Inflation data is 'a sham,' Rogers tells Reuters conference

By Steven C. Johnson and Frank Tang
Reuters
Tuesday, December 7, 2010

NEW YORK -- U.S. government inflation data is "a sham" and is causing the Federal Reserve to vastly understate price pressures in the economy, influential U.S. investor Jim Rogers said on Tuesday.

The U.S. central bank uses inflation data that relies too heavily on housing prices, Rogers told the Reuters 2011 Investment Outlook Summit, and he criticized the Fed's $600 billion bond-buying program.

Rogers, who rose to prominence after co-founding the now defunct Quantum Fund with billionaire investor George Soros some four decades ago, said he was betting against U.S. Treasuries. "I expect interest rates in the U.S. to go much, much, much higher over the next few years," he said.

The core personal consumption expenditure index, which removes food and energy costs, is the Fed's favored measure of inflation and was flat in October for the second straight month.

"Everybody in this room knows prices are going up for everything," Rogers told the Reuters Summit.

The Fed began its $600 billion bond buying program last month, its second round of quantitative easing, to boost a sluggish U.S. economy, citing excessively low inflation and high unemployment.

The Fed has held short-term rates near zero since late 2008, and the 10-year Treasury yield hit 3.18 percent on Tuesday, its highest since July.

On commodities, Rogers said he remains bullish in general, particularly given loose monetary policies and high debt levels in the United States and other Western economies.

"If the world economy gets better, commodities are going to go up in price because there are shortages. If the world economy does not get better, you should own commodities, because (central banks) are going to print more money," he said. "Real assets are the way to protect yourself.

Rogers also said the price of gold will rise eventually above $2,000 an ounce. The price of spot gold on Tuesday hit a record high of $1,430.95 an ounce before falling back to close at $1,409.35.

Among currencies, Rogers said the Chinese yuan is the most attractive, and, when pressed, forecast that Beijing would probably allow full convertibility by 2013.

Though China manages the value of its currency, it began letting it rise more rapidly against the dollar this year. The dollar is down 2.7 percent against the yuan so far this year, after barely budging in 2009.

Rogers called the European Union's 85 billion euro bailout for Ireland bad morally and "bad economics," and said the mishandling of Europe's debt crisis could spell the eventual end of the common currency,

"They are corroding the value of the euro, and they are corroding the value of the European community," he said. "I don't expect the euro to be around within 10 to 15 years because they keep doing things like this and destroying the value of the euro."

Portugal and Spain could be the next countries to require assistance, he said. "The way we are going right now, we are all going to be bailed out, which is not going to make the system better."

High debt levels in the United States and Britain will also spell trouble for the dollar and British pound in the years ahead, Rogers added.

He said U.S. efforts to bail out its own troubled banks after the financial crisis and the subsequent rise in public debt may mean "we are going to have another lost decade or two."

http://www.reuters.com/article/idUSTRE6B66S320101207