US investor Jim Rogers – who co-founded the highly successful Quantum Fund with George Soros in the 1970s – is pessimistic about America. President Donald Trump has promised many “wonderful things” – cutting taxes, rebuilding infrastructure and the repatriation of $3trn held abroad by big corporations.
However, he has also promised to start a trade war with Japan, Mexico, China and other countries. Perhaps “he’s just another politician” making empty threats – but as Rogers points out, there are “at least three people” with senior roles in his administration who feel the same way. Of course, if Trump does implement massive tariffs, then “it’s over for investors”, as “trade wars always lead to disaster” and in some cases “cause actual wars”.
Rogers is also worried about rising interest rates. Once they start going up, they will go “very, very high”. Indeed, rates might even touch levels not seen since the early 1980s, when they were around 20%. Although Rogers is not short-selling US Treasuries (US government bonds) just yet, he has taken a short position in junk bonds (riskier corporate loans with low credit ratings).
That’s because when rates do rise, many overindebted companies will default. Indeed, in a few years’ time, entire countries could go under – the “success” of Brexit, says Rogers, will encourage other nations to leave the European Union. That “will throw a spanner in a lot of people’s works”. For example, while Italian government debt is currently denominated in euros, “what will happen if Italy quits the euro, or the euro ceases to exist”? In short, “get prepared” for some of the “worst economic problems in your lifetimes”.