A Chinese Bull : Jim Rogers On The Next 10 Years

By Syed Akbar Ali

Jim Rogers is a renowned investor and fund manager. Born in Baltimore, Maryland and raised in Alabama he started in business at the age of five by selling peanuts and by picking up empty bottles that fans left behind at baseball games.

He got his first job on Wall Street, at Dominick & Dominick, after graduating with a bachelor's degree from Yale University in 1964. Rogers then acquired a second BA degree from Balliol College, Oxford University in 1966. After Oxford, Rogers returned to the U.S. and enlisted in the army for a few years.

In 1970 Rogers co-founded the Quantum Fund with George Soros.

During the following 10 years the portfolio gained 4200% while the S&P advanced about 47%. It was one of the first truly international funds.

Rogers is extremely bullish on the commodities market (palm oil, food, rubber, timber) and extremely bearish on the US Dollar and the US. He calls the US a ‘communist country’. But his biggest call is on China. Rogers is very bullish on China. He has two young children who have learnt to speak mandarin.

(My comments are in blue)

Here is an article about Rogers by Heather Bell.

Heather Bell

I’m moving to China … possibly to live in a bunker. At least that was my inclination after listening to a presentation by Jim Rogers Thursday. Now don’t get me wrong? Mr. Commodities wasn’t all doom and gloom. In fact, his talk was both informative and highly entertaining. But Rogers doesn’t sugarcoat things? He’s very matter-of-fact about his concerns and projections for the future.

And most of them don’t bode well for the U.S. I’ll be posting an interview with Jim Rogers on the site in the coming week, but for
now, I just wanted to offer some highlights from his speech at ETF Securities' mini- conference and the Q&A that followed.

1. The 21^st century belongs to China

According to Rogers, the 19th century was the era of the British Empire and the 20^th century was the U.S.’ heyday. But the 21st
century is China’s (though the rest of Asia is definitely going to get a boost too).

The reasons for this are many, but some points brought up by Rogers include the following:

1. The Chinese want to live like we do;
2. They are more eager to work;
3. They are better at saving;
4. There are 1.5 billion Chinese citizens (and 3 billion people in all of Asia), and we owe them money. They are, according to Rogers, “among the best capitalists in the world.”

There will be some setbacks, of course, Rogers says, but these are opportunities. “If you see setbacks in China, you should pick up the phone and get more involved,” he advised, before adding his favorite refrain, “The best advice of any kind that I can give you is to teach your children and grandchildren Chinese.”

I share this view. We benefited greatly from the ‘Look East’ Policy where we were able to attract large amounts of Japanese investments. We also sent our students to study at Japanese universities. We should Look East again to China and start sending large numbers of our students to study in Chinese universities.

I shudder when I read that thousands of our students are still headed for places like Pakistan and Egypt (Al Azhar University). These are failed countries. Their universities are of almost no help to them. Why would we want to send out students there?

China’s path to world domination started with Deng Xiaoping’s capitalist programs in 1978, and there hasn’t been any looking back since. Rogers views China’s dominance as nigh-on unstoppable except for one little thing: its water problem. There are parts of the country that are running out of water, and when the water disappears, Rogers points out, so does civilization. However, the country is acting aggressively to combat the problem, and he doesn’t view it as that much of a threat.

Deng never had any ideas of world domination, just like Toyota never had any plans to be the world’s largest car manufacturer. Deng said ‘the Chinese people need opportunities to make money’. Toyota said, ‘we want to be the best in quality’. Both are now headed to be No. 1.

2a. Jim Rogers is not a Ben Bernanke fan Yep, it’s a fact. No “Team Bernanke” shirts for Jim Rogers (who said to scattered applause during the Q&A session that if he was in charge of the U.S. economy he would “abolish the Fed and resign.”).

Rogers is appalled by the government’s actions—Bernanke’s in particular. The U.S. government’s strategy calls for the debasement of the dollar, he says, calling it a “horrible policy.” While he concedes it can work in the short term, it NEVER works in the mid- or long term.

“He’s going to run those printing presses until we run out of trees, because that’s the only thing he knows,” Rogers said of Bernanke.

Add that on top of the country’s rapidly growing astronomical debt, and Rogers believes you’ve got a recipe for disaster.

2b. The U.S. dollar is screwed

Consider this a corollary to point 2a. Its status as a reserve currency is teetering on a precipice, in Rogers’ opinion, and he’s not alone. In fact, so many people are selling dollars right now that he’s sitting tight, waiting for a possible—and ultimately unsustainable—rally in order to exit the market. Of course, if it fails to rally and just drops again …

“I’ll just have to panic and sell like everyone else,” Rogers said.

The US Dollar was sold at RM3.385 yesterday. The day before it was at RM3.35.

3. Commodities, commodities, commodities

OK, as mentioned before, there are 3 billion people in Asia, most of whom are aspiring to play the home version of the American Dream game show. And let’s face it: American society is largely about consumption. We like stuff? We buy it, we wear it, we eat it, we flaunt it, we sometimes even bedazzle it (yeah, Google that). So that’s a lot more consumption on the global level. Rogers notes that while consumption is expected to increase exponentially, not a lot of capacity has been added in the last few decades for a lot of commodities. Meaning, not a lot of new refineries have been built, and not a lot of new resources have been discovered or excavated for a variety of commodities.

In terms of oil, Rogers cites the fact that Saudi Arabia has not seen any new oil discoveries but has consistently said for the past two decades that its reserves are at 260 billion barrels (in which time it has sold 60 billion barrels). He also points out that farmers are a rapidly disappearing species. So to sum up? that’s a lot more people competing for diminishing resources (including the all- important energy and food). Basic supply and demand theory pretty much takes it from there.

The Arabs are screwed. When the oil runs out, diminishes or alternative energy is ramped up, only then they will realize how much they have squandered and what little marketable skills they have. Dubai is in debt to the tune of USD60.0 billion (RM203.0 Billion). The Palm Island, the fancy buildings etc are facing serious cashflow constraints. Those of you who have friends or relatives working in Dubai may want to advise them to pay up their bills on time. If you owe money (like car instalments) they will NOT allow you to leave the country.

“Commodities are the second- largest asset class in the world,” Rogers noted. And they are “the best anchor” for your portfolio, he adds.
Rogers says the typical life span of a commodities bull market is 18-20 years. We’re currently in year 11 right now. Yeah, it could end tomorrow, but that whole supply and demand imperative could also extend this bull beyond its typical time frame.

Our traditional strength is commodities. Lets get into more oil palms, rubber, rice, timber, poultry, fish, cattle, goat etc.

During the Q&A session, though, the conversation took a darker turn. One questioner asked if the increased competition for resources might lead to war, and Rogers allowed it was a possibility, though he hoped it would not come to that. He pointed out that when a rising power clashes with an established power, the result is usually war, and said that research consistently shows that resource shortages lead to war.

So, sure, commodities shortages might start World War III, but if you invest in the commodities themselves, you might at least be in decent financial shape when the shelling stops—and I’m not being flippant at all. War drives up the costs of commodities.

4. U.S. government bonds are the next big bubble

Well, would you lend money to us? Rogers says short-term bonds are probably OK, but he advises getting out of anything with a longer maturity. He calls it “inconceivable” that anyone would lend money to the U.S. for 30 years at the going rate, and notes that the U.S. was a creditor nation as recently as 1987. “Now the U.S. is the largest debtor nation in the history of the world,” he said. And for bond portfolio managers, he had some very pointed advice: “Get a new job.”

5. Protect yourself

The underlying theme of Rogers’ entire speech was that the world is changing, and here are some things you should know if you want to come out the better for it (and for your family members, clients, etc., to also come out the better for it) financially.

Based on Rogers’ observations, it seems recognizing that change is a key step, but so is adapting to it (see advice regarding learning Mandarin, for example). And in Rogers’ eyes, commodities are a good way to achieve this protection. No investment is certain of course, but right now, he thinks commodities look pretty darn good.

Best Comment Of The Night

Addressing one audience member’s question, Rogers asked if the young man were an MBA. The questioner admitted to holding an MBA and was promptly told he should swap his MBA for an agriculture degree from Texas A&M.

“You should become a farmer,” Rogers said.

That’s an old line for Rogers, but he added a new wrinkle. If you’re not going to become a farmer, you should open the first Lamborghini dealership in Iowa. Because with farmers closing in on extinction just as the world needs more food, that’s probably what they’ll be driving in a few years.