Sunday, October 26, 2008

Jim Rogers: Let banks fail

Investment expert Jim Rogers talks on Bloomberg television about the US government bailout plan.

Rogers believes that propping up distressed companies is a bad idea, and that similar efforts led to the Great Depression. Money is diverted from proper investments into the potential black hole of broken banks and financial companies. He proposes that companies that have managed their business properly should be allowed to increase market share while the others should be allowed to fail.

The idea that simply pouring money into the problem will solve it is dangerous according to Rogers. He cites historical examples in which massive bank failures were allowed to occur and asserts that the method works in restarting the markets with a cleaner slate. Sometimes the only way to break out of a vicious cycle is to let it run its course.

One matter that is not getting discussed much is the effect that baby-boomers will have on the future of the stock market over the next few decades at least.

The first wave of boomers is becoming eligible for partial Social Security benefits. In the next few years they will qualify for full Social Security. Already many are beginning to pull out of the stock market if they haven't already. Investment advisers generally agree that the markets are no place for retirees.

Many of the lucky ones are also drawing retirement pensions. This might also put some pressure on retirement funds to reduce their exposure in the stock market.

Since the boomers represent a demographic bulge, it will be hard to compensate for their absence in the equity market.

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