Jim Rogers recently gave a 45 minute interview where he touched on several key themes including China, commodities and the future of the U.S.
First of all, Rogers has faith in the Chinese leadership. He thinks that they will "crunch" inflation before it spirals out of control.
“Here in Singapore, they’ve allowed their currency rise to mitigate inflation. I expect the Chinese will eventually have to do the same thing.”
“You’re better off cutting growth in advance, than allowing inflation to get out of control. If growth drops to 3%, who cares? That’s better than letting inflation get out of control, because once it does, it’s very tough to rein in.”
“Then you have to incur a recession or worse to control inflation.”
Of course it would be more prudent to keep the inflation genie in the bottle, however there are growth targets that the politicians must hit. After decades of low inflation it is possible that even Chinese politicians are less worried about inflation than economic growth.
Rogers also believes that commodities will be profitable investments if the world economy remains strong and he expects to make money even if demand collapses due to money printing.
“Most of my portfolio is in commodities, and currencies,” he explained. “I expect to make money in commodities because, if demand continues to rise, that is bullish for commodities.”
Rogers seems unworried that demand destruction like 2008 would have long term negative effects on his commodity portfolio.
“If demand collapses, I anticipate the central banks of the world will print more money, and that will then cause commodities to rise,” he answers.
There is a contradiction in Rogers' argument. On the one hand he believes that China will sacrifice growth by reining in inflation. Yet he's still bullish on commodities that are largely GDP sensitive.
The more logical view was expressed by Felix Zulauf in the Barrons Roundtable.
"The emerging world has experienced high levels of growth, but it is entering a period of rising inflation. How emerging economies handle that inflation will be the decisive factor for the industrialized world. If they decide to fight inflation with really restrictive monetary policies, we're in trouble. If they hike interest rates only a little to restrain growth, the cycle can be extended. But that means later on, perhaps in a year or two, they will have much higher inflation and will have to crunch it. The choice is between more growth in the short term and then a crunch, or a more serious bear market now."
The most likely scenario is that growth will continue until the inflation genie is out of the bottle at which point China and other BRIC nations will have to "crunch" inflation creating a large down wave in commodity prices.
First of all, Rogers has faith in the Chinese leadership. He thinks that they will "crunch" inflation before it spirals out of control.
“Here in Singapore, they’ve allowed their currency rise to mitigate inflation. I expect the Chinese will eventually have to do the same thing.”
“You’re better off cutting growth in advance, than allowing inflation to get out of control. If growth drops to 3%, who cares? That’s better than letting inflation get out of control, because once it does, it’s very tough to rein in.”
“Then you have to incur a recession or worse to control inflation.”
Of course it would be more prudent to keep the inflation genie in the bottle, however there are growth targets that the politicians must hit. After decades of low inflation it is possible that even Chinese politicians are less worried about inflation than economic growth.
Rogers also believes that commodities will be profitable investments if the world economy remains strong and he expects to make money even if demand collapses due to money printing.
“Most of my portfolio is in commodities, and currencies,” he explained. “I expect to make money in commodities because, if demand continues to rise, that is bullish for commodities.”
Rogers seems unworried that demand destruction like 2008 would have long term negative effects on his commodity portfolio.
“If demand collapses, I anticipate the central banks of the world will print more money, and that will then cause commodities to rise,” he answers.
There is a contradiction in Rogers' argument. On the one hand he believes that China will sacrifice growth by reining in inflation. Yet he's still bullish on commodities that are largely GDP sensitive.
The more logical view was expressed by Felix Zulauf in the Barrons Roundtable.
"The emerging world has experienced high levels of growth, but it is entering a period of rising inflation. How emerging economies handle that inflation will be the decisive factor for the industrialized world. If they decide to fight inflation with really restrictive monetary policies, we're in trouble. If they hike interest rates only a little to restrain growth, the cycle can be extended. But that means later on, perhaps in a year or two, they will have much higher inflation and will have to crunch it. The choice is between more growth in the short term and then a crunch, or a more serious bear market now."
The most likely scenario is that growth will continue until the inflation genie is out of the bottle at which point China and other BRIC nations will have to "crunch" inflation creating a large down wave in commodity prices.
