Jim Rogers – market contrarian

JAMES Beeland Rogers Jr, or better known as Jim, has carved a reputation over the years as a contrarian in the commodity markets.

He co-founded the Quantum Fund with George Soros in 1973, and seven years later retired at the age of 37. The fund gained 4,200% over a period of 10 years.

He has been hobnobbing around the world since then, has written several books and has become a favourite with the media too, for being pretty much accessible and free with his views on the markets.

StarBizWeek met him in his home in a posh district of Singapore, where he, wife Paige and two daughters have lived for the last eight years. Jim moved his family to the island-republic so that his daughters can learn Mandarin, which they now speak fluently and to be closer to China, which he believes will be the centre of growth for the global economy for many years to come.

He credits the move to Asia then as the right time given Asian markets’ potential and still believes it despite the challenges many of its economies are facing right now.

“Don’t leave, you are at the right place during the trying times,” Jim, 72, says, looking dapper in his trademark white suit and bow tie.

Jim, who has lots of world globes amid the family portraits in his home, paints a gloomy picture of the global economy and more volatility in the capital markets with few bright spots. A main reason for his pessimism is the sea of liquidity that is still in the capital markets. Jim told Reuters TV last October that when quantitative easing ends, everyone will “pay a terrible price”.

He blames the world’s monetary policymakers for wiping out savings by printing lots of cash. Jim feels that policymakers do not know what they are doing and that when they start withdrawing from quantitative easing, “the fun will end”.

“These guys have made mistakes, and they have to correct it,” he says.

What is remarkable is that in the face of a strengthening US dollar, Jim says he has no faith in the greenback’s long-term strength nor its safe-haven status but has kept it for now due to currency-market volatility.

Emerging Asia and commodities

Jim continues to hedge his bets on commodities, despite the across-the-board slump in prices. No surprise there as this is the guy who wrote Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market.

He has invested in gold and silver and does not bat an eyelid when saying that he will invest more in gold should prices fall further. Jim was reported as saying that he will buy more if gold falls below US$1,000 an ounce.

Besides precious metals, he is also hedging his bets on agricultural commodities and oil. Jim says prices cannot get much more depressed. Given that, he also has a more upbeat view of the Malaysian and Indonesian economies, which has been buffeted by a combination of weak commodity prices, the China slowdown and impending US rate hike. Commodity exports such as oil, gas, coal, palm oil and rubber remain important sources of revenue for both countries.

Goldman Sachs Inc commodities research head Jeffrey Currie expects crude oil prices of US$50 a barrel in the long term due to the supply glut.

Jim, who has degrees in history from Yale University and in philosophy, politics and economics from Oxford University, points out that farming is going to become one of the most exciting professions of the future as the average age of agricultural workers get higher, production stagnates and inventories fall.

His faith in commodities can be discerned from a late August interview which he gave the BBC in which he points out that supply and demand dynamics will dictate prices. Jim says there can be a bull market for commodities even with flat or declining demand if there is no supply.

He is of the view that agricultural commodities may have bottomed and may start to see a turnaround. “It’s been a disaster due to falling prices but will not get more depressed,” Jim says. He believes that commodity prices will remain resilient, that sugar and rice prices will not see declines comparable to certain stocks listed on the New York Stock Exchange.

On the other hand, Jim is bearish on the global economy but believes that Asean can weather the downturn. This is because the region’s economies are in much better shape, have less debt and are more open than during the Asian financial crisis of 1997/1998.

However, Jim says the Asean economies will be impacted by the slowdown in exports. “We may not suffer as much as Italy, but we are going to know something is wrong. People doing business with the United States and European Union in general will be the most affected,” he adds. In the global financial crisis of 2008/2009 and its aftermath, Portugal, Italy, Greece and Spain were hit hard by a sovereign debt crisis after private debt was taken over by their governments to save banks weighed down by these debts.

Jim believes the impact on Asean economies will come from rising unemployment and declining corporate profits. There will also be bankruptcies. He says Asean governments should pay down debt, have balanced budgets and keep their economies open.

An Aug 8 Standard & Poor’s Ratings Services report noted that beyond rising debt, there are now concerns about how leveraged companies can cope with tougher trading conditions, foreign currency depreciations, and the prospects of rising funding costs. It says still-high capital spending is failing to ignite revenue and profit growth.

“The worry is that countries might close off economies, but when things start to get wrong, don’t close off, stay open and pay debt,” Jim says, adding that the Asean Economic Community can benefit the region by liberalising trade.

Being the contrarian that he is, Jim has also invested in Japan and Russia, two countries that investors are not too keen on. In fact, Standard & Poor’s has lowered Japan’s long-term foreign and local currency sovereign credit ratings to A+ from AA- albeit with a stable outlook as policies fail to meet expectations. On the other hand, investors have shun Russia, which has an economy overly reliant on oil revenue. The European Union and the United States also have sanctions on the economy.