Thursday, October 23, 2008

Jim Rogers on CNBC

JSMINESET is a web-site that many of my GOLDBUGS read written by Jim Sinclair. Occasionally, and especially when am looking for a reason to get depressed, I read it. There is a lot on this site that I agree with, and I a lot I do not. You can judge for yourself. What I would like to point out this evening is an interview with Jim Rogers, author of many investment books - all of which I would suggest . ( scroll down to find it on the site, sorry I could not find it on CNBC) Quite some time ago I enjoyed a lovely dinner in his home with a group of friends and he is one smart cookie! This is a feisty interview so sit down, pour yourself a glass of wine, and enjoy.

He is saying what my husband has been saying for some time. All this talk of deflation is not really deflation. Yes prices are falling, but the final outcome will be massive inflation. If you want to get an understanding of what that 'could' mean... read more on the site. I am warning you, pour yourself an even bigger glass of wine first and prepare for some restless sleep.

For educational purposes here is the downward spiral that Jim is predicting for the US Economy. You might not agree, but it is indeed logical.

Jim’s Formula:September 1, 2006

1) First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.

2)This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.

3) We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.

4) The formula economically is inherent in #2 which is lower economic activity equals lower profits.

5) Lower profits leads to lower Federal Tax revenues.

6) Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.

7) The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.

8) The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).

9) It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.

10) If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.

11) Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.

12)This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.

Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.I heard all this "slow business" as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now."

Respectfully yours,Jim


Diane said...

Jim used to teach at Columbia and his book on the developing China market is excellent. When he says something, it is worth listening to, and when you comment on something it is worth reading.
Thanks for the POV and your comments.
A prestissimo,

yumi said...


Well said! In my mind, I depict "Super Women" (i.e. YOU) taking charge and leading a cultural revolution. Your passion and desire for change comes jumping out of the computer. A must read. Indeed, we need change. Not sure I would use the word "failed" but I get your point. Yet, we have actually come a long way vs. our parents' generation. Who would have predicted a women presidential candidate 20 years ago? Who would have predicted a CEO running a Fortune 100 company 50 years ago? However, YES, we have a long way to go.

You are right! We need change! As you have stated previously, "Good Men, Better world." and I think alot of this starts at the home of raising "good boys" that become "good men." Of course, we cannot ignore the strong influence of media too.

I love your passion and vigor. I am also grateful that you make us all think and challenge the status quo and stretch us to the next level.

Yours truly,