Jim Rogers on China, the Dollar and commodities

Posted by admin in Financial Articles Tuesday July 15, 2008 11:34 am

This was first published November 2006…

Late last month, I crammed into an elegant wood-paneled room of the Merchant Taylor’s livery company in the heart of the City.

We were there to hear about commodities, primarily from legendary investor and long term commodity bull, Jim Rogers.

Sporting trademark bow tie and braces, Jim opened with a quick reprise of his most recent activities. Namely his grand tour of 2000-2002, when he crisc-crossed the globe motoring through 116 countries and clocking up 245,000km in a souped-up yellow Mercedes coupe. This was followed swiftly by his newfound thrill in parenthood, following marriage to his traveling companion. Those who’ve not yet experienced it should take a day off or a week-end away and get started, he advised!

As a student of his views for some time there were few surprises this time around. Below is Jim’s brief tour of the investment scene today…

The Rise of China

Most people don’t understand the full depth of what’s happening in China. It will be the next great country of the world and the Chinese are amongst the world’s best capitalists. The 19th century belonged to the British, the 20th century to America and the 21st century will be China.

The Chinese aspire to have what the West has and the work ethic to get there. They save around 35% of their income whereas Americans save about 1%.

Jim advises teaching our children and grandchildren Mandarin and has hired a Chinese nanny for her daughter with strict instructions to only talk Mandarin to her. Already she is bilingual, he boasts.

Jim though is not a fan of India for reasons given in his latest book, Hot Commodities. He finds the prevailing view there ‘anti-capitalist’ and protectionist, the infrastructure poor, the education system inadequate and the caste system degrading to women and inhibitive of economic progress.

US Dollar

The US dollar is the world’s reserve currency. That’s changing. The US has gone from being a creditor nation to being the largest debtor nation in history.

The US owes $13trn and that number is increasing by $1trn every fifteen months. It is out of control, a serious problem and nobody cares he tells us. Jim has little faith in the new Fed Governor who once quipped he would run the printing presses and shower the country with bank notes from a helicopter if needs to be.

Jim has set up a bank account for his daughter. It’s not in America though. It’s in Switzerland!

Enough said.

Stocks v Bonds v Commodities

There was a huge bull market in bonds in the 1980s and 1990s. It peaked in 2003 and will go down for years.

The bull market in stocks is finished. Stocks are expensive and they will continue to range trade for years.

We are in a secular bull market in commodities. History tells us the shortest bull market in commodities lasted 15 years, the longest 23 years. Jim reckons this one will continue from now until between 2014-2022.

The performance of commodities is uncorrelated to stocks and price is simply a function of supply and demand. The last lead smelter built in the US was in 1969 and all the world’s major ‘elephant’ oilfield discoveries were made before 1970 so the supply side is under pressure. When supply goes down and demand goes up, price rises. It’s very simple.

We’re in the very early stages of the commodity bull market says Jim. The world has plenty of stocks but doesn’t have plenty of commodities. When Time magazine has a picture of a lumberjack on the front cover he promised to be screaming get out assures!

Oil

In 1979 there was an audit of Saudi oil:

110bn  proven reserves 67bn probable reserves 68bn possible reserves

In total, that’s 245bn barrels.

Since 1979 they have produced 63bn barrels of oil but they continue to report reserves of 260bn barrels despite having made no new major discoveries.

Something’s wrong. This is a huge problem and there will be a gigantic bull market for years to come.

That’s hopefully an accurate condensation of Jim’s views. He’s pretty consistent and measured by the performance of the commodity index fund he set up in 1998 (the year Merrill Lynch got out of the commodities business), he’s been right on the money with his calls to date.