Commodities Are Hot: Jim Rogers Shares His Views with RefcoPCG

By Kristina Zurla Landgraf

September 2005


RefcoPCG welcomed renowned trader, author and investor Jim Rogers to an eager webinar audience on Septmber 13, 2005. Rogers gave his views on the markets, the economy, the rise of China and more in this premier event. We'll share some of Jim's thoughts here.

At the turn of the millennium, Jim embarked on a three-year, Guinness World Record, 152,000-mile driving tour of 116 countries.

His journey helped shape his political, social and economic views. He claims to be the first hedge fund manager to drive around the world, and that experience has guided him as an investor.


The Rise of China

Rogers said the first thing investors all need to understand is the rise of China in the 21st Century. "China is the next great country in the world, whether we like it or not...they call themselves communists in China, but they are among the best capitalists in the world," said Rogers.

The Chinese save and invest about 40 percent of their income or more, while we in the United States save and invest only about 2 percent of our income. And in China, the work ethic is very strong. "Capitalism and entrepreneurship have been unleashed in China again, and they are on the rise," Rogers said.

All rising powers have faced setbacks, and China will be no exception, said Rogers. However, he sees any setbacks as opportunities within a bullish long-term trend for the nation. "The best advice I can give you is to teach your children and grandchildren Chinese. It's going to be the most important language in their lifetime," he said.

He recommended investors focus on investing in products the Chinese can't produce on their own, and/or need to purchase. That includes commodities such as oil, nickel and cotton.


The Changing Role of the U.S. Dollar

Another important global development investors need to take heed of is the changing role of the U.S. dollar, which has been the world's reserve currency for about 60 years. But as the United States has shifted from a creditor to a debtor nation, that is changing as foreign debt has risen into the trillions. "I urge you to understand the problem...it's going to affect all of us," said Rogers.

Rogers was more optimistic about the Canadian dollar, supported by a balanced budget, a surplus of trade, and bullish commodity trends. He called it "one of the soundest currencies in the world right now," and added, "the wind is at their back."


Commodities are Hot for Long-Term Bulls

As far as other markets, Rogers said don't count on a bull market in stocks or bonds over the next 10-20 years if you are looking for a buy-and-hold strategy. These markets are likely to be better vehicles for market timers and short-term traders in the next decade or so. If you are looking for a longer-term investment, commodities are where it's at, Rogers said. Looking back historically, commodities have experienced long cycles of bull and bear markets spanning a decade or more, and during those cycles, their performance has been uncorrelated to stocks or bonds. "So if you do need diversification, this is a good place to be," Rogers said.

In the 1980s and 1990s, commodities were in a bear market, and there is typically little investment in productive capacity during bear markets. So, there are supply and demand imbalances. Rogers said the last oil refinery in the United States was built in 1976, and there have been no great oil discoveries for the past 35 years. He said major oil fields around the world are in decline, and many nations that used to be exporters of oil are now importing. Other commodities are also facing supply/demand imbalances, said Rogers. He noted that in the past five years worldwide, more foodstuffs have been consumed than produced. And many commodities, from cotton to sugar to orange juice, are still priced well below historical highs.

"Supply is declining in nearly all commodities; at the same time, demand has been going up...With supply doing down and demand going up, that's called a bull market," said Rogers. He said this bullish trend for commodities should last until about 2014 - 2022, if one looks at similar cycles in the past as a possible indicator.


Hurricane Katrina

Rogers also gave his views of the aftermath of Hurricane Katrina on the economy. He said the rebuilding of New Orleans and the Southeast will have a big impact on housing in particular. "It's going to be difficult to get building materials, because the government is scooping up everything to build a house," he said. Homebuilders outside the Southeast are going to have problems, and that's going to affect the price of homes. He said everything that goes into building a home, from cement to copper to lumber, is likely to escalate in price. And while there have been short-term shipping problems that have affected agricultural and energy markets, he said those issues will be short-lived as other ports take up the slack.