Tuesday, October 23, 2007

Jim Rogers Shifts All Assets Out of Dollar to Buy Yuan

I´m not sure if the Chinese are happy with comments like this...... But there is little doubt that the Yuan is significantly undervalued. I recommend to visit Brad Setser´s Blog to read more about this topic. Lets be clear a rise of the Yuan will change the landscape for lots of regions and will have big implications for all asset classes for years to come. In the meantime the Chinese have to deal with lots of hot money that is chasing Chinese assets.

Ich kann mir vorstellen das die chinesischen Offiziellen solche Kommenate nicht gerne hören.... Aber es besteht kaum ein Zweifel das der Yuan deutlich unterbewertet ist. Mehr Expertise zu diesem Thema gibt es regelmäßig auf Brad Setser´s Blog. Ein schneller Anstieg dürfte zu einigen Verwerfungen führen und dürfte kaum eine Region oder Anlageklasse unbeeindruckt lassen. In der Zwischenzeit müssen die Chinesen damit leben das eine Menge "Hot Money" chinesche Vermögenswerte regelrecht jagt .

Jim Rogers Shifts Assets Out of Dollar to Buy Yuan Oct. 24 (Bloomberg) -- Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan because the Federal Reserve has eroded the value of the U.S. currency.

``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

Rogers, delivering a presentation late yesterday at an investors' meeting organized by ABN Amro Markets in Amsterdam, said he expects the Chinese currency to quadruple in the next decade and that he is holding on to commodities such as platinum, gold, silver and palladium.

The dollar has dropped against all the 16 most actively traded currencies except the Mexican peso this year as slowing growth and the first interest-rate reduction since 2003 last month dimmed the allure of dollar-denominated assets.

Since the Fed lowered U.S. interest rates on Sept. 18, the first cut in four years, the dollar has fallen 2.8 percent against the euro and touched a record low yesterday. Gold rose to a 27-year high and platinum jumped to a record.

``It's the official policy of the central bank and the U.S. to debase the currency,'' said Rogers, a former partner of George Soros.

Reserve Currency
``The U.S. dollar is and has been the world's reserve currency, the world's medium of exchange,'' he said. ``That's in the process of changing. The pound sterling, which used to be the world's reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world's reserve currency.''

The Chinese currency, known as the renminbi, or yuan, is ``the best currency to buy right now,'' Rogers said. ``I don't see how one can really lose on the renminbi in the next decade or so. It's gotta go. It's gotta triple. It's gotta quadruple.''

> Here is short term outlook from Morgans Stanley on this topic Fasten the Seatbelt

> Hier ein aktueller Kommentar von Morgan Stanley zu diesem Thema Fasten the Seatbelt

China has followed a gradualist approach. In 2006, the renminbi appreciated against the US dollar by 3.4% but against the currency basket (i.e., the NEER) by only about 0.8%. As of last Friday, the cumulative appreciation against the US dollar so far this year was 4%, but against the currency basket only about 1.4%

Since I expect the pace of renminbi appreciation against the US dollar to accelerate markedly for the remainder of the year, I endorse our FX strategy team’s forecast that the USD/CNY rate will reach 7.30 by end-December (see FX Impulse, October 18, 2007). This year-end target implies about 2.7% appreciation of the renminbi against the US dollar for the remainder of the year and slightly less than 7% for 2007 as a whole.

Despite this seemingly aggressive USD/CNY forecast, I estimate – based on our FX strategy team’s forecasts of the exchange rates for China’s major trading partners – the cumulative appreciation of renminbi NEER for 2007 will be only about 3.9%

The yuan strengthened past 7.5 to the dollar today for the first since the central bank ended a fixed exchange rate in July 2005. The currency has gained 10.5 percent since the dollar link was abandoned.

China, growing faster than any other major economy, is ``going to be the most important country in the 21st century,'' he said. China's gross domestic product expanded 11.9 percent in the second quarter, and analysts surveyed by Bloomberg estimate the economy grew by 11.5 percent in the three months to Sept. 30.

> I recommend to read Is the credit squeeze a prelude to a China crash? from John Plender via the FT. I suggest to read the entire link.

> Hier ein weniger bullische Meinung von John Plender Is the credit squeeze a prelude to a China crash? via der FT. Ich empfehle den kompletten Link zu lesen.
The backcloth has invariably been a shift in global power whereby the growth of an immature creditor country wedded to protectionist trade policy has contributed to imbalances of savings and investment. Attempts to manage the currency volatility arising from imbalances have derailed monetary policy and created bubbles in asset markets, leading to crashes and financial distress.

Rogers also is buying Swiss francs and Japanese yen, which he said have been ``pounded down'' because of the so-called carry trades.

Unwinding Carry Trades
In the carry trade, investors borrow in countries with low interest rates, such as Japan, and invest the proceeds where rates are higher. Japan's benchmark overnight lending rate is 0.5 percent, compared with 6.5 percent in Australia and 8.25 percent in New Zealand.

The carry trades in yen and francs will ``unwind someday,'' which will send the currencies ``straight up,'' Rogers said. ``I'm buying the yen.''

The bull markets in bonds and stocks are ``over,'' he said. ``Bonds will be a terrible place to be for many years and will in fact be going down for many years.''

Rogers said he remains bullish on commodities because ``that's where the big fortunes are going to be made in the world in the next five, or 10 or 15 years. The current bull market is going to last until sometime between 2014 and 2022.''

Commodity Prices
Commodity prices have surged as demand for raw materials, especially from China, rose faster than producers were able to increase output. Agricultural prices have led recent gains, including a record high for wheat last month and a three-year high in soybeans.

``The number of hectares devoted to wheat farming has been declining for 30 years, the inventory levels of food are at the lowest level since 1972,'' Rogers said. ``Suppose we start having droughts again. God knows how high the price of agriculture is going to go, so that's where I'm putting more of my money now than in other things.''

He added, ``I think I'm going to make more money in agriculture than I make in precious metals.''

Platinum, gold, silver and palladium will ``be much, much higher during the course of the bull market,'' he said.

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16 Comments:

Blogger jmf said...


‘No risk’ of fire sale at Rhinebridge


Rhinebridge will not be forced into a fire sale of its $2bn or so of assets after stopping repayments of its commercial paper, according to receivers appointed on Tuesday to the three-month old SIV. Rhinebridge was a sister to the Rhineland conduit used to fund German bank IKB until its inability to raise short-term debt forced other German banks to organise a rescue. Nick Dargan, receiver at Deloitte, said there was no risk of forced sales of assets, with other options including a sale of the entire portfolio, selling it off in chunks or keeping some of the assets until maturity. Elsewhere, the WSJ reports that SIVs face mounting problems as agencies continue to lower ratings on a range of subprime-backed securities.

12:08 AM  
Anonymous Anonymous said...

...he is holding on to commodities such as platinum, gold, silver and palladium.

Interessant. He seems to favor commodities that are...relatively less useful/in demand, when you think about industry, and relatively more attractive to 'gold bugs' and the like, i.e. people who are innately suspicious about fiat currencies. But I guess this is the reason he is a dollar bear -- debasement of a fiat currency.

eh

12:08 AM  
Blogger jmf said...


GE’s Shenzhen hopes dashed


China’s soaring equity markets have dashed General Electric’s hopes of acquiring a 7 per cent stake in Shenzhen Development Bank after the bank’s board terminated a share sale agreement signed two years ago. In October 2005, GE agreed to pay about $100m, or Rmb5.25 a share, for the stake in SDB, a mid-tier lender controlled by private equity group TPG. SDB could not issue new shares until it completed a shareholding reform mandated by the China Securities Regulatory Commission. SDB did not complete the reform until June of this year, by which time the bank’s shares were trading at Rmb30. GE and SDB could not agree on a new price in accordance with new rules from the regulator that stakes in listed companies cannot be sold at more than a 10 per cent discount to their market value.

12:11 AM  
Blogger jmf said...

Moin Eh,

i have bought his book (one of my very rare ones) several years ago and this guy is very consistent in his views.

He was probably one of the first commodity bulls. And he is indeed more a soft commodity bull and thinks that gold will underperform on a relative basis.

But that would be ok for me :-)

12:15 AM  
Blogger jmf said...


Merrill to Increase Writedowns by $2.5 Billion, N.Y. Times Says

12:41 AM  
Blogger jmf said...


Is the credit squeeze a prelude to a China crash?


The backcloth has invariably been a shift in global power whereby the growth of an immature creditor country wedded to protectionist trade policy has contributed to imbalances of savings and investment. Attempts to manage the currency volatility arising from imbalances have derailed monetary policy and created bubbles in asset markets, leading to crashes and financial distress.

1:17 AM  
Anonymous Anonymous said...

The Wall Street Journal writes that owners of structured investment vehicles need to find investors for $100 billion in debt that comes due in the next few months.

J-M,

Do you know anyone with $100 billion or so to spare?

eh

2:00 AM  
Blogger jmf said...

Moin,

no wonder why Paulson & Co are so busy...

I´m pretty close to short the N100/NDX. But so far the momentum is too strong

Have you read this?

"Apple has accounted for 34% of the entire Nasdaq-100 gain year-to-date."

I assume when you add GOOG, RIMM & AMZN you will get pretty close to the entire gain.....

Not really broad based and definitely not healthy...

2:11 AM  
Anonymous Anonymous said...

Regarding AAPL: I'm surprised at the figure, aber gelegentlich you do see articles about how just a few stocks are actually contributing to the rise of QQQQ:

I assume when you add GOOG, RIMM & AMZN you will get pretty close to the entire gain.....

Keine Frage.

eh

2:28 AM  
Blogger jmf said...

More Fed speak from the ECB.....


Gonzalez-Paramo Says ECB May Look Through Jump in Inflation


European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said the bank will look through the jump in inflation if it is driven by previous oil- price movements.

``If it remains a base effect which doesn't lead to inflation risks materializing, monetary policy won't have to take it into consideration,'' Gonzalez-Paramo said in Spanish in a Bloomberg Television interview in Madrid today. ``A mechanical increase in inflation above 2 percent is not sufficient reason to change our assessment of risks to price stability.''

Inflation jumped to 2.1 percent in September, breaching the ECB's 2 percent limit for the first time in more than a year. The oil price fell below $55 a barrel toward the end of 2006 before soaring again this year to above $90.

Gonzalez-Paramo's comments suggest the ECB may not rush to raise interest rates after it shelved a planned increase in September to assess the economic impact of rising credit costs sparked by the U.S. housing slump. Gonzalez-Paramo said credit- market turmoil has tightened monetary conditions while the euro's appreciation is also damping price pressures.

2:36 AM  
Blogger jmf said...

Ambac swings to loss on credit derivatives exposure

Ambac Financial Group Inc. s[: abk] said Wednesday that it swung to a third-quarter net loss of $360.6 million, or $3.51 a share, from a profit of $213.5 million, or $1.98 a share, a year earlier. Ambac said the loss was due to the previously-announced unrealized loss on credit derivatives exposure of $743.4 million, which stemmed from the drop in market prices of collateralized debt obligations. Excluding the impact of this loss, operating earnings slipped 2% to $1.88 a share, matching analyst expectations according to a survey by Thomson Financial.

LOL!!!!! Excluding 800 mio......


The group said it has seen improved overall market conditions in most asset classes of its core financial guarantee product, despite the turmoil in structured finance markets.

And with numbers like this they propably have to exclude a lot more in the coming years......

Direct sub-prime RMBS exposure totals $8.8 billion; $1.6 billion is 2006/07
vintage

CDO of ABS with >25% MBS exposure totals $29.2 billion; $26.2 billion - CDO of high-grade and $3 billion mezzanine

No wonder
MBIA, Ambac Risk Trades at Junk Levels on Subprime Defaults



Nice to see that they are still able to insure billions of junk with minimal capital.....

3:23 AM  
Blogger jmf said...

Update on Merrill Lynch

close to $8 billion.....

Stock is unchanged pre market.

Nice to see a relieve bounce on a $8 billion charge/write off :-)

4:48 AM  
Blogger jmf said...


Buffett Says Investors Should Be `Cautious' on China

4:55 AM  
Anonymous Anonymous said...

great trade by Rogers , Yuan's still down by 70% from 10-years ago vs. $

9:28 AM  
Anonymous traderboy said...

so how do i go about buying some Yuan?

11:37 AM  
Anonymous Anonymous said...

Im trading CNY through oanda.

http://www.oanda.com

8:35 AM  

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