What Jim Rogers Might Say About October’s Market Rally

October was nothing short of incredible for the stock market the S&P 500
gained almost 11% for the month and the Dow Jones Industrial Average rose about
10%. The euphoria is palpable. But will it last? Sure, the markets are thriving
right now, but what are the bears thinking about as the economies of most
developed nations are stagnating? It might be interesting to delve inside the
mind of a professional not sold on the market rally continuing. Ive mixed some
conjecture with some of his paraphrased comments to give you an idea of what
iconic investor Jim Rogers might have to say about some facets of Octobers
rally, as well as what to expect looking forward: Europe Weve seen this movie
before. Rather than letting the banks fail, European leaders are going to bail
them out. Quantitative easing like the kind used by the Federal Reserve doesnt
solve anything. If weve learned just one thing from whats happened in the U.S.,
its that letting banks fail helps the system it doesnt hurt it. The same holds
true in Europe. Why is there a need to save bondholders? There are ways to
protect shareholders to a certain extent, but at the end of the day, when all
the banks are put in a room, it should be easy to choose those deserving of a
second chance. Not letting banks fail only prolongs the inevitable. Lets fix the
system permanently rather than applying a Band-Aid, which is all this really is.
Commodities Scarcity is a word well hear often in the future. As the population
of the world just hit 7 billion people and will hit 8 billion within another
decade, commodities are going to be the most sought-after asset anywhere. While
the markets have done great in October, its been 12 years of going nowhere, and
we should expect more of the same. The Dow Jones Industrial Average increased
just 25% between 1964 and 1982 less than 2% a year. While stocks are bad, bonds
are worse. The 30-year run on bonds is over. As we see from the Occupy Wall
Street protests, social unrest is only going to get worse. Investors can protect
themselves from both a sideways market and the scarcity that exists in foods,
fuels and metals by investing in indices that own all three. Agriculture Of the
three main commodity groups, agriculture is by far the most promising. Several
factors make this so: First, nobody wants to be a farmer anymore. Everybody
wants to get their MBA. Add to this the population growth alluded to earlier,
and you have the perfect storm. Shortages will get worse and worse. Those who
own the means of production, as well as the arable land necessary to produce
food supplies, will win the battle. Everyone else will sputter along. Technology
As mentioned in the opening paragraph, the S&P 500 is up 11.8% in October. The
market has gotten quite frothy. In fact, eight out of 10 S&P 500 sectors are
extremely overbought, according to Bespoke Investment group. Valuations for tech
stock IPOs like LinkedIn (NYSE: LNKD ), Fusion-IO (NYSE: FIO ) and Youku.com
(NYSE: YOKU ) have gone through the roof. As of Oct. 28, the three stocks
average a price-to-sales ratio of 22 compared to an industry average of 5.1 and
an S&P 500 average of 1.1. Shorting tech stocks and going long on agriculture
stocks like Deere & Co. (NYSE: DE ) makes an awful lot of sense. Bottom Line
Looking at the long term, China will be the winner in the 21st century. For now,
stocks seem expensive and with the possibility of stagflation on our doorstep,
the best form of protection is to short tech stocks and emerging markets and
invest in commodities instead. As of this writing, Will Ashworth did not own a
position in any of the aforementioned stocks.