Jim Rogers, trend spotter

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Outside a small jewellery shop off Serangoon Road’s Little India district, the four of them hardly look like a typical Singapore family. Jim Rogers, the legendary investor and former hedge-fund manager, is haggling with the proprietor, with his wife Paige and two daughters — sari-clad Happy, six, and 18-month-old Baby Bee — in tow. “I am a PR, I live here in Singapore, so don’t give me your tourist prices,” he barks. “Give me your best price.” Not satisfied with the meagre price reduction offered by the jeweller, he grabs Happy’s arm and walks away.

Rogers, 66, the man once described as the “Indiana Jones of Investing”, calls Singapore home these days. From his rented bungalow near the Botanic Gardens, he has been churning out books on investment pointers and regularly flies around the world on the speech circuit to talk about his new passions — late parenthood, China, Asia, water and, more recently, global airlines.

Much to the chagrin of his detractors, Rogers is as outspoken as ever and ruffling as many feathers as he did in his heyday as a co-founder of the Quantum Fund with billionaire hedge-fund manager George Soros. He is also extremely focused. He passionately preaches the benefits of investing in raw materials, China and water to audiences around the world.

Investment biker, commodities guru, former hedge-fund manager, ex-university professor, celebrity father, recent Singapore resident — Rogers wears many hats. “I came to fatherhood late and I am realising that I will miss it all if I don’t spend more time with my family,” says the man who has three entries in the Guinness Book of Records to his name — for two round-the-world tours and for being part of the winning rowing team at Oxford.

After nearly two years of scouting places in Asia, Rogers and his family finally relocated to Singapore in mid-2007. “We sold our house in New York to begin a new life as close as we could to where we think the action is right now: China.” Originally, the family’s preference was a Chinese city. “We looked at Shanghai and Hong Kong, but the pollution was horrible,” he says.

“Singapore isn’t China, but it’s an Asian city, predominantly Chinese. It’s clean, everything seems to work here; it’s got good schools, a great healthcare system.” Moreover, having spent several long holidays here in 2005 and 2006, the family had taken a liking to Singapore.

Friends in New York tried to talk Rogers out of relocating to Asia. “I know many knowledgeable, successful people, but even they said to me: Are you crazy?” Many of his friends are fairly well travelled, but to them, Asia was some strange place with billions of poor, starving people living in dirty, polluted and overcrowded cities. “They couldn’t understand why anyone in his right mind would want to leave New York City and move to Singapore or, for that matter, any other city in Asia,” says Rogers as he gets on his exercise bike. “It’s hard for Americans to understand that there is a shift taking place, as the world axis is moving from North America to Asia, or more precisely China.” Having made his money, having travelled the world and now the father of two young girls, he wanted his family to be as close to the action as possible.

Rogers is basically a one-man research organisation; he prefers to do his own grunt work rather than hiring a bunch of young MBA types to do it for him. “I basically do my own research because I know what I’m looking for.” More­over, he’d rather make his own investment decisions. “If I go broke, I want to know how I went broke rather than blaming some young punk for mismanaging my money or screwing up on research.” One key lesson in his latest book of investment advice to his children is: “Never trust anyone. Trust your own judgement.”

His critics say Rogers is advocating putting all of one’s eggs in one basket or betting big on a single trend, which can be very risky. In recent years, his two big calls have been resources and the growth in China, which is driving the global commodities boom with its insatiable demand for raw materials. But, betting the house on risky commodities and China is not what he is all about.

“Look, nobody ever got rich diversifying,” he says a little defensively. “Diversification was something hare-brained investment advisers came up with so they could sell all sorts of fancy investment products and charge big fees. Henry Ford never diversified.

You need to identify a good investment trend and stick with it.” Even legendary billionaire investor Warren Buffett, who runs diversified conglomerate Berkshire Hathaway, isn’t spreading his risks just for the sake of diversification, Rogers says. “Buffett would tell you that he buys a lot of things that have similar characteristics.”

In Rogers’ view, the best investments right now are commodities and China. “I started talking about commodities 12 years ago when prices were so low that people laughed at me,” he recalls. He has also been talking about China for over a decade. “So far, on both counts, I’ve done well. I’ve made money for myself and many of those who followed my advice have made money. Am I glad that these critics of mine who feel I should be advocating a more diversified portfolio instead of talking about just commodities and China are not managing my money? You bet.”

Clearly, there is method to his madness. “I try to identify long-term trends and bet on them because I have never been a great timer of the market. I can’t tell you how the market might do next week or sometimes even next year. But, I have found that I’m good at identifying long-term trends. I bet on trends because I’m too lazy or incompetent to invest any other way.”

In 1998, Rogers started the Rogers International Commodities Index, predicting that the next commodity bull run had just begun. The index is up 170% over the past decade. What’s driving this secular bull market in commodities? The way Rogers sees it, there is no great supply of any major tradeable commodity coming on stream to derail the commodity markets. “If the world economy recovers, commodities will be the best place to be because there will be supply shortages, and if the global economy doesn’t recover, commodities will still be the best investment because everybody will be printing money and you will have hard assets that will appreciate in value,” grins Rogers. “Wouldn’t you rather invest in hard assets like a barrel of oil or bags of sugar than Bank of America shares if the world’s economies continue to decline?”

Moreover, the recent credit crunch has helped the commodities case. “Farmers can’t get credit and mining companies are having problems getting loans,” says the commodities guru. Because companies can’t raise money for exploration, there are going to be no new mines in operation. Because it often takes up to 10 years from the day you start to the day you are in full production, the dearth of investment in recent years would lead to more supply shortages for years to come.

Rogers disagrees with the view that the commodities cycle peaked last year and that it might be a while before the next upturn begins. “No, no, no,” he protests. What the world is seeing now is not a commodities bear market but a temporary lull in the bull market. “No bull market ever follows a straight line up,” he explains. There are corrections in every bull market, he says.

Commodities cycles in the past have lasted between 18 and 20 years, but just because the last cycle was 18 years doesn’t mean the next one would be 18 years. “The supply situation is getting worse and inventories for agricultural commodities are the lowest they have been in decades,” he says. “That tells me that the current secular bull market for commodities may be a lot longer.”

Investment strategyOver the last couple of years, his investment strategy has been “long China, long commodities and short financial stocks”. Rogers began shorting US financial stocks over a year ago, before the US financial crisis, but closed all his short positions before the end of last year. “I made a lot of money shorting financial stocks in the US last year, but I don’t have any exposure there any more,” he told The Edge Singapore in a series of interviews recently. While his shorts in the US were making money for him late last year, his long bets on raw materials were not. “I’m still bullish on commodities and if the prices go down from these levels, I’ll be a buyer.”

His China call has been equally spectacular. China stocks have done very well in the recent rally, although Rogers says he hasn’t been buying lately because of valuation concerns. “Chinese stocks will, at some point, correct from their high levels. But, the further they fall, the better the opportunity for investors to accumulate,” he says. Another side bet is water. “China has a horrible water problem, which it needs to address,” he says. “It needs water for agriculture as well as for drinking. India’s water problem is even more severe.” Rogers has been an early investor in China’s water-treatment companies. “The opportunity in the water sector is going to be huge over the long term,” he says.

Apart from his bets on commodities and China, Rogers recently identified global airlines as a sector that will outperform. Airlines? That’s right. But, doesn’t that go against his big bet on commodities? After all, if Rogers is right and oil prices are going to go through the roof once again, wouldn’t airlines suffer? They might, but he is betting on a long-term trend rather than a 12-month horizon. “I’m not making or betting any money on it yet, but if I’m right, over the next five to 10 years, you might find that global airlines would do very well,” he predicts. The way he sees it, some might suffer for a few years and others might go bust, but over 10 years, the stronger players will have a bigger share of the market and better economies of scale.

His thesis is simple: If the world recovers, airlines will be back on track on demand from new Asian travellers. In January, he launched the new Rogers Airlines Index in partnership with Royal Bank of Scotland, comprising 20 listed airlines around the world, including local flag-carrier Singapore Airlines. “When I first looked at the airline sector, I was very encouraged by the fact that there was no global airlines index,” says Rogers. He is betting that the global airlines index will outperform benchmark indices like the Standard & Poor’s 500 Index, the Dow Jones Industrial Average or the tech-heavy Nasdaq.

But, doesn’t legendary investor Warren Buffett hate airlines? Indeed, didn’t Buffett once say he hadn’t seen a greater destroyer of value over time than the airline sector? He did, but that’s no reason to stay away from airlines now. “Warren Buffett made a few mistakes with US airlines, but that was long ago,” recalls Rogers. Airlines have lost tens of billions over the last decade, many have gone bankrupt and that’s all usually a sign of a bottom, he says. Still, haven’t the basics of the airline sector remained unchanged? Their seats are a perishable commodity, oil still makes up a big part of costs and the industry is still heavily regulated.

Rogers says the sector has been in such dire straits for so long that it is on the verge of a turnaround. In China, India and other emerging economies, people are becoming more prosperous and starting to travel within and outside their countries. “You can’t take a bus from Shanghai to London or a boat from Beijing to New York,” he says. “If you are in Singapore, you need to a plane to go anywhere.”

The way Rogers sees it, it will take decades to build a vast network of highways in China, India, Indonesia and Brazil that is anywhere near those in Europe or North America. That means people will be forced to fly, whether it is within China, within Asia or to Europe or the US. “Airlines will need bigger planes. There are only two aircraft manufacturers — Boeing and Airbus — and they have production problems and there are serious capacity constraints with planes sold out for years.” If his bet on China is right, Rogers says, his bet on airlines will work out as well.

Another of Rogers’ big bets is agriculture and agricultural land. Last year, one of his funds started buying farmland in Brazil and Canada. “I believe agriculture is going to be the area of growth in the next decade because it’s been the most neglected sector,” he declares. The biggest problem in agriculture is the shortage of able-bodied farmers. “For decades now, young people all over the world had sought to leave the countryside and head for the bright lights of the cities,” he says. “They wanted to work for a bank or in some other high-paying sector where they didn’t have to sweat and toil. The result is that in many places, most farmers are old men and as they die, there aren’t enough people left who want to do farming.”

Moreover, farmers have already extracted most of the benefits from technology like better seeds and fertilisers to increase yields. “People are not going to stop eating,” Rogers says. Indeed, increasingly prosperous Chinese, Indians and Brazilians are now eating better and somebody is going to have produce wheat, rice and vegetables to feed them. “We have seen over the past few years that shortages are developing in a range of agricultural products and prices are still unbelievably low on a historical basis.” Sugar, for example, is more than 70% below its all-time high.

 “What else can you find in this world that is 70% cheaper than it was 20 years ago?” asks Rogers. Maybe sugar was too high and at bubble levels 20 years ago? Maybe, “but at 70% from its peak, it’s certainly too cheap now. The only way it will go from here is up,” predicts Rogers.

But, a blind bet on agriculture just won’t do, he insists. “First, you need to buy the right farmland,” he says. “No point buying land if there is no access to water or in an area with no rain. You also need the right farmers.” With supplies down and demand for agricultural products growing, the potential for profits is huge. “With the right farmland, farmers and the right crop, you can make a ton of money over the next 10 or 20 years because nobody else will have the supplies and everyone needs to eat.”

Betting against US dollarRogers is ready to make a bigger longer-term bet against the US dollar. He has long been concerned about what he calls a looming currency crisis. A decade ago, when the euro was created and adopted as the official currency of 11 Eurozone member states, Rogers was dismissive of it, betting that it would never replace the US dollar. He’s changed his view on the euro now since he’s so bearish on the US dollar. But, no prizes for guessing the currencies he would buy now: the renminbi and the yen.

“Currency crises gradually build up,” he says. “I don’t think we will have a currency crisis this year or even next. But, something has to give. There are a lot of imbalances that are developing in the world. There is always a lag before things break down. I have no idea whether it starts with the US dollar or the pound sterling, but at some point, something will trigger a crisis.” When it does, the US dollar will fall sharply. 

Rogers may not know what will trigger a global currency crisis, but he knows how to be provocative. Early this year, UK Prime Minister Gordon Brown made him a celebrity in Europe by calling him names after Rogers painted an “Armageddon-esque vision” of the UK, predicting that the pound sterling might reach parity with the US dollar. What was the fuss all about? Rogers had been quoted as saying in London that, as the UK’s national debt increased and its economy could no longer rely on the City of London’s financial centre and North Sea oil supplies, the pound sterling would come under severe pressure and decline sharply in value over time. Hardly words that should get a top world leader worked up.

Yet a beleaguered Brown, who had been fighting for his political life for months, sensed an opportunity for political mileage. He took on Rogers and kept up the attacks for days, making a fool of himself in the process. Brown accused Rogers of being a “speculator” seeking to profit from the UK’s financial crisis. The prime minister’s comments were plastered all over the British media. Brown versus Rogers became the duel of the century and fodder for the British tabloids.

Rogers laughs as he recalls the episode. “Gordon Brown once said a weak currency was a sign of a weak country, which in turn was a sign of a weak government. Need I say more?”

But, wasn’t he, like his former partner Soros, who made billions betting against the pound in the early 1990s, kicking a dying horse to milk huge profits for himself? Rogers says allegations that he was a speculator were way off the mark. “First of all, I have no investment positions in the UK, long or short. So, whether the pound  went up or down, or how the market did in London, has no real impact on my investments.” He claims he sold all his pounds nearly two years ago, long before the current crisis.

‘US over-extended’Brown isn’t the only world leader who has faced Rogers’ ire in recent years. Indeed, Rogers has been a vocal critic of US economic policies for years. He was scathing of George W Bush and his Treasury secretary Hank Paulson and he is equally critical of President Barack Obama’s administration. “The US has been in a bear market for a decade now, simply because of its economic policies,” he says. 

So, where does he think the US went wrong? “Every great country eventually matures, peaks, makes a lot of mistakes and then goes into decline,” says Rogers, who is a history buff. “The US in recent years has printed gigantic amounts of money, spent huge amounts that it didn’t have, developed a military presence all over the world, fought wars, made enemies and alienated friends.” Americans made the same mistakes that all other great powers made in their time, he says.

The lesson China can learn from the rise and fall of the US, says Rogers, is that no country “should ever get over-extended — financially, militarily and geopolitically”. The lesson for whoever is the next big power is to let the world take care of itself instead of trying to be the world’s policeman. Economically, Rogers says, all great powers make the same mistake of believing that they can consume rather save and invest. “The nation that is not saving and investing as a nation is bound to deteriorate over time,” he says.

While some of what he says could have come from a right-wing capitalist playbook, don’t try to put labels on Rogers because they’ll come unstuck. “I’m neither right-wing nor left-wing, neither a Republican nor a Democrat.” Indeed, the Alabama native boasts that he has never voted for a winning US president in his life. “When I have voted, I have used my vote as a protest tool,” he says. The way he sees it, there are many things in the US that need fixing, but both political parties only pander to popular causes and look for the lowest common denominators rather than doing what is best for the US. “If you keep voting for turkeys, you are going churn out more turkeys.”

So, what does one of the world’s more respected investors believe are the US’ options now? “Left to its own devices, our central bank, the US Federal Reserve, will keep on printing money until we run out of trees,” he says. “Heck, they might even print money on cotton if they run out of all the paper in the world. But, seriously, the best thing to do is to let bad companies go bankrupt rather than keep zombie companies alive. Obama should have let bad companies or their assets be taken over by competent people who can reorganise things and start over.”

Rogers has been critical of huge bank bailouts by taxpayers, which he has likened to “socialism for the wealthy”. He says he doesn’t like bailouts “because they reward incompetent management and deprive competent managers of the opportunities to grow by acquiring the assets of troubled companies. Unfortunately, bailouts back losers, not winners”.

What’s wrong with Obama’s economic policies? “I’m not an economist but I do know that you cannot solve the problem of too much consumption and too much debt with more debt and more consumption,” Rogers says. “That’s a recipe for disaster. The trouble with politicians is that they want to show that they are doing something. Often, the best thing they can do is to do nothing.”

He is equally scathing of US Fed chairman Ben Bernanke. “Central bankers are neither gods nor geniuses,” he says, but they like people to believe they are both. “Throughout history, whenever governments have printed huge amounts of money or spent a lot of money they didn’t have, it has led to higher inflation. I believe we are going to see history repeat itself.”

A new vocationIn recent years, Rogers has added author to his impressive list of vocations. He has written five books so far, four of them over the last five years. That’s prolific by any standard. Investment Biker, a travelogue of his tour on a motorbike, was published in 1992. Adventure Capitalist, another travelogue, this time of a trip in a custom-designed Mercedes Benz, was published in 2003. More books have followed since. Hot Commodities, a tome about the bull market in raw materials, was published in 2005, and A Bull in China, a book about his investments in China, was published in 2007.

Just three months ago, Rogers published a booklet, A Gift To My Children: A Father’s Lessons for Life and Investing. In a way, he has taken to writing like a duck takes to water. “The book about commodities was all in my head. I have been following commodities for three or four decades now. I spent some time gathering some material for it, but it didn’t take me that long to write it.” Writing the book about China wasn’t too difficult either. He has travelled throughout China since his first trip there over 25 years ago.

No new books are in the works for now. “I think I have done more than my share of books,” says Rogers. “I am saturated.” Asked if some day he might do a book about living in Asia or raising a family in Singapore, he chuckles. “I doubt it, but who knows what I might do in a few years. If you had asked some years ago whether I would write five books, I would have said, ‘You must be crazy,’ but I’ve now written five books.”

As he talks about his books, Happy, who is playing, interrupts to say that she, too, has written a book. “You have?” asks Rogers, who then instructs her to go back to her language lessons Happy is learning Mandarin at home with a full-time governess who normally speaks to her only in Chinese. She also recently began taking Spanish lessons as well. “In 20 years, Mandarin, English and Spanish will be the three key languages in the world and I’d like my daughters to speak at least two — Mandarin and English — and if they can, they should learn Spanish as well,” says Rogers. “It’d be great if they were fluent in all three, but I’d be glad if they are fluent in just Mandarin and English.”

Don’t ask Rogers to teach his daughters Hindi anytime soon, although Happy likes strolling in Serangoon Road’s Little India and loves to show off her Indian bangles to visitors. Long recognised as a “China Bull”, Rogers, unfortunately, has never been a fan of India’s growth story. Having travelled through the length and breadth of the subcontinent, he has horror stories from his two adventure trips as well as subsequent holidays and speaking engagements there.

“Sure, India has a lot of promise, but I don’t yet see it as the next China,” he says. What’s wrong with India? “Frankly, India is not moving fast enough on reforms,” he says matter-of-factly. “They have been reluctant to privatise anything. They have been reluctant to allow foreign companies the sort of leeway that China has given.” And, India’s bureaucracy is legendary. “I know things have improved in recent years, but until India moves aggressively on reforms, cuts through the bureaucracy, it will never be an economic power like China,” he says. Still, he concedes he’ll happily “change my views on India when India changes”.

What of other emerging Asian giants? Rogers has been watching Indonesia, but not as closely as he should, he admits. He rattles off pluses: “Indonesia has just held elections. They have commodities, they have a lot of other things going for them.” Then, he lists the negatives: “They are now a net importer of oil, having been a net exporter for decades. But, maybe Indonesia is a country to watch, although things are not all rosy there.”

A typical day for Rogers begins fairly early in the morning. “When you have a six-year-old and an 18-month-old, you need to be up early,” he says. After breakfast and playing with the girls for a while, Rogers gets on his exercise bike and reads the newspapers on the Internet from a laptop attached to the bike. Another late-morning ritual is taking his daughter to a nearby school. The rest of the day, he “might do some research, answer emails, watch how the markets are doing, read something, maybe go out and meet people”.

Rogers still travels on the global speech circuit doing presentations — a hedge-fund conference in Europe, an economics seminar in Tokyo or a speech in some city in China. He says he is trying to cut down on overseas speaking engagements to spend more time with his family. As he strolls along Serangoon Road with his family, Rogers stops to look at another stall, then moves on. The veteran investor is clearly in his element in his adopted homeland.

This article appeared in Corporate page of The Edge Malaysia, Issue 764, July 20-July 26, 2009