Bank Balance Sheets 'Full of Rotten Stuff': Jim Rogers
Web Producer, CNBC.com
The problems banks have with mortgages will take a long time to be solved and bank stocks are not attractive despite the recent drop in price following fears over problems with foreclosures, famous investor Jim Rogers told CNBC Wednesday.
The New York Federal Reserve Bank and seven other large institutional investment firms asked Tuesday that Bank of Americarepurchase loans included in mortgage securities.
A law firm has alleged failures by Countrywide Financial, which Bank of America (BofA) bought in 2008, to properly service loans that were part of certain mortgage-backed securities.
"Everybody was doing this, this is not just something that Countrywide and Bank of America were doing," Rogers, who started the Quantum Fund with George Soros in the 1970s, said. "And now (banks) have to pay the price, suffer the consequences."
"All of this stuff is going to be a huge mess for a long time to come," he added.
Balance sheets at banks are "full of rotten stuff," they still need to sort out their "gigantic" problems and their stocks will be in a trading range over the next five to six years, Rogers predicted.
"Nobody knows what book value at BofA is, including BofA," he said.
"I have no interest in bank stocks these days," Rogers added. "Normally when a big bubble pops it takes years for stocks to come back again."
On Tuesday, Rochdale Securities banking analyst Richard Bove told CNBC that shares of Bank of America and Goldman Sachs were good buys, but that Bank of America's situation was tougher because of its exposure to consumers.
Bove argued that Bank of America's market capitalization is below the cash the bank has on its balance sheet, which makes it attractive.
"Let Mr. Bove buy it, it's just not my way of doing things," Rogers said, explaining that he prefers to buy in sectors where there is either a secular bull market or a secular bear one, which he can sell short.
China's surprise move to hike the interest rate was a good one, according to Rogers.
"Raising interest rates is good anywhere, it's good here in 2010 because we have inflation ahead of us," he said.
"There are gigantic amounts of money being printed, it has to go somewhere. Somebody is getting that money and whoever is getting that money is going to do something with it," Rogers added.
He said he has started to short US Treasurys again and that there was a "huge explosion" in emerging markets.
China Property Bubble
Prices for commodities such as tin, sugar, cocoa, rubber have increased and there are "shortages developing," according to Rogers.
"We see all these prices going up, and it's happening. Go into the market, try to buy something and you'll see prices going up in the real world," he said.
Among currencies, Rogers owns the Swiss franc , the Canadian dollar and the Australian dollar .
"Right now, all the surveys show that everybody is unbelievably bearish on the US dollar, including me," he said.
"Whenever you have everybody on the same side of the boat you'd better go to the other side, at least for a while."
China's interest rate hike may have to do with the fact that the country is trying to deal with a property bubble - which has formed in coastal areas and big cities - by encouraging investors to save rather than buy assets, Rogers said.
"I'm not selling China by any stretch of the imagination … I'm not buying right now," he said. "I buy China when it collapses. It hasn't collapsed in the past couple of years."
"In China there is a real-estate bubble that's going to pop some day, but it's not going to bring down the whole Chinese economy," he predicted, adding that sectors like agriculture and tourism are likely to do well.
A G20upcoming meetingmay help in solving the tensions over currencies and trade, which threaten the world economy, but if it does not the trends toward protectionism are very dangerous, Rogers said.
"I'm continuing to worry very much about currency wars, trade wars," he said. "Avoid the ones that print money and put your money into real assets. That's the way to protect yourself."