The End of the Liquidity Party?

Adventure capitalist and commodity investor Jim Rogers is down on just about everything according to this report yesterday from Reuters. He's predicting a none-too-pleasant conclusion for the latest asset bubble and fears the end of the liquidity party is at hand.

Doesn't he realize that Ben Bernanke, Hank Paulson, and the Federal Reserve Bank of New York will do whatever they need to do to keep asset prices inflated?

Well, not all assets, but the one's that they want to keep inflated they'll try their darndest to keep propped up.

What's the alternative? To let the malinvestments work themselves out?

Didn't they try that once before? Oh yeah, in the 1930s.

Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.

"It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops.

"It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia.
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"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said.

"When markets turn from bubble to reality, a lot of people get burned."

Not that he needs the money, but he's probably a little perturbed by all the low-ball offers he's getting on his swanky New York property.

Barbara Corcoran is probably telling him, "Jim, you've got to lower the price. This is a different market now".

Maybe that helps to explain the doom and gloom that is being laid on thicker than usual. Or, maybe he just got up on the wrong side of the bed.

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.

"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

"I've sold out of emerging markets except for China," said Rogers, long a prominent China bull.

Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.

But he added: "China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline."
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"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."

Liquidity parties don't just end with a whimper and falling prices. Not any more.

As former Fed Chairman Alan Greenspan said in 1987, "The Fed stands ready to provide all necessary liquidity" that markets may require.

Just think how much money can be pumped into the system after the technology build-out left behind in the wake of the last asset bubble bursting seven years ago.

In times of financial panic, the Fed stands ready to do whatever needs to be done to prevent this whole thing from unraveling.

After 35 years of pure fiat money, there is one truism when it comes to responding to crises, "When you get in trouble, print more money".

Of course, at some point, this will no longer have the desired effect.