It’s an interesting dynamic we’re seeing in the currency markets at the moment: the Fed is pledging to print trillions of new dollars, and yet the value of the dollar itself is holding up remarkably well against the basket of currencies it’s usually measured against.
Of course, this is in part because other central banks are printing money too and so the effects of greater amounts of fiat currency all around cancel each other out, but it’s also because the dollar is considered the world’s safe-haven currency, the go-to cash denomination in times of stress.
It’s on that basis that legendary investor Jim Rogers, the originator of the Rogers International Commodity Index, is holding dollars, at least for now.
He might not hold them for long though, judging by the comments he made recently in a webinar hosted by NTree.
In the opening remarks of a short exposition about the current opportunities in commodities markets, Rogers pointed out that yields on 30-Year treasuries are trading at all-time lows, as demand for long-dated US-dollar denominated debt continues as part of a wider flight into bonds. How long that dynamic will last though, remains open to question.
“The dollar is not a safe-have,” said Rogers. “The US is the biggest debtor in the history of the world.”
So far, the edifice remains intact, but with the huge new debts being matched for size only by the huge money printing operation, it’s only a matter of time.
“Eventually people are going to say we are not going to take this garbage any more,” Rogers added0.
“And we will resume a recession. Huge damage is being done. Huge debts at the induvial as well as the government level are being built up and we’re all going to have to pay the price.”
Rogers is well aware that modern monetary theory allows for a controlled amount of money printing, but he is dismissive of the validity of the theory per se, the attractions of which he likens to Marxism in terms both of its appeal and of the illusory nature of its prescriptions.
“Printing money has never been bad for stocks and bonds but it does affect the price of real goods,” he says. “So I expect the rally to continue but eventually it will end and we’ll get new lows.”
What is the canny investor supposed to make of this new and frightening dynamic?
Rogers is clear enough.
“Last year I started to buy gold and silver,” he says. “I continue to buy gold and silver, and of the two I’m buying more silver now than gold because on a historic basis it’s much cheaper. Silver is down 80% or 70% from its all-time high if you go back, but gold is near its all-time high. One reason for that is that silver has more commercial and industrial uses than gold does. But when push comes to shove, if you ask me, I am buying more silver than gold.”
But gold itself is still very much on the Rogers menu too.
“I fully expect gold will make new highs before this is all over,” he adds.
“I expect the worst bear market in my lifetime, which might make gold go down, except for the fact I expect people to lose confidence in many governments around the world and in many currencies. And throughout history whenever people lose confidence in governments or money, they have always bought gold and silver. If any academics say you shouldn’t it doesn’t matter. All of us peasants have been buying gold and I am just a peasant like everybody else.”
Rogers’s commodity index isn’t itself that heavily weighted to gold and silver though, given that it also encompasses agricultural commodities and the oil and gas complex. Even so, it has managed to outperform other commodity indexes, largely because of the international focus of its constituent base, where other indices tend to have a bias towards the US consumer.