Jim Rogers is honest and pretty straightforward when it comes to eyeing the direction of the market. For some, his predictions may turn out to be somewhat catastrophic, especially with the exuberance and debauchery that has characterized the markets in recent years.
Now, experience is always a degree and when Rogers and George Soros founded the Quantum Fund in the early 70’s they marked a before and after in the industry. This fund, whose portfolio gained 4,200% between 1973 and 1980, was considered one of the first truly global funds of its kind. But Rogers is an unusual investor.
His “retirement” at the beginning of the 80’s helped him to go around the world on a motorcycle. Since then he has served as a visiting professor at Columbia University and founded the Rogers International Commodity Index, an indicator that serves as a shield for Rogers’ relentless advocacy and attachment to investments in agriculture.
Given the rebound in Covid-19 incidents and the appearance of the omicron variant, when do you think we will return to normality prior to the pandemic?
Let’s say that in five or six years, things will start to return to normal before the pandemic. However, I believe that we will have a bear market in the next year that will be longer than normal.
Mention a bear market. When will it arrive and why will it be longer than usual?
The last time we had a serious problem in the United States, the world’s largest market, before the pandemic was in 2008 and 2009, due to the financial crisis. A 12-year gap without a major problem for the stock market is the longest period in US history. We have never seen such a bull market, it could have lasted 50 years, but we are nearing the end. We see multiple signs of it, the exuberance, the excessive enthusiasm, the continuous rises.
I look forward to the return of a bear market in the next year. Interest rates will rise, so will inflation. This will surely be the worst bear market I have ever seen. And I say this because 2008 was catastrophic due to excessive indebtedness. Since then, debt levels have exploded across the board. We have never seen these levels in history. This is why I can’t help but think that the next bear market will be the worst I have ever experienced since the current debt level is staggering.
But what about those economists and politicians who don’t give as much importance to the excessive leverage that you mention?
I’m glad to know that it doesn’t matter anymore, it’s excellent news (laughs). My long experience has taught me that when dangerous expressions like “this time will be different” start to be used in the financial and economic world, it is time to really worry. Perhaps the world has changed dynamics that we have seen for centuries, but I am sure that at some point we are going to see an increase in defaults and people are going to lose a lot of money. I hope to lose as little as possible, but I think what is to come is going to be really bad.
He previously mentioned inflation and interest rates. Do you think the Federal Reserve is losing credibility in this regard?
For some, including myself, they have never had much credibility, but for most people they do. However, they have been telling us for months not to worry about inflation, that if it did arrive it would be temporary. Now they have realized that we have inflation, which is the worst we have seen in decades and it is not dissipating as expected. That is why at some point the market should begin to question the messages coming from the Fed.
Debt: “It is historically high and the next bear market will be the worst of my life”
Given the current environment, do you think the Fed will be forced to raise interest rates more abruptly than the market expects?
Although they have indicated that they will accelerate the reduction of their asset purchases, in general I believe that they will continue to hold out by maintaining an accommodative stance for as long as possible. That said, if the market starts to suffer excessively, they will take action on it. Even so, at some point they are going to have to raise rates and eventually the market could assume expectations that differ greatly from what the Fed has in mind. If the Fed and other central banks lose control of expectations, that is when we will see a bear market that will be quite serious.
From your point of view, which asset classes are most promising right now?
If we look around the world, the housing market in many countries, such as South Korea or New Zealand, is clearly in a bubble, in part because interest rates are so low. Bonds are bubbled around the world and have never been so expensive in history. Some stocks are starting to bubble. Tencent, Samsung, Apple … these stocks never go down, they go up all the time. So the only asset class that remains cheap is commodities. Silver is down 60% from its historical value and is not overvalued. Sugar is down 60-70% from its all-time high.
This year marks the 15th anniversary of the Economist. Spain is one of the European economies that has suffered the most ups and downs during this period of time, given its high levels of debt and unemployment … what prospects do you have for a country like this?
You have partly answered the question. Most European countries are heavily in debt. Europe has huge debt and demographic problems. It has very aging populations that have been promised a lot of good things for their retirement, but that have to be paid for. And the money to do so is scarce. I don’t think most European countries are going to be terribly exuberant and successful in the future. I don’t like to say it, but if we look out the window of the West, all we see is debt. The United States is the largest debtor nation in the history of the world, no one has been so in debt.
Spain, France and other countries also have too high a debt. By contrast, most Asian countries have more vibrant demographics and less leverage. I don’t think it’s a secret that Asia is going to do much better economically and demographically than the West. But I really like Spain and I love everything Spanish.
Speaking of Asia, are you concerned about the problems some real estate managers like Evergrande Group are experiencing?
The Chinese real estate market has turned into a big bubble in several cities. Beijing has been aware of and has been trying for a long time to stop this situation without much success. Now they are starting to cool it down and I hope they get it. You have to burst a bubble as soon as possible, even if it means triggering bankruptcies. I hope that the Chinese government will let these entities default and force a restructuring.
Although this situation has generated some panic and there is talk of a potential slowdown in growth, we must not forget that, in the United States, during the 1920s, there was a gigantic bubble that collapsed and contributed to the Great Depression of the 1930s. Even so The US emerged from this episode as the most powerful country of the 20th century. It is true that China will have problems in the coming months and will have to find a solution, but in my opinion it will continue to be the most successful country of the 21st century.
“I suspect that the price of a barrel of oil will continue to rise and supply, to fall”
With inflation spiking and crude prices creating uncomfortable situations for some countries, such as the United States, Jim Rogers, co-founder of the Quantum Fund with George Soros, makes it clear to this newspaper that the recent announcement by the Administration Joe Biden’s decision, in coordination with other countries such as China, to release barrels from Strategic Petroleum Reserves “will not have the desired effect.”
“That supposes only two or three days of consumption. And, by the way, it is a type of crude that still has to be refined a lot,” he points out. From his point of view this is nothing more than “a public relations campaign”. According to Rogers, the United States is the largest oil producer in the world, but Biden “is doing everything possible to reduce the production of crude in the country alluding to the environment. However, he calls on Saudi Arabia and other members of OPEC + to increase of him, this is a complete incongruity, “he says.
This investor believes that “the price of oil will continue to rise.” For Rogers, oil supplies will continue to decline as we enter an environmental transition to clean energy. That said, he emphasizes that the global adoption of these measures or the use of electric cars will take a long time and will not happen overnight.
Hence, crude prices will remain high, given that production will continue to be moderate and episodes such as the “fracking bubble in the US” has already “burst and this practice is no longer a miracle.”
“Silver, sugar and agriculture will undoubtedly be successful in the years to come.”
Given the current outlook looming over the markets, Rogers is confident that assets such as “silver, sugar and agriculture in general will undoubtedly succeed in the coming years given that their prices are currently very depressed.”
For the current chairman of Beeland Interests, the easiest way for investors to take advantage of this potential is to invest in investment products that track a commodity index.
“The studies are pretty clear that the best thing for most investors is to buy an index, as indices outperform almost all amateur and professional managers year after year,” he says. In his case, Rogers sweeps home. As he explains, his exposure to agriculture occurs through the Elements Rogers International Commodity Index-Agriculture (RJA). This represents the value of a basket of 21 agricultural futures contracts on commodities consumed in the world economy. So far this year it has accumulated a yield of 27.6%, thus exceeding the S&P 500, and in the last 52 weeks the increases reached 41%.
Looking to the future, beyond agriculture, Rogers glimpses “many young people working on new technologies.” Remembering Bill Gates or Jeff Bezos, this investor sees opportunities in digital systems and infrastructure for education and health.
“I have never bought or sold any cryptocurrency, I do not see much economic value”
Cryptocurrencies, led by bitcoin, currently accumulate a total market capitalization of approximately $ 2.3 trillion, according to data collected by the coinmarketcap.com portal. When asked about this asset class, Rogers acknowledges that he has “never” bought or sold any cryptocurrency but that like many other people he would have “liked to buy bitcoin at $ 2”.
Even so, the co-founder of the Quantum Fund does not hesitate to recall how “many cryptocurrencies have disappeared and their value has completely disappeared. There are thousands of them and not all of them can be good,” he adds. Rogers doesn’t see “much economic value in cryptocurrencies,” hence his lack of interest in this market. What he does defend is that at some point “all currencies will be digital.” “Currently in China you cannot take a taxi with cash, you can hardly buy an ice cream, you have to use your digital currency. They have overtaken the rest of the world, but many governments have now got down to work.” .
When raised with the possibility that some cryptocurrencies may challenge digital currencies, the investor assures that governments will mark a red line to guarantee their control. “If at some point, any cryptocurrency becomes a viable payment currency on a global scale, governments will feel threatened and will take regulatory action.”
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