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Jim Rogers Exclusive: It's a "Race to Insanity"

If you are invested in the lofty stock markets of the United States or Japan, legendary investor Jim Rogers has a message for you …

Euphoric gains always lead to hangover pains – it's just a matter of when.

"This is artificial, as I've [repeatedly] said," Rogers told Money Morning during an exclusive interview Sunday night. "This is the first time in recorded history where nearly all the central banks in all countries are pumping out lots of money, debasing their currencies, printing money. I've never seen this in history, and now we've got everybody – or nearly everybody – doing it."

In a wide-ranging interview from his home in Singapore, Rogers also told us that:

  • The currency-debasing policies of the world's central banks are a "race to insanity" that will likely do maximum damage to the global economy.
  • Inflation is a much-deeper-seated problem than the "official" statistics show, which means that gold, energy and agricultural commodities are must-have holdings.
  • And that Russia is the most intriguing potential investment target on his radar screen right now.

But a substantial portion of our talk focused on the current bubble in stock prices, which Rogers concedes can continue for some time.

"There are signs of worry," he said. "You do see breadth sort of changing. You do see potential problems, [like] volume problems. [Although] this is all artificial, that doesn't mean artificiality can't go on for a while," Rogers said. "Remember the dot-com bubble of the "90s … you can look back on any bubble and things … can certainly last longer than I expect and [longer] than any rational person can expect."

The currency-debasing policies of the U.S and Japanese central banks could continue to prop up the stock markets in both those countries. And those policies could also cushion any sell-off – leading to a situation that Rogers has described in the past as a "slow-speed crash" for the markets, and for the broader economies.

These policies have ended up creating a currency-debasing competition that pits the world's major economies against one another. When one country cheapens its currency, another must respond – or find itself at an economic disadvantage in the world marketplace. So the next one debases its currency … and so does a third. When the first country then responds anew you have a "currency-wars" scenario in which each country is hoping to cheapen its currency the most.

"The Japanese said "We will print unlimited amounts of money.' So [U.S. Federal Reserve Chairman Ben S.] Bernanke said "Oh my gosh, I can do that, too.' Then the English said "Well, wait a minute guys, we can play, too.' So now you have nearly everybody printing a lot of money" – in a competitive way, Rogers said.

Economists refer to this situation as a "race to the bottom."

Rogers refers to it as a "race to insanity." And he says he's highly "skeptical" that anything good will come of it.

"You see that, in Japan, the markets have skyrocketed with printing money … in the U.S., the markets have gone up a lot because of money printing," he said. "The central banks are determined to keep printing money. But, underneath that, eventually there are going to be more and more skeptics – I'm not going to be the only one – and more and more people will start heading for the door. And by the time they stop printing money, the damage already may have been done to the markets."

And one of the major risks is a big escalation in inflation – which Rogers says is clearly much, much worse than Washington would have us believe.

"I do know [that] governments keep telling us prices are down – at least, the U.S. government does," he said. "But many governments acknowledge that there's inflation … including India, China, Taiwan, Norway and Australia. I find it very peculiar that so many places in the world have inflation, but there's no inflation in the U.S."

Truth be told, inflation is everywhere here in the U.S. economy.

"When I'm in the U.S., I see prices have gone up for just about everything – except maybe in housing," he explained. "So it's peculiar to me that they keep telling us there's no inflation. Look at education, look at medical care, look at insurance, and look at entertainment. I don't know if you've been to baseball game or the theater or anything recently, but these prices are up, although they say that they aren't – or, at least the U.S. government does."

This bit of stealth inflation is why Rogers is such an ardent proponent of gold (see Part I of this interview – which focused on the "yellow metal" – in yesterday's Money Morning. Just click here to read it).

In fact, Rogers is a big believer that investors should make commodities a key part of their portfolios. He's even helped develop nearly a dozen commodities-focused funds (see accompanying chart) to make this easy to do.

As an avowed contrarian investor, Rogers tends to get most interested in profit opportunities that are beaten down and out-of-favor – which can imbue them with the biggest upside potential. Although this is a major oversimplification, if a stock, bond or fund is trading well below its former high, and is far out of favor from an investor psychology standpoint, there's a greater chance for a big upside move as the price starts to rebound — as a gradually widening circle of investors start to buy in.

"I'm most optimistic, fundamentally, about the agriculture sector," he said. "But some of the others [are intriguing, too]. I mean, natural gas is 70% below its all-time high. Some of the base metals are far down from their all-time highs."

When searching for profit opportunities – in stocks, bonds or commodities – study the fundamentals as you gauge the upside potential.

"With agriculture, you know, we've consumed more than we've produced for the last 10 years or so," Rogers explained. "So, inventories are near historic lows, which means that – if something goes wrong – we're going to have serious problems. And even if something goes right, you've got to replenish the inventories."

Either of those scenarios would lead to supply/demand imbalance that will lead to higher prices, meaning they're probably favorable to investors who own agricultural commodities.

And the way Rogers sees it, those supply/demand imbalances are only going to grow more favorable with time – on a worldwide basis.

"Agriculture has been such a disaster for 30 years that we are running out of farmers," he said. "The average age of farmers in America is 58. In Japan, it's 66. I could go on and on. The demographics [for those hoping for lower food prices over time] are terrible. At the same time, nobody's going [into farming] – no young people. In America, more people study public relations than study agriculture. So the old ones are dying and retiring, and no young [replacement farmers] are coming in."

The only way to "solve" this kind of imbalance is for market prices to rise – or even soar.

This means "the price of agriculture has to go up a lot, or we're not going to have any food at any price," Rogers said. "So I certainly see a gigantic move in agriculture products over the next several years. I mean, if we have a big crop this year, [prices will] go down – but that will just make the (long-term) fundamental situation worse, because then you'll attract even less capital, fewer young farmers" and prices will ultimately move much higher.

Energy prices are also fated to surge – again because of imbalances.

"What concerns me is that we're running out of known reserves of energy, oil and natural gas," he said. "We're running down the reserves, and unless something happens to change that, we're going to face serious problems with energy down the road, too."

Rogers is very well known for introducing mainstream investors to the concept of emerging-market investing. It was Rogers – through such best-selling books as "Investment Biker," "Adventure Capitalist" and "A Bull in China" – who first helped millions of investors understand the vast profit potential of China, Asia and other fast-growing, emergent economies around the world.

As a contrarian, he tends to find more profit opportunities when asset prices are low – and will even buy on bad news because that's when prices are lowest. So when prices are high – as they are now – he's usually far less likely to invest … and will actually cash out if he believes prices have run up too fast or too far.

Japan serves as near-perfect example of how he operates.

"I bought in Japan back after the tsunami a couple years ago and I bought more when [new Japan Prime Minister Shinzō] Abe said he was going to print "unlimited' – and that's his word, not mine – unlimited amounts of money," Rogers said. "But I sold them last week. Not all of them, but most of them, because they just had gone up so much. As I told you, I'm very bad at market timing. So I suspect I was wrong. But I have sold out of most of my Japanese stocks. They were just up so much."

One market that he does find intriguing right now is Russia – though he says that he's just started to look.

"I'm looking at Russia to see if I can find some investments," Rogers told us. "I've put a toe in the water – but not much … a little toe … not even the big toe."

Rogers achieved legendary Wall Street status with The Quantum Fund, a hedge fund that's often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor's 500 Index climbed about 50%.

It was after Rogers "retired" from Wall Street in 1980 that Main Street investors got to see him in action – and benefit from his acumen.

Rogers traveled the world (several times), and penned his bestsellers. And he made some historic market calls: Rogers predicted China's meteoric growth a good decade before it became apparent and he subsequently foretold of the powerful updraft in global commodities – an investment category that he continues to favor.

And with both China and commodities, he introduced America's retail investors to profit opportunities that were once the sole purview of Wall Street. Those prescient calls, his best-selling books, and his regular appearances on popular investment programs on CNBC and elsewhere have made Rogers into a household name. Over the past five years, he's also helped develop roughly a dozen commodities-based funds – making that once-arcane asset class accessible to a much broader audience of investors.

If he has one piece of advice for investors, it's this: It pays to be worried, and to be skeptical.

"I'm always concerned," Rogers told us. "I don't remember any times [that I wasn't]. If you stop being worried, you're probably about to lose money – I assure you."

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

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  1. Ed the Grocer | April 24, 2013

    No one actually thinks about a 'one world currency'. Imagine. Or make a list. No more currency fiddling to screw specific countries. No more currency blocking to stop specific countries from trading. No more currency fiddling to give your workers an edge. Trade would be smother, no hedging required. Realistically, since the paper has no value, countries would begin to sell only when they could buy products of like value.(?) The ultra poor would expect wages to compare with production elsewhere. (!) Worldwide people would understand that paper money is just paper money. Countries would have to produce or cut internal costs because the trend towards bankruptcy would be obvious. The central bank would have to stick to some kind of rules on the amount of surplus floating around, sort of a per-capita program agreeable to all. Banks might lend much less money since currency hedging is out and money is much closer related to production. Lending to governments might only be from the central bank and that would really screw the ultra rich since it would work to business plans more than a current World Bank 'gesture'. Does this make any sense? Of course no system designed by bureaucrats would work so, not to worry.

  2. Dave | April 24, 2013

    We're running out of natural gas? Seriously? We have more reserves now than ever.

    • Daniel | April 24, 2013

      Yes, but most of those NG reserves are way too expensive to mine. Rogers is talking about the big shift from conventional oil and gas to unconventional.

      There will no doubt be supply shocks and shifts between the transition into the more unconventional sources. This is what the public doesn't understand and never will. Can you believe companies like Shell and Exxon are willing to sink billions of Capex into the Arctic with no foreseeable payoff in the next 10 years? It is mind-boggling the amount of dollars needed to drill a well today versus 20 years ago.

      We have to go deeper, further, into more politically chaotic territories, and use unconventional techniques like horizontal drilling, fracking, and octopus drilling pads. The cost is staggering, the risk is huge, but the payoff can be great with oil prices averaging a constant 90$ a barrel WTI.

  3. norm sargent | April 24, 2013

    how can gold go up when itlay spain portagul will be forced to sell their reserves to get bailouts the german tax payers wont stand for it and the ecb wont either

    • Brad Fooland | April 24, 2013

      The gold will never see the open market in a traditional way. It will merely be swapped to other countries looking to increase holdings (Asia, Brazil) They would love to procure a large chunk of gold without running the price up. A private swap of gold for currency mutually benefits both parties.

  4. Brad Foland | April 24, 2013

    The gold will not be traded on the open market. It would most likely be swapped privately to another country (Asia, Brazil) privately for currency. They would very much like to increase their gold reserves without affecting price and reduce Dollar reserves. A private swap is mutually beneficial.

  5. Ed the Grocer | April 25, 2013

    I'm a grocer and I see trends long before other people. There are two. Anti gluten/sugar/processed/China foods. I have never seen anything like it and it is fast and it will change the food industry. Second is tight old farts. I've seen many old, careful, and poor pensioners but this is right across the board. Virtually everyone over fifty has stopped buying. Possibly multiple years of no returns and nonstop price increases are the triggers. Hold on to your hats.

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