January 21, 2009
'Sell sterling, take cash out of Britain'
Patrick Hosking, Banking and Finance Editor
Outside frontline politics, few people can move financial markets simply by opening their mouths. One such is Jim Rogers, an American investment guru who yesterday pushed Britain deeper into gloom and austerity with apocalyptic words about the pound and the country's economy.
Hours after the Prime Minister pledged hundreds of billions of pounds to sustain Britain's banks, Mr Rogers added vinegar to the already souring international sentiment about the rescue plan, its impact on the public purse and its capacity to cure the sickening economy.
“I would urge you to sell any sterling you might have,” Mr Rogers advised his army of investment followers. “It's finished. I hate to say it, but I would not put any money in the UK.”
The reaction was instant - though it is impossible to say how much was attributable to Mr Rogers. The pound slumped, by almost 4 per cent at one point, falling to a seven-year low against the dollar and an all-time low against the Japanese yen.
Not since Black Wednesday in 1992, when the currency was expelled from the European Exchange Rate Mechanism, had there been such a steep fall in a day.
Worries intensified yesterday that the vast liabilities of Britain's wobbling banks could swamp the public finances. Between them, Royal Bank of Scotland, Lloyds and Barclays have total liabilities of £4.5 trillion. That is about twice the country's entire output and 40 times current government borrowing.
The shaky reputation of Britain's financial system took a further pulverising, with bank shares hammered again. Lloyds Banking Group, now 43 per cent owned by the taxpayer, bore the brunt of investor worries, slumping by as much as 48 per cent yesterday. They ended the day at 44.8p, down 31 per cent on the day. Barclays was down 17 per cent and RBS, whch is 70 per cent owned by the state, fell another 11 per cent on top of Monday's collapse.
Analysts yesterday were starting to suggest the previously unthinkable: that Britain might lose its AAA rating - a measure of impeccable creditworthiness from international credit ratings agencies that ensures the Government can borrow at rock-bottom interest rates.
The Chancellor did little to soothe financial market jitters when he gave his strongest hint yet that his November forecast of a contraction in the economy of no more than 1.5 per cent this year might be too optimistic. Alistair Darling admitted there had been a further, substantial, deterioration in the economy since that prediction.
He refused to answer questions about the sharp fall in the pound or accept that the country's finances might be compromised by the latest bailout of banks. “Markets have been volatile for some time now. We don't provide a running commentary on them,” he said.
Mr Rogers gave no further reasons for his contemptuous assessment of Britain's prospects, but his view of America's bail-ut plan, which is similar to Britain's in many respects, probably explains his scepticism.
“The idea that you can fix a period of excess borrowing and excess consumption by more borrowing and more consumption to me is just ludicrous,” he has said.
He is also deeply gloomy about the time it will take to resolve the problems of the credit crunch. “Most Americans alive today won't be around by the time the last of this credit market mess is finally cleared away,” he said last August.
The echoes of Black Wednesday are apposite: George Soros, the hedge fund manager estimated to have made £1 billion betting against the pound back then, was a former business partner of Mr Rogers. In the 1970s, the two men set up the phenomenally successful Quantum hedge fund.
They parted company long ago, but Mr Rogers's reputation as an investment genius still rests largely on that ten-year period, when he and Mr Soros multipled their clients' money a spectacular 43 times over.
Now 66, Mr Rogers splits his time between investing, book-writing and the world lecture circuit, where his prognoses of ruin from some investments and untold riches from others has helped him win many fans. In a world where most investment analysts are timid, mealy-mouthed and intent on sticking close to the consensus, Mr Rogers stands out as a man prepared to make bold forecasts.
With his trademark bow tie and Alabaman twang, Mr Rogers is ubiquitous on the financial TV networks. Like a beardless Branson, he plays to the gallery, once climbing on to a full-size replica pig to illustrate his upbeat prospectus on farm product prices.
He backs his ideas with his own cash, and more. In 2006 Mr Rogers put his $16 million mansion in New York up for sale to move with his young family to Singapore, so convinced was he of America's long-term decline and Asia's economic rise. His young daughters are looked after by a Chinese nanny who schools them in Mandarin.
Born in Wetumpka, Alabama, in 1942, the eldest of five brothers, he demonstrated a precocious talent for moneymaking, selling peanuts and sodas at the age of five at the local high school's Friday night games.
He won a scholarship to Yale and, later accepted a scholarship to Balliol College, Oxford. There he coxed in the Varsity boat race. Returning to the United States, he spent two years in the Army, at one point helping to invest his base commander's money, according to Fortune magazine. He left for Wall Street and soon met Mr Soros.
After their ten-year partnership at Quantum, he embarked on a series of travelling adventures, including a 100,000 mile motorbike trip, which he detailed in his book Investment Biker.
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