Jim Rogers: The dollar is set to rally now... but it's a "total disaster" in the long term

Jim Rogers: The dollar is set to rally now... but it's a "total disaster" in the long term

Advertisement Wednesday, May 11, 2011 Text Size:   From Bloomberg: The U.S. dollar is going to be a "total disaster" in the long term because of the country's position as the world's largest debtor and the policies being pursued by Federal Reserve Chairman Ben S. Bernanke, according to investor Jim Rogers. The Chinese yuan is likely to be a "safe" currency, although it is difficult for investors to buy, Rogers, the chairman of Rogers Holdings, told a conference in Edinburgh. "The situation is getting worse and I expect to see severe problems in the U.S.," Rogers said today. "Dr Bernanke doesn't understand economics, he doesn't understand finance, he only understands printing money and we can't quadruple the amount of money in the next slowdown." U.S. government debt is currently 93 percent of gross domestic product compared with 60 percent before the financial crisis and is set to rise further in the next few years. The dollar has fallen over the past year against every currency in a basket of 16 major currencies. The euro has gained about 7 percent against the dollar this year. It traded at $1.4311 as of 3:20 p.m. in London. "I expect to see more currency turmoil maybe this fall, and more turmoil by 2013," said Rogers, who favors currencies and commodities. Rogers said he is currently buying the dollar because the market consensus is for the currency to fall. Rogers said he is "short" emerging markets, except for China, and U.S. technology stocks as a hedge against his other positions. "Bonds in the U.S. have been in a bull market for 30 years," said Rogers. "In my view that's coming to an end." Rogers is only buying government securities now because 95 percent of the market expects them to decline, he said. Rogers said he couldn't forecast when the bull market in commodities will end. "I know the signs to look for," he said. "I hope I am smart enough to recognize them." "Great fortunes" will be made in agriculture and alternative energies, such as solar power and wind, over the coming years, Rogers said. To contact the reporters responsible for this story: Peter Woodifield in Edinburgh atpwoodifield@bloomberg.net; Rodney Jefferson at r.jefferson@bloomberg.net.

Fed takes bold, risky step to bolster economy

Disappointing action by the Fed.   They say it is risky and don't know if printing more paper dollars will work.  Of course it will not.  Any country that prints money to solve its trade and or fiscal problems or irresponsibility had demonstrated that it does not work.   Ben is not in the real world and he should not be in charge of the Fed.  Dangerous guy that is running lose.   
Fed takes bold, risky step to bolster economy - Yahoo! News

Long the Pound

The UK is trying to get its act together and thus the Pound is strengthing.  The UK government announced 25% reduction in government spending over next 4 years.  That is right - 25% cut.  However, the USD, well, its government is still spending more borrowed and printed dollars; and look at the mess it is in, unemployment continues to climb.  No one trusts nor respects the US government.    
Why I'm Shifting From the Dollar to the Pound -- Seeking Alpha

UN - Dollar as Global Reserve Currency to be Abandon

UN: Abandon Dollar as Global Reserve Currency

PIMCO Is Long CAD, AUD And CNY; Short EUR, GBP And JPY, And Other Disclosures By Paul McCulley | zero hedge

PIMCO Is Long CAD, AUD And CNY; Short EUR, GBP And JPY, And Other Disclosures By Paul McCulley | zero hedge

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Economy Outlook - Marc Faber: We Have a New Gold Standard - CNBC

Marc Faber recommends:

Gold
Oil
Oil companies
Mining companies
XOM
CVX
SLB

Invest - 50% of your portfolio in emerging markets

Avoid US $, US Treasuries and Euro

Economy Outlook - Marc Faber: We Have a New Gold Standard - CNBC

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The dollar could give up its unenviable title - The Euro Next? I would stay away from it

The dollar could give up its unenviable title Euro is in trouble....see what Money and Markets have say about it.

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Staying Rich in the New Normal

Bill Gross - June 2009
The obvious solution to both dollar weakness and higher yields is to move quickly towards a more balanced budget once a sustained recovery is assured, but don’t count on the former or the latter. It is probable that trillion-dollar deficits are here to stay because any recovery is likely to reflect “new normal” GDP growth rates of 1%-2% not 3%+ as we used to have. Staying rich in this future world will require strategies that reflect this altered vision of global economic growth and delevered financial markets. Bond investors should therefore confine maturities to the front end of yield curves where continuing low yields and downside price protection is more probable. Holders of dollars should diversify their own baskets before central banks and sovereign wealth funds ultimately do the same. All investors should expect considerably lower rates of return than what they grew accustomed to only a few years ago. Staying rich in the “new normal” may not require investors to resemble Balzac as much as Will Rogers, who opined in the early 30s that he wasn’t as much concerned about the return on his money as the return of his money.

Canadian Dollar Gains Most Since 1950

I have been Long Canadian Dollar; think Canada has their affairs in much better shape than other countries (US UK), as well, Canada has the strongest banking industry. In addition, Canada has good resources. But Canada's currency suffered a bit during the recent US $ run up. However, why would one ever trade CAD for USD? USD is fundamentally unstable and in particular with what the US is doing and where it says it is going. The fundamentals are for Canada.

However, as the linked article reports a number of on Wall Street and Bay Street think the Canadian dollar is over done. But TD Securities, disagrees and thinks the Canadian dollar will be at par with the US by end of the year.

I agree with TD Securities. Canada is better managed than the US, and has stronger industry. Keep your investments in those strong resource currencies and avoid those which governments have announced QE quantitive easying (printing money).

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May 30 (Bloomberg) -- Canada’s currency rose the most in a month since the Korean War as investors stepped out of the haven of the U.S. dollar in search of assets with higher returns.

“Traders and speculators continue to push, and the U.S. dollar is so receptive to weakness that it’s an easy case to make,” said Eric Lascelles, Toronto-based chief economics and rates strategist at TD Securities Inc. “It’s the risk-appetite story right now that’s dominant.”

The Canadian currency, known as the loonie for the aquatic bird on the one-dollar coin, rose 9.3 percent this month, the most since at least October 1950, according to data from the Bank of Canada and Bloomberg. Stocks advanced and commodities rallied, led by energy, as the slumping greenback boosted demand for raw materials as a hedge against inflation. Raw materials account for more than half of Canada’s export revenue.

The loonie appreciated to C$1.0915 per U.S. dollar in Toronto yesterday, from C$1.1925 on April 30. It touched the strongest level yesterday since Oct. 6, C$1.0892. One Canadian dollar buys 91.61 U.S. cents.

U.S. Inflation to Approach Zimbabwe Level, Faber Says

I do not see the US (or other countries) prepared to do what they should be doing. The political leaders do not have the will, and given what we have seen in the UK and US, the leaders can not be trusted to do what is right. I have to agree with Marc Faber to an extent.....there is lots of inflation risks. The bond markets and currency markets are agreeing.
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May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Yield Curve Steepens to Record as Debt Sales Surge

The US is having trouble finding buyers for its debt....although the Fed is trying to support the bond market, and lower interest rates, they are failing. $300 billion of printed money does not make it. The market rules.

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May 27 (Bloomberg) -- The difference in yields between Treasury two- and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low.

Oil Breaks Out: Is It Sustainable?

From BCA...Oil or couple of currencies; NOK and or CAD

Dollar Decline Begins In Earnest as U.S. Deficits Climb

From Newsmax - US $ is heading south....no surprise.

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The dollar has likely begun its long term decline, say investment experts, who add that the risk to America’s investment grade rating could start a stampede away from greenback, devaluing the currency even faster.

The dollar’s recent bottom was on March 4, right around the time of the stock market low, when it hit $1.23 to the euro. It now trades at $1.38 to the euro. It recently peaked at $1.44 on Dec. 17 of last year.

In addition to huge deficits racked up by the Obama administration in the effort to jump start the economy, the global economy is bottoming, and that’s bad news for the dollar, says Thomas Harr, senior foreign exchange strategist for Standard Chartered Bank.

While that argument may seem counterintuitive, the end of the financial crisis means the end of investors’ need for dollars as a safe haven, Harr explained on CNBC.

“We think it’s clearly the beginning of a trend downward for the dollar,” he says.

“The dollar is usually strong during a global recession because of deleveraging and investor repatriation.”

But as the global economy bottoms, “and I think that’s what we’re seeing now, then the dollar will start to fall,” Harr says.

“And it will probably this time fall more first against emerging market currencies, because that’s where fundamentals are stronger” and then gradually against developed market currencies.

“The pace of deceleration of economic data slowing is a negative for the dollar,” Harr says.

“Whether the pace of deceleration is slowing in the U.S., Europe or China, the key thing is that the deleveraging and investor repatriation is not as fast now as it was a couple quarters ago, and that is dollar bearish.”

Harr’s views almost exactly match those of Nobel laureate Paul Krugman’s. He said at a recent seminar, “Just about all of the economic indicators out there are suggesting that the free-fall has come to an end.”

But “the U.S. dollar is going to fall quite a lot,” as safe-haven demand wanes, Krugman says.

Superstar bond fund manager Bill Gross says the U.S. will ultimately lose its triple-A rating, thanks to the exploding budget deficit.

“I think eventually” that will happen, Gross tells Bloomberg TV.

“That’s the trend. It’s certainly nothing that’s going to happen overnight.”

Financial markets reflect that possibility after news that the U.K. may be downgraded, he says.

“The market knows and believes both the U.S. and the U.K. are quite similar in terms of their debt levels and their debt trends.”

What will drive the rating down? The level of outstanding debt as a percentage of GDP, Gross says.

“Interestingly enough, both of these countries start out at relatively low levels” on that score, he explains.

“The U.K. and U.S. are around 50 percent of GDP, where countries such as Japan and Italy are twice that.”

“Why are the U.K. and U.S. potential candidates for downgrades, whereas Japan and Italy are holding up better?” Gross asks.

Answer: “Both the U.K. and U.S. have … deficits of 10 percent (of GDP) annually as far as the eye can see,” he says.

“That means that at some point over the next several years, they may approach 100 percent of GDP (in terms of debt), which is a level at which country downgrades tend to occur.”

Warren Buffett is worried about the U.S. debt buildup too.

“A country that continuously expands its debt as a percentage of GDP, it’s going to inflate its way out of that debt,” he told CNBC.

© 2009 Newsmax. All rights reserved.

Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone: Mark Gilbert

...."the sound of inevitability".

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May 21 (Bloomberg) -- The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.

While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”

Gold bugs at last have their perfect trinity

From the UK Telegraph Will it be inflationary or deflationary and what is the direction for gold?

***************

China has doubled its bullion reserves and left us in no doubt that it will spend more of its $40bn monthly surplus on hard assets rather than the toxic paper of Western democracies.

...It is striking how many of those most alert to the deflation danger are either veterans of Japan's Lost Decade or close students of it: Albert Edwards at Société Générale, Russell Jones at RBC Capital, Nobel laureate Paul Krugman, the Fed's Ben Bernanke, and Athanasios Orphanides, who helped draft the Fed's study on the Japan trap. "People always thought Japan's bond yields had to rise, but they kept falling and Japan is still not really out of deflation," said Mr Edwards. Indeed, 20 years after the Nikkei peaked at over 39,000 it stands today at 9,280. Interest rates are 0.01pc. The yield on two-year state bonds is 0.34pc. Still there is not a whiff of inflation.

....America's debt-gearing has exploded, as it has in the UK and Europe. This looks awfully like Irving Fisher's "debt deflation" trap of 1933. It will be a long slog for households to bring their debt-to-wealth ratios down to manageable levels.

......Still, we think it is highly significant that both China and Russia – two of the biggest holders of foreign reserves – are both buying gold," he said.

...out of fear that the most corrosive phase of this crisis lies ahead. There are two more boils to lance: Europe and China. As the IMF keeps telling us, Europe's banks are still covering up their vast toxic debts. Nor has the G20 begun to address the root cause of the global crisis, which lies in excess exports from East (aided by currency manipulation) to an over-spending West. China is putting off the day of reckoning with its crisis response, which is to build yet more plant to flood the world with yet more over-capacity.

Canadian Dollar Strengthens Amid Rally in Commodity Currencies

May 23 (Bloomberg) -- Canada’s dollar posted the biggest weekly gain since October as crude oil climbed and investors bought the currencies most likely to benefit from a rebound in global economic growth, shunning the U.S. greenback.

The Canadian dollar rose 5.2 percent as currencies of countries that produce raw materials surged. The ICE’s U.S. Dollar Index dropped to the lowest in five months on speculation the creditworthiness of the world’s largest economy is deteriorating. Crude rose above $62 a barrel.

“The Canadian dollar’s had a nice move,” said Michael Leavitt, a Montreal-based institutional-derivatives broker at MF Global Canada Co. “This breakout has moved some people off the sidelines. Crude has had a lot to do with it.” He predicted the currency may strengthen to C$1.0825.

Canada’s dollar, known as the loonie, ended the week at C$1.1195, from C$1.1776 on May 15. It touched C$1.1188 yesterday, the strongest since Oct. 9. One Canadian dollar buys 89.33 U.S. cents.

Crude oil for July delivery rose 9.5 percent to $61.67 a barrel on the New York Mercantile Exchange after touching $62.26. Prices are up 38 percent this year. Crude, natural gas and other energy products accounted for 25 percent of Canada’s export revenue last year.

The loonie climbed the most over the past five days since the week ended Oct. 31, when it gained 5.4 percent. After reaching a four-year low on March 9, it advanced 16 percent as investors stepped out of havens to seek higher-yielding assets such as stocks and commodity-linked currencies amid signs the global economic slump is moderating.

‘Far-Reaching Implications’

The U.S. dollar was the worst performer this week among the 16 most-traded currencies tracked by Bloomberg.

“The extent of the rally is quite astonishing,” said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto. “If U.S. dollar weakness continues, it could have far-reaching implications not only for the Canadian dollar, but for currencies across the world.”

The dollars of New Zealand and Australia, which like the Canadian currency tend to track fluctuations in commodity prices and stocks, gained 6 percent and 4.5 percent, respectively, over the past five days against the greenback.

Canadian government bonds lost investors 1.9 percent this year, according to a Merrill Lynch & Co. index. The yield on the 10-year bond rose 16 basis points on the week, or 0.16 percentage point, to 3.26 percent. It touched the highest since Dec. 1 yesterday, 3.29 percent. The price of the 3.75 percent security due in June 2019 fell C$1.40 to C$104.19.

‘Serious Downside’

U.S. Treasuries dropped yesterday, pushing 10-year notes to their biggest weekly loss since June 2008, as investors prepared for the government to resume debt sales after a two-week hiatus.

“If these auctions don’t go well, we could see some serious downside” in 10-year government note prices on both sides of the border, said MF Global’s Leavitt. “We can’t consider ourselves immune from what’s happening in the U.S.”

The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, touched 79.805 yesterday, the lowest since Dec. 29.

Pacific Investment Management Co.’s Bill Gross said on May 21 in an interview on Bloomberg Television the U.S. will “eventually” lose its AAA credit rating. President Barack Obama’s administration will sell a record $3.25 trillion of debt in the fiscal year ending Sept. 30 to fund a growing budget deficit, according to an estimate by Goldman Sachs Group Inc.

Gold Stocks Haven't Even Begun to Soar

Time to Buy Gold Stocks?

The cost of producing gold is down. According to John, oil makes up 25% of the cash cost of producing an ounce of gold. The price of oil has fallen by over half since last summer.

Also, the value of the currencies in gold-producing countries has fallen. John showed a table including the currencies of Australia, South Africa, and Canada (among others). The currencies had lost between 15% and 40% of their value versus the dollar.

Don't underestimate the importance of this... Much of the cost of production of gold (like local labor costs) is in those local currencies, but the gold is priced in U.S. dollars. In short, a fall in the currency is an instant boost for most gold producers.

So the price of gold is up while the cost of production is down. This directly increases profit margins. Gold-mining companies should report excellent earnings in the next few quarters... surprising on the upside.

John tracks three solid indicators to figure whether gold mining companies, as a group, are cheap or expensive. He looks at 1) market value versus ounces in the ground, 2) market value versus production, and 3) market value versus operating earnings. He tracks these in his excellent, data-heavy monthly newsletter, Gold Stock Analyst.

In his most recent newsletter, John said gold stocks were undervalued by 19% based on the first two of these metrics above.

Lastly, John explained sentiment toward gold stocks is still pretty bad. He had just spoken at the New York Gold Show, which he said was relatively poorly attended.

So gold stocks are cheap based on history... People are not clamoring for them, yet... And with cheaper oil and currencies, earnings of gold miners will surprise on the upside. In other words, if you think you've missed the move in gold stocks, you haven't.

U.S. Markets Wrap: Stocks, Dollar, Treasuries Fall; Gold Rises

No surprise here... maybe the only surprise there is how long it took for the US$ to start to fall.

May 21 (Bloomberg) -- Stocks and Treasuries fell, and the dollar dropped to a four-month low on speculation the U.S. government’s credit worthiness is deteriorating.

U.S. stocks declined for a third day, extending a global slump, after jobless claims topped economists’ forecasts and Standard & Poor’s said the U.K. may lose its AAA credit rating.

“The markets are beginning to anticipate the possibility of” a downgrade to the U.S.’s top AAA credit rating, and it will “eventually” be lost, said Bill Gross, co-chief investment officer of Pacific Investment Management Co. in Newport Beach, California, in a Bloomberg Television interview. “It’s certainly nothing that’s going to happen overnight.”

The dollar slid 0.9 percent to $1.3901 per euro at 4:02 p.m. in New York, from $1.3780 yesterday. It touched $1.3923, the weakest level since Jan. 5. The dollar fell 0.6 percent to 94.31 yen from 94.88 and reached 93.97, the lowest since March 19. The euro increased 0.3 percent to 131.93 yen from 130.77.

Gold rose to the highest price since March as the slump in global equity markets increased the appeal of precious metals as an alternative investment. Silver touched the highest since February.

Gold futures for June delivery gained $13.80, or 1.5 percent, to $951.20 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the price reached $951.80, the highest for a most-active contract since March 23. Bullion for immediate delivery in London jumped $16.19, or 1.7 percent, to $954.84 at 7:23 p.m.

Silver futures for July delivery climbed 16.5 cents, or 1.2 percent, to $14.445 an ounce in New York, after earlier touching $14.51, the highest since Feb. 24. The metal surged 28 percent this year, while gold is up 7.6 percent.

Oil Falls

Crude oil dropped from a six-month high after the Federal Reserve cut its forecast for the economy of the U.S., the world’s biggest energy-consuming country.

U.S. stocks erased gains in the final hour of trading yesterday after minutes from the Federal Reserve’s April meeting predicted a deeper recession.

Canadian Currency Advances to Strongest Level in Seven Months

May 21 (Bloomberg) -- Canada’s dollar rose for a fourth day, touching the strongest level since October, as its U.S. counterpart weakened against most major currencies.

“It’s part of the general move against the U.S. dollar,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “It looks like this is going to continue.”

The Canadian currency gained 0.4 percent to C$1.1374 per U.S. dollar at 5 p.m. in Toronto, from C$1.1418 yesterday. One Canadian dollar buys 87.92 U.S. cents. The loonie, as Canada’s currency is known, touched C$1.1349, the strongest level since Oct. 14.

The U.S. dollar fell today against all of the 16 most- traded currencies tracked by Bloomberg except the Brazilian real and Mexican peso as an increase in Treasury yields and gold prices indicated inflation may accelerate while the U.S. budget deficit widens. The greenback is the worst-performing major currency this month.

The markets are beginning to anticipate the possibility of the U.S. losing its AAA credit rating “eventually,” said Bill Gross, the co-chief investment officer of Pacific Investment Management Co., in an interview on Bloomberg Television.

Canada’s dollar surged 14 percent after reaching a four- year low on March 9 as investors stepped out of havens to seek higher-yielding assets such as stocks and commodity-linked currencies.

No Quick Turnaround

“Looking at momentum indicators, it doesn’t look like this move is going to turn around any time soon,” said BBH’s Browne. “The U.S. dollar may extend declines into next week.”

The 14-day relative strength indicator for the U.S. dollar against the Canadian dollar stood at 31.4. Readings below 30 and above 70 indicate a reversal may occur.

“Overall I’m fairly constructive longer term on the Canadian dollar,” said Jonathan Gencher, Toronto-based director of currency sales at BMO Capital Markets. The trend for the U.S. dollar versus the loonie is “biased to the downside.”

The yield on the 10-year Canadian government bond climbed as much as 15 basis points, or 0.15 percentage point, to 3.29 percent, the highest since Dec. 1. The price of the 3.75 percent security maturing in June 2019 fell C$1.13 to C$104.07.

Andy Xie: "If China loses faith the dollar will collapse"

From Naked Capitalism
It's easy for Americans to pooh-pooh bearish talk about the dollar. Yet the sterling was once the reserve currency, and has fallen, what, by 80% since it lost its standing.

With increasingly dubious accounting and lax enforcement, the US capital markets no longer stand out by virtue of being better regulated. Yes, they still may be deeper and more liquid. But overseas buyers have to look hard at foreign exchange risk. The direction for the dollar in the long term is certain to be down. Overextended debtors trash their currencies (see the Great Depression, the Nordic and Swedish banking crises, and the Asian crisis for a few of many examples).

What is interesting about the Xie piece is that even the stalwart Chinese retail investor has become leery of the dollar. Despite th logic of "oh if you sell, you only hurt yourself", the flip side is if you become certain you are indeed holding a depreciating asset, it makes sense to exit. You want to be early, not late, out.

And that logic, if it starts to take hold, in classic run on the bank fashion, could lead to a disorderly fall in the dollar. It isn't clear what the trigger might be, but Bob Shiller contends that sudden flights from markets don't necessarily require an event to kick them off. And given that Willem Buiter, who though fond of colorful writing, is hardly an extremist, foresees a collapse in dollar assets if the US fails to contain its fiscal deficit, talk of a dollar plunge isn't a a radical view.