had set aside $16.9-billion to pay salaries, benefits and bonuses in the first nine months of the year, topping the record amount for all of last year. A month later, Merrill Lynch & Co. reported its biggest quarterly loss amid $8.4-billion of writedowns for subprime mortgages, asset-backed bonds and bad loans.

The 12-member Amex Securities Broker/Dealer index has fallen 13 per cent since the start of June, while the Standard & Poor's 500 index of stocks was little changed.

"Who knows how bad the balance sheets are," Mr. Rogers said. "They took on gigantic amounts of bad paper."

Money managers such as Mr. Rogers take short positions by selling borrowed shares.

They aim to buy them back at a lower price and pocket the difference. Mr. Rogers said he made the investments using his own money.

He declined to say how much he oversees.

The slump in the U.S. housing market "still has a long way to go" before recovering, he said. "Market excesses don't clear themselves out in just four or five months; they take years."

Sales of previously owned homes in the United States dropped 8 per cent in September to 5.04 million, the lowest since record-keeping began in 1999, the National Association of Realtors said Oct. 24. Mr. Rogers said he started shorting U.S. home stocks three years ago. Still, he said he managed to offload his six-storey townhouse in New York, which he put up for sale last year, for more than his asking price of $15-million. He declined to disclose the selling prices for the Riverside Drive property because the sale is still being processed.

"Some parts of the U.S. housing market are doing well and some aren't," he said.