Rogers: Currency Crisis Ahead
A: This was so entertaining to watch today. Lets try to have an intelligent discussion on this topic, a topic that I have touched on here a few times already - including my thoughts on the excessive printing and the gold trade. Jim Rogers on CNBC late this afternoon battled it out with Cantor Fitzgerald CEO Howard Lutnick, and it was great. Watch both videos as this is uber important for endgame to this crisis and involves all of us and can ultimately affect Manhattan real estate!
"They are printing so much money, I have no shorts on...stocks can go to 20,000 or 30,000, but of course it would be worthless money...commodities will be the best place to be. The US dollar is a terribly flawed currency." - Jim Rogers
The above video is the beginning of the fun. The real action started when Larry Kudlow and Howard Lutnick chimed in about the treasury bond outlook. It was awesome! Basically Kudlow agreed with Rogers that treasuries are a great short, and will rollover causing higher rates for all of us as a result of fed actions, policy, and government borrowings to stem this crisis. Lutnick argued that Rogers is about '4 years early' on that trade and that the commercial real estate problem and the leveraged buyout problem (2006 deals) is far worse than anyone right now is willing to admit. Lutnick believes this to be a 2011 and 2012 problem, causing major problems for banks and the economy - as a result the flight to safety will CONSTRAIN the treasury market from rolling over as the 'fear factor' kicks in again. When Rogers asked why investors would buy trillions of government bonds over the next few years, Lutnick responded...'because you get your money back'. Kudlow responded by saying.."why anyone would want to buy treasury bonds right now is utterly beyond me!"
It was awesome. Here is the real action:
Lutnick's argument about treasury bonds being constrained by what I described as WAVE 2 of this crisis, is very interesting. I'm not sure I buy it, but its interesting. Lutnick says this will hit us in 2-3 years, I thought it would be earlier.
Your thoughts? Who is right - Kudlow/Rogers or Lutnick?
Posted by RegularAnon
Thu Jun 4th, 2009 06:39 PM
hahaha i thought the same thing -- one of the most entertaining power lunches...
I tend to agree with the Rogers side -- but I don't like just buying commodities -- but rather the companies that benefit from their rise in prices. In particular I think LT natural gas companies are a great play -- especially if you're pretty sure the company you buy into won't go under. maybe a COP.
Posted by iven
Thu Jun 4th, 2009 06:45 PM
Rogers is good but his timing is always give or take 6 months to a year off on many occassions. Great track record.
The fact that "sell $usd" and "short treasury" is all over the press means its overdone on the upside in the short-term.
Wait for slightly better prices and then jump in. Shorting TLT is better than buying TBT I'll have to check the borrow.
GLD, DBC, DBA, short TLT, long foreign currencies.
But careful of your timing, these are trades to keep for a few years.
Just look up the recent Julian Robertson interview in Value Investor magazine. You dont want to fade his trades unless you are VERY good at short-term trading
Posted by Noah
Thu Jun 4th, 2009 07:33 PM
iven - yea its an interesting point about being all over the press. It was all over the press (by JR) in mid OCT last year too, I remember talking about JRs thoughts in a piece
http://www.urbandigs.com/2008/10/a_new_age_depression.html
I must admit, I thought the fed would step up and buy more treasuries and I also thought this rally wouldnt last, so I sold my TBT at 53 a few weeks ago. Im upset about that. I still think there will be another re-entry point though. I still got my gold positions on and that is a longer term hold for me. I used to think I was a good short term trader, until I totally got the duration of this latest rally so wrong! Always a lesson!
Posted by iven
Thu Jun 4th, 2009 07:53 PM
Noah, Clarium capital's Peter Thiel had a great speech at the Ira Sohn conference in NYC a few days ago, he mentioned "Inflation in the things we buy, but deflation in the things we own". Implying items with leverage such as real-estate, cars, etc will deflate but commodities will continue to arise. We can have both. Here is a good summary of what was spoken that day.
http://www.scribd.com/doc/15887468/Ira-Sohn
When Peter Thiel, Jim Rogers, Julian Robertson, Paulson & Co, Bridgewater, all start talking about inflation I listen. These are not people talking to sell a book, or get into the press, they are speaking their mind. We are lucky recently their comments are public. I remember in 2007 Julian spoke at a firm I worked at, he was talking negative on Fannie & Freddie. Fundamentals were spot on. You better be very nimble or running $1bil to take the other side of these guys. So second guess your analysis and take the devils advocate if you dont believe in inflation.
I cant believe Paulson cleaned up on the fall, now he knows the Fed is in a corner & now Paulson is going to clean up buying Gold and betting on rising long end of the curve. He is on a run.
Posted by aj320
Thu Jun 4th, 2009 07:57 PM
Great stuff indeed. EXCEPT for that d@# Sue Herrera who kept cutting them off..LET THEM F#@$ING TALK...CNBC has a knack for getting great guests and (outside of Warren Buffett) never letting them speak..It's amazing how wide the possibilities of different outcomes are over the next two years, and Roger's lack of shorts is certainly noteworthy. He nailed the 02-08 commodity run, was spot on with his financial shorts, completely missed the 08/09 commodity meltdown, and pushed you over the ledge on his long yen trade..I tend to agree with alot of his thoughts, but haven't had the clarity to hold onto these themes. I expect that in time China will be exposed as a bigger fraud than Enron, but the arc of history paints a very clear picture of overly indebted empires and their aftermath. I don't see anything about Obama that shows me he's willing to make the difficult decisions needed to turn this around so the end game (rogers scenario) could be more likely than we think
Posted by Noah
Thu Jun 4th, 2009 08:02 PM
iven - THX for link! And I totally agree. I have argued that inflation will show up in food, energy, metals, and health care - not assets. Perhaps later on, the assets, but not at first.
And yes, we should be lucky to have access to these great minds! Thanks
Posted by Noah
Thu Jun 4th, 2009 08:30 PM
aj320 - yea, they needed to let those 3 keep going at it. It was awesome. Loved how they touted Merkels recent comments about fed policy and how Rogers totally dissed Bernanke.
Now I got to give Bernanke some credit, but certainly it took a while before they got it right and by then, it seems they just crossed the line. I mean how many facilities did the fed customize for this crisis, 18? 19? backdoor bailouts by AIG counterparties? FASB accounting changes...I know thats not the fed, but in total, they went so damn crazy here that I wonder what really would have happened if the system would have seen only 70% of the stuff they did, instead of everything? We survived Lehman failing, went through some pain, but survived. But this society just wants bailout after bailout and excessive printing to re-inflate. We are so scared of taking medicine for our own excesses and letting the idiots experience pain for positioning their firms the way they did in order to maximize profits and ignore risks.
I saw a small regional bank CEO on Bloomberg a few weeks back, cant remember for life of me the name, and all he talked about was how they exercised restraint and managed risk for their shareholders so the bank would not be in a bad position in 2004-2007, when they knew housing was about to collapse and most borrowers werent credit worthy. So they didnt lend and they didnt focus on a securitization model that ignored quality so you can generate as much return as possible. He discussed how he was the little guy, made the smart moves, and his firm was disadvantaged because of those moves and now all the big boys are being bailed out with taxpayer funds and execs rewarded with windfalls. Crazy. I wish I can recall or find that video so we can see the exact statement, it was great.
Posted by bob b
Fri Jun 5th, 2009 02:45 AM
Noah,
TCF Bank and I believe CEO was William Cooper.
Posted by bob b
Fri Jun 5th, 2009 02:47 AM
Noah,
TCF Bank and I believe CEO was William Cooper
Posted by Noah
Fri Jun 5th, 2009 07:54 AM
thanks Bob!
Posted by yournamehere
Fri Jun 5th, 2009 08:05 AM
I enjoy Rogers quite a bit, but his message now is EXACTLY the same message he's had since the very very beginning of the credit crisis. He's always on Bloomberg talking his book, passionately and persuasively. The only difference this time is that his arguments have more traction given the markets' latest behavior ("a broken clock...").
Not saying the Fed will have the fortitude to do this, but the minute they raise rates or stop QE, Rogers won't be on Bloomberg as frequently.
Posted by Adam
Fri Jun 5th, 2009 08:45 AM
Just look at the FNM MBS coupon rates and the rise in fixed mortgage rates already going on.. i think below 5% is a thing of the past..
Posted by iven
Fri Jun 5th, 2009 09:00 AM
In response to "yournamehere" above. Be very careful going against Rogers view. He is not the broken clock. He is a fundamental investor with a time horizon of about a year. Over the last few years get this:
1. Sold his nyc townhouse at market peak
2. Shorted financials last year
3. Bought commodities years ago before 1st boom
4. Covered his shorts earlier this year
5. Did not short equities this year
6. Held China forever, that wont change
His only error was shorting T-bonds too early last year and he was stopped out. He also had some airline stocks but I think he made money as it was when oil was collapsing.
I'm not saying he is 100% correct, but be very careful if you take the other side to his trade.
I have followed him for years in financial circles.
If you can come up with an argument that goes against him great, but make sure you have a well researched process.
Anyhow great feedback on this site and Noah great postings. Thanks everyone
Posted by yournamehere
Fri Jun 5th, 2009 10:59 AM
Oops. Realized I commented on the wrong thread. Damn cellphones.
Anyway, Iven - I have no problem w Rogers. In fact, I'm largely on his side of the trade. It just amuses me because what he's saying now is exactly what he's been saying for 2 years. Can't fault him for a lack of consistency, that's for sure. My point is that if you've been following him (and I have), his proclamations aren't so much newsworthy as the fact that the markets and sentiment are going his way, at least for now.
Posted by cfranch
Fri Jun 5th, 2009 11:50 AM
i respect to jim rogers and think he will be proven right. however this bear market rally viciously rolls on. still lots of cash on the sidelines and market is successfully absorbing supply. so i expect rally to continue but got my finger on the sell button. however there are lots of balance sheets that need to be repaired from individual households on up to big corporations. an improving stock market helps both but both are hoarding cash now as well by curtailing spending. that means little to no hiring by companies. interest rates are rising and can be expected to continue their climb. what does this mean for RE? ain't good in those markets which have seen only a moderate correction from bubble highs. i would think that describes NYC. rising housing prices from 2004 to 2008 were wholly dependent upon a credit bubble. that bubble has burst and housing is reverting to what typically drives it: employment and interest rates. both are flashing bearish signals for housing. yes we are seeing a month over month increase in RE purchases but this is a pattern i would eventually short on a stock chart.
Posted by Anonymous
Fri Jun 5th, 2009 12:37 PM
15 posts, and no one agrees with Lutnick. This should tell you that he's right!
Look at what's happened in the past 24 hours:
- Mozillo indicted
- BOA fires top risk manager
- Sheila Bair wants Pandit's head
The bad news about the banks is just beginning to seep out.
Posted by In Debt We Trust
Fri Jun 5th, 2009 06:32 PM
Fed fund futures are pricing in inflation.
I disagree w/the assessment but am not about to fight the tape. If institutions believe one thing...well, there's not much you can do in the short term except follow the momentum.
http://debtsofanation.blogspot.com/2009/06/
debts-of-spenders-fed-fund-futures.html
Posted by Mike
Sat Jun 6th, 2009 03:42 PM
As the ten year rises, the cost of debt to real estate people rises, causing cap rates to rise, causing values to go down, no matter how you look at it, commercial real estate will be a declining asset for years to come, unless you find a market where rents are going up SIGNIFICANTLY.
Posted by Fred
Sun Jun 7th, 2009 07:10 PM
if you guys really want to believe that the world is going to dump fiat currencies for gold or buckets of wheat or sugar cane or oil drums pray tell me, how slow do you think commerce will become when we turn paper currency into one big global barter system? here's another problem, most of these guys are in the business of straw man arguments. the world is going to end is an indefensible statement. his message is malarky precisely because there is no other side of the trade for Armageddon. do you think for one minute that the Chinese want to compete with a declining USD? we are their market for crying out loud. if we can't afford to buy their products, they are totally screwed. it is in China's best interest to prop up the USD, buy the bonds, bite the bullet and eat the scraps the West send thems. Jim Rogers should stay in Singapore and stop flying over to NJ to talk about wall street on CNBC. if you want a good clean hedge against USD weakening, buy Brazil - that's what the Chinese are doing and Brazil actually practices democracy.....
Posted by JT
Sun Jun 7th, 2009 10:13 PM
Noah,
Rogers is going to lose his @ss! He cannot ride Soros's coat tails and his trades will blow up just like the puts Buffett sold on the S&P...what a dufus. Even a monkey can make money in a bubble.
Everyone likes to talk about the USD but the vacuum does not exist.
The FX markets complain that China should allow their currency to float...currencies do not float as they fall at different rates but gold does not sink. Europe has far worse budget issues than we do. Rodgers bet will crash before the end of the year and what many have ignored is goverment debt yields are rising globally. Bund yields have incresed more than treasuries. The Turkish government cannot raise capital period. It is all relative but traders that have lost their shirts are violating the eigth deadly sin and are trying to get carted out in a casket. Stick your head out of The Streets firehouse...
Food for though...China is like BofA or Wells. They lent money that will never be paid back. What would China's balance sheet look like if they had to mark all of the debt lent to the US to market (zero)?
China's economy is being held together by Keyensian nonsense and they continue to invest in industry even though they have more over capacity than the US does. China has handed out far more as a perent of GDP than the any other country including the US.
Most would say that the USD sucks but it is not even that good. The sad truth is nothing is better. The USA's trading partners lent to us for consumption so they could grow. How is that any different than the USA's insolvent banking system? If a consumer walks away from their house who gets the short end of the stick?
If the comsumer lives within their means after the walk away...the bank is screwed and so are the consumers neighbors.
At some point the US will walk away from their debt and China will have garbage to show for all those years of 'growth'. The tail never wags the dog and China's story is not remarkable when you see them for what they truely are...an insolvent bank that is in denial.
Stick a fork in China and the rest of the world because this depression is not over by a long shot.
Just trying to slap some reality salt on those long forgotten wounds.
Cheers!
Posted by Condos
Mon Jun 8th, 2009 12:07 AM
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Posted by Fred
Mon Jun 8th, 2009 10:05 AM
another thought re: China's US Treasuries. if it gets to the point that China's GDP does not turn around, they may in fact find themselves in a position of having to unload Treasuries at a fairly steep discount. the idea that Rogers et al harp on is that China could flood the markets but in reality, when one is selling at a loss, by nature one does not flood the markets because it is not in their self interest. Who would be the most likely market for discounted t-bills? probably the US Govt. right now, we are assuming the worst with regards to funding needs over the next few years. all it takes is a downward revision of the estimated issuances from treasury, combined with some TARP re-pay and, bam, you got a situation where demand for t-bills goes up simply because things look better than the market once thought. to boot, China is still stuck buying our technology because they are too busy restricting internet access to their own population......