Gold may be looking at a correction, but the long run commodities story is far from over...
RESOURCE investing guru Jim Rogers says the bull market in commodities is far from over. Speaking with IndexUniverse.com managing editor Olly Ludwig, in an interview posted at Hard Assets Investor, Jim Rogers stressed that while any bull run will have its setbacks, China's development is likely to re-accelerate, and that Gold Bullion will resume its more than decade-long climb upward as central banks around the world continue their easy money policies. Rogers said he just hopes he's smart enough to Buy Gold —and a lot of it—when the yellow metal's current correction is over.
Olly Ludwig: What did you think of recent central bank actions?
Jim Rogers: I find it absurd. It's the wrong thing to do. They are just adding to the inflationary pressures that are here, and we're all going to have more problems down the road.
Olly Ludwig: China's announcement of a 25 basis point cut is decidedly different than the European central bank cutting by 25 basis points, no?
Jim Rogers: I don't think either one of them should have cut by 25 basis points–neither the Chinese nor the Europeans.
Olly Ludwig: So how do you contrast the Chinese cutting rates with the excesses you perceive with the loose-money policies of the Federal Reserve or the ECB?
Jim Rogers: China doesn't have the excesses that we have in the US or even in Europe. China has huge reserves of currency, while America is the largest debtor nation in the history of the world. They are not comparable situations.
But as far as inflation goes, China has inflation and this is just going to make its inflation worse. If I were China—and I'm not, and there's no reason for it to listen to me—it should keep monetary policy tight until inflation is killed. It's not killed yet, and this is not going to help kill it.
Olly Ludwig: Let's talk about China for a moment. There's a fair amount of talk that the China juggernaut is at a crossroads, that what Deng Xiaoping achieved in the past generation was the easy part, and achieving steady growth is going to be a lot harder going forward. What's your take on that view?
Jim Rogers: There's no question that the first 30 years are the easiest 30 years when you're doing something like Deng Xiaoping did. And, secondly, there will certainly always be setbacks. Any country, any company, any family, any individual that rises has setbacks along the way. That's the way the world works. It's normal.
And, as we just discussed, China has been trying to slow its economy for the past three years. Anyone who doesn't understand that China is slowing down should read the newspapers. And, I as I was just saying, they're trying to loosen up too soon. But this is part of a plan. They have been successful so far, but whether they will continue to be successful, who knows?
In America, in the 19th century, we had a horrible Civil War; we had many Depressions; we had very little rule of law; we had periodic massacres in the streets; and we had few human rights. And yet we became an extremely successful country in the 20th century.
China is going to have plenty of problems as we go along. What they're going to be and when and why, I don't know. But I do know there are going to be plenty of problems.
Olly Ludwig: So, you don't see grounds for arguing that the China juggernaut has played out? People talk about the water-shortage issue, for example, as an inherent impediment that could become profoundly problematic and slow the whole Chinese success story down.
Jim Rogers: I guess I didn't make myself clear: China will certainly have problems as we go forward.
Olly Ludwig: But is there anything going on beyond the scope of what happened in the United States, such that the game is over? It sounds like your answer is no.
Jim Rogers: The answer is "no." That's right. But they will have many of the same problems that countries rising have.
The only thing that worries me within the China story is the water problem. If they don't solve their water problem, then there is no China story. I've been around the world and I've seen whole countries and societies disappear because the water disappeared. So if China can't solve its water problem, then there is no China story. Now, they know this too, and they're spending hundreds of billions of Dollars trying to solve their water problem. Will they be successful? I don't know.
Olly Ludwig: OK. Let's move on. It's baseball season in America, so, if you'll indulge me, what inning are we in as it relates to the bull market you laid out in book, "Hot Commodities"?
Jim Rogers: It's probably the bottom of the fifth or the top of the sixth inning, I would suspect. It's not over yet. There are corrections along the way, as there always are. In 1987, stock markets around the world collapsed 40 to 80 percent. Was that the end of the bull market in stocks? No. Stocks turned around and went up 1,000 percent after that. So there will be plenty of problems along the way. There always are.
Olly Ludwig: You're talking about cyclical bear markets within a secular bull market, kind of thing?
Jim Rogers: I couldn't have put it better myself.
Olly Ludwig: Let's talk about America for a second. Some people talk about America in positive ways: It has unparalleled geography and the fiscal situation simply needs to be put on a path of sustainability and everything looks very different when you project out into the future. What is your reaction to that optimism you hear from some quarters?
Jim Rogers: It's going to take more than geography for the US to solve its problems. We cannot solve our problems in five years or 10 years. Just look at our problems. America is the largest debtor nation in the history of the world. We have staggering, staggering debt problems that cannot be solved in a decade—if ever. Most countries that have gotten themselves into this kind of situation never really do anything until there's a crisis or a semi-crisis.
Olly Ludwig: So, if there's no American exceptionalism in this realm, what does the worst-case scenario look like?
Jim Rogers: It might be like the UK. In 1918, the UK. was the richest, most powerful country in the world, bar none. But within one generation, they were in economic chaos, and within three generations they were bankrupt. I would suspect that what might happen here would be more like in the UK. than anywhere else.
Olly Ludwig: So, in all this, what does gold look like? The rally's still on, but it's in a bit of a hiatus?
Jim Rogers: Gold went up 11 years in a row, which is very unusual. I've never known any asset to go up 11 years in a row without a correction. It's having a correction now. I would suspect that the correction will continue for a while. I'm not any good at market timing, but I'm not Buying Gold at the moment. But if it goes down, I hope I'm smart enough to buy more—a lot more. I'm not selling my gold.
Olly Ludwig: Are you buying any commodities or any other assets right now?
Jim Rogers: I'm just sitting and watching. Most of the time, the best thing people can do is sit and watch.
Olly Ludwig: So, you're saying this correction in the market isn't over?
Jim Rogers: Well, if America bombs Iran, that's going to change a lot of things. It just depends what happens in the world. I just don't see anything for me to do at the moment. I'm sure there are lots of things I should be doing, but I'm too lazy.
Olly Ludwig: What are you short right now?
Jim Rogers: I'm short stocks.
Olly Ludwig: Is that a broad type of shorting—say, index—or are you short particular sectors?
Jim Rogers: Broad-brush strokes—ETFs—like emerging markets; I'm short Europe.
Olly Ludwig: What are you long on?
Jim Rogers: I'm long commodities, I'm long currencies; but I'm not doing anything at the moment.
Olly Ludwig: What about the Asian Tigers you hear people talking about—Philippines, Indonesia and Thailand. Is their success all predicated on China's success or do they have lives of their own in an asset-appreciation sense?
Jim Rogers: Well, I'm extremely bullish on Myanmar. Myanmar has a great future no matter what happens in China. North Korea I'm bullish on. There's no way for me to invest in North Korea, but I'm certainly optimistic about its future. And Myanmar is probably the most exciting investment destination in the world right now, but there is virtually no way to invest in Myanmar—unless you're a direct investor, which I'm not.
Olly Ludwig: But if there were that opportunity, you'd jump all over it, is what you're telling me.
Jim Rogers: Absolutely.
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