Global currencies have come into the spotlight this year as struggling economies like the European Union and the U.S. have issued massive stimulus to jump-start growth. The result is that emerging-market currencies have popped as investors turned to the higher-yielding currencies leading to accusations that some countries are artificially depressing their money.
China also has come under significant fire by not letting its local currency, the renminbi, appreciate fast enough in value, meaning its goods are cheaper to buy in other countries which helps its export business. On the flip side, other countries have a harder time breaking into the wallets of the Chinese consumer because of the high import price.
Currency battles ignited even more as the European sovereign debt crisis and contagion fears spread throughout the EU. The euro plunged to levels not seen since the Lehman Brothers crisis and had many investors calling for parity with the dollar. The CurrencyShares Euro Trust (FXE) fund has fallen 8.5% year to date.
Although the dollar has gained as the euro suffered, expectations are that the Federal Reserve’s $600 bond-buying program will lead to money printing and devaluation.
With sentiment negative on the euro and mixed on the U.S. dollar, I recently sat down with Rogers, a legendary contrarian investor, to see what currencies he would be buying and which ones he would be avoiding.
I want to get your take on what the fate of the euro will be in the next year .
Rogers: Next year? I’m not smart enough to know that; you should watch TheStreet.com … I’m not very good at short-term trading or market timing. I own the euro; whether I own it another day or another year or another five years I don’t know. I don’t think it will be around in 10 years so I doubt if I’ll own it then but I have to watch to see what happens.
So if you don’t think it’s going to be there in 10 years, why are you owning it now?
Because last summer everybody got extremely pessimistic and everybody was dumping the euro as fast as they could and in my experience when everybody’s on one side of the boat you should go to the other side of the boat and so I stepped in and bought it and it went up.
What about the dollar?
Same thing. I own the U.S. dollar because everybody in the world is pessimistic on the dollar including me … It doesn’t always work, but most of the time when you go against the crowd you will make money.
Now the dollar has had a nice rally in the past three months. Have you been thinking about selling at all?
I think about it every day, I think about selling the euro every day, of course I do, who knows, but so far I still own [them].
Do you know what it is going to take for you to sell the euro and the dollar ?
Well, lots of exuberance, the same thing. If everybody gets widely enthusiastic and thinks the euro’s OK now or the dollar’s OK now, then I would probably be forced to sell. Things are happening with the dollar that could make it more attractive. I mean they are talking about giving tax incentives for people to bring their dollar holdings back home that can make the dollar go a lot higher for a while. Things could happen and we’ll just have to wait and see how it works out.
What other currencies do you like right now?
The renminbi. I own and every chance I get I buy more renminbi because it’s not that easy to buy the renminbi. You can’t just pick up the phone and buy more renminbi, but when I can and I’m there I buy more renminbi. I don’t like to use the word “safe” talking about investments but probably the least risky investment I know of any kind is to own the renminbi. I don’t see how one can fail by owning the renminbi over the foreseeable future.
Well, first of all, it’s a blocked currency and some people say it’s artificially low. The Chinese are the largest creditor nation in the world. They have a huge balance of trade surplus so they are doing many things right so normally it means a currency will rise.
They’re not letting it rise as much apparently as they should, so as they continue to free it up, and they are freeing it up, you are going to see the renminbi go higher and higher. In the meantime, I get paid interest for owning the renminbi.
How does inflation factor in though?
Well, there is inflation in China, I won’t say it’s serious, [but] there is more inflation than there should be. That’s not good and part of the reason is because there is a blocked currency. In my view, if they just let the currency rise it would help the inflation problem. They don’t see it that way … There’s inflation here too even though we deny it. At least the Chinese acknowledge inflation. They may be understating it, but they certainly acknowledge it’s there.
What about other emerging-market currencies like the Brazilian real. Would that be interesting?
I don’t own the real; I should own the real it’s certainly gone up a lot. They’ve started imposing exchange controls recently to try to keep their currency down, which is nearly always a mistake. Other than that I don’t see any other emerging-market currencies that I want to be buying anytime soon.
Any currency that you’re actively going to avoid?
The ones I don’t own.
Like the British pound?
The pound? No, no, I wouldn’t buy the pound with your money. No, no, no, I am not interested in the pound at all. It’s got a terrible, terrible fundamental situation just as we do in the U.S. I do own the U.S. dollar, but the pound I am avoiding. That’s what I said; all the ones I don’t own are the ones I would avoid.
Stay tuned for my next Q&A with Jim Rogers as we talk about growth in China and other ways he is investing in the country.
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