Prophet of Doom
World-famous investor and author Jim Rogers, famed for his work with the Quantum Fund that led to his “retirement” before he turned 40 and for his creation of the Rogers International Commodities Index, is well known for telling it like it is.
As a frequent commentator on Bloomberg TV and CNBC; as best-selling author of the books A Gift to My Children, A Bull in China, Hot Commodities, and Adventure Capitalist; and as an occasional Visiting Professor at Columbia University, his credentials are not easy to ignore.
He sees a very difficult few years ahead. And he’s been right before.
You’re well-known for bullishness on the subject of investment in agriculture and commodities; you’ve said all commodities are going to go up this decade, what would you put your money in?
If I were buying anything right now I’d buy agricultural commodities, they’re still the ones that are the most depressed. Sugar on a historic basis is 75 per cent below its all time high. I mean if you look at the historic prices of most agricultural commodities you’ll see they’re very, very low, based on their historic prices.
Turning our attention to metals and mining, what would be your thoughts on that, what would be the best investment?
Well, I’m not buying any commodities right now including agriculture. I’m a little worried about the markets. I own commodities and I’m not selling, I have sold short stocks as a hedge against what might happen, but I expect 2013 to be pretty bad and 2014 to be pretty bad in the world economy, so I wouldn’t be buying much of anything these days.
I own gold, I’m not selling my gold, but I’m not rushing out to buy gold at these prices either. If gold goes down I will buy more, if it goes down a lot I hope I’m smart enough to buy a lot more, but I’m not buying anything right now.
I own silver but I’m not buying more for the same reason I’m not buying gold, at today’s prices if I had to buy one or the other I would buy silver, but I don’t have to do anything, I’m not doing anything. If gold and silver go down, depending on which goes down the most and what else is going on in the world, I hope I’m smart enough to buy more, but I’m not buying anything right now because I’m worried about the state of the world.
You’ve said that 2013 is not going to be a good year and 2014 is going to be even worse, what do you see coming down the road?
Well, the United States is now the largest debtor nation in the history of the world and it’s getting worse, we have huge problems facing us; many countries in Europe likewise have bad problems, Europe overall is not as bad as the US, but it’s getting the attention right now, and you have many underlying problems in the world including the fact that there’s an election this year in the US, the government is spending a lot of money and printing a lot of money trying to win the election, so you have some artificial hype going round in the world economy, likewise Germany has an election coming up next year, so they too are trying to hold things together but all this is very artificial because underneath there’s huge problems. Again, I would remind you that the US has had economic slowdowns every four to seven years since the beginning of the Republic; you can add as easily as I can, 2013 is four to six years later from the last one so we’re overdue for a recession. I don’t know what will cause it, we’ve always had one though. So when the recession next year comes it’s going to be worse than in the past, we had a recession in 2002, but 2007 and 2008 were much worse because the debt was so much higher, and next time around the debt is going to be higher and higher, much higher. So the problems are going to be much worse next time around than last time around.
We’ve always had [a recession], there’s always a reason, something always goes wrong and it will again.
The world’s on a knife edge, in many areas of society and the economy.
You’ve said in the past that gold and silver hold their value, particularly in comparison with a debased currency.
They often hold their value, often have. There have been periods where gold has done nothing or done very badly. Between 1933 and 1973, gold was pretty much a disaster in the world, so gold doesn’t always do well. But in this particular point in history, I would expect gold and silver to continue to do well for a variety of reasons. We’re not opening many mines and the world’s currencies, paper money, is being debased. Throughout history when money is being debased, people have looked for ways to protect themselves and gold and silver have often been among those ways to protect themselves.
And iron ore?
Well, iron ore is one of the few commodities where there’s been a huge expansion in supply in the past few years, iron ore probably more than anything else.
Huge amounts of capacity have been brought on-stream and so I would suspect there are probably better commodities going forward.
And base metals?
The world economy is slowing, it’s got problems coming, big problems, normally when you have big slowdowns in demand, base metals are affected. Now I own base metals, I’m not buying them, that said, if the world economy gets better, all commodities are going to do much, much better because of shortages that are developing. But if the world economy doesn’t get better, you should own commodities because then governments will print money. It’s not the right thing to do, but they always have and they’ll do it again. Commodities will probably go down less and go up more once the money printing starts. I own base metals, but if I had to buy something today I would buy agriculture, not base metals.
You’re very Asia-focused, you’ve said that the 21st century is going to be the Asian century, that China is going to be the most important country in the coming century. How do you think Australia is likely to fare, given that it’s so rich in metals and minerals and proximate to China?
People in Australia call Australia the lucky country and it periodically has been. Mainly when there have been commodity bull markets it’s been the lucky country.
Well, we’re now in a commodity bull market again, Asia will continue to have a lucky period, a good period, better than most, the major worry with Australia — and I own the Australian dollar I should add — is the politicians keep running up debt. America’s got worse politicians, don’t get me wrong, but as somebody who’s as well situated as Australia is in the past ten years or so, and the next ten years, I cannot understand why their government runs up debt. That’s the major worry, going forward, that the politicians will continue to bungle Australia’s situation, in a time when they should be reaping the benefits of being the lucky country.
You said in the past that Australia’s primary weakness was debt, not government debt, but private debt.
No all debt. When debt is too high in a society, it permeates everything. People transfer the debt from the private to the public sector which happens some in America, but it’s still debt. I mean the nation as a whole faces the problem that a lot of its efforts will go into paying off old debt.
Housing has got too expensive in Australia and will undoubtedly come down, but it’s not like America where you had huge numbers of people buying houses, who didn’t even have jobs. They weren’t making any down payments, and they borrowed for four or five houses with no jobs and the banks took the paper and geared it up even more. You’ve got a housing pricing problem in some parts of Australia, but it’s not a huge debt problem like it was in the US. You’ll have people losing money and going broke in Australia because of housing, but nothing like the US.
Prices in some parts of Australia got too high. If you look at standard historic measures, when a house costs many times people’s salaries, they’re usually too high. When houses are very cheap comparative to people’s salaries they’re usually too low. But in Australia, people don’t buy three or four houses without having jobs. Nothing like in America, with banks almost directed or instructed to make housing loans whether people qualified or not and then everybody did it three or four or five times and it was a lot of fun and of course Wall Street. bankers took them and sliced them and diced them and made their mortgage papers even more leveraged. So, you have some people going to suffer in Australia, but nothing like what happened in the US or Spain or some of the other real housing bubbles.
Prices have already started coming down. It will coincide, or it already is coinciding, with a slowdown in the world economy. China’s been trying to slow its economy for three years, rightly so in my view. You have many parts of the world slowing, which will continue to slow and get worse which is why I’m not buying anything right now, base metals or anything else, because I expect to see more turmoil in the world’s markets and so I hope by being short on stocks and long on commodities and long on some currencies, I will come through and survive.
You mentioned China’s measures to slow its economy; despite the fact this was a controlled series of moves, people have been hitting the panic button about China’s ‘slowing growth’…
People hitting the panic button about China should have been reading your publication. This is a conscious, deliberate and correct approach if you ask me and it’s going to continue. At the same time we will have economic turmoil in other parts of the world. Everybody in China who does business with the west knows there are problems in the west. All these things together lead to a downwards spiral. As it continues we’ll be worse than in the past because of the staggering amounts of debt. It’s not China’s fault any more than its Australia’s fault that it’s happening and everybody gets affected.
What are your thoughts on Africa?
I’m optimistic about Africa. Largely because of raw materials, they have staggering amounts of raw materials; most of them have abandoned socialism and communism so there are enormous opportunities there. Africa’s very cheap. The Chinese are pouring in and buying up everything they can in Africa, they see the same thing that I do, the world’s going to face more and more shortages of raw materials going forward, and the Chinese are acting like good capitalists, running around stockpiling supplies for the future. There are huge opportunities in Africa. If there were six of me, one of me would be in Africa right now, whether it be Tanzania or Angola or many places with enormous prospects going forward.
As long as the bull market continues in commodities, Africa has wonderful opportunities. When the bear market resumes again, whenever that is, I’d be careful about Africa, I’d be careful about Australia. The Lucky Country’s going to get unlucky.
That makes perfect sense with such a commodities based economy.
All you have to do is follow the commodity markets and you can pretty much follow Australia’s history for the past several decades. When things are great, Australia’s lucky; when things start going bad, politicians say ‘this is temporary, don’t worry, we’ll save you,’ they spend more money, go deeper into debt, the bear market continues and things get worse and worse and worse, the currency goes down, everybody’s moaning, politicians make it worse by adding even more debt. But then, bear markets always come to an end, bull markets and commodities rise again and Australia gets lucky, Australia will be lucky until the bear market resumes, I don’t know where it’s going to end, eight years, ten years, it will come back and Australia will not be so lucky and especially since they’ve piled up even more debt and likewise Africa. If you’re looking for a new life, Africa’s a wonderful place to go for a decade or so.
Of course a great deal of Australia’s iron ore goes directly to China to fuel their rapid urbanisation, making the ‘slowdown’ more consequential.
China’s pretty much broadcast to the world they’re going to slow things down, unfortunately most Australian miners continued to expand supply. So you have huge amounts of supply coming along at a time when the primary demand is slowing down, so some people are going to suffer. I don’t know who has gotten themselves overextended in iron ore, I suspect someone will suddenly find themselves with too much debt at a time when things are just slowing down.
That happens throughout history, throughout all markets. Some people see what’s going on and get it right and others who don’t, they pay the price. It’s going to happen to some miners in Australia as well. Australia is still in a lucky period even though they may have some house price declines, even though you may have people over-extended. I would rather be in Australia than most countries in the world.
And what about Canada?
Canada too will have, has had and will have the same kind of situation as Australia. Canada’s not as huge in iron ore like Australia is, but I know house prices in Canada are too high, those prices will come down in some areas of the country, I suspect that some people in Canada will suffer, but again I would rather be in Canada than in many countries.
The next couple of years, 2013 to 2014, will be difficult for the world economy. Canada’s natural resources are different from Australia’s in many ways. So Canada’s probably better set than Australia going forward, and both Canada and Australia are better set than Belgium or Italy.
In both Canada and Australia house prices went up too much, they got ahead of themselves, so that’s going to cause problems in both economies. Australia has so much iron ore and there’s been a huge expansion of iron ore and you don’t really have that in Canada that I’m aware of, you have more agriculture and agriculture-type sectors than Australia does. You have less iron ore and more agriculture if nothing else.
You said the economy of China is a tenth the size of the US and Europe together, that China will neither make us nor destroy us.
You can throw in Japan too. China’s a dot. It’s an important dot, but it’s still a dot. They can’t burn us and they cannot save us.
To put China in an historic perspective, America which became the most important country of the twentieth century, in the nineteenth century as we were rising had 15 depressions, with a D, had very few human rights, had a horrible civil war, had very little rule of law -- America was a disaster if looked at it from the outside. But out of all that turmoil came the most successful country of the twentieth century. China’s going to have plenty of setbacks along the way, and people don’t understand that. They need to go back and read some history.
When China has its next collapse, whatever causes it; I will step in and buy more of China. I hope I’m smart enough to do that. I’m teaching my children Chinese, I’m not teaching them Danish.
China’s the future, but it will have many setbacks along the way.