The United States dollar is a flawed currency and will collapse in value before the end of the decade, taking with it the prosperity of the American nation. Investors should be buying commodities — platinum, lead, wheat, sugar, oil — assets that haven’t been fashionable for a quarter of a century or more. While you’re at it, teach your children to speak Mandarin, the coming language of the 21st century. And don’t encourage them to do an MBA. ”Tell them to be a farmer and do a real job.”
Such advice, if given by your regular financial adviser, would probably provoke a complaint to the ombudsman. The speaker, though, is Jim Rogers, Wall Street legend. The Indiana Jones of finance — a nickname earned by virtue of two round-the-world trips in the name of grassroots investment research — has become a multimillionaire by backing such views with hard cash.
In 1973 Rogers and George Soros founded Quantum, one of the first and most successful hedge funds. In Britain the Quantum Fund is best known for making Ã‚Â£1-billion by selling sterling ahead of Britain’s exit from the exchange rate mechanism on Black Wednesday in 1992, but Rogers’s contribution came before then. He helped Quantum to return a 4 000% gain in its first 10 years and departed in 1980, staying a year longer than he had intended only because 1979 had been so profitable — he predicted the stock market crash of that year.
The ”poor boy from Alabama” whose first job was picking up bottles at baseball games at the age of five, retired at the age of 37 a wealthy man. He set about managing his own fortune and travelling the world, projects that have become virtually indistinguishable.
Rogers’s central argument is that a new bull market has started that will match the fireworks in the dotcom-fuelled stock markets of the late 1990s. This time, though, the bull market will be in commodities not shares. Rogers’s reasoning is straightforward: raw materials are running out.
”There has been no great oil discovery in the past 35 years,” he argues. ”The North Sea has peaked. Alaska is in decline. Mexico is in decline. All these great oil fields are in decline.
”Mines deplete. Wells deplete. It’s supply. In the 1970s we had horrible economies around the world, but commodities sky-rocketed despite those horrible economies because there was no supply. That is happening again.”
How high is high? The nature of all bull markets, he argues, is that prices go higher than anybody could have imagined. ”Nobody could ever have thought that Cisco could go to $75 [it had been $5 a few years earlier]. Who would have thought in the 1970s that oil could go to $40 a barrel? It was $2 a barrel in the 1960s. Sugar in 1966 was 1,4c per pound. Six years later, it was 66c. Who could have conceived that?”
Hand in hand with this faith in the value of commodities is a long-term confidence in China, whose appetite for raw materials has already fuelled a strong rise in commodity prices in the past 18 months. All the best capitalists live in communist China, he argues, and overseas Chinese are returning with their capital and expertise. Mandarin will be the most important language in his child’s lifetime, he thinks.
But even this China bull predicts a major economic slowdown there, with accompanying political unrest, very soon.
”I remind you of the last two times China had to cut back an overheated economy,” he says. ”In the late Eighties, it led to Tiananmen Square, and the second time was in the mid-Nineties, when they had to devalue their currency. Some time this year or next you will see headlines, ‘Turmoil in China’. At that point, buy all the China and all the commodities you can, because that will be bottom of the consolidation in commodities and consolidation in China.”
Buying in the face of prevailing hysteria is a principle that has served Rogers well. Crisis in China will merely mark the end of the first leg of this new bull market, he thinks.
”Remember,” he enthuses, ”that the second leg is wonderful, and the third leg is spectacular. In the fourth leg there is dancing in the streets and in the fifth leg people are hysterical and everything is skyrocketing every day. We are nowhere near the second leg, much less the third, fourth and fifth.”
His bearishness on the US dollar is predicated on economic fundamentals, notably the balance of payments. Alan Greenspan, the chairperson of the Federal Reserve and Rogers’s bogeyman-in-chief, has been printing money at an unprecedented rate and President George W Bush has been spending it just as rapidly.
”The US owes the world $8-trillion,” he argues. ”We are the world’s largest debtor nation by a factor of many times and our foreign debts are increasing by $1-trillion every 21 months. That’s terrifying.
”The US dollar is going the way sterling went as it lost its place as the world’s reserve currency. I suspect there will be exchange controls in the US in the foreseeable future. It will be a complicated and difficult currency.”
Not that Rogers is a fan of many currencies. He has stakes in a dozen but has ”no confidence in any of them”.
Unlike his old partner, Soros, who has devoted part of his vast fortune to opposing Bush’s election campaign, Rogers stands wholly outside the political fray. He calls the US-led invasion of Iraq a ”horrendous, unbelievable mistake”, but thinks the Democratic candidate, John Kerry, would make his own mistakes. ”They wouldn’t be politicians if they knew what they were doing,” he says, far from flippantly.
The balance of payments, and the looming dollar crisis, make the election result irrelevant, he argues: ”Whoever is elected president is going to have serious problems in 2005/06. We Americans are going to suffer.” — Ã‚