Legendary investor bullish on commodities, slams Bernanke

Everyone has an opinion on where the global economy is headed, but only a few have the investing experience that Quantum Fund co-founder Jim Rogers does. Speaking at CFA Toronto’s annual dinner, the legendary hedge fund manager told a packed house that commodities are today’s best investment.

“If history is any guide, this bull market on commodities will end sometime around 2020,” he explains. “Eventually there will be hundreds of mutual funds investing in commodities, though that still has a way to go.”

He says the rise of commodities has to do with two simple principles: supply and demand. On the supply side, there have been no new major oil discoveries in the last 40 years, the oil fields around the world are in decline and countries that have traditionally been export nations, such as the U.K. or Malaysia, will soon become importers.

“Oil fields and mines deplete,” he says. “That’s the way the world has been going for hundreds of years and it will always work this way. For 25 years supply has been going down.”

But while supply is dwindling, demand is growing, mainly from Asian countries. “Three billion people live in Asia that want to live the way we do, and they’re working very hard at it,” he says.

“When supply side is going down and demand is going up, that’s called a bull market,” adds Rogers. “It’s very simple. Will there be setbacks along the way? Of course there will be — we’re having one right now. But essentially we’re in a big bull market.”

Rogers points out that commodities are a key investment to help a portfolio in troubled market conditions. He says when stocks are down, commodities go up. “If you’ve got to diversify, there’s nothing better,” he explains.

China is one place that’s going to consume a lot of commodity-related products in the future. Rogers is so bullish on the country that he moved his family nearby — from New York to Singapore — and his children are learning Mandarin. The investor says that China is the “next great country in the world, whether we like it or not.

“You have to understand what’s happening in China,” he says. “They save over 35% of their income. In America we save less than 2%. In China they come to work and they don’t say, how many holidays do I get, they say how many days can I come to work?”

He explains that the country will have some problems — more real estate speculation, investors going broke — but in the long run, China will become the next superpower. “The best advice is to teach your children and grandchildren Chinese,” he says. “It’s going to be the most important language in their lifetime.”

As excited as he is about China, he’s equally disappointed in the American dollar. Rogers, who travelled the world for three years at the turn of the century, owns currency from a number of the countries he visited, but he wants nothing to do with the greenback.

“The U.S. dollar is a flawed currency,” he explains. “As recently as 1987, the States was a creditor nation; now we’re the largest debtor nation the world has ever seen.”

He calls out Federal Reserve Chairman Ben Bernanke as someone who knows “nothing about economics, knows nothing about markets and knows nothing about currency.”

All he’s familiar with is printing presses, says Rogers, who adds that Bernanke’s policy is to debase the dollar. “In one of his official speeches he said, ‘if I have to get into a helicopter and fly around the world and drop our dollar bills to drive down the value of our currency, I’ll do so.’ He’s already running these printing presses and just wait until things get really bad. These guys are going to run the printing presses until we run out of trees.

“These guys think that’s the solution,” he adds. “He supposedly spent all this time studying the Great Depression and he thinks the cure is to run the printing presses. Many countries have tried this before; it never works. You need to protect yourself, your family and your clients.”

One country that hasn’t debased its dollar, says Rogers, is Canada. “This country has one of the soundest fundamental currencies in the world,” he explains. “I can see that your country and your currency have been much better managed than mine.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(10/03/08)

Bryan Borzykowski