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 securities firms while delaying and deepening a bear market and recession, said Rogers, who is betting against financial shares. 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.
The
Standard & Poor's 500 Index jumped 4.2 percent yesterday, the most since October 2002. The 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.
No `Bullets Left'
``What are they going to do when it's down 30 percent or 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.''
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.''
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.
The
Standard & Poor's 500 Financials Index, which surged 8.5 percent yesterday for the steepest advance since March 2000, closed at a five-year low on March 17.
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.
Halfway Through
Rogers, whose commodities
index has climbed more than fivefold since its inception in 1998, said raw materials are about halfway through their rally.
He also said the dollar, which has declined 15 percent against the euro in the past year, is likely to weaken further. The Fed should stop cutting rates, which would end that decline, Rogers said.
The Fed's mandate is ``to keep a sound currency, not to prop up Wall Street,'' said Rogers. He recommended selling the dollar in a Nov. 15 interview. The currency has fallen about 6.6 percent against the euro since then.
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