Investment Legends, Part II

What will happen to the US economy and the dollar in the near term? Will inflation increase dramatically? What is the outlook for gold, and where should you put your money? BIG GOLD asked a world-class panel of economists, authors, and investment advisors what they expect for the future. Caution: strong opinions ahead…

Jim Rogers is a self-made billionaire, author of the bestsellers Adventure Capitalist and Investment Biker, and a sought-after financial commentator. He was a co-founder of the Quantum Fund, a successful hedge fund, and creator of the Rogers International Commodities Index (RICI).

Bill Bonner is the president and founder of Agora, Inc., a worldwide publisher of financial advice and opinions. He is also the author of the Internet-based Daily Reckoning and a regular columnist in MoneyWeek magazine.

Walter J. “John” Williams
, private consulting economist and “economic whistleblower,” has been working with Fortune 500 companies for 30 years. His newsletter Shadow Government Statistics provides in-depth analysis of the government’s “creative” economic reporting practices.

Steve Henningsen is chief investment strategist and partner at The Wealth Conservancy in Boulder, CO, assisting clients interested in wealth preservation. Current assets under management exceed $200 million.

Frank Trotter is an executive vice president of EverBank and a founding partner of, a national branchless bank that was acquired by the current EverBank in 2002. He received an M.B.A. from Washington University and has over 30 years experience in the banking industry.

Dr. Krassimir Petrov is an Austrian economist and holds a Ph.D. in economics from Ohio State University. He was assistant professor in economics at the American University in Bulgaria, then an associate professor in finance at Prince Sultan University in Riyadh, Saudi Arabia. He is currently an associate professor at Ahlia University in Manama, Bahrain. He’s been a contributing editor for Agora Financial and Casey Research.

Big Gold: The US dollar ended 2010 about where it started; does it resume its downtrend in 2011, or are fears about its demise overblown?

Jim Rogers: No, but further down the road.

Bill Bonner:
No opinion. But there is more risk in the dollar than potential reward.

John Williams: There remains high risk of a dollar selling panic unfolding in the year ahead, as the US economy tanks anew, as the Fed continuously expands its easing, and as dollar holders dump the US currency and dollar-denominated paper assets. Such would be a precursor to the inflation problem.

Steve Henningsen: Similar to my thoughts last year, I still believe the dollar is headed down long-term, but it could bounce around over the next year. If sovereign debts become a problem again, like I think they will later this year, then everyone will go running back to “Mother Dollar” once again for one last hug before she lies back down on her sickbed.

Frank Trotter: As the economy waffles and the global investing community’s attention is drawn from one crisis to the next, I expect the US dollar to bounce up and down in the current range. After that, however, my analysis suggests that measured by the key factors of fiscal and monetary policy, combined with a significant trade deficit, the US does not look as good as our major trading partners, and I thus expect the dollar to decline, perhaps significantly, in the intermediate term. Big geopolitical events may accelerate this or create a flight to US dollar quality, so hold on to your hats.

Krassimir Petrov: I think the dollar resumes lower. I expect QE3 and QE4 – a dollar-printing fest that will eventually sink the dollar. Sure, all fiat currencies are in deep trouble and prone to overprinting, but the reserve status of the dollar actually makes it more vulnerable now. Whether the dollar sinks against other currencies is a fool’s game not worth playing. It is like being in the hospital, where all patients are suffering from cancer, and trying to guess who will feel best at the end of next year, or trying to guess who will succumb first. That’s why it is so much safer to play the dollar against gold.

What to watch in 2011: stay focused on the sovereign debt crisis and bond yields. Spiking yields will trigger the next stage of the crisis.

BG: Gold has risen 10 years in a row, so some are calling it a bubble, yet it’s roughly $1,000 below its inflation-adjusted high. What’s your outlook for the metal in 2011?

Jim Rogers: It is hardly a “bubble” when very few own it still. Who knows? Overdue for a correction, but who knows?

Bill Bonner: The smart money is in gold. It will stay in gold until the bull market that began 10 years ago finally reaches its peak. It is extremely unlikely that the top will come in 2011; it’s probably years in the future. In the meantime, gold is bound to have a losing year or two. Don’t worry about it. Buy gold. Be happy.

John Williams: As the US dollar increasingly is debased, and where gold tends to preserve the purchasing power of the dollars invested in it, the upside to gold in the year ahead is open-ended, restricted only by any limits to the massive downside potential for the US dollar. Any intermittent gold price volatility, extreme or otherwise, will be short-lived. There is no bubble – only increasing weakness in the US dollar – with the gold price fundamentally headed much higher in the years ahead.

Steve Henningsen: I believe gold will once again prove the bubble-boys wrong and end the year positive (I have no idea by how much and don’t really care). However, I think this year will be more volatile and that Gold Bugs better remain seated on the precious metals express or they might get squished.

Frank Trotter: I still think that with price inflation on the rise and big political events occurring, there may be room to continue to rise. If stock markets take off, then there will be a reduction in appreciation or even a significant decline, but based on the factors I mentioned above, I don’t see that as highly likely.

Krassimir Petrov: Gold still has outstanding fundamentals. I believe that over the course of 2010, the fundamentals have strengthened significantly: (1) “No Exit [Strategy] for Ben” as he unleashed QE2, and will likely unleash QE3, QE4, etc., (2) no more central bank selling of gold, (3) more central banks become buyers of gold, and (4) trial balloons for a global gold-backed currency.

I have no idea how people could even claim that gold is in a bubble – barely 1 out of 100 people have any idea about investing in gold. During the real estate bubble, every second person was involved in it. Maria “Money Honey” Bartiromo has yet to report from the COMEX gold pits; gold fund managers and analysts have yet to obtain rock-star status; and glamorous models are not yet dating the gold guys. Who is the Henry Blodget [co-host of Tech Ticker] of the gold sector, do we have one yet?

Yes, gold will eventually become a bubble, but that feels 5-8 years away.

BG: What’s your best investment advice for 2011?

Jim Rogers: Buy the rmb [renminbi, the Chinese currency].

Bill Bonner: We are in a period much like the period following WWI, in which the great debts and losses of the war had to be reckoned with. It is an era of great risk. The US faces many of the same challenges faced by Germany and England after WWI. Like England, it has huge debts. It is a waning imperial power. And it has the world’s reserve currency. And like Germany, it is attempting to fix its problems by printing more money. This is not a good time to be long either US stocks or US bonds.

John Williams:
As an economist, I look for the US dollar ultimately to lose virtually all of its current purchasing power. Accordingly, for those living in a US dollar-denominated world, it would make sense to move to preserve wealth and assets over the long-term. Physical gold is a primary hedge (as is silver). Holding some stronger currencies outside the US dollar, as well as having some assets outside the United States, also may make sense.

Steve Henningsen: Dramamine (for volatile markets), a stash of cash (for potential investment opportunities), and move some of your assets offshore if you haven’t already.

Frank Trotter: My advice is first to look at the other side of your balance sheet – the liability and risk equation – before seeking out absolute gains. What are your goals, what resources do you already have to meet those goals, and what events (health, income stream, upheavals) might impact these risks? Place some assets to hedge these risks directly, then look to diversify globally into markets with higher growth potential than we see here at home, and that may balance your global purchasing power risk. Almost like a religion, we have had the phrase, “Stocks are the only legitimate hedge against inflation” beaten into our heads. I say, look at assets that define inflation like commodities and currencies and evaluate where these fit into your risk portfolio.

Krassimir Petrov: Last year I recommended silver, and I would stick to silver again, despite its phenomenal run. Then it gets tricky. I usually don’t recommend diversification, but now I would again recommend a broad portfolio of commodities. Investing during the rest of 2011 should be easy: stay out of real estate, out of bonds, out of fiat currencies, and out of stocks; stay fully invested in commodities, overweight gold and silver.


Jeff Clark
for The Daily Reckoning