Jim Rogers Long Sugar But Getting Short U.S. Treasury Bonds
Stock-Markets / Financial Markets 2009 Oct 20, 2009 - 11:10 AMBy: Submissions
[This interview originally appeared on IndexUniverse.com, and is reprinted here with permission.]
IndexUniverse.com's Heather Bell spoke with commodities expert Jim Rogers earlier this month before his presentation at an event in New York sponsored by ETF Securities. A recap of Rogers' presentation that day is available here
IndexUniverse.com (IU.com): How do you think the specter of increased regulation will affect futures-based index commodities ETFs?
Jim Rogers (Rogers): First of all, there's no question: It's not just a specter—they seem to have it in their heads that they've got to do something. It's interesting because index investing doesn't really have much effect on the price. Index investors don't take delivery of commodities—they turn around and sell them again. Index investors in stocks, now they do have influence on the market, because they take stocks off the market. Anybody who invests in the S&P 500 funds, they buy stocks and take them off the market. If anybody manipulates the market, it's the stock index investors. Having said that [the regulators] look like they're going to do something.
It is having a temporary effect on the market, but eventually it's going to drive the markets offshore. America has had a near-monopoly on commodity trading for 100 years, and they're just giving it to the rest of the world. I live in Asia, and I travel a lot. [They] can't believe what they're seeing because America's about to say, "Here. Take the business."
Many countries have made mistakes like this. If it happens, there's going to be a temporary blip in the market. It will make the fundamentals of commodities better because as long as prices are down, there's less incentive for people to produce more. But eventually you're going to see [business move to other] markets, whether it's in Japan, Singapore or India. They're all sitting there dumbfounded that this is happening.
If you'll notice, the English have said "well, we're not going to do this." Because they love the fact that all of a sudden they may get a lot of business that will be forced out of the U.S. and into other markets. It's staggering.
But then I've often been staggered by politicians throughout my life, and if you read back in history, you sometimes say to yourself, "How can anyone be so dumb?"
IU.com: Has the persistent contango in certain commodities counteracted the argument for index-based commodities investment?
Rogers: I do notice the press has suddenly learned how to spell "contango," and even "commodities."
I've seen it come and go. Certainly when you deal in a commodity that is in contango, it makes it more difficult. However, if a commodity is in contango and the basic price is going through the roof, you're still going to make a lot of money. But I've seen contango come and go. From my point of view, as a passive investor, I really don't pay attention because there's usually something in backwardation and something else in contango, and they come and go over time. According to studies, they haven't had that much difference.
But if you're really smart and you can invest away from contango or can invest with contango and know how to do it, you'll make a lot more money. And there are people who think they are really smart and are trying to do that right now. I'm not smart enough to do it, so I just continue to invest in an indexed way with all commodities.
IU.com: Do you think investors should be in commodity futures or commodity stocks right now?
Rogers: Studies show, in my experience, that commodities themselves outperform commodity stocks. In the ‘70s, oil prices went up 10 times; commodity oil stocks did nothing. With stocks you have to worry about the management and the balance sheet—a hundred things. Commodities are pretty dumb: If there's too much oil, the price is going to go down; if there's too little, it's going to go up. Oil doesn't care who the head of the Federal Reserve is; it doesn't care what laws Congress passes, for the most part. But if you're Exxon, you've got to worry about that stuff.
The studies show that you would've made 300 percent more investing in commodities themselves over the past several decades than in commodity stocks, but if you know a company that's going to discover a lot of natural gas in Berlin, you buy all you can. Then you call me. Because then you're going to make a lot more money than in commodities themselves.
IU.com: Last year, you had said you were investing in sugar. Are you still a fan?
Rogers: Sugar has doubled or tripled since then. It's at a 28-year high. I still own sugar; I'm not selling my sugar. Even though sugar's been going through the roof—even though I wouldn't buy sugar right now, I'm not selling it. Even though it's at a 28-year high, it's still 70 percent below its all-time high, so you can see the enormous amount of scope sugar still has over the next few years. I'm not suggesting over the next few days weeks or months, but certainly the next few years.
Agriculture I suspect is still the best place to be, but I'm not a very good market timer or short-term trader, so I don't know.
IU.com: Oil has been all over the map in the last year in terms of price. What do you think is its fair value?
Rogers: If I were that smart, I'd be rich, wouldn't I? If you find somebody [who knows], please give him or her my phone number. With commodities, the way the academics talk about it, it's the clearing price—it's the price at which supply and demand come into balance. You're going to have enough coming to market to meet whatever demand there is, and that will be the price. Unfortunately, that price never existed because with open markets, prices fluctuate a lot. I know it's much higher than now because right now oil reserves around the world are declining at a fairly steady rate. At present rate of consumption and production, we won't have any oil in 20 years at any price. So I know it's got to be higher in order to bring out more supplies of energy and to reduce consumption of energy. What is that price? I don't know, but it's a lot higher than where it is now.
Now that doesn't mean that oil can't go down by 50 percent next year. If suddenly the U.K. goes bankrupt, I promise you oil will go down by 50 percent next year, but if America bombs Iran, oil will go up by 100 percent next year. So it depends, but over the next decade, the surprise is going to be how high the price of oil stays and how high it goes.
IU.com: Is alternative energy a viable investment?
Rogers: Alternative energy has a fantastic future if you can find the right companies that can execute—whether it's wind power or nuclear power or solar power; whatever it happens to be. Solar and wind are not economic right now at these prices for oil, but oil prices are going to go higher, and if they don't, the governments are still going to subsidize that kind of energy, so they have a brilliant future.
IU.com: Beyond commodities, what asset classes should investors consider?
Rogers: Commodities are the only place I know where the fundamentals are improving. The fundamentals at Citibank are not improving; the fundamentals for commodities continue to improve, and that's where I'm focusing. Perhaps currencies—if you know what the Japanese yen is, you might consider investing there, or the Swiss franc or the Canadian dollar. But other than that, for the most part, I haven't bought any stocks except in China last fall.
The only bubble I see developing in the world right now is in long-term government bonds in the United States. The idea that somebody would lend money to the United States for 30 years in U.S. dollars at 4 or 5 or 6 percent interest is incomprehensible to me. I'm not short bonds right now because the government keeps driving them up—I don't know how long they're going to do it—but I do suspect and hope that sometime in the next year or two, I'll be shorting U.S. government bonds, because that's the only bubble I see developing.
IU.com: Are we still waiting for the other shoe to drop with regard to the financial crisis?
Rogers: In my view, yes. What we are doing now is making the situation worse. The idea that you would solve a problem of too much debt and too much consumption with yet more debt and yet more consumption? That defies comprehension, for me. Now, I'm not a politician, or obviously I'd think this was brilliant.
It's making the situation worse, and in two or three years—or maybe even next year—we're going to be facing a much, much worse situation.
IU.com: One last question: What's your favorite BRIC country?
Rogers: That whole BRIC thing is some kind of marketing sham—there's no validity to it at all. The only one I own is China or maybe Brazil. I've owned China for 10 years; whenever it collapses, I buy more. I hope I continue to do that.
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