M3 Money Supply Chart, Baltic Dry Index Chart
M3 Money Supply Chart
M3 Money supply represents the amount of money added to the money supply. The Federal Reserve stopped reporting this (gee I wonder why) but it is still tracked by private firms.
I have watched this closely over the last few months, as I wanted to see if we were going to see a contraction, or expansion of the money supply.
As you can see, money supply has expanded substantially, going from roughly 13.5 Trillion $USD in August to approximately $14.5 Trillion in November. Annual rate of change (increase) is approximately 17%.
Any expansion of the money supply is bullish for gold.
Baltic Dry Index Chart
The Baltic Dry Index shows us how much surface tonnage is being shipped, which also gives us a feel for how much international trade is being conducted.
As you can see, it has basically fallen off a cliff, currently at a level not seen since 2002.
If this is any indication for demand, China will be hurting in terms of factories shutting down and many workers losing jobs. Another factor which may be contributing to this is that the credit crisis has frozen lines of credit for settlement of international payments, thus shipping companies are forced to risk assuming liability or leave goods sitting on the docks.
Jim Rogers: America is bankrupt
America is bankrupt, according to investment legend Jim Rogers. The American goverment bonds are the world’s last bubble and the price of commodities has to increase.
Charismatic
The famous and charismatic investor, guru if you will, Jim Rogers, visited ABN Amro Netherlands last Friday. RTL Z was at ABN headquarters as well and recorded a number of sensational statements, investment tips and opinions about the world economy.
Rogers
During the seventies Jim Rogers (66) managed a successful hedge fund with George Soros. After that, he traveled and went into commodities. Click here for the wikipedia entry for Rogers.
Last Friday Rogers went at it in front of a roomful of ABN private banking clients. We had an exclusive 15-minute interview with Rogers.
The most important points:
America is bankrupt. American government bonds are totally overvalued. “The world’s last bubble.” America is in debt for over 13.000 billion (13 trillion) dollar and adds a 1.000 billion dollar debt each year.” According to Rogers this is unsustainable. Therefore, he went short in long-term US goverment bonds. “These bonds have peaked.” By the way: Rogers owns Dutch government bonds. “They are safe.”
“The fact that the dollar is gaining rapidly is only temporary”, Rogers says. “All hedge funds were short on the dollar and because of the appreciation of the dollar there is a short squeeze for the dollar. Managers have to close thier positions and they have to buy dollars instead.” “This is temporary, within a year you have to get rid of the dollar. Fundamentally it is a drama.”
Commodities
Last year we spoke Rogers as well. At that time he advised us to invest blindly in commodities and agriculture. That was bad advice, because Rogers’ commodities index (Rici) has fallen around 40 per cent last year, while ABN’s African Commodities Certificate dropped even from 11 euros to 5 euros during that time.
Oil
Rogers: ‘Whether oil costs 45 or 145 dollars, it doesn’t matter really. What matters is that with oil, like with many other commodities, supply is decreasing while demand is increasing. In the long run this will result in a considerable increase in prices.’
‘The question is not if the price of a barrel of oil will increase again, but how expensive a barrel of oil will be eventually?’ ‘The oil supply will fall with 6 to 9 per cent each year. The demand for oil will increase in China and developing countries. This has nothing to do with economy, the market is simple. It is simply the law of supply and demand.’
High inflation
Rogers has been telling his commodity-story for a few years now. On Friday he sighed while saying: ‘People don’t understand that there is a huge bull of commodity prices on the way. We will have to deal with high inflation.’
‘Commodity prices will be a lot higher in the future than they are now.’
‘The world is going to change, there is no way around it. If you don’t understand that and you don’t adapt you will be suffering in five years. The Chinese see on TV how we live in the West. They want that too! That generates an enormous demand for products and material.’
All countries in the world have been printing money, the United States in particular. That created a huge amount of money, resulting in the icing on the cake for commodity prices. But fundamentally you have to look at supply and demand.
The United States
Rogers has been negative about the United States for a long time. “You should be worried, America is out of control”. The enemies of the United States are currently looking into how to profit from the weaknesses of the United States. When we asked him: Obama or McCain? he answered: “Neither of them. They are both turkeys, they take the wrong decicions.”
Bernanke or Trichet?
Rogers is not a big fan of Bernanke, the president of the Federal Reserve. With a big smile Rogers tells us: ‘Bernanke will continue to print money until there are no trees left in America.’
He is more positive about Trichet of the ECB. ‘At least he knows what he is doing and what it’s all about.’
Banks
Rogers is fiercely against saving banks. ‘That has never worked. Let them go bankrupt. Right now bad banks are saved with money from good banks and from you and me. After that the failing, but nationalized banks are going to compete with the wel-managed banks and they steal their market share. Ridiculous. The Bail-out plan is a disaster. In 1929 we had a recession but after the government interfered, it became a depression. You should not interfere, you have to let it blow itself up and start over.’
Stocks
Rogers: ‘You can make good money with stocks, perhaps even more than with commodities, but only if you pick the right stock at the right moment. The stocks in the west are still too expensive. But the market is fluctuating heavily. In the five years to come you can earn money with trading ranges’
China and Russia
‘You know what it is? When at work, the Chinese people ask when they can work and what they can do. We ask how many paid vacation days we get. That’s a big difference.’
Rogers has bought Chinese stocks in the last few weeks. ‘I don’t know if this is the bottom, but the market is low. I am a bad timer, by the way.’
‘My daughter is five years old and she speaks fluent Mandarin. After the dollar has collapsed as a world currency, there is only one currency that could take over that role: the renminbi. That could happen in 15 to 20 years. Other currencies cannot take over the role of the dollar, including the euro.’
Russia
‘In Russia there is always something going on. The former Soviet Union will be divided up even further into countless small countries. And there will be some wars.’
‘In Russia you are lucky if they kill you right away. You are unlucky if they firt arrest you, then hold you for 15 years, torture you and kill you after that,’ he told a roomful of clients of ABN AMRO Private Banking.
‘What you see is that the Russians take their capital abroad, while the Chinese take it home.’
City or countryside?
Rogers is very positive about being a farmer. ‘In a little while farmers will drive Maserati’s and all stockbrokers will be driving a cab.’
Rogers also says that in Holland it is best to have a farm with a lot of land at the moment. “Agriculture has been out of vogue for 30 years, but now it will be hot because the demand for food will increase greatly.’
“The stupidest thing you can do right now is to sell your farm and buy a house in the city instead. The housing market is in decline.’
War
And finally: ‘If a war breaks out, it will begin in the Middle East. Amsterdam will be last. I would love to live here if the weather was any better… Amsterdam should have been 600 miles further to the south!’
Short Video Series: Understand why the financial crisis is occurring, and how to protect yourself
