Big Rally for Stocks to Continue, Jim Rogers Says

Date: Wednesday, March 19, 2008
Author: Carol Massar and Eric Martin, Bloomberg.com

U.S. stocks, which surged the most in five years yesterday, will likely continue their rally this year because the ``out of control'' Federal Reserve is cutting interest rates to save investment banks from collapse, investor Jim Rogers said.

The Fed's support is ``why we're having a big rally, but that's not going to solve the problem,'' Rogers, chairman of Rogers Holdings and co-founder of the Quantum Hedge Fund with George Soros, said during an interview with Bloomberg Television from Singapore. ``The system is terribly corroded.''

The central bank is helping financial stocks while delaying and deepening a bear market and recession, he said. The Fed cut its benchmark for overnight lending between banks yesterday, continuing the most aggressive series of reductions since the rate became an explicit policy target in the late 1980s.

``What are they going to do when the stock market is down 40 percent or 50 percent?'' Rogers said. ``They're not going to have any bullets left. They're not going to be able to solve the problems at that point.''

The Standard & Poor's 500 Index this week dropped as much as 19.7 percent from its October record, nearing the 20 percent threshold of a bear market, following $195 billion in bank losses from the collapse of the subprime-mortgage market. The index jumped 4.2 percent yesterday, the most since October 2002.

Short Financials

Rogers said he continues to short Citigroup Inc., Fannie Mae and investment banks via an exchange-traded fund tracking financial firms and increased his bearish bet last week. Short selling is the sale of borrowed stock in the hope of profiting by repurchasing the securities later at a lower price.

Rogers, who predicted the start of the commodities rally in 1999, traveled the world by motorcycle and car in the 1990s researching investment ideas for his books, which include ``Adventure Capitalist'' and ``Hot Commodities.''

Taiwan stocks are attractive, Rogers said. The nation's Taiex stock index has slumped 3.8 percent this year, trailing only Brazil and Argentina as the best-performing stock market among the world's 20 largest, according to Bloomberg data.

To contact the reporters on this story: Carol Massar in New York at cmassar@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.