Are Investors Running to the Hills with Jim Rogers?

After starting the year with a record-breaking quarter, stocks finally appear to be taking a much-needed breather. While the market is certainly due for a pullback, at least one legendary investor believes investors should run for the hills.

In the first three months of the year, the Dow Jones Industrial Average (NYSEARCA:DIA) and S&P 500 (NYSEARCA:SPY) gained 11.3 percent and 10 percent, respectively. These are impressive gains for a 12-month period, let alone just one quarter. The Dow logged 10 record-setting closes in March, and both indices broke their previous closing highs made more than five years ago.

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With the Federal Reserve juicing markets higher amid historic amounts of liquidity, the new year brought renewed hope of an economic recovery. House prices are up double digits from year-ago levels, and unemployment rates continue to decline. However, recent reports are reminding Mr. Market that the fundamentals are still sluggish at best.

Here’s how the main U.S. stock indexes did on Monday:

The Commerce Department recently reported that the U.S. economy expanded at a dismal 0.4 percent annual rate in the fourth quarter, the slowest pace since the first quarter of 2011. The world’s largest economy is expected to show more growth in the first quarter, but the Institute for Supply Management’s manufacturing index declined last month to 51.3, compared to 54.2 in February. This is barely above stall speed, as a reading below 50 indicates contraction. Meanwhile, employers added only 88,000 jobs last month, the smallest gain in nine months and well below estimates calling for 190,000 jobs.

Central banks gone wild…

The strong rally in stocks look good on paper, but Jim Rogers has been reminding investors that market indicators such as the Dow Jones Industrial Average do not reflect the true state of the global economy. The blue-chip index contains only 30 stocks and fails to capture what’s taking place outside of the United States. Furthermore, central banks around the world continue to “throw money out the window.”

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In an interview with CNBC, Rogers explains that the stock market hitting all-time highs was “very artificial.” He adds, “If you give me a trillion dollars, I’ll show you a good time too and a lot of people are having a good time. I’m skeptical because I know it’s going to end badly.”

The four major central banks of the financial universe have expanded their balance sheets to beyond $13 trillion, when all are converted to U.S. dollars. In comparison, this amount was “only” $3 trillion a decade ago, according to Hayman Capital. Across the globe, central banks now account for at least a quarter of all global gross domestic product, compared to only 10 percent in 2002. Last week, the Bank of Japan even announced it will double its nation’s monetary base to 270 trillion yen by the end of 2014 to help it reach a 2 percent inflation rate.

Time to run for the hills…

The number of central banks currently using the monetary printing press is a first in recorded history. The grand fiat currency experiment has Rogers seeking refuge in precious metals and commodities. Meanwhile, the deposit confiscation that took place in Cyprus has him running for the hills.

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Rogers explains, “Please, you better hurry, you better run for the hills. I’m doing it anyway. I want to make sure that I don’t get trapped. Think of all the poor souls that just thought they had a simple bank account. Now they find out that they are making a ‘contribution’ to the stability of Cyprus. The gall of these politicians. If you’re going to listen to government, you’re going to go bankrupt very quickly. I, for one, am making sure I don’t have too much money in any one specific bank account anywhere in the world, because now there is a precedent.”

In the U.S., it doesn’t look like investors are ready to run for the hills yet, but they are becoming more cautious about stocks. According to the latest reading from the American Association of Individual Investors, bullish sentiment dropped 2.9 percent to 35.5 percent, its third consecutive weekly decline. Since hitting 52.3 percent in January, bullish sentiment is down 32.2 percent.

Rogers stays away from U.S. stocks…

At the same time, neutral sentiment is at its highest level since December 2011. It is also the first time neutral sentiment has been above its historical average of 30.5 percent on consecutive weeks since October 4 and October 11, 2012. Bearish sentiment, expectations that stock prices will fall over the next six months, declined 0.5 percentage points to 28.2 percent.

All-time highs in the U.S. are enough to keep Rogers away. He often likes to go where it is less crowded. “I’m certainly not investing in the U.S., because the U.S. is making all-time highs based on money printing,” he tells CNBC. “The whole world is benefiting from all this money being printed, but there are better places than where the all-time high is.” In addition to gold, silver, and agricultural, Rogers has investments in Russia and Japan.

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In afternoon trading, the Dow Jones Industrial Average edged slightly lower, with defensive consumer names such as Wal-Mart (NYSE:WMT) and The Coca-Cola Co. (NYSE:KO) outperforming. The S&P 500 managed to erase its morning losses to trade in the green. If the index closes in positive territory, it will be the 14th consecutive trading session of flip-flopping between gains and losses.

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