₪ David Pescod's Late Edition July 10, 2006
AN INTERVIEW WITH JIM ROGERS
(From June 30, 2006)
We are here with Jim Rogers, someone extremely bullish on commodities at this time and with a very interesting financial history.
Back in 1973 along with George Soros they founded the incredibly successful Quantum Fund, a fund that used a lot of leverage during a time of not that good stock market performance and returned almost 4000% over the decade.
They did it well enough though, that Rogers was able to retire at the age of 37. He has written two very fun books to read that are still timely. Investment Biker is the book where he and a partner motorcycled over 100,000 miles across six continents in the early 90’s and than later between 1998 and 2001 traveled around the world in a custom modified two-seat Mercedes-Benz and produced a second book called Adventure Capitalist. And oh yes, along the way traveling throughout the world they were always looking for investment ideas.
His latest book was called Hot Commodities (published over two years ago) and while many writers we follow may have been bullish on commodities for sometime, such as Don Coxe, it’s Rogers who is probably the first.
In 1998 he established the Rogers Commodity Index and he thinks this boom could go on for another decade or even longer!
It was time to catch up to him, we think, particularly for those of us in Western Canada and in Alberta in particular, that realize that we are in an area of the world that is very much affected by cyclical markets. It’s either a boom or a bust here!
David Pescod: We are with Mr. Rogers who is famous for his recent positioning on commodities and here in Alberta and Western Canada, we have big concerns about just how long these oil prices can continue and big concern about the current glut in natural gas prices. Your comment Jim?
Jim Rogers: If you’re asking me how long it will last, who knows. But what I do know is that the surprise is going to be how high the price of energy stays and how high it ultimately goes. There has been no major oil discovery anywhere in the world for 35 years. All the great oil discoveries we know about were before 1970 and they are in decline now. Alaska is in decline. The North Sea is in decline. The U.K. which has been exporting oil for 25 years will be importing oil within the decade. If you look at Mexico, the Mexican fields are in decline.
Malaysia has been exporting oil for decades and within the decade, they will be importing oil. China exported oil 10 years ago and now they import oil. If you look, Indonesia is a member of OPEC. OPEC stands for the Organization of Petroleum Exporting Countries. Well, Indonesia is going to get thrown out of OPEC because they now import oil. Indonesia, believe it or not, is now an importer of oil after being an explorer for decades. So all the oil fields in the world are in decline. Unless somebody discovers a lot of oil very quickly, the price of oil is going to stay very high and go much higher.
D.P: That’s one big concern here in Alberta where we have so much of this high cost heavy oil coming on stream over the coming years. So you are suggesting that we shouldn’t worry too much about that high cost of oil, for say, another five or ten years?
J.R: I’m not the least bit worried about the tar sands. If bird flu wipes out Germany or something, then everything is going to go down and go down a lot. Oil will go to $35.00 if people stopped traveling and going to work. But, the first thing you should buy then is raw materials, especially oil because they will go down the least and they will turn around first. In 2001, oil went down 50% in price because of 9-11. Then oil turned around and went up 500% because the supply/demand situation is basically out of whack for oil. That’s where the imbalance is and that’s where they will continue to rise.
D.P: The other concern out here in the Western Canadian Prairies of course, is grain prices, which you also mentioned in your book “Hot Commodities” that you have expectations that they too, can appreciate.
J.R: Yes, if I were looking for opportunities today, I’d be looking at agriculture more than anything else. Most agriculture prices are still far, far, far down from their historic highs. Sugar is over 80% below its all-time high. Coffee is 70% below its all-time high. Cotton is 60% below, corn and soy beans and all these things are far, far below their all-time highs. And by the way, if you adjust the all-time highs for inflation, needless to say, some of them are down 80% to 90% from their all-time high. Even oil – if you adjust the oil price for inflation, its all-time high would be over $100 U.S. per barrel. So all these things are very key to fundamental changes taking place in agriculture and that’s where I will be looking for new opportunities.
D.P: You have been made partially famous by your books on traveling the world and you are currently in China. What are your thoughts on China right now?
J.R: Actually I’m in Singapore right now. I was in China when we first hooked up. I am still very optimistic about China. China is the next great country in the world, whether we like it or not. The 19th Century was the Century of the U.K. The 20th Century was the Century of the
U.S. The 21st Century is going to be the Century of China. The best advice I could give you is to teach your children and grandchildren Chinese, because it’s going to be the most important language in their lifetime. I have a 3-year old daughter and she’s perfectly bilingual in Mandarin now. I think the best skill I could give someone born in 2003 is to be perfectly fluent in Chinese. I’m not just talking about this; I’m actually spending a lot of time, energy and money to make sure it happens.
D.P: If one worries about something ending this somehow, how could something go wrong in China and India
to cause concern?
J.R: I am not as optimistic about India as I am about China. India certainly does seem to be trying to change but unfortunately I’ve been hearing that for about 15 years. There is no question that they are going make efforts now to get better running, but they don’t compare to China at all.
Flu could turn into a pandemic and kill hundreds of millions of people. We could have a sudden war – China and Taiwan could go to war. I don’t expect it, but lots of things could happen and I guess a main worry I have for both China and India is water. There is a lot of water in Siberia, there’s a lot of water in the Himalayas so conceivably they can get the water eventually, but if they don’t get it soon enough and the water problems continue to develop, that would put a serious crimp in the development of both countries.
D.P: Let’s say you had a crystal ball and you were looking ahead five years. What would be some commodity prices that wouldn’t surprise you?
J.R: What would surprise me would be if gold were $35.00 an ounce. But, if you are talking about on the upside, who knows? I am very bullish and what I do know is that in bull markets, a lot of things happen. Who would have thought that the NASDAQ would have gone to 5000 if we were talking in 1996, much less 1990? It was inconceivable.
Or that Cisco could go up 100 times! In bull markets, wild and crazy things happen toward the end of the bull market. People get very hysterical and that’s what will be happening with commodities by the end of this bull market. I don’t think the bull market will be coming to an end by 2011. That’s more likely to be 2018. The prices are going to surprise everybody including me, and I’m the bull!
D.P: What do you think would bring an end to the commodity market?
J.R: What has always brought the end to commodity markets is our history. We’ve had bull markets followed by long bear markets, followed by long bull markets
again. The shortest bull market I could find in commodities lasted 15 years and the longest lasted 23 years. They average 18 or 19 years, and what ended all of them in the past is that people eventually change their consumption and eventually new supply comes on stream. That’s what will happen again. If you look out the window of your building you will see a lot of windmills in 2018, and if you see a lot of solar power, even in Alberta, you can probably expect that maybe things are coming to an end. If you see people bicycling to work even in the winter in Alberta, then chances are that something is really wrong! There will be changes and there will be new sources of energy. Whether it’s from hydrocarbons or from some kind of alternative energy by 2018, I don’t know, but I know in the past, something has always come along to cause new supply.
D.P: Now interestingly enough, when we ask 10 brokers here at Canaccord if they could ask you only one question, what would it be? Surprisingly, they came up with, what three places would you recommend a person visit in this world in the next ten years, because of your extensive travel?
J.R: I don’t find that surprising at all. That’s what I would ask! There was a survey done and the number one dream which people have is to get in the car and take off around the world. I know it’s a passion or desire which many people have. Certainly, I would have to put China at the top of
the list, just because there are plenty of things to see from a tourist point of view, but also because China is going to be the most important country in the world. After that, it depends on your interests. If you like natural sights, one of great drives in the world is the drive up from Alberta to Alaska on the Alaska Highway. I suspect most of you have probably done that.
You have to see the Taj Mahal, you have to see the Terra Cotta Warriors in Xian in China, you have to see the Grand Canyon.
These are man made and natural sights. If people like adventure I would certainly urge everyone to drive across the Sahara Desert. Be careful, you may not survive – a lot of people don’t, but it’s a spectacular event. In the Southern part of Argentina, there’s a gigantic glacier which comes out of the Andes called Perido Marino and it is one of the most amazing sights in the world. When we were driving around the world, I said, let’s go over here it’s 1000 kilometers out of the way. As you can imagine, there was a huge fight. She said I’m not driving 1000 kilometers when there’s ice and snow everywhere and it is 20 degrees below zero. So we got over there you can see it from five kilometers away and she said, “We came all the way for that!” After she sat there for a few minutes, we got up close to it, and after a while, she wouldn’t leave. It was just
one of the most mind-boggling sights you’ll ever see and she is determined to go back as am I. There are quite a few spectacular places out there. Some are in Canada and some in the U.S. – if you don’t want to leave home.
D.P: A second question that must be asked, given Canada’s history in mining and being the centre of so much gold mining activity, would be what are your expectations for gold over the next few years? We assume it will participate in a broad based commodity move…
J.R: Of course. Gold is a commodity and in bull markets nearly everything makes an all-time high – often several times above the old all-time highs. The old high on gold was US$875 so it will easily go to US$1000 sometime during the bull market. The old inflation adjusted high is about US$2000.
I own gold and expect to make money in gold, but I expect I will make more in some other commodities for awhile first. After all, there are huge inventories of gold which is not true of any other commodity.
D.P: If there is one question we didn’t ask that we should have what would it be?
J.R: What you didn’t ask was about the currencies. The Canadian dollar is one of the soundest currencies in the world right now on a fundamental basis. You should not sell your Canadian dollars; you should sell your U.S. dollars. I would strongly urge you to keep your investments in Canadian dollars. I would urge you to get out of U.S. dollars. Do your homework in commodities because that’s where the bull market is going to be and that’s where you are going to make a lot of money.
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