Interview with Jim Rogers: Adventure Capitalist, Commodities King, Sugar Daddy..., part 1
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An international investing legend says farming, not finance is the future
Jim Rogers is the world’s favorite contrarian investor. Famously relocating his family to Singapore to position them at the crossroads of the future, he was also the yin to former partner George Soros’ yang. His success and unique combination of Southern charm and New York assertiveness has led the media to grant him more titles and nicknames than a North Korean potentate. After “retiring” in his thirties to travel the world, he has been to almost as many countries as the US military – and has had a better return.
For over a decade Rogers has produced highly readable and accessible books about investing based on his multi-billion dollar accomplishments. His consistency and discipline are evident after watching hours and hours of his media appearances over the last decade, but in most every encounter, a Rogers stalker comes away with a new insight or a more nuanced understanding of his worldview, all of which continues to be successfully quantified in the Rogers International Commodities Index (NYSEMKT: RJI) – up over 260% since its inception in 1998.
The onslaught of late night tv gold pushers peddling doomsday conspiracy theories, urban legends of shirtless pork bellies, and a public perception that the success of commodities heralds the return of the Dark Ages makes affable and astute Rogers a unique (and welcome) public personality for commodity enthusiasts. Though involved in all asset classes throughout his career (a hallmark of his decade with the Quantum Fund and the 4,200% gain he helped engineer), Rogers sees investing as one interconnected whole:
I don't see how you can invest in American steel without understanding what is going on in Malaysian palm oil…it is all part of a big, three-dimensional puzzle that is always changing.
I wanted to know more about the big puzzle so I called him up:
Nick Slepko: You do a lot of media [from Alex Jones to major networks in the US and abroad, including the BBC, Russia Today, and Al-Jazeera]. Why? Isn’t the gap between public perception and reality where the money is made? Are you performing a public service as you are one of the few likable and credible people able to challenge the consensus?
Jim Rogers: People ask me, and I am spineless. I can’t say no. I used to have a job and was constantly contacting people with questions, needing to know things. Many, many people would answer my phone calls. So now I’m just doing the same thing. I don’t know why they keep calling. But I keep answering.
The World According to Jim
A few years ago, much was made of George Soros describing Rogers as a good analyst, but not a good trader. In fact, Jim Rogers is the first to agree (though he has good-naturedly described his relationship with Soros as akin to a first marriage). On multiple occasions, Rogers has said he is not a market-timer because he is “too lazy,” “not smart enough,” and “the world’s worst trader.” He considers himself an investor, a long-termer.
The crux of Rogers' current analysis is that in 1999 the global economy entered one of its periodic bull markets in commodities (and Rogers thinks it could last until 2022 – 2014 at the earliest). Even in the unlikely event that the political predators that distort the markets are culled, he believes that investing in commodities now is just common sense. In Hot Commodities (2004) Rogers writes:
Two recent studies, for example, headed by Barry Bannister, a capital-goods analyst for Legg Mason Wood Walker, Inc., the Baltimore-based financial services company, show that for the past 130 years “stocks and commodities have alternated leadership in regular cycles averaging 18 years.”
…
Consider the Kellogg Company (NYSE: K), the world’s leading cereal producer, with $8 billion in total sales. When the price of the massive supplies of wheat, corn, sugar, and paper that Kellogg needs to make and box all those different cereals is low, the company is likely to make a lot more money. At worst, the cost of doing business is under control; at best, it’s declining, and Kellogg makes bigger profits at bigger margins. In the commodity bear market of the 1980s and 1990s, when commodity prices were very low, Kellogg stock did extremely well—moving from a $2 stock to more than $40 in 1999. By the end of that year—and the first year of the commodity bull market—Kellogg stock had sunk by 50 percent. The stock inched up over the next six years—Kellogg has made major acquisitions outside the cereal business—but it never got much beyond its 1999 range. It stands to reason that when the prices of the commodities Kellogg needs are going up, the company is under more pressure to control costs and profit margins. And so a rising commodity market would hurt many companies and their margins, while decreasing prices for those same goods over long periods would help them. In theory. And that is my theory for this apparent reverse correlation between stock and commodity prices. It would also explain why commodity-producing companies (oil and mining companies, for example) and those that support and serve them (oil-rig manufacturers, tanker and container owners, trucking firms that haul metals and scrap, and so on) tend to do well during commodity bull markets.
Rarely active in politics (and even stating that Leftists are not necessarily bad if they are “sound”), he has voiced his support for presidential candidate Ron Paul (as well as former New Mexico governor Gary Johnson). Though, at the moment, he would settle for a new head of the Treasury, and the end of the Federal Reserve in its current form. Rogers is a fan of former Fed Chair William McChesney Martin, Jr. who was famous for saying, “When the party gets hot, you got to take the punch bowl away.” When asked if he would prefer a gold standard, free money, or just a fourth central bank, Rogers responded:
Well, you know American history, the first two [central banks] disappeared for various reasons. A world without central banks has problems, but a world with this central bank has worse problems because of the staggering debt they have taken on, garbage debt they’ve taken on, and because of the money they’ve printed. So, it is this Fed I would like abolished. On a bigger plane, free money would be better for the world. Throughout history people have been able to use whatever they wanted as money. If you and I wanted to use seashells, we could. Always one form of money rises to the top, until it too becomes discredited and people find something else. That’s the best solution…Let people use what they want. Let the market decide. Let people decide what they want to use, and in the end it will probably be something sound. People have used gold, silver, copper, ivory, seashells. People have used a lot of things, and there’s always been a reason. Giving politicians a monopoly has never ever been a sustainable way to improve economies.
Other insights that he extols regularly to any and all:
1. Three hundred percent more would be made by investing into commodities instead of commodity-stocks. If a person is a great stock picker, they could make a lot more, but that is rare. People should only invest in what they themselves know a lot about. Most professional investors do not do better than the market average.
2. Learn a foreign language – his daughters are currently being raised with a Mandarin-speaking nanny and weekly Spanish lessons. The traditions and spirit that made America and Europe great are being squandered and there is a lack of political and social will to maintain their leads. The US is the largest debtor nation in history – China is currently the largest creditor nation. The debasement of the US dollar (and other currencies) will continue, and the US will impose exchange controls soon.
3. Politicians always blame foreigners, financiers, and journalists for their problems. Beware of all politicians. Politicians are clowns. Politicians excelled in recess at school, but not much else. While Rogers owns euros, he is not buying any more long-term as it, “has become a political currency, not an economic currency...[and] the euro will disintegrate sometime in the next decade or so.” He buys Chinese renminbi when possible, and is positive about the Swiss franc, Australian and Singapore dollars; and prefers the yen to the US dollar right now. The US government should stop spending, stop taxing saving and investing, and change the system to tax consumption. Also, there are about 40 elections scheduled for 2012 around the world, so expect a lot of distortions in a lot of markets because governments are going to be spending huge amounts of money, and printing a lot of money.
4. Rogers is neutral on Brazil (politics there continue to trump the obvious economic advantages), negative on India (a nation he wishes well), has no investments in the Middle East, thinks big fortunes will come out of Africa in the next decade (leadership willing), and does not have the stomach to invest successfully in Russia. He is short US technology stocks, short emerging markets, short European stocks, long on publicly traded commodities, and long on daughters (his “greatest investment”). Rogers is also long on China, bullish on gold, bullisher on silver, and bullishest on agriculture – and he thinks that farming will be a lucrative profession over the next couple decades (and conversely working on Wall Street will not be). Rogers recommends “you and your butler learn to farm” if we want to be profitable in the coming decade – or at least figure out a way to service the agricultural profit centers by buying things like restaurants and department stores located nearby, or commodity-serving companies like Caterpillar (NYSE: CAT) and Deere & Company (NYSE: DE), or even commodity-producing countries like Canada and Australia.
Slepko: You point out there is almost no one left to handle the large tracts of land in the US and Japan, is that where my butler and I should go learn to farm?
Rogers: It depends. When I think of agriculture, I don’t immediately think of Japan. It’s pretty far north, and it’s small, but given the demographic situation, it would probably be a great place given you’d have no competition and there’s a lot of available land. Of course, you have to deal with regulations, controls, etc.
If I could pick one country, I would probably pick Myanmar [formerly Burma] or maybe North Korea. No, Myanmar. Myanmar is where I would go to be a farmer. Now, that’s difficult given that I am an American citizen – since we are citizens of the Land of the Free we are not allowed to do a lot of things. Other people are pouring into Myanmar now. Staggering amounts of people and money are already flowing in while we sit here and protect somebody, I don’t know who.
Slepko: You have said water is an important commodity, but “Don't own water, you'll be like the oil companies now. They will call you an evil speculator and they will hang you in the street. But if you can figure out a way to provide water, to purify water, or transport water, or discover water they will build a monument to you in the public square. You don't want to be an ‘evil’ speculator. They will come after you.” Is there more you want to add to that? You bring this up a lot with India and China.
Rogers: We have huge water problems developing, including in the US. I am told that the aquifer in the Southwest (Arizona, that area) is drying up. It’s going to have huge impacts not only on agriculture, but on population if the scientists are right. The world’s got many problems with water developing. There’s plenty of water in the world, it’s just in the wrong place.
[NS: Isn’t this an argument for Russia’s future success? They have lots of water.] They do have a lot of water, and you are probably going to be shot if you go there to get the water, unless you are in bed with Mr. Putin. And even then, you may get shot. The Chinese are already studying how to get that water. All of eastern Siberia used to be part of China. There’s a huge lake out there called Lake Baikal which has 20% of the world’s fresh water…The Chinese know that there’s a lot of water there, and they know that the Russians are moving out de facto – moving, aging, dying. So, the Chinese are trying to figure out peaceful ways to get that water. It may take a war, it may take a lot of money, but there are ways it could be done.
[Continued in part 2.]
Nick Slepko has no position in any company mentioned here at the time of publication.
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