Exclusive Interviews, Gold & Silver
Jim Rogers on Price Inflation, Investing in Asia and Why China Will Continue to Boom
By Anthony Wile - November 17, 2013

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 history and then Oxford University where he focused on philosophy, politics and economics. In 1970, Jim Rogers co-founded the Quantum Fund, possibly the most famous and successful fund of its type. Despite his success, he still makes media and television appearances, focused on the free-market principles he believes in and investments in all vehicles, long and short worldwide, 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 and Street Smarts: Adventures On the Road and In the Markets. All his books are available at JimRogers.com.

Anthony Wile: Hello, again. It's been a while since we spoke with you. Any big projects in the works?

Jim Rogers: At the moment, my main priority is my little girls. I just came back from speaking in London and I'm leaving again in a couple of days to speak in Nanjing so I still make a lot of speeches but now my girls are the main thing.

Anthony Wile: Were you pleased with the reception of your book, Street Smarts? Are you working on another?

Jim Rogers: I'm not working on another book, no. And as for my existing books, I'm a little superstitious: I never ask my publisher how my books are doing because I don't want to jinx them. So far all my books are still in print so I guess my superstition must work. I've noticed it's been on the best-seller list at Amazon, which, of course, is encouraging but I don't really have any specific numbers.

Anthony Wile: The really big news has to do with precious metals, from our point of view. Was the market really so overbought that gold had to move from US$2000 an ounce to US$1300?

Jim Rogers: It looks as though it's been correcting for some time. It seems to have been making a bottom over the last year. It is making new lows and seems to be making a bottom. All markets do have corrections along their way. The stock market, as you probably remember, had an 18-year bull market from 1982 to 2000, during which there were many corrections: In 1987 the stock market went down 40% to 60%, 80% in some places; in 1989 it corrected, 1990, 1994, 1997, 1998, etc. There were many corrections in that bull market but it was not the end of the bull market. I think that's what's happening with commodities at the moment.

Anthony Wile: A slump of nearly a third indicates to us that the fundamentals must have changed. Or was gold in a "bubble," as some have suggested? We believe gold was merely reflecting the insanity of Western central banking economies and actually should be high still. Your thoughts?

Jim Rogers: The anomaly in gold was that it went up 12 years in a row, which is extremely unusual. I know of no asset in history that's gone up 12 years without a decline. So I suspect the correction in gold would also be an anomaly given that it's had this strange action for 12 years. It's been correcting for a couple of years now. I don't think that correction is over given that there are still many, many people who are convinced that gold can never go down.

India's the largest buyer of gold in the world, or has been, and the Indian government is blaming all of its problems on gold. So they've put taxes and controls on gold, which has dramatically cut the demand in India. India also has staggering amounts of gold in inventory, both in the hands of the public and also in the hands of the temples. The Indian temples own huge amounts of gold and the Indian government is trying to figure out a way to get everybody to sell their gold. If they can somehow force or persuade the Indian temples to sell their gold then who knows how long this correction will last and how long it will go. If gold went down 50% that would be to $950 an ounce – and 50% corrections, as you know, are very common in all markets. So I'm not buying gold yet and I haven't sold any. I think there's going to be another chance to buy gold sometime in the next year or two and I don't want to sell my gold because I am convinced that the price of gold will go much, much higher over the next decade. Periodically I hedge a little bit of my gold but I've never sold any.

Probably there's less speculation now because, as you know, speculators like rising markets; they don't particularly like stagnant or declining markets. I still have the feeling that there are too many people in the market who think gold is holy; they just cannot conceive that gold can go down and stay down. So I have the feeling that there's still speculation in the market. What I would hope would happen is what happens to most markets, eventually. Many people just give up and say, "I never want to own that again as long as I live." I don't have the feeling that's happened in the gold market yet. If and when that happens there will be a very nice bottom and gold will really take off for the rest of its bull market.

Anthony Wile: What about paper gold and silver, ETFs and futures? Did you hold any? Do you now?

Jim Rogers: ETFs and futures are another, convenient way for people to buy gold. I guess those buyers are perhaps a little more speculative than the people who buy gold and put it in their vault. These days there are many ways to buy gold whereas 30 years ago there were only one or two ways. I presume that people who are buying gold and putting it in their vaults are a little stronger hands than people who buy what you refer to as paper gold but both are legitimate ways to invest in and own gold, though paper gold is certainly more convenient than having to buy it and put it in your vault.

Anthony Wile: How about mining stocks? Are they finished as a class, as some have maintained?

Jim Rogers: Not finished as a class, but because of the convenience of buying gold in other ways there's certainly a lot more competition for stocks. If one wants to buy a gold stock one has to know what one's doing. Yes, if you buy the right stock with the right asset and the right management you'll make a lot of money, whether gold goes up or down – more if it goes up, of course – and it's more competitive now that there are other ways to buy gold. The problem with mining stocks is there are many, many of them and you have to get the right one. Mark Twain once said, "The definition of a gold mine is a hole in the ground with a liar standing at the top of the hole." You have to be a good stock picker, which, unfortunately, most people aren't.

Anthony Wile: It's fashionable in some quarters to bash free-market/business cycle economics because the Internet has provided a very high profile for that kind of economics. Has free-market economics proved predictive this time around the business cycle? Does it explain what needs to be explained, or has Keynesian economics provided us with a better perspective?

Jim Rogers: I think Mr. Keynes, if he were alive, would be a little bit astonished at what's going on in his name. Any kind of economics you want to talk about all have problems but free-market economics is certainly the best explanation and the best predictor of what's going on in the world. Actually, I don't think Mr. Keynes would approve of some of the things that have been and are being done in his name. The free market is still the best solution to all of our problems.

Anthony Wile: If Keynesian economics proves over and over to be unpredictive and unworkable as an economic explanation, why does it remain the dominant establishment economics?

Jim Rogers: Because it's what's been taught in the schools a long time and most other "brands" of economics, if I can use that term, have not been taught in the schools. If everybody grows up being told the sky is blue everybody thinks that the sky is blue. They don't even go over to look out the window to see whether the sky is blue. They just accept it because it's in the schools, it's on the television, it's what the government accepts and so they just accept it. Throughout history we have been taught many things that were incorrect and this is another one of those things. It usually takes time but it will eventually be realized that running up staggering debts, whether it's in the name of Keynes or anybody else, is a bad policy and when it all collapses then Keynesian economics will collapse, too.

Anthony Wile: We've mentioned this to you before, but we'd like you to reemphasize your thoughts on the matter. One of the main groups criticizing free-market economics is a group we'll call the neo-Fabians. These people come from the populist movements that began in the late 1800s in the US and are today influenced by C. H. Douglas. Douglas believed in social credit, the idea that you ought to take an annual chunk of the gross national product and redistribute it to workers to make up for a lack of adequate compensation. Now the Swiss are going to be voting shortly on the idea of providing a living wage to every Swiss adult of 2500 euros a month. The idea of a living wage is a Douglas-type gambit. Is it a good idea for the state to provide a living? Is it possible simply by using the printing press? New Zealand has initiatives of the same sort in the works. Wouldn't such gambits end up in massive price inflation?

Jim Rogers: Not necessarily. Massive price inflation does not help an economy. They cannot stay competitive. We've tried many things throughout history to make everybody better off, whether it's religious solutions or economic solutions, all sorts of solutions, and the only one that's ever succeeded in the long term is the free market.

Now, they can hype these initiatives but in Switzerland's case or New Zealand's case they would become less competitive. The money's got to come from somewhere and, unfortunately, it will come from people who are productive, which means that many of those people will go somewhere else to be productive. If you have to take some of your money to support somebody else you cannot compete as well and you're not going to be as productive. So the economy and the society will go into decline. This sort of thing has been tried lots of times – in Russia, for instance – and it never works. It's not going to work this time, either. That doesn't mean the Swiss and New Zealanders won't do it but a few years from now they'll look back and wonder what went wrong. Another example is Burma. In 1962 it was the richest country in Asia and they did a similar sort of thing. They had a military coup and they tried basically socialism and by 50 years later Myanmar was the poorest country in Asia. It didn't work though it took them 50 years to figure it out.

Anthony Wile: It's the same sort of argument to be found in Ellen Brown's Web of Debt. Brown, Bill Still and many others are increasingly high-profile advocates of what might be called "public banking," the idea that so-called private, quasi-monopolist central banks have not done a good job of managing the currency and that if the "people" controlled these banks, they would do a better job. Your thoughts?

Jim Rogers: Central banks are not doing and have not done a good job and I certainly don't think the people would do a better job by any stretch of the imagination. We might be better off without central banks. In America, we've had three central banks in our history. The first two disappeared. In my view, this one's going to disappear, too, mainly because they keep running up huge debts and printing lots of money and making mistakes. The world would be better off with no central bank than the current crowd of central banks around the world so I suspect that we will have no central banks.

However, the solution when problems get really bad might be that the people say, "Let us control the central banks." That's not going to be any better; it will probably be worse but that may very well become the solution because we're going to have real problems in the next few years caused by the major central banks in the world. This is the first time in recorded history that all the major central banks are printing a lot of money to try to debase their currencies. They're floating a huge, artificial ocean of liquidity and that's going to dry up eventually. When it does we're all going to have serious, serious problems. The central banks are going to get the blame and some of them may collapse or fail or disappear or be replaced by the people. I'm certainly not too keen on letting the people do it because I don't think they'll be any better and they'll probably be worse.

Anthony Wile: Why is money populism seeing regrowth, do you think? The idea of people controlling money through the state was popular in the 1800s after silver was demonetized, popular again in the 1930s when Hitler adopted some of the platform for the Reich and now has been lifted back up by a new set of standard bearers. Isn't this in a sense an argument between communism and capitalism? Is the state a sustainable entity?

Jim Rogers: Central banks in the world are called communist but essentially many of their policies are welfare for the rich or socialism for the rich. There's no question that what's been going on is state supported, so to speak. It's certainly statism where the central banks think they can solve all the problems. They cannot. They're making mistakes, as I've said before. It's certainly a struggle between the state and the private sector, between the statists and the free-marketers, if you will. I guess you could generalize it and say it is another struggle between communism and capitalism; I would call it more statism vs. the free market but they're more or less the same thing.

Anthony Wile: This strikes us as a "Chinese model" for society – a deeply authoritarian, almost psychotic approach to social comity. Your thoughts, please, acknowledging you are a fan of modern Chinese progress? Is the state ever an efficient manager of money?

Jim Rogers: We haven't had any examples in history that survived, where the state was an efficient and adequate manager of money. In China they're more capitalist than some of the Western states now because they do let the market kind of have its head more and they're certainly more capitalist. They're not communist, that's for sure, in China, not anymore. They call themselves communist but they're not really communist today. The Chinese are less and less inclined for the state to do things whereas in the West we're more inclined for the state to do things. The West is going towards statism; China's going away from statism. The Chinese in earlier days did a lot of what we're doing in the West now.

Anthony Wile: Speaking of China, what's going on in that massive country? How effectively is the new regime tackling the corruption problem?

Jim Rogers: Well, they're certainly making a big play, a splash about corruption. Many, many individuals within the Chinese government have been put in jail, not just out of this group but the previous group, as well. Look at the United States where nobody – or if anybody, one or two people – has gone to jail in the past decade despite all the major problems whereas in China, thousands of people have gone to jail. So they certainly are doing a better job than we are in the US and perhaps in the West. We'll know a lot more about corruption soon. They're pursuing it and, as I say, many thousands of people have gone to jail.

As we speak, there is a meeting underway in Beijing on what to do about the Chinese economy. It's a plenary council, which only meets periodically. The first meeting was in 1978 where Deng Xiaoping started opening up the Chinese economy, which has certainly been the most important event in the world economy in the past 35 years. In 1993 they had another one, which had dramatic results. The Chinese say that this meeting is going to have equally dramatic and dynamic results and come up with very important changes. We will know a lot more at this time next week about what the Chinese are going to do. It may be as important as 1993 or 1978, and if they do big things, which they say they are, it's going to be perhaps the most important thing affecting the world economy over the next 10 or 20 years.

Anthony Wile: Is it a good time to invest in China? And if so, where?

Jim Rogers: It would be a good thing to invest in whatever they come out with. In this next week they're going to decide which industries or which areas of the Chinese economy to change, and to change dramatically, so there should be investment opportunities. I wish I knew what they are but I don't have any inside information. In the last few days I did buy a few shares of a financial company but do I think they're going to open up the financial market more and more? It's been a very closed market for a long time. If they do it, if they move more towards freeing up the renminbi, then Chinese finance will be a very exciting sector of the world economy and the Chinese economy. I'm bearish on Chinese finance but we'll see if they start opening it up after decades. The rest of it really depends on what they do. I could give you speculation but why? I'll just wait until next week and we'll know what they're going to do and then we'll know which sectors of the Chinese economy will have a big push from the government, and that's where we should invest.

I did also recently buy shares in a Chinese intellectual property company because China's government said in 2012 they want to promote a revival of Chinese culture, which has been in decline a long time, as you well know. You see what's happening in Korea with K-Pop, Psy gangnam style, etc., so China said, "Gosh, we should have a revival of our culture, too." The government is now behind it and they're enforcing trademarks and patents. They say they want Chinese culture to grow at 20 percent a year in the future. So I've become a director of a small Chinese company that's in this business. It's called FAB Universal – trades on the New York Stock Exchange as FU. So I've bought a few shares of a few companies in China but really, let's wait until next week and we'll know.

Anthony Wile: What about Asia generally? What are the stronger countries from a free-market perspective? Is Cambodia an interesting place to search for investments, as we've heard?

Jim Rogers: Cambodia's a small country, only about 14 million people in the whole country. It went through a huge disaster – just a gigantic disaster – in the country and there certainly are going to be more opportunities in Cambodia. Now, Cambodia doesn't really have a stock exchange yet but anybody who can go there to be on the ground or to find things as the stock market opens and evolves should find great opportunities.

Anthony Wile: What's going on in the US? Can the US get its budget under control? Is price inflation the biggest problem for the West in the coming years, or is it the lousy unemployment picture, or both, or something else entirely?

Jim Rogers: The US will not get its budget situation under control. There are too many forces that would just not let it – too many lobbies, too many interest groups that have an effect on Washington, too many people who benefit from the present situation. So no, the US will not get its situation under control until there's a crisis or a semi-crisis, which is when we'll be forced to do something about it. Until then it's not going to change. The problem's not going to be solved; it's just going to get worse.

Anthony Wile: Are we going to see a bounce back of US jobs and industry in the next few years?

Jim Rogers: Anything's possible, especially if we continue to print money and especially if the value of the currency becomes less and less valuable. The market can do anything if they keep printing lots of money and the currency continues to be debased. If they just keep printing money, anything can happen.

Anthony Wile: You made some predictions for 2013. Let's quote what you told us: "In cotton it may be a great year, sugar may be a great year, currency may be a great year, selling stocks short may be a great year. Bonds – I don't think it is going to be good for bonds." Any changes you'd like to make to those predictions as 2013 winds down? Were you accurate, do you think? Were you surprised by the price action in US stocks?

Jim Rogers: Some stocks have done very well this year. The stocks that make up the averages have done well because the Fed's printed more money. It certainly surprised me how much money they've printed; it's pretty staggering. So things have done well. Sugar looks like it's made a bottom and is rising again. Bonds have certainly not done terribly well this year. They haven't collapsed but they haven't done well. I'm not quite sure now but it looks as though as long as though they're going to print lots of money, huge amounts of money, stocks are going to be okay. What I have to figure out is how all the money printing is going to go on. As far as they're concerned, it's not going to stop at all; it looks fine. If that's the case then some stocks are going to continue to do well because the money's got to go somewhere.

But I will point out that the number of stocks that have been doing well is fewer and fewer. If you look at something called the advanced decline line you'll see that fewer and fewer stocks are doing well whereas many stocks have started to suffer, given the state of the world economy. So just to repeat, as long as they're all printing money and they're determined that they're not going to stop printing money, some stocks are going to continue to do well because, as I mentioned earlier, there's this huge ocean of artificial liquidity that is out there. As long as that ocean of liquidity is around the money's got to go somewhere.

Anthony Wile: Give us a look ahead at 2014. Will Europe start to rebound economically, as the Eurocrats are now predicting? You weren't very positive about Europe last time we spoke. What's the future for the EU in the near term? Will Britain end up withdrawing from the EU, as some have suggested? Marine Le Pen, who's been seeing some electoral success, reportedly wants to take France out of the EU. Any possibility there?

Jim Rogers: Britain and France certainly could withdraw from the EU, as there are people in both countries who want to withdraw. As for the euro, I don't think it's going to survive as it is over the next decade or so. Some nations will withdraw; some might enter the euro. But I do expect the EU to survive, certainly for the foreseeable future. I don't think the people in Britain who want out are going to be strong enough in the next year or two to force that. It could happen eventually because Brussels is a mess they keep making one mistake after another and keep interfering in people's lives more and more and more so Britain might withdraw just because Brussels keeps making so many mistakes. I don't see France being one of the first to withdraw. They may have to pull out of the euro but I don't think they'll pull out of the EU anytime soon.

Anthony Wile: You were right about Obama winning the election, but you were not too positive about his policies as being good for citizens in the US. Your thoughts now, as he celebrates a victory in fending off a government shutdown? Is Obamacare a net positive for the US? Or will it simply add to the problems the US already faces? Is it mainly a cynical ploy to move the US to a single payer system or would that be progress, in your view?

Jim Rogers: There's no question it's adding to the problems because like most government programs it's not terribly well thought out, not terribly well conceived. Even when they wrote it they didn't have all the answers and then they put together some bureaucrats and said, "Okay, come up with answers for us." It's going to make things worse, as somebody has to pay for all of this. There's no sense saying it's free medical care. Somebody has to pay for it and that's making the overall situation in the US less competitive and therefore worse.

As for the part of your question about Mr. Obama, if you look back at what he's done since he's been there, as far as I'm concerned he's not been very successful. I thought George Bush would go down in history as the worst president we've ever had; Obama might. He keeps taking away our freedoms. This man ran saying, "Oh, gosh! Our freedoms have been eroded!" yet he's been worse than anybody in history, as far as taking away basic freedoms in America. And, of course, worst of all, he seems to love wars and blowing people up. So I don't think he's going to have a good name in history at all. He may even go down as worse than Bush, which I didn't think would be possible.

Anthony Wile: Where are some monetary safe havens? Last time we spoke you were bullish on agriculture. Any change?

Jim Rogers: I'm still bullish on agriculture; the fundamentals still continue to improve. As far as safe havens, I don't ever use the word safe when I'm talking about the investment world – or any world, in fact. There's no such thing as safe. It's going to continue to get more and more dangerous in the world and less and less safe because all of these countries keep running up the debts and printing money.

We had a problem in the economy in 2001 and 2002 and then it was much worse in 2007, 2008 and 2009 because the debt was so much higher. Now, of course, the debt is even much, much, much higher. So the next time we have problems in the world economy the situation's going to be even worse than in 2008 because the debt is so much higher. The world is getting worse and I don't see any "safe havens." I'd rather be in farming and agriculture than just about anything but no, there's no such thing as a safe place these days.

Anthony Wile: You were also excited about North Korea and Angola, of all places. Any updates? What intrigues you about North Korea?

Jim Rogers: North Korea's making dramatic changes and yes, I'm very optimistic about it. Unfortunately, there's no way for me to invest in it. I'm an American, and so that's a problem. I wish there were. I'm sure some of those Chinese companies that are pouring in there would be good investments; I just don't know who they are and even Chinese companies are not that easy to invest in. So yes, the changes in North Korea continue to be very dramatic; it's becoming more and more open just like China was in 1978. And if you had invested in China in 1978 I guess you know the answer to the question of how well you would have done. That's what's happening in North Korea now.

As far as Angola, yes, it's a great place to be. It's got great prosperity and lots of money's going in there. The problem is there's no stock market so you have to go there. Neither North Korea nor Angola has a stock market but at least it's legal for Americans to invest in Angola. It's not legal for Americans to invest in North Korea.

Anthony Wile: Any other places people should be watching, in your opinion?

Jim Rogers: Those are probably the best as far as countries are concerned. Ethiopia's got good prospects. Tanzania's got good prospects going forward. Zimbabwe, not at the moment but once Mugabe dies or once he's gone then Zimbabwe will be a great place to invest. I don't think we talked about Myanmar last time. Myanmar still has good prospects if you can get the right sector and the right timing. There's no stock market so it's not very simple to invest in Myanmar.

I'm more worried about the overall situation given the state of the gigantic debt, which is building up everywhere. This insanity may go on for a year or two, but as long as they're going to print money, who knows what's going to happen? It's like the end of the '90s. They were printing a lot of money, a bubble developed and that bubble lasted longer than any rational person would have expected. That's what happens with mania and bubbles and it's been well over ten years since we had our last bubble in America and the West so there's nothing to stop it going on more if they're going to keep printing money. If you're good at investing in a time like that you can make a lot of money. I'm not very good at it because I know that it's artificial but people who don't care, or who think that I'm wrong, that it's not artificial, will probably do very well.

Anthony Wile: Thanks for your thoughts and for bringing us up to date. Anything you want to add or draw our readers' attention to? Any other thoughts?

Jim Rogers: I do want to just emphasize, watch what comes out of China in the next week or two because what came out of that same kind of gathering in 1978 changed the world and they say this one's going to be as dramatic. It's certainly going to be as dramatic for some parts of the world economy, at least. Try to pay close attention and decipher where those changes are going to be because China is the second largest economy in the world. If they come up with more dramatic changes, you don't need to worry about Cambodia or any place else; just focus on what's happening in China and you'll make lots and lots of money.

Anthony Wile: Thanks!

Jim Rogers: Thank you.

Editor's note: We spoke with Jim for this interview at the beginning of the week, before the economic meetings in China had concluded. We look forward to speaking with him again soon for his take on the outcome.

After Thoughts

What leaps out at us regarding this interview is how aligned we are with Jim Rogers's way of thinking. We also think the stock market is being manipulated upwards by this flood of easy money and we are also interested in agriculture, as he is.

Toward the end of the interview, he mentions China and "dramatic changes." He's been very positive about China for more than a decade now and certainly China has boomed during that time.

In fact, Chinese officials have just announced some "dramatic changes" that should be encouraging to anyone concerned about civil rights in that vast and populous nation.

Chinese leaders are even promising greater convertibility for the yuan. Additional overseas investment will be welcomed.

China's big problems are surely its continued price inflation and an asset bubble in real estate. These problems are not much different in some ways than those the West is grappling with.

Asset inflation is generally an issue, as central banks are printing aggressively around the world. We believe that all this money printing is going to supercharge a "Wall Street party," but Rogers's insights regarding other markets and China are correct, as well.

Monetary easing is supportive of securities generally. At the same time, one has to be cautious because of increased volatility. As the Chinese would say, we live in "interesting times."

Thanks to Jim Rogers for providing us with another interesting interview.

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