Market ‘correction is not over’

VETERAN INVESTOR JIM ROGERS ON WHERE TO FIND THE WORLD’S CHEAPEST ASSETS

Jim Rogers shares the frustrations of millions of people under lockdown. The veteran investor, who spent three years with his wife on a world road trip across 116 countries in a customized Mercedes-Benz, feels particularly aggrieved by travel restrictions.

“I hate it,” the 77-year old says with gusto from his Singapore home. “There are many places I want to go to for personal and professional reasons but airports are closed.”

After making his fortune at the highly successful Quantum hedge fund, which he co-founded with George Soros, Rogers first “retired” at the age of 37 in 1980 to “seek adventure”.

That led to his first roundthe-world trip on a BMW motorbike, a journey that inspired his first book Investment Biker, which prompted Time magazine to describe him as the Indiana Jones of finance.

He has since penned multiple books on finance, designed the Rogers International Commodity Index (RICI) in 1998 and worked as a guest professor of finance at Columbia University.

Best known today as a markets commentator, Rogers appears regularly on business television in Asia and the U.S. where his avuncular manner and swashbuckling style charms audiences. A skilled public speaker, he prefers to deliver non-technical analysis based on his investment experience blended with lessons from history, skepticism about political leaders and a deep commitment to the role of free markets.

Even before coronavirus crisis erupted, he believed that U.S. equities were overdue a correction following an 11-year bull run and that an unstable pricing bubble had developed in bond markets.

“Financial markets were very expensive prior to the virus outbreak. It was absurd what was happening,” he says.

He questions the rebound in U.S. stocks triggered by the extensive emergency support measures introduced by the Federal Reserve and Washington.

“The rally will go on for a while and who knows when it will end. President Trump will do everything that he can to get re-elected. But a lot of damage has been done to the world economy by the virus. The correction is not over,” he warns.

Russia and China’s depressed equity markets have presented some attractive opportunities and Rogers recently bought into a Russian shipping company and Chinese wine producer.

“I’m not buying a lot (of stocks). Some Venezuelan companies might be even cheaper but I’m not allowed to buy those as a U.S. citizen. Nobody wants to buy at the bottom but people should, of course.”

Commodity markets represent the most attractive asset class in his eyes.

“The cheapest assets in the world right now are commodities. Agricultural commodities are particularly depressed. Sugar prices are 70 or 80 per cent below their all-time high. But we all have to eat and to buy clothes.”

Recent sharp falls in oil prices have inevitably caught his attention.

“The Russians and Saudi Arabia set out to destroy the U.S. fracking industry with their price war. Oil prices went much lower than they expected and the market is bottoming but this could take several years to work out. There are efficient and profitable U.S. shale oil producers, no question, but not at US$20 a barrel. Fracking is not the miracle that people hoped it would be and the bubble has burst.”

U.S. crude prices are a component of the RICI, a basket of 38 commodities designed to provide a more representative global benchmark than rival indexes.

“The RICI is the best way for investors to access commodity markets,” he says with his salesman’s hat on. Rogers still oversees the index as chair of a governance committee, which includes representation from UBS Group AG, Bank of America Corp. and Japan’s Daiwa Bank Ltd. Market Access recently listed a commodity exchange traded fund that tracks the RICI index on the London Stock Exchange in an effort to appeal to U.K. investors.

He firmly believes that inflows into gold and silver will increase as voters lose confidence in governments’ money-printing experiments. He added to his personal holdings of both in April.

“I have never sold any gold that I have bought. I stopped in 2010 and restarted in 2019. The gold silver price ratio is near its record high and so I prefer silver to gold because it is cheaper (on a relative basis),” he says.

Some of his strongest criticisms are directed at central banks for facilitating an enormous increase in global debt that will burden future generations.

“There was too much debt going into the financial crisis in 2007. Now it is much worse. U.S. debt is now higher than it was in the Second World War. This is unbelievable. It was inconceivable 20 years ago that central banks would do what they have done. Debt has skyrocketed everywhere. How will our children and grandchildren deal with this?”

Concern over the future of young people is a consistent theme of his interviews, partly because he did not become a parent until he was 60.

“I used to think children were a horrible waste of time, energy and money but I was completely wrong,” says the father of two daughters aged 16 and 12.

The transformation of the U.S. into the largest debtor nation in history reminds him of the U.K. after the First World War.

“The U.S. is making the same mistakes now that the U.K. made in the 1920s by moving deeper and deeper into debt. Nobody seems to learn the lessons of history. The Japanese stock market is still 60 per cent lower than its peak because the government keeps bailing out companies instead of letting failures fail. But the market is smarter than the policy-makers. Sound economics always prevails.”

In recent years, Rogers has become a champion of South Korea, which he predicts will be the “most exciting part of the world for the next 10 or 20 years” once the militarized border between the north and south opens.

Speculation is rife about the health of Kim Jong Un after North Korea’s supreme leader failed to appear at a national celebration.

Improved economic co-operation will improve access to North Korea’s ample mineral resources and inexpensive labour force, as well as drawing more tourists to the peninsula.

“It will not happen while U.S. troops are stationed there but even the Pentagon cannot stand in the way of history,” says Rogers who will plan his third trip to North Korea once virus travel restrictions are eased.

SUGAR PRICES ARE 70 OR 80 PER CENT BELOW

THEIR ALL-TIME HIGH.

NATSUKI SAKAI / AFLO FILES Jim Rogers believed U.S. equities were overdue for a correction following an 11-year bull run even before the coronavirus crisis, as well as stating that an unstable pricing bubble had developed in bond markets.