Question: I would like to start by asking you: A year ago Lehman was falling apart, and now the stock markets are at their best level since the beginning of 2009. What is your take on this?

Governments around the world have poured huge amounts of money into the financial system. Obviously the money has to go somewhere, and it’s been going into a financial asset. The economy is better in 2009 than it was in 2008 because in 2008 nobody spent any money on anything, rice or beans or soap. Now, this year, you eventually run out of rice and beans and soap, so you have to spend some money, and the governments are printing a lot of money. So, we are having a revival. Is it permanent? I don’t think that the problems are solved yet. But it’s certainly better than last year.

Question: What do you consider to be the biggest risk right now with respect to the financial markets?

I suspect that the biggest risk will be that you’re going to see some currency problems in the world sometime in the next year or two. There are many, many imbalances in the world, trade market and currency market, so you’re going to see some problems in the currency market sometime in the next year or two that will spill over into the financial markets. But who knows? You never know, the world’s in precarious shape right now.

Question: If we are looking at the Dow Jones, it’s hot as a pistol right now. How long will this work? Is this a situation that we could anticipate?

I don’t know. I’m not smart enough to know. You’re right, the markets are up, aligned in the last six months, because of all the money that’s been poured into things, whether it’s going to last another six days or six months, I don’t know. I’m not very good at this. My way to play has been through own commodities, and I own some foreign currencies. I have not bought any stocks in the U.S., in many parts of the world, in fact, for a couple of years, other than China. I did buy one stock in Australia today, but other than that I may have been playing my commodities and currencies in Chinese shares.

Question: Do you see a bigger decoupling of the larger emerging markets and the US going forward from now on. We’ve had this decoupling for a few months, because when the markets in the U.S. were falling, China was going higher.

Markets throughout history have not all moved together. That’s just not been the case. Sometimes you see some markets moving together, but even places such as Canada and the U.S., which are neighbors, they have huge differences. Markets depend on the fundamentals of the company, or the sector, or the country, and some countries have fine fundamentals right now and some don’t. If you’re in the business of producing raw materials or commodities, you’re doing fine these days, your stock market will probably do better than countries which do not have commodities.

Question: Coming back to the currency crisis, because we want to get this right to the crisis looming. What exactly do you mean? Is the dollar going to further fall off the cliff? Is the yen going to go crazy? What do you have in mind?

I wish I were that smart. We would be rich if I was smart enough to tell you the answer to that. I do expect the dollar to have serious problems over the next several years. It’s already making new lows this year as you probably know. The yen is making new highs for this year. I would suspect that those sorts of trends will continue. I ‘m not selling the dollar right now. You don’t have to sell anything when you’re low. I think there will probably be more currency problems now. The problems could start in Latvia, it could start in Argentina, it could start in Kazakhstan, it could start anywhere, these kinds of problems. And in fact they usually do start in smaller and more marginal currencies, when you start having currency problems. But ultimately it will spill over, and you will see some currencies going up a lot more than they should, and some going down a lot more than they should, and some people losing money, other people will be making money. The largest debtor nation in the history of the world is the United States. And the debts are getting bigger. They’re not getting better, they’re getting worse.

Question: So you’re not excluding overshooting and undershooting in terms of the currencies? But I wanted to ask you, because you said in February that the banking system in Central and Eastern Europe might be a mess, is it different now?

No. The banking system in Central and Eastern Europe is still a mess. I think you probably know that, you’re there. Many, many people have bigger mortgages in other currencies, such as the yen and the Swiss franc, and many of these people are continuing to suffer, and many banks have made big loans in Central and Eastern Europe. Unfortunately I don’t see those problems being solved at the moment.

Question: Do you expect this to become to a full problem in the near future or do you think there will be government intervention before anything happens?

There’s been government intervention in Eastern Europe. I don’t know what more they can do. Most Eastern European and Central European countries do not have a lot of extra money, as you know. They’re all pretty overstretched. If people start going bankrupt, I know that the governments in Central and Eastern Europe will jump in and save things. But remember, that could lead to worse problems too, because the Central European and Eastern European governments themselves are very overstretched and so, if they suddenly jump in and try to support the banks, then the currency market and even the stock market may panic. And how much money does Slovakia have to support itself? How much money does Bulgaria have to support itself, if they have to?

Question: As you very well know, the IMF came to town, to this very region, and sort of placed a shield over this region in the last six months or so. Do you think we could have managed without the IMF?

Well, I think you would have been better off managing without the IMF. Yes, sure, the IMF helped things look better for a while, but normally people are better off liquidating bad assets and starting over. But until you solve the basic problems and liquidate the bad assets and the bad debts, somebody has to face the debt market somewhere.

Question: Right now, the IMF in Eastern Europe is acting like a helicopter. They are throwing money, they are very flexible. Do you see any risks they are facing for getting their money back?

Sure, that’s what I mean. All of you people printing all this money, in history that has led to currency problems, it has also led to increasing prices. That is why I would suggest that commodities would be a good way… Let’s put it this way: Historically commodities have been a good way to protect yourself when the governments print a lot of money, and I suspect they will be in the future. I would not be buying most currencies where you see people printing huge amounts of money. I would rather be owning real assets, such as commodities, rather than paper money.

Question: Speaking of the commodities markets, we’ve seen oil rallying a lot, but it seems it can’t get through that 75-dollar level. Do you expect that the commodities markets have rebounded a little bit too soon? They’re not really supported by economics fundamentals or vice-versa?

You’re talking about the last few weeks or months. I don’t really look at markets. I ‘m not a short-term trader. I don’t pay any attention to the short term or even the medium term. Whatever success I’ve had is finding things that are cheap and then owning them for several years.

Question: Have you bought commodities at the low levels they’ve reached throughout 2008 and 2009?

As I said before, the way I’m planning is to buy more commodities, at the end of 2008 and during 2009. I haven’t bought any recently. If the world economy is going to recover, commodities will be the best place, because shortages are developing of everything, and the economy would get better, and if the world economy does not get better, commodities are still a good place to be, because everybody is printing so much money. And throughout history, if you print so much, price increases. So, I think that commodities are a good place to be, and this is why I am mainly playing with commodities rather than stocks.

You may say inflation is not a worry, but for me it is a worry, and I do know that prices continue to go up. I do know that the US government says prices are not going up. I know the English government says that, but everybody I know who buys products knows that prices are going up. Governments are lying about it. Certainly oil prices are down and energy prices are down, and so the governments are saying well since that energy prices are down, therefore we don’t have to worry, but the prices of everything else are going up. I mean, maybe your butler is doing your shopping, but for the rest of us, we know prices are going up.

Question: Mr. Rodgers, we’ve seen the FED has become an arm of the Treasury. They are printing huge amounts of money, as you have said. My question following the inflation issue: is hyper inflation just around the corner?

Well, I wish I was smart enough to tell you that. It probably isn’t, just because people like me expects it to just be around the corner, but as I’ve said, I am protecting myself by it. If the economy is better, we’re going to have serious inflation, which will be good for commodities and even if the economy doesn’t rise, we have all this money. And so I don’t know when the inflation is going to show up so that governments cannot lie about it anymore. But I know that’s how I’m protecting myself, and I hope to make a lot of money as well.

Question: You really don’t believe that the Federal Reserve will be proactive in taking some money out of the markets before it’s too late, before we reach that inflationary level?

The central bank in America and the UK, I cannot think of any central bank that’s gotten things right in the past ten or fifteen years. If you know one, please tell me. But virtually no central bank has gotten it right. I see no way that the American central bank can withdraw money, and solve the problem, because if they do start withdrawing money, interest rates are going to have to go a lot higher, and everybody’s taking on a lot more debt. So it’s just going to make the situation even worse. I know that they can do it. I know that they’ve said a lot of things in the past twenty years, all of which have been wrong. If you think they can do it, please tell us how they’re going to do it, because the numbers are staggering, and I don’t see any way they can do it.

Question: Do you maintain your gloomy outlook on the British pound?

Well, I sold my British pounds a year or two ago, and I do not own any. No, I would not buy. I mean, there’s some currencies I own, the British pound is not one of them.

Question: Mr. Rodgers, what is the wisest question to raise: how much money can I lose or how much money can I make?

The first question you should always ask is how much money can I lose. You should not take risk. You should cut your risk as low as possible, because you know the key to being a successful investor is losing as little as possible, and then take those profits, when you make profits, and do not take any losses. I mean it’s all well and good if I made, you know, thirty or forty percent a year, three or four years in a row, and then I loose, you know, thirty or forty or fifty percent the next year. I’m pretty back where I started. It hasn’t done me any good at all. So you have to be careful. Avoiding the losses is always one of the most important lessons, perhaps the most important lesson.

Question: You favor China, you favor the commodities market. In terms of the foreign exchange markets, what are the currencies you really like, other than perhaps the Chinese one.

Well, the Chinese currency is not that easy to buy, although I do buy it whenever I can. What would I buy today? I don’t know what I would buy today. I own the Yen and I own the Swiss franc. Those have been two of my major currency plays. Would I buy them right now? As I said before, the Yen is making its highest for the year. So no, I wouldn’t want to jump in on the Yen. The Swiss franc is near its highest of the year. I wouldn’t want to jump in. I don’t really know. Let’s see. Maybe the euro has more to go. I own the euro, but I wouldn’t jump in. At the moment, I guess maybe the Canadian dollar would be one of the better places to be. Maybe the Singapore dollar. The Australian dollar, maybe. These currencies have been pretty strong recently, and the dollar’s been down. As I’ve said, the dollar has been making new lows for the year lately, but those are some of the places where I do have money and where I might add, if I had to.

Question: Everyone seems to be pinning their hopes on China for the overall economic recovery. Isn’t there just a little bit of risk to this?

There’s more than just a little bit of risk. The Chinese economy, while they’re doing good things and they’re in better shape than most economies, it’s only one tenth of that of Europe and America combined. I mean, no matter how well things go in China, they cannot solve the world’s problems. It’s a tiny economy compared to Europe and America. They saved a lot of money for a rainy day. Now it’s rainy. Now they’re starting to spend some of that money they saved. But anybody who’s counting on China to save us should do more homework. They cannot save the world. They can help and save some sectors of the world. But they can’t save the world.

Question: We’ve seen that banks and financials have been the backbone of the market rally that started in March. Are the banks now in the „zombie banks” stage or are they phoenix banks?

No, I guess the ones you’re talking about are zombie banks. City Bank, Bank of America, they are nothing more than zombie banks. City Bank went from 60 US dollars to 1 US dollar. If it rallies to 3, things look great if you borrowed in one, but if you borrowed in 60 or 50 or 40 or 30 you’re still hurting very badly. Banks are not in good shape. They’ve had a lot of money pumped into them, but they’re no more than zombie banks, just like the Japanese banks were in the 1990s.

Question: Do you see this recent rally, since March 9, that we’ve seen in the global stock markets basically as a relief rally due to the fact that the world has avoided a financial collapse, or hasn’t avoided one?

As you know, many people went bankrupt in the past couple of years. Stocks peaked in October 2007. They went down for 20 months, until March 2009 so we’re having a big rally, a powerful rally, in fact. I don’t think it’s the end of the problems down the road. But remember, after 20 months of collapse, it’s normal to have a big rally, no matter the sector, or the security we’re talking about. It’s natural to have this. Some markets have rallied more than others, China almost doubled, as you know. China hit bottom several months before the Western markets did. There are still going to be problems in the next year or two, but you can’t put all markets together. Even in a year when stock markets go up, there’s always some company or some sector that goes down. Likewise, in any year that the market collapses, there’s always some stocks that go up. You have to talk about what is happening, you can’t talk about the whole market, it does not work that way.

Question: Are we in for a double dip in the US?

You mean whether the economy will get weaker then?

Question: Yes.

Yes. But it may not get weaker in 2010 or 2011. But sure. We’re going to have more economic problems in the United States.