7 Good Reasons Why The Dollar Will Fall and Gold Rise

It’s time to provide some fundamental reasons as to why the dollar is in trouble long term and why the precious metals sector and the commodities sector stands to benefit from these dollar woes.

  1. The US has a massive current account deficit and it only seems to be getting bigger. Economists may play with the numbers by stating that one month is less than the other and so forth, but the trend is up. It now comes close to 6% of our total economic activity.
  2. The US needs to attract a whopping 1.8 billion dollars a day to compensate for the current account gap. This trend is simply unsustainable.
  3. While Government officials talk big about a strong dollar policy, they actually favour a weak dollar. This serves two purposes, it helps increase exports and it allows the government to pay its debt with lower valued dollars. As long as the Government continues to borrow at these mind boggling rates, it is going to unofficially favour a weak dollar.
  4. By inflating the money supply, the government is imposing a nefarious silent killer tax on the masses. The only way to hedge against this outright theft is to hedge yourself by getting into hard assets (precious metals, lumber, oil, etc).
  5. Our national debt is 12.4 trillion and increasing. However, this does not take into consideration all our unfunded liabilities such as Social Security and Medicare. If these are combined, the debt levels soar to well unimaginable levels.
  6. 44 states are facing budget shortfalls. California is leading the way as it is expected to spend 50% more than it will generate this year. Now that is a really scary thought. Since 2007 US states have collectively spent 300 billion more than they have generated. These deficits mean higher taxes and so far 33 states have raised taxes, but collections have plummeted to their worst levels in 46 years; you cannot squeeze water out of a rock. No jobs means no revenues but states are selling new bonds at record rates to raise funds. It’s a recipe for long term disaster.
  7. Eventually the Fed is going to have to raise rates to continue attracting the huge amounts of money it needs to function. Overseas investors are going to start demanding higher rates. Higher rates will kill this fragile economy. Precious metals thrive in a high interest rate environment. From a long term perspective the bull market in precious metals has only just begun.
About the author: Sol Palha
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Jim Rogers Says, Gold Will Hit $2,000 and USA Will Lose Status As The World’s Reserve Currency

Good Time To Buy Gold

Good Time To Buy Gold

Famed investor Jim Rogers is “quite sure gold will go over $2000 per ounce during this bull market.”Rogers’ confidence gold will continue to rally stems from a view the U.S. dollar is on its way to losing status as the world’s reserve currency.”Is it going to happen? Yes,” Rogers says. “I don’t like saying it [and] I’m extremely worried about it but we have to deal with the facts. America is not getting better [and] the dollar is going to be replaced just like pound sterling [was].”Rogers didn’t offer a timetable, and it’s likely gold would exceed $2000 per ounce if the dollar were to lose its reserve status.Still, “I wouldn’t buy gold today,” Rogers says. “I think I’ll make more money in other commodities, which are cheaper,” as discussed in more detail here.Among many others, Rogers is “worried about the fact the U.S. government is printing huge amounts, spending gigantic amounts of money it doesn’t have,” the investor and author says. “People are very worried [and] skeptical about paper money [and] looking for places to protect themselves. The best way is to buy real assets. [That] has always protected one during currency turmoil, and it will again.”

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Jim Rogers Says, Inflation Inevitable – Could Be Much Worse Than the 1970’s

Given the Fed’s extremely easy policies, runaway government spending and shortages of many commodities, inflation pressures are building and destined to get much worse, according to famed investor Jim Rogers of Rogers Holdings.”The Federal Reserve has laid the groundwork for some serious inflation down the road by printing all this money,” Rogers says. “So have many other central banks.”Although “the U.S. government lies about inflation” in its official data, inflationary pressures are already evident in nearly everything, excluding energy, Rogers says. Inflation is “going to continue, going to accelerate,” he says. “We’re going to be paying more for just about everything down the road.”Asked if he foresees a 1970s-style stagflation period ahead, Rogers chuckled and gave an ominous reply: “I hope it’s that good. It might be much, much worse.”Given that view, Rogers remains very bullish on commodities as we discuss in subsequent clips.

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Jim Rogers Says, Commodities Cycle Won’t Be Over for Years and Food Crisis Looms

Jim Rogers, famed investor and best-selling author, announced the start of a global commodities rally in 1999. It turned out to be a heck of call: Since then, commodities have dramatically outperformed stocks. Just this year, gold has hit record highs above $1000 per ounce, copper has nearly doubled and oil has rallied sharply off its March lows. So does Robers still believe in the commodity boom?You bet. “The story is not over, not for a while,” he tells Tech Ticker in this video clip. “I don’t see any reason it’s going to be over for a few years because no one is bringing new supply on stream.”The chairman of Rogers Holdings still owns gold though it’s not his favorite metal. “Gold is mystical to many people. I think I’ll make money in other commodities that are more useful.”Rogers is far more bullish on agricultural commodities. As he sees it, “most agricultural products are still depressed on a historic basis.”The lack of supply Rogers sees is especially concerning when it comes to agricultural products. “A catastrophe is looming,” he says. “The world is going to have a period when we cannot get food at any price in some parts of the world.”A potential food crisis transcends money, but Rogers warning may still prove to be another great investment lesson. As he told us in parting, “instead of getting an MBA, get yourself a farming degree. You’ll make a lot more money.”

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Gold Even At 1055 Still A Lousy Investment

The gold bugs are finally enjoying their moment in the sun. After 20 horrible years, in which gold dropped from $800 to $250 an ounce, the sometimes-precious metal is now roaring to all-time highs.Some folks, moreover, think this is only the beginning. Peter Schiff recently told Tech Ticker gold is headed to $5,000 an ounce.But that doesn’t mean it’s a great investment!In fact, says our guest Jon Najarian of OptionMonster, even with the run over the past five years, gold is still trading at about half it’s all-time peak after adjusting for inflation. Given that gold is supposed to protect you from inflation, this performance is abysmal.What’s more, gold has actually performed poorly this year relative to other more-boring metals–like copper and silver.Why?In part because those metals are actually used for something. China’s building houses again, which means they’re scarfing up all the copper in the world. But one thing is for certain: The higher gold prices go, the more people will be convinced it is a great investment. And the more people will fight each other out of the way to put it in their portfolios.

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Peter Schiff – U.S. Rally Is Doomed Gold Will Hit 5000

Unlike the “legitimate bull markets” of many foreign markets, Peter Schiff believes the U.S. is merely experiencing a “rally in a bear market,” and is lagging the rest of the world “for a reason.”The worst is not over, according to Euro Pacific Capital’s Schiff, who predicts the Dow will fall another 90% from current levels when measured against gold.A longtime dollar bear and gold bull, he foresees gold hitting $5000 per ounce “in the next couple of years,” and predicts the Dow and gold will trade on a one-to-one ratio vs. the current level of around 9.7-to-1.Schiff believes gold is currently “climbing a wall of worry” but will eventually become as hot as tech stocks in 1999 and start moving up $100 per day.Schiff’s forecast is based on his view the U.S. dollar is going to collapse under the weight of our massive deficit and reckless policies of the Obama administration, which he compares to the massive spending programs of the 1960s, which paved the way for gold’s ascent in the 1970s. “Obama is making the same mistakes as Bush, but he’s doing them on a grander scale,” says Schiff, who is running for U.S. Senate in Connecticut as a Republican.In addition to gold, Schiff remains bullish on Asia, most notably China. His firm recently launched the Euro Pacific Halter China fund, and Schiff believes “there’s a lot of value” in China and thinks the renminbi could “double or triple” when it’s depegged from the dollar.That will make Chinese assets more valuable when measured in dollars, he says.Schiff presciently called the bursting of the debt bubble and subsequent rout in financial assets, and his current forecasts may very well come to fruition. But Schiff’s confidence that the rest of the world (notably Asia) will prosper as the dollar loses its reserve status and America’s economy collapses seems dubious, at best.Then again, Schiff is nothing if not (supremely) confident.

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Jim Rogers – Buy Commodities, Short the Dollar and Long Bond

by John Kimelman
Monday, April 20, 2009
provided by

The legendary investor is sticking for now with the two Cs: China and commodities.

Well, bank executives and investors can breathe a sigh of relief: Jim Rogers has covered the short positions on financial stocks he put in place ahead of last year’s massive meltdown.

But just because this influential investor isn’t betting that big banks will fall much further doesn’t mean he’s confident they will stage a lasting rally either. He feels similarly about U.S. stocks in general.

“I am skeptical about the rally, and the world economy for the next year or two or three,” he says. “But if stocks go down, I can make money with commodities.”

Rogers, now 66, gained fame as George Soros’ hedge-fund partner in the 1970s and 1980s. After retiring from professional money manager in his late 30s, the Alabama native tooled around Europe, Asia, Africa, and Latin America visiting emerging markets, one by one. His resulting book, Investment Biker, helped to popularize emerging market investing at the outset of a bull market for the sector.

He also helped to popularize commodity investing, which for decades was the province of niche investors. In the 1990s, he developed commodity indexes based on futures contracts that in recent years have been turned into exchange-traded funds available to all investors. His 2004 book, Hot Commodities, came ahead of a surge prices for energy, metals, and agriculture.

Since its inception in July 1998, the Rogers International Commodities Index has gained 158%, while the S&P 500 has fallen 23%. And that gain for the commodities index comes despite the fact that it’s lost more than half of its value since last July. At these levels, Rogers has been a buyer.

These days, Rogers, now 66, is sticking close to home in Singapore with his wife, Paige Parker, and two small daughters. He’s about to release his latest book, A Gift to My Children: A Father’s Lessons for Life and Investing (Random House), in which he encourages other people’s children to travel widely and learn Mandarin so they can reap the rewards of China’s economic boom.

Recently, Rogers talked to Barrons.com by phone from his Singapore home.

Q: When you last did a lengthy interview with Barron’s magazine a year ago (see “Light Years Ahead of the Crowd,” April 14, 2008) you were lightening up on emerging markets investments. Well, you called that one right. But now that many of those markets have fallen from their highs of recent years, are you more optimistic?

A: No. I’ve sold all emerging markets stock except the ones in China. I bought more Chinese shares in October and November during the panic, but I have not bought China or any other stock markets including the U.S. since then. I’m not buying anything in China right now because the Chinese market ran up maybe 50% since last November. It’s been the strongest market in the world in the past six months and I don’t like jumping into something that has been that run up. Still, I’m not thinking of selling these stocks either. I think if it goes down I’ll buy more. I think you will find that it’s the single strongest market in the world since last fall.

Q: In your latest book, you talk of China as the great investment opportunity of the 21st century, just as the U.S. was in the 20th century. What percentage of a typical American investor’s portfolio should be in China?

A: If they can’t even find China on a map, I don’t think they should have anything in China. They should know something about China before they invest there. If they have the same convictions that I do then they should probably have a lot. If you asked me that question in 1909 about the U.S. stock market, I would have said to put 100% of your money in the U.S.

Q: Might it make sense to have a greater weighting in a diversified mix of Chinese stocks than in U.S. stocks?

A: Well yes. Just as in 1909, if you were German or Chinese, you should have had the largest percentage of your money in the United States. The idea of investing is to make money, not to have some sort of political agenda.

Q: That being said, you currently think Chinese stocks are bid-up now, so you’re not buying at these levels. So what have you been buying lately?

A: I have been buying commodities through the Rogers commodity indexes I developed because my lawyer won’t let me buy individual commodities. I recently bought the all four Rogers indexes — the ElementsRogers International Commodities Index (ticker: RJI) as well as the three specialty indexes, the International Metals (RJZ), the International Energy (RJN), and the International Agriculture (RJA.) That’s how I invest in commodities and that’s what I bought last week. I have been buying these shares since last fall and up to last week.

Q: Though you got out of emerging markets last year before they fell hard, you seemed be caught by surprise by the fall-off in commodity prices last year. Is that right?

A: Yes, I was surprised. I did not expect commodities to go down that much and in retrospect it was a period of forced liquidation for many (professional) investors. You know AIG went bankrupt, which was huge in commodities. Lehman Brothers was big in commodities.

But at least I was shorting the investment banks at the time and other financials such as Citigroup and Fannie Mae. So I was hedged by being long commodities and short the other things such as financials and as you know most of them were down from 80% to 100%, so I more than made up on my shorts than I lost on my longs. So thank God for (the stock decline in) Citigroup and thank God (for the decline) in Fannie Mae.

Q: Now despite the recent stock-market rally that started in March, many U.S. stocks are trading well off their 2007 highs. How come you see no value to this market?

A: I am not buying U.S. companies mainly because I think we may have seen a bottom but I don’t think we have seen the bottom. I am skeptical about the rally, the world economy for the next year or two or three. But if stocks go down, I can make money with commodities. In the 1970s, commodities went through the roof even though stocks were a disaster. In the 1930s, commodities rallied first and went up the most long before stocks pulled it together.

Q: Can you summarize the reasons for your bullishness about commodities?

A: It depends on the supply and demand. And we have had a dearth of supply. Nobody has invested in productive capacity for 25 or 30 years now. The inventories of food are the lowest they have been in 50 years and you have a shortage of farmers even right now because most farmers are old men because it has been such a horrible business for 30 years. And as for metals, nobody can get a loan to open a mine as you know. Who is going to give you money to open a zinc mine? It takes at least 10 years to open a mine so it’s going to be 15 or 20 years before we see new mines come on. Nobody has been opening mines for 30 years and they are not going to. And in the meantime reserves are declining. As for oil, the International Energy Agency came out recently with a study showing that oil reserves worldwide were declining at the rate of 6% or 7% a year.

That does not mean that if suddenly the U.S. goes bankrupt that everything won’t collapse in price. But I would rather be in commodities because it’s the only thing I know where the fundamentals are improving. They are not improving for Citibank or General Motors but the supply situation in commodities is such that when demand comes back, then commodities are going to be the best place to be in my view.

Q: What do you think of bonds?

A: I am anticipating shorting bonds — the U.S. long bond. It’s about the only real bubble around that I can see right now — other than the U.S. dollar. I am not shorting bonds at this moment because I’ve shorted plenty of bubbles in my day, and I have learned that you better wait because they go up higher than any rational person can anticipate. But my plan is to short the long bond in the U.S. sometime in the foreseeable future.

Q: I’ve read that you think the penchant of the last two presidential administrations for bailing out failing U.S. companies is a big mistake and will contribute to prolonging this recession. You argue that it’s best to let these companies all go bankrupt. How bad can the economy get?

A: Yes, politicians are making mistakes. In Japan, the problem has lasted for 19 years. I hope that it doesn’t last 19 years in the U.S. The approach that works is to let them (U.S. banks and automakers) collapse and clean out the system. The idea that phony accounting is the solution (through changes in mark-to-market rules) is ludicrous. And the idea that a debt problem and an excessive spending problem can be cured with more debt and more spending is ludicrous.

It’s laughable on its face, but politicians think they’ve got to do something. Unfortunately, they are doing the wrong things and they are going to make it worse.

Q: Thanks for your time.