Rogers Sees `Worst Credit Bubble' in U.S. History (Transcript)
Nov. 6 (Bloomberg) -- Jim Rogers, chairman of Beeland Interests Inc., talked with Bloomberg's Kathleen Hays in New York yesterday about the outlook for the credit markets, the impact of Federal Reserve monetary policy on the U.S. dollar and gold prices, and his investment strategy. Rogers co-founded the Quantum Hedge Fund with George Soros in the 1970s. (Source: Bloomberg)
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
HAYS: Citigroup's $11 billion loss in subprime mortgage debt this past month, maybe the most dramatic financial fallout so far from the downtrend in housing. The downturn is affecting many of our financial stock, the economy and the dollar, but none of that spillover is surprising to our next guest.
Jim Rogers, chairman of Beeland Interests, has been negative on U.S. investment banks, stocks, bonds, and the dollar for a while now. He joins me now.
ROGERS: Ecstatic to be here, Kathleen. It's been too long.
HAYS: I know, Jim, it's great to have you on my show. You and I have been - we go back a long way, and we've been watching these things for a long time.
And so many of these things, they always - to me, anyway, they continue to surprise, and a lot I want to talk to you about, but let's start with the situation on Wall Street.
A guest on our network earlier today said, this is like the S&L crisis all over again. And when you look at how long that took to play out, you just wonder how much further it's got to go.
ROGERS: This is worse than the S&L crisis. This is the first time - this is the worst credit bubble we've ever had in American history. No - ever in American history have people been able to buy a house with no money down, never. That's never happened anytime in the world.
So, we have the worst credit bubble. It's going to take a long time to work its way out. You don't cure a bubble in five or six months, Kathleen. It takes five or six years.
HAYS: So, let's look in particular at the situation on Wall Street. How much worse does it get for these financial institutions? Most people say Citigroup will be fine. Well, yes, they'll have bad profits, they'll have bad earnings, but they'll weather this storm. Some people are even raising their recommendations on this stock a bit today.
ROGERS: Well, I'm short Citibank, first of all, and I'm short the investment bank (ph). That's full disclosure.
No, I mean, listen, Citigroup has over $100 billion of tier three assets. You know what tier three assets is (ph)? These are assets that you can't sell, so you have to make up what you think they're worth.
They've got over $100 billion. I have no idea how bad they are. But this is not over for Citibank, it's not - or Citigroup, as they call themselves now, or for any of these guys.
HAYS: How much worse does that make it for the dollar, then?
ROGERS: Well, I would urge everybody watching this show to get out of dollars, maybe not today, because there are so many people short the dollar, but the dollar is in serious, serious trouble. We've got a guy down there in Washington who doesn't know any better. He thinks it's good to print money.
He's printing money, and everybody else is saying, what's wrong here? They're getting money out of the dollar. Me, too.
In Washington, they want the dollar to go down. You should be patriotic, Kathleen, and everybody watching this show - sell dollars. Do your patriotic duty and help them get the dollar down.
HAYS: I want to - we'll circle back to the Fed in a minute, but I have to get right to China. This PetroChina, over $1 trillion the first day of trading. Its market cap now is bigger than Exxon and GE combined. It only has, what, barely a fourth of the revenue at Exxon at this point.
Jimmy, is this a bubble?
ROGERS: Well, first of all, they have a better future than Exxon, but that's another question.
It's not a bubble yet, Kathleen. I own Chinese shares. I've owned them for a while. It is certainly an incipient (ph) bubble. If the market goes up another 30 percent or 40 percent in the next two or three months, then I'll have to sell, because then it will be a full-fledged bubble.
If it goes down 30 percent or 40 percent in the next three or four months, I plan to buy more. I hope that the government can get it down somehow. But it is - it's not a bubble yet, but it's starting to sound like a bubble.
HAYS: And over the weekend, a move by the Chinese government to kind of pull back a little bit. In August, we heard, hey, we're going to let our people start putting some money in the Hong Kong stock market. Everybody said, this is the prelude to letting the Chinese money start flowing out around the world. All of a sudden, we hear, not so fast. What's going on there?
ROGERS: Well, maybe they were short. Maybe the prime minister was short Hong Kong, because it (ph) pulled the money out.
Well, they've got to do something to open their currency up more and more. They have been doing it for two years now. They've been making the currency more and more convertible. They know they have to do something.
Now, I thought that was a brilliant move. They obviously changed their minds. But something is going to happen. Whether it's that or not, I don't know.
HAYS: But - then what is the play for - you just told our viewers, sell your dollar assets, buy overseas. Should they stay away from China right now? Are there other plays you recommend for people?
ROGERS: I would not buy Chinese shares right now. I'm not selling my Chinese shares. But one of the - I hate to use the word safe in conjunction with investments, but one of the safest investments I know is to buy the renminbi. That currency has to double or triple or quadruple over the next 15 or 20 years. I don't see how it cannot.
That's one thing I'm buying. I buy the Japanese yen. I buy the Swiss franc. I buy agriculture. Merrill Lynch has a new product based on my index, which was just listed on the American Stock Exchange. I bought it last week. So, there are things you can buy. I'm keen on agriculture, much keener on agriculture than I am on investment banks on Wall Street.
HAYS: OK. And in fact, we have your weightings up on the screen right now, and you can see a pretty good weighting (ph) there in energy, but as you said, a lot in grains. Are you going to hold with that weighting in energy? Is that one of your long- term plays?
ROGERS: Well, when you have an index, Kathleen, you can't (ph) sort of change it because you get bullish or bearish on something. Then it wouldn't be an index. Then it would be a managed account. No. I keep (ph) - it will not change unless energy causes cancer or something, you know.
It's going to - it will stay the same for a long time, unless something happens.
You can also - I bought my agricultural index, the sub-index, as I - the Rogers Agriculture, Rogers Metals, Rogers Energy, and Rogers Big Index, I bought the Agriculture index.
HAYS: And Jim, I want to get back to the commodity story. You know, your Rogers International Commodity Index is up. I've got a chart that shows it back to '98. It's up about 330 percent.
Same question - if I'm going to get into commodities now after there has been a big run, where do I go? Where are you most bullish on commodities right now?
ROGERS: I am buying agriculture. There are major fundamental changes taking place in agriculture, and agriculture prices are still extremely depressed after a long time. The number of acres devoted to wheat farming has been declining for 30 years. The inventories of food around the world are the lowest they've been since 1972. There are fundamental reasons to buy agriculture, so I'm buying agriculture.
HAYS: OK. What's second on your list after that?
ROGERS: The renminbi.
HAYS: We already talked about that.
ROGERS: No, no, I guess as far as - you know, you should - I don't like to buy things making new highs (ph). I guess maybe silver or palladium or something like that.
HAYS: So, is that kind of a note of caution for investors, then, when you see oil - excuse me, gold up over $800 an ounce, that maybe it's time to pull back? Or because you're so bearish on the dollar and think it keeps falling, does that mean gold keeps rising?
ROGERS: I own gold. I wouldn't buy it today, because gold too has been going straight up. I don't like to buy - but if it reacts, I'm going to buy more gold, I guess. I think I'm going to make more in agriculture for some time, but I own gold. I'm buying more.
HAYS: Yes, Jimmy, you're worried about the Fed and you're worried about inflation, and you think they are potentially printing too much money, et cetera.
But if that's the case, and if they're really determined to re-flate and revive the economy, does that support the dollar? Does that stop the run in gold and commodities? Does that, at least for a while, turn this on its head?
ROGERS: Kathleen, printing money has never been good for inflation. That causes inflation, one of the causes of inflation. The dollar is not going to go up if they print money. If they keep printing money, do you want to own more dollars? Well, you don't, and neither do the people outside the country.
They're going to say, why would we buy the dollar? Why would we support the dollar if they're printing money down there as fast as they can? Of course it's going to hurt the dollar. It's going to make - it's going to make commodities go higher, it's going to make inflation go higher, it's going to make interest rates go higher.
You were talking earlier that we had the steepest yield curve in a long time. That's because nobody wants to own long-term paper, if the man is down there printing money. I don't. I'm trying to get out of dollars.
HAYS: So what of this (ph) surprises you? What if they say, we're going to tough it out, we're going to, you know, we've done some rate cuttings. We're going to sit back. We just saw 3.9 percent on GDP. We saw payrolls up 166,000. We think Jimmy Rogers is right. We're cooling it, we're cooling it, and we're going to see what happens next.
ROGERS: Well, if they raise interest rates, the dollar is going to go through the roof, gold is going to collapse, there's no question about that. And they should raise interest rates. Listen, I'm making money on their foolishness, on their stupidity. But it's not good for the country, what they're doing.
I hope they turn themselves around and catch on to what's happening. But listen, Ben Bernanke has been writing and reading about printing money for all his life, and we've now given him the printing presses. I mean, he's going to run them. He's already running them at a rapid rate. Hallelujah if they turn around and they do raise interest rates. I don't think it's going to happen.
HAYS: OK. Well, in terms of other places to put your money, you talk about China. What other parts of the world do you think really look good right now?
ROGERS: Well, if you're going to buy stocks in North America, I'd buy Canada. I mean, Canada is a natural resource-based economy. They've done a brilliant job, compared to us, over the past 10 or 15 years. Australia and New Zealand, these are places that have a lot of natural resources. I'm bullish on natural resources.
I mentioned to you some currencies you could buy before. I mentioned agriculture. There are plenty of things to buy in the world, but you just have to be careful and not buy things that are in a bubble, like investment banks on Wall Street. That bubble is not over yet. That has still got a lot of cleaning out to do.
HAYS: So, in terms of what this means for the broad stock market, do you think it continues to be more of a bear market in financial stocks and the rest of the market is OK?
ROGERS: I know there's more - I think I know there is more of a bear market company in financial stocks, because we certainly - listen, when level three assets, when they start having two or three assets, when they start having to report the reality of those assets, these companies are going to take huge hits.
I mean, I have a lot of friends on Wall Street, but they better catch on with what's going on with their assets.
HAYS: If not, they're going to have to come stay at your house in Singapore.
Jimmy Rogers, thanks so much. Come back soon.
ROGERS: Thank you, Kathleen.
HAYS: I appreciate it.
***END OF TRANSCRIPT*** |
