In February of 2005, I had the pleasure of meeting commodity investor Jim Rogers. It was not an official interview. We spoke for 20 minutes as I drove him in my car to my office. He then spoke to me and my colleagues. He regaled us with his fascinating life story for about 20 minutes, and then answered our questions for almost two hours. The questions were not prepared in advance. Given what a forward thinking individual Jim Rogers is known to be, it is no surprise that in 2007 his answers are still current. I also communicated with him in August of 2007 to verify the accuracy and relevance of the interview.
Rather than retell his exciting life story, I encourage people to check out his website www.jimrogers.com. He has traveled 152,000 miles, visited 116 countries, traveled the world twice over five years, and at age 60 became a father for the first time. There are many people that can speak with some authority about stocks. For an education in commodities, the first person everybody should learn from is Jim Rogers.
Before the Q & A, he offered various insights on random subjects.
“I have been to 116 countries, and many of these countries are run by dictators and Mafiosos. They are driving Mercedes’, not Chevys.”
“Most people have never met a foreigner. Americans have, but most people have not. They like us. They do not necessarily agree with our government policies, but they are happy to see us. When a new person visits them, they are excited.”
“Chinese people save or invest 35% of their income. Americans save or invest only 2%. The dollar is plummeting, so Americans had better be prepared to learn Chinese.”
“The bull market in commodities began in 1998. Bull markets in commodities last between 15 and 23 years, with the average run being 18 years. This bull market in commodities should last until between 2014 to 2022. The stock market will be flat for the next 15 to 20 years, with no money to be made unless you are a great trader.”
“There has not been a lead smelter built since 1969, and no new major elephant oil fields have been discovered in 35 years. There are 40,000 stock funds, but only a handful of funds investing directly in commodities. Merrill Lynch closed down their commodity operation in 1998, just as the bull market was getting started.”
The Q & A session was equally insightful.
Q: If weakening the dollar is such bad economic policy, why does our government do it?
JR: The theory is that is makes us more competitive. In reality, it hurts consumers. Devaluing a currency does not work. Politicians do it because people suffering is less important than them getting themselves getting reelected. If this keeps up, other nations will dump their dollars, which will lead to higher US interest rates.
Q: How does one address the issue that commodities are simply too risky?
JR: Everybody knows somebody who had a brother in law who lost his shirt in porkbellies. He lost his shirt because he bought on 5% margin. He could have bought on 50% margin or 100% margin. Everybody wants to get rich quick.
Q: Since most people understand stocks, why not buy commodity stocks instead of pure commodities?
JR: Copper does not know who Alan Greenspan is. With companies you have to analyze management, balance sheets, pension funds, etc. Enron was a natural gas company, and it collapsed even as the price of actual natural gas itself was skyrocketing. Cotton does not go to zero. No commodity goes to zero. They can go down, but not completely. Commodities outperformed commodity stocks by 300% over the last 45 years.
Q: How can other countries react to guard against the falling US dollar?
JR: The markets are bigger than any central banker. No country in history has gotten out of a currency spiral without a crisis or semi crisis. We owe 8 trillion dollars, and our debt is increasing by 1 trillion dollars every 15 months. The market simply has more money than all the central banks combined.
Q: What short term trades do you recommend?
JR: I am the world’s worst auto mechanic, and the world’s worst trader. I buy cheap and hang on for a long, long time, sometimes too long.
Q: Given your driving around the world, what were your observations regarding unleaded gasoline and crude oil?
JR: Most people don’t have unleaded gas. The price is tied to crude. The real bottleneck is in refining capacity. Therefore, if the price of crude increases, the price of unleaded gas should increase more. Adjusting for inflation since the 1970s, the price of crude oil should be $90 per barrel. Even if we discover oil tomorrow in a field, it has to be in a place we can get to. In the 1970s, we knew where oil was coming from, and yet the price still skyrocketed since we could not get to it. Now we don’t even know where it is. Even if we find it, getting it to the market takes time.
Q: What about investing in alternative energy sources?
JR: Wind power is barely competitive in some select places, but overall wind energy is not competitive. Solar energy is not competitive at all. Hydrogen is not the answer. We are years away from making, buying and then distributing the cars. There is no substitute right now for oil and natural gas, except for sugar. The best way to buy crude oil is to buy sugar. Corn is conceivably a way, but sugar is better.
Q: Where is the best beer in the world?
JR: The best two places I drank beer were the Congo and the Ivory Coast, although it could have been because it was so hot. The Chinese also make good beer.
Q: Why are rising oil prices a problem? Doesn’t it help American companies?
JR: It is problematic because Americans are not getting the proceeds. Even though it comes back in dollars, by the time it gets back to us it is in the form of a debased dollar. It might get to the point where oil ends up being priced in euros, yen, or ivory, not dollars.
Q: What are the consequences of a falling dollar?
JR: Study the history of economies. In 1918 England had the number one economy in the world. Within a generation, exchange controls were implemented, and they lasted 40 years. England has not been the same since. This will happen in the United States. With a falling dollar, there will be higher interest rates. This will at some point lead to a credit crisis in the form of a refinancing collapse. I am currently short Fannie Mae and homebuilders in anticipation of this.
Q: For those who are not comfortable with commodities themselves, are there plans to create ETFs, Spiders or tracking stocks specifically connected to the Rogers Indexes?
JR: More people trust indexes over commodities. It is being worked on.
Q: What is your view on supply side economics, that deficits don’t matter, that the key to a healthy economy is growth?
JR: With regards to supply side economics, no. Things do go wrong when economies take a turn for the worse, and two groups of people always get the blame by the politicians. First the politicians blame foreigners. Foreigners are those people that eat different foods, smell bad and talk funny. They are an easy target because they don’t vote. The second group to get blamed by the politicians are the financiers. For the last 1000 years, people love to blame the bankers. Wall Street and foreigners are responsible for problems politicians create because they promise free money with no consequences.
Q: What is your view on coal?
JR: The British Navy ran on coal. It was Winston Churchhill as Secretary of the Navy that recommended that England should convert from coal to oil. It hurt them, and England has not been the same since. I am bullish on coal. It is a commodity, and will rise with oil.
Q: What is the main issue with oil?
JR: Countries are not putting money into exploration. There is no production going on. There are plenty of oil profits, but those profits are being invested in 5th Avenue real estate among other things. There are no new mines or new oil, hence a bull market.
Q: What if China does not open up their currency and let it float freely?
JR: They have to open up to show the world that they are open. They have the 2008 Olympics and the 2010 Shanghai World’s Fair. Buying the Remni will be a wise investment because I expect them to be open by 2010.
Q: What is your view on agricultural commodities, given a decrease in subsidies?
JR: For the first time in history, we have had five straight years of greater consumption than production, and this is without having a drought. Throw in a drought and the problem will be worse. We have low stockpiles of sugar, cotton and soybeans. Between agricultural, metal and energy sub index funds, agricultural funds are what I like best.
Q: How did you turn $600 into your current success?
JR: I started out with $600, a second hand Volkswagen, and a wife. One was an asset and one was a liability. I will let you figure out which was which. I liquidated both, and still had the $600. I worked long hours, and spent weekends reading about markets. I simply love it. You have to love what you do, whether it be gardening, hairdressing, etc. When you love it, then the money follows. Even if it doesn’t, you will still be happy. Being happy and poor is better than being unhappy and poor. As for making money, I did very little marketing. The key is to make your clients money. If you have a good track record, people will find you and knock on your door. Just make your clients money.
Q: What is your position on leverage?
JR: When I was a young man working 14 hour days, I traded using outrageous and terrifying leverage. I was either very lucky, very smart or very dumb. That’s what terrifies people about commodities. Commodities themselves are no riskier than stocks. A stock on margin has more risk than a commodity fully paid for. It’s all about the degree of leverage. Buying copper is the same as buying IBM. Now that I am doing other things with my life, I am using a lot less leverage.
Q: Can commodities do well during bad economic times?
JR: In the 1970s the UK had a top 5 economy. Then they went broke, and needed to be bailed out by the IMF. Japan and the US were suffering financially. During all of this global financial chaos, commodities were in a bull market, with the price of oil rising tenfold. Demand for commodities dropped, but the supply dropped even more. This also happened with lead. Lead lost its two biggest markets. It is no longer used in gasoline or paint. The demand for lead dropped, but the supply dropped even more, leading to a rise in lead prices.
Q: What are some leading indicators of price movements?
JR: There is nothing reliable other than major secular trends. There is nothing short term or medium term. If you find one, keep it to yourself and get rich.
Q: Why do you like sugar so much?
JR: Sugar is 85% from its all time high, and that is without adjusting for inflation. Taking into account inflation, sugar is free. It could triple and be 60% from its high. It could quadruple and be 50% from its high.
Q: The fees on your indexes seem low. Is that an error?
JR: I’m not here to peddle my funds. I am here to peddle my books. One person actually wanted me to raise my fees so that he would be ripped off, and then feel like he had a legitimate investment. He ended up becoming a customer, and I did not raise his fees.
Q: What are three ways a broker can expand their business?
JR: I can think of only one way, and that is to make profits for the clients. Do right by the clients, even if it comes at your own expense as a broker in the short run, and your clients will take good care of you in the long run.
Q: What foreign currencies do you like?
JR: I own 12-15 currencies, and I do not have confidence in any of them. I just have more confidence in them than the US dollar, which does not say much. Singapore insists on a sound currency. The Canadian dollar is doing well, Canada has a trade surplus, and Alberta is actually debt free. Resources alone are not enough. The Congo has resources but the politicians have bungled things there.
Q: Is this the final run for US commodity markets?
JR: If the US dollar continues to plummet and exchange controls are implemented, then yes. People should be looking at foreign markets.
Q: Do you think it is easier to make money on the short side, since markets do not go straight up, but can go straight down when they crash due to bad news?
JR: There is no easy money, and there never was. Some people like to reminisce, but there never were any “good old days.” Making money is hard. Most people are terrified of selling short. President Eisenhower did not know what short selling was, and President Nixon considered it unamerican. Short selling actually helps markets, but it is easier to get clients on the long side. The long side has unlimited profits, with losses limited to 100%. Short selling has unlimited losses, with profits limited to 100%. I do go short, but it is simply less complicated for customers, and easier to get customers, by staying long.
Q: How will we know when the bull market in commodities is ending?
JR: Bull markets end in hysteria. In the 1990s, barbershops had CNBC on the television so people could follow the stock market while getting haircuts. That is not normal. The Wall Street Journal does not even capitalize the “N” and the “E” in the “new economy” anymore. When old ladies and teenagers are talking about markets, it is time to sell. I see us at the top of a real estate bubble, but I always sell short too soon because a bull market goes higher than any rational person expects. When I get wiped out you’ll know that it’s the top.
Q:What are your feelings about options?
JR: I adore options. I made my first big killing in options on the long side. I do not discuss options in my book because they require much explanation, and that is for brokers to do.
Q: How does a change in central bankers from Greenspan to Bernanke affect things?
JR: All new central bankers like to raise rates early on and make things bad so they can then make things better down the line. I am serious about this.
Q: Any other thoughts?
JR: I had my first child, and I love it. I saw other people with children and thought how bad it was for them. My traveling companion and wife Paige Parker and I are the parents of a darling baby girl. She is learning Chinese, because the 21st century will be the Chinese century. The 19th century was the UK century, and the 20th century was the American century. I have hired a Chinese nanny to teach my baby girl the language of the future besides English. My baby girl doesn’t own any stocks. My baby girl owns commodities. Everybody should have children. They are fun to make and fun to raise. People should leave work right now and go home and make children. They will enjoy creating them, and fall in love with them as I have with my baby girl.
Jim Rogers, in addition to being a husband and father, is an author. His books, “Investment Biker,” “Adventure Capitalist,” and “Hot Commodities,” are the second best education one can get with regards to commodities. The only thing better would be to get to know Jim Rogers in person. His newest book, “A Bull in China,” comes out in December. Jim wished us much success in our lives, and the same wishes are extended to him and his family.
eric
Interesting interview, Eric. I hate this statement: ““Chinese people save or invest 35% of their income. Americans save or invest only 2%. The dollar is plummeting, so Americans had better be prepared to learn Chinese.” Ack!
Did you see my Monday’s post on Chinese atrocities against the Falun Gong? If you did, then you’ll know why I said “Ack!” The Chinese regime is committing horrendous crimes against their own people and no one is covering it. Not even Fox News as far as I can tell. We shouldn’t be trading with such people, and we consumers need to boycott Chinese products.
I received your e-mail which said Human rights cannot supercede the global economy. Don’t you think they should?
As far as solar energy is concerned, you might want to consider the following statement before writing solar energy off as “non-competitive”.
“The energy that reaches earth from sunlight in one hour is more than that used by all human activities in one year”.
When I was kid in junior high, NASA came around and did a demonstration of their planned trip to moon and one of the highlights I remember from that is when they used a solar collector to light a light bulb.
We should have been learning to harness the free energy from the sun ages ago, instead of finding more and better ways to pollute our air with fossil fuels.
We can only hope it is not too late to start.
Thomas Jackson
Nashville, TN
actually, wind energy is already competative. Solar energy will be when the oil price is about 130 dollars. So, that will be soon. I do think it is a good investment (in the coming years)
Thanks for the interview.
Jim is an investing genius. I run searches every now and then to see his current thoughts on the market and where things are (which is how I found this page).
On tv and in the press, he can come across as eccentric and “out there”. He’s very blunt with his investing views…the dollar will collapse, Bernanke is a fool, etc.
But you have to read his books, his interviews (esp read his interview in “Market Wizards”) to understand where he’s coming from and how he makes decisions, he doesnt pull them out of thin air. He’s got a model in his head about how the world works, and he compares whatever is happening now to 500 or 1,000 years of history..
Thus being right about commodities, China, lower dollar, etc.
He’s a genius, I’d study everything you can from him. He’s been right about so much.
I enjoy catching Jim Rogers’ market insights,thanks for providing the interview here.when I was at Columbia’s B. school in the 1980s,I was fortunate enough to take Jim’s classes and then to work for him for a time.Actually, it was then that Beeland,Inc. was first started as an investment advisory for some money that Jim was looking after.Jim really wasn’t interested in getting active in money management back then,but I think he felt it would give this over-eager disciple of his some experience while defraying office overhead.Well,be that as it may,Jim’s incredible breadth of knowledge still impresses itself on me as it did back when I was a student.
[…] http://blacktygrrrr.wordpress.com/2007/08/13/an-interview-with-jim-rogers/ […]
[…] co-fundador del Quantum Fund con George Soros hace varias decadas, nos da su punto de vista en una interesantisima entrevista sobre su vision del mercado, en un momento como el actual de maxima ebullicion en las comodities […]