By Sumit Roy
When Jim Rogers talks, investors listen. Rogers might be the world's best-known commodity investor, with his Rogers International Commodity Index and best-selling books, including Hot Commodities. HAI Managing Editor Sumit Roy spoke with Rogers last week from his home in Singapore about commodities, including whether he's ready to buy gold after the recent plunge in prices.
Hard Assets Investor: A lot of investment banks have recently called an end to the commodities supercycle that began more than a decade ago. Do you think they're wrong?
Jim Rogers: I'm delighted to hear that. Bull markets climb a wall of worry. I'm not quite sure where the supply is coming from that would cause the bull market to end. Maybe they know something I don't. But when you look back at the stock bull market from 1982 to 2000, stocks collapsed in 1987, 1989, 1990, 1994, 1997, and 1998. And every time, people said the bull market is over. But it wasn't. This bull market in commodities will definitely come to an end someday. But someday is not here yet.
HAI: What signs do you look for to determine when the bull market is close to ending or has ended?
Rogers: Well, when there's massive new supply coming on stream, then we'll have the end of the bull market. But the world has consumed more agriculture products than it has produced for a decade now. Worse than that, we're running out of farmers. The average age of farmers in America is 58; in Japan, it's 66. Many of the industrial metals are now below the cost of production.
And nearly everybody has cut back dramatically on their expansion plans and investment plans. Oil reserves are declining pretty steadily around the world. We do have shale oil, which has caused a rise in supply. But that's only in the U.S; the rest of the world has declined. Moreover, it remains to be seen how long the oil boom in the U.S. will continue.
HAI: All the talk recently has been about the recent plunge in gold. You've been saying for a long time now -- even when prices were hitting record highs -- that you weren't going to buy until prices corrected to $1,200. Are you still planning on buying there?
Rogers: Yes, if it gets there. I bought more today [June 18], as a matter of fact. I bought a little bit, not much, over the last few days in case this was the bottom. I would not be surprised if there's another chance to buy lower later on, but I'm buying and I own it. I haven't sold any.
HAI: How do you determine whether gold is a good value or not? What has to happen for you to get completely out of gold and stay out?
Rogers: All these things will end in a bubble some day. Long bull markets always end in a bubble or mania before it's over with. And when there's a bubble in gold, I hope I'm smart enough to get out. We haven't seen a bubble yet. Until recently, if you went around any U.S. city, you would see signs outside many jewelry stores saying "We buy gold." And the American people line up to sell gold. Later there'll be signs there saying, "We sell gold," and people will be lining up to buy it in big ways. That hasn't happened yet.
HAI: Have your views evolved on oil at all following the boom in U.S. production over the last couple years? Has it tempered your bullishness? Or do you think this is just a blip in the big picture?
Rogers: It's certainly caused a big supply increase in the U.S. We cannot ignore that or avoid that. But as I said before, all other oil reserves around the world are in steady decline, whether it's 4% a year or 6% a year, I don't really know. I know those are the various estimates. And the interesting thing about shale oil and gas is that in countries like Poland, the majors have abandoned drilling there because they have found it's not quite economical.
We're also finding that these wells are very short-lived. For example, with natural gas, what happened was everybody started drilling. And they rushed out and had a wonderful time. But now it's four or five years later, and we're finding out these wells decline very quickly. And so people are finding it's not nearly as much fun as it was in the beginning, especially in the beginning when a lot of them had to drill acreage quickly to maintain their leasehold obligations.
I think the reserves may not be what we thought. And some of the gas companies have reported decreases in their estimated reserves because the wells dry up pretty quickly. The same is happening with oil. The oil boom started later than the boom in shale gas. And we're finding that those wells decline at the rate of, depending on who you believe, 38% to 69% in the first year. I don't have a clue, because I've never drilled a shale oil well. But we do know that those are fairly short-lived, too. So this has been great fun, and it may last awhile. But I would suspect it's not quite the boom that the press seems to think it is. We'll find out.
HAI: What do you think is the most underappreciated commodity story out there right now?
Rogers: Maybe sugar. But I don't really know. I haven't thought about it. Just find out whatever is down the most and find out where the most bears are. And that's probably it. I don't know whether there are more bears on silver and gold or on sugar right now. But wherever the most bears are, that's where you should look.
HAI: Do you think China's transition from a manufacturing-based economy to a more consumer-oriented economy is going smoothly?
Rogers: I read all this stuff in the press. And I'm not quite sure how you tell 1.3 billion people they've got to stop building infrastructure and start consuming. That's not the way the world works, at least with no human beings I know. It's happening gradually, just as it happened in the U.S., U.K., and many other countries historically. There are going to be setbacks in China. Goodness knows, no economy or market goes straight up. They all have setbacks. China will have many setbacks.
In the 19th century, America had a horrible Civil War. We had several depressions, very little rule of law, very few human rights. And yet we became a pretty successful country in the 20th century. So China is going to have plenty of problems. What I plan to do is, when I see serious problems in China again I hope I'm smart enough to pick up the phone and buy more China.