Thursday, June 29, 2006

Jimmy Rogers on the Pandemic Play

According to Bloomberg (June 29) Jim Rogers of Quantum Fund fame says that in case of a bird flu pandemic "Stocks will go down a lot but commodities will go down less. Commodities will be the first to go back up.''

Since he also says that oil can go to $35/barrel, this suggests a 50% decline in stocks, of which the travel stocks would be hit worse.

Rogers says he is long airlines and does not expect a pandemic. More precisely (and more staccatto), he says:"I don't expect bird flu, bird flu has been so hyped in the press.''

My take-aways from the Bloomberg piece:
  • We should keep in mind that the pandemic may never show.
  • If it shows and there is a quick 10% sell-off in stocks, don't feel like the market has "fully discounted" the pandemic. There is room for 40% more decline.
  • As I have commented elsewhere, at the beginning I expect to place fixed-income bets pegged to LT US Treasuries.
  • If Rogers is right, it will pay to keep an eye on commondities as a leading indicator of a recovery.
  • I am not sure that Rogers is right. Stocks can rally on the first rays of hope, but commodities probably need real demand to spark a rally.
  • Rogers did not speak specifically about the behavior of soft commondities. Presumably, the demand for chicken feed would lag for years.
Rogers appropriately pointed out that he is not a health expert, just a commodities expert.

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