Friday, June 10, 2011

Jim Rogers: It's Only Going to Get Worse

CNBC's Maria Bartiromo interviewed Jim Rogers, on Wednesday. This is one of the best Rogers outlooks I have seen. His thinking is pretty much across the board in sync with mine.

However, I am not sure why he is holding any Chinese stocks. With the money tightening that has been going on in China, the stock market there is about to collapse.

Further, his focus on QE2 is a bit off. Most QE2 money is not in the system, it is in excess reserves. Bernanke is running a much more complex game than QE2. Rogers is correct that Bernanke is a money printer, but QE2 has always looked like a diversion to me. You need to watch the various reserve numbers such as required and excess reserves, along with money supply numbers to get an accurate picture of what is going on in the economy.

And, it looks like money supply is cranking up rather than slowing down. If that remains the case, on a short-term basis, Rogers could be burned in his bank short, really bad. And, it is very dangerous to be long the dollar, even for a short-term trade.


  1. Even the folks from NBC are catching on now. The economy is not so rosy after all.

  2. While I agree that excess reserves have increased by the amount of QE1 and QE2, but the original transaction was to buy treasury notes. The government promptly pissed all that borrowed money away, so it must have have some velocity on the way to the banks' reserve entries. So, it would still add to inflation, right?

    Bernanke is like a kid playing with the controls on a nuclear weapon. :(

  3. If the money ends up as part of excess reserves, for every dollar put into the system another dollar is drained,

  4. I get that, but there's a velocity of the money from the time it enters to the time it's removed. QE2, for instance, was injected as government loans from thin air. The government spent that money, so there was at least some velocity of the injected money. Doesn't that create inflation (although not as much as it would if the money stayed in circulation)?

  5. First "velocity" of money is term that has no sepearate/independent meaning outside of being a placer in an equation (See Rothbard). It's a pretty useless concept

    As for them both circulating for a period, that is clearly not the case. As soon as the seller of T-bills (and it is not the Treasury--the Fed doesn't buy directly from the Treasury)deposits the funds at a bank, the bank puts them in excess reserves. This is a bit of a simplification, there might be some transfers between banks, but there is no time period when the excess reserves are floating around in the system and then end up as excess reserves.

  6. I apologize in advance for my ignorance, but I thought the whole controversial issue with QE2 was that the Fed WAS purchasing T-bills from the Treasury directly -- an unprecedented move. I thought this was spurred by the inability to sell the notes to China or any other "investor."

  7. "Most QE2 money is not in the system,"

    I thought I read awhile back you said some of it was getting out there, ... what does "most" mean, percentage wise?


  8. I'm not sure about that stuff about dollar longs in the short term.

    If that housing double-dip deepens, and it likely will, there will be more of a correction in commodities...