Wikinvest Wire

Jim Rogers on stocks, bonds, and silver

Wednesday, November 12, 2008

Famed investor Jim Rogers has been in the news quite a bit lately. Last week he was in New York for a conference on commodities, yesterday he was in Seoul speaking at another conference, and Friday it's The Money Show in London.
IMAGEFor anyone wanting to keep tabs on him, there's a Jim Rogers blog. This is not something that he writes (though the idea of Jim Rogers writing a blog does sound pretty interesting), but rather, an anonymously sourced record of his appearances and commentary.

Yesterday he talked to Bloomberg's Kyung Bok Cho and this report was filed:

``Stocks in the West are still expensive on any historic valuation method,'' while ``bonds are going to be a terrible place to be for the next 10, 20 years,'' Rogers, chairman of Singapore-based Rogers Holdings, said at a conference in Seoul today. Equities in the West will be ``in a trading range for years to come,'' he said.
``I have started going back into the markets; that does not means it's the bottom,'' Rogers said. His purchases since mid- October include commodities and equities in China and Taiwan, as well as ``a Korea stock,'' he said, without giving details.

``We may be hitting `a' bottom,'' Rogers said. ``I don't know if it's `the' bottom.''
Rogers continues to favor commodities as an investment as fundamentals are ``unimpaired'' amid a global liquidation of assets, he said. ``You will see that stocks have gone down more so far than commodities. That will continue as far as I'm concerned.''
Not surprisingly, he doesn't think too much of U.S. stocks and bonds.

Last week, he commented on preferring silver to gold in the period ahead, noting "Silver will do better than gold. It's been beaten down horribly. If you put a gun to my head and said you have to buy one, I would buy silver rather than gold."

While the part about "put a gun to my head" is open for interpretation, the reasons for favoring precious metals are not - it all has to do with the money creation now in progress aimed at rescuing the world economy and this ultimately being an "inflationary" undertaking.

Peter Cooper at SilverSeek took a look at the reasons why Rogers might favor silver.
Rogers admits that silver has been particularly battered down, and perhaps that is why he likes this precious metal. Silver is leveraged to the gold price, so when gold goes down, silver goes down further. But equally when gold prices rise, silver will rise even higher.

Why then should the fortunes of gold change in the near future? Rogers is surely right that the dollar is the key. President-elect Obama is currently putting his new executive team together, and we will have to wait-and-see its policies but the omens are not good.

We have already seen how economic circumstances have forced a Republican administration into a multi-trillion dollar bank bail-out plan. The follow-through is a fiscal spending package, and state bail-outs for the US car manufacturers. All this is going to require funding at a time when rising unemployment and falling company profits mean tax revenues are falling.

A huge increase in borrowing is therefore inevitable and flooding global capital markets with new dollar paper will be inflationary and devalue the US currency. How to profit from US dollar devaluation? You buy an inversely correlated asset like gold or silver.
That pesky negative correlation with the U.S. dollar once again seems to be getting in the way of higher metal prices for the time being and, lately, the forces of "deflation" have been clearly trumping the forces "inflation".

That may change soon enough...


Mathlete said...

I don't think we're going to see hyperinflation caused by monetary printing. We might get very high inflation for several years when the economy recovers, and the government will use it to shrink its SS and Medicare obligations, and U.S. government debt.

If we do get "hyperinflation", I think it will come about through a currency crisis. You will wake up one morning to hear that the dollar lost 10% of its value overnight in Asia, and a week later it will be devalued by 30%. It will be a very short event, perhaps caused by a Treasury default. The CPI might spike for 1 year as prices adjust to the change, but it will quickly fall back to "normal" levels.

I think the above because I don't expect deflation to lead to hyperinflation. But in deflation, debts become unsustainable, and default is increasingly likely.

kevin said...

Good post. Rogers is also very bullish on agricultural commodities.


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