Saturday, July 07, 2007

Weekend with Jim Rogers

July 2nd, 2007: Rogers Says He's Sold Emerging Markets, Except China

  • July 2 (Bloomberg) -- Jim Rogers, who predicted the start of the global commodities rally in 1999, said he's sold out of all emerging markets with the exception of China because they're ``over-exploited.''

    ``I'm hoping when the next big correction comes I'm smart enough to buy some of them back,'' Rogers, chairman of New York- based Beeland Interests Inc., said in an interview in Singapore today. ``They're all over-exploited, so I've sold out.''

    The Morgan Stanley Capital International Emerging Markets Index has risen twice as fast as a measure of developed countries this year, as investors bet sustained global economic growth will bolster profits. Rogers said he remains bullish on commodities, including agricultural products and metals.

    The emerging markets index has jumped 17 percent in 2007, compared with the 8.2 percent gain in the MSCI World Index of developed economies. Shares in developing countries have outperformed every year since 2001, with benchmarks in Brazil, China, India and Malaysia all touching records this year.

    ``Valuations are not super-attractive as these markets have run up quite a lot,'' said Christopher Wong, who helps manage $25 billion at Aberdeen Asset Management in Singapore. ``If markets continue to go up like this, we do expect a correction.''

    MBAs on Airplanes

    ``I've sold out of nearly all the emerging markets,'' Rogers said, without naming them. ``Right now, there are probably 10,000 young MBAs on airplanes flying around from one emerging market to another.''

    The International Monetary Fund in April forecast that the world economy is expected to grow 4.9 percent this year, as expansion in developing nations helps to compensate for a slowdown in the U.S.

    China, the world's fastest-growing major economy, is estimated to grow 10 percent this year, while India's economy may expand 8.4 percent, the IMF said.

    ``The only one I didn't sell was China,'' said Rogers. ``I don't ever want to sell China, but if China doubles again this year, then it's a full-fledged bubble and I'll have to sell.''

    China's benchmark CSI 300 Index fell 4.2 percent last month, the first monthly decline since July 2006. Still, the index almost doubled in the first five months of this year, building on a 121 percent advance in 2006.

    China Gains

    Those gains have helped make China the world's most expensive major stock market. The CSI 300 is valued at about 41 times earnings, about twice as much as the MSCI Asia Pacific Index. The Standard & Poor's 500 Index is worth 18 times earnings, while Europe's Dow Jones Stoxx 600 Index is valued at about 15 times.

    Concerns that emerging markets are overvalued may be slowing investors' enthusiasm.

    Global emerging market funds drew $696.4 million in the first half of 2007, according to estimates by Boston-based Emerging Portfolio Research Inc. That's slowed from $6.53 billion a year earlier.

    ``I'm long nearly all agricultural commodities, about 20 of them, because that's the place to be,'' said Rogers. ``It's better than the stock market, the bond market or any other market that I know of right now.''

Here's a Q&A session with Mr. Rogers: More Quantum Leaps in Commodities?

  • By Lindsay Williams
    03 Jul 2007 at 10:38 AM GMT-04:00

    JOHANNESBURG (Business Day) -- Classic Business Day gets Jim Rogers - co-founder of the Quantum Fund with George Soros - on the line from the U.S. about the next leg in the commodities boom.

    LINDSAY WILLIAMS: An inescapable theme of the last three years on Classic Business Day has been the commodities price boom, and the resources rally that's underpinned the record-breaking run of the JSE Securities Exchange. One person that's shaped our thinking about commodities trading has been international investment guru Jim Rogers, who co-founded the Quantum Fund with George Soros. Jim, it's been an amazing three years for commodity prices - when we first started speaking to you it was still in its infancy, but since then it's gone to record highs. However, just in the last three or four months skeptics on Classic Business Day have been saying it might be all over - what do you say to them?

    JIM ROGERS: When they say it’s over - first of all I’d say that’s ludicrous. My second question is where is the oil coming from that’s going to drive down the price of oil, and keep it down? Where is the lead coming from that’s going to drive down the price of lead, and keep it down. Sure we can have big reactions and corrections - that’s the way markets always work - but the idea that there’s enough oil out there to drive that price down and keep it down is madness. I frequently ask people where that oil is - because I want to invest in it! So far nobody has been able to tell me where the oil is that’s going to drive prices down, and keep them down. If your skeptics know they should tell us so we can invest in it.

    LINDSAY WILLIAMS: Good point. The Russians have apparently laid claim to 400,000 square kilometres or some ridiculous amount of the Arctic Circle because they believe there’s oil and gas there for the next 100 years, but apart from that there doesn’t seem to be many new energy finds - is the oil market going to be the one that continues to drive the whole commodity market?

    JIM ROGERS: There may be gigantic amounts of oil somewhere in the world, but if we are talking about the Arctic that’s going to take many years to find and bring to market. You and I have discussed it before - this bull market won’t last forever, as every bull market in commodities has come to an end after 15 to 25 years - so this one will too, but it’s going to take a lot more than oil in the artic to drive the price of oil down, and keep it down. It’s not just oil - it’s many things - but that’s the obvious and easy one. Where is the lead going to come from? Only one lead mine has opened in 25 years, and nobody has been opening zinc and tin mines. People have forgotten about tin at least as far as exploration, and if one looks at agriculture the number of hectares devoted to wheat has been declining for 30 years, and the inventories of food is at its lowest level been since 1972. These are dramatic changes that are taking place. We may have big corrections as we always have had when markets have been in a bull or a bear phase, but the idea this is over is to my mind lunacy.

    LINDSAY WILLIAMS: You mentioned oil and lead in the base metals complex - are you bullish across the board about the base metals, or would lead and tin be your two top picks?

    JIM ROGERS: No, I wouldn’t buy lead or tin right now - they’re both at all-time highs, and they’ve both been skyrocketing for a few years now as was nickel. Nickel has started its correction - nickel is down around 35% or 40% in the last few weeks. I certainly wouldn’t buy lead or tin right now, but I must remind you that I’m the world’s worst trader - the world’s worst market timer - so it will probably go up for another six or eight months. I’m just making the point that for all of these things that are in a bull market there’s no new supply coming on anywhere, and the demand continues to grow. That’s unless bird flu wipes out half of Europe, or there’s a sudden war or something because there’s no new supply coming in anywhere.

    LINDSAY WILLIAMS: That’s interesting you talk about things like bird flu, because these scares come and go, but none of them ever amount to anything. What amounts to something is the fact that wheat stocks are at 30-year lows, and prices are at an 11-year high. Is the agricultural complex still a favourite of yours?

    JIM ROGERS: Yes, if I was going to do more homework on commodities right now I would be looking at agriculture - that’s where prices have moved up the least, and certainly that’s where the fundamentals are also continuing to change. If you look at something like cotton that’s 50% or 60% below the all-time high, and sugar is 85% below its all-time high. If I had a gun at my head - which fortunately I don’t - I’d rather buy cotton, and sell zinc or sell lead. I’m not going to sell any commodities - I’m just explaining that the relative opportunities are in agriculture right now.

    LINDSAY WILLIAMS: Precious metals have been a little bit of a sore point for the South African market in the last two to three months - the gold price has been underperforming for quite a while now, and we’ve also seen platinum starting to come off. Is the precious metals complex a little bit of a concern for you?

    JIM ROGERS: I own the precious metals - I own gold, I own silver - but I expect to make more in other commodities, and especially agriculture, than I do in the precious metals. The world situation for precious metals hasn’t changed much - inventories are at gigantic levels, with something like a forty-year supply of gold in inventories, and a three or four-year supply of silver. I own the stuff, but the fundamentals aren’t that great for gold and silver at the moment.

    LINDSAY WILLIAMS: On the currency markets the U.S. dollar had a brief time in the sun over the last four to five weeks, but just in the last few days the dollar started to weaken to around 1.3550 against the euro. Are you still a dollar bear?

    JIM ROGERS: Yes, there’s no question about that. There will be rallies again - there always are - but in fact a few weeks ago there was a huge short position in the US dollar, with everyone skeptical and selling short. Whenever everybody is on one side on a boat something is going to happen so the dollar rallied - I’m not sure that rally is over on the dollar because a lot of people are skeptical - but having said that I’m extremely bearish on the dollar long term. I don’t know if I would sell it today, but I certainly wouldn’t buy the dollar - the dollar has nowhere to go but down for years to come.

    LINDSAY WILLIAMS: When we first started speaking your daughter was just starting to learn Mandarin - is there any reason to doubt the wisdom of that policy to make her speak Mandarin? Is the Chinese economy still doing what you expect it to?

    JIM ROGERS: She is four now, and she speaks Mandarin fluently like a native - and English obviously. I see no reason the change that - I’m in Asia at the moment as a matter of fact. The Chinese economy will soften at times no question, but let’s say China has a recession - let’s say China even has an explosion - I’m not going to stop teaching her Chinese. In her lifetime in my view being born in 2003 teaching her Chinese and about things Chinese is going to be the best skill that I can give her.

    LINDSAY WILLIAMS: What about the Indian sub-continent - is that also going to start to rival China in the future?

    JIM ROGERS: No. I know people think India and China are the same, but they’re very different. That’s like saying South Africa and Zimbabwe are the same just because they’re neighbours and because they’re both in Africa. I’m not saying India is Zimbabwe - it’s not by any stretch of the imagination - but India is not the place for my money.

Here's how China is doing from a TA viewpoint: