The US dollar is in trouble
Some days back I got this excerpt as an email forward. At this point of time when the world economies are collapsing like the card castles I think its worth reading this article.
‘The US dollar is in trouble’
SMART TALK: Jim Rogers
Jitendra Kumar Gupta / Mumbai September 15, 2008
Jim Rogers is probably the last word when it comes to investments in commodities. Along with George Soros, he co-founded the Quantum Fund in 1970. The fund went on to deliver absolute returns of 4,200 per cent in the decade that followed, while the S&P 500 delivered only 50 per cent during that period.
Rogers correctly predicted China’s resurgence as an economic superpower way back in the 80′s and that crude oil will touch the $100 mark. His last two books, ‘A Bull in China: Investing Profitably in the World’s Greatest Market’ and ‘Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market’ have been well received.
Rogers was in Mumbai on the occasion of the launch of the Birla Sun Life Commodity Equities Fund. At the conference and in an interview with
Jitendra Kumar Gupta, he shared his outlook on commodities and the world economy.
How can one identify the start of an upward or downward cycle in any commodity?
In the late nineties, when I came with the conclusion that the commodity bear market is ending, I could see that no body has build offshore drilling rigs and tugs since 1981, with drilling declining for 15-20 years. I could also see that the inventories of food, which were very high in the mid-eighties, had gone down to nothing.
There was no production or capacities added for decades. I travelled around Asia, enough to know that Asia was booming, so could see that this was all coming together. And, if this is all coming to an end over the next 10-15 years, I will also be able to see the upturn in the commodity cycle. I tried and looked at the big picture for the demand and supply, and some time I get it right.
It is the same for the down cycle like during 1999-2000, you could see that everybody in the world was investing in stocks. You walk down the street, the TV sets were all blaring in the bars, in the barber shops, talking about the stock markets. I went to a dentist, and the receptionist was asking me about stocks, whether she should buy Coco Cola or not. So, you recognise, the signs of top to bottom markets always look the same, everybody seems to be terribly involved.
What is your view on global economy and inflation?
The world economy is in recession and the inflation is going to stay here, it is going to get worse. Some countries lie about it. But, inflation in all countries is going to get worse. The next decade is going to see lot more inflation, which is not good.
In this light, how can one beat inflation and generate higher inflation-adjusted returns?
Commodities are the best inflation hedge, better than real estate better than anything else. Nothing can assure you better than commodities, but only if you are good at it. You have to pick the things that go up the most to make more money. Inflation does not cause prices to rise, price rise causes inflation.
Frequently, since the prices of the commodities go up before the inflation numbers, one can stay ahead of inflation. But, if you get it wrong you might do worse. So, investing in those commodities, which are going to go up first or selecting the right commodities, is the key to stay ahead of the inflation and make a lot of money.
What is you view on commodity prices being influenced by investor/speculative money?
If you do not allow the commodity prices to go up you do not get more supplies, then the farmers are not going to produce, so how are we going to get more food. Are we ourselves going to get into the fields? So, the way is to let prices go up.
Do you think Asian economies are decoupling from the rest of the world?
If you deal with the largest economy you are going to get affected by what is happening in America. If you are in the other sectors in Asia, such as water treatment and agriculture you have decoupled. You do not care what is happening in America.
But, if you sell to Wal-Mart, which is the largest retailer in America, you are going to suffer badly. So, some will decouple and some may not. Since India is such a closed economy, which is a negative as far as I am concerned, in this particular short term, India will suffer less probably than other countries which are more integrated with the world economy.
What is your view on the dollar?
Fundamentally, dollar is a terribly flawed currency. I am pessimistic about the future of the dollar; I expect it to continue to deteriorate over the next two or three decades.
The dollar is rallying at the movement because there are so many pessimists including me. But, I hope to use that rally some time in next year to get better of rest of my dollars. I do not want to own any US dollar. Also, I would not urge you to buy US dollar. Dollar is going to loose its status as world reserve currency.
Some of the OPEC countries have already started and no longer take dollar, like Venezuela no longer accepts dollar. Other countries, like Gulf, are already looking and may be taking a package of basket of currencies instead of dollar. I am not the only one who knows the dollar is in trouble. Anybody who watches the TV knows that the dollar is in trouble.