Fool's Paradise

Well, you're looking for another end
Anytime
But you still can't turn away
--Ric Ocasek

Jim Rogers encourages investors "to know that you're in a fool's paradise. Be careful."

His concern is grounded in his observation that central banks worldwide are acting in unprecedented, synchronized fashion. They are suppressing short term interest rates near zero and creating money out of thin air to buy assets from bank balance sheets. Governments are also borrowing at epic levels. And central bank bond buying is facilitating the process because it provides a non-economic buyer for $trillions of sovereign debt issuance. This is what is known as 'monetizing debt.'

These activities have floated the world "on an artificial sea of liquidity" which has in turn artificially boosted asset prices. Someday the artificial sea is going to disappear, he says, and "when it does, the catastrophe will be even worse."

Despite his bearish view, Rogers is hesitant to act on it here. He's not buying shares, but he's not selling either, "because I am concerned that this might turn into a huge bubble. So I'm sitting and watching."

He says if markets go up big from here over the next few months, then he might begin selling short. But the unclear path between 'right now' and 'ultimately lower' has him sitting on his hands for now.

JR thus joins a group of 'big picture' bears that are hesitant to act now on what they believe to be a high probability outcomes--although they seem confident that they will be able to recognize the right time to act in the future (presumably ahead of others).

I increasingly wonder whether that will be possible. One thing that is certain: all will not be able to elude the moral hazard that has been placed in this market.

position in SPX