Walking the long, windy road toward the demise of the dollar, we spy another mile marker today: China is officially putting their money where their mouth is.

After clamoring for a reserve alternative all year, the Chinese government agreed to a $50 billion currency-diverse deal with the IMF today. Back in June, the deal seemed imminent. This morning, it finally came to fruition.

In their deal with the IMF — the first of its kind for any nation, ever — China buys $50 billion worth of bonds denominated in Special Drawing Rights, which will represent a basket of global monies. (That basket will be a split between the dollar, euro, pound and yen… not exactly the gems of the global currency batch.)

Still, it’s probably a win for China on several fronts: They get to ditch the dollar (sort of) without making a big geopolitical stink. In fact, since their funds will prop up the IMF’s rescue coffer, China gets to play the global good guy for once — while also purchasing some political influence over the IMF.

Russia and Brazil have each promised to buy $10 billion of these bonds, as well.
The U.S. dollar has already given back gains made earlier this week. The panic on Monday and Tuesday helped bump the dollar index up to just shy of 79. But the buzz has worn off, and the DX is right back to where it started the week, around 78.3.
Gold, on the other hand, has done nothing but rise this week. The spot price inched up, thanks to its “safe haven” status, and then accelerated skyward as the dollar fell. The spot price is up to $985 this morning, from $950 and change on Monday. That’s a three-month high.
“Over the past four decades, September has been the best time for gold in terms of its month-over-month price appreciation,” Frank Holmes reminds us in his latest Daily Reckoning essay. “You can see this on the chart below — in a typical year, the price of gold in September rises 2.5% above its August price. The gold price has risen in 16 of the 20 Septembers since 1989, by far the best success ratio of any month of the year.

“What accounts for this predictable trend?

“September kicks off several of the planet’s most potent gold-demand drivers:

• The post-monsoon wedding season in India and Diwali, one of the country’s most important festivals
• Restocking by jewelry makers in advance of the Christmas shopping season in the United States
• The holy month of Ramadan in the Muslim world, whose end in late September is marked by a period of celebration and gift giving
• And in China, the week-long National Day celebration starting Oct. 1 and the run-up to the Chinese New Year in early 2010.

“Based on the long-term record, this may represent a good time for investors who want to establish or add to a gold or gold stock position in advance of seasonal demand growth. The guidance provided by historical patterns may improve the chances for investment success, but of course, there are no guarantees that this September will follow the well-established trend.”
For stocks, traders took a breather after Tuesday’s sell-off and finished yesterday around break-even. This morning, the S&P 500 opened just a bit higher, thanks mostly to this:
Chinese banks lent more money in August than many had anticipated, the China Securities Journal reported this morning. At $24 billion, that’s right around July’s level.

If you recall, it was a rumor that Chinese lending had slowed even further in August that sent stocks around the world plummeting Monday. Thus, this “not so bad” report shot the Shanghai Composite up 4.8% today, and has helped other worldly indexes start off in the black. (Whether more easy money in China is a good thing… well… traders can save that for another day.)
“Market prices should reflect underlying demand and supply,” notes Chris Mayer. “As in a vegetable stand, the prices come from the buying and selling of people in the market.

“But with all the artificial stimulus money floating around, here and abroad, you can never be sure of what you see. Is this a real recovery or is it an artificially ripened tomato, and hence an imposter? When the stimulus money stops flowing, will the recession get worse?

“CNN’s bailout tracker reports that U.S. government stimulus has totaled $2.8 trillion so far this year, with another $8.2 trillion in commitments. Most of this money has gone to the financial sector. Some of it has gone to infrastructure projects and to consumers (“cash for clunkers,” for example).

“That is a lot of money. It is hard to say how all of this spending has artificially boosted economic activity in some sectors of the economy. It is obvious that such spending cannot continue indefinitely.

“Take a look at this next chart, which shows you how the stimulus spending reaches a peak sometime in early 2010 at $57 billion and then takes a dive.

“Of course, the government can always decide to spend more. But as it is now, this is a pattern of spending we can expect to distort the various sectors it flows to. You can see also on the chart where the money goes, including that big red layer that goes toward highways and transportation.

“We may yet see a surge in business activity as we get to 2010. But after that, we’ll see if this seeming recovery in the making is real or manufactured by funny money.”

If the latter scenario occurs, wouldn’t you want a portfolio full of companies in essential industries… like water, food and energy? That’s part of the reasoning behind Chris’ latest project: The Primeval Portfolio. Check it out here.
Whether real or artificial, hopes of recovery got a firm slap this morning, courtesy of the data patch. Here’s the quick and dirty:

• The U.S. service sector contracted for the 11th month in a row, the ISM said today. After Monday’s ISM manufacturing gauge, which showed surprise growth, traders had their fingers crossed for a score above 50 in today’s ISM service sector reader. Not so, said the group. Their index stood at 48. In other words, 70% of our economy was still shrinking in August
• Retail sales fell 2.9% in August, the 12th straight month of decline. Despite of the “back to school” rush, only low-cost brands showed signs of life last month… Costco, BJ’s, Gap, Aeropostale, Target and T.J. Maxx all outperformed
• Jobless claims from last week came in at 570,000, worse than the Street expected. Coupled with yesterday’s worse-than-expected ADP jobs report, the outlook is none too rosy for tomorrow’s government employment data
• Personal bankruptcies shot up 24% in August, year over year, putting the U.S. on track for over 1.4 million filings this year.

And here’s the one statistic that troubled us the most this morning: Student debt grew 25% in the 2008-2009 school year, says the latest from the Department of Education. So much for “the great deleveraging.”

Total student loans outstanding exceeded $75 billion during the period, up from roughly $60 billion the year before. An estimated 66% of U.S. college students borrow money for school, with the average individual debt load of $23,186 by graduation.

So let’s get this straight… the next generation is borrowing more than ever, at a faster rate then ever, during extremely worrisome credit conditions, heading into the worst employment environment in recent history, while on the verge of inheriting the biggest federal debt burden the world has ever known?
“Don’t let the recovery pundits fool you,” urges our currency adviser, Bill Jenkins. “As just about everyone knows, the stock market crashed in a big way in 1929. What most don’t realize is that it rallied 15 times before it hit bottom fours years later, having lost 90% of its value.

“And the truth is, when adjusted for inflation, the market didn’t break even again until 1960. (If you’re a ‘buy-and-hold’ investor, you MUST account for inflation. It is the single biggest ‘invisible’ tax in our wonderful Fed-managed economy.)

“But before people could get too happy with making money again, along came President Johnson and the ‘Great Society.’ I don’t know who it was so great for — the market began crashing again in ’66. Once again, adjusted for inflation, it didn’t get back to break-even for another 30 years.

“So 30 years from the Great Depression to the Great Society. Then 30 years from the Great Society to the Great Depression II. Each of the peaks resulted in 10-15 years of declines.

“We are now in just the second year of this disaster. We are witnessing an almost-perfect copy of the first Great Depression. And there are more nasty little secrets in the economy, waiting like ticking time bombs to explode. We will see more businesses in trouble, more banks failing, more foreclosures and more commercial real estate losses.

“At the end of June alone, there were over 5,300 commercial properties in the United States in default. That’s more than double the number from the end of 2008 — and there are still six months to count. Still think American companies are recovering? What will a 300% rise in commercial defaults do for jobs? Profits? Banks?

“So don’t let the recovery pundits fool you, even though they’re out in force.”
“I’ve recently moved to Florida from South Carolina,” a reader writes, “and we decided to rent the first year here, for several reasons. But now that we’re here, we’re thinking of staying renters for a while. My wife and I realized that by living in Florida and — here’s the key part – renting, we’re saving about $15,000 per year.

“After we read the news about Florida losing population for the first time in 50 years, it got us thinking — what are the prospects for Florida? I don’t think they’re as sunny as they used to be.

“Here’s how our savings add up:

• Don’t have to pay property tax, which is 2% of the purchase price where we are (Palm Beach County) — so that’s $10,000
• No homeowners insurance in Hurricane Alley, which saves us another $2-3,000
• No homeowners association fees, which are $3000 per year in the neighborhood we’re currently residing. Many neighborhoods are higher.

“Add it up and we’re saving $15,000-plus as renters. I don’t think we’re missing out on any home price appreciation, so tell me, why do I want to own a home in Florida?”

The 5: We’re not the right people to ask. This editor’s been renting a condo in one of Baltimore’s more swanky/artsy neighborhoods for over two years now. It’s close to the city — but quiet — with a great park in the backyard and the sexiest pool in Baltimore. It’s not without faults, but we really like it.

Despite it being one of the city’s finer locales, the condo’s owner — who got together with some friends and made an investment in the building during the bubble — hasn’t rented the apartment at a profit for years… if ever.

The idea of owning a home has its merits, but watching him sink underwater on this place has been tough (he’s a really nice guy) as well as educational. Of course, we don’t have “a place of our own,” and we’re not “building equity,” “establishing credit” and all the other mortgage broker sales pitches. But after watching all this go down, that seems like a risk worth taking.

Source:  China’s New Investment, Student Debt, The Faux Recovery and More!

The domino effect is straightforward: Higher deficits spark market concerns over future inflation; concerns of inflation contribute to a weaker dollar; and both come together to undermine the greenback’s role as a reliable store of value around the world. Right now, with so much unused capacity in the American economy and so much unemployment – likely to persist for at least another year or two – the more pressing worry is deflation (a general decrease in prices), not inflation. But as the economy eventually recovers, the possibility of inflation will loom, and with forward-looking markets, worries about the future often play out in the present. Anxieties about future inflation can lead to a weaker dollar today.

Of course, a new global currency won’t happen right away. It will take global policy makers months – maybe even years – to wean the world off the greenback. But Stiglitz says its coming.

Like it or not, out of the ashes of this debacle a new and more stable global reserve system is likely to emerge, and for the world as a whole, as well as for the United States, this would be a good thing. It would lead to a more stable worldwide financial system and stronger global economic growth. The current system entails developing countries putting aside hundreds of billions of dollars a year – only weakening global demand and contributing to our economic difficulties. Also, there is something a little unseemly about poor countries lending the US trillions of dollars, now at an interest rate of close to zero.

Long time Notes readers shouldn’t be surprised that our addiction to credit has lead to the demise of the dollar. And if you’ve read James Dale Davidson’s “The Plague of the Black Debt,” you’re already yardsticks ahead of your fellow citizens. If you haven’t, we strongly urge you to see what this debt pile means to your investments over the next decade.

The death of the dollar is nothing new – the US currency has been terminally ill since the beginning of the last century. The value of the buck has collapsed 196% since its peak in 1900. That’s a pretty significant drop in a just century. This from Sean Malone at the Ludwig von Mises Institute (a great Austrian School of economics and libertarian resource):

Money supply from 1946-2009 has been increased 5938% to $8,235,900,000,000. In that time, the US has seen 10 recession, constant military action, massive expansion of government power, an explosion of the welfare state and the complete annihilation of the buying power of the US dollar.

Now try to imagine what your life might be like if every dollar you had bought you 20 times as much stuff… This is the cost of inflation.

Good day… And a Happy Friday to one and all! The end of what seemed to be a very long week… The last weekend in June, can you believe that? Next week, we’ll be getting ready for the 4th of July celebrations! WOW!

Well… What a volatile week it has been in the currencies! Up, down, all around, and settling back to levels that we saw before the Fed’s FOMC meeting earlier this week. Suddenly, investors are looking for yield again… Looks like they are “Desperately Seeking (not Susan) Yield! And why not? The Fed, and the Bank of Canada (BOC) have come out and said that there will be no interest rate hikes until we’ve turned quite a few pages on the 2010 calendar.

So, with investors clamoring for yield, the dollar gets taken to the woodshed… As I said earlier this week, one of these probes above 1.40, need to take hold of the figure and build on it, otherwise we’re doomed to remain in the 1.35-1.40 range, and range trading is for the birds! Talk about counting flowers on the wall, and watching paint dry! UGH!

I was shocked yesterday to see but a few emails asking me more about the SDR’s story that I talked about… Men, women, boys and girls, all… This is important stuff! Don’t take it lightly! There’s a movement underway that could end up costing you dearly, if you do not take the diversification steps…

I think it is important to know that the BRIC countries (Brazil, Russia, India, and China) are serious about replacing the dollar with a “global currency” i.e. the IMF’s SDR’s… And… That the BRIC’s want more power on the World’s stage… And why not? These countries currently have almost 3 Trillion in foreign reserves… And… A very large piece of the world’s population… (Thanks for that fodder, Kevin!)

OH! And guess who was banging the drum for a “super-sovereign” currency overnight? China, that’s who! So… They’re Baaaaaaaaccccckkkkk! OK… This was the People’s Bank of China (the Central Bank), that made this statement, along with a call for the IMF to manage part of member’s foreign exchange reserves… Hmmm… OK, I just said that China wants more power on the world stage, and here they are saying that their puppet will be the IMF! OK, I took some liberty with that, but it’s the way I see it!

OK… Back to what’s going on in the currencies today… Hmmm… The dollar is getting taken to the woodshed to end the week, that’s what’s happening! And the currency leading the pack with regards to performance VS the dollar, drum roll please…. The Brazilian real… A 3 day “winning streak” has the real back to levels it saw before the Brazilian Central Bank (BCB) cut rates about 10 days ago…

The way I see it, and long time readers know this will be interesting in the least, is that investors want to invest in the BRIC countries, but there’s very little liquidity there in each of those currencies, along with very little yield, except… In Brazil… Liquidity isn’t what the majors enjoy, in fact it’s still traded on what’s called a “non-deliverable forward”, which means it can only settle in dollars, with no deliverability, but… It’s traded easier and less costly than the other BRIC’s and… It has the highest interest rate available… So… You can see why investors are buying reals…

Having said that though… You must know about the volatility… Look at what happened this week… On Monday, we started the week with the real at 1.9750, only to see it rocket to 2.0326 in one day’s trading, a near 3% move / loss in one day! Then we saw it rally back to 1.9795 the next day, and after 3 days of gains the real sits at 1.9420 this morning, thus generating a “gain” for the week! And… The other thing, is that Brazil is considered an Emerging Market… And long time readers have learned over the years that when one Emerging Market gets slammed, they all get taken to the woodshed… So… Be careful out there!

A high yield currency that far removed from the early days of trading like Brazil, but offers yield, is the New Zealand dollar / kiwi… And kiwi has been held back, although still posting a gain VS the dollar, overnight as 1st QTR GDP printed at a negative -1%, thus marking the 5th consecutive quarter of negative growth in New Zealand…

I’m probably out there on the big fat limb (to hold me up, of course!) by myself on this one, but… I personally believe that both the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) have seen the lows in their interest rates, and no further rate cuts will come from these respective Central Banks. I know, that last week, we were all hyped up about future rate hikes from the RBA in 2010, and we probably got a little ahead of ourselves with that thought… I’m probably ahead of the curve on the “end of rate cuts” talk… But that’s where I like to be!

So… When the world’s investors are looking for yield, they don’t have to go to Brazil, or India… They can go to the old reliables… Australia and New Zealand, with a reduced fear of further rate cuts… At least that’s they way I see it! And yes, I could be wrong…

And how about Gold and Silver this week? What a week on Mr. Toad’s Wild Ride for precious metals… The main thing though is that they are finishing the week with a rally, and Gold which was trading at $922 on Monday, is $944.85!

And how about that grilling that Big Ben Bernanke received yesterday by legislators over the Fed’s conduct in the Bank of America (BOA) takeover of Merrill Lynch… You may recall that BOA’s CEO, Ken Lewis said he was “bullied” into taking over Merrill and not disclosing to his shareholder all of Merrill’s losses that were on the books… Big Ben denies that he participated in any bullying… (doesn’t that lead to Paulson then? Did Big Ben just throw Paulson under the bus?)… Any way… Big Ben did little to convince the legislators that the Fed didn’t keep their hands out of the cookie jar… And that, my friends, may be the foot in the door that we’ve been looking for… Maybe, just maybe, because you never know, but with the legislators having questions about the Fed and Big Ben, they probably aren’t in any mood to hand over the regulatory powers that the President wants to give them…

And… My old fave Central Banker, NOT! Big Al Greenspan was back in the news last night… I’m trying to figure out how he and I got on the same side of the ship… But, here was Big Al, my nemesis for years, talking about inflation being a concern… Let’s listen in to Big Al… Alan Greenspan, former chairman of the Federal Reserve, said the threat of inflation needs to be confronted because it poses a threat to economic recovery. “Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge,” Greenspan said. “If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012.”

Of course, I think inflation will be showing its ugly face next year, not 3 years from now!

And on the data front… The Weekly Initial Jobless Claims “surprised” economists by moving back up, after falling last week… 627,000 unemployed Americans filed for unemployment claims last week… No “green shoots” here! In fact… We need to see if we can use these so-called Green Shoots that the President and Big Ben keep talking about, for ethanol… They’ve got to be good for something! HAHAHAHAHAHAHAHA! I must say that a reader gave me that line!

And here’s Warren Buffett on Green Shoots… “I had a cataract operation on my left eye about a month ago and I thought maybe now I’ll be able to see green shoots. We’re not seeing them. Whether it’s retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we’ve never seen it for a simple thing like electricity. So it hasn’t happened yet. It will happen. I want to emphasize that. But it hasn’t happened yet.”

And… Then… There was this… A good story to end the week and head to the Big Finish with…

Barclays Capital Inc. (Barclays) the world’s third largest currency trader, have lowered their one-year forecast for the dollar, saying foreign investors will reduce their purchases of U.S. assets… Barclays referred to the dollar’s status as “safe-haven paradise lost”, due to the ballooning fiscal deficit and the printing of money by the Central Bank… Barclays believes that the euro will be trading at 1.50 in a year…

Hmmm… Nothing new there for Pfennig readers, but, I always find it to be good to see others with their BIG research departments, no divisions, yeah, divisions, that’s bigger than a department! Wait, get back on track, here Chuck! Yes, the Big research divisions, that finally come around to what little old me has been saying for months now… Oh! And that “little old me” has just got to crack up any one that knows me, and have seen me lately!

And one more thing… Oil is back to $71 this morning, as there has been more problems in Nigeria… Let’s hope these problems go away!

Currencies today 6/26/09: A$ .8055, kiwi .6450, C$ .8710, euro 1.4085, sterling 1.6490, Swiss .9210, rand 7.9680, krone 6.4250, SEK 7.8125, forint 196.20, zloty 3.1975, koruna 18.50, yen 95.40, sing 1.4540, HKD 7.75, INR 48.21, China 6.8338, pesos 13.18, BRL 1.9420, dollar index 79.86, Oil $71.07, 10-year 3.55%, Silver $14.25, and Gold… $945.65

That’s it for today… Well… Today marks the 2-year anniversary of the surgery that removed my cancer ridden femur, and replaced it with a prosthetic. Quite an ordeal, but… Here I am! Rock you like a hurricane! Oops, sorry, got carried away there! I’m so happy that’s behind me now! Well… Michael Jackson has died at 50 years old… When I think of Michael Jackson, I just remember my two oldest kids, playing that Thriller album over and over again. The heat wave over us continues, but is expected to back off next week… My little buddy, Alex, turns 14 on Sunday. WOW! We began a tradition when he was quite young, of the two of us going to breakfast on his birthday. Two years ago, when I was in the hospital, my darling daughter, Dawn, brought Alex to the hospital with breakfast, so we could continue the tradition. I hope I can continue celebrating with him for many years to come. So… Happy Birthday Alex! Real long time readers might recall when Alex was 3, and would sit on my lap as I wrote the Pfennig from home, and every once in awhile the text would look like this… 9087lkndy7, and I would say, “sorry, Alex is helping me again”… Alex has already made me aware that he can get his drivers permit next year… YIKES! OK, time to head off into the sunrise… (not sunset, as I’m writing at daybreak, HAHAHAHA) The currencies are having a Fantastico Friday, so why don’t we joining them?

Source: Desperately Seeking Yield

In fact, in the face of a stagnant world economy unrivaled since the Great Depression, we’re now looking at an era of competitive currency devaluations – where every country tries to keep its own currency from rising too much.

Far too many investors are either unaware of these efforts, or dismiss these currency strategies as bureaucratic wrangling. But I’ve been watching this unfold for the past eight years, and have made a significant amount of money from this insight.

And there’s still a substantial profit to be made – for those who understand just what’s happening.

When Strength Leads to Weakness

Since about 2001, whenever any currency rises too much, the local manufacturers or farmers – or anyone who lives by exporting – start to scream about it. Their local governments respond by doing all they can to lower the value of that currency, having it fall in value and thus making exports cheaper – all this in the hope that the domestic economy will become better.

Pick any period so far in this young century and you’ll see that this is true. For instance, right now you see it in those countries whose currencies have soared the most in the last few months.

Let’s focus on the recent highest-flying currencies. The New Zealand dollar soared 23.6% against the U.S. dollar from mid-March through mid-June. That’s the best three-month performance for the Kiwi dollar since way back in 1971, when currencies began floating against each other.

And over 2009, as a whole so far, the strongest currency has been the South African rand, which has soared 18.3% against the dollar since Jan.1, the best performer of all the 16 major currencies. Other currencies that have been strong have been the Norwegian krone and the Canadian dollar (both
up 13% since 2009 began) and the Australian dollar (up 14.6%).

It should be no surprise that all these countries have been making noises and taking action to try to reverse that trend. Take New Zealand. This is a country that depends on exports, especially agricultural exports. Total export prices have plunged 8.2% from 2008’s last quarter to 2009’s first quarter. This is not an annualized rate, either, but a quarter-to-quarter drop. If continued at that rate, it would mean a 33% fall in export income over the year. According toFonterra Co-operative Group Ltd., the world’s largest dairy exporter, New Zealand farmers have suffered a 12% drop in milk prices over the last few weeks. The dairy industry accounts for 20% of New Zealand’s export earnings.

As The New Zealand Herald stated in an article on June 16: “That (the plunge in income for New Zealand dairy producers) explains why Reserve Bank Governor Alan Bollard (New Zealand’s counterpart to U.S. Federal Reserve Chairman Ben S. Bernanke) last week called the exchange rate rise against the U.S. dollar ‘unhelpful’ and a ‘real risk to us‘ as the country endures the deepest recession in three decades.”

The same article goes on to quote the head of the New Zealand Manufacturers and Exporters Association, John Walley: “We don’t see any green shoots in our markets both at home and abroad. And the high exchange rate is strangling any ’shoots’ that are poking their heads up.”

The New Zealand monetary authorities are doing all they can do cheapen their dollar. That includes slashing interest rates to just 2.5%, which is a shock to those of us who remember Kiwi interest rates as being the highest in the world. They are printing money and talking about actively intervening in the currency markets to sell their dollar short. New Zealand’s finance minister, Bill English, just came right out and said that his government would prefer a weaker currency.

I could go on and on. The Australian treasury secretary, Ken Henry, just announced, in language as radical as finance ministers usually get: “If today’s high exchange rates continue, that would imply downside risk to the economy.”

However, I don’t sense as grave concern at the rise of the Aussie dollar as I do with the people of New Zealand about their currency. Thus, it would not surprise me to see the Kiwi fall versus the Aussie, or, put another way, the Aussie falling less than the Kiwi.

Additional Global Currency Concerns

Moving on to Canada, we see that its central bank just announced that the  ”unprecedentedly rapid rise” of the Canadian dollar may “fully offset” any hope for economic recovery.

South Africa’s central bank has just announced that it has a policy of buying U.S. dollars in order to cheapen the rand. That country’s version of Bernanke, Tito Mboweni, said that although he used to be against intervention in the currency markets, the soaring South African rand has caused him to change his mind.

You can see why. Exports and domestic retail sales are plunging due to the high value of the rand. South Africa’s unemployment rate is now 23.5%, the highest of all 61 countries tracked by Bloomberg. Interest rates have been slashed this year from 7.5% to the current 4.5%, but this is not enough for the Union of Metalworkers, which has threatened to strike if interest rates are not cut more.

Finally, let’s look at Norway. Here is a European country, yet it does not use the euro, preferring instead to keep its own currency. This currency has risen by 13% so far this year against both the euro and the U.S. dollar. So are they happy about it in Oslo? Not very.

The strong currency has hit demand for Norway’s exports hard. In response to this, companies have cut staff, which in turn cuts domestic demand. Also, big companies laying people off is a very un-Norwegian thing to do. The world’s second-largest newsprint maker, Norske Skogindistrier ASA just announced job cutbacks. This has been something of a shock, even though the decline of newspapers should have been a warning. Newspapers just don’t want to pay higher prices for newsprint when the currency these products are denominated in has risen so much this year.

Norwegian Prime Minister Jens Stoltenberg, up for re-election this September, has said that supporting the labor market through this crisis – Norway’s first recession in more than 20 years (the last one coming when oil prices plunged back in the 1980s) – is his very top priority. He has pledged whatever money it takes to try to stimulate spending. And though, as far as I know, no one has publicly said that they want a lower krone, the central bank has cut interest rates fully seven times in the last eight months. It is now down to 1.25%, and stands ready to go lower.

One thing that’s important to remember: This is just a snapshot of those currencies that find themselves the strongest risers so far this year. At any given time in the last few years, whichever currencies have been strongest have screamed about their plight.

A year ago, for instance, with a euro at $1.60, Germany – a huge exporting country – basically said it wanted a cheaper euro. It got what it was seeking: The euro fell to $1.23 within months, but is now drifting back up. The United Kingdom wanted its high-flying pound – then at $2.10 – to fall to boost domestic and foreign demand for its goods. It got its wish: Within months the pound had plunged to $1.45. And on it has gone for a few years now.

A few years ago, Americans were angry that the Chinese had such a cheap currency and forced it to float. In the four years since that happened, China’s yuan has risen about 24% against the dollar and you don’t hear so many American threats. (Of course, this could also be because China owns so much U.S debt and America does not want to antagonize its largest lender).

Source: Global Currency Wars Reveal the World’s Best Money Plays

[Editor's Note: Part I of two installments. Look for Part II tomorrow.]

So… here’s something interesting. The two biggest countries to have been left out of the “stimulus” spending due to the “Buy American” provision have come out in support of an IMF-controlled reserve currency in the last week.

Hmmnn…
“What kind of international reserve currency,” asked Zhou Xiaochaun, head of the People’s Bank of China “do we need to secure global financial stability and facilitate world economic growth?”

With those words, Zhou added Beijing’s voice to the chorus begun by the Kremlin last week . “Beijing to Pitch New Global Currency; Dump Dollar” wrote Matt Drudge, for better or worse a master headline craftsman. While China made no such announcement, the governor of its central bank did author this rather poignant thought:

“An international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country.”

Hmmmn… really.
“Along come the Chinese,” notes our Byron King with a bit of a nationalist’s admiration of China’s stance, “who have morphed out of Communism, except where it suits their leadership cadre to maintain power and further the supreme geostrategic goals of the state. Even THEY understand the value of a stable unit of currency. They understand the need to preserve wealth over time, over generations. Very Chinese, no?

“I understand the Chinese argument that maintaining a stable currency should be a matter of national honor. It’s a very appealing point. It reflects the Asian concept of maintaining face, versus losing face.

“Of course, the U.S. lack of concern over the stability of its currency IS an issue of national honor, of which the current crowd of leadership has no concept. The roots of the Blame-America-First gang go back to the prep school progressivism, schoolboy socialism, college-kid communism and master’s degree Marxism of the 1960s and 1970s.

“Decades later, cultural Marxism has infected the entire society.” (And at least a few readers believe there’s more where that came from, below.)
In a small act of defiance, the dollar index rose a skosh, to 84. That’s about 5 points below its recent high, and still 13 points above the inflation-addled low it reached in April 2008.
In the stock market, the buying fervor of this bear trap has reached historic proportions:

You’re looking at the best 10 days for the Dow since 1938.

After yesterday’s 6.8% shot, the index is up 18.8% in the last two weeks of trading. If history does in fact rhyme, the Dow might be sitting pretty for a while:

In fact, the Dow at 110 in 1938 ended up being a long-term level of resistance. The market traded flatly for the next four years, briefly dipped below during the worst of WWII, and then staged a sure and steady rally for the next 30 years.

So all we have to do is fight and win another global war, pay down our debts and ignite another phase of industrial production… and then we’ll be fervently buying too.
Oil rose to a four-month high of $54 a barrel yesterday. The oil trade is a phantom of its former self. Last’s year’s counterdollar scarcity trade has given way to short bursts on glimmers of hope for the global economy — the “reflation” trade, if you insist on a buzzword.

Gold sat idly on its hands during yesterday’s stock spree. The spot price stayed flat around $950 and is under some pressure as we write. An ounce now goes for $920.
“Immigrants can help fix the housing bubble,” wrote Daily Reckoning contributors Gary Shilling and Richard LeFrak in a WSJ editorial over the weekend. What a radical idea… revive housing by enticing other people to spend money, instead of just printing it ourselves

“The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country. This makes more sense than the president’s $275 billion housing bailout plan, which Americans greeted with a Bronx cheer…

“A better idea is to offer permanent residence status to the many foreigners who are clamoring to get into the U.S. — if they buy houses of minimal values (not shacks). They wouldn’t need to live in those houses, but in order to remove the unit from the total housing market, they couldn’t rent them. Their temporary resident status granted upon purchase would become permanent after, perhaps, five years, if they still owned the houses and maintained clean records. The mere announcement of this program might well stop the ongoing collapse in house prices, especially in cities such as Las Vegas, Miami, Phoenix and San Francisco, where prices are down 40% — but where many foreigners like to live.

“Each year, 85,000 H-1B visas are granted for foreigners with advanced skills and education, and last year, 163,000 petitions were filed in the first five days after applications were accepted. The Ewing Marion Kauffman Foundation estimates that as of Sept. 30, 2006, 500,040 residents of the U.S. and 59,915 individuals living abroad were waiting for employment-based visas. Many would buy homes if their immigration conditions were settled.”

Somehow, we suspect this suggestion has and will run headlong into the nation’s renewed flirtation with xenophobia.
Another sign of the times: A public fund in Abu Dhabi just picked up a 9% share of Daimler AG, owners of Mercedes-Benz. Heh, its fitting, giving that there’s practically a Benz for every man, woman and child in the UAE. Aabar Investments spent $2.6 billion to pick up the largest single stake in Daimler. Ironically, the previous largest shareholders was Kuwait’s SWF, with a 7% chunk.

The WSJ asked the fund’s chairman, Khadem Al Qubaisi, if he was considering a similar purchase in a U.S. automaker: “I’m not interested,” he said.
This ought to assuage the populist rancor against executive bonuses:

One year ago, pretty good.

Yesterday, much better.

AIG, the lightning rod for the public’s anxiety over the economy, dropped its logo and nameplate from its New York headquarters yesterday. The corporation announced it would undergo a massive campaign of global rebranding. Its property casualty branch, one of the company’s solvent branches, has already changed its name to… drumroll, please: AIU Holdings.

That ought to fool ’em.
“Hey guys, give Judd Gregg a break,” writes a reader in response to yesterday’s issue. “Gentle Ben and Paulson came to Congress with their ‘the sky is falling’ scenario and said this is all we need to fix it. They operated on that premise and approved the money. What Gregg is referring to now is what ADDITIONAL funds have been approved by the bozos in power. This administration is brilliant at steamrolling through the legislation it wants at warp speed before the general population even begins to realize what has happened. Its goal is obvious — all must rely on the state. Seems a guy named Marx talked about that some time ago.”

The 5: Of course, the last administration encouraged debate and sought many different perspectives before steamrolling its own legislation through. Why you continue to see a difference between these parties is beyond us. These will all be moot points if the Russian, Chinese and U.N. proposals for an international reserve currency gain traction.
“I know you are trolling with your story of debris in the alley,” another reader writes. “There’s something beyond incongruous in ridiculing government while at the same time relying on government assistance to clean up the mess some evildoer did to public property. Don’t you see any contradiction here?

“Government can’t do anything right, but when there’s an act that impacts the common good, you call government tout de suite. And then insult the poor sod that comes to check out the complaint. Kudos to you for loading the taxpayer-supplied truck. It seems like you did receive some benefit from those taxes after all, even if your own labor was needed as well.”

The 5: Incongruous? Or entertaining. We thought the episode was illustrative of how government actually works… rather than the theory of it. We did anything but insult the guy, by the way. It was more like we were dirt on the bottom of his shoe that he couldn’t be bothered with.
“The irony of all this,” adds another, “is that you are forever telling people NOT to rely on the government, yet that’s exactly what you’re doing and are pissed that they aren’t bailing you out with your poor little garbage pile left by someone else. Get a pickup and shovel and do it yourself just, as you’re always preaching!”

The 5: You really think we were pissed? There are a group of Mexican laborers being housed down the street by our contractor. Before the city “supervisor” showed up on Sunday, we were considering asking them to help clean up the mess.

“BTW, I love you guys,” the reader continues, “I’m saying this with a big ol’ 5 Min. Forecast smirk on my face. Keep up the good work, guys, and God bless.”

The 5: Cheers.
“In the past 10 years,” writes the last reader, ”there has been a significant increase in the productivity of the American worker… yet wages remain stagnant. Meanwhile, there has been an unprecedented rise in executive compensation. Now under the auspices of those selfsame overcompensated executives, the whole thing comes crashing down, hurting the working people in terms of jobs and savings the most.

“I know you probably have little or no contact with the working men and women of this country, but it doesn’t take a rocket scientist to understand that they are really, really pissed off, as they have a right to be, and that they are finally demanding their elected officials do something about it. If you live in proximity to the bloated plutocrats, I suggest that bags of construction waste in your driveway may soon be the least of your problems.

“The working people of America want their money back.”

The 5: Funny you should point that out. We were in Red Emma’s coffeehouse on Friday. An elderly gentleman who could have easily played the part of the academic Byron describes above asked when Red Emma’s radical book fair was being held. Apparently, he was visiting from New York City and wanted to come back to attend and lend support.

“It’s in mid-September,” the barista replied.

“Oh, well, we’ll be in revolution by then,” the aged man shrugged to his bereted friend and walked out.

We’re not convinced American workers have gotten more productive. That’s a claim Greenspan has been making for years, too. We are convinced they’re feeling a lot more entitled, though.

P.S. The city sent a different supervisor out yesterday. We found him poking through some bushes in our backyard. He said he was investigating a sewage leak reported by someone at our address. Heh.

Source:China’s Threat, Stocks Soar, A Housing Solution and More!

This from Investment U:

Recall, in late March I predicted here the dollar was overdue for a rally. Ninety-six percent of you cursed me. The other 4% pocketed an easy 20% or so (more if you played the options market).

But after such a swift run – mind you similar moves in currencies typically take years, not months – is the dollar rally finally coming unhinged?

Legendary investor Jim Rogers seems to think so…

As he told Bloomberg News in a TV interview, he plans to exit his dollar holdings because he thinks the dollar “will go down a lot” and it is “going to lose its status as the world’s reserve currency.”

To which I simply respond, “Into what Jimbo?”

No other choice for a reserve currency exists. No matter how much other governments wish it were so.

The euro is frequently mentioned. But it’s depreciating in value. And there’s not enough liquidity to handle the demand. Plus, it’s still a prepubescent, experimental currency, not one governments can invest in with 100% faith.

Moreover, with two-thirds of foreign reserves already in dollars, it would take more than eight years to replace the dollar as the currency of choice.

So once again, I’m striking out on my own. (And I’m ready for the flood of fan e-mails.) While many pundits would like you to believe that the dollar rally will be short-lived, I completely disagree.

The dollar’s not done.

Today I offer up three more reasons why. And of course, three ways to play it…

Too Far, Too Fast? Hardly…

Keep in mind, currency rallies tend to be measured in years and months. Not weeks and days. In fact, according to Bespoke Investment Group, the average dollar rally lasts 489 calendar days. The longest rally on record lasted roughly 10 years.

While I don’t think we’re in store for a historic run this time, I do think the current rally has more legs (about another year based on the averages out of Bespoke).

Aside from no alternative world reserve currency, here are three more fundamentals in defense of the dollar:

Further Interest Rate Cuts
Foreign governments bought into the farce that was decoupling. As a result, they remained hawkish for way too long, keeping interest rates too high, at a time when they should have been cutting them to stimulate growth. And now they’re scrambling to catch up. They must make growth their first priority. So further interest rates cuts are inevitable, narrowing the gap with U.S. interest rates. And before long, perhaps the middle of 2009, we could be raising rates while other countries are still lowering.

Continued Deleveraging
As Mark Astley, CEO of Millennium Global Investments, a U.K.-based currency manager notes, “there is a pyramid of leverage” in the financial markets that will take considerable time to unwind. The half-frozen credit markets are only slowing down the process. As they thaw out completely, expect hedge funds and foreign banks to keep buying up dollars.

Uncertainty Reigns
Despite a new president, uncertainty remains in the markets. Or as UniCredit wrote in a recent research note, “We do not expect global recession fears to wane considerably.” And during times of fear and risk aversion, the dollar tends to outperform.

Bottom line, the current rally has plenty of room to run. If you dare to be contrarian, here’s how I recommend you play it…

Consider Pure Plays
For a pure play on the U.S. dollar – without trading the currency markets – I recommend the PowerShares DB US Dollar Bullish Fund (AMEX: UUP). It’s designed to replicate the performance of being long the greenback against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

Another strong choice is the EverBank* DollarBull CD. Available in 3-, 6-, 9- and 12-month terms, it offers potential appreciation in the U.S. dollar against a selected foreign currency. If you opt for the latter, I recommend going long the U.S. dollar versus the euro.

Take Profits on Unhedged Multinationals
Consider taking profits in multinationals with significant foreign currency exposure. I say that because the rapidly strengthening dollar will dent future earnings in two major ways. First, because profits earned abroad will be worth less, as they’re translated back into dollars. Second, because demand for the company’s products will drop off, as they will be more expensive to foreign buyers. We’re already seeing this double-whammy hurt third-quarter results for some big multinationals. But if the dollar holds its ground, or strengthens further, the impact will be much more dramatic in the fourth quarter. So get out while you’re ahead.

Buy American
While the dollar was plummeting it made sense to buy companies with significant international sales. They provided a nice currency hedge. However, a strong dollar means we need to reverse course and seek out companies with zero (or minimal) international revenues. I’d stick to solid companies in the utility, health care and consumer staples industries, as demand will remain steady no matter how long the recession lasts.

In the end, I know my dollar stance is contrarian. Or as many of you put it last time, “ignorant” and “completely out of touch.”

I’d add “profitable” to that list now. And I don’t expect this time to be any different.

Source: Jim Rogers is Wrong… The Dollar’s Not Done

This from The Daily Reckoning:

Sunday afternoon, we sat down in the large leather chair in front of the fire. Its arms were shiny and worn…much lighter in color than the rest of the brown chair.

Immediately, we felt wiser. Then, a blindingly bright flash of insight seem to come out of nowhere. Suddenly, we saw into the dark heart of the beast itself – and peered into its soul. And then, we watched in horror. In our mind’s eye we saw images of recession… depression… despair… desperation… and finally upheaval…in which the whole system…the world’s dollar-based money system…came crashing down.

Yes, dear reader. We are a proud heir to Dr. Kurt Richebacher. Not of his weighty intellectual career in economics. We are heir to his chair. After he died, his estate sold us his chair. We keep the Dr. Kurt Richebacher chair in our library. Sitting in it this weekend, we thought we saw the whole financial crisis more clearly.

“The only cure for a Bubble is to prevent it from developing.” said Kurt Richebacher .

In other words, you can’t cure a Bubble by cutting interest rates, easing bank lending requirements, running bigger government deficits, sending out ‘rebate’ checks, buying up Wall Street’s stupid mistakes, or bailing out sinking businesses. You can’t cure a bubble by reflating it. You can’t cure a bubble at all. You have to let it pop…and then go about your business. Get it over with quickly; that’s the best you can do.

Think that will happen? Where have you been, dear reader? Out of blackberry range?

No, the feds are at work – with their patches, their rescues, their bamboozles and their swindles.

In our brief moment of clarity, induced by the Richebacher chair, we saw what was coming – the biggest financial bailout of history. It will be like WWII, without Betty Grable…like the New Deal without the wheelchair – and like nothing we’ve ever seen.

Saving America from free-market capitalism will become the Great National Project of the Obama years. Deficits will top $1 trillion…maybe $2 trillion. Brain dead businesses will be kept alive. Whole industries that should be allowed to go broke will be protected. Towns, states, and colleges that should go bust will be propped up. There will also be a huge building boom – in infrastructure. Bridges, trains, highways…

… it may be time to buy cement companies!

The bailouts are just money down the drain. As for the bridges, who knows whether they are worth the money? But this massive program will achieve its real purpose – distracting and diverting Americans from their loss of wealth.

Source: Millions Of Mistakes Need Correcting

Don’t panic – yet – if you live in Britain, because we’re not talking about dear old Blighty. But across the Channel, Jean Claude Trichet is talking tough. He’s the president of the European Central Bank (ECB), in charge of guarding the value of the newest big kid on the global currency block, the nearly 10-year old euro.

And now he’s fast becoming the hero of inflation fighters everywhere. Because yesterday, amid the usual turgid guff that central bankers usually churn out when they’re doing nothing very much, he came up with a bit of a bombshell – an imminent interest rate rise.

Although key rates are being kept unchanged for now, the ECB’s Governing Council has been getting more and more twitchy about climbing consumer prices which have risen “significantly” since last autumn due to soaring energy and food prices. And now Monsieur Trichet and co. expect inflation to stay high for longer than it first thought, because money supply is still growing too fast.

So not only are Euro central bankers staying “in a state of heightened alertness”, they’re prepared to “act in a firm and timely manner to ensure that medium term risks to price stability do not materialize”, and to show “strong determination to anchor medium and long-term inflation expectations in line with price stability.”

In short, expect an ECB rate hike next month.

It’s certainly seems to have come as a bit of a shock to many analysts. Just a week ago, Capital Economics was fairly confidently predicting that with eurozone inflation set to ease later this year, “the next move in interest rates should be down”.

But it’s good to see that some central bankers this side of the Atlantic are still taking their jobs seriously and trying to maintain the value of their currency. Which, it seems, the ECB can do rather more easily than Bank of England governor Mervyn King.

He’d probably like to do the same as the eurozone, with UK inflation seeping above the 3% mark at which he has to pen an open letter to Chancellor Darling explaining what’s gone wrong, but his hands are tied while the UK economy is falling off a cliff. And it looks like the knots are getting tighter by the day, with the unwelcome news that Mr Darling has now decided to give Mr King some extra outside ‘help’ in “advising” the Bank about “financial stability”.

That sounds horribly like Government-speak for finding ways to fiddle around with the Old Lady’s independence, and specifically to find ways of altering the Bank’s 2% inflation mandate. That would be a serious mistake – changing the target again would just chuck any remaining financial credibility the UK has left, right out of the window.

Talking of being a credible inflation-battling central banker, US Federal Reserve boss Ben Bernanke certainly isn’t one, having presided over a cavalier slashing of American interest rates in the face of a worse inflationary storm than the ECB is battling. But to be fair to the Fed, not quite all his colleagues are in quite the same boat.

Richmond Fed president Jeffrey Lacker has just ‘fessed up to his fears that the Fed’s lending to securities firms introduced in March could stoke up problems in the future, because it might “induce greater risk taking, which in turn could give rise to more frequent crises”.

In other words, we could soon be right back in the same boom-to bubble-to-bust mess from which we’re now suffering.

Thank goodness someone in authority in the US has seen the dangers. Though it’s a shame that Mr Lacker isn’t running the whole Stateside central bank show. Then we might see some rate rises over there, too.

Source: Why Europe’s Got It Right on Inflation

Even our fish is wondering. He darted back and forth acrosss the tank this morning as we both watched the overnight report from New York on TV. Who knew fish could be stressed by rising commodity prices?

Our old friend Kevin Kerr back in the States reckons that the combination of peak North American driving season (the Memorial Day holiday this weekend) and a touch of financial speculation will pressure prices higher. There is no relife in sight, either.

Is it demand? Is it speculation? Is it OPEC punishing George Bush for the war in Iraq? OPEC, as we explain in our two-part essay beginning tomorrow, thinks there’s plenty of oil. It’s the declining U.S. dollar that’s to blame. OPEC says that for every one percent decline in the dollar oil rises by US$4, and vice versa.

The solution to high oil prices, then, is not increased supply or reduced demand, but a stronger U.S. dollar! Well, there is certainly some truth to that, but it is not likely to happen any time soon. As a tangible good whose supply cannot be increased by a central banker, the oil price (a little like the gold price) tells you there’s too much paper money chasing too little stuff.

The U.S. dollar, by the way, is not cooperating to bring oil prices lower. After its recent, much-ballyhooed rally, the dollar is giving back some of its gains. It fell yesterday against the euro, the yen, and the pound (the four other ugly contestants in this global currency beauty pageant…where the winner is the least ugly.)

The Aussie dollar played a role in the demise of the U.S. currency yesterday. Australia’s dollar is again at a 24-year high against the greenback. The kicker yesterday came from the release of the notes from the Reserve Bank’s most recent meeting.

The Bank didn’t raise the cash rate then from 7.25%. But the notes reveal it came awfully close. That information was enough to persuade some currency traders to sell America’s currency and buy Australia’s.

After reviewing the conditions in the global financial market (not so good) and the conditions in Australia’s domestic market (much better), members of the Board scratched their collective heads and decided not to raise the cash rate. There was a lot of talking, and wringing of hands, and gnashing of teeth, though.

“The question therefore remained,” after much private discussion, “whether the setting of monetary policy was sufficiently restrictive to secure low inflation over time. Members spent considerable time discussing the case for a further rise in the cash rate. But on balance, given the substantial tightening in financial conditions since mid 2007, and the extent of uncertainty surrounding the outlook, the Board decided that it was appropriate to allow the current setting of monetary policy more time to work.”

A near miss.

The Bank also said something interesting about the terms of trade (which is admittedly a challenge). Housing and business finance have both slowed down. This helps “moderate domestic demand,” to use a central banking phrase. Fewer Aussies borrowing (money and credit creation from thin air) also, hopefully, lowers inflation below the 4% rate its officially running at.

But the strong Aussie dollar is creating a monster in the terms of trade. The notes report that, “Members were briefed on the large increases in bulk commodity contract prices that had been agreed over the past month. In US dollar terms, there were price rises of 80 per cent for iron ore, over 200 per cent for coking coal and 125 per cent for thermal coal.”

Old news. But it’s still astonishing when you look at it, isn’t it? No wonder coal and iron ore stocks are flying.

“Other commodity prices were also high at present,” the notes continued. “The price of Tapis crude oil had risen steadily so far this year, and base metals prices were not far below the peak reached in mid 2007 after having roughly doubled over the previous three years.”

Here is the real surprise; “The rises in bulk commodity contract prices were significantly higher than previously forecast and would lead to an estimated rise in the terms of trade of 20 per cent this year. The increase in the terms of trade was expected to boost national income by about 3–4 per cent, which would be a significant potential stimulus to spending, notwithstanding possible constraints inhibiting a further rise in business and public-sector investment spending.

You can raise the cost of borrowing. But if what you sell to the rest of the world keeps going up in price, and you’re selling more of it, you’re going to have wads of cash in your pocket. That’s itchy.

And here is a statement that puts the entire boom in global perspective, “Members were informed that, measured by the change in the terms of trade over the past five years, Australia had received a larger income gain than any other comparable country, even before taking this year’s projected increase into account.”

Is there another country in the world that’s gained more from the commodity boom than Australia? No, according to the RBA. And that’s before that recent triumvirate of nearly triple digit gains in bulk commodities is figured in.

What does all this mean for shares? Well, the oil price is having two effects, with a third off in the distance. The first is obvious, energy stocks are zooming. Second, the high oil price is making many other unconventional and alternative energy projects sensible as alternatives. THOSE stocks are picking up too.

Eventually, you have to believe that what’s good for the energy sector is bad for the rest of economy—energy being a cost for the rest of us and not a source of income. But we haven’t reached the point yet where high petrol or gas prices are reducing business production or household consumption.

For bulk commodities and minerals, we reckon the land grab will rush on, moving from resource to resource and project to project. Our latest investigative project in the small cap letter…well we won’t give it away. It comes out later this week.

Gold has not been idle either. You’ll notice it appears to have completed its consolidation after the first charge to US$1,000. After regrouping, shaking out the weak hands, and giving the dollar its due, gold is on the march again.

Our friend Kevin was on CBS Marketwatch this morning telling the host that gold could reach US$1,300 or US$1,500 in “just a few months.” His original forecast was for a move to US$1,500 in twelve months. But the speculative money is moving fast, Kevin says, and that could drive the move more quickly than he expected.

Make no mistake: If that happens, there are two clear culprits – current Fed Chairman Ben S. Bernanke, and his predecessor, Alan Greenspan.

Bernanke “and Greenspan together will probably bring [about] the end of the Federal Reserve,” Rogers said during the interview in Singapore. “We’ve had two central banks in America that failed [and] this third central bank will probably fail, too, because of Bernanke and Greenspan. The Federal Reserve [just] put $200 billion more onto its balance sheet of mortgages. Now I don’t know how big they can expand their balance sheet, but if they keep doing it, there’s only so much – and they just bought Bear Stearns (BSC).”

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers “retired” in 1980 that the investing masses got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as “Investment Biker” and the just-released “Bull in China.” And he made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.

Given Rogers’ prescience – not to mention all the uncertainty facing U.S. investors right now – we thought it was well worth a sit-down with the noted guru, even though it meant traveling all the way to Singapore, where he now lives with his family, to do so.

During that interview here in Singapore, Rogers also said that:

• Although the United States faces perhaps its most daunting economic challenges in at least a generation, “in America, most people do not understand that there is a problem.”
• Because of these weak-dollar efforts – as well as the billion-dollar bailouts – “America is now the largest debtor the world has ever seen.”
• Although the central bank seems intent on engineering a U.S. economic rebound by creating an ultra-weak dollar, no country in history has ever emerged from a serious financial crisis by “debasing its currency.”

The bottom line: The strategies that the central bank is currently employing are nothing short of “outrageous,” Rogers said.

“You know, I’ve read the Federal Reserve Act,” he said. “Nowhere does it say [the central bank is] supposed to bail out investment banks! Nowhere does it say you should bail out Wall Street. Their mandate was to have a sound currency, and then it was later expanded to have employment – to help employment. But nowhere does it say: ‘Bail out investment banks.’”