INTERNATIONAL. Legendary global investor and chairman of Singapore-based Rogers Holdings, Jim Rogers reckons the Fed finds it embarrassing to announce QE3 as all previous attempts have failed, but says the central bank is already printing more money. He predicts another recession: "You should be very worried about 2013-2014."
The printing has started
Speaking to India's ET Now on Monday, Rogers said: "I do not know if they will announce it. I know they are going to print more money. They already are."
"If you look at their balance sheets, you will see that something is happening, assets are building on their balance sheets," he explains, adding that these "are not coming from the tooth fairy."
So, what could the Fed's reasons be for not yet announcing QE3? "Egg on their face," according to the famed investor.
"They are a little bit embarrassed because they announced QE1 and QE2, and it did not work. So they may try to discuss it. They may just continue to do it without getting egg on their face again, but they are going to print money," Rogers told ET Now. "This is all they know to do," he added.
In his widely anticipated speech at Jackson Hole last week, Fed Chairman Ben Bernanke said the U.S. economy was "far from satisfactory" and used the forum to defend unorthodox policies such as bond purchases. Bernanke also made the case for further action to reduce an unemployment rate that he called a “grave concern.”
Bloomberg reported that four Fed presidents have come out in favor of an open-ended strategy for bond buying, with three calling for the program to begin now. "Rather than specify a fixed amount of bonds to purchase by a certain date, such a strategy would leave the Fed able to announce a pace of purchases that it could adjust as the economy gets closer to Bernanke’s goals."
"The simple truth," counters Peter Schiff, CEO & Chief Global Strategist at Euro Pacific Capital, "is that our economy has a disease that all the quantitative easing in the world can't cure. And while the wrong medicine may make us appear healthier in the short term, we will continue to deteriorate beneath the surface."
"Because the Fed has kept interest rates too low for too long, Americans have saved too little and borrowed too much; consumed too much and produced too little; and imported too much and exported too little. Too much of our labor is devoted to the service sectors and not enough to goods production. Too much capital goes to Wall Street speculators and not enough to Main Street entrepreneurs," Schiff wrote in his economic commentary on Friday.
Europe rescue plan
As to Europe, "there are going to be more problems as nobody is dealing with the problems," reckons Rogers.
"The solution to too much debt is not more debt. So now you are going to have plenty more problems coming out of Europe, he told ET Now.
The European Central Bank unveiled Thursday a fresh program to buy bonds issued by heavily indebted eurozone countries, under strict conditions, in a widely-anticipated bid to save the euro.
ECB president Mario Draghi unveiled a new central bank instrument known as Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds, but stressed that governments would also have to fulfill strict conditions.
Will it work?
Will it work? "Absolutely not," Rogers said today in a Reuters' Freeland File interview.
"This is going to continue...they don't understand the problem, they just try to win the next election, it's going to fall apart eventually," he stressed.
Rogers expect things to start falling apart after the German election in 2013, not before, as Mrs. "Merkel and Mr. Obama want to get re-elected."
"I am very worried about 2013-2014," Rogers said, expecting the next recession to be worse than 2007 because "we shot all our bullets."
"What more can they do? Can they quadruple the debt again?; can they print even more money? So, there will be serious problems in 2013-2104 and it may be partially because the euro starts to fall apart. You should be very worried about 2013-2014," Rogers warned.
Can anything be done to avoid the next crisis?
"The only thing that works is facing reality; let people who are bankrupt go bankrupt. They bite the bullet, take the pain, accept reality, reorganize and start over," Rogers told Bloomberg in a recent interview.
"The Japanese didn't let anyone go bankrupt for 20 years - remember zombie banks, zombie companies. The Japanese stock market is 75% below where it was 21 years ago, he said.
The Americans have already had one lost decade, we are going to have two lost decades or three lost decades, the way things are going."
"Denying reality has never worked and it's not going to work in America this time either, Rogers concluded.
Will all the talk of central banks printing money compounded with currency debasement, is Rogers buying more gold?
"The situation with gold is that it has been up 11 years in a row without a down year, which is extremely unusual... So gold is correcting. It would be normal for gold to continue to correct and have a down year," the famed investor told ET Now.
"Silver is 40% off its all-time high, gold is only 10% to 15% off its all-time high. So on a historic basis, silver is much cheaper than gold. So if I had to buy one, I would buy silver, not gold. You are going to see more money printing, more debasement of currency and therefore, the price of gold will go much higher over the course of the decade."
How about commodities?
The commodity bull market is going to go on until there is a lot of new supply, Rogers reckons.
"I own more agriculture than most other commodities because the prices are still astonishingly low and in some cases agriculture has been in a terrible situation for 30 years now. Agriculture prices would be the best performers," Rogers believes.
Notes: Jim 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%.
Rogers retired from Quantum in 1980 and became a guest professor of finance at Columbia University Graduate School of Business and in 1989 and 1990, the moderator of The Dreyfus Roundtable and The Profit Motive with Jim Rogers.
Underscoring his convictions that future prosperity will come from China, Rogers' two young children speak Mandarin.