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Jim Rogers: This Stock Market Rally Will ‘End Terribly’

Wednesday, 12 September 2012 10:04 AM

Stocks have hit multi-year highs recently but are due for selloff since the gains have not been based on fundamentals but rather loose Federal Reserve policies marked by liquidity injections into the economy that have artificially propped up markets, said noted international investor Jim Rogers.

Since the 2008 financial crisis, the Fed has slashed interest rates to near zero percent and has carried out two rounds of quantitative easing, under which the U.S. central bank buys bonds such as Treasury holdings and mortgage-backed securities from banks, flooding the economy full of liquidity with the aim of further pushing down borrowing costs.

Side effects to such policies include a weakening dollar and rising stock and gold prices.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

“The 30 percent gains since last October have been largely driven by one catalyst — the Fed,” Rogers told CNBC.

“The Federal Reserve is pumping huge amounts of money into the market,” Rogers said.

“This is a Federal Reserve rally. The money has to go somewhere and it’s going into the stock market and the commodity market.”

Those who timed the market right will do well, but most won’t.

”It’s going to end terribly,” Rogers said.

Many economists expect the Fed to announce a third round of quantitative easing in an effort to lower unemployment rates and spur recovery.

Some experts point out, however, that all the liquidity in the world won’t kick-start the economy if consumers and businesses have little confidence in recovery and opt to hold off on demanding more goods and services.

“What the Fed is trying to do is send a signal rates are low and are going to stay low for a long period of time, so it’s a good time to come off the sidelines, consumers, and start buying that house or car you’ve been putting off,” said Cornelius Hurley, director of the Boston University Center for Finance, Law and Policy, according to the Boston Herald.

“Unfortunately, the Fed ends up chasing its tail a little bit on this in that it’s signaling it doesn’t have the confidence that the economy is going to come back in that period of time.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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Wednesday, 12 September 2012 10:04 AM
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