#033 – Jim Rogers’ Silver Warning: “Parabolic Moves Always Collapse”

by Jay Carter on April 19, 2011

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Jim Rogers

Legendary investor Jim Rogers talks to us this week about the latest major developments in the gold and silver marets, among other topics.

Rogers started trading the stock market with $600 in 1968. In 1973 he formed the Quantum Fund with George Soros before retiring a multi millionaire at the age of 37. Rogers and Soros helped steer the fund to a miraculous 4,200% return over the 10 year span of the fund while the S&P 500 returned just 47%.

In this interview, Rogers comments on two big stories that caught our eye this week:  

  • The S&P ratings agency downgraded the outlook on US bonds to “negative.” 
  • The University of Texas investment fund just parked a billion dollars in gold bars in a New York vault.

He also reveals what may be the best Asian investment that isn’t on the radar of most American investors.

Here’s an excerpt of our interview with Jim Rogers:

Financial Survival Radio:  We just read that the second-largest university investment fund here in the US is buying physical gold.  The University of Texas, which is where I live, is putting aside $1B worth of gold in a New York vault.  Some have called this move a tipping point for the precious metals market.  Do you agree?

Jim Rogers:  Well, tipping point?  Gold’s been going up for ten years in a row.  I’d hardly call this a tipping point.  Silver’s been skyrocketing…

FSR:  Maybe a tipping point where we see more institutional mainstream demand. 

JR:  Well, again, that has been happening.  If suddenly all the pension funds wake up and say, I’ve got to own gold, they may start thinking about it more and more.  But the thing that’s been getting people’s attention is the fact that gold has been going up so much.  That’s the wrong way to invest.  Look, I own gold.  I own silver.  But where were these guys five, ten years ago?  That’s when they should have been doing all of this.  Unfortunately for all of us, most investors don’t notice something until there’s a good, nice bull market in place, such as with gold and silver.  After ten years of price rises in gold, people are starting to notice.  That’s what they’re noticing more than the fact that the University of Texas is buying gold.  I’m glad they did, I own gold.  And yes, there will be more people buying gold.  Eventually, everybody’s going to be owning gold, and then we’ll all have to sell our gold.  But that’s a long way from now.

FSR:  Silver in particular has been of great interest to my family.  It looks like $50 silver is going to happen very soon.  But Jim, will we see a triple-digit silver price in 2011?

JR:  If it does, we’ll all have to sell, because then you’ve got a bubble, a parabolic move and all parabolic moves end badly.  I certainly hope it doesn’t happen because I own silver and want to buy more.  My hope is, silver and gold and all commodities will continue to go up in an orderly way for another ten years or so, and eventually the prices will be very, very high.  Yes, we’ll have triple-digit silver, but if it happens this year, Jay, I would probably start to think about selling.

FSR:  But what we’ve seen so far, you wouldn’t consider parabolic?

JR:  No, not yet.  But I’m worried about silver.  If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year.  And then we’ll have to worry.  It’s not parabolic yet.  I hope something stops it going up in the foreseeable future and we have a correction.  You never know what might cause that correction.  But if they turn into parabolic bubbles in 2011, all parabolic bubbles have popped in the end.  There’s never one in history that hasn’t popped. 

Now, maybe the US dollar is going to become confetti in 2011, and if that’s the case and silver goes to $150, then obviously I wouldn’t sell my silver.  It would be the US dollar which is collapsing.  But if silver goes up the way you’re talking about without currency collapse, I would be very worried.

FSR:  So that’s the bottom line, those who have been holding on to precious metals for the long term need to watch where the Dollar is to decide whether it’s time to sell.

JR:  That’s certainly part of it, yes.  And you have to watch the price action.  I remember when gold went parabolic in 1980.  I shorted gold when it went parabolic in 1980, and it went higher for another two weeks after I shorted it. But it eventually collapsed.  Silver eventually collapsed.  All parabolic moves throughout history, there’s never been a parabolic move which hasn’t collapsed in any asset. 

Silver and gold, yes, will be a bubble someday, Jay.  There’s no question in my mind that all commodities will be a huge bubble someday.  But I don’t think that bubble is going to happen in 2011.  I think it’s going to be more likely 2017, or 2018…you know, a few years from now.  I’m not picking a year, just saying it’s a few years away.  It could happen sooner, but I hope not.

Hyperinflation In America:  How would hyperinflation expert Gonzalo Lira invest a hypothetical $10,000 to prepare for a US Dollar collapse?  Listen…

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{ 5 comments… read them below or add one }

Jeff April 19, 2011 at 1:39 pm

Jay I enjoyed the Jim Rogers interview. Towards the end you talked about valuing companies and reading balance sheets. Perhaps I’m wrong but I got the sense you might feel this to be a weak area in your financial education. So it is with me and my wife. Like you, we own silver, some gold, and apartments. We live debt free. We read extensively about stocks, companies, commodities, and real estate. In the end, and like you, I have a real estate brokerage license. I have come to conclude that it is not so much a weakness I have in understanding commodities or balance sheets of companies as I have a fair academic understanding. I think it is a matter of personal interest and / or emotional interest. I think people need to find the kinds of investments that “trip their triggers,” then put their time and energy into those. Diversification into the four areas of investment classes (paper, commodities, businesses, and real estate) is a nice idea but I believe it would be an extremely rare person who would have enough academic knowledge, have that emotional interest, have the time, or find enough resources to adequately stay on top of all four investment classes by themselves. One of our solutions in the stock area was to subscribe to a couple newsletters (Morgan Report and The Dines Letter), let them do the research and company valuations, then guide us through what stocks to buy or sell. We know enough to get into a class of stocks but we do not have the time or interest to do the research of all the companies available in a particular industry. So, this is our way of understanding our limitations and finding a way to create a “team” to help us out. I believe many gurus, including Kiyosaki (whom I believe you like) preach the value of teams to shore up the areas we are weak in, or are relatively uninterested in. You might be interested in the thought that you Jay are a part of my virtual team as I like listening to the various shows such as yours and The Financial Sense News Hour. I am “weak” in the area of communications. I’ve never really cared to be in the public eye nor do I want to attempt to interview people like you and Jim Puplava seem to do so well. Thanks for all you do and if you find your trigger has not been tripped regarding stocks, company balance sheets, and company valuations, perhaps that’s OK and all you really need is to find a new team member whom you trust to do the job well. Good luck with your investments!

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Jay Carter April 19, 2011 at 5:33 pm

Thank you, Jeff. I’m honored to be part of your virtual “team.”

I fully agree with you about the value of quality newsletters like the ones you mentioned. While I do plan to heavily rely on those kinds of services, I also want to at least learn as much as possible about how they reach their conclusions. For the moment, it interests me… from an analytical standpoint, I want to be able to see what they see. Of course, the moment it stops being interesting, that’s when I’ll just read and act on the newsletters!

Oh, by the way, it looks like Kiyosaki will be on again soon to talk about his new book. Can’t wait.

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Rick April 19, 2011 at 7:37 pm

Replace the FED with the free market. The little man Jim, is so full of shit.
I hate the FED, but Jim is just plain wrong. If and when the US goes down, so does the world. I don’t trust this guy. Lives abroad, shorts the US, and I guarantee he doesn’t pay taxes.

Plus, the root cause to all of this is Peak Oil. These guys never mention this. Their goal is to brainwash people, suck up the money while they can.

Ten years from now, he still considers buying silver. Wrong, Peak Oil will bring us down before then. PMs won’t save us. But, listen to theses types. They say the sky is falling, and it is bad, but then they things like, I would like to be buying silver 10 years from now, or some stocks will do okay. WTF? – if that’s the case, then the meltdown these types like Jim are calling for is BS. In other words, sounds to me like there’s a lot of fear mongering going on for self-profit by the wannabe and real elites – on purpose.

I’m not stupid, I own gold and silver. I listen to / and read a lot from the likes of Nicole Foss, I don’t like Lira, Max, Kunstler, Zero Hedge, Orlov, Gregor, and Richard Heinberg to name a few. I don’t trust WS types, at all and Jim is one of those.

Nonetheless, I think you have a pretty good site.

PS – The most important things going forward, will be food, water and shelter. Everything else won’t matter.

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Brent April 21, 2011 at 8:51 am

I have a question about something that was alluded to in the interview. If silver prices do become parabolic and it is due to a dollar collapse, what would you be selling silver for? I could see selling it for a strong currency, but at that point wouldn’t it be likely to barter silver for food or am I not seeing the entire picture?
Thanks for the great info you bring to the table Jay.

Reply

Jay Carter April 23, 2011 at 5:16 pm

Brent,

Yes – you could trade your silver for food or other necessities, if needed. Or, once you determine that silver has become an overvalued asset, you could trade the silver for whatever you might believe is now an undervalued asset.

Mike Maloney, for example, has said that he plans to trade in his overvalued silver (once he determines that it IS overvalued) for cash-producing rental real estate. I may do the same.

Jay

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