Wealth Building Lessons

According to Bloomberg, Jim Rogers is in the process of getting all his assets out of the dollar.

“I’m in the process of, I hope in the next few months, getting all of my assets out of the dollar. I’m that pessimistic about what’s happening in the U.S.” Rogers said.

“The yuan is the best currency to buy right now, I don’t see how one can really lose on the renminbi in the next decade or so. It’s gotta go. It’s gotta triple. It’s gotta quadruple.”

The dollar is just about the worst performing currency this year. Of the 16 actively traded currencies, only the Mexican peso has fared worse in 2007.

“It’s the official policy of the central bank and the U.S. to debase the currency,” said Rogers, “The U.S. dollar is and has been the world’s reserve currency, the world’s medium of exchange… That’s in the process of changing. “The pound sterling, which used to be the world’s reserve currency, lost 80% of its value, top to bottom, as it went through the whole period of losing its status as the world’s reserve currency.”

According to Andy Mukerjee, a writer for Bloomberg based out of Singapore, economies across Asia are feeling the pressures of inflation. He thinks many of South East Asian currencies will appreciate as a result.

” Asian nations are in a bind. Currency traders are closing in on the kill.

Monetary policy in the export-dependent region has made a valiant effort since 2002 to suppress appreciation in the real, or inflation-adjusted, exchange rate as capital inflows grow.

With each passing day, however, the fight is getting tougher. Gross capital inflows into Asia — China, India, Hong Kong, Indonesia, South Korea, Malaysia, Singapore, Thailand, Vietnam, Pakistan and the Philippines — have now risen back to the record highs recorded before the financial crisis of 1997.

These flows are causing Asian assets — from stocks to real estate — to boil over. Limiting foreign capital to more manageable levels requires a reduction in Asian interest rates, something that isn’t possible any time soon because of inflation.

And that’s an opportunity for currency traders”.

He’s also gone into specifics regarding various countries.

“Singapore’s landlords have already pushed their tenants into a corner; now they may be testing the central bank’s patience. If the global economy doesn’t slow in 2008, the island’s monetary authority may have to tighten its policy to manage the impact of skyrocketing rents on consumer prices. And that means there is a good chance of a stronger Singapore dollar”.

“When the Fed stopped raising interest rates in June 2006, the three-month interbank interest rate in South Korea was 1 percentage point lower than the comparable U.S. rate.

Since then, Korea has had to progressively raise the cost of domestic money to deal with a liquidity-driven asset bubble. Yesterday, Korean rates topped U.S. interbank borrowing costs for the first time in more than two years.

If Korea raises borrowing costs again — which it just might because money-supply growth is still very rapid — the interest-rate differential will become even more supportive of fresh dollar funds coming into Korea.

The Korean won will appreciate”.

If the Bank of Korea cuts interest rates “in an effort to resist currency appreciation, it could compound liquidity growth and risks fueling inflation or asset-price bubbles”, according to Lehman economist Kwon Young Sun.

The Reserve Bank of India faces a similar dilemma.

The rupee has already appreciated 10% against the dollar this year, which is its strongest level since May 1998. If it wasn’t for the Central Bank’s $38 billion of U.S. currency purchases in the first seven months of 2007, the rupee would have climbed even higher.

Preventing the rupee’s appreciation is key to preserving export competitiveness. So the Central Bank will continue its purchases of the US Dollar. “We flag heavy RBI intervention,” Yen Ping Ho, a currency strategist at JPMorgan Chase & Co. in Singapore.

Andy Mukherjee thinks this will have an inflationary effect on the Indian economy.

“The Indian central bank has managed to steer the economy to a soft landing: Mortgage demand is falling, vehicle sales have slowed, and bank credit is now growing at a sober 23 percent, almost a 10 percentage-point decline from a year earlier.

At some point, the central bank will want to take its foot off the brakes and let the economy reaccelerate, though with local energy costs depressed by government fiat and waiting to be repriced, premature monetary easing may be inflationary”.

He also thinks the Chinese won’t allow the currency to appreciate too much.

“China is facing its worst inflation scare in a decade.

That makes it almost certain that the authorities won’t want the yuan to follow the dollar’s decline, though how far the Chinese currency rises is anybody’s guess.

It’s unlikely that China will use the exchange rate as the main tool for cutting its trade surplus and easing the country’s liquidity glut. The strategy for dealing with the latter is to export more domestic capital into the Hong Kong stock market.

Investors looking for significant appreciation in Asian currencies this year may be disappointed”.

If you’d like to align your investments along with Jim Rogers and Andy Mukherjee, you can buy a bundle of foreign currency CDs from Everbank.com. They do however come with lock-in periods and large minimums. (I think its around $20,000 for the mixed basket and $10,000 for individual currencies). There’s also various currency ETFs like FXA, FXC, FXY, FXS, FXE and FXB.

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