| A&A Morning Glory Learning Sdn Bhd |
Jim Rogers Predicts Another Raging Bull Market in
Commodities
By Dr. Mark Skousen
6-6-2006
One of the most fascinating "adventure capitalists" I've met is Jim Rogers.
He's a free spirit, having managed money with George Soros, taught at
Columbia University, written several financial books, traveled around the
world by motorcycle (and later a BMW), and now settling down at the age
of 60 to have a family... I've known Jim for years, and he's a great friend.
My wife Jo Ann and I spent an hour with him at his magnificent mansion
in Manhattan (built in 1899), and his answers to my tough questions did
not disappoint.
Skousen: You've written a book called Hot Commodities: How Anyone Can
Invest Profitably In the World's Best Market. Given that commodities have
gone through a major correction of late, are they going to make a
comeback? Is this the top of a market, or just a correction?
Rogers: First, we're in a secular bull market in commodities, which started
early in 1999... I went back and looked, and the shortest bull market in
commodities I could find lasted 15 years, and the longest lasted 23 years.
So, if history is any guide, this bull market will last sometime until 2014
and 2022. That's not a prediction; I'm just telling you what history would
indicate. Yes, some commodities are up, but if you look at the commodities
market, there are only five or six commodities that have made all-time
highs. And they're not even - most of them - above the old all-time highs.
Zinc is, copper is, and oil is, but the rest of them, even aluminum, which
got near its all-time high, or lead, or tin... they're not far above their old
all-time highs, for the most part.
MS: Gold and silver... they haven't hit their all-time highs.
JR: Silver is 75% below its all-time high... gold is 30% below its all-time
high. Sugar is 80% below its all-time high. Corn is 50% below its all-time
high. Cotton is 60% below its all-time high. I could go on and on... and
those aren't adjusted for inflation. So, most commodities now are
somewhere between 80% and 90% below their all-time high, especially
adjusted for inflation.
So is this over? No. Copper and zinc may slow down for a while. We
haven't even really gotten started. Commodities have... my index has
tripled... more than tripled.
MS: So easy money has been made, in your opinion?
JR: In zinc and copper. But not in coffee. Coffee is 75% below its all-time
high. I don't want to use the term "easy money," but there's still plenty of
money to be made. Because in bull markets - in every asset class -
eventually everything makes a new all- time high.
You buy land in Los Angeles, and if there's a real estate boom, everything
goes to an all-time high, eventually. Even the slums. And usually they go
well above the old all-time highs, so we have a long, long, long way to go.
There are always corrections. In '87, stocks went down 40% in five
months. Stocks went down in 1994, they went down in 1990, they went
down in 1989... we had some big corrections.
But the smart people bought more... they didn't panic and sell out. In the
1970s, gold at one time, during a two-year period, went down 50%, and a
lot of people panicked and gave up, because it was a big two-year
draw-down. Well, gold did a turnaround, and went up 850%. Between
1974 and 1976, gold went from $200 to $100, and then it went to $875. This
is the way markets work, and if people don't understand this about
markets, you probably shouldn't be investing in the first place.
MS: But aren't commodities more ideal for a speculator, rather than a
long-term investor? Does buy-and-hold really make sense?
JR: Yale University recently did a study, and the Wharton School at the
University of Pennsylvania determined that in the past 45 years, you'd
have made more money in commodities than in stocks, with less volatility
and a better inflation hedge.
MS: That's a broad-based index, that's not true of gold.
JR: Your question was about commodities, not gold, but we can go back to
gold if you want to. Commodities have been better investments. And the
study also showed that you would have made 300% more investing in
commodities themselves, rather than in commodities stocks.
If you want to buy a stock, you have to invest in the right company,
you've got to worry about management, balance sheets, environmentalist
unions, politicians, and 100 other things... But when you invest in
commodities, there's too much that's going to go up, and too little that's
going to go down, and vice-versa.
Natural gas does not know who the Fed chairman is, and it doesn't give a
darn who he is. If you invest in natural gas stocks, you have to worry
about a lot of stuff. Natural gas has tripled in the last five to six years.
Enron was a natural gas company. Enron went to zero. Natural gas can go
down, but it can't go to zero.
Your odds are a lot more risky... a lot riskier than commodities, because
sure, they'll fluctuate and go down, but they can't go to zero.
MS: But you can't just blindly buy commodities because you say there's
going to be a 15-year cycle. No one knows how long this cycle is going to
be. And so you have to look at the fundamentals - and what are the
fundamental economic reasons for this, and are those still in place? What
are the things that you look at?
JR: The main reason we've always had bull markets in commodities is
supply and demand. In the '80s and '90s, we had a bull market in stocks,
but nobody called you up and said 'let's invest in a sugar plantation' or
'let's invest in a lead mine.' There was a bear market in commodities so no
one invested in productive capacity.
All the great oil fields in the world were discovered more than 35 years
ago. There's been no major oil discovery anywhere in the world since
1970. Alaska's in decline... The Mexican fields are in decline... The North
Sea is in decline... The U.K. has been exporting oil for 25 years - but within
the decade, they will be importing oil. Malaysia has been exporting oil for
decades - they will soon be importing oil. Indonesia's a member of OPEC,
and about to get thrown out because they now import oil...
You know, oil fields deplete. Ten years ago, China exported oil. Now
they're the largest importer of oil in the world... the second-largest
consumer of oil in the world.
MS: Speaking of oil... We haven't built any refineries in this country since
1976. I can understand why that would keep gasoline prices up. But
couldn't you develop a glut outside the United States. Couldn't oil prices
drop like natural gas did recently?
JR: I'm glad you understand that - I read in the press that there are no
refineries and that's why oil is going up, and that's wrong. The fact that
there are no refineries would keep oil down. But be that as it may, we've
got to have the energy somewhere in the world... In China, they are
building refineries. In Asia, they're building refineries as fast as they can.
MS: Now, one of the criticisms of your book was that you only
recommended the commodities themselves, rather than the stocks. Have
you changed your mind? Do you like the ETFs or do you like the real asset
funds that are out there, like the Oppenheimer Real Asset Fund... These
are ways of buying commodities through the stock market.
JR: I remember in the 1970s when oil went up 10 times. A lot of oil
companies did not go up. If you don't have reserves, or if you have a bad
balance sheet, or 100 other things, just because you're an oil stock does not
mean you will go up in the '70s. And the Yale and the Wharton studies
show you would have made 300% more investing in commodities
themselves, rather than in commodities stocks.
MS: You would think of gold stocks as being the leveraged way to buy
gold. Maybe that's an exception to your rule.
JR: Well, more money has been lost in gold mining stocks than in any
other industry - including railroad stocks...
MS: Well, if you stick with the blue chips that are actually producing them,
you triple your money. If you want to leverage your return, you buy the
gold stocks rather than the gold itself. Do you go along with that?
JR: Well, yes. If you buy the right natural gas company (I'm going to use
natural gas instead of gold for a moment), if you find a natural gas
company that's going to discover gas in Berlin, fine, because you're going
to make a gigantic amount of money. But there are 500 natural gas
companies in the world, and chances of your getting the right ones are not
very high.
Even with gold, the chances you'd get the right gold company are not very
high.
MS: Uranium just hit its all-time high. Are you bullish on uranium at this
point?
JR: I certainly am. There's no futures market in uranium, so there's no way
to participate except through stocks. You could buy uranium and put it in
your vault if you want to. I'm not going to put uranium in my cellar, but
yes, I'm very bullish on uranium. China's building 25 nuclear power plants,
and that's just the beginning.
Even in America we're starting to talk about having nuclear power.
MS: Tony Blair changed his mind on that. And the anti-nukes... even
they're reversing their views. It's interesting...
JR: But also, they're coming to the view that if you can control nuclear
power - whatever that means - it is cleaner than coal. It is cleaner than oil.
It's cleaner than a lot of things...
MS: Jim, you were a money manager for many years. Do you manage
money now?
JR: Only my own. Well, I have these index funds, but nobody manages an
index fund, as you know. But the basic point, Mark, is that if you find the
right company, yes, it's a good investment. But otherwise, you're better
off buying gold. You're better off buying natural gas. You're better of
buying wheat...
Commodities
By Dr. Mark Skousen
6-6-2006
One of the most fascinating "adventure capitalists" I've met is Jim Rogers.
He's a free spirit, having managed money with George Soros, taught at
Columbia University, written several financial books, traveled around the
world by motorcycle (and later a BMW), and now settling down at the age
of 60 to have a family... I've known Jim for years, and he's a great friend.
My wife Jo Ann and I spent an hour with him at his magnificent mansion
in Manhattan (built in 1899), and his answers to my tough questions did
not disappoint.
Skousen: You've written a book called Hot Commodities: How Anyone Can
Invest Profitably In the World's Best Market. Given that commodities have
gone through a major correction of late, are they going to make a
comeback? Is this the top of a market, or just a correction?
Rogers: First, we're in a secular bull market in commodities, which started
early in 1999... I went back and looked, and the shortest bull market in
commodities I could find lasted 15 years, and the longest lasted 23 years.
So, if history is any guide, this bull market will last sometime until 2014
and 2022. That's not a prediction; I'm just telling you what history would
indicate. Yes, some commodities are up, but if you look at the commodities
market, there are only five or six commodities that have made all-time
highs. And they're not even - most of them - above the old all-time highs.
Zinc is, copper is, and oil is, but the rest of them, even aluminum, which
got near its all-time high, or lead, or tin... they're not far above their old
all-time highs, for the most part.
MS: Gold and silver... they haven't hit their all-time highs.
JR: Silver is 75% below its all-time high... gold is 30% below its all-time
high. Sugar is 80% below its all-time high. Corn is 50% below its all-time
high. Cotton is 60% below its all-time high. I could go on and on... and
those aren't adjusted for inflation. So, most commodities now are
somewhere between 80% and 90% below their all-time high, especially
adjusted for inflation.
So is this over? No. Copper and zinc may slow down for a while. We
haven't even really gotten started. Commodities have... my index has
tripled... more than tripled.
MS: So easy money has been made, in your opinion?
JR: In zinc and copper. But not in coffee. Coffee is 75% below its all-time
high. I don't want to use the term "easy money," but there's still plenty of
money to be made. Because in bull markets - in every asset class -
eventually everything makes a new all- time high.
You buy land in Los Angeles, and if there's a real estate boom, everything
goes to an all-time high, eventually. Even the slums. And usually they go
well above the old all-time highs, so we have a long, long, long way to go.
There are always corrections. In '87, stocks went down 40% in five
months. Stocks went down in 1994, they went down in 1990, they went
down in 1989... we had some big corrections.
But the smart people bought more... they didn't panic and sell out. In the
1970s, gold at one time, during a two-year period, went down 50%, and a
lot of people panicked and gave up, because it was a big two-year
draw-down. Well, gold did a turnaround, and went up 850%. Between
1974 and 1976, gold went from $200 to $100, and then it went to $875. This
is the way markets work, and if people don't understand this about
markets, you probably shouldn't be investing in the first place.
MS: But aren't commodities more ideal for a speculator, rather than a
long-term investor? Does buy-and-hold really make sense?
JR: Yale University recently did a study, and the Wharton School at the
University of Pennsylvania determined that in the past 45 years, you'd
have made more money in commodities than in stocks, with less volatility
and a better inflation hedge.
MS: That's a broad-based index, that's not true of gold.
JR: Your question was about commodities, not gold, but we can go back to
gold if you want to. Commodities have been better investments. And the
study also showed that you would have made 300% more investing in
commodities themselves, rather than in commodities stocks.
If you want to buy a stock, you have to invest in the right company,
you've got to worry about management, balance sheets, environmentalist
unions, politicians, and 100 other things... But when you invest in
commodities, there's too much that's going to go up, and too little that's
going to go down, and vice-versa.
Natural gas does not know who the Fed chairman is, and it doesn't give a
darn who he is. If you invest in natural gas stocks, you have to worry
about a lot of stuff. Natural gas has tripled in the last five to six years.
Enron was a natural gas company. Enron went to zero. Natural gas can go
down, but it can't go to zero.
Your odds are a lot more risky... a lot riskier than commodities, because
sure, they'll fluctuate and go down, but they can't go to zero.
MS: But you can't just blindly buy commodities because you say there's
going to be a 15-year cycle. No one knows how long this cycle is going to
be. And so you have to look at the fundamentals - and what are the
fundamental economic reasons for this, and are those still in place? What
are the things that you look at?
JR: The main reason we've always had bull markets in commodities is
supply and demand. In the '80s and '90s, we had a bull market in stocks,
but nobody called you up and said 'let's invest in a sugar plantation' or
'let's invest in a lead mine.' There was a bear market in commodities so no
one invested in productive capacity.
All the great oil fields in the world were discovered more than 35 years
ago. There's been no major oil discovery anywhere in the world since
1970. Alaska's in decline... The Mexican fields are in decline... The North
Sea is in decline... The U.K. has been exporting oil for 25 years - but within
the decade, they will be importing oil. Malaysia has been exporting oil for
decades - they will soon be importing oil. Indonesia's a member of OPEC,
and about to get thrown out because they now import oil...
You know, oil fields deplete. Ten years ago, China exported oil. Now
they're the largest importer of oil in the world... the second-largest
consumer of oil in the world.
MS: Speaking of oil... We haven't built any refineries in this country since
1976. I can understand why that would keep gasoline prices up. But
couldn't you develop a glut outside the United States. Couldn't oil prices
drop like natural gas did recently?
JR: I'm glad you understand that - I read in the press that there are no
refineries and that's why oil is going up, and that's wrong. The fact that
there are no refineries would keep oil down. But be that as it may, we've
got to have the energy somewhere in the world... In China, they are
building refineries. In Asia, they're building refineries as fast as they can.
MS: Now, one of the criticisms of your book was that you only
recommended the commodities themselves, rather than the stocks. Have
you changed your mind? Do you like the ETFs or do you like the real asset
funds that are out there, like the Oppenheimer Real Asset Fund... These
are ways of buying commodities through the stock market.
JR: I remember in the 1970s when oil went up 10 times. A lot of oil
companies did not go up. If you don't have reserves, or if you have a bad
balance sheet, or 100 other things, just because you're an oil stock does not
mean you will go up in the '70s. And the Yale and the Wharton studies
show you would have made 300% more investing in commodities
themselves, rather than in commodities stocks.
MS: You would think of gold stocks as being the leveraged way to buy
gold. Maybe that's an exception to your rule.
JR: Well, more money has been lost in gold mining stocks than in any
other industry - including railroad stocks...
MS: Well, if you stick with the blue chips that are actually producing them,
you triple your money. If you want to leverage your return, you buy the
gold stocks rather than the gold itself. Do you go along with that?
JR: Well, yes. If you buy the right natural gas company (I'm going to use
natural gas instead of gold for a moment), if you find a natural gas
company that's going to discover gas in Berlin, fine, because you're going
to make a gigantic amount of money. But there are 500 natural gas
companies in the world, and chances of your getting the right ones are not
very high.
Even with gold, the chances you'd get the right gold company are not very
high.
MS: Uranium just hit its all-time high. Are you bullish on uranium at this
point?
JR: I certainly am. There's no futures market in uranium, so there's no way
to participate except through stocks. You could buy uranium and put it in
your vault if you want to. I'm not going to put uranium in my cellar, but
yes, I'm very bullish on uranium. China's building 25 nuclear power plants,
and that's just the beginning.
Even in America we're starting to talk about having nuclear power.
MS: Tony Blair changed his mind on that. And the anti-nukes... even
they're reversing their views. It's interesting...
JR: But also, they're coming to the view that if you can control nuclear
power - whatever that means - it is cleaner than coal. It is cleaner than oil.
It's cleaner than a lot of things...
MS: Jim, you were a money manager for many years. Do you manage
money now?
JR: Only my own. Well, I have these index funds, but nobody manages an
index fund, as you know. But the basic point, Mark, is that if you find the
right company, yes, it's a good investment. But otherwise, you're better
off buying gold. You're better off buying natural gas. You're better of
buying wheat...
| A&A Morning Glory Learning Sdn Bhd |
Articles
| A&A Morning Glory Learning Sdn Bhd |
ARTICLES
 | |  | |  | |  | |  | |  | |  | |  |