MarketWatch: My interview with Billionaire Investor Jim Rogers

Opinion: Global stock investor Jim Rogers: ‘I’m waiting for something to go wrong.’

‘Probably by the end of this year or next year, the bear market will have resumed in the U.S.,’ Quantum Fund co-founder says

Jim Rogers, international investor, author and financial commentator, describes the current U.S. stock market environment as showing all the signs of an aging bull, not a raging one.

Rogers has seen this before. In fact, he’s seen and invested in all types of markets over a career spanning 60 years. Rogers rose to fame in the 1970s as the co-founder with George Soros of the Quantum Fund, which gained 4,200% over the next 10 years while the S&P 500 rose about 50%.

In a recent interview from Singapore, his base since 2007, Rogers revealed his reasons why the U.S. bull market for stocks may be nearing an end, why bear markets are actually healthy for the stock market, and what you can do now both to protect your portfolio and position it for profits.

MarketWatch: What are you doing with your money with regard to U.S. stocks right now?

Rogers: I have a lot of cash. I’m waiting for something to go wrong, but I am not selling short at the moment. I don’t call that bearish. I am neutral.

MarketWatch: What could go wrong?

Rogers: If you look at the U.S. market, a lot of new investors are coming in and talking about how easy it is to make money in the stock market. You see some stocks that go up every day, but fewer and fewer stocks are going up. Some are going up a lot, but most are not. You see market breadth declining. These are the things that happen before the end of bull markets. Again, I’m not selling short yet —- but these are the signs that develop when a bull market is coming to an end.

MarketWatch: Do you expect the U.S. stock market to crash?

Rogers: First, I differentiate between a crash and a bear market. The world has always had bear markets and will again. But bear markets often end in a crash. I certainly anticipate a bear market. The next bear market has to be very bad because debt has skyrocketed everywhere including in the U.S. Pick a country, including countries that didn’t have debt before such as Germany and Japan. Everyone has very, very high debt. So the next bear market has to be bad, and bear markets end in a selling climax, or a crash as you put it. I hope we live long enough to see many bear markets.

MarketWatch: Why do you want to see many bear markets?

Rogers: They clean out the system, which nobody likes because it costs them money. But economic recessions or bear markets clean out excesses. That’s the way the system has always worked. Some people get overconfident or overextended and along comes a bear market or recession and cleans out the system. Cleaning out the excesses has always been good for the system — unless you’re the one getting cleaned out.

MarketWatch: What is your forecast for U.S. stocks over the next few months?

Rogers: Some people are good at market timing, but I am not one of those people. I am not a good short-term trader. But what I suspect is that probably by the end of this year or next year, the bear market will have resumed in the U.S. It’s already the longest period in American history without a bear market. We’re overdue.

MarketWatch: How should people protect their investments?

Rogers: The only way to protect yourself is to invest in what you know about. Everyone knows a lot about something, and that’s where you should focus. If I said you could only have 25 investments in your entire life, you would be very careful, and be a good investor. Many people might say that is boring. If you want to be a good investor, be boring. Stay with what you know. And don’t go down to the bar on Saturday night and tell everyone about the latest hot stock.

We’ve had the longest bull market in American history. Politicians in Washington say, ‘Don’t worry, we’ve solved the problem.’ But I know that’s a lie. I know that’s wrong. I’m just saying be careful because gigantic debts are building up. If you can add or subtract, you know there is no way America can solve its debt problem. It’s a good time to be an old American, but not a good time to be a young American. I have two daughters, and the problems they will face in their lifetime will be enormous.

MarketWatch: What do you say to your daughters about how they should invest for their future?

Rogers: It’s hard to teach young people because they know it all (laughter). I certainly show them history. In 1924, the U.K. was the richest, most powerful country in the world. There was no No. 2. Fifty years later, the U.K. was bankrupt. They couldn’t pay their bills. This happened within 50 years — going from No. 1 to bankrupt. People say this cannot happen to America. Well, it’s happened often in world history, so be very careful, and be worried. Be aware of what has happened in the past, because it will happen again.