Jim Rogers’ Crystal Ball

The legendary investment guru and long-time commodities booster shares his views on the global economy, the commodity bull market and how Mexico, Brazil, Colombia and other Latin American economies will hold up in 2010 and beyond.

Ian McCluskey, Miami 

Alabama-raised Jim Rogers is perhaps best known as co-founder, with George Soros, of the Quantum Fund, which made him a wealthy man by his mid-30’s. But that was 30 years ago. Since then, he has circumnavigated the globe on a motorcycle and in a souped-up yellow Mercedes, written several best-selling books, and made countless millions more investing and dishing out advice in his customary blunt, yet southern gentlemanly manner. 

A regular face on financial news networks and at investment summits the world over, Rogers – his timing impeccable -- pulled up stakes in Manhattan in late 2007, selling his Riverside Drive mansion for a record $15 million just as the real estate market began to sour. He now makes his home in Singapore, while running his business out of a law office in downtown Miami. Rogers spoke with Kroll Tendencias in late December during a brief stopover.

Like other soothsayers, Rogers is bullish on much of South America. He foresees a great future for Colombia, but is not smitten by Brazil’s long-term prospects. Rogers, whose Rogers’ International Commodities Index (RICI) provides a compass for investment funds worldwide, predicts that the commodity bull market has another 10 years or so to run its course. He expects gold to hit $2,000 an ounce and oil to reach $200 a barrel sometime this decade. 

Here are some excerpts from our conversation.

The Global Economy  At least in the first half of 2010, he global economy will be better than in 2008 or 2009, but I would worry about 2011 and 2012, because governments are printing and spending so much money. We’re still in an ongoing economic problem that started in 2000 or 2001. We’ll see it get better for a little while, but over the next couple of years, things will not be better than they were in 2007, and perhaps never will be, in some countries. 

Commodity Prices  If the world economy gets better, commodity prices will go up because of shortages and, if the economy does not get better, commodities will still go up because governments are printing so much money. Will commodities go up in 2010?  I have no idea. If there is some big surprise – if the U.K. goes bankrupt, if America invades Iran -- everything will go down for a while. But whatever happens, I expect commodities to be among the best places to be in 2010.

Crises on the Horizon  I don’t foresee any critical events that will impact commodities in 2010. I would expect there to be a currency crisis or semi-crisis in the next year or two. I don’t think many people expect it, except me.

Bubbles in the Making  Some emerging markets may be over-priced, but that does not mean a bubble. That’s just being expensive. Every market gets over-priced one time or another in any given year. The only bubble I see developing anywhere in the world is in the U.S. bond market, the long-term government bond market. I cannot conceive of lending to the U.S. government for 30 years in U.S. dollars at 3, 4, 5 or even 6% interest. It’s just mind-boggling to me.

Outlook for Latin America  I am much more optimistic about most of Latin America, especially South America, than I am about North America, with the exception of Canada. I am more optimistic about parts of Latin America than I am about much of Europe. And that’s partly because of all the natural resources. South America is a commodity story.

Gushing over Colombia  It looks like there will be real peace in Colombia and, if so, that would be one of the phenomenal opportunities of our time, because they have it all. Colombia’s been at war for, what, 30 years, 40 years? Any time you can get to a country shortly after a war ends, there are usually enormous opportunities because everything is so cheap. There’s not much energy, not much capital, not much optimism, still a lot of malaise. I’ve seen it happen over and over again. And Colombia has natural resources – coal, oil, agriculture – and, of course, it could become a tourist destination again. Terrific country. (Note: Last summer, after Sri Lanka declared an end to its long-running civil war, Rogers paid a visit to look around. “I didn’t buy anything yet,” he says.)

Not Sold on Brazil  Whenever commodities have done well, Brazil has done extremely well. People get excited about Brazil, they start talking about the new Brazil, but then the bear market comes back to commodities, and the same old thing happens – [Brazil] prints money, inflation, military problems, military coups – and I suspect that will happen again, perhaps in 20 years or so. Right now, of course, things are great. Brazil’s economy is commodity-based and commodities are going through the roof. Do not get me wrong; I’m just suggesting that I have heard this story before about the great new Brazil.

Brazil’s President Lula  The country is run by a socialist, but nobody really wants to be a socialist any more, and the ones that do want to be rich socialists. [Lula] came in in 2002 just as the bull market was gathering steam, so he looks like a genius. 

More Attractive South America   Chile is doing well, even Uruguay. I’m still optimistic about Peru, too. It’s got a lot of natural resources and a reasonably good government. It, too, had a long war. Look around South America and, other than Venezuela and perhaps Ecuador, there are better things happening than before. But, again, whenever there’s a boom in commodities, if you’re a commodity country, you look better, you feel better. There’s nothing like having lots of money in the bank, lots of income, to make countries feel better and more attractive.

Waiting for the Other Shoe to Drop in Argentina  (Note: In a November 2000 article in AmericaEconomia magazine, Rogers famously announced that, after driving around Argentina for several weeks, he was liquidating his remaining investments in the country and encouraged everyone else to do the same.)  The good on the horizon in Argentina is that things have gotten so much worse over the last seven years or so, that we are getting closer to a bottom. I’m not putting a single peso back into Argentina and have not done so since the [the 2001 debt default] because their governments – I don’t know how they do it – it’s astonishing how bad they can be. I’m still waiting for the other shoe to drop -- another default, another debt crisis or whatever it might be. Argentina is a great agricultural nation, but they tell their farmers “You can’t export your stuff.” What they desperately need is foreign exchange and yet they say “We’re not going to earn any foreign exchange.” It’s stupefying how hopeless they can be at times.

Wary about Mexico  Mexico has some huge problems. Forty percent of its income comes from oil but the oil is depleting at a very rapid rate. And of the country’s 100 million people, they are mainly young people.  I suspect you’ll see serious problems in Mexico over the next decade because young people get agitated pretty easily. If the government faces serious economic problems because they don’t have any money any more, Mexico could boil over.

China’s LatAm Connection  China sees huge shortages of raw materials developing. The Chinese are not just going to Latin America. They are all over Central Asia, Africa. They are buying up everything in sight, because they know what’s coming. They are going where the commodities are and are willing to pay proper prices. And, in most countries the Chinese don’t tell the locals what to do. They say “Here’s your money, now let’s develop those mines, or grow those cops.” Most countries seem to be welcoming the Chinese with open arms.

Commodities Trading in China  (Note: China’s Dalian Commodities Exchange recently invited Rogers to become its first foreign advisor.)  The main problem with doing anything with the Chinese as far as exchanges are concerned, is that their currency is blocked. You cannot trade the currency. It’s illegal for me to buy and sell commodities in China because I am not Chinese. Even if a foreigner could invest on the commodities exchange in China, the currency is still blocked. Not many people are going to take their money to China if they can’t get it out. Some companies, like Cargill, have licenses to trade but there aren’t many. If and when China does open up to foreign investors, I suspect China would become the largest commodities trading exchange in Asia, perhaps even in the world.

Hugo Chavez’ Perennial Threat to Stop Selling Oil to the U.S. and Sell Instead to China  Chavez could conceivably do it, but oil is oil. It’s not like we’re talking about Picassos. Even if Chavez told the U.S. “We’re not going to sell you oil any more,” who cares? We’ll buy it somewhere else. There would be a temporary dislocation in the market. Some refineries would suffer, some ships would suffer, but it would all be re-jiggered. Chavez has to sell his oil somewhere; he can’t simply stop selling. So that oil is still in the market. If he sells it to China instead of America, those who were selling to China would now sell to the America. Oil’s a fungible product.
   
The author: Ian McCluskey ( imccluskey@kroll.com ) is Editor of Kroll Tendencias, a monthly online thought leadership platform that focuses on business trends and business challenges in Latin America and the Caribbean. Articles are produced by Kroll consultants and other thought leaders in the region.