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Big US banks poised to fall further, says investment guru

Fed ‘making same errors’ Japan made trying to bail out everyone in 1990s

FINANCIAL guru Jim Rogers painted a doom-and-gloom picture of the United States economy yesterday and predicted that Singapore’s two investment companies would lose money on their recent investments in beleaguered banking giants.

Singapore-based Mr Rogers said investing billions of dollars in banks at this time, with the US financial sector in dire straits, was the wrong move.

He believes ‘banks will fall further’, hence his strategy of ‘shorting investment banks on Wall Street’, including Citigroup and mortgage lender Fannie Mae. ‘Shorting’ means investing on the assumption that the shares will fall further.

Mr Rogers, who co-founded the Quantum Fund with billionaire George Soros in the 1970s and predicted the start of the commodities rally in 1999, said he was concerned by the recent bank deals made by Temasek Holdings and the Government of Singapore Investment Corporation (GIC).

‘It grieves me that Singapore is buying into these things,’ said Mr Rogers.

GIC pumped in 11 billion Swiss francs (S$14.7 billion) for a 9 per cent stake in Swiss bank UBS in December and invested US$6.88 billion (S$9.58 billion) in Citigroup a month later. In December, Temasek bought a US$4.4 billion stake in Merrill Lynch.

UBS shares have fallen by more than 30 per cent this year. Citigroup is down over 20 per cent, while Merrill Lynch is off about 5 per cent.

Mr Rogers told reporters at an ABN Amro product launch that he remained bullish on commodities but extremely bearish on equities, bonds and the greenback.

‘The only bull market I know of in the world right now is the commodities market,’ he said. ‘We’re only one-third of the way through the bull market.’

He also warned that inflation was going to get worse: ‘Demand is going higher at a time when there are supply constraints. Food inventories are at their lowest in 40 years.’

Oil prices also have the potential to go much higher, he said, adding that the US Federal Reserve was making the same mistake Japan did in the 1990s when it wanted to bail out everyone.

The US should have bitten the bullet instead of trying to put on ‘band-aids’, he added, referring to the Fed’s move of cutting interest rates to stave off a recession yet risking stoking the inflation fire.

‘The central bank is making disastrous mistakes,’ said Mr Rogers, adding that he was also ‘extremely pessimistic’ on the US dollar. The currency traded near record lows to the yen and Swiss franc yesterday.

Mr Rogers further forecast that the US sub-prime crisis would continue to haunt the world for a year or two. Even after it has ceased, he said, there will still arise other kinds of loan problems, such as with credit cards and cars.

Source: The Straits Times 6 Mar 08

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