Jim Rogers Shares His Thoughts on the Market

It's been a while since we last covered Jim Rogers in full, so we figured now would be a good time to assemble a collective update. In the past, we've extensively covered Jim Rogers' portfolio so make sure you check that out to get a good background. Today must be Quantum Fund day at Market Folly, as we covered George Soros' hedge fund portfolio today as well. To get more insight from Rogers then check out his two books: Hot Commodities and then also A Bull in China.

Rogers has opinions on a vast array of topics so we'll just dive right in and try to present the updates as orderly as possible. Firstly, we want to start with the topic of the crisis in general. Obviously, Rogers thinks the United States and the U.K. are in bad shape and will be for some time. He likens the current situation to that of the 1930s. He says,

In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end. They are making many of the same mistakes now. What's different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time.

While the current crisis is unique in its own right, it does have shades of the 1930s written all over it. As such, Rogers focuses on inflation a lot and we'll get to that below.

Agriculture

Rogers still likes agriculture and thinks it will be one of the best investments in our lifetime. He says so under the premise that the world is growing and so are the number of mouths to feed. The economic emergence of countries that previously did not enjoy protein heavy diets have also spurred this trend on. Add into the equation the fact that supply is not necessarily growing to match demand, and you could have a real imbalance in the future. As such, Rogers likes agriculture and specifically farmland.

In the past, we've covered the farmland investments he has made and have elaborated on his thoughts. His main active investments are in Agcapita Farmland Investment Partnerships (in Canada) and Agrifirma Brazil. His bullishness on agriculture comes down to a simple supply and demand equation imbalance. Food inventories are at multi-decade lows and this is without a ton of major droughts or weather problems. Not to mention, there is a shortage of actual farmers (and not to mention farmland) and Rogers says this can be attributed to the fact that it has been a horrible business for the past 30 years. To see more of his thoughts on this topic, see our post about Rogers' extreme bullishness on agriculture.

Currencies, Commodities, and Bonds (Inflation Theme)

On the topic of currencies, Rogers has varying opinions as each currency is its own equation. Recently, he has been out saying that he owns the Chinese renminbi and he likes to add to his position every chance he gets (as he cites the difficulty to buy and sell the currency due to it being blocked). While he still has some US dollars due to being a citizen, he has sold nearly all of his holdings in the currency and sees serious problems developing. Overall though, he sees a currency crisis looming due to the amount of money governments around the world are printing. He sees the U.S. dollar as a flawed currency and thinks it could be the source of the currency crisis. He explains saying, "I would suspect that somewhere along the line, someone's going to say, 'I'm going to start selling mine (dollars) before everybody else does.' That's when you have a currency crisis."

While he has focused largely on the U.S. dollar, he has often remarked that the British Pound could have major issues as well. We found it intriguing that Rogers has repeatedly focused on the possible currency crisis scenario in his appearances. He has gone as far as to say that sovereign defaults are not out of the question. And, he would not be alone in that regard. Kyle Bass, manager of hedge fund Hayman Capital agrees and predicts sovereign defaults will be the next crisis. Bass is well known for predicting the housing crisis and profiting handsomely (along with John Paulson as well). To back up claims for possible sovereign defaults, Rogers highlights the U.K. in 1918 as it transformed from world power to a nation wrought with default in 1970. Additionally, he talks about how Iceland has already defaulted too. He thinks we could possibly see more defaults between now and 2011. You can view some of Rogers' past thoughts on currencies here.

Commenting on the government's actions, Rogers says

It's a mistake what they are doing. It's giving short-term pleasure, but there's long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road.

Clearly, Rogers likens the current scenario to placing a bandaid on a gunshot wound victim and calling everything 'good.' Short-term solutions do not solve long-term issues. He cites this with evidence of the bond market already beginning to taper off and he thinks this will continue as the government sells a ridiculously large amount of bonds. This can be boiled down to one simplistic notion: when governments print a lot of money, you get serious inflation. At least, that's how Rogers sees it.

As such, Rogers does have one recommendation to benefit from this possible impending phenomenon: Buy commodities. As fiat money depreciates in value and inflation rises, assets (and namely commodities) appreciate in value. He thinks that commodities could lead the global economy out of this mess and even if that doesn't happen, they will still appreciate due to inflation. In terms of specific commodities, Rogers likes cotton, sugar, as well as silver. For more of Rogers' thoughts on commodities, check out this post.

Gold and Silver

While we could technically lump his gold and silver commentary in the commodity section, we felt it deserved its own section due to his views on the precious metals. Overall, Rogers likes gold and has no plans to sell his. In fact, he could be adding to his position should the right circumstances pop up. He says,

The fact is that the IMF is trying to get permission from everybody to sell gold. I don't know if it will succeed or not. But if and when the IMF sells its gold, gold prices may go to a bottom. Who knows? It may go down to $700. The IMF has a lot of gold to sell. If it does, I hope I'm brave enough and smart enough to buy more.

So, he likes gold. However, he likes silver even more right now due to it being cheaper on a historical basis since everyone has been piling into gold and driving up the price. Reverting to the topic of currencies quickly, we know that Rogers also thinks the debate on a new international reserve currency is a legitimate one. He thinks change is coming in this regard and he is not alone in those thoughts. Noted trader Dennis Gartman sees gold becoming the next reserve currency.

Short Positions

Rogers says it is rare for him not to have many short positions and so this definitely classifies as a 'rare' time for him. Derived from his stance on currencies, he hardly has any short positions at the moment due to the amount of paper money governments are throwing at the crisis. He thinks that a currency crisis is imminent and that investors should avoid shorting the market. Rogers says, "I'm afraid they're printing so much money that stocks could go to 20,000 or 30,000. Of course it would be in worthless money, but it could happen and you could lose a lot of money being short." As such, Rogers is not fighting the current trend and will pick his battles.

(Do note that Rogers tends to exaggerate things to make a point and we highly doubt he realistically sees the market hitting those numbers). He thinks the extended rally is nothing more than a bear market rally which could be further fueled in the near-term due to a weakening dollar and the Fed utilizing the 'printing presses' and printing more money.

China, India & Sri Lanka

While Rogers is bullish on agriculture and commodities in general, he is also bullish on select sectors in emerging markets too. Specifically, he has focused on water treatment. He notes China and India's water problems and he has bought water companies in China. He did not cite specific names, but we do know that Heckmann (HEK) has had a large presence regarding water in China, even if it is not right along the lines of what Rogers is referring to. He says that the Chinese are aware of their problem and are spending "hundreds of billions" to solve their agricultural problem. So, his bets on water treatment and agriculture are tied together.

When pitting the emerging market nations against one another, Rogers favors China over India. He does so because of the reforms and change that India requires to fully compete. While he likes the commitments coming out of India lately, he needs to see action rather than just pledges for it to become the next real big investment opportunity. Specifically regarding India though, he did say that he likes the prospects of tourism in that nation. While Rogers likes China, he has not added to that position since picking up shares back in October and November of last year. Instead, he is directing money toward commodities.

Turning specifically to Sri Lanka, we find out that Rogers really likes this nation as an investment because it looks as if the 30-year war is coming to a close. He cites numerous other examples of war-torn countries that have emerged successful after troubled times. Rogers highlights that there is significant opportunity at hand, and all it takes is hard work. He likes Sri Lanka as an investment more so than India, Pakistan, or Bangladesh.

Conclusion

As you can see, Rogers is very opinionated on a large set of topics and likes to think in macro themes. After all, this is where his successful background comes into play. He made a fortune running the Quantum Fund with George Soros using similar strategies. While the fund is now defunct, both are still active investors and are good to track for their macro methodology. Make sure you check out our past update on Rogers' portfolio to get a better idea as to what other positions he holds. Also, we examined George Soros' hedge fund portfolio this morning as well, so make sure you see what macro themes he likes these days.

To conclude, Rogers thinks that the stock market will eventually hit new lows this year or next year after the bear market eventually subsides. He thinks that our problems remain largely unsolved and we have a whole lot of work to do in order to emerge from this mess. He thinks that the UK is potentially worse off than the US (because the US has agriculture to fall back on), but that the overall picture is still bleak either way. He thinks that moving to London in 1807 was brilliant, that moving to New York in 1907 was brilliant, and that moving to Asia in 2007 would be the next brilliant move. He clearly sees a shift of power to the east as the emerging markets (and particularly China) start to bloom. He sees Mandarin as the most important language in the world going forward and has already begun teaching his daughters.

Speaking on the global economy's future, Rogers draws from the past by saying,

Throughout history, the center of the world has shifted to where the capital is, where the assets are. You don't see any period in history where things are shifting to the debtors, and America's the largest debtor nation in the history of the world. Unless something's different this time, unless the world's changed very very dramatically, the center of the influence, the center of the power, the center of the earth, the center of the globe, is going to be shifting towards Asia, because that's where all the money is. Have you ever heard of anybody saying, 'Let's go to where all of the debtors are'? It just doesn't happen that way.

If you want to follow Rogers, then bet on inflation, agriculture, commodities, China, and bet against the US and the UK. For more on what he deems to be the best investment opportunities out there, check out Rogers' two books: Hot Commodities and then A Bull in China. We'll leave everyone with one last bit of advice from Rogers: become a farmer.

Comments

[Larry House]

Rogers' views have been well known for some time. I don't see any new ones here. I don't understand how commodities might lead us out of this mess, as is mentioned. The stronger the prices of commodities, the higher the costs for consumers, hence the lower level of spending consumers can make on things in general. I think lower commodity prices would help to lead us out--not higher commodity prices. Am I missing something?

2009 Jun 19 10:59 AM

[Roger C. Wren]

I think his position is that the "mess" is going to be with us a long time and probably get worse. He feels commodities are the best place to be for capital preservation during the "mess", not necessarily that they will lead us out.

2009 Jun 19 11:16 AM

[Larry House]

I agree with you, Roger. Then the article misrepresents his view. Note the paragraph above "Gold and Silver."

2009 Jun 19 12:24 PM

[Donald Ingram]

"Have you ever heard of anybody saying, 'let's go to where all the debtors are'? It just doesn't happen that way."
This is classic Roger's!
His views and viewpoints have always been common sense to me.
To ignore them is to put yourself in peril.

2009 Jun 19 01:20 PM

[Joanito]

So which is it ""I'm afraid they're printing so much money that stocks could go to 20,000 or 30,000. Of course it would be in worthless money, but it could happen and you could lose a lot of money being short." " or "To conclude, Rogers thinks that the stock market will eventually hit new lows this year or next year after the bear market eventually subsides."? Additionally, I do recall that commodities decided to come along for the ride to the bottom along with stocks. If anything, it has been proven that commodities are no hedge when the world is deleveraging the greatest credit fueled asset bubble of all time. Commodities are esepcially questionable in an evrironment where producers do not have as much pricing power. The only thing that higher commodities do here is to further squeeze business margins, causing more economic havoc. Also, I hear no mention of any potential ill effects of the loosening of lending policy in the developing markets. The world is teetering on the brink of true financial chaos as a result of an unruly debt bubbble in the west, but potential lending issues in Asia, which still has yet to come to grips with the annihilation of their export based economic model, and is hoping that their stimulus policies are going to buy more time (at the expense of U.S. treasury prices), are overlooked for the sake of pumping Rodger's latest book. Interesting...

2009 Jun 19 10:21 PM

[Tom E.]

I am short expatriot American money men in Asia. It will not be long before they are chased through the streets and stoned.

2009 Jun 20 12:14 AM

[Maxe Paul]

Same line from Rogers as usual, he forgot to mention Australia which (although i may be biased), has the strongest banks, all the commodities you could ever want then sells everything to China, massive farming land, a strong dollar, safe government and is yet to have a housing crash due to undersupply. Also we are basically considered part of Asia.

Why Rogers would want to live in Singapore when you can live in Aus? My guess is the generous tax breaks for foreigners.

2009 Jun 20 10:14 AM

[yank]

The Chinese have gotten the message about how the US routinely "takes down" commodity prices (oil, gold, silver) in an effort to support the US Dollar (USD) without having to raise interest rates. In a brilliant move, this week the Chinese announced they will be making major investments in US hedge funds. Their idea is to pledge US Treasuries as "collateral" in margin accounts. If the US stupidly tries to cap gold or silver prices, the drop in account value will trigger a margin call, causing the sale of the Chinese-owned Treasuries thereby weakening the USD. This is China's way of putting a gun to the head of the US and getting them to stop their ridiculous manipulation of commodity prices. The US is screwed.

2009 Jun 20 10:49 AM

[coreopsis]

Ever hear of the distinction between long-term/short-term?


On Jun 19 10:59 AM Larry House wrote:

> Rogers' views have been well known for some time. I don't see any
> new ones here. I don't understand how commodities might lead us
> out of this mess, as is mentioned. The stronger the prices of commodities,
> the higher the costs for consumers, hence the lower level of spending
> consumers can make on things in general. I think lower commodity
> prices would help to lead us out--not higher commodity prices. Am
> I missing something?

2009 Jun 20 10:57 AM

[coreopsis]

Grossly oversimplified. One $500 million announced commitment does not prove anything other than the Chinese are determined to pursue multiple strategies to achieve success (as well they should after witnessing the economy that the US has built on unrelenting consumption and leverage in the last decade). Of course, yanks tend to think of the 'one big idea' and a dichotomous world of black vs. white. In the genome there, I'm afraid.


On Jun 20 10:49 AM yank wrote:

> The Chinese have gotten the message about how the US routinely "takes
> down" commodity prices (oil, gold, silver) in an effort to support
> the US Dollar (seekingalpha.com/symbo...) without having
> to raise interest rates. In a brilliant move, this week the Chinese
> announced they will be making major investments in US hedge funds.
> Their idea is to pledge US Treasuries as "collateral" in margin accounts.
> If the US stupidly tries to cap gold or silver prices, the drop in
> account value will trigger a margin call, causing the sale of the
> Chinese-owned Treasuries thereby weakening the USD. This is China's
> way of putting a gun to the head of the US and getting them to stop
> their ridiculous manipulation of commodity prices. The US is screwed.

2009 Jun 20 11:02 AM

[wg]

If rogers is so damn smart, how come I'm losing (and have been for more than a year) so many thousands of dollars in his vaunted Roger International Commodity Fund?

2009 Jun 20 11:32 AM

[Sovestor]

We think American assets are too attractive to pass. It is true that now US is debtor country, but many emerging countries are too. China has lots of debt too. US political and economic systems are generally sound and dynamic (they continuously learn and solve mistakes) We are bullish on American people and United States.

2009 Jun 20 11:43 AM

[Sovestor]

Jim Rogers is smart all right but he is not that smart compares to George Soros, John Paulson, and Seth Klarman. Rogers are simply trying to promote his commodity funds.

2009 Jun 20 11:45 AM

[coreopsis]

Maybe you didn't time your purchase properly? You know, the price at which you purchase an investment has quite a bit (really) to do with the return you receive. BTW, the return isn't fixed, so you might consider that it is possible it will change over time.

Have you thought of selling at a loss to match gains in otherwise overwelmingly successful portfolio?


On Jun 20 11:32 AM wg wrote:

> If rogers is so damn smart, how come I'm losing (and have been for
> more than a year) so many thousands of dollars in his vaunted Roger
> International Commodity Fund?

2009 Jun 20 11:48 AM

[Alphameister]

"Don't short stocks and do favor Chinese stocks" seems like a very sensible message to me.

2009 Jun 20 12:17 PM

[change is the only constant]

Rodgers' conclusions are fundamentally sound. His analysis, however, is so full of holes one wonders if he intentionally obfuscates. If Rodgers truly believes that "wealth" in a foriegn society comes from capital, his children will teach him why...."We hold these truths to be self evident..." is so important. The bill of rights is not despotism, there is a fundamental difference, and it matters.

2009 Jun 20 01:23 PM

[INVESTGROUP]

well wherever we are heading we might as well go the with a giant big as s smile with this one,, $utrm.pk

2009 Jun 20 02:37 PM

[Tony Daltorio]

The anti-Rogers, jingostic, wave the flag waving comments like from Sovestor are always amusing....

I'm bullish on everything but America.............

2009 Jun 20 02:50 PM

[The Geoffster]

Very clever.


On Jun 20 10:49 AM yank wrote:

> The Chinese have gotten the message about how the US routinely "takes
> down" commodity prices (oil, gold, silver) in an effort to support
> the US Dollar (seekingalpha.com/symbo...) without having
> to raise interest rates. In a brilliant move, this week the Chinese
> announced they will be making major investments in US hedge funds.
> Their idea is to pledge US Treasuries as "collateral" in margin accounts.
> If the US stupidly tries to cap gold or silver prices, the drop in
> account value will trigger a margin call, causing the sale of the
> Chinese-owned Treasuries thereby weakening the USD. This is China's
> way of putting a gun to the head of the US and getting them to stop
> their ridiculous manipulation of commodity prices. The US is screwed.

2009 Jun 20 03:19 PM

[backtoreality]

WG..
If rogers is so damn smart, how come he was on tv calling BUCY the best buy in the market...this when BUCY was at 70..and then started to fall to 11 bucks..

His reason?...because BUCY makes the shovels to dig coal, and he said they couldn't make them fast enough to keep up with the demand from china.

Ha ha ha ha...the shanghai market was already on the skids, with the commodities soon to follow.
I don't think rogers has ever been on a farm, and I don't think he has been in China, and I don't think he was even born when the commodities crashed...in the 1930's.??? Hell no, the commodities crashed in 1929...I grew up on a farm in Minnesota at that time, and it was a game of survival...because of the "do nothing" approach of Herbert (george bush) Hoover...as Yogi said.."deja vu all over again"


On Jun 20 11:32 AM wg wrote:

> If rogers is so damn smart, how come I'm losing (and have been for
> more than a year) so many thousands of dollars in his vaunted Roger
> International Commodity Fund?

2009 Jun 20 03:33 PM