Wednesday, June 3, 2009

"We are all going to die" - Jim Rogers

Okay, that is not exactly what Jim Roger said in this interview with The Economic Times but pretty close. Jim is always fairly frank and he holds no punches in this one. Talks about currency collapse and the Dow going to a 1,000,000 in dollar terms because of the collapse.

In a word I think it is nutty (in the time frame he is talking about). His points if you cut the drama from it are very very valid and things I have been talking about over and over again.

Even if he is 100% right, this stuff does not happen overnight. If you study the history of the Wiemar Republic in the 20s into the 30s it took years before things really unraveled. There was high inflation (well at least by our standards) of 5 up to 15% for years before the 100,000% inflation rates hit. The stock market went way down before skyrocketing in local currency terms before basically going to zero.

A major sovereign default will cause deflation, not inflation, in all countries outside of that nation. So if UK defaults or devalues similar to 1931, just like 1931, it will lead to deflation in the United States.

Anyway, read the interview, glean from the themes, understand the inherent meaning behind the themes, and discard the rest keeping a piece of it in the far reaches of your mind.

The possibility of a sovereign default in the developed world could further depress sentiments. You think it’s possible?

In 1918, the UK was the richest and the most powerful country in the world. Within one generation it was in shambles, within two-and-a-half generations it defaulted. The UK defaulted in 1970s and had to be bailed out by the IMF. Many of the countries in the developed world are in serious trouble right now.

Iceland has already defaulted. I think there could be a currency crisis because of sovereign debt problems later this year, next year or 2011. Developed nations have defaulted before. Remember the Asian crisis. It was a default of one kind or the other. It has happened before and it will happen again. Thanks goes to several of you.

Are you worried about any particular market or region?

I am glad that I have no investments in the UK. Neither long, nor short. I am convinced that it’s in trouble. I am worried about the US. I have sold nearly all of my US dollars. I always had some as I am an American citizen. But I see serious problems developing there. Those two of the big developed countries are the ones that I see with the most likely problems.

But the problem is that it never works that way. Everybody is sitting here watching the UK and US and it may happen in say Portugal or some place we haven’t thought of and it will come suddenly to surprise us all.


What kind of a market are you witnessing now?

It's a bear market rally. I was going to say I don't think S&P 500 will see new highs. But I have to quickly temper that by saying against the dollar because the S&P 500 could triple from here if they print enough money and the value of the US dollar collapses, then S&P could go to 50,000, Dow Jones can go to 1,00,000.

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