Speaking with Forbes’ Russell Flannery on Tuesday, Jim Rogers, the co-founder of the Quantum Fund and author of several financial books, offered his latest musings about the current state of affairs on the inflation front.
Not surprisingly, Rogers, who holds the moniker, commodities king, doesn’t agree with Federal Reserve chairman Ben Bernanke’s latest comments concerning inflation.
Bernanke said during his Atlanta speech on Monday, “I think the increase in inflation will be transitory. Our expectation at this point is that in the medium term inflation, if anything, will be a bit low.”
In a question-and-answer segment following Bernanke’s speech, the Fed chairman contends that soaring commodities prices stem from temporary “supply and demand conditions.”
In partial concurrence with Bernanke’s latest statements in Atlanta, Rogers, too, expects commodities prices to rise further due to supply-and-demand forces, driven mostly by Asia’s strongly growing 2-billion-plus consumer class and relatively constrained supplies of resources.
“All central banks are up against the fact that we do have a commodity boom market, and even if they didn’t print money, the prices of things are going to continue to go much, much higher,” Rogers asserted. “So forget the printing of money, for the moment, we’re going to have more inflation.”
But where he differed from Bernanke’s publicly held denial of the central bank’s role in the rapid rise of commodities prices, Rogers pointed his finger at the Fed and its unstated policy actions of debasing the value of the dollar.
It should be noted that the position of the Fed regarding the dollar’s relative value against other fiat currencies, gold and commodities remains a deep-rooted taboo subject following the official unpegging of the world’s premier currency from gold in 1971. The forthright Rogers is unencumbered, however, by that constraint.
“But with the U.S. pouring gasoline over the fire, it’s going to be much more difficult for anybody to stop inflation. America is fanning it as best as it can, and it’s going to get worse,” Rogers warned.
When asked about the effects of inflation in China, the 68-year-old Rogers reports that consumer prices are also soaring in the People’s Republic. He said the inflation problem in China is rooted in the tug-o-war between the Fed and the Central Bank of China over the renminbi-dollar cross in the Forex, forcing Beijing to create fresh Chinese currency to absorb excess dollars created by the Fed. Otherwise, the renminbi would rise too high and too fast against the dollar and other significant consuming nations, choking off the world’s largest exporter.
Moreover, because the renminbi’s convertibility limitations greatly inhibit currency outflows to foreign assets, China’s rapidly increasing monetary base has contained its burgeoning money supply within the country’s borders.
“No matter how much the People’s Bank of China might resist, the U.S. central bank is much, much, much bigger, and has got a lot more money,” Rogers explained.
Inflation. “It’s here. It’s serious. It’s going to get worse,” he continued. “Part of it comes from China because they’ve got the block on currency and the money’s trapped in China. It has to go into something so it goes into furniture and property and real goods and whatever else. So that’s part of the problem.”
Rogers, among many other notable financial figures, has noted that the U.S. has become the world’s principal exporter of inflation, which, over time, eventually comes back to the U.S. in the form of higher import prices, especially from export juggernaut China—whose products routinely are found in U.S. big-box chain stores.
In fact, Bill Simon, CEO of Wal-Mart U.S. (NYSE: WMT), warned consumers only last week that inflation is “going to be serious” in the coming few months. Simon told the USA TODAY editorial staff, “We’re seeing cost increases starting to come through at a pretty rapid rate.” Simon hints that Wal-Mart won’t absorb the higher costs.
So what is an investor to do about protecting his wealth from a declining dollar?
Rogers has repeatedly warned of the dangers of holding long-term U.S. treasuries and any asset denominated in U.S. dollars. Instead, Rogers recommended taking a position in commodities, specifically those which remain “depressed.”
“I try to find the ones that are still depressed like silver and natural gas or rice, suggested Rogers. “Even though it’s been booming, silver is still 30%-40% below its all-time high. If I’m right, agriculture prices are going to go much, much higher.”
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