Jim Rogers, former partner of George Soros (Trades, Portfolio) and prolific author of investment books, spoke at the MoneyShow in San Francisco on Aug. 25. In addition to presenting some travel pictures, he presented his current actionable market views. Most investors know Rogers, but there are three key things to know about him that will help you make the most of his ideas:
1) He is a perennial worrier (like many value investors), but that doesn’t keep him from investing. It just means he prepares his portfolio to survive through very tough times, a practice that I agree with wholeheartedly.
2) He doesn’t tend to swing for the fences. From my experience following Rogers as a market commentator, I’d say he is in a mindset where protecting capital is of paramount importance.
3) Rogers is not a trader. Notwithstanding his fame as Soros' partner, Rogers makes extremely long-term bets. Often he will look a decade or more ahead, and he is often early with his calls.
Still generally bearish
When Rogers turns bullish, I’ll be astonished. He still thinks the next bear market is going to be the worst of his lifetime. The last bear market was caused by too much debt. Debt has skyrocketed all over the world. We have the lowest interest rates in the history of the world. Rogers specifically highlighted the 30-year Treasury:
Interest at some point will go back to the averages, he said. It will even go up beyond that. Rogers said he believes that will cause a lot of trouble for many parties.
The U.S. dollar
The U.S. dollar is strong lately. Rogers owns a lot of U.S. dollars. The U.S. is the largest debtor nation in the world and in the history of the world. In the 1970s, the U.S. was still a creditor nation. Rogers blamed Washington for turning the U.S. from a creditor to a debtor within 30 years. He doesn't believe the U.S. dollar is a sound currency.
Paradoxically, he owns it because as people get very worried they will look for safe havens. When they look for safe havens, they will buy the U.S. dollar because they mistakenly believe it is a sound currency. Eventually, the U.S. dollar will become overpriced and may even turn into a bubble. Depending on how bad the bear market is, the dollar will rise, and Rogers will sell to cash in.
Agriculture is the place to be
Rogers said he thinks people should become farmers. Agriculture has been a disaster for 25 years, and Rogers seemed to imply that it is an undervalued area. It does appear there are good values in some agricultural commodities, and I don't immediately dispute that. However, agricultural commodities tend to trend down in price as production methods become more efficient. Fewer people work in the industry, and I don't believe that trend will reverse in a meaningful way. It is ideally suited to be robotized further and further.
China
Rogers tends to be quite bullish on China. Merely the fact that he acknowledged some large problems tells me he is acutely aware there is currently much pain there. Rogers acknowledged there are going to be bankrupties. There is substantial debt in China. However, Rogers is looking for investments because it is down so much. Here is the MSCI China ETF Â (MCHI, Financial)'s data from GuruFocus to illustrate that valuations are becoming more modest:
Rogers advised not to invest in companies that have high debt. Invest in companies that work on pollution or agriculture. Chinese tourism is another area of great opportunity for the next 20 years, he said.
Russia
According to Rogers, everyone hates Russia. It is true that many countries implemented sanctions against Russia since it invaded Crimea. Its stock market is also extremely cheap when looked at quantitatively.
Meanwhile, as Rogers pointed out, Russia has very little debt, in part because no one wanted to lend money to the communists. It has staggering natural resources. For 48 years Rogers has been bearish about Russia. Now he is optimistic on Russia and is investing there.
Potential conflicts
Rogers seemed to subscribe to Harvard political science professor Graham Allison's theory of the Thucidides trap. Allison's research identified 16 situations in the last five centuries where a growing power threatened a dominant one. In 12 out of 16 situations this ultimately resulted in war, the most notable example being World War I.
In his speech, Rogers didn't get it exactly right, but he seemed to be improvising, so that's to be expected. He stated that in history if there was a stagnant power (like the U.S.), and a rising power (like China), they have always clashed in the past.
Rogers added that whenever we have had shortages of commodities we have also had conflicts. He cautioned about the possibility of wars. Nobody ever wins wars. Even the people who win wars don’t win them. There is no reason for a trade war or a real war, but the possibility exists and we should worry about it, he said.
Actionable ideas
Ever the contrarian, Rogers offered several actionable ideas that, from a behavioral perspective, will be hard to implement for most of us. To sum them up:
- Hold/buy the U.S. dollar.
- Invest in Chinese companies with little debt.
- Invest in Russia.
- Invest in agriculture.
Disclosure: No positions.
