INTERNATIONAL. Legendary global investor and chairman of Singapore- based Rogers Holdings, Jim Rogers said that Nouriel Roubini is wrong about the threat of bubbles in gold and some other assets.
In an interview with Bloomberg Television today, Rogers said many commodities are still down from record highs. The price of gold will double to at least US$2,000 an ounce in the next decade, he said.
Roubini replied by saying Rogers' forecast is “utter nonsense.” “Maybe it will reach US$1,100 or so but US$1,500 or US$2,000 is nonsense,” Roubini said.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics (RGE), who predicted the current financial crisis two years ago, said earlier this week in an editorial for the Financial Times that investors are borrowing dollars to buy assets and creating “huge” asset bubbles.
"The combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles," Roubini wrote.
"This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash," Roubini added.
Roubini told a conference in South Africa last month that investors were doing “the mother of all carry trades” by buying assets with borrowed dollars. He said emerging-market equities are showing a bubble, that gains in some developing- nation currencies are becoming “excessive” and that the rally in oil is “not justified by the fundamentals.”
“What bubble?” Rogers said, when asked if he agreed with Roubini’s view. “It’s clear Mr. Roubini hasn’t done his homework, yet again.”
The MSCI Emerging Markets Index has gained 62% this year and crude oil has risen 47%.
Rogers countered Roubini’s arguments by saying that Chinese stocks and sugar, silver, coffee and cotton have all dropped from their historical highs by at least 50%.
When asked if gains made this year pointed to a bubble, he said: “It’s not a bubble if something is up 100% this year, but down 70% from its high".
"That’s not a bubble, that’s a good year. That’s a great year. Maybe it’s too high for this year, but that’s not a bubble,” he added.
Roubini said today Jim Rogers' forecast that gold will double to at least US$2,000 an ounce is “utter nonsense.”
There is no inflation or “near-depression” to drive gold prices that high, Roubini said today at the Inside Commodities Conference in New York. If a severe depression came to pass, with investors buying canned goods and hiding out in log cabins, “maybe you want some gold in that scenario,” Roubini said.
“Maybe it will reach US$1,100 or so but US$1,500 or US$2,000 is nonsense,”
In his New York speech, Roubini repeated his assertion that asset prices have risen “too much, too soon, too fast.”
Speaking last week in an interview with Index Universe Roubini said asset prices have gone up as a result of liquidity in the system, however he sees a correction looming.
" I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes," he said.
Answering a question on gold, Roubini said: "I don’t believe in gold".
Explaining his reasoning, he added: "Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity. So there’s no inflation, and there’s not going to be for the time being".
"The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression".
"So all the gold bugs who say gold is going to go to US$1,500, US$2,000, they’re just speaking nonsense," Roubini said.
"Without inflation, or without a depression, there’s nowhere for gold to go," adding maybe it could happen in three or four years from now. "But not anytime soon," he said.
Gold climbed to a record US$1,095.40 an ounce today, a 24% gain this year as the dollar fell and India’s central bank added to its bullion reserves.
“I suspect it’s going to go over US$2,000 some time in the bull market, but depending on what happens in the world it could go much, much higher,” Rogers said.
“The old high, back in 1980 adjusted for inflation, would be over US$2,000 now, just to get back to the old high. So we’ll certainly get there some time in the next decade.”
Rogers agreed with Roubini that the dollar’s decline was encouraging investors to buy more commodities and assets. The US currency has dropped 13% since the start of March against a trade-weighted basket of currencies.
“Right now, everybody including me is pessimistic on the US dollar,” Rogers said. “That usually leads to a rally, whatever the asset is, and I would just suspect it’s going to happen again this time.
“How long will it last? I don’t know,” he said. “It depends on how the world evolves. Somewhere along the line, I expect I’ll have to sell the rest of my dollars.”
“I don’t know any emerging market stock markets that are so high I’d call them a bubble,” Rogers said. “They’re certainly all up a lot, maybe they’re too high, but being too high is not a bubble for anyone who knows financial markets.”
In contrast to Roubini, Rogers said the only bubble he sees in the Western world now is in US bonds.
“I cannot conceive of lending money to the US for 30 years,” he said. “Other than that, I don’t see any bubbles going on, unless he knows something the rest of us don’t know.”