Back in 1970, Jim Rogers, along with George Soros, founded the Quantum Fund, which went on to be one of the most successful hedge funds of all time. Ten years later, Rogers “retired” and set out to travel the world by motorcycle “to learn what people and countries were doing and to see how well they were doing it.” In the years since, Rogers has written six books, appeared frequently on television and made two more globetrotting treks. Mike Wilson, chief investment officer of Morgan Stanley Wealth Management, recently spoke with Rogers about the state of the world. The following is an edited version of their conversation.
MIKE WILSON (MW): We are coming out of the economic crisis. Where do you think we’re going?
JIM ROGERS (JR): The world is floating on a huge sea of artificial liquidity—the first time in recorded history that every major central bank is printing money as fast as it can to debase its currency. The people getting that money are happy, but the rest of us are going to have a problem down the road because the debt is going through the roof. When it ends, some people are going to get hurt.
MW: There’ve been pockets of deleveraging debt through default, etc., and [there are] folks who say we’re in a “new normal”—maybe 10-plus years of 2% GDP growth in the US, maybe lower in some underdeveloped regions. Is that a possible outcome, or do you think it has to be reconciled with another crisis?
JR: Throughout American history we’ve had economic slowdowns every four to six years, and that’s going to continue, but America is now the largest debtor nation in the history of the world. In 2001/2002, we had a slowdown. The 2007-to-2009 slowdown was worse because the debt was higher. The Federal Reserve has quadrupled its balance sheet in just five years—staggering for a central bank. US debt has more than doubled. I’m afraid the next time around is going to be much worse.
MW: Do you think we’re getting close to a slowdown?
JR: There is some skepticism— people worried the high might end anytime. But what’s happened historically is everybody agrees that happy days are here again and we’ve solved our problems. Back in 1999/2000, people got excited, but even then it went on much longer than expected, and the NASDAQ doubled in less than a year. We can have some big moves, especially toward the end. As Keynes said, the market can stay irrational longer than you can stay solvent.
MW: Are there pockets that still look attractive with or without this liquidity?
JR: I find unpopular things and see if there’s a reason to buy them. Russia is one of the most hated economies, and greatly depressed, so I’ve been buying there. Likewise, sugar is down 75% from its all-time high—not a popular place to be—but I think positive thingsare happening. The Chinese market is down maybe 60% or 70% from its all- time high of nearly five years ago. I don’t usually buy China except when it collapses, but there are some opportunities. In 2012 the Chinese government decided they wanted to emphasize the renewal of Chinese culture and make it grow 20% a year. They’re also putting a huge emphasis on railroads, and their railroad technology is probably now the best in the world.
MW: In 2007 you said that if you were smart in 1807, you moved to London; if you were smart in 1907, you moved to New York City; and if you’re smart in 2007, you move to Asia. Do you still feel that way about Asia?
JR: I did move to Asia (Singapore) in 2007 because I wanted my children to grow up speaking Chinese. Another historic shift is taking place. The largest creditor nations are China, Korea, Taiwan, Singapore, Hong Kong, and Japan—the assets are in Asia now. As America goes deeper into debt, the Asians are going deeper into solvency.
MW: Do you think Japan can turn the corner, or are they going to be a victim of the liquidity pump?
JR: I sold all my assets in Japan, but I’m starting to look again. I think I sold too soon. That market is still down 60% or 70% from its all-time high. My view is that we’ll look back in 20 years and say the final deathblow for Japan was [Prime Minister Shinzo] Abe and his policies. In the meantime, he is printing and spending huge amounts of money. He just gave Japanese citizens around $10,000 of tax-free investments if they invest in the stock market.
MW: Why is gold weak, and do you think it will stabilize given the acceleration in money printing?
JR: Back in December 2011, I was quite vocal that $1,200 [an ounce] wascoming. One guy wrote that I was demented—but gold did go to $1,200 and I bought a bit more. I haven’t bought any since but I’m planning to if it goes under $1,000. I have owned gold for many years and haven’t sold an ounce, same with silver. One reason I’m waiting is I know of no other asset in world history except gold that’s gone up 12 years in a row without a decline. I think it’s having a correction that will also be different from most. The other reason is India, which has been the largest buyer of gold in the world. The Indian government is blaming its balance-of- trade problems on gold—the country’s second-largest import after oil. They can't stop oil imports so they’re attacking gold. They added taxes. They made it hard for people to buy gold or for banks to lend against it. Now they’re trying to get people—and even temples—to sell gold, which would be a huge shift. You’re taking the largest buyer of a product out of the market and maybe even turning it into a seller. If that happens, who knows how low gold could go. Even in bull markets, 50% corrections are common.
MW: What’s been the biggest change in the last 15 years for hedge funds?
JR: The staggering amount of competition. With thousands of hedge funds around the world, performance has gone down dramatically. I’m not even sure the average hedge fund keeps up with the market these days. Throughout history, when everybody jumps into something, it’s more likely a good time to get out. There are plenty of smart people who can make fortunes in the investment community, but I don’t know who they are right now. You’ve got to be very careful finding the right smart person.
MW: How has market liquidity been affected in the last few years because of the increase in regulation? Does it concern you more than it has in the past from a trading perspective?
JR: I’m not particularly happy about what’s going to happen. Historically, we’ve had long periods when the financial types were the masters of the universe followed by the producers of real goods, then followed by the financial types again.
When I went into the stock markets in the ‘50s, ‘60s and ‘70s, Wall Street and the City of London were backwaters—a big trading day was 3 million shares [in trading volume]. In my view, we’re going into a period when financial types will decline again and be replaced by producers of real goods. To your point, governments around the world are not very happy about financial types these days. They’re blaming us for their problems; they put in new controls, new regulations and new taxes.
In America, fewer than 10,000 people study agriculture now, but over 200,000 get MBAs in the US alone every year. We’ve got staggering competition in finance. Nobody is studying agriculture. In America, the average age of farmers is 58, the average age of an MBA is probably around 42. I’m afraid the trends you’re talking about in the drawing up of liquidity are going to get worse, especially if we have serious bear markets in the next decade, which I fully expect.
MW: How do you think about what currency you want to have your cash in, or do you split it around?
JR: Five or six years ago, many people put their money in cash—for example, Icelandic krona—and gotwiped out. You could have put your money in several currencies and gotten destroyed, even in the last decade.
I urge folks to learn about currencies because we’re going to have a lot more currency turmoil. The fact that the yen is down 25% has lots of consequences, not just for the currency trade but for anybody, such as automobile manufacturers, who has to keep up with the Japanese or who sells to them. I don’t see many currencies on the horizon that will solve all our problems. The Chinese renminbi is not convertible at the moment. I may buy some Russian currency. I’m pessimistic about the US dollar but I own them because where else do you go?
MW: Any thoughts on emerging markets?
JR: For the most part, I’m short emerging markets. Turkey, India and Indonesia and others have gotten very hot and everybody raced into them. That creates a problem, especially the ones with balance-of-trade deficits such as Indonesia. The trade deficits are easier to finance with low interest rates but now that’s changing. Some emerging markets will be great in the future, such as Myanmar, but it’s impossible for most people to invest there now. My main message is be careful because whatever happens in the next five to 10 years is going to be complicated. We may enter a bubble, we may have a collapse. We’ll probably have both sometime in some parts of the world.
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