Monday, October 17, 2011

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.


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