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Jim Rogers Backs the Buck

The investor says the short-the-dollar trade is too crowded, but only for the moment.

Investment biker Jim Rogers

believes U.S. assets of all sorts are headed for a fall -- but he warns that the path won't be straight down.

"I implore everyone who reads you to open a foreign bank account or get their money out of the U.S. dollar," Rogers, the investment guru and noted dollar bear, said in an interview this week. "But you might want to wait until after the rally."

Rogers hasn't veered from his belief that the U.S. dollar is in a bear market, but he believes a rally is afoot.

"Everyone is suddenly now short the U.S. dollar," he says. "The boat is too full on one side, and in my experience, that means the opposite is going to happen."

He declined to put a time frame on a greenback rally or to name what might trigger it, but he suggests selling into it when it comes. "Let's just say Bush decides to pull the troops out of Iraq tomorrow," says Rogers. "That might do it."

Rogers is famous for co-founding the Quantum Fund in 1973 with George Soros. The hedge fund posted a 4,000% gain in the ensuing decade. Since then, he has traveled, taught and written several books. His next, titled "A Bull In China," is scheduled for publication in December.

The dollar has been falling since 2002 but for a brief rally in 2005. The trade-weighted dollar is down 35% from its 2002 peak. Recently the greenback's decline has become more pronounced as the U.S. economy slowed amid the housing market decline, and the Federal Reserve slashed interest rates despite rising prices of commodities, energy and food.

Today, the dollar sits at a 31 year low versus the Canadian dollar, of all things, and a 10-year low versus the Australian dollar. Both those currencies are strong on the back of rising commodity prices and global infrastructure growth. Gold, often considered a hedge against inflation, is at a fresh 28 year high of $745 an ounce.

Many claim the dollar's weakness is helping offset a dropoff in U.S. economic demand that's come from a recession in the housing market. Goods priced in dollars are cheaper in Europe or Australia, and manufacturing in the U.S. becomes more attractive for companies that export goods. That helps preserve jobs in the U.S.

But a debased currency is a hefty price to pay for growth, and not an easily reversible one, says Rogers. It breeds inflation and weak purchasing power, which ultimately undermines any short-term boost in growth. He reiterated his belief that the U.S. dollar is bound for a decline similar to the British pound's 50% decline in the early 1980s.

The government reported Thursday that the trade deficit fell $1.4 billion in August to $57.6 billion. The drop marks another notch down from the deficit's $68.6 billion record in August of last year. The rebalancing comes not from imports, but from rising exports, which will add about 0.66% to the measure of third quarter GDP growth, according to Brian Bethune, U.S. economist at Global Insight.

Rogers believes Federal Reserve was wrong to slash the fed funds rate by 50 basis points in September, and that exuberant money-printing will be a key catalyst for the long-term demise of the dollar.

"The fool went and cut interest rates with the stock market down 6%," he says of Fed Chairman Ben Bernanke. "What's he going to do when stocks are down 30%?"

He says Bernanke and the Fed are ignoring obvious evidence of inflation in food, education and entertainment prices.

"This is a man who's made a career learning about printing money and now we've handed him the printing press," he says, likening Bernanke to his predecessor Alan Greenspan in their penchant for saving the markets by cutting rates and inflating asset bubbles.

Rogers is a believer in the global growth story, particularly China's. He said he's sold out of all his emerging market investments except for his investments in China, claiming the other emerging nations have "been exploited by 20,000 MBAs running around looking for markets."

And, while he acknowledged it is not easy for the average American to just go and buy assets in China's currency, the renminbi, the more accessible Hong Kong stock market lists many of China's same companies but at lower multiples than they trade in Shanghai -- a virtual bargain.

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He suggests investors look into exchange-traded funds as well. These include

iShares FTSE/Xinhua China 25 Index

(FXI) - Get iShares China Large-Cap ETF Report

, the

PowerShares Golden Dragon Halter USX China

(PGJ) - Get Invesco Golden Dragon China ETF Report

, or the

China Fund

(CHN) - Get China Fund Inc Report

. The iShares FTSE/Xinhua exchange-traded fund is up 266% from inception in 2004.

Rogers hopes he'll be able to pass down his Chinese stocks to his 4-year-old daughter, but adds he may be forced to sell.

"If a bubble develops in China in the next year or two, I'll have to sell because bubbles end badly," says Rogers, pointing to Japan, where stocks remain well below their levels of over a decade ago. But he believes Chinese stocks would have to double before he'd feel forced to sell.

The self-proclaimed "inactive investor" is not buying much these days. He's bullish on commodities, though he agreed he'd be hard pressed to find anything to buy at these levels. If he'd buy any commodity it would be in the agricultural space rather than the metals, though he declined to specify one. He's short the U.S. investment banks along with the dollar.

Next to China, Rogers says he's long gold.

"I'll undoubtedly buy more gold," he says, predicting it will double from here in the next few years.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click


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