Fusion: I just finished reading your new book Street Smarts, and I wish I had the book when I first started in the industry in the 90’s. It provides a great trading lesson of doing your own research – and not going with the crowd. You point out in the early 70’s nobody liked energy and defense stocks. But you did your work and realized that both sectors were ripe for fundamental positive changes. When you told people you liked them, many were skeptical and said you were crazy. We know how that turned out.
Rogers: Shouldn’t follow the crowd – I’m sure you know that by now !
Fusion: China’s growth is slowing down, and many believe the reported numbers are overstating the actual growth. Wall Street has turned bearish on China and has cut GDP estimates. They are saying China cannot stimulate due to its property bubble. What are your current thoughts on China?
Rogers: I don’t trust numbers from any government, as most are made up, as you probably know. China has had astonishing growth, but they have problems with housing and inflation. We had the same problems in the 19th century when we were growing rapidly. Every country that rises rapidly has problems. China can see a recession, but the US saw recessions and 13 depressions in the 19th century, and was still the greatest nation in the 20th century. They are trying to slow down, which is the right thing to do. It’s natural they slow down from these growth rates. They are preparing the economy for long term sustainable growth. The only way the China story runs into big problems is if they run out of water. China has a major water problem. They are working hard to solve it. I believe they will solve it. If you want to make a lot of money find companies that are working to fix that problem. As for their stock market, it’s getting closer to a buy. I bought a few shares on Friday. Their market is getting to the point it should be bought.
Fusion: Is their housing bubble worse due to the currency being blocked ?
Rogers: Good insight. It’s trapped. One of the few things I disagree with on China is their having a blocked currency. It creates imbalances, like you see in housing, as people need to put their money somewhere. China has made strides in recent years to open up their currency and they will continue to do so.
Fusion: You have warned for some time that governments and central banks are refusing to make the tough decisions, having chosen instead to print their way out of problems. That leads to deteriorating national finances and sovereign debt issues that could lead to a rise in interest rates. The bulls counter that central banks can keep interest rates down through infinite bond buying, and expanding their balance sheets. What are the consequences to the ever-expanding balance sheets of central banks ?
Rogers: Yes. Mr. Bernanke believes you can expand the central bank balance sheet infinitely, and suffer no ill effects. Anything you do to diminish demand for the thing will cause the price to drop. Same thing here. Bond prices will drop, which causes interest rates to rise. We are in a global bond bubble. When it pops is anyone’s guess. I have tried to short bonds a few times. The French tried money printing in the 50’s, the Italians in the ‘60s. At some point, the market won’t take it, and bond prices will go down and rates will rise. We have more money than Bernanke and the central banks do. So at some point this will happen.
Fusion: Over the last six weeks, the action in the emerging markets fixed income market has been scary. Many believe this started when the Fed hinted at tapering QE. Up until now, the Fed’s ZIRP and infinite QE policies have investors chasing higher overseas yields. But that seems to be reversing, and liquidity is coming out of emerging markets the last 6 weeks. What is your take on this?
Continue reading here.