And it’s no wonder. The Greek debt crisis continues to threaten Europe’s overall health, and could unleash an entirely new contagion on the rest of the global economy. Then there’s China, – the engine of world growth during much of the financial crisis – which now appears to face the near-term triple threat of slowing growth, accelerating inflation and workplace unrest. Add in concerns about commodity prices and global debt levels and it’s easy to see why currency investors have sought the safe haven of the U.S. dollar.

But is the greenback really the best choice for safety, quality and security?

To me, the dollar is looking more and more like a colossal short that could wind up being one of the biggest moneymakers of the year for traders gutsy enough to take a stand.

Read on to find out why it’s time to bet against the dollar… I’ll show you the best ways to do it.

From Leader to Laggard?

Given that the dollar soared 11% since the beginning of the year, I’m sure some experts will call me crazy for going against the dollar at this point in history. But here’s my thinking:

• Our $14 trillion fiscal hangover, weaker-dollar policies and increased spending will lead to additional dollar weakness in the immediate term. Longer-term, this is a foregone conclusion: The high debt load relative to U.S. gross domestic product will erode growth – studies prove this – and all the extra money that we’ve printed will fuel inflation, as always happens..
• Foreign central bankers – especially China – are actively diversifying away from dollar reserves and dollar-denominated securities. They can’t and won’t “dump” the dollar in a wholesale manner. But this shift away is nothing less than a long-term decrease in demand for the dollar – and we all know that when demand for an asset declines, so does its value.
• The Organization of the Petroleum Exporting Countries (OPEC) – and what’s left of the non-OPEC nations – are still pressing for non-dollar-denominated oil deals. Expect some of those deals to take place in the wake of the BP PLC (NYSE ADR: BP) Deepwater Horizon disaster, which will bring about major regulatory changes and cause onshore reserves to command a major premium. This group, incidentally, isn’t to be dismissed, given that it contains such heavyweights as China, Japan, Russia, most of the Arab nations and, of course, France.
• If you look at the chart titled “Dour Days For the Dollar?”, you can see that appears to be forming a perfect “rising wedge,” a technical formation and a bearish signal that frequently precedes rollovers. That’s the opposite of a “falling wedge,” a bullish signal that presages reversals to the upside.

How to Play the Dollar’s Reversal

It’s worth noting here that this wager against the U.S. dollar should be viewed for just what it is – a highly speculative trade. This means it’s only for aggressive traders.

Keep in mind, too, that the dollar won’t shed its reputation as the currency of last resort without a struggle. Negative events abroad could send investors back into the currency for short stretches, making the dollar prone to short, rapid increases in value, despite its highly flawed underpinnings.

Position traders and everyday investors will probably want to wait for confirmation that the dollar’s trend is, indeed, reversing. You’ll miss out on some returns but that’s the way the game is played – you have to act on your convictions or else you’re simply another wannabe in this business.

My suggestion is that any speculative trade be limited to 2% of investable capital. That way, if we’re wrong and the dollar doesn’t cooperate, the risk to your portfolio is minimized.

As for suitable ways to play this dour-dollar prediction, I can think of three:

1. Go for the Gold: This is so obvious that I’m almost deterred from suggesting it, especially since the yellow metal is once again trading near its all-time highs. Generally speaking, I don’t like buying anything at all-time highs, meaning that pullbacks are the key here. I expect $2,000-an-ounce gold within the next couple of years – and possibly sooner – depending on how central bankers choose to deal with the EU and how the U.S. Federal Reserve handles the recovery bailout “exit” strategies it’s alluded to in recent months.
2. Take “The Natural” Approach: By “natural approach,” I’m referring, of course, to natural resources. The BP situation – coupled with new drilling restrictions and increasing Third World demand – is going to push the price of oil and other resources much higher. It’s not clear which one pulls or pushes lately – the U.S. dollar or oil – but when one moves the other generally heads in the opposite direction immediately. So watch the relationship between the two carefully to spot when this trend gets under way. Be prepared for some volatile trading, though. Silver, gold and other resources can move 5%, 8% and even 10% in a single day.
3. Cash in on Currency Funds: It used to be that the dollar and the euro were the world currency market’s “dynamic duo” – when one went, you could count on trading the other. But I think that relationship is long gone. The money has now shifted across the Atlantic, headed through the U.S. economy, and headed straight for Asia. As a result, instead of shorting the euro, I’m now inclined to short the dollar, while being generally long on the Hong Kong dollar, the Australian dollar and even the Chinese yuan.

Editor’s Note: Of course, there is one other way to protect your portfolio from inflation. Gold Dollars. Using a secure transaction from your own computer that takes just minutes, you can convert your dying dollars into U.S. Treasury-approved “gold dollars.” Use them as you would regular cash – except as the price of gold goes up, you’ll be able to buy more with 1 “gold dollar” than you could with an old George Washington! It’s so simple; we’ll tell you how to do it for free. Just go here. ]]> http://www.newchinatrader.com/archives/is-it-time-to-bet-against-the-u-s-dollar/feed/ 0 http://www.newchinatrader.com/archives/jim-rogers-chinas-economic-advance-is-all-but-unstoppable/ http://www.newchinatrader.com/archives/jim-rogers-chinas-economic-advance-is-all-but-unstoppable/#comments Mon, 14 Apr 2008 23:19:25 +0000 Keith Fitz-Gerald http://www.moneymorning.com/2008/04/15/jim-rogers-chinas-economic-advance-is-all-but-unstoppable/ By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

SINGAPORE – China’s long-term prospects are so strong that even a civil war, an economic collapse or political assassinations would only temporarily delay its emergence as a worldwide economic powerhouse, global investing guru Jim Rogers told Money Morning during an exclusive interview in this Southeast Asia city-state.

"Civil war would be a terrible thing in China, but it’d be a temporary setback, as would epidemics, as would economic setbacks, [and as would a] depression," Rogers said. "But China will come out of all that and keep going forward.  Now, I don’t anticipate war in China – even civil war – but I’m suggesting that if it happened, I don’t see it as the end of the story any more than [the U.S. Civil War] was the end of the story in the United States."

With an economy that’s advancing at an average annual clip of better than 11%, $1.7 trillion in currency reserves, and an emerging middle class that will soon be the world’s largest, China represents the future to globally focused investors and businesses alike. But there’s always been a concern about just how resilient China’s economy actually would prove to be.

Rogers urged investors to dump such concerns.

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In fact, according to Rogers, when it comes to the Red Dragon, only one thing could cause this powerful expansion to wash out: A major water crisis.
"China has a huge water problem," he said. "In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China – as you put it – has failed."

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first truly global investment vehicle, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers "retired" in 1980 that the public first really got to see him in action. After traveling the world on a motorcycle, Rogers penned the best seller "Investment Biker" – and gained the moniker: "Adventure Capitalist."  And he’s used the "on-the-ground" insights he gained on that trip and others that followed to make some truly historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent to other investing "experts," and he subsequently foretold of the powerful updraft in global commodities prices that is continuing to fuel a year-long bull market in the agriculture, energy and mining sectors.

In his newest best seller, "A Bull in China," Rogers writes about China and the commodities boom, and details dozens of ways investors can profit from these trends.

Given Rogers’ prescience – not to mention all the uncertainty that right now surrounds the U.S. economy – we thought it was well worth a sit-down with the noted guru, even if it meant traveling all the way to Singapore, where he now lives with his family, to do so.

During that hour-long interview at his home in Singapore’s exclusive Orchard Park district – with the two of us talking as he pedaled his exercise bike furiously, despite the morning heat – Rogers also said that:

• Oil prices are only going to go higher.
• That Russia will continue to "strip itself" of assets, meaning it will never emerge as an economic force.
• And that the U.S. dollar’s woes will continue.

Let’s take a look at some of the highlights of the Money Morning interview with investor and author Jim Rogers.
Keith Fitz-Gerald (Q): Can you see an instance where China fails?

Jim Rogers:  Of course. Anybody – and everything – can fail. But [let's consider] the main problem first.

I don’t worry about war or epidemics or depression or even political upheaval.  Everybody has had that. America had horrible problems. We had a terrible Civil War. We had political leaders regularly assassinated 125 years ago. We had massacres in the streets. We had no human rights. We had no rule of law. You could buy and sell congressmen.  You can still buy and sell congressmen in America, but they were much cheaper in those days. 

America had many disasters, and yet it became the great success story of the 20th Century.  As recently as 1907, the entire system went bankrupt in America: The government, Wall Street, everything.  And yet, America came out of that and went on to big things. 

All of those things can happen in China and would be temporary setbacks.  I don’t consider any of them being the end of the China story. 

The only thing that worries me permanently about the China story is water. 

I’ve been around the world twice.  I’ve seen many cities, societies, [and] nations that disappeared because the water disappeared.  China has a huge water problem.  In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China – as you put it – has failed. 

By the way, Northern India has the same problem, only worse.  Many places have it now.  Water is becoming a huge problem worldwide.  The same is true in the Southwestern United States.  You know, you may have Arizona going to war with California.  Some sections of Nevada, Colorado …they’re desperate there. 

So it’s not just China – but water’s the main thing that worries me about China. 

As I say [that] civil war would be a terrible thing in China, but it’d be a temporary setback, as would epidemics, as would economic setbacks, [and as would a] depression.  But China will come out of all that and keep going forward.  Now, I don’t anticipate war in China – even civil war – but I’m suggesting that if it happened, I don’t see it as the end of the story any more than it was the end of the story in the United States. 

Q: There’s a confluence of money flowing into and around China.  Do you believe that the United States, with all its current problems, will get left out of this powerful and important trend?

Rogers: Absolutely.

The U.S. dollar is a terribly flawed currency.  I’m trying to get all of my money out of U.S. dollars.  I don’t know why anybody would put money into the U.S. dollar, and by extension into the U.S., as we stand here today. The U.S. is probably the largest debtor nation the world has ever seen!

The United States’ foreign debts are increasing at the rate of $1 trillion U.S. dollars every 15 months.  U.S. foreign debt is over $13 trillion, and rising rapidly. It’s the official policy of the central bank to debase the currency. They’re trying to drive down the value of the dollar. 

Q: Is the Chinese Renminbi the next great "liquidity haven" if the U.S. dollar fails? Or do you see the Euro rising to the occasion?

Rogers: If it happens next week, the Euro is the only thing that can do it.  The Renminbi is a "blocked currency."  So it certainly cannot be anything but a blocked currency, until that changes. 

If it happens in 20 years it might be the Renminbi.  It’s the currency that’s big enough and sound enough that it could work.  I don’t think the Euro will be around in 20 years. 

So the only thing I can see – and, again, it’s theoretical because the Renminbi is a blocked currency – would be the Renminbi in 20 years. 

Someday it might be gold, but I don’t think gold would last very long. 

Q: What about the ASEAN Currency Unit that China, Japan and Korea are trying to put together … could that fill the bill?

Rogers: I don’t think it could do it because, first of all, it doesn’t exist. Second of all, it would take awhile for it to exist.  And third, most people wouldn’t use it, not for a while until it had been more [fully] tested and proven, and people had experience with it. 

That’s one of the advantages of the Euro at the moment.  It’s been around for a while and people can spell Euro.  They know what it is, they think, so they’ll use it.

Q: On a related note, oil and the dollar are obviously intertwined since oil is priced in dollars. Yet hostile OPEC members are already pricing oil in Euros or in a basket of other currencies. Will this continue to exacerbate the decline of an already historically weak greenback?

Rogers: Yes, that’s happening already.  The Iranians, the Venezuelans…America’s enemies certainly understand the problem with the dollar and they’re trying to exploit it.  Or [they are] trying to figure out how to exploit it. That’s going to continue. 

A hundred years ago, everything was priced in sterling.  Well, nothing’s priced in sterling anymore. The same thing’s going to happen to the dollar. 

The initial stages are happening already.  The Iranians already take Japanese yen for their oil.  The Venezuelans are starting to take Euros.  Like most of these things, it will accelerate as the problems get worse.

Q: Is what we’re going through now just another in a long line of crises, or potentially one of the most pivotal crises that we’ve seen in the last several hundred years when measured in terms of an economic future?

Rogers: I moved to Asia because my daughters are going to grow up in the 21st Century, and I think they’re better off in Asia than in the U.S.  They’re certainly better off at least knowing about Asia … knowing Mandarin.  No matter what happens to them, they certainly could spend their whole lives in the U.S., but I want them to have the exposure to – and the knowledge of – what’s happening in Asia because, in my view, Asia’s certainly the future. 

And I think that anybody born in 2003 or 2008 needs to understand Asia. They need to understand America, too, but I cannot give my wife Paige and our children that knowledge [of Asia while] living in New York, or anywhere in America.

I can only give them that that knowledge and skill living in Asia.  So here we are! 

Q: Where do you see Russia fitting into this as it comes onto the scene?

Rogers: I don’t.  Russia will continue to disintegrate.  The Soviet Union has already broken up into 15 countries.  Putin controls Petersburg, Moscow, a few airports, et cetera, but Russia never has been a homogeneous [nation] – I mean, in the Soviet Union there were 124 – the "official" number was 124 – ethnic, linguistic, religious, historic and national groups. 

It’s broken up into 15 states.  It’ll be 50 … it’ll be 100 [states] before it’s over.  Ukraine may break up next.  Who knows who’ll break up [after that]?  Maybe even parts of Russia. 

To the bulls who say I’m wrong, my rejoinder is this: Let me ask you about Chechnya.  The Russians have been trying to deal with Chechnya for 15 years with no success. 

Chechnya’s the size of Connecticut.  Chechnya has a million-and-a-half people.  If they can’t handle Chechnya, how is the Soviet Union, or Russia, going to handle these other places that are pulling away? 

There’s capitalism there, but it’s outlaw capitalism.  If you’re good with dealing with the Mafia, you can probably make a fortune, if you’re on the ground [there].  For the most part, they have a lot of natural resources, which has been great. 

They have huge foreign reserves, but they’re stripping the assets. 

They’re not reinvesting for the most part in productive capacity.  They’re stripping the assets.  You know, oil production has peaked in Russia, even though there could conceivably be gigantic amounts of oil there somewhere.  Nearly everything has peaked, because they have been stripping the assets, rather than reinvesting. 

Q: Do you see the stripping phenomenon in the Middle East, as well, or do you think that there’s staying power there, as some suggest?

Rogers: So far, they’re stripping.  Nobody’s put a lot of money into rebuilding their fields or finding major new reserves.  They may not be there.  We may have found all there are.  I don’t know. 

Saddam Hussein certainly didn’t.  And the Iraqis certainly are not now.  Saudi Arabia has announced for 20 years in a row that they have 260 billion barrels of oil in reserve.  It’s astonishing.  The figure never goes up and it never goes down.  They have produced dozens of millions – billions – of dollars of oil in that period of time. 

If you go to Saudi Arabia, you have to wonder: "How could this be?  How could it be that every year for 20 years in a row, you always have 260 billion barrels of oil in reserve?"  The Saudis say: "You either believe us or you don’t."

And that’s the end of the conversation. 

Now, I’m not a geologist, and even if I were, I’ve never been to the Saudi oil fields, because they don’t let people go there.  But I know that every oil company in the world has declining reserves. 

Every oil country in the world has declining reserves except Saudi Arabia.  And I know that every oil company has declining reserves.  So unless somebody discovers a lot of oil very quickly in very accessible areas, the surprise is going to be how high the price stays, and how high it goes. 

Now the Middle Easterners don’t seem to be doing much.  Libya has said: "Well, we’ll bring back in the oil companies."  They’re starting to try. Most countries nationalize their oil companies over various periods.  And they have not proven to have the expertise or even the drive to do something, except sort of exploit the assets, strip the assets. 

So even if the oil is there, it’s going to take awhile [to access commercially].  From what we read, Saudi Arabia’s been pumping a lot of water into its fields, which shortens the lives, so I mean, I don’t know.  Because as I say, they don’t let you go there.  But don’t sell your oil. 

We’ve advised our readers to be long oil, long resources and long commodities in general. The equation was very simple: The world is depleting resources roughly four times faster than they’re being replaced. And, with oil in particular, unless you’ve got a few million years to wait, Mother Nature’s not making [any more] any time soon. 

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Q: What do you say to the oil bears?

Rogers: There are a lot of experts out there who did not see this coming, and now claim to be even bigger experts, and have been wrong year after year after year. 

For example, there’s a very successful mutual fund manager [who] totally missed the commodities boom.  After having missed it, it’s like most things. He says: "Let’s just ignore it." Then [he] laughed at it. Then wrote papers explaining why it’s wrong.  Now [he] says nothing. 

Well, I know he’s buying!

That’s usually what happens with people.  They turn around and say: "Oh, I thought of it!"   You know?  "I knew this was coming."  He has told people for years that there’s an infinite supply of oil. 

But unless he can show us where all this oil is and where it’s replenishing itself in the meantime, the world is running out.  If it’s true, I would like for him to show us where the oil is, because I want to buy it, too, you know?  I want to go in and buy all I can.  So far, he’s just changed the subject.  Doesn’t mention it anymore. 

Q: Before I close, given the successes that you’ve had – and continue to have – in your life, what advice do you have for keeping sharp mentally and for living the kind of life you want to live?

Rogers: Follow your own passions.  Whatever they are, no matter how ludicrous they may be, follow your own passions. 

People who follow their passions, don’t get up and go to work every day.  They can hardly wait to wake up, so they can have fun.  They’re truly excited about what they’re doing.  They never go to work. 

[Editor's Note: This is the second installment of a two-part series based on Money Morning Investing Director Keith Fitz-Gerald's interview with investing guru Jim Rogers. In Part 1, Jim Rogers predicted more pain for the U.S. dollar and the possible failure of the U.S. central bank. To learn more about an offer that includes a free copy of Rogers' new bestseller, "A Bull in China," please click here].

News and Related Story Notes:

• Money Morning Interview:
  Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve.

• Money Morning Investment Research Report:
  (Jimmy) Rogers and Me: The Latest Wisdom From a Global Investing Guru.
• Wikipedia:
  Singapore.

• Wikipedia:
  Asian Currency Unit.

• Wikipedia:
  Chinese Renminbi (yuan).

• Wikipedia:
  The Chechen Republic (Chechnya).

• Wikipedia:
  U.S. Civil War.

• Money Morning Investment Travelogue:
  Snapshot From Singapore: In This Asian Tiger, Tiger Attacks Have Given Way to Construction and Capitalism.

• Money Morning Economic Analysis:
  As Sovereign Wealth Funds Flourish, Russia Looks to Change the Playing Field.

• Investopedia:
  Blocked Currency.

• Wikipedia:
  Mandarin.

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A longtime investor in Japan who is familiar with how closely the companies there work with their government "minders" recently asked me if the same thing was true in China.

It’s absolutely true, but the level of direction – rather than cooperation – makes Japan positively appear laissez-faire by comparison.

Consider the 2003 book entitled "Practical Manual for Party Propaganda Work" published by Red Flag Publishing House. It’s a thinly veiled policy statement aimed at doing business with foreigners and serves as the de facto guide to how China’s Communist Party wants things done when it comes to presenting China in a most-favorable light.

Here’s a summary of the advice as assembled by noted China analyst David Cowling. Not only does it speak volumes about what China wants presented to the world; it also details what it wants achieved.

Consider these tips:

• Speak simply, [even] oversimplify if necessary. Deliver a message easiest for the foreigner to receive. This will vary according to what country or region they are from.
• Never use slogans. Propaganda with foreigners should be less direct than domestic propaganda. Present facts, let them draw their own conclusions.
• Arrange interviews for friendly foreign journalists.
• Through Xinhua [the state-run news service] if appropriate, arrange for articles by Chinese to be published by foreign media.
• When scheduling tour groups, strive to arrange a schedule that will give the best impression of China. When these people return to their countries, they can help form a positive impression of China in the minds of the people of the world.
• Attend to programs shown on the television systems of hotels frequented by foreigners so that a positive impression of China will be given.
• Arrange for tour guides and interpreters to subscribe to PRC foreign language publications.

This all sounds pretty innocuous until you realize the forward is by none other than Hu Jintao – as in China President Hu Jintao.

In Western terms, this would be like President George Bush issuing a national press directive regarding what can and can’t be reported – with guidelines for the content that actually makes it into print or out onto the air.

On the surface, it’s enough to make a free-press society foam at the mouth, but to longtime Asian observers like ourselves, it’s simply a roadmap – for global success.

[In an interesting side note, at a time when there's more of a need for global communication and understanding than ever before, every country in the world except one is either cutting back on - or ending outright - their government-sponsored international shortwave broadcasts. That includes Great Britain's vaunted BBC and the U.S.A's Voice of America.  The one exception is China, which is actually boosting its broadcasts of news, documentaries and propaganda to the rest of the world.]

All of this – from the directives to the boosted world band radio broadcasts – provides a clear and intimate look at how China intends to do things. In one sense, it’s a game plan focused on victory – measured as global economic success. In another, it’s a lot like a poker "tell" in that it reveals a great deal about China’s intentions and future courses of action.

And, as is always the case when it comes to investing, that inside insight can lead to significant profits at an acceptable level of risk if you search out companies positioned to profit "because of" China.

Consider this point: Many Chinese, including leading party members, want a more democratic society. Yet, they fear that modernization will spark social unrest.

Therefore, they place great emphasis as a nation on controlled growth, which to us suggests that infrastructure investments are a solid play. The reason: Having a solid infrastructure is one of the easiest ways to prevent the social strife that has destroyed so many civilizations throughout history.

The trick is that many companies inside China are in the wrong place at the wrong time. Despite their rush to get a stock listing and their seemingly unstoppable potential, they’re actually merely biding time before they are plowed under by more-modern, better-capitalized and better-managed overseas rivals.

Yet there are other firms – such as Huaneng Power International Inc. (HNP), China Southern Airlines Ltd. (ZNH), Vale, formerly Companhia Vale do Rio (RIO), and ABB Ltd. (ABB) that stand at the crossroads of potentially lucrative government contracts that will provide these firms with solid growth for years to come.

Furthermore, by virtue of their involvement with key elements of China’s infrastructure, these firms will either drive additional growth, or benefit directly from it, creating further investment gains from the raging growth created by an emerging middle class that’s 300 million strong – and growing.

And that brings us full circle.

In its attempt to control state media and set the standard for external communication, China’s government is telegraphing where it intends to take things.

Not surprisingly, that’s just where we want to be as investors.

And in the weeks and months to come, we’ll take you there.

News and Related Story Links:

• Money Morning Investment Analysis:
  China’s Economy Is 40% Smaller Than Thought – So What!

• Money Morning News:
  Chinese Insurance Companies Bulk up on Infrastructure Investments.