EXCLUSIVE INTERVIEW
Jim Rogers on China Opportunities, the Gold Standard and the Development of His Free-Market Financial Philosophy
By Anthony Wile - February 28, 2010

Introduction: Jim Rogers was a co-founder of the Quantum Fund, and is creator of the Rogers International Commodities Index (RICI). A native of Demopolis, Alabama, Jim Rogers was entrepreneurial from a young age. His first business venture at age five involved selling peanuts. He attended Yale University where he received a degree in philosophy, and then also Oxford University, where he focused on economics. In 1970, Jim Rogers and George Soros founded the Quantum Fund, possibly the most famous and successful fund of its type, and one that made both of them high-profile public figures. Despite his success, he still makes media and television appearances, focused on the free-market principles he believes in and investments, especially in commodities, that he espouses. He has issued many warnings about the West's debt-making profligacy and has concluded that China will likely constitute tomorrow's most powerful nation-state, in large part because of the energy and discipline of its billion-plus citizens. He is author of many well-received books including the best-selling Investment Biker, a free-market oriented meditation on life and investing.

Daily Bell: Thanks for spending some time with us.

Jim Rogers: Glad to do so.

Daily Bell: Your books are clear and simply presented. How did you learn to write so well?

Jim Rogers: I don't know that I write so well, but with my first book I sat down and started to record a story for Fortune Magazine. Before we knew it we had 2,000 pages. I then took the 2,000 pages and did more work, and expanded on it. After that, they told me, "Hey Jim, we're not going to publish a 3,000 page book." So of course we edited and edited and from that we published it. Many people have told me, "You write like you talk." I don't know if I am a good writer or not but apparently I am a reasonably good talker.

Daily Bell: Has your thinking changed since your younger days. If so, how?

Jim Rogers: My thinking has changed about a lot of things over the years. I never wanted to have children. I figured they were just a terrible waste of time, energy, money and everything else. Now I have these two little girls, and I can't tell you how wrong I was about children. They are the most wonderful thing. Thirty years ago I thought just like everybody else did on many issues of the day. For instance, I would have said that Red China was some sort of horrible, disastrous nation. I had never been to China in the 1970s and now having seen the world, I am well aware that the way we thought when we grew up is not necessarily correct. Anyway, the world changes, and it changes dramatically. Under Mao Zedong, China was in fact a disaster, but then Yung Paw Ching came along and the world changed. Part of the problem is that most are aware that things change but they don't spot it soon enough. I've tried to be receptive to spotting change and now I try harder to spot change in advance.

Daily Bell: Did you set out to become famous and wealthy, or it something that evolved as did your career?

Jim Rogers: I did set out to find my freedom. I knew that in order to have total freedom to do what I wanted to do I would have to make money. I figured that out an early age. Living in the back woods of Alabama, I wanted to get out and see the world and I figured you had to have money to do that. The rest of it followed, though, of course, I had no idea where I would end up.

Daily Bell: Explain why you are so attracted to China?

Jim Rogers: It is not that I am attracted to China. It is that I see what is happening in China. I see the enormous changes that are taking place in China. I hope I would have thought that I would have seen the same sort of promise in Britain in 1807 – and seen that the UK was going to emerge on the world scene in a big way. I would hope I'd have detected the same promise in 1907 as regards America. Few people saw anything in the UK in 1807. Few people saw anything happening in America in 1907. The country was bankrupt in 1907, totally corrupt – Wall Street, Washington, everywhere. Yet, in fact, America was on the verge of becoming the greatest success of the 20th century.

Again, things change. If you study history you can see that. China has had recurring periods of greatness three or four times in the last few thousand years. Britain was great once, Egypt was great once, and Rome was great once. China has been great three or four times. It's a resilient country, and we can see that now. For 300 years China was in decline. In fact, a few hundred years ago, China's Emperor destroyed all the big sailing ships. They had vessels that had been to America, to Africa. They were sailing around the world long before Columbus. And yet the Emperor decided the China was not going to travel across seas anymore. He destroyed all the ships, destroyed all the maps, destroyed the records, destroyed everything. China, as could be expected, went into decline.

The 20th century was a disaster for China. Mao Zedong may have been a great guerilla warrior but he ruined the place. It was in total collapse until Deng Xiaoping came along and started reversing what amounted to hundreds of years of decline.

Daily Bell: It is interesting, the way you look at the world historically. Does this explain your success as an investor?

Jim Rogers: Mostly, it is from hard work. I was willing and able to work harder than most I guess and pursue more things. I had a greater sense of skepticism, I remember, when I went to Boston, I was stunned at some of the things I would hear. Trees just don't grow to the sky. I had a backwoods approach. Being skeptical, questioning and curious was a kind of personal calling of mine. I never considered what I did work. I loved every second of it.

Daily Bell: We have a theory that you provide background insight on China to such papers as the Telegraph and to certain writers on news events. Is this so?

Jim Rogers: Well, the answer is no, though I certainly see things in reports that are almost direct quotes of mine. I just saw something that I said in a report, though I don't know the reporter or the publication really. I think people hear things I say and think it is a good idea and use it for themselves. I do hear things but I think they are indirectly.

Daily Bell: Some say that China's progress is overblown and based on the mother of all central banking bubbles. What say you?

Jim Rogers: Well, first, I don't rely on anything except decades of investing for information. If you rely on government for your investing advice or your information you are probably going to go bankrupt. The government almost always consciously lies, or is simply incompetent. There is no question China is going to have some setbacks along the way, probably some horrible setbacks. Look at America in the 19th century. America had 15 depressions, America had civil war, America had periodic massacres. You could buy and sell Congress, and of course, you can still buy and sell Congress but in those days it was very cheap.

America was a disaster in many ways. People in 19th century Europe would look to America and say "what kind of place is this?" So, China is going to have situations like that. I don't know what or when or why or how, but I know that's the way every country in the world has learned – with setbacks along the way. Every company, every family has setbacks. China is going to have some serious setbacks.

Daily Bell: What's the biggest danger, in your opinion?

Jim Rogers: They certainly have created lot of credit the last couple of years, and now they have a real estate bubble in Shanghai, Hong Kong and a few other places. It is partly because they have a blocked currency – a rigid currency policy. It's not easily convertible. I happen to think that having a blocked currency is a mistake, and not just for China. China has created all this money and it is trapped in China. It can't come and go as it pleases, so it has created a real estate bubble in some cities. These real estate speculators are part of the Chinese economy, unfortunately.

Daily Bell: Honestly and clearly stated. Now elaborate on China's progress for skeptics.

Jim Rogers: I first went to China in 1984, but when I went there was one TV station, one radio station, one newspaper – one everything. There were no cars, and it was very depressed, very under-developed. Now you go to China and you see skylines such as you don't see anywhere else in the world. You see astonishing development over the past 30 years. Deng Xiaoping said, "Let's open up to entrepreneurship and capitalism again." Now there are scores of media outlets, newspapers, magazines, hundreds of millions of people on the Internet, hundreds of demonstrations every month, people demanding what they think they are supposed to get. None of this was conceivable in China in 1984 went I first went. They have the biggest production of cars of any country in the world, highways that are the best in the world. They have learned from the Americans, Europeans and the Japanese. I don't know how to tell somebody but they have to go and see the differences.

China is the largest consumer of iron ore and several dozen other commodities, and if they are not the largest importer or consumer they are the second or third largest. They apparently have the second or third largest economy in the world now, up from nothing 30 years ago. Who knows if the numbers are right, but who knows with any government? What we do know is there is staggering change in China in the past 30 years. As for the skeptics, look at the pictures of what was there 30 years ago and what is there now. I drove across China on my motorcycle in 1988, and there were no roads. I drove out to the desert, and I'm surprised looking back on it that I'm alive. There were no hotels, now there are five star hotels everywhere. There were no restaurants. There is certainly a dramatic change.

Daily Bell: Where are they headed?

Jim Rogers: Well, according to the World Bank, they will be the largest economy in the next ten or fifteen years. The World Bank has never been right about anything, so one has to be leery. But note that China now may be the largest creditor nation in the world, while the United States is the largest debtor nation in the history of the world. I suspect that China will be the most important country in the 21st century. Everything is going for them despite whatever setbacks loom on the horizon. You know, there are some Asians that talk about the ASIAN way – develop the economy first. From that flows democracy and freedom. They point to Japan, Taiwan, Korea, and a few countries where that has happened in the past few decades. You know Taiwan and South Korea were pretty brutal dictatorships. Now they are thriving and prosperous democracies. The Asian way.

Daily Bell: How did you become aware of Austrian, free-market finance?

Jim Rogers: Well, I studied history and economics for a few decades and one knows that there are various schools of thought and approaches. I don't know where I first stumbled upon it, but I have a degree in history and that exposed me to a series of economic theories. Then at Oxford, I attained a degree in economics, so who knows where, exactly, but eventually I stumbled on it and the more I studied it the more sense it made.

Daily Bell: You deal with important people in the investment arena. Do they understand free-market finance? Do they know about it?

Jim Rogers: I don't speak to many people in the investment community. I certainly speak to some that are close to me but I don't think most people in the financial world or the economics world, and certainly not in the academic world, give much credence to what we know as the Austrian school.

Daily Bell: Given the endless chaos that central banking causes, how can so many in the investment community continue to believe in its apparent virtues?

Jim Rogers: It's all about the handout. XYZ bank calls up the government and says, "Save me, save me, save me!" And XYZ gets saved, and of course, that is wonderful. Heck, the reason Mr. Geitner is Secretary of the Treasury is because he kept passing out money. Of course, they want somebody like that. He is their lap dog. He'll do what they expect. Nobody is going to say, "Oh, give us a hard nosed guy, one who says you got yourself into this, we are not here to bail you out." I find it outrageous that 300 million Americans have to pay to bail out maybe a million people in the financial community. In fact the whole world has to pay. Since I am an American I will start there.

Daily Bell: What would you like to see happen with fiat money? Would you wish to abandon central banking? If so, what would you substitute?

Jim Rogers: Well it has only been in the last 30 years or so that the public has followed central banking. The power and prestige of central banks has grown a good deal, though now central banks, in some cases, are certainly coming under attack. The world has gotten along without the central bank for much of its history, and I think it would get along fine in America and elsewhere. We've had two or three Central banks in America. The first two disappeared. In my view, this one is going to self-destruct because Mr. Greenspan and Mr. Bernanke have done such foolish things. They have taken on hundreds of millions of dollars of debt. Three years ago the central bank had 800 million dollars in bonds now it is two trillion dollars and most of it is garbage – which the American people now have as their responsibility. They keep printing huge amounts of money, and who is going to pay for it all? Central bankers are just bureaucrats, people in government jobs. Greenspan was in the private sector two or three times and then found a government job. Mr. Bernanke knows about printing money but he doesn't know much else. So I think, we would be better without a central bank.

Daily Bell: Explain how gold would fit into your larger perspective. Are you in favor of a gold standard, or a gold and silver market standard?

Jim Rogers: The world has used silver as money more than gold, because silver was the "people's money." The US was based on a silver standard for many decades of its existence. Gold has always been important but silver has been money more than gold. But the gold standard has never really worked in the long term, nor has the silver standard, because politicians always figure out a way to get around it. They debase it, change the rules or whatever. Just look at Rome. The whole word debasement comes from the Romans who kept substituting more and more base metals into their gold coins until by the end there was nothing but base metals. The gold standard has worked very few times in history. It seemingly was successful in the nineteenth century, but then the British started discovering gigantic gold mines in South Africa, which led to more wealth and success for the UK though not necessarily for the rest of the world.

Daily Bell: Is there a better way?

Jim Rogers: My solution would be not to dictate what people must use for money. Once you give politicians the monopoly money right, then they can do what they please. Look at what Roosevelt did in 1933, and what Nixon did when he abandoned gold. If I had my way people could use whatever they wanted as money. If you and I make a deal and I offer you seashells for whatever and you accept them then fine, that's what we use for money. Eventually the great mass will figure out what they want to use for money and they will do so.

You know only until 80 or 90 years ago in the UK, you could use all kinds of money, many different kinds of money. Bank issued money, guineas, but then when the depression came, British politicians passed a law making it an act of treason to use anything except paper pounds sterling, paper money as legal tender. Britain has been a basket case since. You used to be able to use whatever you wanted in the US as well. People would exchange what they saw fit as money.

Daily Bell: But usually people end up with gold and silver as money?

Jim Rogers: Eventually the top two or three forms will come to dominate because it is an international world. Taking seashells to Argentina is not going to work if they want to use silver as money. So some kind of money will wind up on top. But once it does, politicians become involved, and everyone gets cheated in the end. Always.

Daily Bell: You do some public speaking. What do you emphasize most in your talks?

Jim Rogers: Well, buy low and sell high! Be careful, I try to explain to people what is happening in the world and if they do their homework they can benefit or at least protect themselves from what is going on. I try to talk about what I see happening in the world in the future and what people can do to protect themselves and benefit from changes that are coming. One of the things that I frequently wind up explaining is to people is that whatever you think to be true today is not going to be true in 15 years. Pick a year. In 1900, what everybody believed, nobody believed by 1915. Then in 1920, what everybody believed was completely scrambled in 15 or 20 years. Whatever we know in 2010 is not going to be the case in 2020 or 2030 and you better start understanding that and trying to adapt and figure it out. I hope this message gets through so people can prepare themselves. Do your homework and be prepared for change.

Daily Bell: We've focused on the Internet being like the Gutenberg press. Agree?

Jim Rogers: Yes but remember, printing was discovered in China long before Gutenberg took it to Europe.

But, yes, it caused dramatic changes in European society, government, culture, economics, and everything else. And what is happening now is extraordinarily dramatic. I don't think my children will go to a bank or post office in the future. Everything is going to be so dramatically changed. It also makes it harder and harder for governments to lie to people. Now we can see it on the Internet or hear it or write to each other. Instantly, and for now without censorship. So yes it is a mind boggling and extraordinary revolution that is taking place.

Daily Bell: The moveable presses in Korea and China had various drawbacks, including being made of baked clay. Also, the iconography of the period was a good deal more clunky than the 26-character European alphabet. Maybe for these reasons, Gutenberg's press had more of impact than printing did in China or Korea. In the past we've indicated that Ron Paul may be the Internet's Martin Luther? Any other candidates?

Jim Rogers: I know Ron and I admire most of what he says. But as for him being the next Martin Luther, I don't have an answer. I am a little hesitant to say that, given who Martin Luther was. You'll have to ask me that in 50 years. I know it is not Al Gore.

Daily Bell: We agree! What do you think of the current economic crisis? Are Western countries handling it well?

Jim Rogers: No, very few western countries – to use your term – are handling it well. Some are hanging in there better than others. Australia and Norway are doing a better job than America and UK, but for the most part, we are all going to pay down the road. Dragging it out is making it worse. The world will regret this. The Japanese have lost a decade or two, but it could be even worse. The current economic problems could lead to social chaos, even war. Who knows how it is going to wind up because leaders are making so many mistakes.

Daily Bell: Do you believe in the bailouts taking place in America?

Jim Rogers: Of course not. This is what the Japanese tried to do in the 1990s and it led to zombie banks, zombie companies, lots of problems generally. And the same thing is going to happen this time too. America already has its zombie companies. We are going deeper and deeper into debt. With Fannie Mae and Freddy Mac, the debt is just staggering. And of course all those derivatives and off balance sheet items are obligations of the US taxpayer. This will continue to get worse and is a horrible disaster.

The way things are supposed to work is, when somebody goes bankrupt or somebody fails, he goes bankrupt. Then competent people come in, take over the assets, reorganize and start over from a sounder base. Just as what happened in Scandinavia, Korea or Mexico or Russia, or many other countries in the past twenty years. Yes it is horrible for two or three years but then things get much better. The Japanese did it the other way round, and they still have not recovered. What America is doing is taking the assets away from the competent people and giving them to the incompetent people – and then saying, "OK now you can compete with the competent people with THEIR ASSETS." I mean it is absurd economics, it's outrageous morally and the politicians don't care about morality of course, and it's a disaster that is being imposed on America and the rest of the world.

Daily Bell: Are you a fan of the EU? Do you think it will survive?

Jim Rogers: I am a fan and I hope it will survive. The world needs some kind of sound and competent currency. The euro would be spectacular. Big market, lots of depth. Unfortunately the EU has expanded too fast. Why they took in the last 10 or so countries is beyond me. Too many languages, too many welfare recipients, too many problems. So, I suspect that the euro will not survive and it will in fact lead to the dismantling of the EU. I don't think it is going to happen this month, but it will happen down the road. It was a great experiment in my estimation. You know America was made up of many states, many nations and they all came together as one country. There were times it did not look like it would succeed. In theory, who would have thought that California or Texas would have anything to do with Connecticut? Well it happened and it worked, so it can happen elsewhere in my view. Unfortunately, I believe the European politicians have made mistakes, and the execution has much to be desired.

Daily Bell: Can you explain the genesis of the financial crisis? How can it be solved?

Jim Rogers: In the past 20 years whenever people got into trouble in America, the central bank, Mr. Greenspan, came to the rescue. Thus, he refused to let the market work. The way the market is supposed to work fundamentally is people get in trouble, they lose money, they go bankrupt, and other people start redeveloping the assets. You know when companies went bankrupt in the 30s, they went through this purging and became great and successful companies.

But this time around Greenspan refused to let the market fundamentals work. He tried to save everybody. Immediately after he was appointed in 1987 there was the crash, an artificial crash, after which Greenspan flooded America and the world with money. The same thing happened with the Mexican crisis, the Orange County crisis, the Peabody crisis, I could go on and on. Mr. Greenspan would never let anyone fail, especially his friends. He kept flooding the world with money and debt and credit and of course more and more institutions built up bad assets, bad processes and nobody ever failed and incompetence was rewarded.

If he had let Long Term Capital Management fail in 1998, Lehman Brothers and other companies would still be in business, in my opinion. But he bailed everybody out. Incompetence was rewarded, moral hazard was exacerbated. Let people fail! The idea that you can solve a debt problem with more debt and more consumption defies comprehension. The US is the largest debtor nation in the history of the world – and that's what you inevitably end up with. Look at the numbers. The US cannot ever pay off the debt and the sooner the country restructures realistically, the better. Otherwise what lies ahead is several centuries of decline like other countries – like Portugal, a country that used to be rich and successful.

Daily Bell: What are the best investments to make throughout the business cycle, and do they change over time?

Jim Rogers: The best investments are the ones that are cheap, that you can ride with. For instance in 1970, if you had taken all of your money out of stocks and bonds in America and put them into commodities and foreign currencies, you would have been extremely rich by 1980. Then in 1980, if you would have taken all your money and put it into Japan currencies and stocks you would have been EXTREMELY rich in 1990. And then in 1990, you could have taken all your money and put it into technology stocks, and by 2000 you would have owned the world. There is always something that is doing well and there is always something that is in decline. The key is to avoid the things that are in decline, and find the things that are on the rise. The hard part is to figure out what they are and to get the timing right.

Daily Bell: What will the world look like in 10 years?

Jim Rogers: In the 1920s and 30s there was a major shift of the world from the UK to the US insofar as global economic dominance was concerned. We now have another period of gigantic change. Wealth is shifting from the US to Asia. The largest creditor nations in the world now are all in Asia. China, Japan, Korea, Taiwan, Singapore, Hong Kong, India – all the assets are in Asia now. I am going to give you an analogy. A hundred years ago, the British were the best rugby players in the world. Well, now, there are many nations that can beat the British at rugby. It doesn't mean that the British have gotten worse. No, it means everybody else has gotten better. The same thing is happening with the world economy, the geopolitical scene, etc. Look to Asia, because no matter how bad things are in the world, Asia has saved up a lot of money for a rainy day and the West has not.

Daily Bell: What are the most important – seminal – articles of yours that you would encourage everyone to read? Where can they be found?

Jim Rogers: My books and articles can be found at www.JimRogers.com.

Daily Bell: Did you have any final comments?

Jim Rogers: Be careful! We are living in perilous times and you can see how much the world has changed the past 15 and 20 years. The next 15 and 20 are going to be interesting too.

Daily Bell: On behalf of all of our readers we thank you for sharing your views with us – and for your important work and great books.

After Thoughts

This will be a short after-thought because the interview itself is comprehensive in our opinion – and that is where the reader's focus should remain. Jim Rogers was hard to get hold of, but when he did decide to do the interview, he was most generous with his time and insights. Not only that but he has provided readers with a good glimpse about how he evaluates investment opportunities. Obviously for him it begins with macro-analysis. In the case of equity and opportunity, it begins with the region. He sees investments from the standpoint of people and country. Everything seems to flow from that.

Since, Rogers is an Austrian, he would tell you there are no nations, no countries – only individuals and individual human action. But, of course, that's not an entirely realistic perspective from a practical point of view. Rogers obviously does see that people are bound together by chains of culture and in this day and age by massive systems of authority. So the question becomes what national system, and what people, are best positioned to make progress in the 21st century?

For Rogers, the answer is obvious. It is Asia, especially China. As well, we were impressed by the way Rogers admitted that there was a bubble in China without becoming defensive or denying the obvious. Instead, he emphasized the long-term. His point, as you have read, was that China, like any other country, would go through ups and downs but that did not take away from China's status as a creditor nation relative to the West.

We think the above interview is a doorway into the mind of a successful investor, one who applies free-market logic to economic opportunities. Certainly, there is much Rogers left unsaid – as anyone in an interview format avoids certain areas and emphasizes others. And there are certainly areas where we disagree. But Rogers' general perspective and his emphasis on free-markets as the fulcrum of investment opportunity is clearly stated. We hope you enjoyed hearing from one of the more successful investors in the world today.

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