Jim Rogers: The Next Bear Will Be Horrendous; the Worst in Your Lifetime

For those of you who are not familiar with Jim Rogers, he is a legend in the investment world. In 1973, Rogers teamed up with a then-relatively-unknown investor named George Soros to form the famous Quantum Fund--a family of funds that gained 4,200% between the time of its founding to 1980, dwarfing the S&P’s modest advance of 47%. With a record of success that has sustained itself throughout his entire career, Roger’s market commentary and media appearances, similar to Warren Buffett, amasses a great deal of attention from the biggest and brightest on Wall St.

A habit that perhaps may have contributed to his success, Rogers’ market calls and actions are often made very early in the game. At times, too early. Regardless, his convictions have almost always proved him right; hence his “legendary investor” status. And although his market outlook is sometimes deemed as “contrarian,” Rogers insists that his outlook is, if anything, just plain sober. It also reflects one of his key beliefs, that both market opportunities and disasters always start “where nobody is looking.”

As Rogers himself explained in an interview with Business Insider’s Henry Blodget last June: “I learned very early in my investing career, I’d better not invest in what I want; I’d better invest in what’s happening in the world, otherwise I’ll be broke--dead broke.” And in a number of his interviews this year, Rogers has repeatedly warned that we are in for a market collapse such as the likes we’ve never experienced in our lifetime.

Here’s what most investors don’t see: the market is being held together by just a few threads--everything else is sinking.

What’s preventing your paper wealth in the stock market from total decimation is just a small percentage of stocks that make up the main indices. Although these indices represent the overall market, they do not comprise the entire market.

It’s all about market breadth (or in this case, the lack of it)

In an interview with RealVision’s Steve Diggle, Rogers explains the logic behind his thinking:

“I remember in the early 70s, there was something called the Nifty 50, and they were 50 stocks that everybody - the JP Morgan bought everyday. Didn't matter...we would short them, and they just kept going up. They never stopped...Everything else stopped going up but those Nifty 50...They eventually crack, there's no question...today, if you look at the S&P 500, for instance...there are only 40 or 45 stocks that are above their 50-day moving average...Everything else is in a downtrend. And yet the market is making all-time highs.”

Market breadth is a significant metric, as it gives us a big-picture outlook on overall market strength or weakness. Right now it’s telling us that the strength of the market and the strength of the economy are diverging.

 “Definitely the lack of breadth. What is that - over 90% of the stocks are in downtrends. 10% are in uptrends, but they're big companies. And since the S&P is capitalization weighted, those 50 stocks, 40 stocks, whatever it is, dragged the average to all-time highs.”

But unlike bear markets of the past, what Rogers fears now is the debt level that has been building up on a global scale; one that will intensify the inevitable plunge, as he explains:

JR: Steve, in America as you know, we've had bear markets every few years.

SD: We used to.

JR: Well done. And Janet Yellen will tell you we're never going to have a bear market again because she's smarter than we are, she's smarter than the markets, and the central bank has things under control now. She publicly stated this. Do not worry. We will not have financial calamities again. Head of the central bank in America has said that out loud officially, Mrs. Yellen-- yeah, Mrs. Yellen.

I happen to have a different view. Now if you believe the American central bank, you shouldn't be talking to me at all. But we've had, we used to have bear markets every several years. We always, always since the beginning of the republic. In my view we will have them again.

And the next one is going to be horrendous, the worst-- you came in the business in '86. It will be the worst in your lifetime, in your financial experience.

And the reason, in 2008 we had a bear market because of too much debt, staggering amounts of debt. Steve, since 2008 the debt has gone through the roof. Every country in the world talks about austerity. Nobody has reduced their debt in the last few years.

Everybody has increased their debt in the last few years. And so the next time we have a bear market, it's going to be horrendous because of this.

As Rogers observes, valuations in both stocks and bonds are extremely inflated. So where does think an investor can find the highest risk-adjusted returns? The best and most accessible solution is to buy gold coins:

“Gold coins are the best way. And you should have physical possession of some gold coins…. Everybody should have coins, physical coins, as an insurance policy, as an emergency, if nothing else. You hope you never need them. But you’ve got to start by owning gold coins, coins that are recognized all over the world…I’ve owned gold for many, many years. I’ve never sold any gold.”

Gold has proven itself throughout history as the best way to hedge your wealth against most calamities, financial or natural. As a store of value, it far exceeds anything that paper money can ever do. It’s more durable and reasonably transportable. Most importantly, its inherent value is recognized virtually everywhere in the world.

For investors who do not want to store physical gold, establishing a gold IRA is an equally viable and perhaps easier solution.

As we mentioned at the beginning of this article, Jim Rogers became a legendary investor by seeking opportunities where others fail to look and by investing in “what’s happening” versus what typically interests most investors. Gold is what’s happening now. And it’s what most investors are not looking at closely enough.

If, as the saying goes, the proof is in the pudding, then Jim Rogers has certainly proven himself time and again. For those who want solid investment advice, it certainly pays to listen to what Rogers has to say.