Investing Tips From Jim Rogers

Published in Investing on 17 December 2012

David Kuo chats with Jim Rogers in Singapore.

David Kuo chats with Jim Rogers at his home in Singapore. The wall of sound in the background was provided by an orchestra of uncooperative cicadas, crickets and other noisy Asia insects. Jim reveals the reasons why he sold his home in the US and relocated his family to the east. He also outlines his outlook for investment banks, highlights his views on quantitative easing and reveals his favourite picks in Asia markets for investors.

You can listen to or download the full podcast here.

David:

This is Money Talk, the weekly investing podcast from The Motley Fool. I am David Kuo, and have I got a treat in store for you today. I am at the home of Jim Rogers, who has abandoned life in the west for life in Asia, so welcome to Money Talk, Jim, and thank you for opening up your home to me today.

Jim:

Well, I'm delighted, David – it's very nice for to come here, all the way to Singapore. Just one slight edit – I haven't abandoned life in the west, but I certainly have left. We don't have a house in America any more. We sold our house in New York, and moved to Singapore, and my children go to school here, etc, so we're pretty firmly ensconced in Asia now.

David:

OK, now you've been in Singapore for about five years, I make it, so what were your reasons for moving to the East?

Jim:

Well, I've got two little girls. I used to write and lecture and broadcast that everybody should teach their children and grandchildren Mandarin, because it's going to be the most important language in the 21st century, but then I had one, I had a little girl, so I had to start acting on it, but it became very clear soon, we could not maintain the Mandarin in New York. We had to really be in a place where, as she at the time, they now had no choice except to speak Mandarin. So we looked around, we looked at all the Chinese-speaking cities: Beijing, Shanghai, Hong Kong, etc, but the ones in China are too polluted to live, for us anyway. Singapore seemed to be the perfect solution – they speak English and Mandarin here; great education; great healthcare, so here we are.

David:

Yes, so is that the reason why you chose Singapore over and above, say, Shanghai, which is a fast-growing financial centre, and of course Hong Kong, which is the financial centre in Asia?

Jim:

Well, we love Shanghai; we love Hong Kong a great deal – very exciting cities in many ways, culturally, financially, etc, but they're just too polluted for us. Some day I presume China will clean up the air and the water and traffic and everything else up there, but right now it's just too polluted for us to live there. People do strange things for their children. I know people who move to be near football coaches, or music teachers, etc. We moved to Asia so our children would grow up speaking Mandarin.

David:

Now then, I read somewhere that you don't consider yourself to be a member of any school of economic thought, but you do like the Austrian school of economic thought. How do you think the west would look now, had it followed the philosophies of Friedrich Hayek, rather than Maynard Keynes?

Jim:

Well, if you go back to previous periods in history, in the early Twenties, for instance, America had an economic problem, and believe it or not they raised interest rates, they balanced the budget. They had a terrible year or two in the early Twenties, but then they had one of the most prosperous and exciting economic decades in history, in American history. These Scandinavians, in the early Nineties, had the same problem. They let people go bankrupt, they let the market take its course – that was a horrible pain for a couple of years, but then Scandinavia became one of the most prosperous parts of the world economy, over the next 10 – 15 years, so that solution works. The Japanese, at the same time in the early Nineties, did the opposite. They refused to let people go bankrupt. They spent staggering amounts of money they didn't have. They printed a lot of money, and the Japanese still talk about the 1990s as a lost decade; now they talk about two lost decades. That has not worked – that system of, the tangient system, if you will, has not worked any time in history. Hayek, as you call it, has worked. It's difficult for a while, but in the end you clean out the system. Many people, not just Hayek – but von Mises, Schumpeter – many economists throughout history have said, unless you clean out the system, anything after that is artificial, any recovery is artificial and it won't last. So far, they've been proved right, and Keynes has not been proved right.

David:

But what has happened in the west now is that the Bank of England, the European Central Bank and also the Federal Reserve in America have decided to go down this route of quantitative easing. What do you think are the likely consequences of quantitative easing for the west?

Jim:

Well, they're going to be the same consequences that the Japanese have suffered. The Japanese have not recovered, their economy has not recovered. Their debt has gone higher and higher. Japan is facing more and more problems now, but especially in Japan's case, they have a serious demographic problem, and huge debts that continue to rise. Well, Europe has a demographic problem, a serious demographic problem – not as bad as Japan's yet, and debts that keep rising; America the same way. America's demographic problem is not as bad, but the debt is going through the roof. America's now the larger debtor nation in the history of the world, and they're printing more and more money. This is going to have the same consequences it's had throughout history. Stagnant economies, inflation, economic turmoil, interest rate turmoil, currency turmoil – it's not going to be fun. Be careful, be worried, be prepared.

David:

Is there going to be an end game? Or does it just carry on forever?

Jim:

No, I suspect it'll be the same end game. Well, let's look at the UK. In 1918, right at the end of the First World War, the UK was the richest, most powerful country in the world. There was no second, in those days. Within three generations, the UK was bankrupt. They couldn't sell government bonds. The IMF had to bail them out. So I suspect that this will be the ultimate end for the US. The French went through it, the Italians went through it, the Spanish went through it – a lot of people have been in this situation before. They refused to accept reality, they go into a steady decline, and eventually the whole thing falls apart, and they have to start over again. I don't particularly like saying this, given that I am an American citizen and an American tax payer, but I have to face facts, or I'll be bankrupt too.

David:

Now, one of the unintended consequences of quantitative easing, or the printing of money in the west, has been the flow of hot money into Asia. How will this affect Asian countries, do you think, with all this hot money coming in?

Jim:

Well, it's already had an effect in China, as you know, David. They've had inflation, fairly serious inflation, and partly it's their own fault, because they have blocked currency, and so that money's trapped in China, and it's got to go into something, so it causes more and more inflation as it sloshes around. Many Asian countries are suffering from inflation now. It's interesting, because most nations in Asia acknowledge that there's inflation, and America says there's no inflation – America lies about it, but at least in China and India and Australia and Taiwan – all these countries are saying, we've got inflation. Part of the inflation is coming from America printing money, and Europe and the UK printing money. It's a consequence, it's been the same consequence throughout history, and unfortunately we're all going to have to pay the price. We are paying the price, and we're going to have to pay the price down the road. No country in history that's gotten itself into this kind of situation has ever gotten out without a crisis or a semi-crisis. America's already starting to have problems, as you know. America's got a lost decade now, we're probably going to have two or three or four lost decades in the end. It's not going to be fun.

David:

So with the hot money coming into Asia, how will this affect the competitiveness of Asian companies?

Jim:

Well, at the moment Asia has the advantage that the governments all have massive reserves. The largest creditor nations in the world are China, Korea, Japan, Taiwan, Hong Kong, Singapore, so they've saved a lot of money for a rainy day, and when it starts raining, they'll all spend some of the money.

David:

Bring out their umbrellas, yeah?

Jim:

Exactly. We in the US don't have any money saved for a rainy day, and as you know, when it starts raining, we'll have to either print or borrow more money. We already have started printing or borrowing more money. That's going to be the way it is in the future. Asia will be suffering because of the inflation, but they have such a huge competitive advantage right now. Labour-wise, expense-wise, government tax policy-wise, we're all going to suffer, but Asia will suffer less, in the end.

David:

Yeah, so what would you suggest for western investors who have a significant amount of investments in the west itself? I mean, not everybody can be like you, and decide that they want to up sticks and come out to Singapore, so what are they going to do?

Jim:

I would do what I do, I would sell my house and my property in whichever nation you're talking about, teach my children or grandchildren Mandarin, and move to Asia. If you cannot do that, or for whatever reason do not want to do that, I would certainly, if nothing else, teach the children and grandchildren Mandarin – you can do that in other countries as well, but I would also start learning about investing in Asia. There are enormous opportunities in Asia in stocks and property, and whatever you know a lot about – bonds, currencies. There's plenty of opportunities in Asia, and I would start learning about them, because if I'm correct, the US and the west will continue in steady decline, while Asia will continue to rise.

David:

Now, some people say it would be very dangerous to bet against companies like the Big Blue, IBM in America; GlaxoSmithKline, Nestlé, BASF in Germany. What would you say about that? I mean, it's very dangerous to bet against these really big blue chips from the west.

Jim:

Well, that's a viewpoint, but I would also point out that throughout history, you've had many big blue chips disappear. General Motors in 1965 was the only car company in the world, and then a few decades later, it was bankrupt, and many massive blue chips that you and I could name have just disappeared.

David:

Kodak, for instance?

Jim:

Kodak – there's another one. That was one of the original members of the Dow Jones industrial average, but Kodak is now bankrupt, and has disappeared. It certainly had been in the Dow Jones for many decades. There are many many examples of companies and countries and families and individuals which go into a decline, and never recover, so that's going to happen. The ones you've named, I don't know, but there'll certainly be many western companies which will gave way to new companies rising in Asia.

David:

You've been credited with coming up with the term "supercycle" as far as commodities are concerned. At what stage in the supercycle do you think we are right now?

Jim:

The supercycle is not quite what I, I just meant that we have recurring bull markets in commodities that last for a couple of decades. It's happened throughout history – I just went and looked it up. I'm not very smart, I just saw it happen many times in history, and we're in a similar period again. We're probably maybe two-thirds of the way through it. If history's any guide, we may be two-thirds of the way through the long secular bull market in commodities. The reason I temper, or I hesitate, is because normally, when you have a bull market in anything, after eight, ten years, people start to bring in new supply, whether it's property or shipping or stocks or whatever it is, and they start bringing a whole lot of new supply into the market. Well, in 2008/2009, we had the unpleasantness, as you know, so a lot of people have cancelled or delayed or scrapped their expansions of capacity, so this particular bull market may last longer, just because there's not a lot of supply, like there normally would be. This bull market is now 13 years old. Normally 13 years into a bull market, you start seeing supply, more supply coming in. We're not seeing as much supply coming in as normally one would at this point, so this bull market could last longer than normal, longer than on average. The hesitancy about that statement is that, will the economy will get into serious trouble? It probably will, somewhere in the next few years, which will cut demand a lot. On the other hand, throughout history in the west anyway, when there were demand problems, what governments in the west do is print money. It's the wrong thing to do, but they're doing it now, and whenever you print money, whenever you debase currency, the way to protect yourself is to own real assets, whether it's rice or silver, or whatever it happens to be. So I would suspect that this bull market, on average where we're two-thirds of the way through, it might last a little longer, because there's money printing out, and normally throughout history, if you talk about the Seventies, most countries would not print money in the Seventies. America did, but the Germans or the Swiss, or the Dutch – people in those days would not print money in sound countries. In Japan, they didn't print money in those days. Now, all these governments and politicians know how to buy votes by printing money, and so now we have everybody printing money, which is unique, so this bull market could last longer because of more economic mismanagement.

David:

Wow, that's actually quite a scary thought.

Jim:

Yeah, I don't like it either, but as I said before, everybody has to deal with reality, not with what they'd like to happen. I can tell you what I would like to happen in the world, but I know it's not going to happen, so people have to deal with reality, and not just invest, but live their lives accordingly.

David:

You gave Oxford University Students a dose of reality once, when you told them to abandon their plans for a career in the City or Wall Street, and instead study agriculture and mining. Now, what did you mean by that? Are you saying that the financial system is not going to be as healthy?

Jim:

We've had long periods in history when the financial types were the masters of the universe, followed by long periods when the producers of real goods were the masters, and then followed again by the financial types. But I was a student at Oxford once upon a time, and when I was at Oxford in the Sixties, my professors used to say to me, what's wrong with you? Why are you so interested in the stock market? It's not relevant to anything, including the world economy or the English economy, and they just thought I was very peculiar, and I was, I guess. So in the Fifties, Sixties and Seventies, Wall Street and the City of London were backwaters, serious backwaters. A big day on the New York Stock Exchange when I first went there in the mid-Sixties was three million shares. I mean, nowadays three million shares is not even one trade – that's an odd lot, almost. So then we had the big bull market, and now every kid at Oxford wants to start a hedge fund in his dorm room – it's totally changed. But those days are ending, as far as I'm concerned. Finance now has huge competition. In 1958, America graduated 5,000 MBAs; the rest of the world graduated none, 5,000 per year. Now last year, America produced a couple of hundred thousand MBAs; the rest of the world, tens of thousands more. So you have staggering competition now which you didn't have before. You have huge leverage, I mean all the financial institutions are very very leveraged now, and you have governments all over the world coming down hard against financial types. Nobody likes us any more – taxes, regulations, controls. So for many reasons, finance is in decline; it will continue declining, and at the same time the people who are on the rise, well farmers, for instance, in America, the average age of farmers is 58. In the UK, the highest rate of suicide is in agriculture, because it's a terrible business. The average age of farmers in Japan is 66; in Australia, it's 58. I can go on and on. In America, more kids study public relations than study agriculture, so the farmers are all dying and retiring, there are no young people going into the business. Farming's been a terrible business for 30 years; finance has been the height for 30 years. It doesn't take much for me anyway to figure out, I'd rather be a farmer than an investment banker in 2018.

David:

So what do you reckon to commodity producers in Asia, then? The farmers in Asia? Do they have a future?

Jim:

Oh, they have a fantastic future. When I say that kids should become farmers, I'm quite serious. You can do the arithmetic. In 10 years, the average age of farmers in Japan, if they're still alive, will be 76. All over the world, this is the case. There are just no farmers. So the few people who are left in agriculture are going to be making fortunes – they have to, or we're not going to have any food, at any price. Things are going to be very bad.

David:

So, of all the countries in Asia, which are the ones that you consider to be the most lucrative, Jim, to invest in?

Jim:

Well, at the moment, if I were looking at Asia, I would be looking at Myanmar and North Korea as extremely exciting.

David:

North Korea?

Jim:

Yes, yes, yes. North Korea, in my view North Korea will be merging with South Korea in the next few years, just as the Germans did, and the main people who are against it are the Japanese, because once they merge, you'll have a country of 75 million people; a huge, disciplined, cheap labour force in the North, with lots of natural resources up there; and in the South they have lots of capital and expertise, and it'll be right on the Chinese border, so it'll be a huge competitor to the Japanese, and the Japanese will not be able to compete with that Korea. The Chinese are building bridges across the river, they're pouring into North Korea, because they see what I see, what I think I see. So it's going to be quite a startling new competitor in Asia, so if you've got a way to invest in North, the only way I know how to invest in North Korea now is either stamps or gold and silver coins. There's no stock market, or anything else, and as an American, they won't let me go up there and go into business. The Chinese can, and other people can. So in North Korea, I find a great excitement and potential, unless you're an American or Japanese. In Myanmar, in 1962 Burma was the richest country in Asia, then they had a coup and they closed off. Fifty years later, Myanmar's the poorest country in Asia, but now they realise just what the Chinese understood in 1978, '79, and they're opening up, they're changing; massive natural resources. Its neighbours are China, India, Thailand – 70 million people, discipline, cheap labour, educated labour – I mean, it's going to boom. I cannot tell you how excited I am about Myanmar. I wish there were a way for me to put all my money into Myanmar, but there's not, because the stock market is fledgling – it's non-existent, basically. Since I only invest in public markets, I'm not going to go to Myanmar and start a restaurant or something, but for people who do know about starting businesses, and can start businesses, enormous opportunities in both of those countries.

David:

Are there any countries in Asia that you don't find as attractive?

Jim:

Well, by definition, some countries in Asia are more developed than others, but am I bearish on any country nation? Not that I can think of, no. I cannot think of any. Even some where I've been somewhat sceptical in the past, like Indonesia or Russia, I am realising that things are improving for the better, and there are possibilities in both of those countries, and many other Asian countries.

David:

What about India?

Jim:

You're right – no, I'm not optimistic about India.

David:

And why is that?

Jim:

For many reasons. If you can only visit one country in your life, David, I would urge you to visit India – there's no country in the world like it, from a visitors' or tourists' point of view. But as far as doing business, first of all, I've travelled the world, as you probably know, and I've seen a lot of bureaucracies. Well, the Indian bureaucracy is the worst in the world. They learned bureaucracy from the English, and then took it to a higher plane, even. It's a nightmare to do business there. They don't like capitalists, they don't like entrepreneurs. Unless you happen to be in bed with the politicians, it's going to be very difficult for you to do anything there – a huge balance of trade deficit, huge government deficits, very high government debt. There was a study done which showed that, once you get debt to GDP of over 90%, it's difficult to grow in any dynamic way. Well they're there – they've got huge debts and the balance of trade problem is getting worse; inflation's getting worse. It's just not a very well-run country, and the problems of the past are catching up with them. I know that there are people periodically who talk about India as a great frontier. They haven't driven across India – they flew to Mumbai and went down to see the government officials, and the stock exchange. They ought to do the rest of it, and they would see that India's not a great place to do business, unless you're in bed with the politicians.

David:

OK, so you're not that bullish on the Indian economy or the Indian stock market?

Jim:

No. India is the one place in Asia I just want to, quickly, the one place in Asia that I am not optimistic.

David:

There's a school of thought that says that the east still lacks what we call credible brands, and by brands, we're talking about things like Burberry, Mulberry, Louis Vuitton, BMW, Audi, Mercedes Benz. Now, it's unlikely that the east will be able to develop these kind of well-established brands any time soon, so for western investors, would it be possible for them to invest in these brands as a kind of proxy for investing in Asia?

Jim:

Well, first of all, I'm going to take a little bit of umbrage with that. ShanghaiTang has become a brand of note; Toyota certainly is, Samsung – there's some brands that have come out of the east; Sony, Panasonic. They have developed brands in the East, and in my view, that will continue. A hundred years ago, who would have thought that Ford would be a brand that anybody would have ever heard of? I mean, Henry Ford's just this old toad sitting there, making these cars – who would have thought? Even in the Twenties, General Motors was far and away better known than Ford. So it takes a while to develop a brand, but it can happen, and in my view it will happen. The markets here are huge. Of course, if you go into any shop in Shanghai, they all want to have a Burberry – everybody would like to have a Burberry, because it's the western brand, and the others which you mentioned. But I suspect that that is going to evolve, just as has happened – as Tom Peters said, creative destruction is always going on in the world, and you're going to see more and more brands coming out of Asia, as the Asian consumers become wealthier and wealthier, and want to buy their own stuff, and, of course, it will be cheaper and better. In the end, just as General Motors' cars became pretty sloppy and shoddy, when they didn't have to compete, that's going to happen to the western brands, as Asia rises.

David:

OK. My final question, Jim, is to ask you to look into your crystal ball, and predict what the world will look like economically, in 10 years' time?

Jim:

Oh, the news for 2022, we will have had at least one, and probably two more, economic slowdowns in the west, and therefore in the world. In 2002, we had an economic slowdown; 2007 and '08 was worst, because the debt was so much higher. Well, the next one in 2013/2014 is going to be worse still, because the debt is so, so much higher now, so then that slowdown or recession, or whatever it's going to be called, will be worse in 2007 and '08. Let's assume we get out of that one, one way or the other. Then the next one at the end of the teens, the beginning of the Twenties, will be worse still, because the debt will be so much higher, so by then, the US will probably be bankrupt, just as the UK was in the mid-Seventies. May I suggest you move to Asia? And teach your children Mandarin. If I were The Motley Fool, I would open an office in Asia.

David:

Would you really?

Jim:

Yes, yes. I would certainly look east, if I were The Motley Fool; if I were anybody, not just The Motley Fool.

David:

OK, I find that very reassuring. Now, thank you for joining me today, Jim. I have one more chore to perform, which is to sum up today's podcast with a quote, and I usually try and find a quote that hopefully will encapsulate the spirit of the podcast. The quote today comes from a nineteenth-century Japanese Zen master called Shoseki, who said: "Truth only reveals itself when one gives up all preconceived ideas", and I think what you're saying is that people should give up their preconceived ideas of the west being powerful, and the east being weak.

Jim:

Absolutely, I mean history is full of, name any century you want. In fact, name any decade you want, David, and whatever happened at the beginning of that decade, at the end of the decade the world was terribly different. 1920, 1930, 1940, 1950 – pick any year you want to, in history or certainly in the last century, and look out 15 years later, and you will see that whatever people thought in 1960, it was totally different in 1975, totally different. I went to Oxford in the mid-Sixties, because I thought the UK was the shining star. A decade later, it was bankrupt. Just shows how smart I was! I should have been going to Beijing. Don't listen to me!

David:

Maybe you are today's Zen master, Jim. Thank you very much for joining me today.

Jim:

Thank you, David – my pleasure.

David:

This has been Money Talk, I have been David Kuo, and my guest has been the one and only Jim Rogers. If you have a comment about today's show, please post it on the Money Talk web page, which you can find at fool.co.uk/podcast. Until next time, look east!

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

CubbyBroccoli 17 Dec 2012 , 5:05pm

Thumbs up for providing a transcript!

apprenticeDRL 17 Dec 2012 , 8:49pm

I second that

goodlifer 19 Dec 2012 , 12:06am
jaizan 19 Dec 2012 , 4:02am

I like the transcripts too. Means I can digest the information at my own pace.

goodlifer 19 Dec 2012 , 11:01pm

"Let's look at the UK. In 1918, right at the end of the First World War, the UK was the richest, most powerful country in the world. There was no second, in those days. Within three generations, the UK was bankrupt. They couldn't sell government bonds. The IMF had to bail them out. "

I seem to remember a spot of bother around 1939-45 which cost us Limeys rather more per head than it cost the US.

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