Tuesday, March 24, 2009

Jim Rogers on the money show

March 24, 2009

investments, stock, bonds, gold, silver, commodities, jim rogers, marc faber, peter schiff, ron paul, banking crisis, economic meltdown


  1. "maybe until next spring"

    Admin are you sure this is a interview done in March?

  2. Pls sbdy: What does he mean when he keeps saying investors are "covering their shorts"? I assume it is not a reference to the clothing ...

  3. A long position in X is when a person buys X because he believes he will profit by holding X and either taking dividends or selling later. A short position in X is when a person borrows X from someone else (for a fee) and sells it, hoping that he'll be able to return the X to the lender later at lower cost than that at which he sold it. In other words, a long position is a bet that X will go up, a short is a bet that it will go down. The act of paying back the lender with X is called "covering the short."

    People can short not just stocks and commodities, but also currencies. A person shorts dollars when he borrows dollars (at interest, the fee) and buys something with them (ie, he "sells" his dollars). He bets that the thing he buys will appreciate against the dollar fast enough to make up the interest fee he'll owe, so that he can sell at a profit in dollars, or alternatively sell for the dollars he needs to pay back the lender and profit the rest of whatever he bought.

    Borrowers or short position holders are sometimes forced by the lenders to sell at market prices (which may be fire sale prices, as in October, November of last year) to cover their shorts, depending on the terms of the lending contract. This is one thing he's talking about when he says forced liquidation. The other is just when the borrower needs the cash for something else, say rent or food.

  4. One more thing worth noting: the risk of a long position is only what the holder put into it. Thus, if a person buys X at $20/unit, he only places at risk $20 * the number of units he purchased, because the value of X can only decrease to 0. But a short position places him at immeasurable risk, because the price of X can rise without bound. That is, a person places at risk the number of units * the market price (that is, what he'd have to pay at a given time to cover the short), and the market price is technically unbounded.

    For example, suppose I short 10 shares of GM at $2, thus pocketing $20 on the sale in exchange for an obligation to return 10 shares within some time frame, and a combination of a booming export market and hyperinflation send GM shares to $1000 each. Then I owe $10,000, much more than the $20 I pocketed. On the other hand, buying 10 shares long costs me $20 but incurs no further obligation and hence no risk beyond the $20.