Jim Rogers on Politics, Money Metals and How To Deal With an Endless Downturn

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Introduction: Jim Rogers was a co-founder of the Quantum Fund, and is creator of the Rogers International Commodities Index (RICI). A native of Demopolis, Alabama, Jim Rogers was entrepreneurial from a young age. His first business venture at age five involved selling peanuts. He attended Yale University where he received a degree in history and then also Oxford University where he focused on philosophy, politics and economics. In 1970, Jim Rogers co-founded the Quantum Fund, possibly the most famous and successful fund of its type. Despite his success, he still makes media and television appearances, focused on the free-market principles he believes in and investments in all vehicles, long and short worldwide, that he espouses. He has issued many warnings about the West’s debt-making profligacy and has concluded that China will likely constitute tomorrow’s most powerful nation-state, in large part because of the energy and discipline of its billion-plus citizens. He is author of many well-received books including the best-selling Investment Biker, a free-market oriented meditation on life and investing.

Daily Bell: Hello, again. Let’s jump right in. Where is gold headed – US$5000 an ounce? Is silver headed toward US$350?

Jim Rogers: I’m not smart enough to know something like that. I own gold and silver and there are a lot of bulls right now. If you look at open interest and see all the speculators who own gold and silver, that’s usually a worrisome sign. I mean, I am not selling my gold and silver, I assure you, but I do worry about all these speculators getting in the market.

Gold and silver will both go much, much higher over the course of the bull market. The bull market has years to go. How high it will go, I don’t know, but maybe read your newsletter – I read it everyday – and so read your newsletter and you will find out where gold and silver are going. I’m not smart enough to know things like that.

Daily Bell: The CFTC just dropped an investigation into silver manipulation. Is it manipulated day-to-day and does it matter?

Jim Rogers: A) It doesn’t matter and B) I don’t think it is. There are conspiracy theorists out there who say it’s manipulated but I don’t buy it. Mainly, I don’t buy it because if it were manipulated like the conspiracy theorists say, it’s been going on for 25 or 30 years. By now somebody would have told us. You can’t keep a secret like that because then the conspirers would have to be all over the world. There would have to be tens of thousands of people. By now we would know about it. I’m a little skeptical.

It doesn’t matter, as far as I’m concerned. Silver is going to go much higher. I own silver and if there’s somebody trying to artificially suppress it, more power to them because in the end it’s going to go up even higher. Whenever you artificially suppress something, once it finally breaks free, boy, does it skyrocket. Look at gold in the ’70s. They artificially kept it down at $35 for a few decades. Finally the market said enough and it went up over 40 times.

Daily Bell: Who owns the gold in the world? Central banks? Individuals? Powerful families?

Jim Rogers: The statistics would probably indicate that the central banks are the largest owners of gold. I don’t know. I haven’t done my homework or checked any of those statistics but it certainly does seem that central banks, if you include the IMF and the US, own quite a lot of it.

Daily Bell: Is silver a better buy than gold right now?

Jim Rogers: As we just discussed, I see a lot of speculation, which gives me pause when I see the speculators in long tooth positions on the futures markets. But if I had to buy one today I’d buy silver, based on historic basis. Gold has been within a few percentage points of it’s all-time high; silver is quite far from it’s all-time high, 30 or 40%. So I would prefer to buy silver to gold but I am not buying either at the moment.

Daily Bell: What about paper gold and silver – ETFs and futures?

Jim Rogers: Well, I own some precious metals in the Rogers Index but I much prefer the physical stuff myself because I’m old-fashioned and simple-minded.

Daily Bell: How about mining stocks? Should people hold them or are they down for the count?

Jim Rogers: Well, with stocks, if you are a good stock picker you will certainly make a lot more in a stock than you will in the commodities itself but you have to be a good stock picker. Studies show that more money has been lost in gold mining stocks over the past century or so than any other sector, including railroads and airlines. You’ve got to be a good stock picker to buy gold stocks, silver stocks. You know, Mark Twain said the definition of a gold mine is a hole in the ground with a liar at the top. If you are a good stock picker, by all means, you’ll make a lot more money but I don’t usually buy gold stocks because I don’t know enough and I’m not smart enough.

Daily Bell: Obviously you follow business cycles. Can you tell our readers how they work and who is responsible for them?

Jim Rogers: It doesn’t make sense that anybody but central banks has been responsible for them in this past century or so. Central banks didn’t always have so much power. Central banks used to be the lenders of last resort for the most part. People handed their own power over, in the past few decades, especially. Central banks, more than anything else, have had the main influence on business cycles in the past few decades. Mankind makes our own mistakes and we cause our own problems. People get exuberant for a while and they spend a lot of money, they add capacity and before you know it you have too much capacity and then you have a business cycle. There’s nothing unusual about it; it’s just the way mankind works.

Daily Bell: If there were no central banks would there still be business cycles?

Jim Rogers: Absolutely. I assure you there will always be business cycles, with or without central banks. We haven’t always had central banks in world history but we will again in world history.

Daily Bell: Would they be as bad?

Jim Rogers: Now, that’s a good question. In the old days, before the central banks had so much power, we used to have panics, and they were usually shorter term, of shorter duration. People would get too exuberant; you would have animal spirit and then the next thing you know, you have a panic. These were usually short and sweet. In 1907, they had the big panic in the US. Washington, New York, everybody got in a lot of trouble but then it didn’t last very long.

That’s the way the system is supposed to work. When people get in trouble, you clean out the system and then you start over. Competent people take over the assets, reorganize and start over. These days, with central banks and government, what happens is the central bank steps in to save everybody and instead of letting the system clean itself out the way that capitalism is supposed to work, the central banks mess it up, trying to save it. That’s why the recession has lasted longer or the depression has lasted longer than it did before. So in answer to the question, yes, central banks make it worse not better.

Daily Bell: What do you think of pure fiat currencies like bitcoin?

Jim Rogers: I don’t know anything about it. I heard the word but don’t know how it works.

Daily Bell: What about the resurgence of Fabian currency ideas like those held by Silvio Gesell and Major Douglas?

Jim Rogers: This did not work in the past and it won’t work now. Nobody wants to be a communist any more. Nobody even wants to be a socialist – but if they want to be a socialist, they want to be a rich socialist. Now, if the world gets into more economic trouble in the next decade or so you are certainly going to have more of that kind of ideology come to the fore again. People are going to be unhappy and they are going to look for answers.

Socialism sounds okay to people, especially people who are suffering. Will it work? NO! It’s never worked. Communism and socialism have failed many, many times and the propaganda notions will get the better of people when things go wrong. I am sure you are going to have a resurgence of all kinds of-off-the-wall economic theories as things get bad but none of them are going to work in the end. They may come to power but they are not going to work in the end.

Daily Bell: We’re probably in for massive price inflation at some point. When do you see that coming?

Jim Rogers: We already have inflation. Nearly every country in the world has acknowledged inflation. India, China, Norway, Australia – most acknowledge there is inflation except the US. The US says there is no inflation. The Bureau of Labor Statistics has been misleading us for a long time. Anyone who shops knows there’s inflation and it’s getting worse. Whether it’s education or entertainment or healthcare, anything, prices are going up. Worldwide inflation is going up and it’s going to get worse before it gets better.

Daily Bell: Will 2013 be a good year, investment-wise? If not, why not?

Jim Rogers: Well, it depends what you are investing in. In cotton it may be a great year, sugar may be a great year, currency may be a great year, selling stocks short may be a great year. Bonds – I don’t think it is going to be good for bonds.

Daily Bell: Let’s switch gears. What are your thoughts on China these days?

Jim Rogers: China has been trying to slow its economy for three years and they seem to be successful at it. At the same time, as you know, you have the West with numerous problems, and since the West has ten times the size of China’s economy, if you do business with the West you know there’s a problem, if you’re in China. If you’re in real estate in China you probably have problems. The Chinese government has been trying to kill the real estate bubble for over three years now and it looks like they are successful. Some parts of the Chinese economy are booming and will continue to boom. If you are in agriculture or water treatment or air pollution you are making a fortune in China because the government is doing everything they can to clean up the situation.

So when you ask what I think about China, there are many aspects to that question. I think China is going to be the most important country in the 21st century. Over the next few months a lot of people in China are going to be bankrupt and some are going to boom.

Daily Bell: Is it destabilizing?

Jim Rogers: If you are in real estate development in China you are destabilizing if you go bankrupt. What is destabilizing are the American central banks. Again, I want to repeat that America and Europe are over ten times the size of the Chinese economy. It’s hard for the Chinese economy to destabilize the world.

Daily Bell: What about Europe? Where is Europe headed?

Jim Rogers: Well there are many countries in Europe and some are doing better than others. Bulgaria is getting into a lot of agriculture and has shaped up its government. It’s going to be in better shape than places like Greece, which has not shaped up its government, which continue to spend a lot of money. Some countries in Europe are going to have serious problems down the road. I doubt the European economy is going to do well in the next few years and I don’t think the US is going to do well in the next year.

Daily Bell: Is austerity a workable solution?

Jim Rogers: Again, spending money you don’t have is not a workable solution; eventually, you are going to run out of other people’s money. Now, there’s not really any austerity in Europe. When you look at the projections, every government in Europe shows higher deficits over the next year; nobody has real austerity. All of these countries are talking one thing but doing another thing. The debts continue to rise and that’s not austerity.

Daily Bell: How about the US? Is the economy headed for a double-dip?

Jim Rogers: I’m not sure we ever got out of the last economic slowdown. Unemployment is higher than it’s ever been in most of our lifetimes and it will continue to be higher. We will certainly continue to have economic problems in the US. I suspect 2013 and 2014 will be bad again in the world economy, and certainly in the US economy.

Daily Bell: Who’s going to win the election?

Jim Rogers: I actually think Mr. Obama will win the election. It’s very difficult to unseat a president in the US. I think the Republicans have only done it once in the last hundred years. Once you are in power you have a lot of money to spend, and Mr. Obama has a lot of money to spend in places like Ohio. His popularity is going up in Ohio because he’s spending the money there. Because of that I suspect Mr. Obama will win. I didn’t say it was good for America or good for the world but I suspect he will win.

Daily Bell: What happened to Ron Paul?

Jim Rogers: His campaign didn’t win. He’s willing to fight the central bank for all of us but he didn’t win. It’s still difficult in America to teach people about reality because most people, even educated, and most politicians have a different view of the world. They don’t understand the real world; they don’t understand economics or history. Ron does but it’s hard to persuade people of that, as Ron clearly demonstrated.

Daily Bell: So you think Obama will win. What will that do to the American economy? Would Mitt Romney be any better?

Jim Rogers: No. They are both the same, as far as I’m concerned, Mr. Obama and Mr. Romney. One’s from Boston and one’s from Chicago. They both have the same view of the world and how the world works. These are the guys who got us into this situation. I don’t know why the world thinks they can solve our problems. They are both going to make our problems worse.

Daily Bell: Is the world headed toward a kind of global depression?

Jim Rogers: As I said, if you are in Chinese real estate and you go bankrupt you are going to get some depression. But some parts of the world economy, like agriculture, are going to boom. Overall, I don’t expect great things moving forward.

Daily Bell: Where are some monetary safe havens? Water? Food? Oil?

Jim Rogers: Agriculture – I am wildly bullish on agriculture. Water – I wouldn’t own water. If you own water, if things get tough they are going to take it away from you. They will confiscate it and maybe put you in jail for being so outrageous as to own water.

Some countries I’m excited about. North Korea, Angola – there are countries where there are very exciting things going on. If you are a farmer you aren’t going to know that Greece is going bankrupt. You are not going to care. You are too busy going to work every day to make money. If you are in water treatment it’s the same thing.

Daily Bell: How are the nation-states around the world going to react to more economic difficulties? Are they going to continue to raise taxes and inflate?

Jim Rogers: They are going to inflate – that’s all they know. They will print money. They will also put in motion the power to own other people. They will put on price controls and they will put on exchange controls; neither will work. It will make the situation worse but that’s all they know. They will blame it on others for a while and then they will put in place measures that will make the situation worse. And eventually, we hope that somebody will come to their senses before we hit rock bottom and start the process over in spite of the politicians.

Politicians always look for the easy answer. That’s one reason why socialism has a repeal periodically, socialistic kinds of measures, because people want the easy answer. But the easy answer is not going to work. The easy answer never works. They will try the easy way and make the situation worse.

Daily Bell: Are there going to be additional wars?

Jim Rogers: Oh, yeah. Throughout history there has always been war. There is no period in history where we didn’t have wars of some sort. Politicians like to blame somebody and it’s easier to blame foreigners, so as tensions rise people will blame foreigners more and more.

Also, I’m told throughout history when you have shortages of raw materials, that leads to strife and wars and we have shortages of raw materials developing which will be bigger and bigger. So we will have wars.

Daily Bell: How do you see the Middle East playing out? Are the US and NATO purposefully trying to destabilize the area? Is there some sort of plan to create a religious war?

Jim Rogers: I don’t know if there is a plan. Maybe some Machiavellian types have a plan to stir up things and cause a war but I don’t think any fellow has a plan to do that. The Israelis say they want to bomb Iran, which would cause a war, but I don’t think any government has a plan to cause a war.

Now, will there be wars in the Middle East? That’s a different question. These countries all seem to be making mistakes and when you have economic problems that always seems to lead to war and that’s the right place for it. The players are making the mistakes and it seems inevitable.

Daily Bell: What should people do when faced with all these difficulties?

Jim Rogers: Be very careful. Study some history and study some economics and see how these things always play out in the end. Prepare yourself. Make sure you have a professional advisor and you should do okay. Make sure you have investments that will do okay. Move to a new country if you are worried about your own country.

Daily Bell: What are YOU doing?

Jim Rogers: Well, I own commodities and currencies. I short stocks. I teach my children Mandarin. Both of my children speak perfect Mandarin. Both English and Mandarin will be important in the 21st century, in my view. We moved to Singapore so my children could learn and speak Mandarin. That’s how I’m living my life. If you talk to me in 30 years I’ll tell you whether I’m doing it right or not.

Daily Bell: Are you writing any more books?

Jim Rogers: Yes. I have a book coming out in February called Street Smarts. I am wrapping it up right now. I just took photographs for the cover last week.

Daily Bell: Could you tell our readers what you like most about The Daily Bell and our style of analysis?

Jim Rogers: I read it every day so I must find something interesting about it.

Daily Bell: Any final points you want to make?

Jim Rogers: Be very careful. These are perilous times and it’s going to get worse.

Daily Bell: Thanks for your time.

Jim Rogers: It’s my pleasure.

Daily Bell After Thoughts

We have one big agreement with Mr. Rogers and one disagreement. The agreement is about President Barack Obama – we also think he will be reelected. The disagreement is about China. Rogers thinks the downturn there is and will be patchy but we tend to believe it will affect a broad swath of Asia (not just China).

Of course, these are vital economies and no doubt will snap back. But monetary depressions can be relentless so we don’t expect that China and Asia will be in any sense immune. These downturns have already started, from what we can tell.

We certainly agree with Mr. Rogers about Barack Obama and have written so in the past. This is one single party we’re dealing with and it works just like British royalty – royalty that seeks an heir and a spare.

In this case, Romney is the spare and Obama is the heir, the designated one. The powers-that-be have a great deal invested in Obama after four years and we’d be very surprised if he lost.

As always, we enjoyed our time with Mr. Rogers and are pleased that he shared his thoughts with us again. We look forward to reading his book.

Reprinted with permission from The Daily Bell.

Anthony Wile is an author, columnist, media commentator and entrepreneur focused on developing projects that promote the general advancement of free-market thinking concepts. He is the chief editor of the popular free-market oriented news site, TheDailyBell.com. Mr. Wile is the Executive Director of The Foundation for the Advancement of Free-Market Thinking — a non-profit Liechtenstein-based foundation. His most popular book, High Alert, is now in its third edition and available in several languages. Other notable books written by Mr. Wile include The Liberation of Flockhead (2002) and The Value of Gold (2002).

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