Jim Rogers: I’m being forced to buy more real assets

Always looking for bargain prices in commodities markets, famed investor Jim Rogers has been patiently awaiting a significant pullback in precious metals prices before adding to his stockpile.

But that plan may change for Rogers.

The Fed’s statement released on Wednesday, in which it announced a coordinated 50-basis point cut in dollar swap rates with five other central banks, jolted Rogers into rethinking his buying strategy for precious metals and commodities, according to a GoldSeek interview with the 69-year-old commodities trader.  Sign-up for my 100% FREE Alerts

When GoldSeek Radio host Chris Waltzek asked Rogers whether he’s buying commodities right now, the 69-year-old commodities trader said,  “Well, not at the moment, but I’m seriously considering it given what’s happening in the world . . . They [central banks] are going to loosen up even more on money.  That’s not good for the world, not good at all, but that’s all they know how to do.  So, I’m contemplating, being forced to buy more real assets.”

For weeks, Rogers has been peppered with the same question regarding his plans to buy more gold, and, by proxy, more silver.   He’s repeatedly said that he’s been waiting for an additional pullback in the precious metals before adding to his positions and that he remains a staunch long-term bull in gold, silver and commodities for, what he expects, the remainder of the decade—at least.

In a CNBC interview, two weeks ago, Rogers said, “I’m long commodities and currencies, because if the world gets better, the shortages in commodities will make sure I make money.  If the world economy doesn’t get better, I’d rather own commodities because they’re [central banks] going to print money,” adding that he’d become excited if gold reached the $1,200 level.  See BER article.

However, Wednesday’s rate cut within the dollar swaps market showed that the Fed is committed to temporarily backstop Europe’s liquidity freeze in the Eurozone while a more permanent solution to the liquidity (solvency?) crisis there is drafted by the leaders of the EC on Dec. 9.  It appears that the Fed and ECB are poised to print more money.

In addition to Wednesday’s pre-market shocker by the Fed, a more recent overture from Chicago Fed governor Charles Evans, who said on Dec. 5, “further monetary stimulus is needed” to steer clear of another U.S. debt trap, has upped the rhetoric for more money printing by the Fed, possibly slated for the Jan. 23-24 FOMC meeting.

In the meantime, the ECB decides whether to lower rates on Thursday, Dec. 8.  Another rate cut in addition to ECB’s new chief Mario Draghi may send precious metals soaring once again.

All of these events trouble Rogers, who sounded disappointed that he may not get his wish for lower gold and silver prices.  It appears that recent events may have altered his expectations.

So, is Rogers buying gold now?

“I would have said ‘no’ before yesterday; now, as I say, I’m reconsidering,” he stated.  “I was hoping we’d have a large correction, a continuing correction.  It [gold] has been correcting for three months now, but that’s not much in the context of the 11 years [bull market], so I’m trying to figure out what to do.  I might buy more, given what happened yesterday.  I’m trying to figure out exactly how extensive this is going to be.”

And for Rogers’ take on the silver price, he repeated his preference for buying silver because of the large discounted price to its all-time high and inflation-adjusted high of approximately $150 per ounce.

“Certainly silver could go to three digits if you adjust it for inflation, you get to U.S. dollars, a $100 per ounce some time during the course of the bull market,” Rogers said of the bull market potential for the price of silver.  “Yes, I’m sure that will happen.”

Given a choice between buying only one of the two monetary metals, gold and silver, Rogers said, “If I buy either today, I’d probably buy silver, just because it’s cheaper on an historic basis.  They more or less move together, certainly not always.  I would probably buy silver, if I decide to buy precious metals.”

Then, the conversation turned to the U.S. economy.

Rogers expects utter calamity during the next economic downturn in America, suggesting that each downturn in the U.S. economy creates an increasingly more difficult job for the Fed to raise growth again due to the swelling drag of accumulated debt created by the central bank in the series of ‘prime the pump’ responses to all previous downturns.  See Kondratiev-wave cycles.

“At some time by the end of 2011, 2012 or 2013, we’re overdue for another economic slowdown and that it will be worse than last time because there has been so much staggering amounts of debt created,” Rogers explained.

“You know we had a slowdown in 2002; it was bad; 2008 was worse because the debt was so much higher.  You know 2012, 2013, whenever it comes it’s going to be worse still because the debt now is up so much,” he added.  “The U.S., when taking into account all the off-balance sheet guarantees such as Fannie Mae’s derivatives positions the debt has more than quadrupled from last time.   They cannot do that again.  The market’s not going to let them print staggering amounts of money anymore.

“My only point [was] the next time around, when it comes, and it is going to come, anybody that tells you that it’s not going to come, you should not bother with them, but when it comes the next one’s going to be worse than the last one.”

Gold Price to ‘Double’ in 2012, says Guru

Get the checkbooks out, because the flight into gold is about to commence, says economist and NY Times best selling author Dr. Stephen Leeb.  But a liquidity crisis sell off in gold may provide that opportunity, first.

The dramatic move by six central banks on Wednesday to lower dollar swaps rates flashed a big red light to markets that liquidity, which has been drying up between banks in Europe, had become acute and created the risked of another 2008 Lehman-like meltdown event, taking the U.S. banks along with Europe’s down the path to Armageddon.  Sign-up for my 100% FREE Alerts!

“There are liquidity concerns right now.  I think the world, and in particular Europe, really does have a liquidity problem,” Leeb told King World news on Monday.  “If Europe has a liquidity problem that obviously has the potential to affect everybody, especially the U.S.”

Contrary to claims made by U.S. bank executives and analysts, featured endlessly on television programming (especially BofA’s cheerleader, Dick Bove), that U.S. banks are only marginally exposed to European sovereign debt defaults and could weather the storm, advisor to the IMF, Robert Shapiro, told the BBC that nothing that analysts such as Bove have said about the low possibility of a contagion in the U.S. could be further from the truth.

“If they [EU] cannot address the financial crisis in a credible way, I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system,” said Shapiro.  “We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom; it will spread everywhere because the global financial system is so interconnected. [emphasis added]

In fact, one could argue that the Panic of 1907, which created systemic collapse on both sides of the Atlantic following the banking system collapse in the U.S., serves as a fine example of what would most likely happen to U.S. banks if Europe’s financial system collapses, as a higher degree of interconnectedness between many more banks between the U.S. and Europe exists today.

Following the announcement of Wednesday, initially, gold and stocks soared on the news of the central bank coordinated effort to ease the liquidity (ultimately solvency) strains, but, not unlike 2008, gold has since come under pressure.

According to Leeb, the weak hands of bankers need to raise capital, which leaves the most liquid asset they’ve got to raise quick cash, gold.  But not to worry, said Leeb, the snap back to higher gold price could be as fierce as it was in 2008.  He, instead, suggested preparing for the volatility lower in the price of the yellow metal prior to its glorious “rubber band” launch higher.

Don’t fight the inevitable volatility, instead, embrace it as fact of life during the bull market in gold, according to Leeb.

“We did see a similar event back in 2008 where gold dropped on liquidity needs,” he said, “but once central banks got their act together and once liquidity was flushed into the system, gold took off like a rocket ship.  So you just have to expect this in the kind of world we are in.

“This is the kind of world that is consistent with a very powerful and persistent bull market in gold and it will carry many, many times higher than the gold price is today.  But those very conditions are going to be conditions that do lead, from time to time, to liquidity crises.”

Many street-smart observers of the European drama suggest that the ramifications of a sovereign debt and banking system collapse are too unimaginable for political leaders to allow another Lehman, so the crisis will be resolved, one way or another, even if it means breaking treaties or progressing toward a plan in an undemocratic and authoritarian-like way.

But, if Europe does falter, count on the Fed to step in—to do the right thing.

“I think eventually they will do the right thing,” Leeb speculated.  “I think that if they don’t do the right thing, we will.  It’s a lot easier for the US to act as a single entity than it is for Europe to act.

“One way or another there has to be money printing.”

Leeb’s advice on the possibility of a gold correction as a direct result of a failure among Europe’s political leaders in their effort to flood of the financial system with a ECB printing press of euros is to prepare for the event, psychologically and financially.

“I can say this, right now is no time to back out of your gold position.  I mean gold going down is telling you why it’s such a good investment,” Leeb explained.  “It’s is literally being used as liquidity because conditions are so dire.

“Any way to correct these dire conditions is going to involve massive amounts liquidity.  So buy gold on these dips and say, ‘This is a gift that will reward me in the next twelve months by at least a double or more.’  Let me put it this way, it’s a rubber band, the further gold goes down now, the more it’s going to bounce back.”

Dow Theory Richard Russell: Gold, “Island of Safety”

Following the surprise announcement on Wednesday that six central banks have lowered dollar swaps rate by 50 basis points in an effort to allow European banks to bypass a rising LIBOR rate, Dow Theory Letter author Richard Russell told King World News investors should expect a jolt in commodities price in the future.

“The world’s major central banks launched a joint action to provide chief emergency U.S. dollar loans to banks in Europe and elsewhere,” Russell stated.  “In a desperate effort to raise stocks, the central banks of the world coordinated by forcing more money into the world system.”

The announcement incited a stampede into equities and commodities, as traders fell over each other to buy more of their favorite inflation play, resulting in pre-holiday gifts of a 400+ points rally in the Dow, $30 rise in the gold price and a nice spike of a dollar to the price of silver.

“This is exciting for now,” added Russell, “but it will result in inflation within 6 months to a year.”  Sign-up for my 100% FREE Alerts!

Moreover, and more importantly, the bold action by the Fed and five other central banks to lower rates in the swaps market also sent yet another clear signal that the Fed-led cabal of central bankers are not about to allow the epic ongoing debt destruction to get ahead of money printing.  It’s simply a matter of inflate, or die.

And the consequence of inflation of money supplies is commodities price inflation, including higher gold and silver prices.

But it appears that a recent RBC Capital Markets report suggests that Russell may have to come back on King World News with an encore inflation warning.  In the spirit of coordinated central bank easing, Wednesday’s Fed announcement now opens the door to an easing on the other side of the Atlantic.

“It is now cheaper for foreign banks to borrow dollars from their local banks than it is for U.S. banks to borrow dollars from the Fed, so we could see a 25 basis point cut in the discount window in the coming days to level the playing field,” stated RBC Capital Markets’ Michael Cloherty.

Other Fed watchers believe, that as the year winds down, the timing of a Cloherty Fed-easing event could coincide with a “quiet coup” at the Fed come the first of the year, according to zerohedge.com, who cites a SocGen report which notes that 3 of 4 Fed hawks presently voting at the FOMC meetings will rotate out on Jan. 1, 2012—just in time for the next FOMC Meeting of Jan. 24-25.

“With under 30 days left in 2011, the current roster of 4 rotating voting Fed governors is about to be swept out, only to be replaced with 4 new ones,” stated zerohedge.  “ . . . the rotation will probably be the most dramatic in Fed history as 3 die hard Hawks (and 1 dove) are eliminated only to be replaced with a panel which is almost exclusively Dovish.”

SocGen concluded in its report, stating, “Buy gold ahead of QE3 as money creation has a strong impact on prices,”

Russell agrees with the SocGen thesis, but his advice to investors is dispensed with a long-term horizon in mind, irrespective of further Fed easing speculated for January. He’s looking at the endgame for the U.S. budget and the value of the dollar, as inflation reasserts itself on top of a landscape of Fed-engineered artificially low interest rates—a recipe for a coming convulsion by holders of U.S. Treasury debt, according to Russell.

“Along with rising inflation will be its cousin, higher interest rates,” he stated. “This will impact everything from commodity prices to the rising cost of financing the federal debt. Right now the federal debt is being rolled over at extremely low interest rates, but as rates climb, compounding will occur and the cost of rolling over the federal debt will become a critical problem.”

Putting some numbers behind Russell’s analysis, compiled from the Heritage Foundation and the U.S. Treasury, Russell’s point becomes much more clear.

Year           Tax Rev.*   Debt*         Int.*           Avg. %       Int./Tax Rev. %

2000          2,025                  05,674       362            6.4             17.8

2005          2,153                  07,932       352            4.4             16.3

2008          2,523                  10,024       451            4.5             17.8

2009          2,104                  11,909       383            3.2             18.2

2010          2,160                  13,561       414            3.1             19.2

2011          2,150                  14,780       454            3.1             21.1

* billions (US$)

Fiscal 2012 is expected to end with a total debt level of $16.4 trillion, well over 100 percent of GDP and nearly triple the total federal debt of the year 2000.  When interest rates eventually rise back to an average rate of interest of, say, 6 percent, the federal budget deficit will explode into a Greece-like scenario.

What if the day of reckoning for the U.S. Treasury market hit during fiscal 2012?  Calculating the average interest paid (rate of 6 percent) on a projected total federal debt of $16.4 trillion for fiscal 2012, the percent of total interest payments to revenue would reach 45.8 percent!

2012          2,150                  16,400       984            6.0             45.8

As interest rates rise, the death spiral in the dollar begins.  Russell advises investors to just let the magic of compounding interest work its damage on the federal budget and “to sit tight” with gold as the Fed must expand its balance sheet as it monetizes the new debt, kicking off the aforementioned death spiral.

“The first bubble to be crushed will be the ridiculous federal debt,” Russell concluded his comments to King World News on Monday.  “The second crushed will be the U.S. dollar.  The compounding federal debt will act as a steam roller, rolling everything in its path.  The island of safety will be pure wealth, better known as gold.

“Patient subscribers will be rewarded for their patience.  The great enemy will be the act of compounding pressing its weight of the U.S. debt.  Just as compounding turned rising money supply into fortunes, compounding the rising interest rates will turn fortunes into shoestrings.”

Peter Schiff’s Urgent Update to Gold & Silver Investors

Following the surprise move by the Fed and five other central banks to lower the interest rate of dollar swaps by 50 basis points, through Feb. 1, 2013, Euro Pacific Capital CEO Peter Schiff issued a special and urgent update to investors.

“There’s an old expression that nobody rings a bell when it’s time to buy or sell,” Schiff began his video message of Wednesday.  “ . . . Well, I think the world’s central banks rung a pretty loud bell today to buy precious metals.”

As the Dow opened on Wednesday, soaring more than 400 points, gold vaulting more than $30 per ounce and silver adding more than a buck following the Fed announcement that the world will soon be flooded with more dollars due to the coordinated cut in the swaps rate, the US currency dropped sharply against its peers which comprise the UDX. Sign-up for my 100% FREE Alerts!

“I believe that it [the dollar] is going to lose a lot more value, not just against other fiat currencies, but against real money, gold and silver,” Schiff continued.  “I think investors should be buying.  Those of you who’ve been on the sidelines waiting for an opportunity to buy, I would not wait much longer; I would just buy.”

Wednesday’s ringing endorsement by central banks to sell dollars and buy precious metals—so far—has fit well into the call Schiff made in October for a lower dollar by year end—a bold call, indeed, in that, it flies in the face of famed FX Concept Founder John Taylor’s prediction for a euro collapse.  Not many traders want to take the other side of a Taylor trade.

“What’s really frustrating is that we’re supposed to do well in a lousy world market,” Taylor told Bloomberg in an Oct. 12 interview. “We’re doing very badly.”

Nearly two weeks later, on Oct. 25, Schiff defiantly told KWN, “Our short-term target for the euro, maybe by year end, will be up near 1.48,” adding, “I think that’s going to catch a lot of people off guard who were writing the obituaries for the euro, to see the euro approaching the 1.50 level. The dollar index should be headed back down to the 72 level.”

Schiff recommend to KWN listeners to buy gold and silver as the hedge against the coming drop.  So far, Schiff is holding up quite well to senior Taylor.

“I think we will come pretty close to hitting $2,000 on gold this year,” Schiff predicted. “It would be hard for gold not to be above $2,000 in 2012.  I really think it would be unlikely that we wouldn’t see prices north of $2,000 next year.”  See BER article, Peter Schiff’s Boldest Call Ever.

Fast forward to today, Schiff recommended to his video audience that new positions should be taken in gold and silver, with first-time buyers who’ve been waiting for a pullback to jump aboard.

“You have gold at around $1,700, silver around $32,” Schiff said, Wednesday.  “I think these are good positions to buy gold for the first time, if you still haven’t bought, or add to your positions if you already own.”

In addition to his recommendation to buy precious metals, Schiff reminded investors of the ongoing disinformation campaign waged against investors by central bankers and the media all through this crisis.  Schiff has continually stated, as far back as the early 2000s, that central bankers and ‘respected’ media outlets, to put it bluntly, “lie” to investors about the intentions of the Fed; it’s all part of, what famed trends forecaster Gerald Celente has said is, a CON-fidence game the Fed plays with the markets.

“Here’s the deal, Eric, they are suckering in the people to keep playing the market. This solved nothing,” Celente told KWN, Thursday.  “So when I see this, this is just a con game.  And anybody that sees the game, all they have to do is follow the money.  Where is the money going?  Look at what gold did, zoom it shot up!  Look what silver did, bam!  Everybody knows what’s going on, they are devaluing our currency.”

Schiff provided more detail than Celente about the latest Fed rouse, citing the curious timing of the Bernanke announcement of the day following the Standard & Poor’s large list of bank downgrades, underscoring what both gentlemen have been warning investors for a long time—and that is, that the game is “rigged” against investors of dollar-denominated paper assets and to buy gold.

“A lot of people think that what is going on is a bailout for the eurozone.  It’s not; it’s a bailout for the banks on both sides of the Atlantic,” Schiff explained.  “It’s not a coincidence . . . last night Standard & Poor’s downgraded credit ratings for about 20 major banks, including banks like Bank of America [and] Morgan Stanley.”

Moreover, Schiff noted a similar observation to zerohedge.com‘s post regarding Warren Buffet’s Bank of America’s share price, which, as of Tuesday, traded briefly and dangerously below the $5 mark—a mark at which pension funds and other large institutions must sell the stock, which would no doubt cause another Citigroup-like meltdown in shares of BAC.

“Before the bell [Wednesday], Bank of America shares were under five bucks, a new 52-week low, and this announcement came and the banks rallied,” Schiff said.  “I think this is a bank bailout, a la QE2.  This is not about economic growth; it’s about propping up insolvent financial institutions by creating inflation.”

More evidence of Schiff’s contention came from U.S.-based Forbes Magazine on Wednesday morning.  Forbes stated that it had observed central banks taking unusual steps to liquefy an unknown (undisclosed?) European bank in ways reminiscent of the 2008 financial system meltdown.

“It appears that a big European bank got close to failure last night,” stated Forbes.  “European banks, especially French banks, rely heavily on funding in the wholesale money markets.  It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue.”

Experienced Wall Street observers, such as Schiff, the staff of zerohedge.com and the journalists of Forbes understand the motives and obfuscations disseminated through communiques of central banks all too well.  And those “who do understand this dynamic will buy gold,” said Schiff.

And how high could the price of gold go?

Ironically, France-based Societe Generale issued a note to clients on Monday, a couple of days too soon from the Wednesday’s Fed’s bombshell announcement, in which, it stated, “A major liquidity crisis should not occur this time, as we think we are on the eve of major QE in the UK, U.S. and (a bit) later on in the EZ.”

If the analysts at SocGen had read zerohedge.com’s Friday post regarding a curious and massive blip on the Fed’s “Non-Reserve Balances” statement of an additional $88 billion to its “other” category, they may have wondered if another bank was about to blow up in the system and most likely would have suspended their analysis for a little while longer.

In any event, SocGen also stated it expects the price of gold to soar to nose-bleed heights in the wake of more central bank quantitative easing, as they need to catch up to the unprecedented rate and amount of debt destruction on both sides of the Atlantic.

“Buy gold ahead of QE3 as money creation has a strong impact on prices,” according to the SocGen release.  “Gold is highly sensitive to U.S. QE, as every dollar of QE goes into M0, triggering the debasement of the USD.  Gold = $8,500/Oz: to catch up with the increase in the monetary base since 1920 (as it did in the early 80s).  Gold = $1900/Oz: to close the gap with the monetary base increase since July 2007(QE1+QE2).”