INTERNATIONAL. Legendary global investor Jim Rogers believes the recent dollar gains are temporary and are not based on fundamentals.
"The fact that the dollar is gaining rapidly is only temporary," Rogers recently told a group of private bank clients.
"Within a year you'll have to get rid of the dollar," he said.
Rogers has spent a career being one step ahead of mainstream investment thinking. Amongst his many accomplishments, Rogers was co-founder with George Soros of Quantum Fund. During his ten years with the fund, the portfolio gained more than 4,000%, while the S&P rose less than 50%.
All hedge funds were short on the dollar, Rogers said, but because there has been a rapid increase in the dollar's value against other currencies, fund managers want to buy them now.
"This is temporary, Rogers says. "Fundamentally it is a drama."
Rogers also said US government bonds are extremely overvalued. "They are "the world's last bubble."
The current rescue plans, which will force governments to issue more debt, print money and flood the markets with liquidity, will flare up inflation after the crisis is over and will create worse problems.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke should resign for keeping alive "zombie banks" that should be allowed to fail, he said
The Japanese government refused to let financial institutions fail in the 1990s. "It's 18 years later and their stock market is 75% or 80% below what it was 18 years ago," he added.
"I know we are going to get aggressive rate cuts everywhere, that's why I'm long short-term government bonds in the US, but shorting long-term government bonds because it's not going to help, it's going to add to inflation."
Rogers admits that silver has been particularly battered down, 35% this year, and perhaps that is why he thinks this precious metal will outperform gold as investors turn to the metal as a hedge against inflation.
“Silver will do better than gold,” Rogers recently said. “It’s been beaten down horribly. If you put a gun to my head and said you have to buy one, I would buy silver rather than gold.”
Gold may drop as central banks and the International Monetary Fund (IMF) sell the metal to raise cash, said Rogers, who correctly predicted in April 2006 that gold would reach US$1,000 an ounce. The IMF in May ratified a plan that included proposals to sell 403.3 metric tons of gold to reduce a budget deficit.
“The IMF has gigantic amounts of gold. Maybe gold is going to go down for a while. If gold does go down, I’m going to buy more,” Rogers said.