Rogers Dumps the Dollar, The Coming “Doozy,” Merrill’s $8bln Loss, Russian Wheat Crisis, and More!

by Addison Wiggin & Ian Mathias

  • Bush’s fiscal record labeled worst since LBJ by major newspaper
  • Which well-known investor is pulling 100% of his assets out of the dollar… and why
  • Ready for a “doozy” of a recession? Famous fund manger calls for market mayhem
  • Merrill Lynch stuns analysts with $7.9 billion in write-downs… Amoss on this “testament to the times”
  • Russians freeze food prices… how politics as usual in Russia are affecting your food costs

“George W. Bush, despite all his recent bravado about being an apostle of small government and budget slashing, is the biggest spending president since Lyndon B. Johnson,” write the McClatchy papers this morning.

Citing a recent Cato Institute report, the paper reinforces our long-standing opinion that, when it comes to spending, our president is far from “conservative.” Aside from the chart above, here are the highlights:

– Discretionary spending soared in Bush’s first term by 48%, not adjusted for inflation, more than twice as much as Bill Clinton spent (21.6%) in two terms

– Defense spending under Bush has grown an average of 5.7% a year, compared with LBJ’s 4.9% (adjusted for inflation)

– Homeland security spending was up to about $31 billion last year, three times the pre-Sept. 11 number

– Education spending is up, adjusted for inflation, 18% annually since 2001

– The 2002 farm bill caused agri-spending to double from 1990s levels.

– “Then there was the 2003 Medicare prescription drug benefit — the biggest single expansion in the program’s history — whose 10-year costs are estimated at more than $700 billion” said the paper.

“He’s a big government guy,” said Stephen Slivinski, director of budget studies at Cato Institute. “He has presided over massive increases in almost every category… a dramatic change of pace from most previous presidents.”

“While the consensus expects a strong dollar again next year,” wrote the late Dr. Kurt Richebacher five years ago, citing concerns about the profligate spending of the Bush, “we see it falling over time to new all-time lows against the major currencies.”

The chart shows the weekly read of the Fed’s dollar index from May 29, 2002 — about the same time Kurt made his prediction — until today. There was barely even a false rally for the consensus to get behind.

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

The yuan is “the best currency to buy right now,” Rogers said. “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.”

“I think the credit situation is worse than anybody realizes,” said Julian Robertson on CNBC.

Robertson’s a bit of a legend. In 1980, he started his Tiger Management fund with $8 million… and grew it 875 fold into $7 billion over the next 16 years. He then closed it when he ceased to understand valuations on Wall Street during the tech boom… and bust.

Now he’s sounding the alarm for the economy at large. “I think we’re going to have a doozy of a recession,” he predicted. “The Federal Reserve and our government will trash the dollar until such times as there is some turnaround in the economy or until they realize that this policy is self-defeating.”

You can watch the whole Robertson interview here.

Yesterday, the dollar index, which was less than a hundredth of a point from an all-time low of 76 on Monday, regained a bit of composure, climbing all the way back up to 77. Whoa.

The euro traded at $1.42 this morning, the yen at 114 and the pound remains at a nauseating $2.04.

The loonie soared over a cent and a half yesterday. Canadian dollars traded as high as $1.039… a new 33-year high. The loonie managed this massive gain without oil’s help, which fell over $1 during the same period.

The Aussie dollar also made impressive gains overnight. The Aussie rose a solid half a cent on news that inflation was rising in Australia faster than expected… and thus a rate hike would be more likely at the Aussie central bank’s November meeting.

If you’re holding one of EverBank’s World Energy CDs, this is all good news. These unique CDs chart the movement of four energy-reliant currencies — the loonie, Aussie, pound and krone. And given the dollar’s performance of late, they still look like a good place to park your cash.

“The number of hectares devoted to wheat farming has been declining for 30 years,” Jim Rogers also said in his Bloomberg interview. “The inventory levels of food are at the lowest level since 1972.

“Suppose we start having droughts again. God knows how high the price of agriculture is going to go, so that’s where I’m putting more of my money now than in other things… I think I’m going to make more money in agriculture than I make in precious metals.”

Trade commodities like a Maniac…

Russian officials introduced some Soviet-style price controls this morning. In an effort to curb rising anti-Putin sentiment, Russia’s biggest food producers have “agreed” to freeze food prices at Oct. 15 levels on staple foods like bread and milk. Most retailers will not be allowed to mark up prices on these goods higher than 10%.

Yeah, history shows what a success price controls have always been. Good thinking, guys.

The Russian economy ministry, according to the Financial Times, is also considering increasing its new 10% wheat export tariff to 30%. Rumors of such a hike have pushed Chicago wheat prices up 6% this week.

The Dow and S&P finished up nearly 1% yesterday. The Nasdaq tacked on 1.6%. Apple, Google, Yahoo, Netflix and American Express all reported positive earnings.

“Many investors viewed the strong earnings reports, ” writes Joel Bowman “as proof that the U.S. consumer is resilient even in the face of the housing debacle and the global credit crunch.

“Surely, if strong earnings for gadget makers and credit card companies tell us anything, it’s that people are buying more junk they can’t afford. Credit card companies don’t make their money when people pay their bills on time… they make it by charging exorbitant rates of interest and fees when they don’t.

“If we wanted to know about the purchasing veracity of Mr. Anytown, USA, we’d be more inclined to look at Wal-Mart. The U.S.’s largest retailer was the poorest performer of the 30 companies listed on the Dow yesterday, losing $1.32, or 2.9%.”

Money manager T. Rowe Price shocked us this morning when the group announced a 37% rise in profits during the third quarter.


That’s right… T. Rowe Price is one of the very few big-name financials to register a profitable third quarter. T. Rowe’s fixed income department proudly stated that the firm has never invested in CDOs, and that only 1.5% of its money market funds are exposed to structured investment vehicles.

Good for them.

Merrill Lynch wasn’t so prescient. This morning, the firm announced a behemoth $7.9 billion write-down in the third quarter. The investment bank cited risky loans and collateralized debt obligations (CDOs) as the main source of its massive losses.

Most analysts were expecting somewhere in the $5 billion ballpark. “Merrill’s earnings are a testament to the unreliability of Wall Street’s books at this time,” comments Dan Amoss. “This is ‘mark-to-whatever-you-want’ accounting…. when there’s no market, these ‘marks’ are meaningless.

And there’s likely more trouble ahead, suggests Dan, ogling this chart:

“Charts don’t get this bad this quickly,” Amoss explains, “unless the market’s worried about solvency at these private mortgage insurers.

“If even one private mortgage insurer fails, the game changes entirely for the banking system and the mortgage-backed security market. Private mortgage insurers absorb the early losses on mortgage defaults. So if they fail to pay out, then mortgage-backed securities portfolios — including the one at Merrill — are sitting on a lot more default risk than they think.”

“Now I’m startin’ to get riled!” exclaims a reader. “I am one of the baby boomers your namby-pamby 44-year-old writer was so upset with. He proceeded to rant and rave about how he and his wife had paid 150,000 into Social Security already and how I was stealing his children blind.

“Well, my wife and I have been paying into Social Security since your writer was peeing in his diapers. Quite frankly, I don’t even want to think about how much we have paid into the system so far. However, with your writer’s generous ‘dividends, interest, capital gains and compounding’ I am sure it goes well into seven figures.

“Further, with the new ‘means testing’ that I am confident is coming down the pipe, it is quite likely I will never see a stinking penny of it again.

“So when your 44-year-old writer wants to bitch and complain about how I am stealing 350,000 from his children, I hope he will think about the $1 million-plus that will most likely be stolen from me. And in the 26 years he has been a voter, I haven’t seen him materially address the problem. As for his closing remark, all I can say is, ‘Back at ya, buddy!’”

The 5 responds:
So… your money has been confiscated and pissed away, too. But you’re pissed because more of yours has been taken than his. And like the rest of us, you don’t expect to see any of it back. Why are you hurling epithets at each other?

We feel a bit like Jerry Springer on the issue of entitlement spending. Like child molestation or cheating spouses, the sooner we get the subject on the mat, the sooner the healing can begin… if there’s such thing as healing for the victims of such self-indulgent and egregious crimes.

The rapscallions we’ve sent to Washington don’t dare discuss the subject publicly. When we approached Nancy Pelosi, for example, to be interviewed for our documentary, she replied: “Who in the hell would make a movie about the federal debt!” She declined the interview. As have all the candidates running for president in 2008… except for Ron Paul.


Addison Wiggin
The 5 Min. Forecast

Bush is the biggest spender since LBJ
Russia to control food prices
Jim Rogers Shifts Assets Out of Dollar to Buy Yuan


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