Tuesday, April 15, 2008

Jim Rogers Knows What's What

Jim Rogers: China’s Economic Advance is All But Unstoppable
By Keith Fitz-GeraldInvestment DirectorMoney Morning/The Money Map Report
SINGAPORE - China’s long-term prospects are so strong that even a civil war, an economic collapse or political assassinations would only temporarily delay its emergence as a worldwide economic powerhouse, global investing guru Jim Rogers told Money Morning during an exclusive interview in this Southeast Asia city-state.
"Civil war would be a terrible thing in China, but it’d be a temporary setback, as would epidemics, as would economic setbacks, [and as would a] depression," Rogers said. "But China will come out of all that and keep going forward. Now, I don’t anticipate war in China - even civil war - but I’m suggesting that if it happened, I don’t see it as the end of the story any more than [the U.S. Civil War] was the end of the story in the United States."
With an economy that’s advancing at an average annual clip of better than 11%, $1.7 trillion in currency reserves, and an emerging middle class that will soon be the world’s largest, China represents the future to globally focused investors and businesses alike. But there’s always been a concern about just how resilient China’s economy actually would prove to be.
Rogers urged investors to dump such concerns.

In fact, according to Rogers, when it comes to the Red Dragon, only one thing could cause this powerful expansion to wash out: A major water crisis."China has a huge water problem," he said. "In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China - as you put it - has failed."
Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first truly global investment vehicle, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.
It was after Rogers "retired" in 1980 that the public first really got to see him in action. After traveling the world on a motorcycle, Rogers penned the best seller "Investment Biker" - and gained the moniker: "Adventure Capitalist." And he’s used the "on-the-ground" insights he gained on that trip and others that followed to make some truly historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent to other investing "experts," and he subsequently foretold of the powerful updraft in global commodities prices that is continuing to fuel a year-long bull market in the agriculture, energy and mining sectors.
In his newest best seller, "A Bull in China," Rogers writes about China and the commodities boom, and details dozens of ways investors can profit from these trends.
Given Rogers’ prescience - not to mention all the uncertainty that right now surrounds the U.S. economy - we thought it was well worth a sit-down with the noted guru, even if it meant traveling all the way to Singapore, where he now lives with his family, to do so.
During that hour-long interview at his home in Singapore’s exclusive Orchard Park district - with the two of us talking as he pedaled his exercise bike furiously, despite the morning heat - Rogers also said that:
Oil prices are only going to go higher.
That Russia will continue to "strip itself" of assets, meaning it will never emerge as an economic force.
And that the U.S. dollar’s woes will continue.
Let’s take a look at some of the highlights of the Money Morning interview with investor and author Jim Rogers.Keith Fitz-Gerald (Q): Can you see an instance where China fails?
Jim Rogers: Of course. Anybody - and everything - can fail. But [let’s consider] the main problem first.
I don’t worry about war or epidemics or depression or even political upheaval. Everybody has had that. America had horrible problems. We had a terrible Civil War. We had political leaders regularly assassinated 125 years ago. We had massacres in the streets. We had no human rights. We had no rule of law. You could buy and sell congressmen. You can still buy and sell congressmen in America, but they were much cheaper in those days.
America had many disasters, and yet it became the great success story of the 20th Century. As recently as 1907, the entire system went bankrupt in America: The government, Wall Street, everything. And yet, America came out of that and went on to big things.
All of those things can happen in China and would be temporary setbacks. I don’t consider any of them being the end of the China story.
The only thing that worries me permanently about the China story is water.
I’ve been around the world twice. I’ve seen many cities, societies, [and] nations that disappeared because the water disappeared. China has a huge water problem. In Northern China, they’re running out of water. They know this and they’re working on it, big time. But if they don’t solve it, or if they don’t solve it in time, then China - as you put it - has failed.
By the way, Northern India has the same problem, only worse. Many places have it now. Water is becoming a huge problem worldwide. The same is true in the Southwestern United States. You know, you may have Arizona going to war with California. Some sections of Nevada, Colorado …they’re desperate there.
So it’s not just China - but water’s the main thing that worries me about China.
As I say [that] civil war would be a terrible thing in China, but it’d be a temporary setback, as would epidemics, as would economic setbacks, [and as would a] depression. But China will come out of all that and keep going forward. Now, I don’t anticipate war in China - even civil war - but I’m suggesting that if it happened, I don’t see it as the end of the story any more than it was the end of the story in the United States.
Q: There’s a confluence of money flowing into and around China. Do you believe that the United States, with all its current problems, will get left out of this powerful and important trend?
Rogers: Absolutely.
The U.S. dollar is a terribly flawed currency. I’m trying to get all of my money out of U.S. dollars. I don’t know why anybody would put money into the U.S. dollar, and by extension into the U.S., as we stand here today. The U.S. is probably the largest debtor nation the world has ever seen!
The United States’ foreign debts are increasing at the rate of $1 trillion U.S. dollars every 15 months. U.S. foreign debt is over $13 trillion, and rising rapidly. It’s the official policy of the central bank to debase the currency. They’re trying to drive down the value of the dollar.
Q: Is the Chinese Renminbi the next great "liquidity haven" if the U.S. dollar fails? Or do you see the Euro rising to the occasion?
Rogers: If it happens next week, the Euro is the only thing that can do it. The Renminbi is a "blocked currency." So it certainly cannot be anything but a blocked currency, until that changes.
If it happens in 20 years it might be the Renminbi. It’s the currency that’s big enough and sound enough that it could work. I don’t think the Euro will be around in 20 years.
So the only thing I can see - and, again, it’s theoretical because the Renminbi is a blocked currency - would be the Renminbi in 20 years.
Someday it might be gold, but I don’t think gold would last very long.
Q: What about the ASEAN Currency Unit that China, Japan and Korea are trying to put together … could that fill the bill?
Rogers: I don’t think it could do it because, first of all, it doesn’t exist. Second of all, it would take awhile for it to exist. And third, most people wouldn’t use it, not for a while until it had been more [fully] tested and proven, and people had experience with it.
That’s one of the advantages of the Euro at the moment. It’s been around for a while and people can spell Euro. They know what it is, they think, so they’ll use it.
Q: On a related note, oil and the dollar are obviously intertwined since oil is priced in dollars. Yet hostile OPEC members are already pricing oil in Euros or in a basket of other currencies. Will this continue to exacerbate the decline of an already historically weak greenback?
Rogers: Yes, that’s happening already. The Iranians, the Venezuelans…America’s enemies certainly understand the problem with the dollar and they’re trying to exploit it. Or [they are] trying to figure out how to exploit it. That’s going to continue.
A hundred years ago, everything was priced in sterling. Well, nothing’s priced in sterling anymore. The same thing’s going to happen to the dollar.
The initial stages are happening already. The Iranians already take Japanese yen for their oil. The Venezuelans are starting to take Euros. Like most of these things, it will accelerate as the problems get worse.
Q: Is what we’re going through now just another in a long line of crises, or potentially one of the most pivotal crises that we’ve seen in the last several hundred years when measured in terms of an economic future?
Rogers: I moved to Asia because my daughters are going to grow up in the 21st Century, and I think they’re better off in Asia than in the U.S. They’re certainly better off at least knowing about Asia … knowing Mandarin. No matter what happens to them, they certainly could spend their whole lives in the U.S., but I want them to have the exposure to - and the knowledge of - what’s happening in Asia because, in my view, Asia’s certainly the future.
And I think that anybody born in 2003 or 2008 needs to understand Asia. They need to understand America, too, but I cannot give my wife Paige and our children that knowledge [of Asia while] living in New York, or anywhere in America.
I can only give them that that knowledge and skill living in Asia. So here we are!
Q: Where do you see Russia fitting into this as it comes onto the scene?
Rogers: I don’t. Russia will continue to disintegrate. The Soviet Union has already broken up into 15 countries. Putin controls Petersburg, Moscow, a few airports, et cetera, but Russia never has been a homogeneous [nation] - I mean, in the Soviet Union there were 124 - the "official" number was 124 - ethnic, linguistic, religious, historic and national groups.
It’s broken up into 15 states. It’ll be 50 … it’ll be 100 [states] before it’s over. Ukraine may break up next. Who knows who’ll break up [after that]? Maybe even parts of Russia.
To the bulls who say I’m wrong, my rejoinder is this: Let me ask you about Chechnya. The Russians have been trying to deal with Chechnya for 15 years with no success.
Chechnya’s the size of Connecticut. Chechnya has a million-and-a-half people. If they can’t handle Chechnya, how is the Soviet Union, or Russia, going to handle these other places that are pulling away?
There’s capitalism there, but it’s outlaw capitalism. If you’re good with dealing with the Mafia, you can probably make a fortune, if you’re on the ground [there]. For the most part, they have a lot of natural resources, which has been great.
They have huge foreign reserves, but they’re stripping the assets.
They’re not reinvesting for the most part in productive capacity. They’re stripping the assets. You know, oil production has peaked in Russia, even though there could conceivably be gigantic amounts of oil there somewhere. Nearly everything has peaked, because they have been stripping the assets, rather than reinvesting.
Q: Do you see the stripping phenomenon in the Middle East, as well, or do you think that there’s staying power there, as some suggest?
Rogers: So far, they’re stripping. Nobody’s put a lot of money into rebuilding their fields or finding major new reserves. They may not be there. We may have found all there are. I don’t know.
Saddam Hussein certainly didn’t. And the Iraqis certainly are not now. Saudi Arabia has announced for 20 years in a row that they have 260 billion barrels of oil in reserve. It’s astonishing. The figure never goes up and it never goes down. They have produced dozens of millions - billions - of dollars of oil in that period of time.
If you go to Saudi Arabia, you have to wonder: "How could this be? How could it be that every year for 20 years in a row, you always have 260 billion barrels of oil in reserve?" The Saudis say: "You either believe us or you don’t."
And that’s the end of the conversation.
Now, I’m not a geologist, and even if I were, I’ve never been to the Saudi oil fields, because they don’t let people go there. But I know that every oil company in the world has declining reserves.
Every oil country in the world has declining reserves except Saudi Arabia. And I know that every oil company has declining reserves. So unless somebody discovers a lot of oil very quickly in very accessible areas, the surprise is going to be how high the price stays, and how high it goes.
Now the Middle Easterners don’t seem to be doing much. Libya has said: "Well, we’ll bring back in the oil companies." They’re starting to try. Most countries nationalize their oil companies over various periods. And they have not proven to have the expertise or even the drive to do something, except sort of exploit the assets, strip the assets.
So even if the oil is there, it’s going to take awhile [to access commercially]. From what we read, Saudi Arabia’s been pumping a lot of water into its fields, which shortens the lives, so I mean, I don’t know. Because as I say, they don’t let you go there. But don’t sell your oil.
We’ve advised our readers to be long oil, long resources and long commodities in general. The equation was very simple: The world is depleting resources roughly four times faster than they’re being replaced. And, with oil in particular, unless you’ve got a few million years to wait, Mother Nature’s not making [any more] any time soon.

Q: What do you say to the oil bears?
Rogers: There are a lot of experts out there who did not see this coming, and now claim to be even bigger experts, and have been wrong year after year after year.
For example, there’s a very successful mutual fund manager [who] totally missed the commodities boom. After having missed it, it’s like most things. He says: "Let’s just ignore it." Then [he] laughed at it. Then wrote papers explaining why it’s wrong. Now [he] says nothing.
Well, I know he’s buying!
That’s usually what happens with people. They turn around and say: "Oh, I thought of it!" You know? "I knew this was coming." He has told people for years that there’s an infinite supply of oil.
But unless he can show us where all this oil is and where it’s replenishing itself in the meantime, the world is running out. If it’s true, I would like for him to show us where the oil is, because I want to buy it, too, you know? I want to go in and buy all I can. So far, he’s just changed the subject. Doesn’t mention it anymore.
Q: Before I close, given the successes that you’ve had - and continue to have - in your life, what advice do you have for keeping sharp mentally and for living the kind of life you want to live?
Rogers: Follow your own passions. Whatever they are, no matter how ludicrous they may be, follow your own passions.
People who follow their passions, don’t get up and go to work every day. They can hardly wait to wake up, so they can have fun. They’re truly excited about what they’re doing. They never go to work.

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