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Interview: Jim Rogers

Jan. 10, 2014

Investors turn to Jim Rogers for his views on stocks,currencies...gold. He co-founded a hedge fund with George Soros in the 1970's, retired at 37 then picked up again. He lives in Singapore but travels all the time, talking about his investment strategy. Rogers shared some of his views with NHK WORLD's Ai Uchida on what's coming in the year ahead.

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Jim Rogers

Chairman, Rogers Holdings

What are you focused on this year?

I am worried about what is going on in the state of the world. Just all of this crazy money printing... It is distorting a lot of markets. It is the first time in the recorded history that every major country's central banks is printing huge amounts of money to debase their currencies. Look out the window...you will see that there is the artificial ocean of liquidity is rising everywhere in the world. That is going to end very, very badly for all of us when it ends. I don't think it is going to end in 2014. But the biggest risk is when that crazy artificial sea of liquidity ends, we are all going to pay the price.

What does that mean, paying the price?

You are going to have a lot of people going bankrupt because a lot of people are going to be on the wrong side when interest rates start to go higher and they are going to very high this time because it has been so artificially suppressed. Look at the interest rates in Japan. Look at the interest rates in America.

You know, you have politicians around the world destroying the people who save and invest. Many people in the world have saved their money and invested for their future. But they have been wiped out now because politicians have interest rates at very low rates. And they have these artificially low interest rates in order to bail out the people who did it wrong, the people who went deep into debt and made serious mistakes. So, they are bailing out the debtors at the expense of the creditors. And that is ruining the world.

That goes the other way, interest rates are going to go very, very high which is going to lead to lots of turmoil in the currency markets. You see that the Japanese currency is already down, over 25 percent in a year. That is astonishing. Very few times in the world history has a major currency collapsed 25 percent in one year. When is it going to be more of that? And some people are going to be on the wrong side of the trades. I hope I am not one of them.

But when it starts to unraveling with the artificial sea of liquidity starts drying up, there are going to be bankruptcies, currency turmoil, high interest rates, trade patterns are going to change; it is not going to be fun.

Did Central Banks dominate the headlines in 2013 as well?

Well, if you are talking about the financial community and the economic community, yes, They had central banks, the Federal Reserve especially, were just about the only game in town. It really didn't matter about the economy in the world; it didn't matter about companies or their earnings.

How long will the party last?

Well, I don't know. You should watch NHK to find out. In Japan, Mr. Abe has said he would print unlimited amounts of money and there is nothing to stop him. In the U.S., they seem to have very few constraints. Europe, England, no, it is going to last for another year or two. I don't know but it could last for another year or two. Eventually, the market is going to say, "We don't want this anymore. We will not take your garbage anymore." But in the mean time, everybody is having a good time.

Are you expecting the Fed to continue its tapering?

Oh, yes. They have said, they have indicated anyway that they would continue to taper and they probably will. But, what is going to happen is, eventually, the market is going to get scared, some emerging markets are already getting scared. Markets will go down a lot, then the Federal Reserve...You know, remember they are just bureaucrats, they are just academics. They would get scared just like other central banks get scared, and then they would print more money. So, we would have a decline like this, and then things would take up again and everybody would sigh, a huge sigh of relief and say, "Phew, thank goodness. It is okay."

You are saying that they are going to taper and then they are going back to QE, QE four?

They will not call it that. They are so embarrassed. They don't call it QE three. They call it other words. QE1 didn't work, QE2 didn't work, QE3 didn't work. Unemployment is still high in the United States and it wasn't in 2007, 2008. So, it hasn't worked. They are embarrassed. They will call it something else. They will call it cupcakes or unagi, I don't know what they will call it. They will call it something else.

But you think they are going to go back to monetary easing in some shape or another.

When the markets get scared some time in 2014 when we start having a decline around the world and people are screaming and pleading, then they will start printing, they will loosen up again, yes. They are not smart people. That is why they work for the government.

How does that affect Asia?

Many countries in Asia are already suffering. Indonesia, India, countries which have big balance of trade deficits, which they have been financing with a lot of easy money and low interest rates, Turkey and other Asian countries that are already suffering, any country that needs or any company that needs a lot of cheap money and liquid money is going to continue to suffer and it will get worse as they tighten up for a while.

2013 was a lackluster year for many Asian stocks and currencies. Doesn't this make investors skeptical about emerging markets and Asia in general?

Well, whatever markets have done badly, unfortunately, investors get worried. Now, that is not the way you are supposed to invest, Ai san. You are supposed to... When things go badly, that is when you are supposed to buy.I am not going to buy stocks in the United States. The United States is making all-time highs. I would much rather invest in Japan, which is down 70 percent or 75 percent from its all-time high. You are supposed to buy low and sell high.

Gold has been going up for years. Now it is going down. You are not selling your gold, you told me, and you are waiting for the next opportunity to buy. It is obviously still a good investment for you.

I have not sold any gold. I hedged a little bit of my gold. Gold went up 12 years in a row. That is an extreme anomaly. And therefore, the correction is probably going to be longer and stranger than other corrections just because it went up so much.

Now, of course, India, which has been the largest buyer of gold for decades, the Indian politicians are blaming their problems on gold. They have already cut back enormously the imports of gold. They are trying to figure out a way to make Indians sell their gold. I don't know whether they will be successful. But if the Indian politicians could ever get the Indians to sell their gold, then, who knows how low could gold go when you have the largest buyer of something take out..., cut back in the market and if they become a seller? Anyway, I expect another opportunity to buy gold in the next year or two. And I hope I am smart enough to buy more if and when it happens.

If the value of gold was distorted with the quantitative easing, what is its fair value?

The idea of fair value is a very strange concept. It is what the market will pay, you know. In 1999, "fair value" was here, then many thing went up much higher than that.I think what I try to do is to figure out when something is cheap or when it is expensive. But those numbers change all the time. I wish there was an answer,. I wish I could say it to you, "All you have to do is to look at page 37 of this book and you will get an answer about fair value." Fair value changes everyday all over the world.

And that is the market for you.

That is the market. That is the open market. Politicians have tried to distort it and to ruin the open market for decades and they have never succeeded. Nobody has ever been able to aggregate the rules of supply and demand and they never will. Whether it is religions or communists or capitalists or anybody, nobody can solve that problem except the market in the end.

What is your outlook for 2014 for Asia and what are the risks for Asia in 2014?

Well, as I look at 2014 in Asia, I have owned Japanese shares.I am very bullish on North Korea. North and South Korea will not unify in 2014. But they will in this decade. That is going to be a very, very exciting country when they unify. I am optimistic about Russia. I have been investing in Russia. I have started to invest some of the Chinese companies, which will benefit from the new decisions by the Chinese government. Myanmar, I would like to find investments but I don't know any investments in Myanmar. I am not optimistic about India going forward. That is about all. I mean, Indonesia, of course, has a barrage of trade problems. So does India, so does Turkey.

And the risks?

Well, the risk is that the currency collapses faster than the stock markets goes up, the moment I happen to think the stock market is going to go up faster than the currency is going to collapse. And, of course, the bond market in Japan may just completely revolt. The interest rates in Japan are made artificially low for many, many years. The bond market eventually is going to erupt and say, "We are not going to do this any more." But I don't suspect that it is going to happen in 2014. But these are things that one has to be worried about.

How optimistic are you about the new leadership in China? They are planning reform including a promise to allow markets to play a decisive role, revising the one-child policy, etc.

Well, both of those statements, if they follow through with actions, it is very good for China. You know, one-child policy is going to be a serious..., it already is becoming a serious problem for China. And it would be worse if they don't continue to let people to have more babies both psychologically and employment wise and everything else. And their statement that they are going to let the market determine solutions, that is brilliant. That is absolutely brilliant. Here you have a communist country, "communist country" saying, "We are going to let the market to decide." And then in America, of course, they say, "Let's let the government decide everything." China is going the right way. America is going the wrong way.

But how successful do you think they are going to be? Because China is so intertwined with the U.S., with Europe, with Japan, all these money-printing economies.

Well, of course, they are. And if Japan, America and Europe have problems, I assure you that China is going to have problems, too. America, Europe and Japan combined are 10 times as big as the Chinese economy. The Chinese have done a great job but others are 10 times bigger than China, than the Chinese economy. So, if we have problems, they are going to have problems. But I would rather be with a large creditor nation than huge debtor nations. But everybody is going to have problems in the kind of scenario you are talking about.

It seems like the Peoples Bank of China are doing the opposite thing from the ECB, the Fed and the BOJ, tightening liquidity. Are they doing "the right thing" in your opinion?

Well, in my view, yes. Throughout the history, it is not my statement but the history shows that debasing your currency in the short term, sometimes even the medium-term is okay and even it can be very helpful. Look at Japan and the Japanese stock market. But in a long-term, it is a disaster for countries. So, what China is doing if they are really doing and if they are really tightening up, it is good for China and good for the world.Now, let's wait and see if they really do it. They have said it three or four times in the last 10 years. And when the pain starts to coming, they get scared and loosen up. They are like politicians and bureaucrats everywhere, academics everywhere. I hope they will stay with it. I hope they will clean out some of the excesses that have developed in China. And they will all be better off in the end, the world will be better off in the end.

How much importance do you place on GDP numbers?

None. I don't pay attention to GDP numbers. They are all made up. In America, makes them up. Germany makes them up, Japan makes, China makes them up, India, oh my gosh, they make them up.

So, what do you use for guidance when you are studying China?

Well, I look at, I mean some numbers such as the balance of trade even if it is made up, that is usually not. You can eventually see if a nation's debt rising or a nations debt is declining. You can see the results, I am much more interested in the results I can observe than some made up numbers by bureaucrats. You know, if a lot of companies have improved profits, that is a pretty straightforward and simple thing and that is something you cannot normally make up. That is the sort of thing I look at.

All right. Speaking of Japanese stocks, you know, you said that Nikkei was undervalued when it was in the 8,000 levels. Now that we are double that, is that a fair value you think? Are we at the appropriate levels?

Again, we should watch NHK. I have bought Japanese shares recently. I don't have any confidence in what is happening in Japan except for the fact that Mr. Abe will continue to print a lot of money. Who knows what a fair value is? There is no such thing as a fair value any more. But as long as he is going to continue to print a lot of money, Japanese shares are probably okay. Remember, Japanese shares were 40000 on the index once. Now they are 15000. That is a huge decline over the past 23 years.

So, you still see that as an undervalued market.

There is no such thing as undervalued or overvalued any more. But I am still buying. I am not selling Japanese shares and I have bought some recently.

You have profited from Japanese Prime Minister Shinzo Abe's economic policies, dubbed Abenomics. But you are not a fan of the Prime Minister. Have your opinions changed at all?

Well, it is not a question of the prime minister. I don't know the man. I am sure he is a wonderful guy. I am sure if we sat around and drank sake and had unagi together, I would love it. But his policies are disaster for the long term good of Japan, if you ask me.

But he pushed through with the TPP, he is raising taxes, isn't that a step in the right direction?

TPP is a wonderful thing if he actually does it, if he actually follows through with it. Raising taxes is a disaster for Japan. Japan already has too many taxes. What we need to do is to stop spending. I mean, every Japanese politician loves to spend money because they can buy votes. Is it good for Japan? No. Is it good for Japanese politicians? Yes. Is it good for the people who get the money? Yes. It is not good for Japan and it is not good for the world.

How do you stop spending?

You just stop. I mean, you become disciplined. In Japan's case, you just need to get an axe, not an axe, not an axe. You need to get a chainsaw, Ai san, and cut spending. I mean, you have got to stop building these highways to nowhere. I mean, it is absurd, some of the money which the Japanese spend.Your debt...you are already the highest indebted nation in the world of any developed nation with internal debts. I mean, it is staggering how high your debts are and going higher.

But we are also a creditor nation.

Internationally, you are a creditor, that is one major difference with the UN..., the U.S. The U.S. is the largest international debtor nation in the history of the world. And we have huge internal debts. At least in Japan's case, you have got huge domestic debts but externally, you are still a very big creditor nation. Look, Japan has done a brilliant job over the past 50 years. I hate to see it coming to an end. Tokyo is one of my favorite cities in the whole world. But unfortunately, it is going to a wrong way.

So if we buckle down and endure some austerity, could we have another generation of growth?

You have got to do something about your demographics. You have got a demographic problem and a debt problem. You have got to do something about the debt problem right away. You need to do something like TPP. You need to open your market and country more and more. And, of course, you have to do something about the demographic problem. It is going to take more than just cutting spending. It is still a long-term problem for Japan.

The TPP is becoming more and more of a reality for Asia. How will this change the framework and the power in the region?

You know, open trade is good for everybody because then everybody has an improved standard of living. How would you rather have a cheap pineapple than an expensive pineapple? How would you rather have a cheap suit or a cheaper suit than a very expensive suit, I mean, with the same quality? Open trade and free markets are great for everybody. Everybody concerned, people who get protected, people who get the money don't like open trade. But it is certainly good for the rest of us.

You have said that the 21st century was the century for Asia. Does that include Japan as well?

If you can solve your demographic and debt problems, yes. But as I said to you before, Mr. Abe with his crazy..., what I consider crazy policy of printing unlimited amounts of money, that is his words, not mine, unlimited amounts of money and sending up higher and higher debt, that is ruining Japan. In 20 years, we will look back and say, "Mr. Abe ruined Japan." And it is a terrible shame.

And, of course, there is just this madness over these rocks in the ocean. The Philippines, China and Japan, it is a madness to hear all these grown men sitting there and getting into fights about a few rocks. That is something crazy could happen about those rocks.

Jim, you have said you were anticipating a shift in power from money managers to people who produce goods like farmers, miners. As someone who is in finance, how are you preparing for the shift?

Well, I hope I am doing the right thing. I am investing more and more in things like agriculture where I see problems are rising.Farmers are aging worldwide. We are going to run out of farmers unless something changes.

So, we will not see you trade in your bow ties for overalls any time soon?

Well, I would be a terrible farmer, you know. If I thought I could be any good at farming, sure, I would become a farmer but I would not be any good at it. If I plant anything, that would die, I am sure. But I am trying to invest at least in agriculture.

And, but you do advice college graduates to go into farming, too. "Don't look at the Wall Street. Look into farming." What exactly does this mean?

Well, it depends on everybody's interests. There are many ways; you can buy land, you can become a farmer, you can invest in seed companies or tractor companies, you can go into the financial community and trade agricultural products. There are many, many ways to get involved with agriculture going forward but only if you love it. If you don't love agriculture, then, please, please, please. You are going to fail at it. Don't go there because you see some guy on television saying agriculture has great future. Go there because you love it.

When I went to Wall Street, it was a back water, it was a wasteland. But I loved I didn't care. I didn't know it was a wasteland. I loved it so I did it okay. Now everybody goes to Wall Street. You know, in the old days, many people went into agriculture. In America now, more people study public relations than study agriculture. We award over 20 times as many MBAs as we do award undergraduate agricultural degrees. I mean, it is amazing, there is nobody going into agriculture. Everybody is trying to go into finance. What more do you need to know? Stay away from finance. Go into agriculture if you love it.

Why is agriculture so important?

Well, do you like eating? Do you like wearing clothes? Do you like living in a house? Agriculture is perhaps the most..., certainly more important than metals or energy to all of us. Agriculture started before any of those. Without agriculture, we are not going to have any lives much less any lives. So, it is extremely important for all of us.

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