Monday, October 31, 2011

Jim Rogers: Greek Deal Won't Save Europe

Though pleased by the size of the haircut for Greek bondholders, international investor Jim Rogers says the deal isn't enough to save Europe, and the problem is likely to come back to haunt investors in the near term.

Rogers has welcomed last night's eurozone deal, saying the size of the haircut for Greek bondholders was much higher than he had expected.

"Never in a million years did I expect them to impose a haircut of 50 percent, this shows at least somebody is starting to accept reality," Rogers told Investment Week. However, Rogers says, "Politicians have delayed addressing the problem yet again."

"It will come back in a few weeks or a few months and the world will still have the same problem, but this time only worse because the European Central Bank and other countries will be in deeper in debt."

Rogers reiterated that widespread haircuts across Europe are necessary to truly resolve the crisis. "Greece is bankrupt, but others are too, and these haircuts will have to come back and be wider," he says, adding that this morning's global stock market rally had the potential to last for a while.

"There has been a major overhang, so we will see the easing of some pressure, but the problem will come back because the Western world still has not dealt with its debt," sys Rogers.

"Most European countries are increasing their debt rather than decreasing their debt. Until that changes, the problems are going to continue, just as they will in the U.S.," he added.

Bloomberg reports that the European Union’s agreement with banks for a voluntary 50 percent writedown on their Greek bond holdings means $3.7 billion of debt-insurance contracts won’t be triggered, according to the International Swaps & Derivatives Association.


Sunday, October 30, 2011

Rogers: Surprise 50% Greek haircut not enough to save Europe - Investment Week

Jim Rogers has welcomed last night’s eurozone deal, saying the size of the haircut for Greek bondholders was much higher than he had expected.

However, the veteran investor warned eurozone leaders have failed to address the crux of the problem, by only enforcing haircuts on holder of Greek debt. He said   the problem is likely to come back to haunt investors in the near term.

"It is good news. It is about time they started doing what is necessary. The problem is they have not dealt with anyone except Greece," said Rogers.

"Politicians have delayed addressing the problem yet again. It will come back in a few weeks or a few months and the world will still have the same problem, but this time only worse because the European Central Bank and other countries will be in deeper in debt," he added.

Rogers was surprised by the scale of the Greek bond haircuts, which will see boldholders accept a loss of 50% as part of the deal.

"Never in a million years did I expect them to impose a haircut of 50%, this shows at least somebody is starting to accept reality," he said.

However, Rogers reiterated that widespread haircuts across Europe are necessary to truly resolve the crisis. "Greece is bankrupt, but others are too, and these haircuts will have to come back and be wider," he said.

Rogers added that this morning's global stock market rally had the potential to last for a while.

"There has been a major overhang, so we will see the easing of some pressure, but the problem will come back because the Western world still has not dealt with its debt," he said.

"Most European countries are increasing their debt rather than decreasing their debt. Until that changes, the problems are going to continue, just as they will in the US," he added.

European leaders last night agreed a three-pronged deal to resolve the region's debt crisis.

The deal approved a mechanism to boost the eurozone's main bailout fund to €1trn (£880bn) in addition to the Greek haircut. Banks must also raise more capital to protect them against losses resulting from any future government defaults.

The framework for the new fund is to be put in place in November.


Wednesday, October 26, 2011

When Looking At Agriculture, Don't Overlook Direct Investment In Farmland - Seeking Alpha

Many investment professionals, including the legendary Jim Rogers, believe agriculture commodities are only in the early-to-middle innings of a major "super cycle" of increasing prices. Yes, agriculture stocks have had their ups and downs and have not had a great year to date, but as this Barrons piece points out, the long-term theme is still compelling.

The argument for this is fairly simple. The number of people in the world is increasing, and projected to reach nearly 9.1 billion by 2050 according to the United Nations. Emerging markets nations like China and India are growing richer, and their citizens want to move up the food protein chain. Meanwhile, the amount of arable farmland has been decreasing.

In addition, as with many major trends in the world today, a large reason behind the rapid run-up in food prices is China's development. The huge increase in pollution and development has unfortunately had quite a negative effect on China’s farmland sector. In only 12 years, over 8 million hectares of farmland has been lost to development in China, and this article helps explain why. As China has massive foreign currency reserves, it is perhaps not surprising that they are looking to secure food supplies from abroad.

Just as an example,China is looking closely at farmland investing in Ukraine as well as agriculture investments in Brazil.

The question is what are the best ways for making money from the agricultural sector? One way is to invest directly into agriculture stocks such as farm equipment maker John Deere (DE), global seed giant Monsanto (MON) or fertilizer company Potash Corp of Saskatchewan (POT).

Another method is to invest in agricultural futures through Exchange Traded Funds (ETFs) such as AIGA on the London Stock Exchange or DBC in the U.S. which tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs. These commodities ETFs try to track the spot price of the various commodities they include. The advantage of these stocks or ETFs is that they are easily tradeable by anyone who has an online brokerage account. The disadvantage, however, is that they are still financial instruments, and as such can fluctuate widely in price.

One option most individual investors tend to overlook is direct investment in farmland. In many ways, a farmland investment is more secure, stable and tangible then putting money into stocks. Farmland allows investors to still benefit from the global trends in agriculture, while providing much greater stability than agriculture stocks or commodities which can indeed fluctuate widely as this year has demonstrated.

Just to take one of the best examples of the efficacy of farmland investing, in the last 20 years farmland in the United States has never had a down year according to the National Council of Real Estate Investment Fiduciaries (NCREIF) in the U.S. demonstrates. Not surprisingly, many large institutional investors have been investing heavily in farmland the last several years. For example TIAA-CREF, one of the largest pension funds in the world, has recently made a large move into farmland investing.

Prices for farmland in the West - particularly in Europe - have already moved up considerably, reaching as high £17,300 per hectare in the northwest of England to take just one example. While there are considerable advantages in terms of political stability to farmland investment in Europe or the U.S., the real opportunities for spectacular gains lie in emerging markets such as Africa, which holds 60% of the world's remaining arable land suitable for farming.

While farmland investment has been dominated by larger institutions historically, in just the last two years a number of options have been developed for individuals. The most common is to pool a number of individual investors' capital together to purchase a large parcel of land, and then divide it into individual parcels as small as one acre available to purchase. These farmland investments for individuals generally pay a regular yearly dividend from the sale of crops such as rice or wheat, and also provide the opportunity for long-term capital gains if the farmland increases in value. Retail investors are generally able to see their individual parcels, or else the project originator may actually sell its entire farmland investment, thereby allowing the individual small investors the opportunity to share in the upside capital gains.

There are now farmland investment options for retail investors with investment minimums starting as low as £1,950 per acre (approximately $3,100) for quality farmland in Africa, making it easily accessible by individuals and a great way to diversify. There are also direct farmland investments for retail investors in Europe, Australia and elsewhere. All of these target yearly income payments of between 9-15%, while also allowing investors to share in the upside of any capital gains as well.

There are, of course, risks with any investment, but by doing one's due-diligence and investing in the right structure with the right people and institution, farmland investment can be both safe and profitable for individual investors as well as large institutions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: GreenWorld BVI is a boutique alternative investments firm and we represent a number of farmland investment projects mentioned in this article.


Big-name gurus not too big to fail

By Howard Gold

NEW YORK (MarketWatch) — The market has been pretty rough these days for all of us. But some big-name investors are probably doing worse than you are.

William H. Gross, the head of Pimco Total Return Fund /quotes/zigman/132344 PTTRX +0.09%  and the most illustrious bond investor of our time, is reeling from a big move out of U.S. Treasurys early in the year.

/conga/story/misc/investing.html 174024

John A. Paulson, Mr. “Greatest Trade Ever,” is anxiously awaiting the end of the month, when he’ll see how many of his investors cash out of his Advantage hedge funds after heavy losses this year.

Both Gross and Paulson are big names who’ve had rough patches and their experience shows how tough it is for even the best to beat the market consistently over long periods, especially if managers make big macro bets on the economy or stray beyond their areas of expertise. (Paulson’s spokesman declined my request for comment, and Pimco didn’t respond by deadline.)

Bill Gross has presided over Pimco Total Return for nearly 25 years. During that time, he built it into the U.S.’s biggest bond fund, with $242.2 billion in assets as of Sept. 30. Forbes estimates his net worth at $2.2 billion.

Gross has fame as well as fortune, appearing regularly on CNBC, where he is lionized, as well as in the venerable Barron’s Roundtable. He’s also well known for his clever commentaries, which are posted monthly on Pimco’s website.

In his March missive, Gross explained his big call for this year: He was dumping Treasurys because of what could happen once the Federal Reserve ended its latest round of quantitative easing (QE2).

“Who will buy Treasurys when the Fed doesn’t?” he wrote. “Yields may have to go higher, maybe even much higher, to attract buying interest.”

It seemed plausible at the time. But when the economy weakened and the European debt crisis flared up again, investors did what they did in 2008 — rushed for the safety of U.S. Treasurys. Amazingly, that occurred even after Standard & Poor’s cut the U.S.’s AAA rating in August.

Read Howard Gold’s column in which Gary Shilling predicts a new recession and favors Treasurys in

The flight-to-safety rally drove the yield on the 10-year Treasury note down to a 65-year low of 1.72% on Oct. 4, from around 3.5% in early March, a humongous move which Pimco shareholders missed. Pimco Total Return, which has beaten its benchmark over every time period since its inception, has been near the bottom of its peer group over the past year.

Gross admitted to losing sleep over it, and finally, predictably, he threw in the towel. In a piece entitled “Mea Culpa,” Gross wrote: “This year is a stinker. Pimco’s center fielder has lost a few fly balls in the sun.”

“As Europe’s crisis and the U.S. debt ceiling debacle turned developed economies towards a potential recession, the Total Return Fund had too little risk off and too much risk on,” he continued.

But now, having been too optimistic about the economy, Gross seems to be going to the other extreme. Pimco started loading up on long-duration Treasurys late this summer, anticipating that the Fed’s Operation Twist would gobble up 30-year T-bonds.

We’ll see if he’s right, but I wonder whether this kind of all-or-nothing bet is really beneficial to investors. Actually I don’t wonder, but I’ll get to that later.


China - Wishful thinking by US media

Warning signs of cracks in China's economy are surfacing, but analysts disagree about whether they portend a crash or merely a need for caution. The U.S. Senate bill that would place tariffs on imports from a country found to be manipulating its currency, clearly aimed at China, is raising more red flags.
The fallout from either of these situations could be devastating to U.S. agricultural exports: In fiscal year 2010, China imported ag products worth $20.3 billion from the U.S. -- 18% of the total -- and 2011 most likely was even higher.
China is an especially important market for soybeans. They account for more than half of total U.S. exports to China and, conversely, China takes more than half the soybeans we export -- and about a quarter of U.S. soybean production.
China's economy could be headed for a breakdown, according to Patrick Chovanec, an American who teaches in the International MBA Program at the Tsinghua University School of Economics and Management in Beijing. "I've been saying since the year began that China is due for a correction, and I believe it could be a lot worse than most people expect. Exactly how it will unfold or whether we've already reached a tipping point remains to be seen," he said.
Chovanec cites changes in the relationship between the new-home market and the resale market as an indication that developers have overbuilt on speculation and now are over extended.
"With credit conditions tightening, they systematically ran through the credit lines available -- first, the banks, then high-yield bonds, then private wealth management vehicles that have been popping up all over China, then loan sharks. Finally, with no options left, they had to start selling some of their inventory at whatever price they could," Chovanec said.
This led to collapsing prices on new homes. In Shanghai, for instance, sales of new properties in the first half of September were down more than 50% from a year earlier, despite record-high inventories.
"Well, the government has been targeting urban coastal real estate to control inflation," Jim Rogers, investor and best-selling author, told DTN. "So this is a sign their policy moves are working."
What's different in China vs. the housing mess in the U.S., said Rogers, is that "In the U.S., you could buy four or five houses with no job and no money down. Nowhere in China can you do that."
China's consumer price index is still rising at more than 6%, but the regulated deposit rate at banks is 3.5%. "As a result, China's banks recently have seen a rush of withdrawals as savers seek higher yields elsewhere," said Chovanec. China Securities Journal reported that deposits at China's four biggest banks fell $65.7 billion in the first half of September -- and the money was channeled into speculative assets.
"It is now becoming clear that the actual yields being generated in China are not living up to what was promised, and this is showing up in valuations of stocks and bonds," Chovanec said. This is affecting the value of China's currency, the renminbi. "Speculators now may be rushing to turn their renminbi into dollars to take their money out of China."
However, based on the latest Purchasing Manager Index, released last week, he concludes, "Whatever cracks may be emerging, China's economy has not yet turned the corner to a 'crisis' moment. But tensions and contradictions lurk below the surface, and the evidence is mounting that the fabric of China's investment-led growth is starting to fray and unravel."

The renminbi, or yuan, became China's currency in the late 1940s, but was basically used domestically, with U.S. dollars used for trade through the end of the 20th century. As trade grew, it was pegged to the dollar, though since 2005, it has been allowed to float in a narrow margin, based on a market-basket of currencies. Many countries argue that the renminbi is as much as 35% to 40% undervalued, making Chinese products cheaper in world markets, and pressure is increasing for the government to let the currency trade freely.
Now, a bill in the U.S. Senate would require the Obama administration to apply tariffs on imports from countries that manipulate their currency when the White House determines that a currency is misaligned. A country so accused would have 90 days to rectify the situation before the tariffs went into effect.
Earlier this week, China warned that passage of the bill violates the World Trade Organization's rules regarding protectionist tariffs and could provoke a trade war. Furthermore, in a statement on China's official government website, Ma Zhaoxu, spokesman for the foreign ministry, reiterated that Beijing's position is to continue "strengthening the flexibility of the renminbi exchange rate," implying that the Senate's radical move, at the very least, is unnecessary. The renminbi has appreciated 7% since June 2010, when the central bank loosened controls.
"I really hope someone stops this," Rogers told DTN. "No one has ever won a trade war. Ever. This could bring the world into depression. Why, it could cause World War Three. It could play out the way Smoot-Hawley did in the 1930s -- it's a 'beggar thy neighbor' policy. When you slap someone in the face, what do they do? They react. Then it goes back and forth. The U.S. wants a cheaper dollar relative to the renminbi. That will make other countries unhappy. They will react."
What might the Chinese do? "Well, for one thing, they could not buy U.S. bonds -- or sell the ones they hold," Rogers said. "That would pressure interest rates in the U.S. How would the government finance its debt? It could lead to even higher deficits."

Buy Emerging Market Stocks After Their ‘Final Collapses’: Rogers

U.S. stocks are outperforming emerging market stocks. They have outperformed in 2011 and have done so since early 2010.

This is very counterintuitive because the performance of the equities market is predominately driven by two macro factors: economic growth and inflation.

U.S. economic growth has been much slower than emerging market economic growth. U.S. inflation is among the lowest in the world (even less than Europe's).

One would therefore expect the U.S. stock market to be one of the worst-performing in the world.

Below are charts (from Google), of three different times frames, comparing the performance of the Dow Jones Industrial Average versus Hong Kong's Hang Seng Index and the MSCI EAFE (Europe, Australasia, and Far East) Index Fund ETF, which tracks the performance of major non-U.S. equity indices.

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The first chart shows the outperformance of U.S. equities in 2011. The second chart shows that the Hang Seng Index, and the MSCI EAFE to a lesser extent, essentially missed the 2010 QE2 rally.

There are some reasonable explanations for this.

Monetary inflation in the U.S. funneled into the U.S. stock market. Meanwhile, monetary inflation in countries like China were more reflected in the properties market.

Emerging market countries have also had to tightened monetary policy recently in response to inflation, which dampens economic growth.  

Moreover, the decline in emerging market assets in recent months reflected a flight-to-quality trade.

Perhaps most importantly, however, emerging market stocks were extremely overvalued and still have not deflated.

The third chart shows that the Hang Seng Index was likely overvalued 2007 and again in 2009 and 2010. It began deflating in 2011. That process, however, may be far from over.

Many experts believe that in the very long term, investors clearly need to be in high growth countries like China.

In the short-term, however, it may be a foolish idea to jump in.

Emerging market equities "have underperformed partly because they overperformed before," international investor Jim Rogers told IBTimes.

Rogers said these emerging market stocks will be attractive buys again after they have had their "final collapses."

For the relatively poor performance of the Brazilian and Indian stock market, he also blamed their "bad policies" and "huge debt problems," respectively.


Tuesday, October 25, 2011

Silver Price to Regain Bullish Momentum

While the gold price lost around 15% after topping above $1,920 per troy ounce in early September, the price of silver is currently trading at a discount of nearly 40% compared to its record high of $50 per ounce (which it came close to reaching in late April). However, investors are well-advised not to judge the current market situation too quickly, since the fundamentals underpinning the rise in gold and silver prices remain intact. James Turk discusses some of these fundamentals – and a key formula for determining whether or not gold is overvalued – in a special article for the King World News Blog, released yesterday.

The debasement of currencies by central banks, combined with continuing problems in the banking sector have led to mounting fears of sovereign defaults among from industrialised countries. These fears have been the driving forces behind gold and silver’s strong price gains. Silver's sharp price decline of around 40% has led to frantic buying from those eager to “buy the dips”. This is especially true in the USA, Canada and many European countries – and last but not least China and India. Indian metals experts and bullion dealers estimate that sales of the white metal will jump by 30% in the course of this year's festival season.

Many analysts are also expecting China's silver consumption to rise further as well. The affordability of silver versus gold or platinum on a per-ounce basis is making the white metal even more attractive for many investors who have up until this point not been involved in the gold and silver markets.

However, Shreekant Jha, managing director of the company PJ Commodity Ventures, said that he would sell gold as he expects the yellow metal to continue trading in a sideways direction over the short-term. N Prasad, CEO of Safe Trade Advisors, believes that investors should currently favour silver over gold. His opinion is shared by other analysts and renowned market experts such as Eric Sprott and Jim Rogers, who both think that silver will outperform gold over the next decade; Sprott thinks that silver will be “the investment of the decade”.


Jim Rogers' Recent Gold Call Looks Right - Forbes

Commodities guru Jim Rogers looks to be right yet again on gold prices.  Gold futures are down over 11% in the last five days, with the popular SPDR Gold (GLD) exchange traded fund down yet again Wednesday, this time another 2.75% to $156.22.  Rogers, a long term commodities bull, told The Economic Times newspaper in India this week that gold prices were bound to correct short-term.

Forbes ran a pick up of part of the interview on Tuesday.

In the interview, Rogers says that gold prices are likely to correct for as long as two months and $2,000 an ounce is probably out of the question for this year. He added that investors who like the long term prospects for the precious metals should be buying the dips.

“Gold has been up 10 years in a row, which is very unusual in any asset class. So if it is up this year or 11 years in a row, gold is overdue for a correction and it could have a nice substantial correction given that it has been so strong,” he told India’s largest business daily. “I have no idea what is going to happen this year. I doubt if it will go to $2000 an ounce in 2011.”


Sorry Inflationistas, But This Chart Proves You Wrong

It’s time for our weekly dose of graphics to drive home a point or two. This go-round, I’m taking aim at the Inflationistas.

You know, those fearmongers that have been trying to tell us that the end is nigh ever since the Fed embarked on its massive money-printing campaign. That prices for all sorts of goods and services – and interest rates – are about to skyrocket. And that our only salvation is not God, but the almighty gold bullion.

Can you tell I was never afraid of their prophetic declarations? Well, that’s beside the point.

What matters is that inflation – and certainly hyperinflation – has proved to be nothing more than a bogeyman.

And the charts I’ve selected for this week should serve as a nice piece of humble pie for all those Inflationistas. The question is, will they eat it?

Show Me, Don’t Tell Me

Take a trip down memory lane with me and you’ll recall a time not long ago – back in late 2009 – when the biggest story in the market was inflation. Almost every last soul was convinced we were on a crash course with higher prices and interest rates.

Warren Buffett, Jim Rogers and Alan Greenspan were all jumping on the inflation bandwagon, too. A pundit on Fox News went as far as declaring he was “100% sure” inflation is going to hit. And not just inflation, but hyperinflation.

And why not? Never in the history of the world had the Fed pumped so much extra liquidity into the market. When that happens, inflation always follows, right?

Well, not exactly.

As this chart demonstrates, inflation has proved to be no big deal. We’re not even close to matching any of the major historical spikes.

So what happened?

As I pointed out in a special webinar in 2009, everybody was ignoring the deflationary forces at work – like the collapse in housing, the contraction in personal credit and soaring unemployment. And that these forces were more than enough to offset the Fed’s inflationary actions.

Of course, the die-hard Inflationistas in the group have a knee-jerk retort. It’s a little ditty that goes something like, “Wait for it, wait for it, wait for it.”

I’ll keep waiting. Because in order to have inflation we need a wage-price spiral, wherein wages chase prices and prices chase wages. But that’s not possible when wages aren’t rising.

And they’re certainly not.

Bottom line: Runaway inflation is going to be like Lindsay Lohan at her court-appointed community service – a no-show. So don’t let the Inflationistas scare you. They’re wrong!


American credit rating to be downgraded again

Jim Rogers 28.07, 00:58

With five days left until the debt ceiling is reached, are Americans witnessing first hand a crisis or political showdown? According to investor and author Jim Rogers, it just doesn’t matter anymore.

China downgrades US credit rating 03.08, 18:56

China’s top credit rating agency downgraded the US debt, despite this week’s deal that many hoped would save the markets.

Image from 15.07, 20:10

Standard & Poor’s said yesterday that the US credit rating has a good chance of being downgraded due to the debt discussion stalemate marring Washington, and even a deal to raise the ceiling doesn’t mean they won’t downgrade the country’s rating.

Days away from default, no solution for the US debt ceiling has been reached. 29.07, 18:57

On Tuesday, the United States government is planning on running out of the more than $14 trillion that DC lawmakers say the country can borrow from abroad.

American credit rating downgrade still likely 01.08, 20:20

Lawmakers may have hoped that the last-minute debt ceiling deal yesterday saved the US economy, but credit agencies aren’t about ready to say that the dollar is safe from danger.

The Fed loaned out trillions both internationally and domestically. 21.07, 22:03

With 12 days left until the US reaches their borrowing limit and looks towards default, economists are trying to figure out how to avoid running into the $14.3 trillion debt ceiling. Here’s one answer: stop giving away money.

US may loose AAA debt rating 14.07, 11:37

The rating agency Moody’s says it may review America’s AAA debt rating to reflect the country’s possible technical default. The scenario may eventuate if congress fails to approve raising the statutory debt limit in time.

America will lose its sovereignty 30.07, 00:54

Lawmakers in DC continue to work towards a last minute solution to the debt ceiling crisis — or at least say they are — but to RT contributor Max Keiser, the outcome is already certain.

Published: 24 October, 2011, 19:23

A picture shows the entrance of Fitch ratings agency (AFP Photo / Miguel Medina) A picture shows the entrance of Fitch ratings agency (AFP Photo / Miguel Medina)

TAGS: Crisis, Politics, USA, Banking, Economy, Finance

Only three months after Standard & Poor’s downgraded America’s credit rating, the other two top agencies — Moody’s and Fitch — could be considering a downgrade of their own in the very near future.

This news comes from a report out of one of the biggest names in the banking industry, Bank of America Merrill Lynch, issued on Friday.

"The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan" to cut the deficit, Merrill's North American economist Ethan Harris writes in a report from last week.

"Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes," adds Harris.

The 12-member bipartisan super committee has until November 23 to find a solution to America’s ongoing deficit dilemma, which played a large role in triggering S&P to issue their downgrade back in August. At the time, it was the first time America’s sovereign debt had been devalued by any of the top-three. With the super committee’s deadline less than a month away now, Harris’ report considers another downgrade likely if the congressional leaders involved in finding a solution cannot come up with a plan.

Should a plan not materialize in time, $1.2 trillion in automatic spending cuts will be instated starting in 2013, which will largely pull from discretionary spending. That isn’t to say, however, that it won’t impact the faltering American economy any further. If a plan is not put together and a downgrade is in fact issued, economic woes for Americans are almost certain to worsen.

Harris’ assumption is indeed just that, but Moody’s did in fact reveal that the US credit rating is currently under review for a possible downgrade. Speaking to Reuters last week, Moody’s lead analyst Steven Hess said, “It’s not that we’re waiting just for this committee to decide on the rating,” and that a failure from the super committee “would be negative information but it is not decisive in our view about the rating.”

In the days leading up to America hitting its debt ceiling earlier this year, investor and author Jim Rogers told RT that anything Congress did at the time would only postpone further catastrophe for the country.

“They’re going to announce something either the day before, the day of or the day after and they’re going to say everything is okay.” Rogers said in August, adding, however, that “America is going to be in worse shape than it is now.”

“They are going to continue to spend and drive us deeper into debt,” said Rogers. “I don’t see any chance of turning it around.”

“Even if they default on August 2, 3, 4 — they’ll be back playing the same old games,” he said.

Standard & Poor’s eventually issued their downgrade on August 5, 2011 — less than a week after China’s Dagong Global Credit Rating did the same.

United States Marine Corps. Sgt. Shamar Thomas (Grab from YouTube video uploaded by BklynJHandy) 22.10, 04:51

OWS protesters have said since the beginning that their movement is a leaderless one. However, a video of a disgruntled US vet sharing some words with the NYPD during last week’s Times Square stand-off has made him an unintentional spokesperson.

Occupy Wall Street Republican Presidential Candidate Ron Paul speaks to a gathering of conservative Christians at the Iowa Faith & Freedom Coalition Presidential Forum on October 22, 2011 in Des Moines, Iowa (Scott Olson / Getty Images / AFP) Today: 19:44

Are you still a fringe candidate when you pull in more than half of all votes? Just ask Ron Paul.

US Election 2012


Monday, October 24, 2011

China: Understanding The Nature Of The Bubble

Jim Chanos, an investor made famous by his wise shorting of Enron years ago, is now shorting China. He is also giving seminars to investors, and taking the opportunity to talk up his book. Among other things, Chanos claims that China is about to see a western-style credit implosion. He claims that "China’s bust will be a thousand times worse than Dubai." Chanos' view is based upon an erroneous assumption that Chinese growth is based upon a credit boom, like growth in Dubai and western nations.

Chanos does not seem to understand Chinese monetary conditions. Unlike Americans and Europeans, folks there don't trust governments or banks. Many EM countries have a long history of currency debasement, and China is no different. International speculators may think the renminbi has a grand future, but China's own people don't. They don't trust cash to retain long term value, and they buy real estate with the idea that it will protect the value of their earnings.

In many emerging markets, the safe haven function was once performed by the U.S. dollar. That was never the case in China because the dollar does not freely circulate there. But, since the advent of heavy US dollar debasement, in the first decade of the 21st century, the idea that the dollar is a safe haven has lost its allure in much of the world, anyway. Throughout the emerging world, starting in the year 2000, people began an intensive search for other perceived havens. The favorite has been real estate, especially in emerging markets, but also in developed credit driven markets.

People in China, and elsewhere in the emerging world, invest in real estate in the hope of preserving the value of their hard-earned savings against the depredations of their government. That's why they often leave the apartments and office buildings they buy empty and incomplete. New buildings are parking spots for ever-debasing cash, not something that the initial buyers ever actually intend to occupy. Like their human cousins in American, Europe, Dubai and elsewhere, the average Chinese person is prone toward group-think and the herd mentality. People tend to always do the same things at the same time. That's what causes economic bubbles. The bubbles eventually burst.

The question is not whether or not the Chinese real estate market is in a bubble. It is obviously in a bubble. The question is what effect the bursting of that particular bubble will have on the rest of the Chinese economy. Chanos thinks that China is the "mother of all bubbles". Maybe, but only to foolish western investors who margined themselves to the hilt in order to "leverage" positions in China. To the Chinese themselves, the adverse effect of a real estate price collapse will be substantial but short-lived, and nothing like the bursting of the credit-driven bubble in Dubai or in western real estate markets.

The critical difference is that the China is not credit driven. Credit plays a part, but a small one. China's real estate is cash driven. Upper middle class and wealthy Chinese, like other emerging market investors, face an overwhelming sea of cash, because their government prints seemingly endless wads of cash, creating seemingly endless amounts of inflation. This is done to depreciate the currency against major western currencies so as to spur exports and inhibit imports. So upper middle class and wealthy Chinese take this cash and buy real estate, including empty residential flats and office buildings. Others buy stocks.

Emerging market investors, including the Chinese, choose to invest in real estate particularly because it had an upward trajectory to begin with. Prices were rising for real reasons, like increasing movement from rural to urban areas and demand for places to live. So with few places to put their ever-increasing wads of money, Chinese citizens bought real estate, in the hope it would preserve their wealth partly because they don't know what else to do. In the short run, the fact that Mr. Chanos does not fully recognize this will make little difference to whether or not he makes money on his short positions.

The dramatic differences between the credit driven real estate boom in the West, and the cash-driven boom in China will not stop the bubble from bursting. But, understanding the nature of the bubble changes the rapidity with which investors who short the China market must act quickly. Understanding the situation in China will help determine when to exit the short position.

The M2/M1 money supply ratio in China is something on the order of 2 to 1, which is approximately the same as the money supply ratio that existed in America in 1959. Those were the days before Americans used credit cards, and while the fear of bank failures, arising out of the Great Depression, was still clear in their minds. This compares with a current ratio of about 4 to 1, after the 2008 crash, and about 7 to 1 before the crash. Europe is similar to the USA. Western economies, and those who try to emulate them, like Dubai, are heavy on M2 and M3 and light on M0 and M1. China is heavy M0 and M1, and light M2 and M3, just like America once was. It is a cash economy.

The basic issue is not that real estate (or China stocks) are "bad" investments. The issue is that the abundance of cash has caused intensive buying, and both real estate and stock prices have been bid up faster than even the hefty money-printing rate. But Chanos goes too far in claiming that the entire Chinese economy is going to collapse simply because this bubble collapses. The Chinese government is cash rich, to the tune of trillions of dollars and Euros worth of foreign currencies. It can spend its way out of any foreseeable downturn.

In an attempt to support his argument, Chanos says that intense corruption pervades China. But should Chanos concentrate his attention on Chinese corruption? China has printed money to spur its exports, and speed the import of new technology. The Federal Reserve and Bank of England, in contrast, has printed money and targeted it into stock and bond markets, with the openly stated intention of artificially inflating asset prices. Beyond that, the Federal Reserve has been helping Bank of America (BAC) shift potentially destructive derivative obligations from Merrill Lynch into its FDIC insured retail deposit division. This increases the probability that the biggest multi-trillion dollar bank in America could fail, resulting in huge losses for taxpayers and any depositors whose assets exceed the FDIC insurance limit. What is happening in the western world is at least as corrupt as anything happening in China.

So, is Mr. Chanos correct about China? No doubt, there is a real estate bubble. No doubt, it will eventually burst. But, in spite of those who claim that China is in the midst of a credit bubble, the hard data proves that claim to be false. If China was inside a credit bubble, the M2 money supply would be many times the size of M1, and that is not the case. For this reason, although the real estate/stock market implosion in China will be very painful, it will not have the same ramifications with respect to the rest of the economy as credit implosions have had on credit driven economies, like Dubai, the USA and Europe.

Chanos and anyone else shorting China can make money in the short run if they are nimble. But they need to get in and out in a very timely fashion. In the long run, if Chanos holds on to his short position just a little too long, he will lose his shirt. That's because China will not stop growing simply because of the bursting of a cash-driven real estate or stock market bubble. There will be only a short window of opportunity during which Chinese equities will decline a lot. After that, Chinese growth will outpace that of of the western nations, and its markets will explode upward again.

You can go long or short on Chinese equities by using a number of investment vehicles. Speculating on emerging market economies, however, is extremely speculative and can result in the loss of a major part of your money, if you don't know what you are doing. Chanos may yet lose his shirt. But, those with the inclination to follow him, or long-China investor Jim Rogers, can buy individual companies, or ETFs. The ETFs are an easy way to go short or long on China without needing to juggle a huge number of buys and sells.

Fees vary a lot, depending on the fund management company, so you should carefully compare the fees charged by each one. Leveraged ETFs, in particular, are extremely costly, and are a poor choice for long-term investing. Companies that sponsor them buy and sell positions in the fantasy-futures markets. Prices at futures markets are only peripherally related to real world supply and demand. Futures prices reflect the capricious whims of banks and hedge funds.

To a large extent, leveraged ETFs, like static commodity funds, are relied upon by the nimble bank-connected traders, to supply cash losses out of which they can get gains. Leveraged ETFs, unlike nimble traders, blindly roll over long or short positions at maturity, month after month, regardless of market conditions. In doing so, they pay huge premiums to banks that control the futures markets, and are exquisitely vulnerable to whatever the controlling banks and hedge funds want to do with the price near maturity. Funds that blindly invest in futures positions are cash-cows for manipulators in futures markets. For these reasons, among others, leveraged ETFs do not accurately reflect the ups and downs of the cash markets in the long run, and should only be utilized for ultra-short term trading goals.

Here is a list of China oriented ETFs that can be used to take a position on China's future or lack thereof.

iShares FTSE/Xinhua China 25 Index Fund (FXI)
iShares MSCI Hong Kong Index Fund (EWH)
Direxion China Bear 3X - Triple-Leveraged ETF (CZI)
Direxion China Bull 3X - Triple-Leveraged ETF (CZM)
EGS INDXX China Infrastructure ETF (CHXX)
Global X China Consumer ETF (CHIQ)
Global X China Energy ETF (CHIE)
Global X China Financials ETF (CHIX)
Global X China Industrials ETF (CHII)
Global X China Materials ETF (CHIM)
Global X China Technology ETF (CHIB)

The idea of going long or short on China is interesting to talk about. This particular investor, however, prefers more prosaic investments, and won't be betting on or against China. We'll leave that to Jim Rogers and Jim Chanos. But one thing is clear. Even after the real estate bubble bursts, the Chinese government will continue to print renminbi. Having discovered that real estate and stocks are flawed havens, Chinese citizens will turn to something else.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.


Thursday, October 20, 2011

Jim Rogers warns of bond bubble stagflation and emerging markets

Last Updated : 17 October 2011 at 12:05 IST

NEW YORK (Commodity Online): Jim Rogers believes that the US will experience stagflation so much worse than the 1970's that he is betting on commodities and currencies while shorting stocks and emerging markets.

This should come as no surprise for those whoo follow Rogers, since he has been a long time commodity bull.

"As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds - somewhere along the line we get to the point when (bond prices) go down. Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse”, Jim Rogers said in a CNBC interview adding that he wouldn't advise anybody to buy bonds.

Rogers is long on commodities and currencies to prepare for stagflation while he is shorting stocks and emerging markets.

So why emerging markets when everybody seems to be looking for growth in them?

“The time to buy emerging markets is when everyone else is dumping them, not when there are 20,000 M.B.A.s running around touting them”, he said in a WSJ interview.

After reading this article, people also read:


George Soros, Jim Rogers love Agriculture, Investors should be Sweet on Stevia ... - SmallCap Network

As reported in previous articles on, earlier this year, legendary investor George Soros became the largest shareholder of Adecoagra, a Brazilian agriculture concern.  Soros owns more than 27 million shares, which represents an investment of close to $400 million.  This was detailed in a prevous article on

Billionaire investor Jim Rogers, Soros' former partner at the hugely successful Quantum Fund, is very bullish on the agriculture sector.  With the global population headed towards 9 billion, he sees agriculture as the growth sector of the future.  He has been buying farmland in Brazil and Canada.  In a recent interview, Rogers declared that, "If it is an agriculture product, I am going to say buy it!"  This topic was reviewed extensively in a previous article on, too.

Savvy investors now have that opportunity at the early, potentially explosive stages with Stevia Corp.  This is when the opportunties for profits are also the greatest.  Stevia Corp makes sweeteners and is based in Indianapolis, Indiana.  The company grows the Stevia Leaf in Vietnam and Indonesia, which have optimal growing conditions for the plant.  Mintel, a market research group, expects the sales of Stevia sweetened products to be in excess of $2 billion in 2011.

The market for Stevia products is huge and will only expand.  All natural Stevia is projected to replace 20 percent of the current $50 billion market in the world for sweetners.  The entire sweetner market now is estimated at $80 billion and is broken into three segments: sugar, which compromises 82 percent; high fructose corn syrup at 9 percent; and high intensity sweetners, the remaining 9 percent.

Stevia has a number of advantages of each.  It does not do the damage to the environment that sugar does, particularly in polluting the water and atmosphere.  Corn prices have been driven higher around the globe due to ehanol demands.  And high intensity sweetners such as aspartame have undesirable side effects.  Sugar, corn and artificial sweetners have a gloomy outlook while Stevia has centuries of tradition behind it.  Moreover, as the global population grows and becomes more affluent, products like Stevia will be more in demand as diets evolve.


Wednesday, October 19, 2011

Insider Buying, High Yield Bonds and Barry Diller - Investment U

Insider Buying, High Yield Bonds and Barry Diller’s Misuse of IAC Funds

by Steve McDonald, Investment U Research
Monday, October 17, 2011

Legendary investor Jim Rogers said recently that he owns all commodities, but that he likes agricultural commodities most of all.

Agriculture, according to Rogers, is in the worst shape of all in terms of commodity supply. Why? No one wants to be a farmer and the world population growth is outpacing the growth of food production.

According to UN figures, farmland is in short supply and is expected to lag food demand. By 2050, food demand is projected to grow by 70 percent and increased land availability by five percent.

The seriousness of the pending food shortage and the potential wealth this situation presents has not yet hit the markets, evidenced by the fact that the S&P Global Agribusiness Index is down 16 percent this year. This despite what Barron’s reported this week as a very bright long-term outlook and strong earnings and profit gains by almost all of the major agribusiness players.

The UN’s food and agriculture organization, the FAO, predicts that, between now and 2050, we will have to produce a billion more tons of cereal and 200 million more tons of meat.

The FAO also estimates it will require an annual investment of at least $83 billion in agriculture production in the developing world and billions more in seed, fertilizer, farm equipment and irrigation just to tread water.

That’s $83 billion annually, just to meet demand expectations. Remember, this isn’t a new luxury item or techno gadget, this is food we’re talking about. No one goes hungry for long.

Roy Steiner of the Bill and Melinda Gates Foundation says this is an incredible opportunity for smart companies to make a difference, and a profit.

Sam Allen, the CEO of John Deere, says the right equipment in the right places will be able to boost food production. All of the macro trends in agriculture are favoring Deere according to Allen, and Deere is having the best year in the history of the company. The stock is off its 52-week high by almost 30 percent.

Farm income is expected to rise 31 percent this year and almost all the agriculture players are really cheap, with some paying decent dividends. Most are in the middle to low end of their 52-week range.

Right now, it’s all about seed, fertilizer, irrigation and equipment.

Some of the major players are:

Monsanto (NYSE: MON)Dupont (NYSE: DD)Agco (NYSE: AGCO)CNH Global (NYSE: CNH)Syngenta (NYSE: SYT)Potash (NYSE: POT)Agrium (NYSE: AGU) on the fertilizer side.

Insiders are Riding Avis

A group of insiders, including the CEO, Vice Chairman, President of the European, Middle East and African Operations, Executive Vice President, four directors and others, have jumped into their own stock, Avis Budget Group, with both feet.

The group has plowed around $815,000 dollars into stock in Avis, with the CEO accounting for almost half of that amount.

This was the first reported buying spree by insiders at Avis in a long time and it comes at a time when the stock hit a 52-week low.

Insider buying is one of the best indicators of positive trends in a company, not an infallible one, but one with a strong success ratio.

When this many officers buy at once it is usually a good sign of things to come. Avis Budget Group (Nasdaq: CAR) is currently about 62 percent below its 52-week high.

High-Yield Bond Prices Slipping

Prices of high yield bonds have slipped 10 percent since July and that has pushed yields to very, very attractive levels.

Barron’s says prices may slip more, but patient investors will be rewarded and anyone looking for yield should be looking at the high-yield area.

This recent drop in bond prices is the worst since the 2008 crash, with yields on a key index topping 10 percent. That’s up from seven percent in May.

Dan Janis, Senior Portfolio Manager of the John Hancock Strategic Income Fund, says there is massive value in high-yield bonds. With junk default rates running at only two percent, well below the long term average of six percent, he sees great returns with below average risk.

Kathleen Gaffney, of the Loomis Sayles Bond Fund, said this week in a Barron’s article that the bond market has already priced in a recession and much higher default rates than we are actually seeing.

One rumored reason for the big drop in bonds was a selling spree by Japanese retail investors in something called double-decker bond funds.

Barron’s described these funds as having about $900 billion in the high-yield market and are tied to the Brazilian real, which is too complex to explain here. But the point is, as the selling started in bonds, the real also dropped in value and accelerated the drop in the value of these Japanese funds.

This one-two punch accelerated selling in the Japanese market in an effort to cut losses and, voila, we have huge buying opportunity.

High-yield bonds, one of my favorites, and if you’re looking for income and capital gains, you should be looking here.

Barry Diller’s Misuse of Shareholder’s $300K

This week the cheek smacker goes to the stock holders of IAC, Barry Diller’s internet holding company.

Barry recently appointed Chelsea Clinton to the board of IAC and gave her a $50,000 retainer and a grant of $250,000 in stock.

Diller’s connection to the Clintons goes all the way back to the ’92 presidential elections.

The Journal article that announced the move this week said she doesn’t have much experience with public companies, but she did work briefly at one in her 20s.

If I were an IAC stock holder, I would have a lot to say to Mr. Diller about his choice and his use of $300,000 of shareholders’ money.

But this appointment isn’t entirely absurd. She does serve on the boards of the Clinton Global Initiative and the Clinton Foundation. Huh?

One of the most irritating parts of the article was a quote by Paul Lapides of the Corp Governance Center at Kennesaw State University; he said, “Maybe all those connections helped her.”

Ya think, Paul?

Chelsea in her new role will be rubbing elbows with fellow IAC board members Michael Eisner of Disney fame and Edgar Bronfman Chairman of the Warner Music Group.

I’m sure Chelsea’s brief stint in a public company will carry a lot of weight with these two.

Long term, it’s about delivery… Companies like Seaboard for example…

Good investing,

Steve McDonald

Any investment contains risk. Please see our disclaimer

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Tuesday, October 18, 2011

Jim Rogers: Drop Some Taxes to Boost Dollar -

The U.S. dollar is on its way out from being the world's reserve currency, but tax breaks given to companies repatriating overseas earnings could strengthen the currency, says international investor Jim Rogers, a noted commodities bull.

"The U.S. dollar has started fading as the world's reserve currency," Rogers tells MarketWatch.

"However, the dollar could get a temporary boost if the government allows U.S. companies to repatriate their overseas cash without onerous taxation."

Many corporations earn money overseas but are subject to taxes if they bring it back home.

Some Democrats oppose giving companies a tax break to bring that money back, which could be used for investments or in other job-creating channels.

Senator Carl Levin, D-Mich., says in a report that a similar tax holiday approved in 2004 cost the government billions of dollars in sorely needed government revenue while failing to boost economic output in the process.

"The 2004 repatriation not only failed to achieve its goal of increasing jobs and domestic investment in research and development, it did little more than enrich corporate shareholders and executives while providing an estimated $3.3 billion tax windfall for some of the largest multinational corporations," the report states, according to POLITICO.

Senators Kay Hagan, D-N.C., and John McCain, R-Ariz., are proposing legislation that would let U.S. businesses bring home offshore profits at an 8.75 percent tax rate, or even lower if they expand payrolls.

The current top corporate rate is 35 percent.

"I want to use every tool in the toolbox that’s at our disposal to help our economy and put people back to work," says Hagan, according to Bloomberg.

© Moneynews. All rights reserved.


Jim Rogers: Bernanke Is Lying to Us

Jim Rogers tells it like it is.

In the EPJ Daily Alert, I have been pounding away at the fact that no new QE is required, that the money supply (M2) is exploding. Rogers correctly points to this money growth in the clip below.

Also, Larry Kudlow is correct in his view that the European Central Bank is likely to join the Fed in the money printing. If they do, it will be the first time ever that the world could face a massive global inflation.

Kudlow is correct that the stock market will skyrocket under these conditions and Rogers is correct that commodities will soar.

Prepare yourself for climbing prices like you have never seen before, to differing degrees both Rogers and Kudlow know what is coming.

Reprinted with permission from Economic Policy Journal.


Monday, October 17, 2011

Rogers and Kudlow Agree: QE Is Already Under Way - Motley Fool

While economists and traders chase their tales trying to guess whether or when the Federal Reserve will initiate a third round of quantitative easing, it may have already begun!

In a classic exchange that took place between CNBC's Larry Kudlow and legendary investor Jim Rogers recently, you'll find these gentlemen agreeing with each other that the Federal Reserve is probably already active in the Treasury market in ways that are not publicly disclosed.

In other words, Ben Bernanke's Fed may be adding a secret shout to its Operation Twist to get more rock and roll out of its collective efforts to keep Treasury yields artificially low. Rogers does not mince words, asserting that Bernanke is "lying about it." Have a quick look at this 3-minute clip, and then let's discuss it:

Please enable JavaScript to view this video.

The real gem comes in about halfway through the clip:

Rogers: Larry, if things continue to get bad, they're going to print more money. That's all Bernanke knows to do. He's going to print more money, and you'd better own real assets at a time like that.

Kudlow: I actually think the [European Central Bank] and the Fed is going to print more money. We're going to have massive quantitative easing to get out of this crisis, Jimmy. If that is the case, and both the ECB and the Fed go into QE mode, what's your favorite investment?

Rogers: Well, agricultural commodities is where I would be. I've told you this before. But Larry, they're already in QE; at least the Fed is. When Bernanke said in early August, "We're going to keep interest rates low" ... Larry, the only way you do that is you go into the market and you force them down. He's already in the market. He's lying about it. If you get out the M2 numbers, Larry, from the first week of August, you'll see they jumped up as soon as he said that and they've stayed higher, going higher. He's in the market. They're lying to us again, Larry. C'mon, you're a Princeton graduate; you should know how they do it.

Kudlow: "I do. I do. [laughing] And I basically agree with you, Jimmy Rogers. I'm sorry, I'm flat out of time, but I basically agree."

What do you think?
So Kudlow "basically" agrees with Rogers that the Federal Reserve is engaged in surreptitious action in the Treasuries market. That certainly places a fresh spin upon efforts to improve the transparency and public accountability of this famously opaque institution. But what do you think?

If you trust that Bernanke's Fed wouldn't dream of engaging in any sort of undisclosed market activity, then the capital markets must appear to trade freely in accordance with underlying fundamentals. I envy the sense of well-being that must accompany such a view. I would encourage you, however, to take a close look at the gold market for corroborating signs of surreptitious market intervention.

If, on the other hand, you agree with Kudlow and Rogers that quantitative easing has been under way since early August, and that both Europe's ECB and the Fed are likely to follow up with announcements of further easing as Europe's crisis unfolds, then Rogers' admonition to make room in one's portfolio for exposure to hard assets makes a whole heap of sense.

While Rogers has repeatedly recommended direct exposure to agricultural commodities over these past several years -- not to mention gold and silver -- many retail investors are not engaged directly with futures markets. If, like me, you prefer to make do with the opportunities available within the equity markets, there's another means of investing in commodities the Jim Rogers way.

The Market Vectors RVE Hard Assets Producers ETF (NYSE: HAP  ) tracks a benchmark index that Rogers participated in constructing (the index carries his name) and features heavy weightings in energy and basic materials that could help to shield investors from the ravages of currency debasement that result from quantitative easing. The ETF offers an attractive mix of major oil producers ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) paired with popular agriculture-related plays featuring PotashCorp (NYSE: POT  ) and Deere (NYSE: DE  ) . Further down the list of holdings, Fools will find multiple metal miners, most notably BHP Billiton (NYSE: BHP  ) and gold giant Barrick Gold (NYSE: ABX  ) .

Certainly, how people seek to adapt their investment portfolios to prepare for the likelihood of a Greek sovereign default or a worsening of the overall European debt crisis will vary according to their outlook toward likely monetary responses from the Fed and the ECB. So let's discover where the consensus of this community stands on the issue. Do you think the Fed is already in the bond market? Will we see more quantitative easing from the Fed and ECB? Let us know in the comments box below.


Jim Rogers Explains Why He Shorts Treasuries and is Long on the Yuan

Stagflation is, by definition, a veritable hodgepodge of slow economic growth, relatively high unemployment and rising inflation. And investor Jim Rogers says stagflation is coming and Americans haven’t seen anything like it. Some might argue that they lived through the 70’s, but according to Mr. Rogers, it will be far worse this time around. He believes the federal government has not been entirely truthful about the inflation problem, and that the recent rally in U.S. Treasuries is simply a bubble. 

According to Mr. Rogers, the Federal Reserve will continue easing to encourage growth, selling more and more government bonds. The U.S. economy will slip into a period of stagflation during which bond prices will reach a zenith and then decline, with simultaneous spikes in their yields. Right now, Mr. Rogers says, the U.S. Treasuries are in the midst of a bubble, and prices could continue to rise for a long period of time. Like another notable analyst, Pimco’s Bill Gross (who has since reconsidered his position), he has been shorting Treasuries, believing that bond prices will eventually fall.

And he believes that Ben Bernanke and the Fed are merely making the Treasuries bubble worse.He says he wouldn’t advise anyone to buy bonds; in fact, he’d quit his job if he were in the bond managing business. Besides shorting Treasuries, Rogers has been shorting equities, and putting his money into commodities and the Chinese Yuan, among other currencies. Is he playing it safe? Maybe. Clearly, though, Jim Rogers isn’t called a “commodities bull” for nothing. As he put it, back in the 70’s, real fortunes were made in the commodities markets, and very little in the equities.The “commodities bull,” a resident of Singapore and very bullish on China, said recently that he believes the “21st century will be age of China.” Regarding the recent rumblings in the U.S. Congress about China’s under-valued currency, Rogers believes that the U.S. is making a dangerous mistake, and if it should turn into a trade war, it would be the most momentous event of 2011.


Jim Rogers expects 70-style stagflation

The US economy could experience a stagflation period (economic stagnation and high inflation) worse than in the 70s, according to influential investor Jim Rogers.

Rogers believes that bond yields will spike and that there will be a bullish commodities market. Rogers believes that governments are dissembling about the inflation problem and that the recent Treasury bond rally is a bubble.

"As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds - somewhere along the line we get to the point when (bond prices) go down," Rogers explains. Rogers criticises Ben Bernanke, the president of the US Federal Reserve. "Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say, they are making the bubble worse."


Jim Rogers Sees Devastating Stagflation, Would Quit If He Was A Bond Portfolio Manager

Now that we already had one notorious bond bear in the house with a late afternoon appearance by Bill Gross, who in a very polite way, apologized and said that while he may have been wrong in the short-term, he will be proven correct eventually, it is now time for the second uber-bond bear to make himself heard. In a CNBC interview with Jim Rogers, the former Quantum Fund co-founder, who back in July said he was had shorted US Treasurys, exhibited absolutely no remorse, instead reiterated a 100% conviction in his "bond short" call: "Rogers said when there is a bubble, such as the one being experienced in U.S. Treasurys, prices could go up for long periods of time. Bill Gross of Pimco, who also had a bearish view on Treasurys, threw in the towel earlier this year. But Rogers is sticking to his opinion that Treasurys will eventually fall. "Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse." The reality is that while Bill Gross has to satisfy LPs with monthly and quarterly performance statements (preferably showing a + sign instead of a -), the retired and independently wealthy Rogers has the luxury of time. And hence the core paradox at the heart of modern capital market trading: most traders who trade with other people's money end up following the crowd no matter how wrong the crowd is, as any substantial deviation from the benchmark will lead to a loss of capital (see Michael Burry) even if in the longer-term the thesis is proven not only right, but massively right. Alas, this means most have ultra-short term horizons, which works perfectly to Bernanke's advantage as he keeps on making event horizons shorter and shorter, in the process killing off any bond bears which unlike Rogers can afford to wait, and wait, and wait.

On whether the US is becoming a deflationary Japanese-style basket case:

"A difference is when Japan did that they were the largest creditor nation in the world, America is the largest debtor nation - not just in the world - but in the history of the world and the U.S. dollar has been - and is the world's reserve currency. So there are some factors that might not keep the interest rate down in the U.S.

Ok, so no deflation. What then?

The U.S. economy is likely to experience a period of stagflation worse than the 1970s, which would cause bond yields to spike, commodity bull Jim Rogers told CNBC on Friday in Singapore. Rogers said governments were lying about the inflation problem and the recent rally in Treasurys was a bubble.

"As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds - somewhere along the line we get to the point when (bond prices) go down."

Between 1974 and 1978 average inflation in the U.S. was at 8 percent, while unemployment hit a peak of 9 percent in May 1975. Currently, unemployment is at 9.1 percent while CPI is at 3.8 percent.

"This time is never different" and why the mother of all stagflations is coming soon:

Rogers believes inflation will get much worse this time because, he
said, in the 1970s only the Fed was printing money, whereas now many
global central banks have been easing monetary policy.

So yes: he will be right eventually... But what about in the interim?

"Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse."

For now though Rogers is playing it safe and avoiding bonds. Instead, he's betting on stagflation by being long commodities and currencies (such as the Chinese yuan) and shorting stocks.

Rogers even has some career advice for up and coming bond mavens:

"I wouldn't advise anybody to buy bonds, I would advise you to sell bonds," he said. "If I were a bond portfolio manager, I would get another job."

Ok, well, make that anti advice.

As to where the money will be made...

"In the 70s you didn't make much money in stocks, you made fortunes owning commodities," Rogers added.

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Sunday, October 16, 2011

Why Jim Rogers is right about commodities - MarketWatch

NEW YORK (MarketWatch) — Jim Rogers, a former partner of George Soros in the hedge fund game, has been vociferously bullish on commodities for going on 15 years. Except for getting older, married and becoming a parent, he has not changed.

I ran into him in late September at a commodities conference in Frankfurt. He told the assembled burghers that in 10 years the conference would have to be held in a stadium rather than a hotel meeting room, because commodities by then would be a red hot asset class and investors would be flocking to it.

Here are some of Rogers's comments. Even after applying the true-believer discount, they offer a feast for thought:

“The 19th Century was the age of Britain, the 20th Century was the age of America, and the 21st Century will be the age of China,” Rogers said. He has moved from New York to Singapore with his wife and two young daughters, who he says are now fluent in Mandarin.

“The U.S. dollar has started fading as the world's reserve currency,” Rogers said, assailing what he called the U.S. government's de facto policy of devaluation.

“However, the dollar could get a temporary boost if the government allows U.S. companies to repatriate their overseas cash without onerous taxation,” he said.

WSJ's Chana Schoenberger reports U.S. corporations are expecting negative results as a result of a strengthening U.S. dollar against weakening Euro economies.

“The 30-year bull market in bonds is about to come to an end,” Rogers said. “Bond portfolio managers should start looking for a different line of work.”

Added Rogers: “Stocks have been in a trading range for 12 years, and that will continue.” Long spells of go-nowhere meandering are fairly common in the market's history, he explained, citing the Dow Jones Industrial Average's  fluctuation from roughly 800 to 1000 from 1964 to 1982 — almost 18 years.

“I'm short American technology, Europe and emerging markets,” Rogers said. “I'm also bearish on American education, but I haven't figured out how to short Princeton.” (Rogers graduated from Yale University in 1965 and from Oxford University in 1966.)

But why would Rogers short emerging markets, when they would seem to figure prominently into his bullish commodities scenario, not to mention his prediction of Chinese global dominance?

“The time to buy emerging markets is when everyone else is dumping them,” he said, “not when there are 20,000 M.B.A.s running around touting them.”

“The secular bull market in natural resources began in 1999,” Rogers said. This advance shows no immediate signs of ending, he added, “but when it does, it will end in a bubble, like all long-term bull markets do.”  

Rogers predicted: “There will be more social unrest and more countries will fail. Politicians will try to impose price controls, of course, but they won't work. Speculators will be the scourge of society, attacked from all sides. It will get very ugly.”


Tuesday, October 11, 2011

Big utility CEOs take heat on merger - Charlotte Observer

Posted: Wednesday, Sep. 21, 2011

RALEIGH A larger new Duke Energy will benefit its 7.1 million customers through fuel savings and cheaper financing for building projects, the chief executives of Duke and Progress Energy told the N.C. Utilities Commission on Tuesday.

The CEOs began presenting their case in hopes of limiting insistence by merger critics that the combined companies increase spending on energy efficiency and renewable energy. Both now rely heavily on nuclear and fossil-fuel plants.

The merger would create the nation's largest utility. But other parties to the proceeding had questions about the impact of the 2,000 jobs the companies estimate will be lost.

The N.C. commission's approval is key to sealing the $26 billion deal, which Duke and Progress hope to close by year's end. Federal authorities also have to approve the merger.

Duke's Jim Rogers and Progress' Bill Johnson sought to avoid certain issues - rates, new power plants, renewable energy - that they consider unrelated to the merger.

Attorneys for environmental and clean-energy groups pressed the CEOs on their commitment to energy efficiency and alternatives to nuclear, coal- and gas-fueled power. The hearing is conducted much like a trial, with lawyers able to cross-examine witnesses.

"We've been very aggressive (on energy efficiency) as well as on renewables," Rogers testified under cross-examination. The initiatives "haven't always been well received, but we've been aggressive in pushing them forward."

Energy efficiency programs, Johnson added, rely on customers' willingness to take advantage of them. And the expense of increased spending on renewable energy, he said, is added to the bills of low-income customers.

"One of the problems I have is that the two move in opposite directions," he said.

Energy alternatives an issue

Under further questioning, Rogers refused to commit Duke to creating more green energy than the 12.5 percent of their total electric generation by 2021 that state law requires. Duke has become a leader in solar and wind power, he noted, but many of those projects are located in other states.

"It seems to make sense to put wind turbines where the wind blows," he said. "And the reason you don't put them in North Carolina is that the wind doesn't blow here" hard enough, except on mountain ridges and coastal waters.

Commission chairman Edward Finley Jr. later challenged the statement, noting two wind-energy applications are before the panel.

The International Brotherhood of Electrical Workers, which has about 5,200 members at Duke and Progress, pressed Rogers on where the company would cut redundant jobs. They're more likely to be in corporate offices than power plants, Rogers said, and the companies hope to get most of the savings through voluntary departures. Buyouts will probably be offered to targeted work groups in November.

Asked if Duke expects the merger to create jobs in renewable energy and energy efficiency, Rogers offered a noncommittal: "That would be our aspiration."

Raising rates

The CEOs also said their companies will have to raise electricity rates to cover severance payments that will be paid to employees who lose their jobs in the merger.

It's not clear how much the severance would cost Duke and Progress customers, but the electric utilities could end up paying out several hundred million dollars.

The state's consumer advocate, the Public Staff, argues that the companies and their shareholders should eat costs associated with the merger, rather than pass them on to customers.

The executives said making customers pay for the severance is justified because customers are the ones who will ultimately benefit from the merger.

"The severance cost is the cost I would describe to achieve the savings," Rogers told the commission.

"In the longer term, those savings will benefit the customers," he added.

Parade of critics

A parade of merger critics opened the hearing, pleading for clean-energy alternatives and bashing the utilities' political might. Rogers and Johnson initially had to stand at the fringe of a packed hearing room.

"Unlike Jim Rogers, I live next to the generator of the power I sell," said Jim Senter of Potluck Power Co., which sells solar energy in Rougemont. "And unlike Jim Rogers, I look in the eyes of the people I sell power to."

Savings from the merger, the companies say, will help offset expected rate increases to pay for new power plants. But citizen speakers focused on what the proposed merger terms don't do.

Charlottean Beth Henry waved a pie chart showing Duke's projected energy efficiency and renewable energy measures by 2030, equivalent to 4 percent and 3 percent of its energy mix, according to recent filings.

"This is a joke," Henry said.

Duke and Progress have promised to share with customers $650 million in savings over five years, most of it from lower fuel costs. Henry called that "peanuts compared to creating a company that's so large its political power will be overwhelming."

She decried the "real travesty" of jobs not created from larger utility investments in energy efficiency and insulating homes of low-income residents.

The utilities have pledged to spend $15 million to make low-income housing weather-tight and pay for technical training at community colleges.

Worries about utility's size

Critics say approval of the merger will enlarge a business-as-usual power company that is likely to continue relying on nuclear plants and fossil fuels to produce energy. They fear the new Duke will ignore alternatives such as the mechanism called "decoupling" that allows utilities to profit by helping customers save energy, not just by selling it.

"As long as we're going to create the largest utility in the country, we ought to have a chance to make sure they move the paradigm," said Thomas Henkel, an energy expert from Chapel Hill.

Two speakers brought up litigation and fines involving Duke's energy trading and unregulated power plants on the West coast several years ago. And several returned to the theme of increasing its political power in a state where, critics claim, Duke already usually gets its way.

"Once (the merger) is allowed, it will be difficult to go back, and Duke's combined political and economic power will block the way," said Sherri Zann Rosenthal, an assistant city attorney and developer in Durham.

Responded Duke spokesman Tom Williams: "We're very active in Raleigh and we're expected to be because we're one of the state's largest companies."

The hearing is expected to continue through at least Thursday. The commission will not immediately issue a ruling at its conclusion. John Murawski of the (Raleigh) News & Observer contributed.

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Wednesday, October 5, 2011

Jim Rogers on the great advantage & disaster of commodity investing - Commodity Online

Last Updated : 04 October 2011 at 11:25 IST

"Investors make the same mistakes investing in anything. They use too much leverage. The great advantage of commodity investing is you can use enormous leverage. The great disaster of commodity investing is you can use enormous leverage. Everybody in the world has a story about a brother-in-law who went broke investing in soybeans. But you don’t have to invest that way."

Giving investors these nuggets; among other things, Jim Rogers speaks about his Rogers International Commodity Index. Hard Assets Investor continues its ongoing series examining how the major commodity indexes work by interviewing the people and discussing the strategies behind them. In this installment, Managing Editor Drew Voros caught up with legendary investor Jim Rogers, who created the Roger International Commodity Index in 1998.

Hard Assets Investor: Why did you create the Rogers International Commodity Index?

Jim Rogers: At the end of 1998, I thought the bear market in commodities was coming to an end. I wanted to invest in commodities. So I decided what I’d do is just invest in a commodity index. But then when I went and looked at commodity indexes, they were all so horrible that I couldn’t bring myself to put my money into them.

HAI: When you say “horrible,” what do you mean?

Rogers: For instance, at the time, the Goldman Sachs [Goldman Sachs Commodity Index] was about two-thirds energy. I said, “Gosh, what kind of index is that?’ You might as well invest in oil. More important, they change the index every year. You have no idea what you’re going to own if you invest in the Goldman Sachs index. In my book, “Hot Commodities,” I have a study which shows the dramatic changes in the Goldman Sachs index.

For instance, one year something’s 26 percent and a few years later it’s 4 percent. I said to them, “How can anybody invest in that? If I invest in the Goldman Sachs index, I have no idea what I’m going to own in three or four years. And you don’t either.” This is my money I’m talking about, I’m not talking about clients’ money. And as you know, Goldman Sachs used to have extensive arbitrages against its own customers. I didn’t have any customers. And I wasn’t interested in arbitraging against customers; I was interested in investing my own money. So I eliminated that one.

I then went to Dow Jones. I happened to go to college with a guy, Paul Segal, who was running The Wall Street Journal at the time. I said, “Paul, I want to license your commodities index.” And he said, “We don’t have a commodities index, Jim.” So I pulled out The Journal and showed him the Dow Jones Commodities Index. They later got in bed with AIG and updated their index. Then a few years ago sold it over to UBS. The index changes all the time. There are things in there like aluminum, which is weighted more important than wheat. Some people in the world had never seen, much less used, aluminum. Everybody uses wheat.

Then there’s the RJ/CRB Commodity Index that has changed 10 times in its history. At the time I was looking, they had Orange Juice and Crude Oil as the same weighting. In most people’s lives, crude oil is a whole lot more important than orange juice. I wouldn’t put my money into any of them. I had to come up with my own index, which has beaten the socks off all of the others.

Equally important, mine has been stable and consistent. The changes have been de minimis in the Rogers Index since it started in 1998. Those others change all the time. I don’t know how anybody could have conceivably invested in them. That’s not even gambling. At least with gambling you know how many cards are in the deck. But with these other indexes, it’s not even random. It’s totally unknown what you’re investing in. That may be one reason that I’m beating the socks off the others.

HAI: You do change the index under extraordinary circumstances according to your filings. When was the last time it was actually rebalanced and why?

Rogers: There have been small things. Something may go from 20 basis points to 10 basis points or something like that. It’s mainly because of liquidity. We might have a slight change in one of the agricultural components, but we take it away from one component and add it to another agricultural component, which is comparable.

I noticed in one of your previous stories that other index guys were trying to take a swipe at my index, by saying everything in their index was a significant percentage. I would remind that person that the S&P 50 has 20 components which have 1 basis point, one one-hundredth of a percent. So if he thinks that small components should be dropped, he’s fighting the world. As far as I know, the S&P 500 is the most extensively known and used index in the world.

I wanted my index to be international. I wanted it to reflect the cost of doing business around the world. I wanted it to be broad based. None of the other indexes has rice, for instance, even though two-thirds of the people in the world eat Rice every day.

The other problem I found with the others is that they’re U.S. centric. At the time I was looking for an index, most of them wanted to reflect what was going on in the time zones where they were working. They had U.S. and U.K. components, so that it’s easier to arbitrage against their customers, or just to compile the index. This was long before computers were so extensive. Now, of course, that doesn’t really matter very much.

And of course you have to consider liquidity. It doesn’t do you any good to have an index which is just academic. You’ve got to be able to use it.

HAI: Why is human intervention to you more important than a rules-based index?

Rogers: The Dow Jones industrial average or even the S&P 500 are “human intervention, human judgment,” if you will. In my view, if you want to have stability and consistency in transparency, I’d prefer a system which we have developed. It stood the test of time.

The consumption of Cotton doesn’t change that much over any long period of time. Maybe there are ups and downs. But you don’t change the weightings because cotton goes up one year or down another year. Look at the Goldman Sachs Index. If something goes up in price, the index increases the weighting. That’s the way my mother invests.

My mother calls me up and says, “I want you to buy X,” and I say, “Why?” And she says, “Because it’s tripled.” I say, “Mother, you’re supposed to buy it before it triples.” Goldman Sachs and UBS and the rest of them raise the weighting when prices rise. Listen, I’m an investor. This is my money. I know what people need if they’re going to invest. And they don’t need some gimmick to attract investors. They need something where they’re going to make money.


Jim Rogers turns bearish on gold

By Commodity Online - Gold prices witnessed a rally for a decade which is unusual for any asset class but the present correction in prices may last for weeks or months, according to Jim Rogers, legendery investment wizard and Chairman of Rogers Holdings.

In an interview to Economic Times (ET) he expressed doubts on whether the yellow metal prices will reach $2000 an ounce in 2011. Much of the present movements in Gold are due to panic and fear. The raising of margin requirements makes it more difficult to hold on to gold. However, he said that he would buy more Silver if prices plummet. Jim Rogers feels that base metals will be most adversely affect by fall in demand and he would not jump into buy or sell either.

Once the market settles down and consolidates, agriculture commodities will be attractive to investors. ‘Right now Iam buying agriculture not base metals , Gold or oil,’ he points out in the ET interview.

Jim Rogers' Recent Gold Call Looks Right - Forbes

Commodities guru Jim Rogers looks to be right yet again on gold prices.  Gold futures are down over 11% in the last five days, with the popular SPDR Gold (GLD) exchange traded fund down yet again Wednesday, this time another 2.75% to $156.22.  Rogers, a long term commodities bull, told The Economic Times newspaper in India this week that gold prices were bound to correct short-term.

Forbes ran a pick up of part of the interview on Tuesday.

In the interview, Rogers says that gold prices are likely to correct for as long as two months and $2,000 an ounce is probably out of the question for this year. He added that investors who like the long term prospects for the precious metals should be buying the dips.

“Gold has been up 10 years in a row, which is very unusual in any asset class. So if it is up this year or 11 years in a row, gold is overdue for a correction and it could have a nice substantial correction given that it has been so strong,” he told India’s largest business daily. “I have no idea what is going to happen this year. I doubt if it will go to $2000 an ounce in 2011.”


Tuesday, October 4, 2011

Rogers joins board of farmland investment group - Investment Week

Commodities investor Jim Rogers has been appointed to the board of the farmland investment firm Genagro Ltd as a non-executive director.

Jersey-based Genagro, which was founded in 2008, makes investments in early stage farmland or farming-related businesses, specialising in financing, developing and growing the businesses.

Rogers appointment is part of a reorganisation of the board following the sale of a majority controlling interest in Genagro's first farmland investment, Agrifirma Brasil, to a Brazilian private equity group, the company said.

The veteran investor said he has long seen the the investment potential of agriculture.

He said: "I have been on record for years that the future is going to belong to the farmer.

"The world is facing a growing demand for food and animal feed. It urgently needs private sector capital, management expertise and technology to bring new areas of farmland into productive use."

In February Rogers created the Rogers Global Resources Equity Index to track the price of a basket of leading natural resources shares in the agriculture, mining, metals and energy sectors, as well as solar, wind and hydro.

He also created the Rogers International Commodity Indices, which tracks the movement of global commodity prices. He set up the measure in the late 1990s in anticipation of a global boom in commodities.

Ian Watson, chairman of Genagro, said Rogers has been helping the firm for some time as a member of its advisory board, and would now work to expand the business.

"With a new chapter for the firm now opening, as we look to expand our investments outside Brazil, we are looking forward to drawing on his vast knowledge, experience and network of contacts as a full member of the board. I cannot think of anyone better qualified to help us".


Jim Rogers

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