Tuesday, August 16, 2011

Jim Rogers Says Gold Going Higher, EU Deserves Downgrade - Forbes

Commodities bull Jim Rogers tells The Economic Times of India that gold is going higher, but cautions investors about buying into gold rallies. His favorite markets are India and China, and he suspects the UK and France will be the next countries to lose their AAA credit rating.

The U.S. lost its AAA status on Friday, Aug. 5, when Standard & Poor’s lowered the country’s debt rating one notch to AA+. The U.S. is still investment grade.

“Governments all over the world are debasing currency; Yesterday, the US Federal Reserve said it will continue to debase their currency. The more the governments will debase paper currency, people will take refuge in real assets and gold is one of them,” he said.

Global equity markets will likely continue to sell off. His favorites are China and India, but both face headwinds on account of easy money policies in the U.S. and Europe, pumping excess liquidity into emerging markets that often causes inflation.  More U.S. stimulus is expected to keep the economy from falling into a recession.

Investors were glued to their favorite news sources throughout the month of July as Congress debated whether or not to raise the $14.26 trillion debt limit, and where to cut spending going forward. In mid-July, Standard & Poor’s warned that unless Congress could make cuts of $4 trillion, a downgrade of its credit rating was coming. Congress agreed to roughly $2.4 trillion in cuts, many of them discretionary spending like defense, with the risk that some of those cuts could be voted down in the years ahead by a new Congress or president.

After the debt bill was signed by President Barack Obama, Wall Street turned its focus on the European sovereign debt crisis. With Italy and Spain looking like they will need a European Central Bank backstop to keep them from defaulting on some government expenditures, and France looking like it is next in line for a downgrade, the market went into a tailspin. On Monday, the first post-U.S. downgrade trade in market history, global equities sold off by more than 9% in the U.S., and more than 10% in the emerging markets.

“The U.S. has been downgraded and countries like the UK have very high debt will have to be downgraded too. You can’t have the UK as triple ‘A’ and the US as not a triple ‘A’. You need to be asking S&P or Moody’s why they haven’t got around doing that. I don’t think, the European countries deserve their rates,” he told the Economic Times.

Jim Rogers

Warren Buffett

Nouriel Roubini