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These currencies may be destroyed
Fri, 18 Jun Pre-Open

Legendary investor Jim Rogers does not mince words to cite his preference for currencies and commodities. The investor is bullish on agricultural commodities. But when it comes to currencies, he believes a major crisis is on the cards. Rogers has been bearish on the US dollar for quite a while now. He believes that the US dollar's status as the world's reserve currency is in danger. Its downfall may be largely be propelled by the printing of paper money by the US government.

Nevertheless, Roger also believes that the dollar will rally in the short term. He had increased his holdings in the currency in recent times. And his prediction has come true. What is more, the dollar's status as the world's reserve currency also remains unchallenged so far. The reason for it is simple. While the dollar has its share of serious problems, other currencies are not exactly endorsed by strong economies either. And in the medium term at least, it seems unlikely that Roger's prediction will be proven wrong.

What is interesting is that Rogers is now buying even Euros. The chairman of Rogers Holdings predicts that bailouts for European nations will eventually destroy the single currency. However, he also says that it may take 10 to 15 years for the currency to disappear. Meanwhile he is cashing in on the negative sentiments on the currency.

We leave the analysis of the short term trend of these currencies to the investing legend. However, we cannot agree more with his opinion on the long term fundamentals of the US dollar and the Euro. Both currencies, once claiming a lion's share of global exports are quickly losing sheen. It may be quite some time before the Chinese Yuan gains similar status. Nevertheless, the fate of the US Dollar and the Euro are certainly sealed.

The demise of two housing legends

These twin companies were once hailed as the bluest of American bluechips. But so were Lehman Brothers and Merrill Lynch. However, what set them apart was their origination and government backing. US' largest housing finance companies - Freddie Mac and Fannie Mae - were created during the depths of the Great Depression in 1970's. They were meant to help make mortgage loans more affordable to borrowers. They funded more than half of American houses and made the economy into one with the highest mortgage debt. But their business model was not supported by conservatism. The entities grew for the sake of growth. And in the bargain put the taxpayer money as well their future at risk.

The crash in the housing market has pounded Fannie Mae and Freddie Mac with heavy loan losses since 2007. The once bluechips stocks are now nearing a sad demise. They have been trading for less than a dollar for more than a month. And the government has proposed their delisting. Their bailouts have already come at heavy cost to the US Treasury.

The key takeaway for investors here is that no entity is too big to fail. A bailout may provide the entity with critical resources for temporary survival. However, the fundamentals of a bad business may soon catch up with its fate.

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Mar 21, 2018 (Close)