There isn’t much to encourage investors either, even one with the natural confidence and the record to back it up. Markets are in a period of “forced liquidation,” he calls it. The stampede into the lowest risk of all investments, Treasurys, is a grim confirmation of a strategy led by the devil we know—a near-zero return that at least beats taking a loss.
“Markets around the world are collapsing as are assets of any kind with no regard to the fundamentals,” he told The Daily Beast in an interview this weekend. “People are losing their credit lines, getting margin calls and getting redemptions.”
Some of the most dangerous words in the investment business are ‘it is different this time.’ I expect a lot of inflation down the road.
Central banks in the U.S., Europe and Japan are pushing interest rates toward zero to slay the potential for deflation. But for Rogers, it’s inflation that merits attention. Look beyond the record rate of decline for consumer prices in the U.S. in October (1 percent and retailers are warning of more), look even beyond the swoon in stocks and commodities prices and weigh instead what policy makers are doing about it. Interest rates are dropping and governments are spending. Even China this month announced a massive stimulus—$586 billion. All of it, he argues, is a recipe for inflation, not deflation.
“This is the first time in world history that I’m aware of where every government is doing the same thing, printing and spending huge amounts of money,” he said. “This has always led to inflation. Perhaps it’s different this time, but I doubt it. Some of the most dangerous words in the investment business are ‘it is different this time.' I expect a lot of inflation down the road."
Economies have never been as linked as now, a development the famed investor adapted to with a well-timed move into commodities. That and moving his young family to Singapore where his daughters can learn Mandarian. The West, he has declared several times, is over. He hasn’t changed his view. He’s scathing on the campaign promises of President-elect Barack Obama to raise taxes on the richest Americans and protecting workers, although adds he didn’t vote for Republican John McCain either.
If Obama “means what he says, we’re going to have huge disasters on our hands,” he said. “It’s one of the reasons the market was going down so much. The market was looking ahead. They knew he was going to win the election.”
He’s in the tough love camp. Better to let failing companies collapse than bail them out and repeat the mistakes of Japanese policy makers in the “lost decade” of the 1990s.
“America is doing the absolute opposite of what we suggested the Japanese do,” he said. “The government has taken assets from the competent and given them to the incompetent and said, now go and compete with the competent people. It’s bad economics and it’s horrible morality. The approach has never worked and never will.”
But an investor has to be practical, too. He told The Daily Beast he covered his shorts, or bets of a drop in prices, on the U.S. market in mid-October (he only held shorts in U.S. positions), sensing “a bottom if not the bottom” in the selling pressure. He moved into some Chinese and Taiwanese stocks at the time and remained with commodities, buying “agricultural, really all the commodities.
“The way you make money in times like this is you buy things where the fundamentals aren’t impaired. The fundamentals of Citibank are impaired; the fundamentals of GM are impaired so you have to find things were the fundamentals are not impaired and that includes the real assets like commodities.”
Rogers is anticipating shortages in commodities as economies emerge from the slowdown, a return perhaps to a more normal supply and demand pattern for prices of food, fuels and other raw materials. Shunning expensive stock markets, big investors have poured into commodities, swamping and at times crippling the traditional industrial buyers in the much-smaller market places. The hot money has since piled out. The Reuters/Jefferies CRB Index is down more than half from a peak in July.
“My view is that we may have made a bottom” in mid-October, he said. He’s refined the outlook, adding it may have been a bottom but not the bottom. “I may have been wrong. We’ll have more problems in 2009 and 2010. The economy hasn’t fully reflected the problems we’re going to have. There will be more bankruptcies and more problems down the road."
Jim Rogers is chairman of Rogers Holdings in Singapore. His fourth investing book, A Bull in China: Investing Profitably in the World's Greatest Market, will be released in paperback on Dec. 30.