Commodities king Jim Rogers made the rounds with the media yesterday, speaking to, among others, the The Economic Times of India regarding his latest thoughts on the gold price.

Now living in Singapore, the 68-year-old American citizen reckons the gold price may meander lower in coming weeks, but strongly suggests that weaker prices present an opportunity for investors who missed the boat on this roaring bull market to jump aboard to higher prices he sees in the future due to the protracted sovereign debt crisis in the Europe, then, in the United States.

Gold has been down 10% in the past week and is at an 8-week low today. Given this, what is your outlook for gold prices and do you see gold near $2000 per ounce in the near to medium term?

We have discussed before that gold has been up 10 years in a row, which is very unusual in any asset class. So if it is up this year or 11 years in a row, gold is overdue for a correction and it could have a nice substantial correction given that it has been so strong.

I have no idea what is going to happen this year. I doubt if it will go to $2000 an ounce in 2011, it is more likely to have a correction which will last for several weeks, several months. It has been very strong. If it goes down some more, I would buy more gold as I have told you many times.

Silver has been one of your favourites, but that is down 24% in the past week. Are you still buying?

Not yet, but if silver continues to go down as we have discussed before, I will buy more silver too. Do not sell your silver, do not sell your gold unless you are a short-term trader, but anybody who is in this for a long term, silver and gold will both go much higher over the next few years.

Then, let’s talk about base metals. Copper has seen quite a drubbing down 30% over the last one month. Are you seeing more downside for most of these base metals?

That is a big big sell off, 30% in anything in that shorter period of time. So it is a shock, but I would expect most things to continue to correct and react because the world has got serious problems facing in the future. Base metals will be affected by reduced demand.

Other commodities will continue to do well, but base metals certainly would be affected by reduction in demand and you know what is happening in Europe, you know what is happening in America. So be careful. I am not selling any of my commodities. I am not selling my base metals, but I am not jumping in to buy either.

Tell us why do you believe precious metals are correcting? Do you believe this is just an unwinding of positions or a genuine slowdown in investment and safe haven demand?

No, it is panic, it is fear. When fear permeates a market, everybody sells, especially the last ones in, frequently have to jump out. They have raised margin requirements for both silver and gold. So that makes it more and more difficult for people to hold on.

Cash is King.

Ai yi yi…

Last week was the worst for investors in 3 years. Even gold melted down, as we thought it eventually would.

The only things to go up were US Treasury debt and the dollar. As expected, the Great Correction is doing its work.

So far, the stock market has held up as well as it has. But now it seems to be selling off. And gold is selling off too.

Rich people buy gold. They can afford to. They know the end of the dollar is coming — sooner or later. They can wait.

But the middle classes need dollars. Debtors need dollars. Consumers need dollars. Almost everybody needs dollars. In a correction, cash is king. And the king of kings is the dollar. Here’s CNN confirming what Dear Readers already know:

…the data [from the census] gave the first glimpse of what happened to middle-class incomes in the first decade of the millennium. While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.

For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996.

And over the 10-year period, their income is down 7%.

“Economists talk about the lost decade in Japan. Well, with these 2010 data, we can confirm the lost decade for the American middle class,” said Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities.

Sure, it’s fair to say Americans at all levels of income, from rich to poor, were hit hard in the decade that started with the dot-com boom and bust, and ended with the Great Recession.

But according to the census data, those losses disproportionately hit the lowest 60% of Americans, while the richest 40% actually gained wealth, relative to the entire US economy.

The middle classes need dollars. They want dollars. Because it’s a currency — believe it or not — that you can still trust. No thanks to Bernanke, Obama, et al. Instead, our gratitude goes to the Great Correction itself. It’s doing the work of an honest central bank. It is making the dollar respectable again. Thanks to the Great Correction the greenback can hold its head up. Uncle Sam’s money is Number One.

How so? In a correction, almost everything goes down. And almost everyone gets scared that his investments and his savings (which he put into stocks on the advice of his financial magazine) will go down too.

Your editor says that in the long run gold will be a better place for your money than dollars. But everyone can’t wait for your editor to be proved right. Most people have bills to pay. And you don’t pay bills with gold. You pay them with dollars.

And imagine that you are a European or an Asian investor? What are you going to do with your money? Put it in a French bank or a Greek bond? Nope. You want something safer. You want a US treasury bond.

And as long as the Great Correction is allowed to continue…US Treasury debt will be a good place for your money. The trouble is, we don’t know when the feds might run in…like a bull in a china shop…and break all the teacups. So, here at The Daily Reckoning at least, we’ll stick with our gold through this correction, confident that when we come out the other side the dollar will be among the porcelain shards and gold will still be standing tall.

When we entered this Great Correction we figured the process would take a few years. We felt like a judge had just given us a prison sentence.

“Five to ten,” said your honor.

Now, it looks like it will take longer. We figured the feds wouldn’t be able to finance their deficits for very long. That would force them to hit the panic button and begin dropping dollars from helicopters. But what the market is showing us now is that this Japan-like phase can last a long, long time. Because the correction itself is making the dollar and dollar debt more attractive!

Get this: the yield on 10-year US Treasury debt is now lower than the yield on the S&P. The longer the correction goes on…the deeper it goes…the more people will want the safety of US notes and bonds. And the more they buy Treasury debt…the lower go the yields…

Meanwhile, stocks should go down…pushing up yields. That’s what happens in a correction. That’s what happened in Japan over the last 20 years.

Most likely, we’ll see yields of 5% on the S&P before this is over. That’s because prices will be cut in half.

Meanwhile, we’ll see yields on bonds go down to 1% or so on the 10-year bonds. This correction means business. It appears to be even more powerful than we imagined. It is not merely correcting a bull market and a credit bubble. We don’t know for sure, but it may be correcting an empire, modern government, the dollar-based monetary system…and who knows…maybe an entire civilization.

We’ll just have to wait to see how far it goes.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning.

Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the new book from Bill Bonner, is now available for purchase. It is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. Whether you’re new to these Daily Reckonings, or one of Bill’s “long suffering” readers, this is one you surely won’t want to miss.

Special Report: Is this America’s Last Gasp? A terrible question. But it must be asked – and answered. This urgent broadcast will do just that. Tune in now for urgent news on our banks, agencies, retirement accounts – and even our trash collection! Don’t wait, watch now…

Be fearful when others are greedy, and be greedy when others are fearful. – Warren Buffet

The main reasons why “we believe in the US market (and particularly Phoenix) is an excellent investment”

Excellent cash flow while holding your investment;

You are buying for a fraction of what it costs to build;

Phoenix has the demand and supporting demographics for real estate appreciation;

The median price per-square-foot is $78.29, down from $190 in 2006 (and $450 in Vancouver);

8,734 sales in August, up 26.5% from August 2010; and

Active listings are declining and the supply of homes priced under $100,000 is falling fast.

….read more HERE

It may not sparkle or shine, but fertilizer has a bright future. In this exclusive interview with The Energy Report, Bruno del Ama, CEO of Global X Funds, tells us why investors should be looking at this “growing” industry and how his company’s new global fertilizer and potash ETF (NYSE:SOIL) provides a great vehicle for profit. He also tells us why his company’s gold and silver mining ETFs are poised to catch up with precious metal market performance.

The Energy Report: Thank you for joining us this morning, Bruno. Before we get into the details of Global X Fertilizers/Potash ETF (SOIL:NYSE), let’s discuss ETF basics and how they operate.

Bruno del Ama: Certainly. Exchange traded funds (ETFs) are fairly similar to traditional mutual funds. Their name indicates their main difference—they actually trade on an exchange like any other stock. ETFs have been one of the fastest-growing segments in the financial services industry. That’s due to many of the benefits ETFs offer, such as low cost, transparency and tax efficiency.

TER: This really is a proliferating field. It seems like every time we turn around there’s a new ETF. What factors does Global X Funds consider when developing an ETF for a particular sector?

BdA: We focus on three very important factors when we decide to bring new products to market. The first starts with the global macro trends. What are the big themes that are shaping the world? Our products have to fit into those very long-term secular trends that will continue to drive performance.

The second one is that it has to be unique and differentiated. So, if you look at the lineup of Global X Funds, there are essentially no products like them. And thirdly, the products in the ETF package must make sense and provide good access to the type of market that we’re considering.

TER: How long has Global been managing ETFs?

BdA: We brought our first ETF to market in February 2009, and we have been ranked by BlackRock as one of the fastest-growing ETF companies in the world. We currently have about $1.5 billion (B) in assets under management and have been ranked by our peers both in Europe and the U.S. as the most innovative ETF company in North America.

TER: What are the advantages for investors buying an ETF versus other investment vehicles? 

BdA: The main reason why ETFs have been very popular is their low cost. Their management fees are much lower than those of comparable mutual funds. ETFs also don’t have the loads, distribution and short-term redemption charges that mutual funds typically incur. They’re very cost efficient. Essentially, what ETFs do is bring institutional-like expense ratios to the retail investor. However, about half of the user base for ETFs is institutional so these products have to work well for both investor classes. The retail investor can essentially piggyback off the institutional investor and get access to the exact same expense loads. That has been a huge driver of growth. 

Innovation, as you point out, has been another driver of growth. The fact that you can get access to areas of the world that were very difficult to access before is a huge benefit. For example, we have a whole suite of China sector funds. So, if you have a particular view on the China consumer segment, that’s something that you can now place targeted bets on, which was very difficult, if not impossible before ETFs emerged. 

The third benefit of ETFs is their tax efficiency. Additionally, market volatility has made the liquidity ETFs offer very appealing. If you have the market swinging up or down 300 basis points on any given day, you can come in at 11:00 a.m. and you then sell your shares at 3:00 p.m. 

Transparency is yet another benefit of ETF investment. One of the problems in the market in 2008 was that a lot of investors in mutual funds didn’t know exactly what they owned. In our case, as well as with most ETFs, you can go into our website and see all of the holdings updated daily for any particular ETF.

TER: Typically, how much trading occurs in these funds? 

BdA: Essentially 90%–95% of ETFs are what’s called passive funds. They track indexes developed and maintained by a third-party, such as Standard & Poor’s, Dow Jones, FTSE, etcetera, and those indexes don’t change very often. They’re typically rebalanced two or four times a year. There’s not a lot of trading that takes place. Of course, you could have corporate actions within a quarter where a couple of companies within the index merge or there’s a spinoff. There’s some amount of trading that happens inter-quarter between rebalance dates, but these funds provide exposure to a complete market in a passive way. 

TER: So why did you start this particular potash and fertilizer ETF?

BdA: The only way to invest in the fertilizers/potash market is to buy individual stocks, most of which actually trade on foreign exchanges. This ETF allows investors to get diversified exposure to the whole fertilizers/potash sector, including stocks from 15 different markets, including Israel, Australia and China, to name a few. We had received inquiries from institutional investors looking for a simple and cost-effective vehicle to invest in the fertilizer/potash market. These investors are driven by the significant growth in the food and agro business market. Fertilizers are the nutrients that farmers require to increase crop yields, and as such, they are the first link in the global food supply chain. 

TER: What are your growth expectations for this sector? 

BdA: The prospects for continued growth in the fertilizer/potash business are very compelling. Purchasing power growth and the result of diet shifts in emerging markets are driving crop usage from grains toward high-protein feed, fruits and vegetables, which require about double the average application rate of fertilizers. The resulting growth in crop yields is enormous. For example, grain yields in India are less than one-half of those in the U.S., with lack of proper fertilization being the key reason.

TER: So the big markets are overseas. Is the North American market relatively saturated in terms of fertilizer usage?

BdA: Yes and no. I wouldn’t call it saturation, because the U.S. is a big farming country and you continue to see growth in farming. But, certainly from a fertilizer use perspective, the U.S. is a much more efficient market and so the penetration of fertilizer is very high. Emerging markets such as India have low penetration of fertilizer, so there’s a lot of catching-up that has to take place. 

TER: Can you give us a little more of the specifics on your new Global X Fertilizers/Potash ETF? 

BdA: Our Fertilizer/Potash ETF invests in the largest and most liquid companies involved in the fertilizer sector globally. It currently includes 29 companies from 15 different countries. What’s unique about this sector is that it sits at the intersection of commodities and agro business—probably two of the most significant bull markets currently taking place.

TER: Are there any other similar funds out there at this point?

BdA: There is nothing else focused on these markets specifically. There is a fund that invests in the broader agro business market. They may have a quarter of their exposure to the fertilizers market but it’s more diversified and includes farming operation and equipment. Ours is the only fund that has focused exposure on just the commodity/fertilizer aspect of the agro business market. 

TER: You have a very geographically diverse group of stocks and most of them are companies that most investors have never heard of. Are there certain countries and regions that appear to be performing better at this point than others? 

BdA: The emerging markets will clearly be the key engine of growth. Asia and Latin America already account for about two-thirds of global consumption of fertilizers to support food production for their large, growing populations. Global fertilizer consumption is growing fastest in these emerging markets with historical annual growth rates of more than 3% over the last 15 years. China and India specifically will be the key engines of growth. Annual consumption in China, for example, is expected to return to their pre-2008 growth levels of nearly 10% per year. Major growth has been taking place and will continue to take place in emerging markets. 

TER: Are companies based outside of emerging markets included to provide geographical balance?

BdA: The fund represents the full fertilizer market, wherever those companies are located. China imports about 70% of the fertilizer they use. So, when you look at some of the names of companies in the U.S. or Israel, you know that some of their production is consumed at home but a big percentage of it is exported, primarily to emerging markets. There is a tremendous amount of trade and export taking place. Even by investing in some of the Australian or U.S. names, you will get access to the emerging markets. Obviously, when you invest in some of the fertilizer companies that are physically located in places like China, they’re expected to generate outsized growth because their local market is growing the fastest. 

TER: What are some stocks our readers might find interesting on an individual basis? 

BdA: As a fund manager, we don’t necessarily provide recommendations on single names. Most of these stocks are in foreign markets, but there are a handful of stocks that can be bought on U.S. exchanges, including CF Industries Holdings Inc. (CF:NYSE), Intrepid Potash, Inc. (IPI:NYSE), The Mosaic Company (MOS:NYSE), Scotts Miracle-Gro Co. (SMG:NYSE) and Terra Nitrogen Co., L.P. (TNH:NYSE). There’s also one Chilean fertilizer company that can be bought as an ADR, Sociedad Química y Minera de Chile S.A. (SQM:NYSE; SQM-B:SSX; SQM-A). 

As a whole, this is clearly a growth market, and valuations will reflect the growth dynamics that are taking place. We certainly believe that this is a great market to be in going forward.

TER: What are some of the other ETFs that Global X Funds manages?

BdA: Global X Funds operates, perhaps, the broadest suite of commodity producer ETFs across a number of markets, including gold, silver, copper, aluminum, lithium, uranium and oil. The best performing of our funds has been the Global X Pure Gold Miners ETF (GGGG:NYSE), which is a relatively new fund launched in March of this year. It tracks the Solactive Global Pure Gold Miners Index and provides exposure to companies that generate the vast majority of their revenues from gold mining. The other fund that has performed well is the Global X Silver Miners ETF (SIL:NYSE), which tracks the Solactive Global Silver Miners Index and is currently our largest fund with around $500M in assets under management.

TER: Do you have any other food for thought for our readers?

BdA: The one observation I would make is that when considering investing in the commodities space and precious metals miners in particular, you have seen relative underperformance for the miners relative to the physical metal. We are big believers in investing in the commodities markets through mining stocks and producers for a number of reasons. Reason number one is that these are operating companies, and even in an environment where commodity prices are flat, they’re still generating revenues, earnings and growth. They’re paying dividends so they’re income-producing, as opposed to the metal itself, which doesn’t pay any dividends. We see an opportunity in this relatively underperforming market for the miners. Gold and silver miners have done pretty well, but not as well as gold or silver itself. A lot of it is driven by the analysts not factoring in the current high gold and silver prices into the earnings forecasts of these companies because they do not expect them to remain at those levels. 

If you think about that dynamic, three things can happen: If the price of gold remains at the level where it is, a fund that invests in physical gold wouldn’t go anywhere because the price is not going up. But as the price stays at that level, the analysts are going to start factoring in those price levels into their earnings forecasts, so the price of the miners should go up while the prices of the physical gold stays flat. In an environment where the price of gold itself goes down, the physical gold ETF performance will be down. At that point, the miners have an advantage because they haven’t factored in that higher gold price into the expectations so they should perform relatively better. 

If the price of gold goes up, the physical gold ETF should go up. But that should also factor into the miners, who typically have had an exponential return relative to the price of gold because their costs remain relatively flat while their earnings go up. They have a leveraged return versus the physical metal, and this is a good time to look at the metal producers as opposed to the physical metal as an investment. Our clients are very well positioned to benefit from that exposure. 

TER: We appreciate your time and insights today. 

BdA: Thank you for having me.

Bruno del Ama is the cofounder and CEO of New York-based asset manager Global X Funds, which has $1.5 billion in assets under management. Previously, he served as head of operations in the structured products business at Radian Asset Assurance, and was a senior consultant at Oliver Wyman. He is a CFA charter holder and received his MBA from the Wharton Business School.

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Yes, gold got whacked last week. But that was nothing compared to what happened to the emerging gold miners.

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