Fed cut will trigger recession in the US: Jim Rogers

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Investment Guru Jim Rogers said the Fed cut was a serious mistake, which will lead to higher inflation in the US. The dollar is likely to depreciate further. "Higher commodity prices and weak dollar may trigger a recession in the US."

 

Rogers is bullish on gold and likes agricultural commodities. " Sugar looks interesting and will rise further from here. Agricultural commodities will be the best asset class going forward."

 

However, he is not bullish on emerging markets except China.

Excerpts from the exclusive interview with Jim Rogers:

Q: What do you make of the Fed rate cut and what kind of impact he saw it having across asset classes?

A: Fed rate cut in my view is a serious mistake, it is going to lead to more inflation in the US and higher long term interest rates. The bonds have already started going down in the US, commodities have been sky rocketing since and it is going to lead to weakening dollar which of course means more inflation and higher interest rates. Also this means a worse recession in the US rather than a better economic view.

Q: What concerns you most about what they have done this time and why would that lead to a recession because many analysts have made the point that perhaps this prevented the problem if not stemmed it completely?

A: What concerns me the most is the idiocy of the people in the Federal Reserve that they do not understand the ramifications of what they are doing. They have sent a loud signal to the world that they do not care about the value of the US dollar and you are going to see the US dollar's decline. It may mean that some people will be much better off for a short period of time though bonds are going down on this action.

Commodities are going up, the dollar is going down, all this means a worse recession in the end since stock market rallies for a week or two, and some stockbrokers feel that the rest of the economy and the world is going to suffer worse.

Q: Where do you think the dollar might be headed in the near to medium-term?

A: US dollar is going to go down for years to come, whether you should buy it or sell it. This is world's worst market time and I am the world's worst short-term trader. The US dollar has even been going down against the rupee, so nearly everything is going up against the US dollar.

Q: The reaction globally has almost been an unshackling by many markets, is the market sassing up that they are getting into an easy liquidity situation or is something else happening?

A: We have had massive amounts of liquidity thrown into the world markets in the past six weeks. That has not started to dry up, nobody is pulling liquidity out of the system, that is one reason, commodities are going up right now.The US dollar and bonds are going down because this massive liquidity is going to cause serious dislocations and the markets are reacting to it. Everybody knows this except the pathetic clowns who are in the Federal Reserve in the United States.

Q: You track the commodity space as well and the biggest outperformer, the biggest star has been what has been happening with gold, how would you play that commodity now?

A: I own gold, I continue to own gold, I expect to buy more gold. Gold will double during the course of the bull market, which has years to go. You are going to make more money in agriculture as far as I am concerned but gold is certainly a commodity worth owning and I do own it and plan to buy more.

Q: By the end of the year, where would you see gold prices and base metal prices as well at that?

A: I am not smart enough to know where the gold or base metals prices will be by the end of the year. I just know I own it, and when it will react I will buy more and I do not plan to sell gold for many many years.

Q: There has been quite a breakout in many emerging markets in Asia as well, in fact, people seem to be relooking that risk aversion theory and saying that maybe there is more growth to buy, what have you been doing with your Asia and emerging market positions because you have not been a big bull on that space?

A: I have sold all my emerging markets except China, I still hold a large position in China. When I find things to buy in China, I buy more but I sold the rest of them because most of them are over exploited by people racing around the world looking for emerging markets, that is usually a time to sell. I hope I am smart enough to buy them back if and when there is a reaction.

Q: From where we stand right now, what do you expect to see by way of policy action and what would you be most overweight on as an asset class?

A: I have been most over weight on commodities, hard assets; I expect to see more injections of liquidity into the system by the American Central Bank. As I said it is a mistake but they do not understand what they are doing and I would expect to be long on foreign currencies not the US dollar because those two asset classes are going to be terrific. One of the best investments is owning the Chinese renminbi for instance. That is an investment and I do not see how you can lose money, of course things can always go wrong but that is one of the assets that I think I know is going to go up for years to come likewise the commodities, likewise the Japanese Yen.

Q: One final word on one agri commodity that moved very well in India, sugar seems to be seeing interest again, globally though are you seeing signs of recovery and is that one commodity from the agri space that you would want to buy?

A: Sugar, I expect, will be one of the most interesting commodities going forward, it had a huge run then it settled down by 50%. I suspect it is time for it to go up again. This week I re-examined sugar to see if I should add to my positions in sugar though cotton and coffee will probably do well. Agriculture is the best place to be as far as I am concerned, agriculture commodities is one of the very best asset classes in the world in September 2007 and going forward.