The Death of the Euro

Thursday, May 13, 2010
By Paul Martin

Europe has given up on the Euro, says Jim Rogers

INTERNATIONAL. Legendary global investor and chairman of Singapore-based Rogers Holdings, Jim Rogers said Europe’s bailout of indebted nations to overcome the sovereign-debt crisis is just “another nail in the coffin” for the euro as higher spending increases the region’s debt.

Speaking in a Bloomberg interview in Singapore on Tuesday, Rogers said “I was stunned,” adding “This means that they’ve given up on the euro, they don’t particularly care if they have a sound currency, you have all these countries spending money they don’t have and it’s now going to continue.”

The 16-nation currency weakened for a second day against the dollar after rallying as much as 2.7% on Monday, when the governments of the 16 euro nations agreed to make loans of as much as €750 billion (U$962 billion) available to countries under attack from speculators and the European Central Bank pledged to intervene in government securities markets.

Greece’s budget deficit of 13.6% of gross domestic product is the second-highest in the euro zone after Ireland’s 14.3%. As part of the bailout plan, Spain and Portugal also pledged deeper deficit reductions than previously planned.

All paper currencies are being “debased,” with the euro currency union at risk of being “dissolved,” Rogers said, adding that he continues to own the dollar, the Swiss franc, the Japanese yen and the euro.

“It’s a political currency and nobody is minding the economics behind the necessities to have a strong currency,” Rogers said. “I’m afraid it’s going to dissolve. They’re throwing more money at the problem and it’s going to make things worse down the road.”

Economic growth in the nations that share the euro will lag behind the U.S. by almost 1.5 percentage points next year, Bloomberg surveys of economists show.

Investors should instead buy precious metals including gold or currencies of countries that have large natural resources, Rogers said. Among other asset classes, he favors agricultural commodities as the best bet for the next decade as well as silver because prices haven’t rallied.

Speaking to Bloomberg on March 8, Rogers had suggested that bankruptcy for Greece would benefit the euro. “The Euro will shoot through the roof,” he said adding that letting Greece fail” will show that EU are serious about fiscal responsibility.”

The only way to build an economy long term is to save and invest while building infrastructure and productivity. Nothing else has ever worked, Rogers said, adding that the idea of economies built on consumerism has been discredited many times.

The future has always belonged to the people who’ve got the assets — the people who’ve built up savings and investing.

Rogers views most Western currencies with caution as they are “very suspect.” He sees weakness all around because of the ‘liquidity seeking return’ mentality in which stock markets are buoyed by easy money.

The legendary investor believes “the Euro will probably break up in the next 15 to 20 years” because currency unions do not survive and they haven’t in the past.

Rogers concluded that there is going to be another recession, probably in 2012., “Yes we’re going to have another recession, I guarantee you. Certainly by 2012, it’s time for another recession,” he said.

While he doesn’t call this a double dip, he does say that “the next time it’s going to be worse because we’ve shot all of our bullets.” With zero interest rates and huge government deficits all around, policy options are definitely more limited.

Rogers has spent a career being one step ahead of mainstream investment thinking. He rose to fame after co-founding the now-closed Quantum Fund with George Soros nearly four decades ago. During his ten years with the fund, the portfolio gained more than 4,000%, while the S&P rose less than 50%.

The Quantum Fund shot to fame after making more than US$1 billion betting against the British Pound in early 1990s.

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