Jim Rogers is one of the best global investors of all-time. Last time we chatted a couple months ago he was sleeping soundly with his investments in commodities. Before Bloomberg interviewed Jim this morning, I caught up with him last week to get some high level perspective on the current issues unfolding in the European Union …

Damien Hoffman: Jim, Do you think the EU will survive economically and/or politically through this entire debacle?

Jim: Well I’m long the Euro because I expect them to come through this one okay. Either Greece is going to be papered over and they’ll give a blast to the Euro, or they’re going to let Greece go bankrupt. In my view, this is what they should do because then people would say, “Wow. They’re serious about sound economies in Europe.” That would make the Euro very strong. Then people would know they are not just going to print money or paper over failure.

Either way, I think there’s probably a rally coming. There’s a huge short position in the Euro and whenever there’s been a huge short position in anything, it’s sometimes profitable to go to the other side. So, I am long the Euro because I think there are too many pessimists.

Maybe Greece will go bankrupt and the Euro will collapse before people realize, “That’s good … that’s not bad.” Sometimes it takes a lot for perception to become reality or reality become perception.

Damien: What other countries are you monitoring to make sure the situation isn’t going to spread or get out of control?

Jim: I’m trying to watch the whole world. We cannot be very successful investors if we don’t know what’s going on everywhere. All of a sudden you’ll something like Iceland will show up and you’ll get killed because you didn’t know that Iceland even existed. Usually these things come out of the blue from some place we’re not thinking of.

Damien: Do you think Greece will be the first to tumble?

Jim: I would suspect that the U.K. is more likely to suffer before Greece, but who knows. Maybe it’s time for all of them to collapse and come down together.

Damien: Speaking of collapsing together, do you think the creditor-consumer model — as used by the Chinese with the US and the Germans with the Greeks — has been proven unstable and countries should be moving more passionately towards developing organic manufacturing and consumption economies at home?

Jim: The idea of economies built on consumerism has been discredited many times. The last ten or twenty years people have been shouting, “Oh gosh! Thank goodness for the American consumer.” However, no economy has ever been built on consumption for the long term.

The only way you build an economy is through savings and investments. Look at Dubai. The basic economic model in Dubai was to build an economy based on real estate speculation. That cannot work. You’ve got to have savings, investing, and productive capacity.

It’s all wonderful if we can go to the disco every Saturday night or go drinking by paying our bills with transfer payments. But that doesn’t do anything for long term productivity or competitiveness. Also, guys who build tanks have fun building the tank, but that tank then goes out in the sun or rain to rust. It doesn’t do anything for future productivity. The only way to build an economy long term is to save and invest while building infrastructure and productivity. Nothing else has ever worked.

Damien: Which countries are doing things correctly?

Jim: There are some doing better than others. The largest creditor nations in the world now are China, Korea, Japan, Taiwan, Hong Kong, and Singapore. That’s where the assets are. There are hundreds of billions of dollars in these countries because they’ve been doing something right.

You know who the largest debtor nations in the world are? I assure you they’re not in Asia. They’re in the West.

The future has always belonged to the people who’ve got the assets — the people who’ve built up savings and investing. Throughout history, we have never heard people say, “Gosh. Look over there at all those debtors. Why don’t we go over there and join those debtors?”

Instead, throughout history people have said, “Look over there where all the assets are.” People have always said they want to go where the assets are, not where the debts are. That’s what happened in America etc., and that’s what’s going to happen in the future as well.

Damien: Jim, thank you very much for updating us on your view.

Jim: You’re welcome.

Our upcoming book will feature interviews with stars such as Jim Rogers, Dylan Ratigan, John Mauldin, Dr. Brett Steenbarger, Todd Harrison, and many more. To make a free reservation for your copy from our first printing, simply join our V.I.P. list below:

Email:

 

Like any solid junkie, Greece has hit rock bottom and agreed to rehab. In this real life edition of Intervention, Greeks won’t be sent off to sunny Florida or Arizona to get sober from their credit addiction. Instead, they will face rising taxes and reduced government spending.

The new laws will include:

• Pensions freezes
• Cuts in public sector pay
• A increase in sales tax from 19% to 21%
• Rises in taxes on fuel, cigarettes and alcohol
• Rises in taxes on luxury goods

The BBC’s Malcolm Brabant in Athens says “the package may have pleased Europe and financial markets, but they have infuriated the Greek trades unions and left-wing politicians.” Anger is the first stage of recovery. Next will be tolerance, then acceptance. Unlike Amy Winehouse, the Greeks are right on schedule.

What are your thoughts on Greece’s new move? Let us know in the comments below or click here to join the discussion in our new Forum.

Here are direct links to our favorite articles which we think you should highly consider reading.

Without further ado, jump on board the Bullet Train …

Germany’s Merkel: She’s Got the Whole Euro in Her Hands by Peter Coy at Business Week

Another Day, Another Fit of Bonus Neurosis by Gwen Robinson

Commercial Real Estate: Five Facts from a Broker by Phil Zucchi at Minyanville

How One Nation Came to Financial Ruin by Charles Munger at Slate

George Soros on China at MarketWatch

Did you read our Most Popular posts this week? Here they are:

Did Goldman Sachs Breach Their Fiduciary Duty to CDO Investors?

Fred Hickey: If I Were Federal Reserve Chairman I Would …

Is Greece the Ultimate Global Deadbeat?

John Mauldin

The news is somewhat “All Greece, All the Time,” but most of the pieces miss the more critical elements, and today we’ll look at what I think those are, as well as at the important point that Greece is a precursor of a new era of sovereign risk. Plus, we glance at a few rather silly recent comments from economists. It will make for a very interesting discussion.

A Path-Dependent World

Path-dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant. In essence, history matters.

With regard to the future, the choices we make determine the paths we’ll take. As I’ve been writing for a long time, we’ve made a series of bad choices, often the easy choices, all over the developed world. We’re now entering an era in which our choices are being limited by the nature of the markets. Not only are we in a path-dependent world, but the number of paths from which we may choose are becoming fewer with each passing year.

Our economic future is more and more a product of the political choices we make, and those are increasingly difficult. We have no good choices. We’re left with choosing the best of bad options. Some countries, like Greece, are now down to choices that are either dire or disastrous. There’s no “easy” button.

Let’s look at how Greece came to its current rather dismal predicament. And we’ll look at why it may be even worse than many pundits think.

First, we need to go back to the creation of the euro. Most of the Mediterranean countries that are now in trouble were allowed into the union with an exchange rate that overvalued their currencies relative to the northern countries, but especially to Germany. That meant that Greek consumers could buy products and services that previously may have been out of their reach. Plus, with government debt at low rates, the Greek government could borrow more to finance deficit spending, without the threat of higher interest rates. And Greece began to increase its debt with abandon.

Additionally, as it now turns out, Greece basically lied about its finances in order to gain admission to the union. It never complied with the fiscal discipline that was required for entrance.

With the high exchange rate, however, came the consequence of higher labor costs relative to, above all, Germany. While reviewing some economic facts about Greece, I came across the factoid that Greek workers had the second highest level of actual hours worked. But even with that, Greece was running a trade deficit that is currently 12.7% of its GDP.

And with the onset of the current recession, their fiscal deficit went from bad to worse. Their total debt is now €254 billion, and they need to finance another €64 billion this year, €30 billion of it in the next few months.

Bottom line, without some help or a bailout, they simply won’t be able to borrow that money. And since a lot of that money is for “rollover” debt, it means the potential for default if they cannot borrow it.

European leaders said today that Greece won’t be allowed to fail, hinting of a bailout. But there are a lot of “buts” and conditions.

Click to read Page 2 at Minyanville …

Last week I posted a chart of credit ratings for 80 countries and 50 states. Now, Credit Suisse has released a list of the riskiest sovereigns on planet Earth.

Iceland has been in the dumps since their hectic meltdown, Greece is the new Achilles Heel of Europe, and it appears the US has hit the list at #16:

Click for Larger Image

(Hat Tip: Business Insider)

What do you think of the Credit Suisse list? Are you expecting some of these countries to default on their debt? Let us know what you think in the comments section below …

Only this morning we wrote:

…[W]e have a quiet news week and the markets are sensitive to unscheduled news. Overnight, equities are up on some bullish rumors regarding a Greek bailout. Some have compared the situation to the Dubai events in late November that led to a quick selloff and rebound in world equities. However, this situation is not to be taken lightly, as a Greek default would be three times as large as the Lehman bankruptcy, and could quickly devolve into another global crisis of confidence. Accordingly, the markets are at the whim of the ECB. If it bails out Greece, there will probably be a large short covering rally. If it lets Greece default, there will probably be another selloff. And, if it does nothing and Greece muddles through for the time being, there will probably be a series of minor rallies that lead to larger selloffs. The moves generated by the first two scenarios will be very swift, so swing traders will need to be prepared to react just as quickly…

When news broke at about 11:30 am EDT that there was an agreement in principal for a bailout, equities rallied and the US Dollar fell, as expected. However, a mere hour later, after the ES had rallied 19 points to 1077, Germany countered by saying it was not a done deal and there would be significant strings attached. Accordingly, there is still much uncertainty in the markets. For now, what likely would have devolved into a return to the 1040’s has been averted. In the end, we believe a bailout with nominal strings attached (to save face) is very likely, but the intervening journey in the markets will be volatile as the details are filled in over the coming days and weeks.

The 1080 to 1083 is the first critical resistance level that swing shorts will need to defend. There is a historical tendency to clear important resistance levels overnight, evidenced by the fact that the gap accounted for fully 32% of the rally in the S&P 500 that began in March 2009. Combined with the current news being generated overseas, if this area is to be exceeded, US traders should be prepared to wake up to a market that has already cleared it rather than experience it intraday.

There will be plenty of opportunities during trading hours, however, and a savvy daytrader can capitalize on these movements by correctly reading market signals, regardless of knowing the actual news that’s driving the markets. A simple five minute candle chart with volume of the ES warned that the rumor would lead to a sustained rally when it closed nearly at its highs (within a tick) on high volume. Ideally, volume would have been at least 100,000 (actual about 91,000), but the 8 point range that convincingly broke the downward trendline was sufficient to generate follow through short covering. Also important was that the ES looked like it was headed for trouble and sentiment was very negative following the failure just above the previous day’s high. The entry can be made on a stop basis one tick beyond the big range bar, with a two point stop loss.

In general, the larger the wick or shadow of a big range candle, the less likely a continuation of the move is. This so-called indecision area is just that–it conveys doubt and will encourage profit taking and counter trend traders, which will tend to halt the move. This is why a short based on the big-down 12:45 pm candle was not a good candidate for a continuation move (besides the fact that the stop sell entry signal was not triggered). The two point shadow at the bottom was enough to make a material retracement to the 50%-61.8% fib box likely.

The flipside to potential entries is that, in this environment, exit stops placed on day trades are crucial because it is easy to get caught on the wrong side when surprise news is announced. Indeed, a long entered on the above basis would have given up 100% profits on the 12:45 pm bar. Accordingly, on steep moves, a simple trendline break can be a profit taking cue, as can a move that exceeds an interim pivot bar on the 5 minute chart.

Moves like today do not occur frequently, but when they do, often follow a predictable pattern. We should see more in the coming weeks, so be prepared.

For a daily battle plan and intraday updates, register free at our site.

Last year, the US Dollar was the butt of monetary jokes. In fact, some suggested it was worth as much as toilet paper. With Trillion dollar deficits and 0% interest rates, those with common sense looked to other currencies for capital preservation.

In a moment of cosmic irony, some global investors are now fleeing to the safety of the US Dollar. Headlines about Greece possibly defaulting on their debt has investors wondering which is truly the worst of all possible worlds?

Last week, Ben Schott put together an incredibly valuable chart showing the S&P credit ratings of countries and US states. This is an excellent resource to keep on hand for those Candide moments when your mind wanders:

(Hat Tip: Barry Ritholtz)