interview
Commodities Still Heating Up
TALKING WITH JIM ROGERS
Jim Rogers is an author, financial commentator, and international investor. He cofounded the Quantum Fund, a global investment partnership. Over 10 years, the portfolio gained 4,200%, while the S&P rose less than 50%. In Investment Biker: On the Road with Jim Rogers, he chronicled his 100,000-mile motorcycle tour across six continents, and the investment ideas he generated along the way. He is also the author of Adventure Capitalist: The Ultimate Road Trip; Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market; and A Bull in China: Investing Profitably in the World’s Greatest Market. A native of Demopolis, Alabama, Rogers currently lives in Singapore.
FEINBERG: How long will the bull market in commodities last?
ROGERS: The bull market is going to last until massive new amounts of supply surface, or until there’s no more demand. No major oil field has been discovered in over 40 years. The number of ventures devoted to wheat farming has been declining for 30 years. The inventories of food haven’t sunk this low for 50 or 60 years. Until that changes, the bull market in commodities is unthreatened.
Do you believe the stock bull market is over?
It sure is. The S&P 500 is lower than it was in 2000. This isn’t just a correction—that bull market is finished.
When do you know a bull market is over?
Well, I’d say that eight years of declining prices are a good indication. If commodities stay down for eight years, that bull market is done. But the world has gigantic economic problems now, and in the next eight years we’re going to see stocks take a much harder fall than commodities will.
To what extent is the increase in demand for commodities by developing countries such as China and India affecting the price of commodities?
Those are new sources of demand, but that’s not what’s causing the bull market. Developing countries have an effect on commodity prices, but other factors play a more significant role in the escalation of commodity prices. Commodities are going up because supply is down.
Are the increased prices of food commodities responsible for inflation in food prices?
When commodity prices go up, that means we all have to pay more for our cotton—or whatever it happens to be. That situation results in inflation unless the prices of other things drop. But other prices won’t be dropping as long as central banks keep printing money.
“Who became a farmer in the past 20 or 30 years? The world is about to reap the consequences of the very low food prices of the past several decades.”
Do you think central banks printing money—and the resultant inflation—is part of what’s keeping the bull market in commodities going?
Of course it is. If interest rates were, say, 20%, I suspect there would not be nearly as much demand. And of course there’d be no inflation, either.
Do you believe interest rates should be higher, that central banks should get tougher?
Inflation is not good. Once it gets into the system, it’s very difficult to root out. So I would be in favor of a sharp hike in interest rates. Because of force-feeding from the central banks, the markets aren’t able to determine interest rates. Eventually, however, the markets will simply ignore the central banks and interest rates will escalate.
Could increased prices of products such as wheat, corn, and soy beans lead to food inflation, and ultimately to food shortages in developing countries?
We’ve read about periods in history when many parts of the world could not get food at any price. That may be about to happen again. It’s never happened in our lifetime, not worldwide, but the number of acres devoted to wheat farming has been declining for 30 years. The inventories of food are the lowest they’ve been in decades. There are shortages of everything—feed, fertilizer, tractors, tires. There’s a shortage of farmers. The farmers are now old men. Who became a farmer in the past 20 or 30 years? The world is about to reap the consequences of the very low food prices of the past several decades.
Will the increase in prices lead to more farmers?
When a profession has made money people have always flocked to it. And farming may become more and more profitable now, in which case a lot of people may leave Wall Street to become farmers. Wall Street will be a terrible place for several more years, but farming’s going to be wonderful. I don’t know if former Bear Stearns bond traders will actually take up farming, but agriculture may become a career path for those who might otherwise have pursued journalism, law, or so on.
When do you foresee a plateau or even a decline in prices?
Different commodities will have their own cycles. Indonesia and Malaysia are already clearing forests to plant palm trees for palm oil. Of course, it takes several years for a palm tree to mature. We’re already seeing some product expansion right now, however. For example, the number of acres devoted to corn went up this year in the United States. Conversely, though, other things went down—there’s only so much farm land. Fewer acres are currently planted with cotton than with corn. It will take a while, but if cotton ever goes to $4 a pound you’ll see them planting cotton in Central Park.
Do you recommend that investors put more money into commodities than into stocks or bonds at present?
You have to invest in what you know. If you don’t know anything about commodities, then don’t put any money in commodities—but you might start doing some homework. Commodities is one of the very few bull markets around right now.
If we’d been doing our homework over the past 10 years, would we now be looking at a higher allocation to commodities and a lower allocation to equities and bonds?
The commodities market has done 1,300%–1,400% better than the stock market. So, yes. People missed that.
Are commodities a safe place to put our money now?
I don’t ever use the word safe when talking about the investment world. I don’t know of any such thing as a safe investment.
Phyllis Feinberg is a journalist working in New York City.
