Another fantastic Jim Rogers interview. Full of investment wisdom.
Hog wild for China
Legendary investor Jim Rogers made a bundle by anticipating a boom in commodities. Now he's focusing on the People's Republic.
This is the China century," says Jim Rogers, standing amid moving boxes in his opulent Manhattan townhouse. "It's time for them to rule the roost." In fact, the 65-year-old former investment partner of George Soros and globe-circling author of Investment Biker is such a believer in the capitalist momentum of the People's Republic that he recently agreed to sell his beloved home and relocate full-time to Singapore - not quite Shanghai, but close enough to the action.
It's something he's been considering at least since 2004, when Fortune last wrote about his remarkable prescience in championing a China-driven, worldwide commodities boom. His new book, A Bull in China: Investing Profitably in the World's Greatest Market, is a how-to guide for investors interested in following him to the Far East. Fortune interrupted his packing for a chat about China, commodities, and the teetering U.S. economy.
You invested in China some time ago. But the market is up 300% over the past three years - why should other investors jump in now?
In the book I specifically make the point two or three times that people need to be careful because there may be a bubble developing in China. Obviously if a bubble develops you don't want to buy anything. But you need to understand that there are gigantic opportunities in China and gigantic changes taking place there. So the book is designed to help people understand in simple language what's happening and where there may be opportunities for one who does his homework. It's not a catalog of hot tips. I'm not yet convinced that there is a bubble, by the way. The Chinese government is doing its best to prevent a bubble. They've raised interest rates five or six times in the past year. But even if a bubble develops and it pops, it's not the end of the Chinese story. China is still going to continue to develop.
Why has the Chinese stock market taken off?
The Chinese have done a very good job [with the economy] over the past 20 years. But the one mistake they've made is they have continued to block the currency and made it nonconvertible. That's causing huge liquidity to develop in the country, and that's causing trouble. It has really intensified in the past two or three years. They've got all this money sloshing around that's been flowing into China and can't get out. It's going into the mainland stock market and driving up prices. It's going into commodities. And it's going into real estate.
How are you investing in China now? Are you buying shares of companies? Indexes? Real estate?
I own the currency. I own commodities. I do not own real estate. I have not bought any indexes. Rightly or wrongly, I think I can pick shares better than the index. All the studies show that most people can't do that. I haven't bought any new shares lately, but if I did, I would buy them in Hong Kong or Singapore or London or New York, because they're cheaper than on the mainland.
Three years ago you were saying that one good way to invest in oil would be to buy sugar, because the high price of oil had driven up demand for ethanol in Brazil. Sugar went up but has pulled back. Where are the best opportunities in commodities right now?
Sugar doubled from there, but then it corrected. I would say the same thing again now: If you want to buy oil, you should buy sugar. Cotton is also a good way to buy oil - hear me out. Much apparel has been made from synthetics. Synthetics come from oil. So many textile makers are converting back to natural fibers because oil is at an all-time high. So if you want to buy oil, buy sugar or buy cotton. What I'm buying right now is agriculture. I'm bullish on all commodities, though. I wouldn't buy oil at $95, but I'm sure I said that at $55. I have never sold a drop of oil. And I don't intend to until 2020 or something.
So you're convinced that commodities still have a long way to go?
Absolutely. There will be corrections, of course. Nickel is correcting right now. But the commodities bull market still has years to go. I just don't see anything on the horizon that can stop it. An economic collapse could. But if that happens, everything else is going to be a much, much worse investment. Even in the Great Depression, commodities went down less and stayed down for a shorter amount of time than stocks, because the shortages were in commodities. In 2001, after 9/11, commodities went down less and stayed down a shorter period of time, because that's where the imbalances in the world are right now. There are guys in the garage on their computers starting companies right now that the bankers are going to bring public next month. You can't go in the garage and start a zinc mine or a lead mine. It takes ten years to bring a new mine online, on average. So that's why the commodities bull market is not over.
You mention the possibility that we might go into a depression. What is your assessment of the U.S. economy right now?
In my view, the U.S. economy is in recession. I know the government says we're not. But as I look around, we know that automobiles are in worse than recession. The same thing is true for homebuilders. Much of the financial sector is in worse than recession. So many parts of America are in worse than recession, and yet the government says we're not in a recession. I don't know what's so strong that it's offsetting these major weaknesses in the American economy. I just assume that the government is lying.
A few months ago you said if Fed Chairman Ben Bernanke cut interest rates in response to the credit crunch, it would be "pure madness" and "a disaster." He did. What do you think now?
We have terrible inflation in America, not according to the government but according to people who buy things. We have the dollar under terrible duress. What I said was, If they cut interest rates it's going to be a signal to the rest of the world that we don't care about the dollar, that we want the dollar to go down. That is what has happened. The rest of the world has read the signal very clearly. Inflation, of course, is going up. Commodities prices go higher in this kind of scenario. I think it's a terrible mistake. It may be good for Wall Street. It may bail a few people out. But it's not good for America. I will tell you that I was terrified recently when I saw Bernanke testifying before Congress, and he said that if an American buys only American products in American currency he is not affected by the decline in the U.S. dollar. I couldn't believe the man said that! I was looking at him to see - Is he lying? Is he just using government propaganda? Or does the man just not know? He's supposed to be an economist, and he doesn't know how the economy works! Let's say you only buy American tires. Well, if the price of foreign tires goes up because the dollar goes down, the price of American tires is going to go up too. American companies are going to raise the prices if the competition goes higher. And if the dollar goes down, the price of the rubber in the tires is going to go higher. The price of oil, wheat, copper, everything is going to go higher if the dollar goes down. So it's another signal to get out of the dollar.
You've been betting against U.S. commercial and investment banks for some time. Are you still shorting their stocks? Are you making other moves?
I am still short Citigroup. I'm still short Fannie Mae. I'm still short homebuilders. And I just increased my short positions on the investment banks last week, because that's where the excesses have been in the U.S. economy. There have not been excesses in sugar farming in the past 30 years. There have not been excesses in silver mining. The excesses have been on Wall Street. That's why I'm shorting Wall Street. You see 29-year-old kids making $10 million or $20 million a year and thinking, "This is the way the world is. This is normal." Well, I don't think it's normal.
Why move to Singapore and not Shanghai or Beijing?
Well, we would like to move to China, but the air is so terrible, the pollution is so bad, that we can't bring ourselves to do it. Everything works in Singapore. It's an astonishing place. It's got the best education system in the world. It's got the best health care in the world. And it's Chinese-speaking. Our 4-year-old daughter, Happy, goes to a school where they only speak Chinese. One of our motivations was that she continue to speak Chinese. It may not be as exciting as Shanghai or New York, but it's exciting enough for me.
You mention the terrible pollution in China. Do environmental and political issues give you pause as you call this the Chinese century?
First of all, the environmental problems are a huge opportunity. Somebody's going to make a fortune on that. I talk about that in the book and mention some of the companies that will be trying to address the problems. Can they solve their problems? There are going to be horrible setbacks along the way. There certainly were in America as we grew and boomed. In 1907 our whole system collapsed and went bankrupt. Turns out that was a good time to buy. That's going to happen in China too. They will probably have political setbacks, environmental setbacks. I don't know when they're going to be, but take advantage of them.
You've long been known for spotting exotic investment opportunities in your travels. Have you come across anything exciting off the beaten path recently?
I've sold out of all emerging markets except China because there are so many people right now trying to exploit emerging markets. There are 30,000 MBAs flying around the world looking to invest in them. Some of my investments I owned for 20 years. But I'm not looking for new opportunities, I'm getting out - places like Botswana, Ivory Coast, and Ghana. Botswana I hated to sell. Peru has been hot as a firecracker for a while. Uruguay I sold. All of it. But I'm keeping my money in China.