Exclusive: Jim Rogers is Long the Euro

Wednesday, March 10th, 2010

This article is a guest contribution by Damien Hoffman, WallStreetCheatSheet.com.

Jim Rogers is one of the best global investors of all-time. Last time we chatted a couple months ago he was sleeping soundly with his investments in commodities. Before Bloomberg interviewed Jim this morning, I caught up with him last week to get some high level perspective on the current issues unfolding in the European Union …

Damien Hoffman: Jim, Do you think the EU will survive economically and/or politically through this entire debacle?

Jim: Well I’m long the Euro because I expect them to come through this one okay. Either Greece is going to be papered over and they’ll give a blast to the Euro, or they’re going to let Greece go bankrupt. In my view, this is what they should do because then people would say, “Wow. They’re serious about sound economies in Europe.” That would make the Euro very strong. Then people would know they are not just going to print money or paper over failure.

Either way, I think there’s probably a rally coming. There’s a huge short position in the Euro and whenever there’s been a huge short position in anything, it’s sometimes profitable to go to the other side. So, I am long the Euro because I think there are too many pessimists.

Maybe Greece will go bankrupt and the Euro will collapse before people realize, “That’s good … that’s not bad.” Sometimes it takes a lot for perception to become reality or reality become perception.

Damien: What other countries are you monitoring to make sure the situation isn’t going to spread or get out of control?

Jim: I’m trying to watch the whole world. We cannot be very successful investors if we don’t know what’s going on everywhere. All of a sudden you’ll something like Iceland will show up and you’ll get killed because you didn’t know that Iceland even existed. Usually these things come out of the blue from some place we’re not thinking of.

Damien: Do you think Greece will be the first to tumble?

Jim: I would suspect that the U.K. is more likely to suffer before Greece, but who knows. Maybe it’s time for all of them to collapse and come down together.

Damien: Speaking of collapsing together, do you think the creditor-consumer model — as used by the Chinese with the US and the Germans with the Greeks — has been proven unstable and countries should be moving more passionately towards developing organic manufacturing and consumption economies at home?

Jim: The idea of economies built on consumerism has been discredited many times. The last ten or twenty years people have been shouting, “Oh gosh! Thank goodness for the American consumer.” However, no economy has ever been built on consumption for the long term.

The only way you build an economy is through savings and investments. Look at Dubai. The basic economic model in Dubai was to build an economy based on real estate speculation. That cannot work. You’ve got to have savings, investing, and productive capacity.

It’s all wonderful if we can go to the disco every Saturday night or go drinking by paying our bills with transfer payments. But that doesn’t do anything for long term productivity or competitiveness. Also, guys who build tanks have fun building the tank, but that tank then goes out in the sun or rain to rust. It doesn’t do anything for future productivity. The only way to build an economy long term is to save and invest while building infrastructure and productivity. Nothing else has ever worked.

Damien: Which countries are doing things correctly?

Jim: There are some doing better than others. The largest creditor nations in the world now are China, Korea, Japan, Taiwan, Hong Kong, and Singapore. That’s where the assets are. There are hundreds of billions of dollars in these countries because they’ve been doing something right.

You know who the largest debtor nations in the world are? I assure you they’re not in Asia. They’re in the West.

The future has always belonged to the people who’ve got the assets — the people who’ve built up savings and investing. Throughout history, we have never heard people say, “Gosh. Look over there at all those debtors. Why don’t we go over there and join those debtors?”

Instead, throughout history people have said, “Look over there where all the assets are.” People have always said they want to go where the assets are, not where the debts are. That’s what happened in America etc., and that’s what’s going to happen in the future as well.

Damien: Jim, thank you very much for updating us on your view.

Jim: You’re welcome.

Tags: Bloomberg, Commodities, Current Issues, Debacle, Euro, Europe, European Union, Failure, Global Investors, Greece, Hoffman, Investments, Jim Rogers, Last Time, Level Perspective, Out Of The Blue, Perception, Pessimists, Rally, Short Position
Posted in Bonds, Markets | No Comments »

Roubini: Oil and Gold Look Overpriced

Tuesday, June 16th, 2009

Nouriel Roubini, of RGE Economics, declared at a Reuters Summit Tuesday that Oil and Gold are not reflecting their fundamentals and have come too far too soon.

Reuters: Oil and gold are overvalued at current prices, which do not reflecting their market fundamentals, economist Nouriel Roubini said at the Reuters Investment Outlook Summit on Tuesday.

Roubini, who is known for having predicted the financial crisis that rocked the global economy in the past two years, painted an economic backdrop of deflationary risks and warned that if oil keeps climbing toward the $100 level it would deal an “economic shock” similar to the one last seen in 2008.

The recent rally in oil, which sent prices to an eight-month high above $73 per barrel, was “too high too soon,” Roubini told the Reuters Investment Outlook Summit in New York.

U.S. crude oil reached a record high near $150 per barrel in July 2008 based on overly bullish global demand expectations, but prices have since more than halved with the global economic slowdown.

Roubini, who is chairman of economics research firm RGE Monitor, said the current price of gold looks overextended as deflation is likely to outweigh any risks of inflation in the near term.

“For the next two years, deflationary pressure is going to be dominant, and it is going to become a time bomb down the line if and when we keep monetizing large deficits. It may be too soon to hedge with gold,” he said.

“Unless we have high inflation, or…other risks like depression, gold looks toppy,” he said.

Gold could spike again whenever there is rising risk aversion, he said, though noting that bullion prices had declined after the Lehman Brothers debacle in September last year.

Source: Reuters, June 16, 2009

Tags: Bullion Prices, Crude Oil, Current Price Of Gold, Debacle, Deflation, deflationary pressure, Economic Backdrop, Economic Shock, Economics Research, Global Demand, Global Economic Slowdown, Global Economy, Investment Outlook, Lehman Brothers, Market Fundamentals, oil, Price Of Gold, Reuters, RGE Monitor, Risk Aversion, Time Bomb
Posted in Gold, Markets | No Comments »

Emerging Markets in 2009

Tuesday, December 30th, 2008

Michael Hartnett, Chief Global Emerging Markets Strategist, Merrill Lynch is interviewed by Bloomberg TV, December 12, 2008 (click to view below), regarding his outlook for Emerging Markets in 2009. Here is a summary of that conversation:

• Volatility of all markets has meant that correlations have been very high.
• It’s been fiendishly difficult for EM to break away decisively from what’s going on in Washington and New York.
• China is a big factor that could help the rest of the EM break away.
  • In China there’s a raging debacle over what the economy will do next year.
  • People are quite pessimistic about what’s happening.
  • If the Chinese economy is able to come back more quickly and more strongly than a number of other economies around the world, that probably would be the moment you’d see the other EMs break away (from the high correlation).
• (anchor) Jim O’Neill from GS said that he likes China now for the first time in a while.
• We’ve been overweight China since the end of August.
  • Its been a good trade thus far, with A shares and Hang Seng up nicely.
  • Its not because China is going to be fabulously strong growth wise - those markets love when they get lots of liquidity.
  • That’s what’s happening at the moment - There is a big easing of monetary policy and credit policy.
  • The RMB is expected to remain robust.
  • China is the one equity market where the banks have outfperformed.
  • It doesn’t feel as if there’s an impediment to the stimulus that you’re getting from the Chinese government - I think the Chinese market will outperform next year.
• The consumer theme is very strong in China, and Emerging Markets.
  • If you go back a year ago, we were worried about inflation. Why?
  • Inflation compromises the purchasing power of the billions of consumers in these markets .
  • They couldn’t afford to spend on anything but food, and food prices were going through the roof. Its the complete opposite of that now. Oil is at $40, not $140 and food prices have come down a lot.
  • There’s a lot of purchasing power in China, India - obviously there’s a cycle as well - its not as if the numbers are going monstrously higher.
  • Today (12/12/08) we saw China report a 20%+ increase in retail year-over-year. That’s incredible when you consider that we’re in a global recession.
  • We think the demand story is there.
• In non-Emerging Markets there are a lot of US and European companies that are going to benefit enormously from the consumer story in EM.
  • Thinking laterally, there are a number of companies outside the EM that can benefit from that relative growth.
• The other story in the EM - You’ve got a number of countries that are attempting to reflate forcefully - India, Korea, South Africa, Brazil.
  • There are going to be opportunities in all of those countries.
• The other thing to think about is the “Best Companies,” the “Best in Breed,” concept.
  • We think the best in breed idea will be a big outperformer next year.

Where not to invest? (for now)

• There are a number of countries that have large current account deficits and you have to worry about how they are going to fund those deficits.
• There are some currencies, particularly in the Eastern European region to avoid.
  • Russia has a big problem right now, as it has destroyed a great deal of shareholder trust.
  • At some point next year, when the rouble troughs, and oil prices trough, Russia is going to move up significantly.
  • At the moment we recommending that our clients take their money out of Russia.
  • They have a big problem there like Saudi Arabia; they’re a one trick pony.
  • As long as oil prices were strong so was the economy, but with the lower oil price the economy has weakened.
  • Unless we get the oil price moving up in a strong fashion, its going to be very hard to persuade investors to put a large chunk of capital there.
• Certain places like Iceland and Hungary have gone to the IMF - its going to be very difficult for those economies to come back in a meaningful way.

Opportunities in Emerging Markets?

• India, Korea, Turkey and South Africa were taken to the brink by markets and now there are a lot of swap lines to support them.
  • What they’re doing in these countries is something almost revolutionary.
  • They have big deficits, they’re currencies have gone down a lot, and guess what they’re doing?
  • They’re cutting interest rates - (and they have lots of room to do it).
  • If they can convince the markets that their interest rate cuts can rescue their growth situations - those currencies are going to do very well.
  • In India for example, Industrial Production fell and policy formation (favours profound monetary easing).
  • India has great companies.
  • our clients are increasing their weightings from being underweight most of the last year since markets were overvalued and earnings expectations were too high in contrast to the idea that the economy could not do well in the context of high oil prices.
  • Now oil prices have fallen, and the current account deficit is improving and they’re cutting interest rates.
  • They are increasing their weightings to neutral, if not, overweight at the moment.

Rule of Thumb?

o We like large , not small companies.
o Looking for decent balance sheets, good management, and good brand.
o Survivors who can gain market share from those affected by the global credit crunch.

Click play to view

Tags: Bloomberg Tv, Chinese Economy, Chinese Government, Chinese Market, Correlations, Debacle, Emerging Markets, Food prices, Global Markets, Hang Seng, Impediment, India, liquidity, Merrill Lynch, Michael Hartnett, Monetary Policy, O Neill, Outlook, Purchasing Power, RMB, Stimulus, Strategist, Volatility
Posted in Credit Markets, Economy, Emerging Markets, Markets, Oil and Gas, Outlook | No Comments »

Baltic Dry Index: A Valuable Leading Indicator?

Friday, December 5th, 2008

The Baltic Dry Index is a very important indicator of the health of trade globally, as it measures shipping activity in dry cargo.

Take a look at the chart below: According to the BDI, one of the purest economic indicators, the activity of shipping dry bulk cargo, mainly consisting of commodities such as coal, steel, iron ore, and cement, has almost completely ground to a halt, as indicated by the crash in the index’s value.

The BDI offers a real time glimpse at global raw material and infrastructure demand. Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it. ^[1]

Another interesting feature of the BDI, is its high correlation to equity markets. Take a look at BDI vs. S&P500 and FXI (China 25 Index iShare), Crude Oil and Copper:

Baltic Dry Index vs. S&P 500

Baltic Dry Index vs. FXI (FTSE Xinhua 25 Index iShare)

Baltic Dry Index vs. Crude Oil

Baltic Dry Index vs. Copper

We’ll keep an eye on credit markets, and the Baltic Dry Index as indicators of the vitality (or lack thereof) of the economy and markets and keep you posted.

As goes the BDI (a leading indicator), so goes the economy, and perhaps equity markets (and commodities, we might add).

At the time of the publishing of this article, the BDI stands at 663 pts.

Tags: Array, Baltic Dry Index, Bdi, Blog, Br, Bulk Cargo, Cargoes, Cement, Chart, China, Coal, Commodities, Commodities Prices, Copper, Correlation, Crash, Credit, Credit Market, Credit Markets, Crude Oil, Debacle, Dow, Dry Cargo, Eco, Economic Indicators, Economy, Equity Market, Failure, FTSE, Ftse Index, Ftse Xinhua, Fxi China, Glimpse, Grains, Health, Img, Infrastructure, Investment, Iron Ore, Ishare, Issuance, Leading Indicator, Lehman Brothers, Loc, Markets, Measures, Member Companies, oil, P500, Php, Precipitate, Raw Material, Relevant Parties, S&P 500, S&P500, Shipping Activity, Time Glimpse, Trading, Value, Vitality
Posted in Commodities, Credit Markets, Economy, Markets, Oil and Gas | No Comments »

Five Simple Steps to Becoming a Billionaire: The Greenspan Method

Sunday, January 20th, 2008

Five Simple Steps to Becoming a Billionaire: The Greenspan Method

Courtesy by Johnny Debacle, LongorShortCapital.com

This is very funny:

1. Become Fed Chairman
2. Lower interest rates until you create an asset bubble. Hold them low until stagflation is in the air and a real estate bubble is floating
3. Stop being Fed Chairman and release a book on how you didn’t do anything wrong and have no regrets. If possible, time it perfectly with the worst real estate market in generations
4. Join the hedge fund which has profited more in % and dollar terms than anyone else has from your mess (which you didn’t create)
5. Build a platinum statue of your muse, Ayn Rand, and sleep with it every night

It also helps if you are mostly unethical.

Tags: Ayn Rand, Billionaire, Debacle, Dollar, Dollar Terms, Fed, Five Simple Steps, Funny, Generations, Greenspan, Hedge Fund, humour, Information, interest rates, Miscellaneous, Muse, No Regrets, Platinum, Real Estate, Real Estate Bubble, Real Estate Market, Sleep, stagflation
Posted in Markets, Oil and Gas | No Comments »