The commodities rally seems to have paused. The Rogers International Commodity Index has come off 13% since June 12. What are your expectations going forward?
That’s the way I know and you know about commodities. You read The Economic Times and your ET TV. So you know that the markets always have corrections whether they are going up or down. In my view, the best place to be is in real assets — commodities — because if the world is going to recover, they (commodities) will recover first... and if the world economy is not going to recover, they are still the best place to be as governments around the world are printing huge amounts of money.
In India, we are getting worried about the monsoon. There is also talk about El Nino weather formation. Is this something you would advise investors to keep an eye on?
Of course, I would. The world’s food inventories are at the lowest in decades. So, with fairly good weather, we have been having bad harvest or we have been consuming more than we have been producing. Can you imagine what’s going to happen to the price of agriculture if we have bad weather around the world? The prices are going to go up to staggering amounts.
The last time we met you had a sachet of sugar in your pocket. You pulled it out to underscore your point of impending shortage about agri commodities. You have been right about sugar as far price charts suggest. What are you hiding in your pocket today?
I have a silver coin in my pocket... I also have a gold coin, but the silver one is probably my better play. If I were a bright young man, I would be buying sugar and silver, given the state of the world. That’s not a recommendation, but I am just saying I do own some silver. Silver is cheaper than many things on a historic basis.
The dollar has fallen almost 10% since the beginning of the stocks rally in March. Commodities have risen 94% since then. A strong correlation. Do we expect the dollar decline and the commodity run-up to continue?
It’s not always a strong correlation. Though there has been (a correlation) in recent months, recent years even, but there are many times when the dollar and commodities go entirely separate ways. US dollars are a terribly-flawed currency and down the road I hope I don’t own them...
The dollar anyway is getting worse. The fundamentals for commodities continue to improve. However, for the dollar, they are deteriorating.
Are you still sticking to your prediction of a currency crisis sometime in a year or two?
The world is full of currency imbalances. Economic trade imbalances would have to be resolved or corrected. Unfortunately, given the state of politicians, and it’s not just the current state, but politicians throughout history have usually got things wrong.
We are going to have some problem in the currency market. I don’t know when. May be not... But having seen that sort of thing before in the history, somebody would have to pay the price — whether it’s the pound sterling or the US dollar or the rupee, I have no clue.
Did you just mention the rupee there. RBI is not going to like that at all?
I said I don’t know where it’s going to stop. Since we happen to be in India right now, I was just mentioning the rupee.
What’s your view on global equities now. Do you think emerging markets premium over developed country markets has gone a way too high?
I don’t pay any attention to things like emerging markets premium. Every market is different, every country is different, every economy is different and every sector of the economies are different.
Just because you are in an emerging country that does not mean you are going to make money if you get the wrong sector. I have not bought any stocks anywhere in the world in the past couple of years except China. I did buy some Chinese shares back in October-November.
I have been worried about the world economy, about the world stock markets. As I said before, if you got to be somewhere and if there is going to be a recovery, it will show up in commodities best of all.
So what are you buying nowadays ?
If you want to put in your money somewhere, put it in commodities. That’s the only thing I bought recently. I have bought some yen and Swiss francs.
If you know enough about currencies to figure out who is going to benefit... then you can buy some of the currencies and if you think the rupee is the place to be, then you can buy it. I want RBI to feel better.
Long-term inflation expectations in the US as reflected by the five-year forward breaking rates on treasury inflation protected securities. Those have hardened considerably. That’s also your view, isn’t it? Too much money in the system and monetary authorities the world over don’t have a credible plan to withdraw liquidity?
I cannot conceive of lending money to the US for 30 years in dollars for 3, 4, 5 or 6% interest... I expect problems in the bond market. I don’t know when. I was short in the bond market, but I got out.
In the near term, markets seem to be more concerned about growth than inflation. The difference between the 10-year and the 2-year bond yield in the US has narrowed some 40 basis points since early June. Unlike you, people are actually going out and buying long-maturity treasuries.
When you see anomalies like this in the market, you are supposed to take advantage. Just because every body is doing the same thing doesn’t mean I am going to do it. That’s why opportunities arise. The spread is very low. So, why would anybody buy a 10-year when he can buy a 2-year? Not worth the extra risk to go out 10 years. I would urge people to keep their wits.
Mr Bernanke and the US are buying a lot of government paper and driving up the prices. He has got more buying power than I do. So you are seeing longer bonds going up. That gives you an opportunity to get out if you own them or think about selling them short.
Last time you talked about the Indian government’s reform agenda. We just had our Budget and it’s quite clear that we, in India, really want to become a welfare state, never mind the deficit. You think we lost an opportunity there?
Of course, you did. The government was elected with a strong majority. And what they did — instead of going ahead and doing what is necessary for India early in their term, they are doing the same old stuff. Unfortunately, I have been listening to Indian politicians for 30 years now.
They always say some of the right things and end up doing the opposite. India is one of my favourite countries. I just wish it gets somebody who could run it better. You are as bad as us in America. We have hopeless politicians and so have you.
