YOU want some solid investment advice? Force your children and grandchildren to learn Chinese, because the 21st century will belong to China.”
This is just one example of the investment advice offered by Jim Rogers, the New York-based investor and author, as he expounds his investment philosophy in the drawing room of his belle-epoque mansion overlooking the Hudson River in Manhattan’s upper west side.
Rogers — dubbed the Indiana Jones of finance — may now have settled down to family life in New York, but he is no armchair investor.
His preference is to look at global investment opportunities the hard way. This has included covering 65,065 miles on a BMW motorcycle between 1991-92, a trip that gave rise to his best-selling first book Investment Biker: Around The World With Jim Rogers.
That trip earned Rogers — who made so much money through the Quantum fund he co-founded with George Soros in the 1970s he was able to retire at the age of 37 — a place in the Guinness Book of Records. But it did not sate his wanderlust.
In January 1999, Rogers and fiancee Paige Parker set out on an even more arduous trip. This time they visited 116 countries, covering 152,000 miles in a custom-built Mercedes 4×4 convertible with a trailer. They completed the trip in January 2002, parking the car outside their Riverside Drive home. His book about the second epic journey, Adventure Capitalist: The Ultimate Road Trip, was published in February last year.
Rogers believes he is able to get an immediate feel for where a country is headed economically by driving through it. “When you cross a border, you immediately learn a lot of what you need to know. You learn about bureaucracy. You find out about the black market if there is one. Is the currency sound? Is it freely tradable? Do you have to pay bribes?
“If there is no black market, that’s usually a good sign. If there is one, how high is the premium you have to pay for the currency? A big premium means things could fall apart any day. It all starts coming together. By the time I get to the capital I usually have a pretty good idea whether or not I want to invest in the country.”
The approach has enabled Rogers to piece together a selection of favoured and unfavoured markets that bears little resemblance to those of other more orthodox investors who fly in and out of international airports and stay at five-star hotels.
He says China stands out as the next big opportunity, agreeing with the World Bank that it will usurp the US as the world’s largest economy by 2020.
“The Chinese call themselves Communists but they are really great capitalists right now. It’s astonishing what they have done in their past and they have unleashed capitalism and entrepreneurship again. They save and invest 35% of total income, when in the US we save and invest just 2%.
“They are growing by leaps and bounds they work from dawn to dusk. It is astonishing what’s going on there — and there are 1.3 billion of them. They have capital and expertise flowing in from overseas Chinese, who they welcome back. There will be gigantic setbacks along the way but I don’t see anyone else on the horizon who is going to do what they’re doing.”
Angola, whose 27-year war officially ended in 2002, is another country where Rogers detects remarkable opportunities.
“History shows there are enormous opportunities after a long and vicious war,” says Rogers. “They’ve got a gigantic amount of oil, more than Nigeria, Libya and Gabon. Politicians would certainly steal a lot of the revenues but they only have 12 million people there so some of that is going to filter down.”
He also senses strong opportunities in Myanmar, formerly Burma, believing that the policy of international sanctions against its military government is doomed to fail.
“Sanctions have never worked and my reading of history is that you are usually better off engaging a country than isolating it. The country is opening up. In my view when you go to countries like that when they are opening up, you accelerate the change.”
He believes Bolivia, where huge deposits of natural gas have recently been discovered, and where the western frontier is being opened up with infrastructure improvements, also offers tremendous opportunities. “That frontier will be one of the great frontiers of our time. It’ll be like Denver when they put in the Transcontinental railroad.”
Rogers adds: “I’m optimistic about Tanzania. Zimbabwe, if Mugabe would just go ahead and die or something, could be a marvellous opportunity.”
By contrast Rogers has a real downer on the former USSR and its satellite states. “Most of the former Soviet bloc countries have little to sell to the world. You’re just buying a bunch of problems when you take them in to the EU.
Jim Rogers: the EU should let Turkey join
He believes that the EU would have been wiser to overcome its mistrust of non-Christian nations and allow Turkey in. “Turkey is definitely being excluded because they’re not white enough and because they’re Muslims. Giscard d’Estaing said that didn’t he? That’s absolute insanity. I would beg them to join.”
“Turkey is a very young country, it’s a big country, there are 70 million of them. So there are plenty of people you could sell to and the Turks would love to buy from you. There are plenty of educated Turks.”
For the former Soviet republics of central Asia Rogers foresees nothing but disaster. “Uzbekistan has a lot of gas and Kazakstan a lot of oil. They are run by ex-Communist guys who grabbed power, but when they go all those ethnic groups are going to be fighting over the oil and the gas. I’m not so sure they are going to be very stable at all.”
Other countries he dislikes include South Africa, Egypt, India and Saudi Arabia. He also worries about how Mexico is going to sustain itself once its oil revenues dry up. “40% of government income comes from oil but it is so corrupt they have run their oil reserves down by over half since 1990. Soon production is going to drop and Mexico has nothing to replace that income.”
There are some parallels with the UK, a country for which Rogers has a lot of time but which he does not believe has a strong economic future. “The UK went from being the world’s richest and most powerful nation in 1918 to exchange controls within a generation.
“The trouble with Scotland is that oil production has peaked in the North Sea and you don’t have anything to replace it. I’m afraid the decline is going to continue.”
Nor does he believe that governments can do much to reverse that decline — as the UK government tried with its policy of encouraging overseas electronics manufacturers to locate in Scotland from the 1960s. “Most things that are imposed by governments just don’t work. The ones that work grow naturally, like Silicon Valley. I would love for the Brits to figure out something but I don’t see anything on the horizon.”
However he does believe Britain was sensible to steer clear of the euro. “The world needs the Euro, it needs something to replace the US dollar. But I don’t think the euro’s going to survive, so I think the Brits are wise to stay out.”
Rogers believes the US stock market will be flat this year. “The US has improved in the last few months because Bush has spent huge amounts of money and cut taxes, and at the same time the Federal Reserve has been printing huge amounts of money, so the economy is better.
“But those measures will have terrible long-term consequences or even medium-term. He and the Fed have gotten things going again — which may just help him with the election this November. But it is at the expense of longer term economic prosperity.
“I don’t know how they can keep goosing [stimulating] the economy like they’re goosing it now. They can’t cut taxes much more, they can’t spend much more. The currency and bond markets are already starting to react badly. I’m not at all a fan of what he [George W Bush] has been doing.”
Rogers is a big fan of commodities — including sugar, coffee and orange juice futures. “I’m bullish on commodities and the continuing decline of the dollar and beggar thy neighbour game [of competitive currency devaluations being adopted around the world] is another reason that commodities will go higher.
“Today you buy the futures of the ones that are up — sugar, coffee, orange juice. Or you could invest in companies or countries that produce sugar such as Cuba.”
One of Rogers’s biggest fears are that we have entered a period of protectionism and mounting chauvinism which is going to prove economically disastrous. He is dismayed that the lessons from the inter-war years – when economies were closed off and countries used ‘beggar thy neighbour’ devaluation policies, which led to the second world war – have been forgotten.
“Unfortunately nobody is reading their history. You have more and more people trying to close up their economies, which is not going to do any good to the world. Now we’ve got brassiere tariffs. Bush has announced big tariffs on brassieres and bathrobes from China.
“In the end, nobody wins a trade war; nobody’s ever won a trade war in history; everybody suffers in trade wars. They haven’t read their history; they just hope such measures will get them through [the presidential elections] next November.”
“Politicians always try and find Band-Aids [such as printing more money], they blame it on the foreigners or they blame it on the evil financiers. Throughout history when things go wrong it is never God-fearing citizens who are at fault, it is the evil financiers and the foreigners. That nearly always gives rise to an antagonism against foreigners, then chauvinism arises and wars can follow.
“God knows what’s going to happen in 2005-06 in this country.”
CATCH UP
Jim Rogers, 61, is author of the best-selling Investment Biker. He grew up in Alabama, and started out in business, aged five, selling peanuts. The Quantum fund, which he co-founded with George Soros in 1973, surged by 4000% over the next decade, while the S&P rose less than 50%.
This article was published in the Sunday Herald on 11 January 2004. Ian Fraser’s note: I can heartily recommend both Investment Biker and Adventure Capitalist – both are great reads and full of valuable insights.