I recently had a chat with fellow Singapore resident Jim Rogers, one of the most successful investors in history.
Jim co-founded the Quantum Fund, one of the world’s most successful hedge funds. After the fund generated returns of more than 4,200 percent over ten years, Rogers quit full-time investing.
He went on to drive around the world, literally, and write several excellent books that blend travelogue, investment insight, and political commentary. Today, Jim is viewed as one of the founding fathers of the boots-on-the-ground approach to investing in emerging and frontier markets around the world.
So, when he talks about the big-picture trends that are shaping world markets, it’s worth listening.
Below is Part 1 of my chat with Jim Rogers. I’ve included additional comments, to help provide context for and expand on Jim’s thoughts (all graphs and commentary in brackets are mine).
Stay tuned for Part 2 next week.
Q: Jim, what do you think of what’s going on in the world now?
Jim Rogers: The world is going to have serious problems because of the massive buildup in debt over the past eight years. It’s going to be serious, and worse than the global economic crisis in 2008-2009, because we have so much more debt now. For example, the balance of the Federal Reserve in the U.S. has increased by more than six times.
It’s going to hit Asia as well. In 2008, Asia had saved a lot of money for a rainy day. But now, much of that has been spent. And China has a lot of debt now. It’s going to be worse this time.
Jim Rogers: That’s a good question. I’m short U.S. markets [when you’re “short” a security, it means you’ve sold it in anticipation of buying it back at a later date; it’s a way to profit from a decline in the price of an asset]. U.S. markets are still near all-time highs. On the New York Stock Exchange in 2015, twice as many stocks were down as were up for the year. The indices were dragged up by the big 10 or so stocks that dominate the indices. So the markets there have been deteriorating for a while. It’s clear that there is an underlying problem.
[The chart below shows how a few large technology stocks on the NASDAQ boosted the performance of the index.]
I’m long China [“long” is when you buy an asset in the expectation that it will appreciate in value; it’s the opposite of “short”]. It’s not because I don’t expect problems there. But the market is already down a long way. It’s a question of being long the right companies in China.
[Investors who agree with Jim have a lot of easier ways to be long Chinese shares, through ETFs like the Lyxor China H ETF (Singapore, code: P58), or the iShares FTSE A50 China Index ETF (Hong Kong, code: 2823)].
Q: What about currencies?
Jim Rogers: Although I’m short U.S. markets, I’m long the U.S. dollar. In times of turmoil, like I think we’ll be facing soon, people look for a safe haven. There are a lot of problems with the U.S. dollar, but it usually has been the best place to be when things go bad. And I don’t want to buy the euro or the yen – they have their own problems.
At some point, the U.S. dollar will be overpriced. And there are a lot of dollar longs [investors who think the dollar will keep climbing] out there, which worries me. If it goes into bubble territory, it will be time to sell. After that, I’d look at getting into the Chinese yuan or precious metals or something else, depending on how the world evolves.
Aside from that, people need to learn how to sell short. It’s the best way to profit from markets when they fall.
This concludes part 1 of my chat with Jim Rogers. In Part 2, Jim gives his insights into gold, real estate and the bond market. He also tells us where he’s investing his money right now. So, stay tuned.